Carlota Perez, Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages. Cheltenham, UK and Northampton, MA: Edward Elgar Publishing, 2002. xix + 198 pp. $65 (hardcover), ISBN: 1-84064-922-4.

Reviewed for EH.NET by Bertrand M. Roehner, University of Paris 7.

I tremendously enjoyed reading this book both because of the topic that Carlota Perez investigates, and because the way the investigation is carried out. Let me first explain these two points in more detail.

There is a fundamental difference between Technological Revolutions and most (perhaps seventy-five percent of) other books (or papers) that are currently published in economic history. Perhaps the simplest way to explain that difference is to cite two titles chosen almost at random (the reviews of these books were published on EH.NET in the same week that I got the copy of Technological Revolutions): (i) Big Steel: The First Century of the United States Steel Corporation, 1901-2001 and (ii) Culture and Inflation in Weimar Germany. As is obvious from the titles these two books describe one country during a specific time period. However, knowledge and understanding can hardly develop in a cumulative way from such a segmented perspective. That this is one of the main challenges faced by the social sciences has been recognized by various social scientists, for instance by Harvard sociology professor Stanley Lieberson. A possible way out of this trap is precisely the one tried by the present author, namely to focus on a given mechanism (here the occurrence of technological revolutions) and to track that mechanism across as many historical episodes as can be discovered, identified and documented. It is because I read the book with that perspective in mind that I found it so gratifying; when I came across some salient connections, I thought: "Well, this is excellent and will become an essential building block in the theory of technological revolutions to be developed subsequently." At other times, when some arguments were less compelling, I told myself: "There is room here for other studies either by Carlota Perez herself or by other researchers in order to better bring the point into focus." In short, Perez paints the outline of a big fresco, which will be refined and made more precise through subsequent studies. This stands in sharp contrast with one-country, one-period studies.

Let me now discuss more closely the author's objectives and how they are carried out. Needless to say, there are innumerable studies about business cycles; among many others one might mention those by Tintner, Schumpeter, Burns and Mitchell. As a matter of fact, in the 1930s and 1940s the National Bureau of Economic Research developed a research program entitled "Studies in Business Cycles" which led to the publication of dozens of books and papers. But the present study is not about the general issue of business cycles; it is much more focused. Whereas many technological revolutions lead to periods of rapid growth, not all business fluctuations can be accounted for by technological changes. For instance, we are currently experiencing an economic slowdown, in spite of the fact that the revolution in information technology is still in progress as attested by the fact that the price of electronic chips is decreasing at a rate that is even faster than in previous decades. In the author's terminology we are now in the synergy phase, the third and next-to-last stage.

Perez focuses on well-defined issues, for instance the emergence of new technologies, how they bring about an infectious frenzy, how they reshape the channels through which flows investment capital. Why is it so important to focus on sharply defined mechanisms? Altogether, the author considers five technological revolutions (see below my comment on this point), which means that this is what sociologists call a small-N phenomenon. If the mechanism under consideration is defined by more than five parameters, it will become very hazardous to draw any firm conclusion because the number of free parameters will exceed the number of observations. In short, in order to make real progress it is essential to focus on very simple mechanisms and at the same time to extend as much as possible the number of observations.

There are many enlightening findings in this book. Let me just mention one, namely the distinction between the four phases in the process of technological revolutions (p. 74): the irruption of financial capital into a new technology, the frenzy phase marked by a decoupling between capital and technological capabilities, the synergy phase characterized by a process of selection, and finally the maturity phase, when technological progress more and more tends to level off.

The author is well aware of the fact that this study needs to be supplemented by further research. She explains that point as follows (p. 159): "In essence the job was one of conducting genuine experiments in regularity. After identifying a phenomenon that could be part of the recurrent sequence, it was possible to test for its appearance again and again in each similar historical phase [...] The job is far from complete and further research is likely to help modify and strengthen these tentative results."

In which directions can we look for further progress? Here are two suggestions. (i) In most parts of the book the author uses what she calls a stylized narrative by which one should understand that it is a qualitative (rather than quantitative) description. However, it might be desirable to strengthen the narrative with a number of tables containing real data (the book contains six tables, but most of them are purely qualitative). (ii) It is my guess that the number of technological revolutions could be hugely increased by considering sectoral revolutions. Did the introduction of nylon, plastics or jet-liners not bring about revolutions in those respective industries? Probably there are many similar examples. What one needs in that connection are good sectoral data.

In conclusion, I heartily subscribe to the assessment made by Chris Freeman, the author of the preface, that this is indeed a "thought-provoking and stimulating book which should be widely read." (Perez is Honorary Research Fellow at the Science and Technology Policy Research (SPRU) of the University of Essex; Visiting Scholar 2002 at Cambridge University; and Lecturer on Change Strategies and Technology Policy in Caracas, Venezuela.)

Bertrand M. Roehner is a professor at the University of Paris 7. He is the author (or co-author) of Theory of Markets (Springer 1995), Hidden Collective Factors in Speculative Trading (Springer 2001), Patterns of Speculation (Cambridge University Press 2002) [a book which contains some qualitative and quantitative illustrations of technological revolutions], Pattern and Repertoire in History (Harvard University Press 2002) [a scientific approach to history], and Separatism and Integration (Rowman and Littlefield 2002).