Given AI’s continuing advances, many observers argue that we’re entering a new technological revolution. But are we? To make sense of the moment we’re living through, it’s helpful to step back and look at the broader historical patterns that have shaped past waves of disruptive innovation. Few scholars have done more to illuminate these patterns than Carlota Perez.
In April 2003, Perez published Technological Revolutions and Financial Capital, a book that explored the connection between technological revolutions, financial bubbles, and economic development. Perez, — a British-Venezuelan researcher, author, and international consultant, — is affiliated with University College London, the University of Sussex, and the Tallin University of Technology in Estonia.
In her influential book, Perez argues that technological revolutions have long been engines of growth, regularly rejuvenating and transforming economies and societies. Over the past 250 years, she’s identified five technological revolutions, each unfolding roughly every 40 to 60 years. The first was the age of machines and factories, which launched the Industrial Revolution in Britain in the 1770s. It was followed by the age of steam, coal, iron, and railroads in the 1830s; the age of electricity, steel, and heavy engineering in the 1870s; the age of automobiles, oil, and mass production in the early 1900s; and, finally, the age of information and communications technologies (ICT), semiconductors, and computers beginning in the 1960s.
According to Perez, technological revolution consists of two very different periods, each lasting 20 – 30 years. The installation period is an era of creative destruction, when new technologies emerge from the lab into the marketplace, entrepreneurs experiment with new business models, and venture capital fuels waves of innovation and speculation. These dynamics almost inevitably lead to a financial bubble, which eventually bursts.
The deployment period follows the crash, — a time of institutional recomposition. The now well accepted technologies and economic paradigms become the norm; the new infrastructures and industries are better defined and more stable; and production capital drives long-term growth and expansion by spreading and multiplying the successful business models. Over time, new paradigms significantly transform the economy and everything around it, as well as re-shaping social behavior and the institutions of society.
I first met Perez in 2005 when she visited IBM and gave a lecture based on her book, and we have stayed in touch ever since. From time to time I have asked her when we would finally enter the deployment period of the ICT revolution. Her answers have consistently been that despite the dot-com crash in the early 2000s, and the housing market crash in the late 2000s, the broader financial corrections necessary to usher in the deployment period had still not taken place.
In a 2017 roundtable discussion Perez was asked to comment on whether our current digital era differs from the four earlier technological revolutions, given that more than 50 years have passed since the emergence of ICT, — the longest period in her historical framework. She replied that the ICT and digital revolution has produced the deepest transformation of everyday life and spread farther across the world than any prior revolution. Yet, even after 60 years, it remains incomplete because it has not fully changed our overall way of life to the same extent as earlier revolutions.
A few years ago, I asked her whether the emerging AI revolution should be considered the start of a sixth technological revolution. She replied that AI is better understood as a continuation of the ICT and internet revolution. She replied that AI is better understood as a continuation of the ICT and internet revolution. And in early 2024 she sent me an article, “What Is AI’s Place in History?,” where she lays out her argument. Let me summarize her key points.
“Everyone is talking about artificial intelligence as though it represents the next technological revolution,” she wrote. “In fact, it is better understood as a key development within the still-evolving information-communications-technology (ICT) revolution, which started in the 1970s with the microprocessor. It then made a big leap in the 1990s when the US government handed the internet over to the private sector, and with the intensification of both innovation and globalization.”
Perez core argument is that a revolutionary technology is not the same thing as a technological revolution. AI is undoubtedely a revolutionary technology that will eliminate, create and transform many jobs, companies, and whole industries. “But it belongs to a much larger technological revolution that is still in the middle of its diffusion process, having already passed through two major stages of innovation. The first was based on microprocessors, computers, and software, and the second on the internet and the globalization it enabled.” AI should now be seen as the third chapter in the ongoing ICT revolution.
“But the crucial point,” she adds, “is that AI depends on the internet, which in turn depends on powerful microprocessors and computers. They are all part of the digital transformation, which centers around technologies that are mechanizing mental, rather than manual, work.” Looking ahead, Perez suggest that the next technological revolution may emerge from the convergence of AI with biotechnology and a new advanced materials.
She then provides a historical analogy to help explain why AI should be viewed as part of the ICT revolution rather than the start of a new one. During the third technological revolution — the age of electricity, steel, and heavy engineering — electrification was a revolutionary technology that transformed cities, transportation, and factories.
Electrification has been called “the greatest engineering achievement of the 20th century” by the National Academy of Engineering. It came to define modern urban life, illuminating theaters, streets, hotels, and homes with safe electrical lighting. Electric tramways enabled cities to expand, and new technologies replaced hydraulic systems with electrical power, enabling the construction of skyscrapers. Eventually, as electrification spread, it changed life for everyone.
Electrification also transformed manufacturing. Factories no longer had to rely on sprawling conveyor belts driven by central steam engines; instead, electric motors could power individual machines, paving the way for the assembly line — a breakthrough that revolutionized manufacturing in the early 20th century.
“It certainly looked like a revolution,” Perez wrote. “But electricity depended on the availability of inexpensive steel, without which neither electrical equipment nor long-distance cables would have been possible.” In this sense, electrical engineering became one more branch within the broader steel and heavy-engineering revolution. Likewise, every technological revolution creates the conditions for a succession of revolutionary technologies that appear later and merge into a widely diffused technological system.
“This sequence helps us see where AI is today,” she noted. Some revolutionary technologies blend into the larger system, while others serve as forerunners of what is to come. That was true of steel and electricity in their time, and of early computers in the 1950s and 1960s, before they became central to the ICT revolution once microprocessors emerged.
“AI is certain to become an integral part of the current digital revolution,” she concludes, “and it could also lay the groundwork for breakthroughs in biotech, nanotech, and other fields that may be at the center of an eventual sixth revolution.”
“It is understandable that most people regard the new AIs as the start of a new revolution,” Perez writes. “After all, the ICT revolution has already spanned generations, producing successive technologies that have opened opportunities for thousands of entrepreneurs to try their luck at becoming billionaires.”
“But the maturity of the ICT revolution implies that we should know how to manage it now. Yet its trajectory remains highly contingent because technologies can evolve in unforeseen directions. In some cases, they can help steer the economy toward more sustainable and inclusive growth. But if not properly directed, they can yield increasingly dysfunctional results. Imagine an ever-more unequal economy in which many people spend their time in the metaverse while climate change runs amok.”
“AI — along with robotics, the IoT, quantum computing, CRISPR gene editing, and all the other technologies made possible by powerful microelectronics and the internet — will indeed play a major role in shaping the future. But if AI’s development unfolds in a system where financial markets remain unregulated and decoupled from the real economy, it is unlikely to move us in a more environmentally, socially, or politically sustainable direction. Changing this broader political-economy context has become the most urgent task of our time.”