Technological Revolutions and the Role of Government in Unleashing Golden Ages
* Article: Technological Revolutions and the Role of Government in Unleashing Golden Ages. Perez, Carlota. Chapter in the Kondratieff Almanac. Special issue on Kondratieff Waves: Dimensions and Prospects at the Dawn of the 21st Century.
Abstract
"The world is currently at a crucial turning point. As in each of the five previous technological revolutions, the major bubble collapse and the ensuing recession mark the swing of the pendulum, from finance-led to production-guided capitalism. The first decades of installation of a new set of enabling technologies and infrastructures create an enormous potential for innovation across all sectors, at the same time as they lead to a strong polarization between the richer rich and the poorer poor, among people, industries, countries and regions. Reversing those processes and successfully taking advantage of the new wealth creating potential cannot be achieved by markets alone but with the help of intelligent government action. The opportunities are there in the new technologies, in the modernization of traditional industries and in preparing for the next technological revolution. It is a question of well informed industrial policy rooted in a consensus vision, shared by government, business and society."
Excerpt
Carlota Perez:
"Yet to understand the role of the State in unleashing the Golden Age of the Deployment Period, we need to further understand the nature of the Installation period as an intense process of polarization that needs to be reversed. Some industries, regions and countries enjoy accelerated and explosive growth while others experience stagnation, dismemberment and decline. Personal income polarizes into increasing unlimited wealth for some, and ever more unacceptable unemployment and poverty for many others. Some firms and institutions are spectacular successes; many others live through demoralizing deterioration.
Fig. 2 shows how the polarization of income occurred in the USA during the two great surges of development for which it was the core country. One can observe the marked contrast between periods. In the two installation periods – before 1929 and before 2007 – nearly half or total income went to the top ten percent of the population (Picketty and Saez 2003) whereas this share was reduced to one third during the Deployment Period of the 1950s and 60s.
Naturally, when the major crashes expose this unfair distribution of the gains of the bubble and the many fraudulent activities that accompanied it, the politicians will be subjected to powerful opposing pressures: On the one hand, there will be the anger of the majorities left behind and, on the other hand, the pressure of the privileged defending the status quo. The capacity of politicians and policy makers to understand what is really at stake will determine the success or failure in controlling finance, favoring the flourishing of production and employment and benefitting the great majorities of the population. Unleashing the potential Golden Age is likely to depend on the capacity to reverse the polarization of incomes, regions and industries.
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Today, there are three major spaces for innovation: First, the current revolution: information and telecommunications (ICT); secondly, the future revolutionary technologies: biotech, nanotech, new materials, etc.; and, finally, all the other industries shaped by previous revolutions, from agriculture to services. Which of these should be encouraged by public policy? It depends on the conditions of the country or region, its resources, its capabilities, its location in the global economy and many other factors. However, a country as large as Russia in territory and population can aim at supporting the development of all three spaces but each with a different purpose and with different expected employment and income results.
Enhancing the installed capacity in information and communications technologies (ICT), providing low-cost universal access and increasing the capabilities in software, instruments, telecom and networking, provides synergies for the whole economy. That is because ICT forms the basic technical infrastructure for innovation and growth in any sector.
The development of radically new products and processes in biotech, nanotech and other future technologies cannot lift the whole economy but is the guarantee of a self-reliant future. However, rather than growing in isolation, these new technologies would flourish best if developed in connection with the upgrading of the natural resource industries and the enhancement of other industries and services. This would maximize synergies to the mutual benefit of users and producers of the new technologies.
The modernization and rejuvenation of all other industries, from agriculture to services, could become the main source of employment and the best form of income distribution and healthy economic growth, especially in a country as big as Russia, with a potentially huge domestic market. But in order to generate significant synergies, this wide ranging support of the whole production spectrum needs a clear direction for innovation. In the current conditions of the world economy, the obvious direction is towards a ‘green’ knowledge economy. This implies energy and materials saving at all stages of the value chain and fostering creative organizations capable of continuous improvement (Lorenz and Lundvall 2011).
Each industry (and each company) needs to analyze its best market targeting: local, regional or global; massive or segmented; customized or specialized; taking advantage of the size of domestic demand and so on, in order to define the type of price-quality relationship required.
Equally, they must define the main challenges for innovation, whether responding to environmental, demographic or other requirements; whether innovating around the natural resource endowment or catering to the peculiarities of domestic markets (traditions, preferences, climate, distance, etc.) or aiming for radical innovations (such as in biotech and nanotech), interconnected with high growth sectors and rooted in existing strengths.
But such complex and multiple decisions cannot be made by the government alone from above, nor can the markets act in isolation and disconnected from government and stakeholders (consumers, workers, shareholders, communities, etc.)
In a globalized economy, after the crisis, each country, each region, each locality must collectively define a clear direction for production and innovation, together with the business sector, and support it with adequate government policies.
The conditions are there to bring a period of growth and welfare for all but, in the current global context, this aim is more likely to be achieved if there is a shared consensus vision between business, government and society."