Carlota Perez, a Venezuelan economist of world stature talks about the next revolution following her model of Great Surges.
Her idea of “techno-economical paradigm change” gained wide acceptance through the technological strategy of the Eropean Union, and her work is a strategic tool for IBM, Cisco Systems, Ericsson as well as for different governments and multilateral organizations such as the OECD and the CEPAL. Carlota Perez goes beyond any dogmatism –be it Marxist or neoliberal- like when she asserts that import substitution did produce positive results for Latin America, before wearing out. The publication in 2002 of her book “Technological revolutions and financial capital: the dynamics of bubbles and Golden Ages”, was followed by an invitation to the University of Cambridge, in England. From there she spoke to El Mundo about the uncertain perspectives of this post-crisis period.
• When did you begin research on the influence of technology in economic cycles?
During the mid 70s, I was analyzing at the university in Caracas the structural causes of the energy crisis when I discovered that cheap oil was essential for that model of consumption: petrochemical materials for all kinds of products; refined oil to move cars, planes, and tractors, oil or gas derivates to produce electricity and the energy consumed in huge amounts by the steel, aluminum, cement, paper industries. If the price rose radically, the technological pattern would point to a reduction in energy consumption. I soon discovered the power of microelectronics and concluded it would replace oil as the main shaper of innovation. From then on it was natural for me to study the technological revolutions and their connection with the big cycles described by Kondratieff and Schumpeter.
• What is the central axis in your model of Great Surges of Development?
It is very common to think that technological progress occurs in a continuum, but I found that it happens in sequences of Great Surges driven by technological revolutions that conform what I call “techno-economic paradigms”. When the potential of each surge begins to fade, the conditions for the next one begin to appear. The revolution of cars, oil, mass electrification, and mass production began in 1908 with Ford’s T-Model and reached exhaustion beginning the 70s. But then, Intel’s microprocessor appeared in 1971 and with it the IT revolution; we are right now in the middle of that Great Surge.
The core of this model is the pendulum-like movement of these surges. The first half is the "installation period", where financial capital is prevalent, in free-market conditions and minimum State intervention, until a big financial bubble blows up followed by a great collapse. In the second half, decisive power swings back to productive capital, with the support of the State, which takes on a more active role, readjusting the financial world to the real economy and restoring social cohesion. This is the "deployment period", which leads to a “golden age”, as were the Victorian boom, the Belle Epoque or the post-WWII boom. Since the Industrial Revolution, it is the fifth time we see such a sequence. We will see now if the State in the developed countries succeeds in controlling financial capital, and if so, we could witness the global and sustainable boom of the society of knowledge.
This pendulum movement: finance/production and laissez-faire/state intervention, seems to be a part of the market economy’s nature, and perhaps the source of its dynamism.
• So, speculative madness is inevitable and even beneficial for development?
That somehow brutal way of capitalism to achieve progress is due in part to the great resistance encountered by each technological revolution against its diffusion. At the moment when a paradigm’s potential runs out, the most powerful giants happen to be also the most obsolete, that’s why they are called “dinosaurs”. Also, consumers and government structures are adapted to that paradigm, which means, to its “common sense” and requirements. For instance, in the previous paradigm, nobody would have ever had the idea to offer products for free and find other ways to get revenue, as is done today on the Internet.
It is in this moment of exhaustion when financial capital enters the game, with its total mobility and flexibility. Having seen the dinosaurs stagnate, investors look for other sources of income. And then they find the engineers and hacks in their garages. After a while, some of these small ones begin to make huge earnings, and lots of innovators and a myriad of avid investors show up. The big experiment is then staged, where market competition defines which will be the products accepted and the enterprises bound to be the giants of the ongoing surge (and the dinosaurs of the next one).
Soon the financial world uncouples from the real economy and even from the new technological revolution itself, an unbound casino begins and with it, the great bubble and the following burst. But the result, however painful and catastrophic the process may be for many, is that the new paradigm is by then completely installed, its infrastructure (currently: the telecommunication networks and Internet) reaches full coverage and everybody has learned how to function in it. Thus are created the externalities to allow the whole production machinery to modernize and grow with the new potential.
• This means that now should follow the rearrangement and deployment of the new paradigm? Is this happening?
No, unfortunately. The casino goes on, renewed. The financial world has been saved, but not to reconnect with the real economy, but allowing it to remain isolated in its cage. It is the same policy of low-interest rates and excess liquidity favored by Greenspan that kept the bubble in the 2000s going, but aggravated now through the “bailout insurance” given by the government. The stage is set for another bubble and another collapse. The financial world is holding the politicians captive, while the rest of society hasn’t found the way yet to pressure in a more healthy direction. I don’t even want to think a great depression should be necessary for them to wake up.
• Did the fall of communism reflect the exhaustion of the mass production paradigm?
No doubt. Socialism, as did Keynesian democracies and Nazi-fascism, attained growth based on that paradigm. Lenin put it very clearly: “socialism is electrification, Taylorism and the soviets,” meaning the infrastructure, the organization of labor and the political system representing mass production. That authoritarian model with central planning of production worked good with the potential of that paradigm, but it had no mechanisms to produce and spread a technological revolution. It deteriorated until it collapsed without firing a single shot.
• Since the discovery of oil in the 1920s until the debt crisis from the 80s: is there some sort of continuity given by the paradigm of mass production in Venezuela?
Certainly. Since Gomez’s dictatorship in the 20s unto the 50s, the country grows along with oil revenues and non-tradable activities (construction, roads, electricity, etc.), as well as some agro-industry with high local demand. It imports capital goods and manufactured consumer goods, especially from the U.S. The industrialization by import substitution begins when companies in the core countries approach maturity and need to widen their markets. The solution found was to export parts instead of final products and to assemble them in each country, in order to fuel the economy and incorporate more and more consumers. There was also a generalized provision of education and health, the social security system, credits for consuming and housing, and other characteristics of this paradigm.
The lost decade of the 80s was a Latin American phenomenon. Unlike in Asia, we remained in the old paradigm. That was the reason for the deterioration, the impoverishment, the growing resentment among majorities and the increase in corruption.
• Which are the differences between the previous paradigm and the current one?
The trend towards decentralization instead of the pyramidal and hierarchical forms of the past. Modern corporations are big global nets conformed by agile half-autonomous units, and the main administration provides resources, goals, and strategic direction. Take for example the notorious difference between the oppression of nationalities in countries like Spain during the past paradigm, and the flourishing of autonomies nowadays. In fact, whereas mass production strived for a single language and a homogeneous market, the flexible production of the present moves naturally in diversity. That step from homogenization to market segmentation and diversity is another characteristic of the paradigm change.
Concerning organizational structures, we shift from routine-like obedience to creative discipline, from the old notion of “human resources” –almost like raw material-, to the idea of “human capital”, acknowledging the experience, talent, imagination, and knowledge as generators of value.
• What will be the technologies for the next revolution?
Some combination of biotechnology, nanotechnology, bioelectronics, new materials, and new energies, although it is not possible to predict it with certainty, because every revolution begins with a technological disruption that modifies the potential space for radical innovation and reduces costs drastically. There were electronics and big computers in the 50s and 60s, but the microelectronic chip opened the possibility of informatics for all.
• Which are the opportunities for Latin America?
It needs to enter this paradigm and prepare for the next one. To do so, you have to consider the stage of the current surge, the conditions of globalization, and your static and dynamic advantages.
Latin America has already lost the train of IT technologies, which allowed the leap forward of the four Asian Tigers first, and now of China and India. It can, however, still apply informatics to innovate in other technologies. I think the best area for this is around natural resources. Contrary to Asia, Latin America has low population densities and abundant resources. A complimentary path would be to “technologize” them, innovating in adapted materials, chemical specialties, environmental protection, “gourmet” or organic foods (recovery of ancient tastes), etc. This means to specialize in raw material processing industries, where there is a broader experience than in manufacturing anyway because the former was directly based on the resources, whereas manufacturing was always only the final assembly of parts.
Of course, the high levels of poverty would demand a dual strategy: one part would try to reach the edge in technology in order to compete globally, the other part would use this technology to improve living standards among the population. The current paradigm –unlike the preceding- allows different technological levels to coexist simultaneously and recognizes their relative costs in the price. All you have to do is to enter the kaleidoscope world of a modern supermarket to confirm this.
• And the risks?
Natural resources are very vulnerable to economic cycles in the consuming countries, but it is very likely that the average price around them will be a lot higher than in the past, for very simple demand-and-offer reasons in the context of the extensive industrialization characterizing globalization. This would allow governments and corporations to use income stabilization funds. And we have to take into account that the implied development of technology would mean a growing profile in special products, whose prices tend to be more stable due to their semi-monopolist condition. Every strategy has its own risks -the wrong thing is not to be prepared to confront them.
Andrés Schäfer, October 2009
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