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I’ve just read a really interesting paper by Carlota Perez inspired by the Kondiatrive long-wave theory. The theory, in Perez’s hands, is roughly this: in the history of capitalism there are waves of technological innovation that throw up all sorts of new possibilities. The big three so far: mid-nineteenth century industrialisation; early twentieth century mass production; the information revolution of the 90s and 00s that is still with us.

I’ve just read a really interesting paper by Carlota Perez inspired by the Kondiatrive long-wave theory. The theory, in Perez’s hands, is roughly this: in the history of capitalism there are waves of technological innovation that throw up all sorts of new possibilities. The big three so far: mid-nineteenth century industrialisation; early twentieth century mass production; the information revolution of the 90s and 00s that is still with us.

 

These waves set off ‘installation periods’ where all sorts of models of production, investment and business are tried out. Due to the experimental nature of these periods they inevitably lead to bubbles and crashes, to reckless over-investment. Examples are the railway and canal manias of the nineteenth century, the stock market crash of 1929, the Nasdaq crash of 2000 and the credit crunch of 2008.

 

Each period of installation, is followed by a period of what Perez calls, using Schumpeter’s phrase, ‘creative destruction’. We are beginning to enter such a period now. During this period a settlement is negotiated between markets, state and civic society over how to rein in the excesses of the installation period, agreeing which directions of development to follow, and perhaps most importantly, which parts of the existing such settlement to reject. Once the new settlement becomes stable, lengthy periods of equilibrium follow: the Victorian industrial boom, the fin-de-siecle and pre-WWI first phase of globalisation (the ‘belle epoque’), the post-WWII consensus on socialised economies.

 

On the Perez model, as long as we are committed to capitalism, we cannot avoid the ‘installation period-creative destruction-equilibrium’ pattern. What we can do is get the creative destruction right, so that the social needs arising from the ‘crises’ that follow the installation periods can be more properly met.

 

Perez argues that the present period of creative destruction should have three foci:

 

1. emergency measures to stabilise the economy in the short term so that we do not enter a downward spiral of recession and deflation, greatly reducing our options for change;

2. a new financial architecture that is global in reach, as transparent as possible, purged of its reckless elements and which operates in the virtuous circle of making profits by sharing in the wealth it creates for wider society;

3. structural change favouring real growth – that is, growth in production that speaks to our needs: environmentally sustainable, properly spread across the globe, technologically viable. 

 

Perez thinks that these foci should form a collective vision of the good society – the new settlement between markets, government and citizens I mentioned above. This vision should have as its long-term goals sustainable production and consumption, the correcting of global inequalities, and social wellbeing (for these are the fundamental constituents of our ‘crisis’).

 

It seems to me that the impediments to forming and implementing this vision are that the recession may not be deep enough, the environmental crisis not pressing enough, and the sense of global injustice not vehement enough. The last collective vision of the good society came about in 1945 and had the vivid experience of the worst war in human history to focus minds. But it is not clear that we possess the same sense of urgency. Nor does the present political and corporate infrastructure seem favourable – Obama aside, the same people are in large part in charge of governments and businesses alike.

 

The role for us citizens at this time therefore must be to do two things: (1) make the case for the urgency of the crisis we face, (2) innovate and adopt new forms of behaviour that can act as exemplars for inspiring the make-up of the new collective vision. 

 

This citizen-led component of creative destruction is one that Perez seems to neglect. But without it the dawning collective vision of the good society will lack sociological and psychological plausability. For the technologies that shape our age are the interactive  information-processing media we use every day. And the social and environmental crises we face centre around our increasing connectedness and interdependence. In other words, we are the locus of the present crisis, so we must be at the centre of any response to it.

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