The New York Times technology blog features some interesting comments from Carlota Perez, author of the superb book Technological Revolutions and Financial Capital. Perez places the current technology “bubble” into a broader context. She distinguishes between two current phenomena: stock-market speculation, which is “an echo of the previous tech bubble,” and the acquisitions of smaller tech companies by larger ones at very high valuations:
Historically, what has happened after the collapse of the major technology bubbles is that the new industries establish stable structures (tending to oligopoly) by absorbing the weaker players and defining the competitive boundaries through mergers, acquisitions and divestitures. The current battles for industrial leadership and restructuring in each sector are being fought like the auctions at Sotheby’s. Nobody knows how much each company is really worth (or going to be worth in the future), but if that little company defines who the winner will be in this potential trillion dollar industry, then “we must get it at whatever price.” With no flood of money, this would have happened at bargain prices rather than inflated ones.
We are seeing, in other words, an unusual twist to the normal pattern of bubble-collapse-consolidation that Perez documents in her book. The post-bubble consolidation phase, which would normally play out against a backdrop of depressed prices, is this time, thanks to a new burst of financial speculation, playing out against a backdrop of inflated prices. What’s mysterious is “why the NASDAQ bubble didn’t play the usual role of these major technology bubbles, of clearing the decks and going back to fundamentals.”
She ends on a dark note. Normally, after a bubble, we shift from wild competition and financial speculation to a more stable economic situation, dominated by a handful of larger companies that operate in an “intelligently regulated” market. It’s at this point that wealth spreads out to the population as a whole rather than being concentrated in the hands of the lucky, aggressive, or powerful few:
That is when each revolution produces its “Golden Age.” During the roaring twenties and the brilliant nineties the rich got richer and the poor poorer. The second half of diffusion of each technological revolution spreads its benefits much more widely. But, if it continues to be finance and not production that calls the shots, that golden age may never arrive and the current “gilded age” may continue indefinitely.
That’s not a happy thought.