Thread by @east_cap, Many have framed the trade war as a tech war. That led [...]

Many have framed the trade war as a tech war. That led me to thinking about it using Carlota Perez @CarlotaPrzPerez framework for techno revolutions.

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Many are already familiar with her framework but below a brief description followed by some personal thoughts.

It’s been a while since I last reviewed her book so feel free to jump in.

According to Perez there have been 5 techno revolutions, each one lasting 50-60 years. Each full cycle is made up of two halves, lasting 25-30 years, separated by a turning point.

The 1st half is an Installation phase where new technologies emerge, capital is invested, old tech gets disrupted (often social backlash) and the new tech gets increasingly hyped up. Eventually this leads to a bubble which of course eventually bursts. This is the “turning point”.

The 2nd half is a Deployment phase where the new tech gets “accepted” by society and integrates itself more fully with daily life. This integration is often done in collaboration with government.

According to Perez, the current cycle (Age of Information and Telecommunications) began in the 1970s, and this led to the tech bubble which burst in March 2000 and subsequent turning point.

This is an excellent interview by @fredwilson where Carlota explains how in the current cycle we’ve actually had a turning point led by 2 bubbles, the Tech bubble 2000 and GFC 2008.

It is not unusual for the turning point to last several years or even a decade. In her book she openly admits that the timing of cycles is not exact - that’s not really something to dwell on but I have some thoughts.

I think there’s increasing evidence that the cycles will get shorter, and there may be several overlapping micro cycles. This is due to the nature of software and how it is deployed.

If you don’t believe in “this time it’s different”, I would suggest you look hard at how new technology was installed and deployed in the past vs. today.

Today, a lot of new tech (esp software) is deployed practically instantaneously.

There is less and less physical infrastructure required at the user level and most of it has already been centralized by the smartphone. The zero marginal cost nature means deployment is essentially frictionless (ex search costs / CAC).

At the same time, that software is allowing knowledge sharing to grow exponentially.

The internet is allowing more and more people to pick up on ideas all over the world, to further develop and expand on them, and share that with everyone all over again. See @PeterDiamandis

Does this change long term cycles?
Maybe not.

In some of her more recent interviews, Perez believes we are now coming out of the turning point, entering the golden age. Tech is becoming fully installed and will drive a huge capacity for wealth creation.

There are signs that this is the case:

But at the core of what drives the deployment phase is often a collaboration between business and government - essentially trying to resolve the friction that existed during the first half of installation.

For that to happen however, government needs to engage with tech companies, they need to work together to figure out what are the right steps to take.

But as Perez points out, it’s often important that there is a change in regime at the government level. She says we need to get rid of previous government constraints that were suited for previous revolutions but aren’t right for current one.

So the government needs to be willing to accept new tech companies and work with them not against them.

While I do think there’s a willingness on behalf of tech to work with government, politicians (whether populist driven or not) seem more intent on handcuffing tech companies.

This is in sharp contrast to China where the government is fulling leveraging the scale of tech companies to make their own job easier.

Here I think it's important to note that the business of some companies in China, notably e-commerce, is much more aligned with government needs (to increase consumption) than others.

The opposite is true of those involved in video content/gaming/social media or other forms of entertainment in China where the actual product itself is under intense scrutiny.

However, there is another goal that the PRC has which is aligned with ALL domestic tech companies - to become a tech powerhouse.

Whether that means there will a few dominant ones or a lot I dont know (its easier to monitor a few) - but I will bet they will be very capable.

Another interesting difference with other markets is that in China, the social unrest that often accompanies the installation phase doesn’t “exist” in the same way

There are many obvious reasons but one is because tech has done more to generate wealth than to destroy it in China. Many of the previous technologies or infrastructure simply didn’t exist (ex. Modern retail in lower tier cities).

Bringing this back to Perez…

One of the most interesting things about the tech revolutions as described in her book is that they have often been accompanied by a change in geographical leadership. For example UK=>US.

Is a transition in tech from US => China happening now?

I don’t think so. I don’t see why they both can’t succeed.

Over the longer term some of that will depend on what plans US regulators have. Will the next government work with leading US tech companies or against them? Will regulatory measures sacrifice international leadership for anti-trust?

Battle lines being drawn