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Perez describes a coming Golden Age, the digital build-out that's just in front of us. But we're getting ahead of ourselves. How and why can this emerge from our current economic stall? The patterns of history provide us with the guide.
Riding the Waves
When we look back at the invention of the cotton gin, the internal combustion engine, and alternating current, we might sometimes think that one day there was an invention and the next day everything changed. But that's not how the world works. In virtually every case, there was a long and bumpy road connecting one era of business and technology to the next; the evolution of each industrial revolution follows the path of an S-curve (as shown in Figure 2.2).
Figure 2.1 Luddites in the early 1800s
Figure 2.2 The S-Curve and the Stall Zone
Why an S-curve? Historically, upon the introduction of new technologies, associated GDP does not rise for decades (the bottom of the S-curve). Select individuals and companies might get rich, but society overall does not. Yet once the technology fully grabs hold, usually 25 to 35 years into the cycle, GDP experiences near-vertical liftoff (the middle of the S-curve). All current members of the G7 nations have experienced this previously – for example, Great Britain rode the steam engine to massive GDP growth in the 19th century, and the United States did the same with the assembly line in the 20th century.
Over time, as the technology is fully adopted and finds its way into most every industry and part of the globe, GDP growth wanes (the top of the S-curve). This is where we are today with the industrial economy of the Third Industrial Revolution. The model of production is well understood, widely distributed, and commoditized. (Consider, for example, the nearly 23 million motorcycles produced in China in 2013.)23 This top-of-the-curve, flattening-out is what's behind our current economic malaise.
This S-curve pattern of innovation, stall, rapid expansion, then maturity has occurred with the previous three industrial revolutions, and to date it's playing out in the early stages of our computer-driven Fourth Industrial Revolution (as shown in Figure 2.3.)
Figure 2.3 S-Curves and Industrial Revolutions
Currently we find ourselves at the end of the stall zone and are entering rapid expansion. But this situation of being between stages is also why we have such confusion in today's markets between the optimistic technophiles and the pessimistic economists. Both groups are right if their aperture is focused on the past 20 years (which, for most observers, is often simply based on their own personal experiences). However, in expanding the view over a broader arc of economic history it becomes very clear as to where we are, where we have been, and (most importantly) where we are headed.
To reinforce this point, let's take a closer look at recent history and how these periods fit within Professor Perez's model.
The Burst of Innovation (1980–2000)
The advent of the PC, Steve Jobs's original Mac, Bill Gates becoming the world's richest person, the Internet explosion, the wiring of our corporations. It was all so very heady. It was “the time of the great happiness” as remembered in the technology industry, at least until it all ended in tears with the dot-com bubble and bust.
Similar bursts of innovation have occurred at the beginning of each industrial revolution, paving the way for the great fortunes of titans such as Cornelius Vanderbilt, Andrew Carnegie, and John D. Rockefeller. But this wealth was highly concentrated, because the new technologies and their associated business models were understood and implemented by only a few. The public at large would marvel at the new machine of its age; it would garner lots of press and capture the collective imagination, yet its reach was still limited and highly concentrated in a few industries and geographies. Invariably, when too much capital would start chasing too few implementers, financial bubbles would result.
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