Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages

Published by EH.NET (January 2003)

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).