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CAPITALISM, TECHNOLOGY and a GREEN GLOBAL GOLDEN AGE: the Role of History in Helping the State to Shape the Future

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CAPITALISM, TECHNOLOGY and a GREEN GLOBAL GOLDEN AGE: the Role of History in Helping the State to Shape the Future 3/8/2017 5:01 PM CAPITALISM, TECHNOLOGY AND A GREEN GLOBAL GOLDEN AGE: The Role of History in Helping the State to Shape the Future Carlota Perez Visiting Professor, London School of Economics, UK Professor of Technology and Development, Nurkse Institute, Tallinn, Estonia Honorary Professor, SPRU, University of Sussex, UK Academic in Residence, Anthemis UK Workshop on green transition, Lund, March 2017 Are environmental policies an obstacle to growth? Is growth an obstacle to environmental sustainability? With a historical understanding of innovation the answer to both is NO Based on the history of technological revolutions we can argue that: Environmental problems can be turned into solutions for growth and well being PEREZ Lund Workshop March 2017 1 3/8/2017 5:01 PM 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, Plastics and Mass Production 1971 Age of Information Technology and Telecommunications EACH BRINGS A TECHNO-ECONOMIC AND SOCIO-INSTITUTIONAL SHIFT with new directions for innovation and a potential leap in productivity DOUBLE NATURE OF EACH TECHNOLOGICAL REVOLUTION Radical new technologies New techno-economic paradigm A powerful cluster of new and An interrelated set dynamic technologies, products, of generic technologies and industries organisational principles capable of and infrastructures upgrading mature industries and enabling widespread innovation A quantum Explosive growth jump in attainable and structural change productivity and quality (new engines of growth) across all sectors AN ENORMOUS NEW POTENTIAL FOR WEALTH CREATION… …gradually transforming the whole economy as well as society and institutions AND CHANGING THE SPECTRUM OF OPPORTUNITIES FOR ALL PEREZ Lund Workshop March 2017 2 3/8/2017 5:01 PM Because of social resistance to assimilating such profound changes EACH GREAT SURGE IS BROKEN INTO TWO DIFFERENT PERIODS Turning INSTALLATION PERIOD Point DEPLOYMENT PERIOD 20 – 30+ years ??? 20 – 30+ years MATURITY “Creative destruction” Concentration of investment Role switch Role in the new; - “Creative construction” modernisation of the old Widespread expansion Development and learning and innovation across of the new paradigm all industries and activities Unfettered market Social and institutional competition Major innovation Institutional change Institutional Led by technology - Led by financial bubble production capital capital Supported by the State Next From irruption Installation Recession to bubble collapse - From “Golden Age” to maturity period Degree of diffusion of the technological potentialof ofthe technologicalDegreediffusion GESTATION Collapse Instability Time BIG-BANG NEXT BIG-BANG We are here The role of the State is crucial in tilting the playing field in favour of production to unleash the Golden Age The positive legacy of the great bubbles THE INSTALLATION OF THE BASES FOR THE FUTURE • Enough infrastructure for a decade or more • The new paradigm accepted as ‘common sense’ • New production, consumption and business models established • New entrepreneurial giants: New engines of growth • Old giants rejuvenated and ready to innovate THE ECONOMY IS READY FOR FULL EXPANSION There is a vast potential for innovation in ICT and across all sectors using ICT and/or the installed paradigm But if demand is not guaranteed, neither are profits: Finance will not take the risk JOBS, GROWTH AND INNOVATION CAN ONLY COME IF THE PLAYING FIELD IS TILTED And that requires policy innovation to suit the paradigm PEREZ Lund Workshop March 2017 3 3/8/2017 5:01 PM THE NEGATIVE SOCIO-ECONOMIC LEGACY OF THE INSTALLATION PERIOD Multiple processes of polarisation defining the political challenges after the crash Accelerated and explosive growth Industries/ Pressure regions/ Increasing unlimited wealth pro status quo countries for some Spectacular successes Politicians Personal and income policy makers Stagnation, dismemberment and decline After crash majorthe After Firms/ Ever more unacceptable Institutions unemployment and poverty Pressure for change Demoralising deterioration INDEPENDENT, STRONG AND BOLD LEADERS ARE NEEDED AT THESE TIMES THE HISTORICAL RECORD: FIVE REVOLUTIONS WITH A REGULAR PATTERN Two different ‘prosperities’ with a bubble collapse in the middle Bubble collapse INSTALLATION PERIOD DEPLOYMENT PERIOD recession No., date, revolution, TURNING core country Bubble prosperity POINT ‘Golden Age’ prosperity Maturity 1771 st The Industrial Great 1 Revolution Canal mania 1797-1799 British leap Britain 1829 nd Age of Steam Railway mania 1848–50 2 and Railways The Victorian Boom Britain 1875 Age of Steel and London funded global market Belle Époque (Europe) 3rd Heavy Engineering infrastructure build-up 1890–95 Britain / USA (Argentina, Australia, USA) ‘Progressive Era’ (USA) Germany Europe 1908 The Roaring Twenties 1929–33 th Age of Oil, Autos Autos, housing, radio, Post-war 4 and Mass aviation, electricity USA Golden age Production / USA 1929–43 1971 Internet mania, telecoms, 03 5th The ICT emerging markets - 2008- Global sustainable Revolution Global financial casino & housing 20?? knowledge society ‘golden age’? USA 2000 Led by finance with unfettered markets Led by production, guided by the State We are here This means that the equivalent historical period for the diffusion of the ICT revolution is the 1930s PEREZ Lund Workshop March 2017 4 3/8/2017 5:01 PM WHAT IS THE NATURE OF THE TURNING POINT? Once the bubble collapses the underlying state of the economy is revealed • Finance has become a casino, decoupled from production • All investment looks uncertain • No clear market signals • Deflation, unemployment • Income is polarised, inequality is stubborn • Economic migrations • Talk of secular stagnation and structural unemployment • Recessions, or feeble growth (even depression) • Social unrest, xenophobia, messianic leaders YET THERE IS A HUGE TECHNOLOGICAL POTENTIAL INSTALLED BY THE BUBBLES WHAT IT LACKS IS A STABLE SYNERGISTIC DIRECTION Increasing inequality is one of the features distinguishing installation from deployment Percent of income earned by top 1% of tax payers (including capital gains) - USA 1915-2010 25% Stagflation NASDAQ 2000s Roaring 20s The 1930s and WWII of the 1980s bubble bubble 20% THE POST-WAR BOOM the Golden Age of Mass Production 15% 10% TURNING TURNING INSTALLATION POINT DEPLOYMENT INSTALLATION POINT 4th 4th 4th 5th 5th 5% Incomeoftopsharetaxof1% US payers 0% Source: Piketty and Saez 2010 (period indications by CP) by indications (periodandSaez 2010 Piketty Source: 1995 2000 2005 2010 1940 1945 1950 1955 1960 1965 1970 1975 1980 1915 1920 1925 1930 1935 1985 1990 When positive-sum game policies are applied at the Turning Point growth resumes, jobs multiply and inequality decreases PEREZ Lund Workshop March 2017 5 3/8/2017 5:01 PM THE RANGE OF THE POLITICALLY VIABLE CAN BE VERY WIDE In the previous surge we saw THREE VERY DIFFERENT SOCIO-POLITICAL MODELS guiding the mass production paradigm • National socialism & Fascism (from the 1920s and 30s defeated in WWII) • “Welfare State” – Keynesianism (deployment in the West after WWII) • Soviet socialism (from Installation in WWI; strengthened after WWII) And eventually, also, State Developmentalism in the gradually decolonised “Third World” ALL WITH A GREAT VARIETY OF NATIONAL VERSIONS all compatible with the nationally-centred, standardised mass-production and homogenising mass-consumption paradigm THE PARADIGM PROVIDES THE POTENTIAL BUT DOES NOT DETERMINE THE OUTCOME HOW DID ‘WESTERN’ POLICY IN THE POST WAR BOOM OVERCOME THE 1930s? Apart from the Keynesian management of fiscal and monetary policy THERE WAS MASSIVE SHAPING OF DYNAMIC DEMAND FOR MASS CONSUMPTION AND MASS PRODUCTION: • Infrastructure for low-cost suburban housing • Government guarantees for mortgages • Unemployment insurance and pensions • Official labour unions (maintaining salary increases with productivity) • Free education for the majorities (and in Europe also health) • Farm subsidies (prices low for consumers and profits high for equipment) • Military procurement • Massive government employment • High taxes to pay for all that • And the Breton Woods institutions for international finance and trade All that provided demand with two clear directions for innovation: SUBURBAN LIFESTYLES AND THE COLD WAR with an adequate and effective role for the state PEREZ Lund Workshop March 2017 6 3/8/2017 5:01 PM The best precondition for successful policy is understanding the context being faced WHY DID KEYNES WORK THEN? WHAT ARE WE FACING NOW? Relatively closed national economies, Globalised economies, with inter-national trade with WTO watching open trade Mass production was geared to Flexible production aims at homogeneous demand highly diversified demand The greater the number of identical products The more specialised the market the lower the cost the higher the profits Extremely cheap oil and materials Potentially expensive energy and materials counteracting expensive labour with differentiated labour costs Stable full-time jobs were the norm Rapid innovation, moving and changing jobs and (even life-time) much self-employment ‘Third world’ virtually excluded Expansion of global economy (not significant demand) seen as most dynamic demand WE NEED TO KEEP KEYNES’ AIMS, ADD A SCHUMPETERIAN UNDERSTANDING AND DESIGN A NEW POLICY FRAMEWORK FOR DYNAMIC INNOVATION
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