"Finance and technical change: A long-term view"


2004. “Finance and technical change: A long-term view”, in H. Hanusch and A. Pyka, eds. The Elgar Companion to Neo-Schumpeterian Economics, Edward Elgar, Cheltenham, pp. 775-99

WP  “Finance and technical change: A Neo-Schumpeterian perspective" CFAP-CERF WP No. 14 , Cambridge Endowment for Research in Finance, Judge Business School, University of Cambridge, U.K.
 
Download: Finance and technical change CFAP-CERF WP No. 14- Cambridge U

2011. African Journal of Science, Technology, Innovation and Development Vol. 3, No. 1, pp. 10-35.

Download: Finance and Techn ch in AJSTID.pdf (762kb)

Abstract:

The paper presents an alternative model of the emergence and propagation of technological revolutions. It proposes an explanation of the clustering and the spacing of technical change in successive revolutions. It provides arguments for the recurrence of clusters of bold financiers together with clusters of production entrepreneurs and an interpretation of major financial bubbles as massive episodes of credit creation, associated with the process of assimilation of each technological revolution. It concludes by demonstrating that financial capital has a fundamental role in the articulation and propagation of technological revolutions.

Introduction:

Ever since Kuznets published his review (1) of Business Cycles questioning the sudden clustering of entrepreneurial talent that was supposed to accompany each technological revolution (2), Schumpeter's followers have felt uneasy about this unexplained feature of his model. Yet apparently no one has stopped to question Schumpeter's treatment of the clustering of 'wildcat or reckless banking', dismissing it as a random and unnecessary phenomenon to be excluded from his model, together with speculative manias (3)

Keeping Schumpeter's basic assumptions about innovations based on credit creation as the force behind capitalist dynamics, this chapter will present an alternative model of the process of propagation of technological revolutions. On that basis it will propose:

  • a) An explanation of the clustering and the spacing of technical change in successive revolutions;
  • b) An argument for the recurrence of clusters of bold financiers together with clusters of production entrepreneurs and
  • c) An interpretation of major financial bubbles as massive episodes of credit creation, associated with the process of assimilation of each technological revolution

The model is a stylized narrative, based on a historically recurring sequence of phases in the diffusion of each technological revolution, from its visible irruption after a long period of gestation, through its assimilation by the economic and social system to the exhaustion of its innovation potential at maturity. But it is not merely descriptive. It is constructed through the identification of possible causal chains between agents and spheres in capitalist society. What the model attempts to do is identify the repetition of certain underlying patterns and to propose plausible explanations.

The reader is asked to keep this purpose in mind, together with the additional caveat that neither the evidence nor much subtlety can be included in the limited space of a chapter (4). Suffice it to say that this model is not a straitjacket to be forced upon history. Rather than ignore the immense richness of historical evolution, it emphasizes the uniqueness of each occurrence and recognizes the many irregularities and overlaps that cannot be captured by abstraction. Its only claim is to serve as a useful heuristic tool for historical exploration and as a framework for theoretical analysis.

  • (1) Kuznets (1940), pp. 261–2
  • (2) Schumpeter (1939:1982) p. 223
  • (3) Schumpeter (1939:1982), pp. 792, 877
  • (4) For a more complete presentation of the model, see Perez (2002)

Table of Contents:


A. The entrepreneur and the banker
B. The double character of routines as obstacles and guides for innovation
C. Techno-economic paradigms as the meta-routines for a long period
D. Production and financial capital: different and complementary agents
E. Technological revolutions and great surges of development
F. The sequence of diffusion of each technological revolution
G. Why technical change occurs by revolutions
Embedded paradigms as inclusion-exclusion mechanisms
Exhaustion of opportunity trajectories leading idle money to search elsewhere
The role of finance in fostering the new paradigm
An endogenous process with a specific rhythm
E. Financial bubbles as massive processes of credit creation
The power of finance backing the paradigm shift
The making of the bubble
When the job is done, it’s time for the changeover in leadership
F. Summary and Conclusion
Finance and paradigm shifts
Clusters of bold financiers and the invisible hand for credit creation
The research ahead
Publications
 

"TECHNOLOGICAL REVOLUTIONS AND FINANCIAL CAPITAL:The Dynamics of Bubbles and Golden Ages"

Published 2002

'...the book fills an important gap in the literature on business cycles and innovations. I most strongly commend it to all those attempting to understand the past and future evolution of technology and the economy.'

Christopher Freeman, Emeritus Professor, SPRU,
University of Sussex, UK

'...Carlota Perez shows us that historically technological revolutions arrive with remarkable regularity, and that economies react to them in predictable phases. Her argument provides much needed perspective not just on history, but on our own times. And especially on our own information revolution.'

W. Brian Arthur, Santa Fe Institute, New Mexico

‘For contents page, selected extracts and further details, click here’.

Technological Revolutions Financial bubbles Installation Period Frenzy Deployment Period Golden Ages Dual strategy Techno‑economic paradigms Neo‑Schumpeterian Respecialization Synergy Turning Point Future markets Knowledge society Green growth Maturity Full global development Globalization Sustainability Socio‑economic development Paradigm shifts Irruption Market hyper‑segmentation