(Notes from "Technological Revolutions & Financial Capital" by Carlota Perez)
|Feb 13, 2017||Public post|
Turning back to “Technological Revolutions & Financial Capital” by Carlota Perez (2002), I wanted to take note of some passages from chapter 11, “The Turning Point: Rethinking, Regulation and Changeover”.
In an early post entitled “Frenzy”, I shared excerpts about the roles of “financial capital” and “production capital”. Financial Capital takes the helm in the economic and investment cycle which can culminate in what Perez described as “Frenzy”.
What follows are corrective episodes, crashes, after the animal spirits have grown to excess. What was the stuff of dreams during the buildup and end of the Frenzy becomes part of daily standard of living expectations and is integrated into the mainstream economy.
“All is poised for the dynamic expansion of the real economy and for the propagation of the paradigm across all industries, weaving a coherent production network. This build-up task would be better performed under the control of production capital, given that its interests and decision-making criteria are more appropriate for the job. In addition, profit expecations — gone wild and unrealistic during the Frenzy — have to be brought back in line with a longer-term view…
“This essentially means that adequate regulation of financial capital has to be established and an institutional framework favoring the real economy over the paper economy needs to be put in place. Yet financial capital will resist with force. It has been at the helm for many years of successful growth. Its criteria have been ‘proven’ effective. It appears that personal talent and genius for wealth creation — plus the lack of restrictive rules — were the source of the achievements. Therefore, financial capital is only likely to accept regulation after much of the rapidly made gains have evaporated in the collapse when the recession has shown the practical impossibility of reviving the casino…
“As with many processes in capitalism, it is by taking a successful behavior to its extreme that it turns into failure….”
FROM Chapter 11, Section E. Politics and the Question of Handing over Power to Production Capital:
“It is production capital that is mainly interested in further pursuing each technological trajectory, in order to profit fully from the investment already made, from the learning and experience acquired, from the externalities available, from the learning and experience acquired, from the externalities available, including the education of consumers and suppliers, and from the innovative paths well mastered. Since market saturation is one of the main limits encountered in deploying the growth potential of a technological revolution, ensuring consistent extension of markets is the way to facilitate the pursuit of those goals. Consequently, it is progressive distribution and worldwide advances in development that can best guarantee a continued expansion of demand.”
“It is not easy to hand over control. During the frenzy phase financial capital becomes much more powerful and production capital learns to live by its rules and to submit to its criteria. Turning the tables requires not only a serious weakening of financial capital through the collapse of the paper wealth mountain it had constructed, but also the intervention of political forces.
“By the end of the installment period, polarization has usually reached morally unacceptable extremes and has probably stirred the anger of the excluded. These are the sorts of forces that can put pressure on the political world toward the necessary structural adjustments, favoring the real economy of production and restraining some of the more damaging financial practices….”
The language from these brief quotes may seem dry but they accurately describe both historically recurring and currently relevant tensions from the interplay between society, technology and the economy.
The cycle has been the same throughout history. We have emergence of the “new new thing”, then ebullience building up to an ecstasy, followed by exhaustion, a period of examination and evaluation of the experience, and ultimately expansion of the formerly “new new thing” as a regular part of mainstream society.
I think about Microsoft, Apple and Amazon as poster-children of this cycle during the late 20th and early 21st century. All of these corporate giants were tiny garage-works started by talented and energetic founders. These tiny startups were shepherded into existence via a cycle of capital infusion, from seed to public offerings.
Once public management is eventually handed-off (sometimes reluctantly) to specialists in the management of production capital. Those with real business models became mainstays in the real economy with dramatic consequences for both older incumbent competitors and consumers. Perez’ use of the word “polarization” makes me think about both the social tension associated with the ratios of salaries for executives to employee salaries, particularly in finance.
I also think about the broader “big picture” of financial markets regulation — which is about to undergo another sea-change. Lastly, another technological wave of game-changers have emerged over the past 5 to 10 years and are poised to debut as publicly owned enterprises.
Interesting times are coming for these game-changers, as vanguards of the on-demand “experience economy” make the hurdle from eyeballs to earnings.
Originally published at www.rooster360.com on February 13, 2017.