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 / Winter 2005 / Issue 41(originally published by Booz & Company)


Carlota Perez: The Thought Leader Interview

According to this influential long-wave theorist, the world is due for a technological and economic boom that truly lifts all boats. When? That’s up to us.

Photograph by Julian Anderson
At a time of prevalent focus on short-term results, long-wave theories are quietly making a comeback. These theories are historically associated with the Russian theorist Nikolai Kondratiev (1892–1938), who posited that capitalism evolves through recurring 50-year cycles of boom and bust, and the Austrian-American economist Joseph Schumpeter (1883–1950), who identified the “creative destruction” of these cycles as necessary for long-term economic growth, no matter how harmful it might be to individuals in the short run. Today, the most significant proponent of long-wave theory is Carlota Perez, a visiting senior research fellow at the Cambridge Endowment for Research in Finance at Cambridge University in the United Kingdom.

Professor Perez, at 66, has the kind of eclectic background that one might expect from a theorist whose work combines analysis of financial, political, and technological trends. Raised in Venezuela, she studied architecture and the economic and social history of technology before becoming a forecaster studying the impact of high oil prices for several Latin American governments in the 1970s. In the course of her research, she noticed that the most promising growth opportunities linked with the new, still-relatively-obscure device known as the microprocessor. Between 1980 and 1983, as the director of technological development in the Venezuelan Ministry of Industry, Professor Perez established one of the first government-sponsored venture capital agency: an effort to support local innovation using new digital technologies.

That experience, along with her further studies of the history of technology, led Professor Perez to a broader view of technological change: as a force that drove both modernization and upheaval in society’s institutions and in the culture at large. Through the 1980s and 1990s, working in the development field and academia, she increasingly focused her attention on the link between technological and financial cycles. When a new set of technologies is ready to emerge into widespread use, it needs the force of freewheeling investment capital to give it momentum. This period, which Professor Perez calls Installation, might take 20 to 30 years to develop; then, there is another 20- to 30-year period called Deployment, when the potential of those technologies for improving quality of life comes to fruition. This recurring sequence is laid out in her 2002 book, Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages (Edward Elgar). Based on 20 years of research (in collaboration with University of Sussex economist Christopher Freeman), the book happened to come out just as the world began to shift from one of these periods to the other.

Since the book appeared, it has gained a reputation as a counterintuitive but prescient explanation for the mysterious economic oscillations of the past few years. It has received avid praise from, for example, Brian Arthur, the Santa Fe Institute economist known for his theory of “increasing returns,” and from William Janeway, vice chairman of the private equity investment firm Warburg Pincus LLC. According to Professor Perez, the industrialized world is still in the middle of its painful transition from Installation to Deployment. Such a transition can last two years (as it did at the time of the Victorian railway panic) or 15 (as it did from the 1929 U.S. stock market crash through the end of World War II). The duration depends on how seriously decision makers, great and small, take the challenge of building a robust alliance between business, government, and the public at large.

We met with Professor Perez at a London hotel to conduct this interview. Whether or not her theory is correct (and it has the advantage of compelling face validity), it raises one of the most critical issues for our moment in history: how to marshall business strategy and government policy together to create the global markets of the future.

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