1. 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, globalisation and the environment CAN THE CRISIS OPEN THE WAY TO A SUSTAINABLE GLOBAL GOLDEN AGE?

2. 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

3. 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 production in order to fully deploy the installed potential From a “gilded age” under the control of finance in order to install the technological revolution

4. 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 Production 1908 Age of Information Technology and Telecommunications 1971 Age of Biotech, Bioelectronics, Nanotech and new materials? 20??

5. 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 infrastructures with increasing productivity and decreasing costs Explosive growth and structural change New generic technologies, infrastructures and organisational principles for modernising the existing industries too A quantum jump in innovation and productivity for all NEW INDUSTRIES and NEW PARADIGM FOR ALL Because they transform the whole economy!

6. 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 ROUTINESHUMAN CAPITALHUMAN RESOURCESFLEXIBLE STRATEGIESFIXED PLANSGLOBALISATIONINTER - NATIONALISATIONHYPER-SEGMENTED MARKETSTHREE TIER MARKETSOPEN NETWORKSCLOSED PYRAMIDSFLEXIBLE PRODUCTIONMASS PRODUCTIONVALUE NETWORK PARTNERSSUPPLIERS AND CLIENTSENVIRONMENT AS CHALLENGENEGLECT OF ENVIRONMENT

7. DEPLOYMENT (20-30 years) INSTALLATION (20-30 years) Financial bubble EACH GREAT SURGE GOES THROUGH TWO DIFFERENT PERIODS Due to resistance and difficulty in assimilating such changes We are here Next big-bang Time Degree of diffusion of the new technological potential big-bang “Creative destruction” Battle of the new paradigm against the old Concentration of investment in new-tech Income polarisation LED BY FINANCIAL CAPITAL INSTALLATION (20-30 years) Financial bubble “Creative construction” Use of new paradigm for innovation and growth across all sectors Spreading of social benefits LED BY PRODUCTION CAPITAL DEPLOYMENT (20-30 years) Recessions, institutional change and role shift Turning Point Next big-bang From irruption to bubble collapse From “golden age” to maturity

8. The shift from financail mania and collapse to Golden Ages is enabled by regulation and policies to shape and widen markets THE HISTORICAL RECORD Bubble prosperities, recessions and golden ages INSTALLATION PERIOD DEPLOYMENT PERIOD TURNING POINT Bubbles of first globalisation Belle Époque (Europe) “Progressive Era” (USA) 1890–95 Railway mania The Victorian Boom 1848–50 Canal mania The Great British leap 1793–97 Internet mania and financial casino Global Sustainable ”Golden Age”? 2007 /08 -??? The roaring twenties Post-war Golden age Europe 1929–33 USA 1929–43 1771 Britain 1829 Britain 1875 Britain / USA Germany 1908 USA 1971 USA 1 st 2 nd 3 rd 4 th 5 th GREAT SURGE Bubble prosperity Maturity “Golden Age” prosperity Collapse & Recessions

9. The second half spreads innovation across the board to reap the full economic and social benefits The first half concentrates innovation to set up the new infrastructure and to let markets pick the winners TWO LEVELS OF DIFFUSION OF EACH TECHNOLOGICAL POTENTIAL

10. FINANCIAL CAPITAL PRODUCTION CAPITAL Why this pattern? Why the role switch? FIXED AND KNOWLEDGE-BOUND Long-term bias FLEXIBLE AND MOBILE Short-term bias Financial capital can massively redirect resources and “force” new paradigm diffusion Production capital is better for carrying growth and expansion within an established paradigm THE MARKET ECONOMY HAS TWO DIFFERENT AND COMPLEMENTARY AGENTS

11. We are at the turning point The process can be short or long depending on the social and political forces The last time around it took over a decade and a major war There are three tasks for governments after the major crash: DONE… even overdone This time global finance needs both national redesign and a global regulatory “floor” STILL ON THE DRAWING BOARD RARELY BEING CONSIDERED AS SUCH But recovery will be very difficult without it intensive therapy for finance 1 redesign of financial regulation and architecture 2 enable structural change in the real economy 3

12. What is this structural shift about? What are its consequences? What are its requirements for action

13. FINANCE in a facilitating service role The structural shift involves A CHANGE IN THE DRIVERS OF INNOVATION THE STATE in a facilitating service role During deployment innovation in production depends on EFFECTIVE INSTITUTIONAL AND POLICY INNOVATION A vast free market experiment The full flourishing of the installed potential PRODUCTION and THE STATE as drivers and innovators DEPLOYMENT = demand- pull FINANCE and THE NEW ENTREPRENEURS as drivers and innovators INSTALLATION = supply- push

14. 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 and Heavy Engineering 1890s-1910s Urban, cosmopolitan lifestyle of THE BELLE EPOQUE in Europe Age of the Automobile, oil and Mass Production 1950s-1960s Suburban, energy-intensive AMERICAN 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 LIFESTYLES with new life-shaping goods and services at ‘affordable’ prices

15. 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 stovesDoing housework with electrical equipmentDoing housework by handPreference for disposable plastics of all sortsPaper, cardboard, wood and glass packagingSuburban living separate from workUrban or country living and workingMass media, radio, movies and televisionLocal 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

16. THE TECHNOLOGICAL POTENTIAL changes the relative cost structure and marks the direction of change It is a huge opportunity space for innovation, growth and 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, transmission and productive use Preference for services and intangible value Huge potential for savings in energy and materials Preference for tangible products and disposability Unthinking use of energy and materials Unavoidable environmental destruction Capacity for environmental friendliness The techno-economic paradigm shift happening since the 1970s-80s

17. THE ASSIMILATION OF A NEW PARADIGM IS A BATTLE AGAINST INERTIA 1898. A horse carriage? 10-15 years An automobile! YET, THE NEW PARADIGM IS STILL WRAPPED IN THE OLD Disposability and high use of energy and materials are still with us …asnd in the crucial 1990s we had CHEAP OIL AND CHEAP ASIAN LABOUR which favoured the stretching of the old marketing and consumption patterns

18. Technologically feasible Socially acceptable Economically profitable 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!

19. THE SUPPLY opportunity space THE DEMAND opportunity space The range of the technologically feasible together with the capabilities to make it happen The range of the economically profitable and 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

20. THE ELEMENTS OF THE DEMAND OPPORTUNITY SPACE Availability of new generic technologies Infrastructures EXTERNALITIES Sources of DEMAND DIRECTIONALITY Sources of DEMAND VOLUME Supply opportunity space The coherence and synergy among the elements generates self-reinforcing loops

21. HOW WAS THE PREVIOUS GOLDEN AGE UNLEASHED? ?

22. THE DEMAND OPPORTUNITY SPACE THAT SHAPED THE POST WAR GOLDEN AGE DEMAND VOLUME, PROFILE AND TRENDS Welfare State Labour unions Public procurement Credit system SPECIFIC DEMAND AS DIRECTION FOR INNOVATION Suburbanisation Post-war reconstruction Cold war Cheap oil and materials Universal electricity Road and airway network INNOVATION ENABLERS FOR MASS PRODUCTION The various elements were provided in different proportions in each “First World” country

23. A POSITIVE-SUM GAME THAT BROUGHT THE GREATEST BOOM IN HISTORY

24. The new global positive-sum game ICT “GREEN” FULL GLOBAL DEVELOPMENT Full internet access at low cost is equivalent to electrification and suburbanisation in facilitating demand (and, this time, also education) Revamping transport, energy, products and production systems to make them sustainable is equivalent to post-war reconstruction and suburbanisation Incorporating successive new millions into sustainable consumption patterns is equivalent to the Welfare State and government procurement in terms of demand creation

25. And the elements are interconnected ICT “GREEN” FULL GLOBAL DEVELOPMENT 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 sustainable production and consumption patterns Is globalisation possible

26. “GREEN” is not only about saving the planet It is about saving the economy and having a high (but different) quality of life GLOBAL DEVELOPMENT is not only a humanitarian goal it is about healthy growth, markets and employment for all

27. 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 shift is 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

28. But the change will not come by guilt, fear or obligation But by desire and aspiration “GREEN” HAS TO BECOME FASHIONABLE!

29. Advertising and company strategies and lobbying go in a green direction THE QUESTION IS HOW TO GO FROM AN ENLIGHTENED MINORITY (by education, consciousness or wealth) TO THE GREAT MAJORITIES The new green luxury life pattern becomes fashionable Government tilts the playing field strongly in favour of green However it starts, the process goes through multiple self-reinforcing feedback loops

30. THE TECHNOLOGICAL STAGE IS SET TODAY FOR THE GLOBAL GOLDEN AGE OF THE 21 st CENTURY It is up to business, government and society to 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