In my related posts, Five great technological revolutions and The coming infrastructure boom, I described – and perhaps oversimplified – Carlota Perez’s insights into the dynamics of bubbles and their ensuing golden ages (her book, Technological Revolutions and Financial Capital requires some work, but is worth the effort). In this post, I will attempt to do justice to the broad implications, to be followed by a post on what all this might mean for organizations. As always, comments, insights and questions are welcome!

The first noticeable change during the Turning Point (described here) is in who is optimistic, portending a shift in economic leadership. Writes Perez:

The atmosphere is likely to be quite different from that which prevailed during the casino economy, because real growth in production becomes the basic source of wealth. The confident optimism of company expansion replaces the arrogant self-complacency of cunning speculation.

The second is in the changing rules of the economy. It is

a time of orderly and ordered behavior. If regulation of the economic world was put in place during the Turning Point of the recession, it is generally accepted; if it was not, it is consistently sought by social and political forces…[for example] accountancy and disclosure legislation is usually enacted to avoid the specific abuses revealed during the previous Frenzy.

This creates new opportunities, first in in the financial markets:

  • [The industrial revolution] saw the multiplication of country banks to help industrialists make local payments, to move money between the country and London, especially  that of traders, and to facilitate collection of government revenue.
  • To usher in the Victorian boom, checks became means of payment; joint stock which had been developed for large projects became more common; vendor shares, debentures, preference shares and other instruments made the incipient capital markets flexible and adaptable…
  • The post-Second World War golden age was facilitated as much by the Bretton Woods agreements as by the development of ample personal banking services, widespread consumer and home buying credit (both made less risky by unemployment insurance); urban development financial schemes, specialized banking and other arrangements for the smooth function of the fast-growing real estate and insurance sectors…
  • It is clear that the burgeoning knowledge economy will require a very wide range of new instruments and even the overturning of some ‘eternal truths’ about the tangible nature of assets.

In other words, if you’re an out-of-work banker, start thinking now about what new instruments will be needed.

Next, I think, is where individuals – engineering, marketing, production and especially those who can harness the power of human capital – and organizations will succeed if they possess, and can act on, foresight. As the invisible hand drives them to find new avenues for wealth creation, technological innovation might

…move from an intense period of exploration, led by financial capital and its goals, to a period of consolidation and expansion of markets…One of the avenues for innovation is facilitating widespread adoption by making the products truly user friendly…An avenue somewhat related to that one is to pursue wider and larger markets. The concentration of income in the frenzy phase is likely to also have concentrated innovation on the luxury end of the market spectrum. Conditions for improvement of income distribution in the deployment period could guide innovations toward cost reductions in the more basic version to expand markets as fast as incomes allow…

Process innovations become a focus of attention as soon as achieving market volume becomes one of the main determinants of profits. Speed, reliability, quality and cost reductions receive special attention and can lead to major advances…There are two areas, though, where cost reduction innovations are crucial for the growth of the whole economy: the core inputs and the infrastructure. If these are cheaper and better, more and more producers will use them to modernize their products and processes and to increase their own markets.

Perez cites some examples:

  • In the third surge [steel, electricity and engineering], ever-cheaper steel and ever-cheaper rail and sea transport accelerated the development of transcontinental markets from the 1890s.
  • In the fourth [oil, automobile and mass production], the cheapening of oil-based fuels, electricity and road transport gave positive support to the very high growth rates of national and mass markets.
  • It is likely in the fifth [the one we will soon enter – DH], this growth-enhancing role will be played by the ever-lower cost and ever-wider use of microelectronics and telecommunications.

In my final post (patience – these are hard work!), I’ll describe some implications for organizations, building on the rather significant evolution of operating models that occurred in the last phase enabled by the available technologies / infrastructures:

  • large industrial-aged functional ‘command and control’ organizations in the tabulator age;
  • process-driven organizations made possible by mainframe / back office processing; and the current focus on core v. non-core processes (often -sourced: out-, near- and in-…) enabled by the client-server / Web 1.0 era (demonstrated by the success of India programmers addressing Y2K challenges for much of the rest of the world),
  • leading to the potential proffered by emerging Web 2.0 / networked  eco-systems,

all in turn driven by ever greater demands for speed and flexibility.