Prof. Carlota Perez Cambridge and Sussex Universities, U.K.and Tallinn University of Technology, Estonia

Presentation at the Sogeti Executive Summit 2010“Don’t Be Evil”, Venice 2010

Technology, globalisationand the environment

CAN THE CRISISOPEN THE WAYTO A SUSTAINABLE GLOBAL GOLDEN AGE?

THE CURRENT CRISIS

IS NOT AN ACCIDENTAL EVENT

IN THE FINANCIAL SYSTEM

• It is a historically recurrent phenomenon

• It is endogenous to the market system

• It results from the way technological revolutions are assimilated

• It affects the whole economy

The collapse marks a structural shift

in the forces guiding growth and innovation

from financial to production capital

and towards the return of an active state

What worked before will not work from now on

BECAUSE IN MARKET ECONOMIES TECHNICAL CHANGE OCCURS BY REVOLUTIONS

Capitalism experiences pendular swings about every three decades

THE MAJOR BUBBLE COLLAPSE MARKS THE SWING OF THE PENDULUM

To a “golden age” under the control

of productionin order to fully deploy the installed potential

From a “gilded age” under the control of financein order to install the technological revolution

Each revolution drives a GREAT SURGE OF DEVELOPMENT

and shapes innovation for half a century or more

FIVE TECHNOLOGICAL REVOLUTIONS IN 240 YEARS

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

Age of Steam, Coal, Iron and Railways 1829

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

Age of the Automobile, Oil, Petrochemicals and Mass Production1908

Age of Information Technology and Telecommunications1971

Age of Biotech, Bioelectronics, Nanotech and new materials?20??

A massive change in managerial common sense

Why call them revolutions?

TRANSFORMING THE OPPORTUNITY SPACE AND THE WAYS OF LIVING, WORKING AND COMMUNICATING

A powerful cluster of new dynamic industries

and infrastructureswith increasing productivity

and decreasing costs

Explosivegrowth

and structural change

New generic technologies, infrastructures and

organisational principles for modernising

the existing industries too

A quantumjump in

innovation andproductivity

for all

NEW INDUSTRIES and

NEW PARADIGM FOR ALL

Because they transform the whole economy!

The paradigm shift taking place since the 1970s

A radical change in managerial “common sense”brought on by a different set of enabling technologies

CONTINUOUS IMPROVEMENTSTABLE ROUTINES

HUMAN CAPITALHUMAN RESOURCES

FLEXIBLE STRATEGIESFIXED PLANS

GLOBALISATIONINTER - NATIONALISATION

HYPER-SEGMENTED MARKETSTHREE TIER MARKETS

OPEN NETWORKSCLOSED PYRAMIDS

FLEXIBLE PRODUCTIONMASS PRODUCTION

VALUE NETWORK PARTNERSSUPPLIERS AND CLIENTS

ENVIRONMENT AS CHALLENGENEGLECT OF ENVIRONMENT

DEPLOYMENT (20-30 years)INSTALLATION (20-30 years)

Financialbubble

EACH GREAT SURGE GOES THROUGH TWO DIFFERENT PERIODS

Due to resistance and difficulty in assimilating such changes

We are here Nextbig-bang

Time

Deg

ree

of d

iffus

ion

of

the

new

tec

hnol

ogi

cal p

oten

tial

big-bang

“Creative destruction”

Battle of the new paradigmagainst the old

Concentration of investment in new-tech

Income polarisation

LED BYFINANCIAL CAPITAL

INSTALLATION (20-30 years)

Financialbubble

“Creativeconstruction”

Use of new paradigm

for innovation and growth

across all sectors

Spreading of social benefits

LED BYPRODUCTION CAPITAL

DEPLOYMENT (20-30 years)

Re

cess

ion

s,

inst

itutio

na

l ch

an

ge

an

d r

ole

sh

ift

TurningTurningPointPoint

Next big-bang

From irruption to bubble collapse

From “golden age”to maturity

The shift from financail mania and collapse to Golden Ages is enabled by regulation and policies to shape and widen markets

THE HISTORICAL RECORDBubble prosperities, recessions and golden ages

INSTALLATION PERIOD DEPLOYMENT PERIODTURNINGPOINT

Bubbles of first globalisation

Belle Époque (Europe)“Progressive Era” (USA)1890–95

Railway maniaThe Victorian Boom1848–50

Canal maniaThe GreatBritish leap1793–97

Internet maniaand financial casino

Global Sustainable ”Golden Age”?

2007/08

-???

The roaring twenties

Post-warGolden age

Europe1929–33

USA 1929–43

1771Britain

1829Britain

1875 Britain / USA

Germany

1908 USA

1971 USA

1st

2nd

3rd

4th

5th

GREATSURGE Bubble prosperity Maturity“Golden Age” prosperityCollapse &

Recessions

What is this structural shift about?

What are its consequences?

What are its requirements for action

FINANCEin a

facilitatingservice

role

The structural shift involves

A CHANGE IN THE DRIVERS OF INNOVATION

THE STATEin a

facilitatingservice

role

During deployment innovation in production depends on

EFFECTIVE INSTITUTIONAL AND POLICY INNOVATION

A vast free market experimentThe full flourishing

of the installed potential

PRODUCTION and

THE STATE

as drivers and innovators

DEPLOYMENT = demand- pull

FINANCEand

THE NEW ENTREPRENEURS

as drivers and innovators

INSTALLATION = supply- push

Age of Steam, Coal, Iron and Railways 1850s-1860s

Urban, industry-based VICTORIAN LIVING in Britain

DEPLOYMENT PERIOD LIFESTYLE

Each style became “the good life” redefining people’s desires and guiding innovation trajectories

Age of Steel andHeavy Engineering 1890s-1910s

Urban, cosmopolitan lifestyle ofTHE BELLE EPOQUE in Europe

Age of the Automobile, oil and Mass Production 1950s-1960s

Suburban, energy-intensiveAMERICAN WAY OF LIFE

2010s-20??s

Will the developed and emerging countries develop a variety of ICT-intensive and “glocal” SUSTAINABLE LIFESTYLES?

Age of global ICT

EACH GREAT SURGE HAS BROUGHT A CHANGE IN LIFESTYLESwith new life-shaping goods and services at ‘affordable’ prices

An example: The emergence of the ‘American Way of Life’ as the paradigm shift from the Belle Époque…

Refrigerators and central heatingIce boxes and coal stoves

Doing housework with electrical equipmentDoing housework by hand

Preference for disposable plastics of all sortsPaper, cardboard, wood and glass packaging

Suburban living separate from workUrban or country living and working

Mass media, radio, movies and television Local newspapers, posters, theaters, parties

Automobiles, buses, trucks, airplanes and motorcycles

Trains, horses, carriages, stage coaches, ships and bicycles

Synthetic materialsNatural materials (cotton, wool, leather, silk..)

Refrigerated, frozen or preserved food bought periodically in supermarkets

Fresh food bought daily from specialized suppliers

FROM ENERGY-SCARCE LIVING

Energy is expensive and often inaccessible

TO ENERGY-INTENSIVE HOMES AND MOBILITY

Energy is cheap and its availability unlimited

…all strongly aided by advertising, business strategies and government policies

THE TECHNOLOGICAL POTENTIAL changes the relative cost structure and marks the direction of change

It is a huge opportunity space for innovation, growthand radical changes in lifestyles

FROM THE LOGIC OF CHEAP ENERGY (oil)for transport, electricity, synthetic materials, etc.

TO THE LOGIC OF CHEAP INFORMATION

its processing, transmissionand productive use

Preferencefor services

and intangible value

Huge potential for savingsin energy and materials

Preference for tangible productsand disposability

Unthinking use of energy and materials

Unavoidable environmental destruction

Capacity for environmental friendliness

The techno-economic paradigm shift happening since the 1970s-80s

THE ASSIMILATION OF A NEW PARADIGM IS A BATTLE AGAINST INERTIA

1898.

A horse carriage?

10-15years

An automobile!

YET, THE NEW PARADIGM IS STILL WRAPPED IN THE OLDDisposability and high use of energy and materials are still with us

…asnd in the crucial 1990s we hadCHEAP OIL AND CHEAP ASIAN LABOUR

which favoured the stretching of the old marketing and consumption patterns

Technologicallyfeasible

Sociallyacceptable

Economicallyprofitable

TECHNOLOGY ONLY DEFINES THE SPACE OF THE FEASIBLE

The factors defining the space of the acceptable and the profitable change over time

… AND ARE ALSO CHANGEABLE!

THE SUPPLY opportunity space

THE DEMANDopportunity space

The range

of the technologically feasible

together with

the capabilities

to make it happen

The range of the economically profitableand socially acceptable

as defined --and modified-- by policy and social

or other factors

THE BETTER THE MATCH BETWEEN THE DEMAND AND SUPPLY SPACES

THE MORE DYNAMIC THE ECONOMY

TWO COMPLEMENTARY OPPORTUNITY SPACES

FOR INNOVATION

THE ELEMENTS OF THE DEMAND OPPORTUNITY SPACE

Availability of newgeneric technologies

InfrastructuresEXTERNALITIES

Sources of DEMAND

DIRECTIONALITY

Sources of DEMAND VOLUME

Supply opportunity

space

The coherence and synergy among the elements generates self-reinforcing loops

HOW WASTHE PREVIOUSGOLDEN AGEUNLEASHED?

??

THE DEMAND OPPORTUNITY SPACE THAT SHAPED THE POST WAR GOLDEN AGE

DEMAND VOLUME, PROFILE

AND TRENDS

Welfare StateLabour unions

Public procurementCredit systemSPECIFIC

DEMAND AS DIRECTION FOR INNOVATION

SuburbanisationPost-war

reconstructionCold war

Cheap oiland materials

Universal electricityRoad and airway

network

INNOVATION ENABLERSFOR MASS PRODUCTION

The various elements were provided in different proportionsin each “First World” country

A POSITIVE-SUM GAME

THAT BROUGHT THE GREATEST BOOM IN HISTORY

The new global positive-sum game

ICT

“GREEN”

FULL GLOBAL

DEVELOPMENT

Full internet accessat low cost

is equivalentto electrification

and suburbanisation in facilitating demand

(and, this time, also education)

Revamping transport, energy, products and production systems to make them sustainable is equivalent topost-war reconstructionand suburbanisation

Incorporatingsuccessive new millions

into sustainable consumption patterns

is equivalent to the Welfare Stateand government procurement

in terms of demand creation

And the elements are interconnected

ICT

“GREEN”FULL

GLOBALDEVELOPMENT

But we need policy consensus involving government, business and society

Internet access is the social and geographic frontier of the global market

ICTs are the main enabling instruments of sustainability

Only with sustainableproduction and consumption patterns

Is globalisation possible

“GREEN” is not only about saving the planetIt is about saving the economyand having a high (but different)quality of life

GLOBAL DEVELOPMENT is not onlya humanitarian goalit is about healthy growth,markets and employment for all

• Natural vs. synthetic• Minimalist design• ‘Gourmet’ and organic food• Exercise for well being• Small vs. big• Multipurpose products• Working from home • Solar power as luxurious

as well as electric cars• Intense Internet use

Part of the paradigm shiftis happening

among sophisticated consumers

There is still a long way to go

THE CHANGE IN PREFERENCES BEGINS AT THE TOP OF THE INCOME SCALE

AND SPREADS BY IMITATION …AND AFFORDABILITY

• Durability• Very high quality vs. quantity• Reparability and upgradability• Anti-waste, pro-recycling• Low carbon footprint• Customised vs. standard• Services vs. tangible products• Active & creative “prosumer”

vs. passive consumer• Etc. etc.

THE NEW LUXURY LIFE WOULD INCREASE SATISFACTION

WHILE MAXIMISING THE PRODUCTIVITY OF RESOURCES

But the change will not come

by guilt, fear or obligation

But by desire and aspiration

“GREEN” HAS TO BECOME

FASHIONABLE!

Advertising andcompany strategies

and lobbyinggo in a green direction

THE QUESTION IS HOW TO GOFROM AN ENLIGHTENED MINORITY

(by education, consciousness or wealth)TO THE GREAT MAJORITIES

The new greenluxury life pattern

becomes fashionable

Governmenttilts the playing field

strongly infavour of green

However it starts, the process goes throughmultiple self-reinforcing feedback loops

THE TECHNOLOGICAL STAGEIS SET TODAY

FOR THE GLOBAL GOLDEN AGEOF THE 21st CENTURY

It is up to business, government and societyto agree on the convergent actions

for making it a reality

Will it be a success or a wasted opportunity?

WE SHALL ALL BE RESPONSIBLE

FOR THE OUTCOME