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The Great Surges Theory and AI
This theory, not well known outside the tech and VC community, has something to say about the existence or not of an "AI bubble"
Jeff LaPorte
November 08, 2024 • Estimated Reading Time: 8 minutes
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A workable theory of revolutionary tech
In the aftermath of the dot com bust of 2000, an economist named Carlotta Perez published a book proposing a theory of technological change. It's been very influential although never reached the level of awareness enjoyed by disruption theory and The Innovator's Dilemma.
Her book is dryly called Technological Revolutions and Financial Capital, and presents a theory called the "Great Surges Theory". It examines five past technological revolutions and identifies that each one exhibits a split: into an "Installation Period" and a "Deployment Period", divided by a collapse. |  Carlotta Perez |
According to the theory, the installation period consists of a technological explosion followed by a “frenzy” of development of the technology, requiring a huge input of financing that is supplied by “speculative” financial capital. The speculative capital inflates a financial bubble which then pops in a collapse.
Following the collapse, a “turning point” occurs in which institutions create the conditions for the developed technology to find application throughout the economy. This opens the “deployment period” in which applications of the technology financed by non-speculative “production” capital lead to a “golden age” of sustainable growth, until maturity and the eventual arrival of a new surge, based on a new technological paradigm.
Perez’s theory gained recognition among the tech and venture communities because it provides an explanatory framework for the appearance of a financial collapse in the middle of the spread of a revolutionary technology - which provided insight into the dot com bust tech and venture capitalists had suffered a few years earlier.
Summary of the model at the heart of the Great Surges theory - Perez