No sooner had I posted earlier this week about the iPad and Carlota Perez’ model of long-term patterns of technology innovation and investment than I opened Strategy + Business to discover that the venture capitalist and technology analyst Mark Stahlman was also using her model to predict that good times are, well, just around the corner. Very good times, to judge from his Bowie-esque title: ‘A New Golden Age’.
There are some good things about his piece in s+b. It’s a very clear description of Perez’ thinking, and the diagram of the Perez’ S-curve is far better designed than the one I used in my post – clean and clear.
And there are some not so good things, especially when he gets to the futures part of his article.
There are three main problems. Carlota Perez’ model is very clear that once you get past the crisis stage in the middle of the technology wave, and move into her ‘deployment stage’, investment and finance capital falls away, and production capital becomes more influential. (Click on the image at the top of the post if you need to refresh your memory of the model). This is a rather technical way of saying that further investment in economic development comes from re-invested profits rather than speculation. But the examples he gives of companies which might prosper in his ‘golden age’ include Goldman Sachs – the archetypal investment financier.
The second problem is that he assumes that because the last deployment phase, from about 1945 to 1970, was broadly prosperous, at least in the affluent North, then the next one will be too. But there have been examples of deployment periods where the economy shrank (the U.S. Long Depression from 1870-1896, for example). Other crises in earlier technological waves lasted quite a long time (the last one from 1929-1944, including a global war), and, to cap it, we haven’t until now had a Perez cycle in which energy was becoming scarcer and more expensive, as seems likely to happen over the next 15 years, which may affect levels of affluence. It’s possible that we’ll see production innovation without economic growth, at least as it’s conventionally understood.
The third problem is that Perez is quite clear that one of the things that happens in a ‘deployment’ phase is an increased focus on public and social institutions – ‘creative construction‘, rather than creative destruction. In brief, this requires a deep shift in political leadership and far greater inclusion.
The condition for the necessary switch of leadership to take place is for the State to come back into action and tilt the playing field decisively in favour of real production investment … while creating policy instruments to spread the benefits of the new wealth to the widest possible number (which is also a way of widening markets).
Stahlman’s vision of the golden age – which has overtones of Peter Schwartz’s Long Boom – is big on corporate engagement, and rather thin on the economic redistribution and social renegotiation, which are also necessary conditions of the deployment stage.
The diagram is from Mark Stahlman’s article in strategy+business.