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A message of hope in turbulent times

By Carlota Perez

This blog is based on a keynote speech given by the author at the European Union’s 8th Cohesion Forum on 18th March 2022. A video of the talk can be viewed above.

Despite the turbulent times we are living through, I would like to transmit a message of hope.

I will begin by sharing with you two very important lessons I have learned from studying the history of technological revolutions.

If we follow the processes of change since the dawn of capitalism in England, in the late 18th century, it is clear that progress has occurred. We have come a long way from the ‘satanic mills’, of early mechanisation, to a situation where many factory workers can own a house full of electrical appliances with a car at the door, while their children go to university.

However, such progress has not been continuous. And that is the first lesson.

Progress has been uneven and unequal. It has happened by successive leaps in productivity, brought by successive technological revolutions. Each revolution has brought new prosperity to some regions and countries, new wealth to new winners, and gradually new business giants. But each of these revolutions has, at first, brought turbulent times, the destruction of skills, jobs, industries and even whole regions that were successful before. So greater equality has been reached only after going through periods of increasing inequality, as we are experiencing now.

The true leaps have occurred in what we usually refer to as the golden ages, the post-war boom, the Belle Epoque at the turn of the 20th century and the Victorian boom in the mid-19th century. Each has taken place when governments have given directionality to the new technologies, when they have tilted the playing field so that markets can act in a synergistic way, in converging directions. They have also reversed much of the inequality, through welfare mechanisms and also regulated the new business giants to make sure that their power for wealth creation benefits wider layers of the population. That is how capitalism regains legitimacy.

However, the other lesson I have learned about market economies is that they don’t respond in advance; they mainly respond to crises. Although successful businesses are those that look ahead and innovate first, governments wait until a crisis hits, until the situation becomes untenable, before acting to solve it. No matter how much experts may warn of impending risk, change will not be made before reaching the precipice. Rebellion, resentment, populism, violence, even wars, put the system in peril and leaders finally emerge and act.

We are reaching that moment now. But whereas violence can be quelled and inequality is reversible, climate change is not. This time the urgency is greater than ever; the future of humanity is at stake. There is no time to lose.

In essence, it could be said that real progress has occurred for successively larger portions of society, when technological revolutions have been followed by a socio-institutional revolution. They are periods of win-win games between business and society, orchestrated by governments. And they all came after turbulent times.

And I am not exaggerating when I refer to an institutional revolution. The post war golden age was shaped by suburbanisation and the Cold war, involving government procurement and social policies, from unemployment insurance to public health and education, together with the strengthening of labour unions.

It also included major international institutions (the World Bank, the IMF, the dollar gold, the UN where the enemy countries sat together). And also a Marshall Plan to reconstruct Europe.

That whole framework is now weakened and ready for revision and renewal

Professor Carlota Perez giving the keynote speech at the European Union’s 8th Cohesion Forum on 18th March 2022

We are today in a moment of multi-dimensional crisis that is calling for bold leadership. War, soaring energy costs, an increasingly tense multi-polar world, a worldwide pandemic, unacceptable inequality within and between nations, as fertile ground for populism, terrorism and massive migrations, a global financial casino decoupled from the real economy and disconnected from the national economies, massive tax avoidance and money laundering, all in the context of the environmental emergency, already showing what can happen in terms of fires, floods, droughts, hurricanes and other catastrophes.

Yet, it is precisely because the situation is so dire and the urgency so blatant, that there can be hope. And on this occasion, it is Europe that can lead the transformation towards the golden age of the information revolution, which could be smart, green, fair and global.

Europe did not lead the technological revolution of the information age; but it is well placed to lead the socio-institutional revolution required now.

There are four reasons for this:

Firstly, although the EU is not the hegemon on the world stage, it is probably the most credible mediator.

Secondly, it has already faced the complexities of multi-national and multi-level governance and is still innovating.

Thirdly, since the late 19th century, Europe has been at the vanguard of innovation in social safety nets.

And lastly, regarding the green transition, both the EU and its member governments as well as its population have taken the green transition seriously and have been acting upon it.

This is important because the three areas where major institutional innovations are probably needed today are (1) multi-level governance, (2) the redesign of the Welfare State and (3) the promotion of green lifestyles.

New forms of governance are needed to handle an economy that is both global and local;

A new safety net is necessary for the intensity of technical change, the growth of self-employment, the gig economy and lifetime learning,

And new lifestyles are required for both social and environmental sustainability.

In what sense must supranational and global governance respond to the new situation? There are major differences between the international economy we have left behind and the global economy we are trying to grapple with. Global finance and global business are out of reach for the national authorities; and the multilateral organisations were not designed to handle this new globalised reality.

At a minimum we need a global institution capable of collecting a financial transactions tax from international transfers (especially the ones that go to tax havens) to fund a new Marshall Plan for green investment in the global South.

It should be noted that full global development is not only a humanitarian goal. It can be pursued for very selfish reasons. It would generate demand for capital goods, engineering and other high-tech services, creating jobs in the global North. It would also reduce migrations.

But, at best, some aspects of financial regulation could and should be handled at the global level. Otherwise it will be a race to the basement.

At the other end of devolution, there is the governance at the local level. The hyper-segmentation of markets into mass produced commodities at one end and long tails of specialised and customised products and services in small quantities at the other, makes it possible for every locality, every community, to identify one or more vocations and set a development strategy. This implies institutional innovations to handle stakeholder participation and consensus building. And, at the start, just as with entrepreneurs, it will require providing support in terms of human capabilities and finance.

Finally, regarding innovation in governance, there is the modernisation of procedures. The digital economy has provided powerful tools for simple, transparent and agile operation. It is not about computerising the traditional practices and putting them on the web. Rather, as in the most advanced corporations, stiff bureaucratic rules would be reduced to a minimum; services to citizens would be as easy, efficient and seamless as those of Amazon. Information technology, including AI, would be used to simplify standard procedures and concentrate on the creative tasks, on the achievement of missions, following Mariana Mazzucato’s lead, and the pursuit of development strategies.

The second area of urgent institutional innovation is the Welfare State. The obvious fact that jobs for life is no longer the normal expectation makes obsolete the notion of unemployment insurance. Self-employment and the gig economy, plus lifetime learning, create new circumstances. Whether it is universal basic income (using automatically charged debit cards for everyone, with the amount returned in taxes by those who earn enough) or if it is some other system, it looks like some form of ‘predistribution’ makes more sense in the new conditions. And, given that education is becoming the most important asset, policies that favour it and support it, similar to the ones applied to support home ownership need to be designed. Going much further in adequate social support, the work of Hilary Cottam shows interesting directions.

Finally, and perhaps most importantly for both the green transition and the creation of new employment, there is the promotion of a new European Way of Life to replace the consumerist, wasteful and untenable American Way of Life, which was so well suited to the previous mass production revolution.

Historically, many of the jobs lost to technology were compensated in the golden ages by the demands of the new lifestyles. The urban lifestyle of the Victorian boom required infinite new services in retail, house decoration, clothing, education and so on. The cosmopolitan lifestyle of the Belle Époque created innumerable jobs in the new systems of transportation, entertainment, communications, advertising, restaurants, cafés, music halls etc. The suburban lifestyle of the post-war boom required countless products for the all-electric home as well as multiple services from retail, banking and real estate to health, education and others.

If we look at the trends being followed by the young and the educated, we will see an emerging lifestyle centred on health, exercise, creativity, nutrition, learning, networking and so on. This is how it has historically been. The technologies offer new possibilities and the pioneers set the trend. A new aspirational way of life emerges which in turn influences the technologies and business, creating new demands along the new space of the possible. Government policies then reinforce the trends and facilitate further diffusion.

We are now facing three job-destroying and job-displacing forces: technology, globalisation and the green transition. They could all be turned into job-creating, if handled intelligently. The creativity of digital technologists can be moved away from games, NFTs, the metaverse and other escapist endeavours and aimed at crucial social needs such as health, education, care and the green transition. Some ways of facing the environmental challenges are job-destroying, while others are job creating. We can always begin with the latter.

Just imagine bringing back maintenance and shifting from possession to rental of durable goods. It would imply doing digital diagnosis and 3-D printing of spare parts (none would be produced for inventory, only on demand). People could change models as often as they wish and entry at the bottom of the consumption ladder would cost very little. Every product would have a chip with its history and all maintenance information would be online. Policies forbidding disposal in municipal garbage sites and an obligation to take products back when damaged would open the opportunity for rental companies. Jobs would multiply in the countries where the goods are produced, and in the countries where the goods are consumed. This could create millions of jobs. And every family in the world could have access to a refrigerator without needing new materials.

The tasks ahead are both enormous and exciting. Europe can be the stage where institutional innovations are tested and turned into the model for the rest of the planet.

It is a leadership opportunity that can bring a better world.

It would be making history.

Watch the full plenary of the European Union’s 8th Cohesion Forum below, featuring presentations from Professor Carlota Perez; the President of the EU Commission Ursula von der Leyen; the President of the European Parliament Roberta Metsola; the French Minister of Cohesion Joël Giraud; and Professor Joseph Stiglitz .



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UCL Institute for Innovation and Public Purpose

UCL Institute for Innovation and Public Purpose

Changing how public value is imagined, practiced and evaluated to tackle societal challenges | Director: Mariana Mazzucato | Deputy Director: Rainer Kattel