cover story Carlota Perez

Basic facts NAME Carlota Perez TITLE Professor of Technology and Development, interdisciplinary social scientist, lecturer and consultant AGE 70 RESIDENCE Lewes, East Sussex, UK

10 • EBR #3 2009 RidingTEXT Nathan Hegedus PHOTO Chris Maluszynski the waves – and understanding what hit us When the stock market crashed and the global economy fell into a slump,p, we all wanted to know what hit us. Carlota Perez has some goodg answers. Advocating a return to heavier state involvement in the economy, she has a growingg g audience in both governmeng t and industry among those seeking long− term solutions for a crisis−ridden world.

NDARKECONOMICTIMES, Carlota Perez offers a vision of a golden Ifuture, of a broad-based world recovery that harnesses the pow- er of globalization, “green” values and, most importantly, infor- mation and communication technologies (ict). Perez, a professor of technology and development, says that the current economic crisis is but one phase of a centuries-old pendular rhythm of capitalism. She argues that the world has seen five great surges of development since the Industrial Rev- olution in the th century, with the first half of each surge marked by speculation and dominated by new technologies and financial capital; the second half is usually an economic and

EBR #3 2009 • 11 cover story Carlota Perez

Background check

▶ Perez is a graduate in interdisciplinary social sciences from San Francis- co State University in the US, and the University of Paris VII in France. ▶ She is currently Professor of Technology and Development at Tallinn University of Technology in , and a research associate at the Cen- tre for Financial Analysis and Policy (CFAP) at the Judge Business School at the University of Cambridge in the UK. She is also an honorary re- search fellow at SPRU and the head of her own consulting firm, Consultores Perez Perez, C.A.

Five technological revolutions in 240 years

1771 The ‘Industrial Revolution’ (machines, factories and canals)

1829 Age of Steam, Coal, Iron and Railways

1875 Age of Steel and Heavy Engineering (electrical, chemical, civil, naval)

1908 Age of the Automobile, Oil, Petrochemicals and Mass Production

1971 Age of Information Technology and Telecommunications

By “green” Perez means a wider change in 20?? lifestyles, production and transport methods. Age of Biotech, Bioelectronics, Nanotech and new materials? The “American way of life” for the entire world would require seven planets, she says.

12 • EBR #3 2009 “Today’s modern companies – using the flexible wake of financial scandals born of what she calls “casino finance,” people who advocate the return of a more involved state are flock- paradigm enabled by ICT – have network structures with ing to her work. “The intuition about what is needed is highly empowered units following major guidelines with already in people’s minds,” she says. “I hap- pen to express it with a causal explanation a high degree of autonomy. How many governments and convincing historical parallels. But the terrain is already fertile.” have fully understood this fundamental change?” REDEFINING THE STATE Government action is essential to move the economy away from the short-term bias of social “golden age” led by production capi- bles are useful, providing capital for the in- the stock market toward a culture of long- tal and a more active state. frastructures associated with that particu- term investments, Perez says. In a glo- But Perez does not advocate a return to lar surge, even as they cause pain in other balized world, this also means globalized old-style government. She says that regula- parts of the economy and society. regulation – at the very least, a basic level tion must become more flexible and coop- This era of high finance eventually gives of regulation, or “floor,” in those fields with erative, both more local and more global. way to production-dominated “deployment” no physical frontiers, such as finance, the Above all, it must fit modern needs in a periods, marked by prosperity, security and environment, and, yes, telecoms. modern way, a shift she says that has taken generally regarded as “golden ages.” But the “There can be enormous variety from place in each previous “revolution.” transition – or “turning point” as Perez calls country to country, even down to regions “Anybody, be it business or government, it – between the finance phase and the pro- and localities,” she says. “But globalization who tries to behave the way they did fifty duction phase has never been a smooth one. is unworkable without some degree of su- years ago is going to fail,” Perez says. “To- Instead it has been marked by panics, reces- pranational monitoring and supervision.” day’s modern companies – using the flexi- sions, and political confrontations, with the But local regulations are equally impor- ble paradigm enabled by ict – have net- Great Depression the starkest example. tant, she says. Globalization allows busi- work structures with highly empowered Perez is in many ways an ideal person to nesses to identify the best locations for units following major guidelines with a high examine globalization. Born in , maximizing their productivity and profits degree of autonomy. How many govern- Venezuela and the oldest child of a civil en- along their whole value chain. Many busi- ments have fully understood this funda- gineer and a painter, she spent parts of her nesses – especially in ict – have also moved mental change?” childhood in both Argentina and the US. away from hierarchical, authoritarian struc- She then trained as an architect in the US, tures towards a more lateral, consultative FROM LONG WAVES TO GREAT SURGES later shifting gears to study interdisciplinary “network organization.” Perez is a leading proponent of neo-Schum- social studies in Paris. Local, regional, and national govern- peterian theories. was In the s, after researching the tech- ments need to recognize and respond to an early th century economist who ar- nological impact of high oil prices, she these shifts and adapt their own organiza- gued that both growth and crises in the cap- served on several delegations to the United tions in order to build a wide societal con- italist system were the result of technolog- Nations. During this time, she says she had sensus on what kind of investments each ical . He identified “long waves” an insight that cheap microelectronics were region wants to attract. of upswings and downswings in growth about the replace cheap oil in shaping the Perez often calls for a new global “man caused by the clustering of dur- direction of innovation. This “naturally” led on the moon” project to mirror the massive ing technological revolutions. Schumpeter her to Schumpeter and his theories on tech- investments in space exploration in the argued that the “” of nological revolutions, she says. s. This new project would not send these ups and downs was necessary for men to the moon but would help wean so- long-term growth, no matter the short-term “CASINO FINANCE” ciety off its dependence on high-carbon in- consequences. Perez later worked as director of Techno- dustries and products. But while the race Perez has pursued this idea of technolog- logical Development for the Venezuelan to put a man on the moon in the s was ical revolutions but has questioned the no- Ministry of Industry in the early s and a centralized, national endeavor centered tion of “long waves” in gdp. She has focused has since advised multiple countries, com- in the US and the ussr, this new project instead on new technologies themselves and panies and international organizations. She would reflect Perez’s ideas on newly resur- on the impact of their diffusion across the is also Professor of Technology and Devel- gent states – decentralized, multi-level, in- economy and society. She says the business opment at Tallinn University of Technolo- novative, experimental and, above all, con- climate shifts with each technological rev- gy in Estonia, a research associate at Cam- sensus building. olution and calls these shifts “great surges bridge University in the uk and an honor- Yet change does not have to come from of development.” ary research fellow at the University of Sus- above; it is equally possible on a small scale. There have been five such great surges sex in the uk. “You can have as many pilot projects as since the dawn of the industrial revolution, She first stepped into the global spotlight you want,” Perez told an audience at a Cis- Perez says. Each surge is broken into two with her  book Technological Revolu- co Urban Connected Development confer- periods, the first dominated by finance, the tions and Financial Capital: the Dynamics ence in Amsterdam in . “That is the second by production. The finance-domi- of Bubbles and Golden Ages. The book huge advantage of network organizations. nated period is marked by speculation, bub- came out in the wake of the nasdaq stock Local experiments can be replicated either bles and a massive experiment in “creative market crash, and Silicon Valley “techies” nationally or locally.” destruction,” in which new technologies re- and venture capitalists wanted to know The goal of the pilot projects is to find dif- place or modernize older ones. These bub- “what had hit them,” she says. Now in the ferent ways – whether by regulation, taxes,

EBR #3 2009 • 13 “There have been many wasted opportunities in history, often for lack of enlightened political leaders”

subsidies, contracts or agreements – to tilt tions behave like good citizens, it is an easy the investment playing field in favor of more step to join government and other social ac- low carbon and low materials growth. tors in formulating a vision and putting it But governments are not limited to reg- into practice.” ulation; they can also build things. During previous technological revolutions, new in- COUNTERACTING BIG FINANCE frastructures included canals, railroads, The golden age is not inevitable, Perez says. steamships, the telegraph, radio, telephony, The state usually returns to prominence be- electricity or highways. cause the collapse of bubbles exposes fraud Today, it is the internet. The government and scandals at the same time as many peo- must help people get connected, Perez says. ple lose their savings, pensions, houses and The exchange of information that follows jobs. Public indignation then grows strong low cost internet access for all is the “social enough to counteract the influence the fi- and geographic frontier of the global mar- nancial sector has gained over politicians. ket,” she says. In the previous swing of the pendulum, “Universal access creates the most gigan- the Great Depression and World War II cre- tic space for market action for everybody,” ated strong social expectations for change, she adds. “Companies can use this dynam- Perez says, while the Soviet Union repre- ic demand space.” sented an external existential threat. This And governments must help create it, she made structural changes – such as the de- says. velopment of the Welfare State and the Bret- The vast technological changes of recent ton Woods system – fairly easy to push decades have caused a in or- through, and these changes were crucial to ganization – people work more flexibly and the post-World War II “golden age,” she with a greater emphasis on innovation. So says. governments must not take new action, they Today, structural changes are equally sub- must take action in a different way, Perez stantial and difficult to push through. But says. the equivalent threats driving the shift – worldwide recession, climate change and BUILDING A CONSENSUS global terrorism – are not as strong as those Government, business and society should of the s and s. develop a common strategic vision, “aban- “There have been many wasted opportu- doning the vestiges of top-down approach- nities in history, often for lack of enlight- es that force separate interests to be reac- ened political leaders,” she says. tive and self-centered,” she says. “The game Yet Perez remains hopeful, utopian al- must change from zero-sum confrontations most, in the long-term. She believes the cur- to positive-sum negotiations. rent ict revolution is just the first in a se- “The practice of defining ‘vision, mission, ries of technological revolutions that will values’ might have become in some (corpo- eventually lead to a “real knowledge socie- rate) cases a simple ritual. But building a ty,” one in which many demographic, health consensus towards a national vision might and climate change problems will have been be an essential step towards a modern sort solved. of ‘industrial policy’ and to getting the most “These first  or  years will be the most out of globalization.” difficult,” she says. “I feel, however, that the Corporations must also change the way generations that have played Nintendo (vid- they do business, Perez says. And here, the eo games) and that communicate over the concept of corporate social responsibility is internet and with mobile phones as citizens the key to business leadership in the com- of the world are willing and able to confront ing golden age, she says. A high level of cor- the challenge with courage.” ● porate responsibility will help a company be successful in the wider market, in which en- vironmental and social considerations play What are your plans for the future? an increasingly large role. But a new respon- ▶ AT PRESENT, I have three areas of work to pursue. I am finishing a book on the special nature of sible ethic should also inspire business ex- major technology bubbles, I am developing a strategy for development in , based on ecutives, who, in essence, “can and should combining technology with natural resources and, obviously, I want to keep up my work on the become social leaders,” Perez says. “turning point” and on how governments and companies can get the best out the ICT revolution, “Given the transparency of the internet, the environmental challenge and globalization. As time and events move on, the relative weight of those three areas will change and they are it is no longer possible to hide, and a good likely to be modified.I do not plan to ever retire. I am convinced that creative work keeps you alive name and a good reputation can do won- or, rather, that it makes life worth living. ders for a brand,” she says. “Once corpora-

14 • EBR #3 2009 Carlota Perez cover story

There is no set path out of the world’s economic crisis, Perez says. “New pol- icies will have to be invented,” she says. “It has to be a social process.”

Moving away from a gambling economy

▶ If the world is to enter a new golden age, Carlota present, the money flowing into the economy with an al- Perez says we must overthrow a tyrant – the stock mar- most zero interest rate and super-abundant liquidity is go- ket and its fixation on short-term profits. ing straight into the hands of the same financial agents that set up the ‘casino.’ The fact that (the financial sector) no A FOCUS ON finance is characteristic of the first, or “instal- longer fears losses because they can count on a bail-out lation,” period of any technological revolution, according makes it even more dangerous for society. The table might to Perez’s neo-Schumpeterian theories. Free-flowing cap- be set for another financial boom and bust.” ital is necessary to give new companies using new technol- ogies a chance to compete in a world dominated by old es- PEREZ SAYS THE real question is whether politicians and the tablished giants. It also attracts enough investment to de- public can muster enough will to truly change the rules velop the new infrastructures necessary for that era’s new of the economic game on both the national and global technology – whether it is canals, railroads, electricity or levels. the internet – to reach “full coverage” across society. “If the whole fiscal and regulatory structure were made However , such high levels of easy money can create ma- to favor dividends and to discourage short-term capital jor economic bubbles, and bubbles eventually burst. This gains, the pressure would shift to strategies that guaran- sets the stage for the state to re-regulate and for the econ- tee the profitable long-term future of a company rather omy to move away from “casino finance” and towards full than the value of the stock every quarter,” she says. “This deployment of the new technologies. is particularly important when it comes to infrastructure projects related to globalization, to major ict projects such BUT THE FINANCIAL power brokers are “deeply embedded in as fiber to the home, to new technologies like biotech and government, and they can steer action in their favor, even nanotech and, above all, to fostering new environmental as it looks like they are being regulated,” Perez says. “At industries and revamping of old ones.” ●

EBR #3 2009 • 15