Yesterday I shared ideas about how the world is not really growing exponentially. To be specific, science and technology have been growing slowly over the past few decades, leading to a fall in productivity growth. According to this provocative essay,
The bad news is that U.S. productivity growth is way down. It’s been dropping since the 1950s, when it was roughly six times higher than today. That means we see about as much change over a decade today as we saw in 18 months in the 1950s.
While this essay presents a deep analysis of the problem, it offers little optimism apart from pointing out that computer science given us a lot of innovation.
Yes, we’ve had advances associated to two powerful general-purpose technologies: the computer and the internet. But many other technologies have improved only incrementally.
This problem is already recognized, and as mentioned yesterday, notable VCs and entrepreneurs are taking up the challenge. Even the almost legendary Y-combinator is now looking for solutions to climate change.
However, there is one optimistic voice – that of Carlota Perez. According to her, we have not really utilized ICT (information and communication technology) yet, and this technology alone may be a foundation for an upcoming ‘Global Golden Age’. Though she too warns that things could get worse before they get better.
Let’s explore her framework for growth of technology. (I learned about it from this talk). She outlines the five technological revolutions since 1771 – shown in the image below. Note the arrow which says ‘we are here’.
Every technology has an installation period and a deployment period, with a turning point in between. Financial speculation drives the installation phase, which results in a bubble of prosperity, followed by a crash, and then sustained, steady prosperity in the deployment phase, which then slows to maturity, and finally the next revolution comes around. The deployment phase is led by production and the state, and not the financial markets.
There is no way we are ever going to have a golden age just by letting the market act. We have got to the shape the context so that markets act in that direction that is a positive sum game for business and society. – Carlota Perez
Both the installation and the deployment phases last 20 to 30 years, making the cycle last around 60 years. The turning point can last from 2 years to 17, in this model.
According to her, we stand at the turning point where the ICT technology has been developed, but the golden age has not yet begun. Here lies the contrast with the ‘stagnation’ thesis. She seemingly does not pay attention to slowing growth in the world of atoms. Rather she focuses on economic growth coming from ICT, and asserts that we just have not seen all of it yet.
Of course this is only a pattern and there is no certainty that things will progress the same way. For example, in all the revolutions she mentioned, there has been one financial crash, but in the current turning point, we have already seen two – the dot com bubble of 2000 and the housing bubble of 2008. And we don’t know if we will see another, soon.
…third financial crash, which in my view is plausible, starting either in the West or in China. – C. Perez
(Nassim Taleb recently said we are in a fragile situation today worse than that in 2007).
She goes on to explain how the current global climate is similar to the one in the 1930s:
That is, at the turning point, we see what we are seeing, across the globe. Inequality, fear of jobs being lost, populism and xenophobia, among other things.
What would the solution look like? I will continue with directions for solutions in the next post.