How the Carlota Perez Framework Explains Major Technological Disruptions and Related Financial Crashes

Carlota Perez is a well known economics scholar and her framework to explain major technological disruptions is well quoted. Basically she distinguishes an initial installation phase, followed by a deployment phase. But more importantly, her framework predicts a major crisis between both phases, generally in the form of a financial or stock market crash.

This approach is quite interesting historically and tends to explain some major crashes like the internet-induced crash of 2000, and previous crashes linked to the disruption of certain technologies (from railways to gasoline engines, see the summary of her book ‘Technological Revolutions and Financial Capital’ on Wikipedia). The point is “nothing important happens without crashes“.

Hence, destructive creation due to innovation also means financial crashes. They can’t be avoided because this is the crisis period where the previous technology becomes obsolete and leaves the way open to the new, disruptive technology. There is necessarily a switch in capital allocation and this happens through a financial crisis.

The argument is interesting, and one can wonder whether we may not take it the other way around: is each major financial crisis the reflection of an underlying disruptive technology taking hold, creating a deep transformation of the world?


How Peak Income Comes Always At a Younger Age for Each Generation

One of the graphs presented in Lord David WillettsHave the Boomers Pinched Their Children’s Futures?‘ (refer to previous post ‘How Demographics Can Only Explain Part of the Millennials’ Economic Situation‘) has struck a particular chord with me. In this graph we can see the revenue profile by generation according to age in the UK.

In the speech David Willetts uses the graph to show that for the first time younger generation’s income is lower than previous generation. However I find that the most interesting part of the graph is how it shows that peak income for each generation arrives at a younger age. For people born in the late 1940s just after WW2, it happened in their late 50s; for people born in the late 1960s, when they reach about 40. This all points to a ‘peak income’ sometimes in the decade 2000-2010 with income decreasing later for all.

This observation explains why those that arrive now on the employment market won’t find the same level of opportunities. It is also a question mark about current income levels – across all generations.

Therefore the interpretation of the graph is rather that there is a general loss of income in the last decade. It impacts the start of millennials’ careers as well as all other active generations. This is the key issue that needs to be tackled, rather than inter-generational transfer issues.


How We Will Increasingly Interact With Artificial Humans

The artificial human is on the rise, each with its own look and personality. No need to seek permission to use someone’s image anymore, the faces and personalities you’ll interact with don’t exist in the real world. And not only as pictures, soon in video as well, with the full range of emotions.

None of these exist in the real world

One aspect of it is brilliantly exposed in Seth Godin’s post ‘the End of Someone‘: endorsements have now no value. “In 2019, and perhaps forever, we’re now at a new level, one where the polish of photography or video is no longer any clue at all about the provenance of what we’re encountering. I don’t think we have any clue about how disruptive this shift is going to be“. Influencers wa may follow today sometimes don’t even exist (see our post ‘How Virtual Creatures Invade Our Connections and our World‘).

Like we, physical people, may today have several personalities in the virtual world, we’ll get increasingly mixed with purely virtual personalities. And it will become increasingly harder to distinguish one from the other. Fact-checking and source-checking is becoming an essential life and survival skill… as well certains skills to connect with AI-driven virtual humans, and maybe keeping the ability to connect face-to-face with real humans from time to time!

Welcome to the world of the virtual humankind. And a new increase in population, with the advent of a virtual set of humans!


How We Seem to Be Getting Collectively Sadder and Angrier

This post has really caught my attention: ‘Pop Songs are Getting Sadder and Angrier‘. It includes some graphs measuring average positiveness and negativeness of songs over time that show that songs get on average slower and gloomier.

Billie Eilish, revelation of the year with a rather gloomy repertoire

And it is true that the latest emerging artists seem to have on average a repertoire that is quite more depressed and gloomy than before. It would seem to be a deep trend that would seem to be going on since at least the 1960s.

If we suppose that it is a reflection of our overall societal mood, it’s rather not a good sign on the overall positiveness of our society at least in the western English-speaking world.

What is your feeling about the surrounding negativeness?


How Superstar Firms Are the Result of the Collaborative Age

In this interesting post ‘Superstar firms and market concentration‘ the economist Tyler Cowen quotes a paper that rebuts the notion that market concentration is rising because of inadequate antitrust concentration. The thesis is that super companies arise because of the collaborative age: global market availability, communication capabilities.

If globalization or technological changes push sales towards the most productive firms in each industry, product market concentration will rise as industries become increasingly dominated by superstar firms, which have high markups and a low labor share of value-added.”

The authors then make a number of predictions including that the pattern should be visible internationally, and that superstar concentrated firms will be where productivity increases most.

Still, the Fourth Revolution has created a concentration that needs to be regulated somehow. But we may underestimate the value of the possible scaling effect brought by modern communication capabilities.


How Human Contact is Becoming a Luxury

In this great New-York Times article ‘Human Contact Is Now a Luxury Good‘, the issue of diminishing daily human interaction is addressed. “Screens used to be for the elite. Now avoiding them is a status symbol.”

Human check-in, a luxury?

Our lives and interactions are indeed increasingly held through screens; not mentioning upcoming AI applications that will make us increasingly interact with virtual entities.

Of course, replacing humans with screens is cheaper, and requires specifically much less maintenance and management. Screens don’t have free will and are much less complex to manage.

And the luxury is now to avoid screens and have a direct human interaction. Moreover, the very rich increasingly try to avoid screens – like for their children.

As the article mentions, this is a very swift change from the 1980s and 1990s when having screens was a luxury, to the opposite now that they have become cheap and ubiquitous.

I think human contact remains much needed, and we need to find ways to both benefit from the productivity and convenience provided by screens, while keeping the density of human interaction. The balance will not be easy to find, and there may be substantial differences in outcome depending on wealth. Definitely an issue to keep in mind moving into the Collaborative Age!


How Mark Zuckerberg Needs and Requests Increased Regulation

In an amazing turn of events Mark Zuckerberg published simultaneously in several languages on mainstream newspaper an opinion end March that calls for increased regulation of social network activities (see the Washington post version here: ‘Mark Zuckerberg: The Internet needs new rules. Let’s start in these four areas.’)

First let’s note that this move is probably due to the underlying observation that lack of regulation may spell doom on his empire. What are the four areas he is calling for increased regulation?

  • managing better harmful content and getting external input on removal rules, as well as standardizing rules
  • better rules around political advertisement
  • a globally recognized framework around privacy and data protection aligned with the EU rules
  • guaranteeing data portability from one service to the next

Mark Zuckerberg concludes: “The rules governing the Internet allowed a generation of entrepreneurs to build services that changed the world and created a lot of value in people’s lives. It’s time to update these rules to define clear responsibilities for people, companies and governments going forward.”

I observe that the topics raised are mostly about making sure all competitors will be subject to the same scrutiny as Facebook and avoid competitors that would avoid the complication of those basic requirements. The request for regulation could go beyond this minimum.

Still it is a start, and with major social network players now asking for more regulation, the door is opened for a serious regulatory review of what has become a major tool in the world’s hands.


How Social Networks and Modern Media Isolate Large Parts of the Population

Specific groups of people, based on their condition and beliefs, have always preferred different means of information: politically-orientated newspapers have existed for a long time. Still the extent of isolation of certain groups of people has reached an unprecedented level. In the USA it would seem that “one third of the American electorate has been isolated in an information loop of its own. For this group, which mistrusts the mainstream press on principle, and as a matter of political identity, Trump has become the major source of information about Trump, along with Fox News, which has slowly been merging with the Trump government.” The detail is given in the Pressthink post ‘Hating on journalists the way Trump and his core supporters do is not an act of press criticism. It’s a way of doing politics.’

We have long noted that social networks tend to close one’s source of information to what is getting broadcast by his or her immediate connections. The extent of the situation in the US is however broader as some mainstream media, in particular the Fox News network, seem to have turned frankly one-sided; and because fake news are being disseminated from the highest governmental levels, with strong hate terminology being used as well. “These are people beyond the reach of journalism, immune to its discoveries. Trump is their primary source of information about Trump. The existence of a group this size shows that de-legitimizing the news media works. The fact that it works means we will probably see more of it.”

That this happens in a country where free speech and free press laws are among the strongest in the world show the extent of the transformation of news broadcasting our societies undergo. I do not believe the change is as dramatic as mentioned, but we need to be wary about it and track fake news and fake statements with more urgency.


How Innovation Cycles Became More Frequent Than Generation Cycles

I recently read an analysis of the current issue facing our societies which I found interesting: the fact that in recent times, the innovation cycles have become shorter than the typical 25-30 years generation renewal cycle.

Accelerating innovation cycles since 2 centuries

We know that it can be difficult for a generation to accept new ideas and concepts and that it often takes a generational renewal to transform beliefs and usage (by the way this effect is particularly important in scientific, academical and research circles).

With innovation cycles now becoming shorter than a typical generational cycle, we raise the challenge of people having to transform their worldview, way of working and usage of technology within their own generation. And it is clear that our society is not particularly well prepared for that challenge: for example, the lack of adult education and the fact that studies are generally uniquely undergone in younger years.

I like the idea to consider this observation as a potential root cause of many tensions and issues we observe in our current society. It is powerful enough to create a lot of good questions about the need to support current generations through a workplace and social transformation that will create 2 or 3 major transitions through their adult life.


How Various Meanings are Used for the ‘Fourth Revolution’ concept

This excellent post by Quartz ‘We’re thinking about the fourth industrial revolution all wrong‘ gives some perspective on terminology. It compares what is now generally understood as the “Fourth Industrial Revolution” (1st: steam engine; 2nd: oil & electricity; 3rd: internet; 4rd: digital) and what we name here in this blog the Fourth Revolution (1st: language; 2nd: writing; 3rd: broadcasting (printing etc); 4th: cheap 2-way communication).

Basic RGB

I like very much this article of course because it exposes that we should not be myopic and that the real change is akin to what we expose in this blog since the beginning. What is usually meant by the “Fourth Industrial Revolution” is in fact just a way to name a trend into the digital, but the real change is really very cheap, global, 2-way communication. In this article, it is mentioned as “the period of industrialized intelligence, rising with the mental-energy-saving inventions of the mid-20th century and continuing through today. Much as the industrial revolution dehumanized biological strength with machines, the displacement of biological intelligence with computers represents the dehumanization of intellectual labour. Projecting current techniques a few years forward suggests that autonomous systems will eventually be capable of outcompeting humans in every area where intelligence is the key component of production.”

To avoid falling in the trap of overestimating the importance of present trends, it is always worth taking a deep historical perspective. In any case, the current transformation is really a revolution, and probably much deeper than the concept of “Fourth Industrial Revolution” would imply: we are now beyond the Industrial Age!


How We Move From Avoiding Climate Change to Adapting to It

In this interesting Bloomberg article ‘New Climate Debate: How to Adapt to the End of the World‘ we can measure how the debate has shifted from avoiding climate change to adapting to it, because it appears to be inevitable.

As mentioned in the Fourth Revolution book, I expect there might still be another step which is how to engineer climate, but that’s probably still far away. Anyway, the interesting part here is that we are now to the point where adapting is becoming the mainstream approach – and avoiding social collapse at the same occasion: “Can modern society prepare for a world in which global warming threatens large-scale social, economic, and political upheaval? What are the policy and social implications of rapid, and mostly unpleasant, climate disruption?

The question is now whether climate change will be sudden and disruptive, or sufficiently progressive to allow for adaptation of current infrastructure. The question is open for the scientists, but it is quite possible, as is the case in natural phenomena, that the extreme events will drive any adaptation.


How Artificial Intelligence Transforms the Ad-financed Internet

Following up from our previous post on ‘How the Foundation Principles of Internet May be Flawed‘, the issue with ad-financed internet only came up to the surface with the emergence of powerful Artificial Intelligence. As described in this TED talk ‘We’re building a dystopia just to make people click on ads

It may seem like artificial intelligence is just the next thing after online ads. It’s not. It’s a jump in category. It’s a whole different world, and it has great potential. It could accelerate our understanding of many areas of study and research […] And these things only work if there’s an enormous amount of data, so they also encourage deep surveillance on all of us so that the machine learning algorithms can work. That’s why Facebook wants to collect all the data it can about you. The algorithms work better.”

Therefore, it is possible that the rising of AI combined with the ad-financed model is the fundamental reason why the Google and Facebook are excessively collecting data on us. The issue is that this may lead to “building this infrastructure of surveillance authoritarianism merely to get people to click on ads.” It might be time to change the business model of the internet.