Technological Revolutions
The bubble is in the script
Frenzy is how installation gets funded
Carlota Perez, Technological Revolutions and Financial Capital
Canals, railways, steel, cars and the internet each ran mad in turn. This piece asks why Perez calls the madness part of the process.
What actually happened?
Perez traces five technological revolutions across two hundred years and finds the same script every time. Each divides into an installation period and a deployment period, with a turning point between them that usually shows up as a crash. Installation is led by financial capital: hot money, valuations detached from reality, fraud breeding in the frenzy. But that over-investment is exactly what lays the new infrastructure at a scale rational capital would never fund. Britain's rail network and America's fibre were both built with bubble money. Then production capital takes over and the golden age begins on the wreckage.
Frenzy is the financing mechanism for premature infrastructure
On a rational return calculation nobody lays a national rail network or a continent of fibre in one go, because the demand does not exist yet. The bubble's function is to bypass that calculation. The losses belong to the investors; the infrastructure belongs to everybody.
The cloud capacity, logistics networks and developer ecosystems the last cash-burning war produced are the ground this generation of founders now buys at cost.
One technology, two markets, two playbooks
Installation rewards whoever can tell a story, raise money and grab ground. Deployment rewards whoever takes the cheap infrastructure and runs a real business. The usual way to die is holding the wrong script: prudence during installation misses the window, and burning cash after the turn meets a room with no money in it.
Companies still raising on lose money for three years to buy scale cannot raise after the crash. Those buying bankrupt rivals cheaply and minding unit economics are on the right side of the turn.
The turning point has two readings
To place yourself in the script, Perez's features work as instruments: how far valuations have detached from real revenue, and how dense the fraud scandals have become. When both spike together the turning point is close. Cheap assets everywhere afterwards, with real demand surviving, opens deployment.
When money raised on narrative in a sector dwarfs the total revenue of the companies that have revenue, and the fraud headlines start clustering, the move is to draft the shopping list.
How do I use it today?
Where you are: your field is either in the middle of a capital frenzy or just out of a crash.
Ask first: installation or deployment? And which of the two scripts is the playbook currently in my hands written for?
Where it goes wrong: using bubbles have a function as a reason to keep buying the top; or writing the technology off after the crash and missing the deployment period its cheap assets open.
Lines to keep
Every technological revolution has an installation period and a deployment period.
The frenzy builds infrastructure that rational capital would never have funded.
Golden ages begin after the crash, on infrastructure the frenzy paid for.
Same situation, other people are asking
Do I go all in now or wait it out?Everyone's piling in. Is being late actually fatal?The money pouring in looks insane. Do I stay out?Do I jump in now · all 3 questions →If this one named what you are going through,
send it to someone who needs it, or keep it somewhere you will find it again.