the sixth paradigm

In Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages, Carlota Perez describes how technological revolutions mark turning points in long economic cycles.  Building on the work of Schumpeter and Hayek, her framework is an incredible lens through which to understand long term economic growth and its effect on financial markets. Her approach is a key foundational pillar for our investment thesis, and is why we feel confident that it is possible to generate excess returns by catching the long term secular economic waves that ultimately govern capital markets. (Think of it as the polar opposite of day trading.)

In her thesis, each successive long wave of the economic cycle is initially catalyzed by a technological revolution, usually only visible in hindsight which defines a new techno-economic paradigm.  Our suspicion is that we are now living through a “phase change” (be careful, “now” in this context means a period of a few years, not “today” or “this quarter”…) and so we’ve been wondering what will come to be seen as the foundational technological revolution of the sixth paradigm. The previous five, as defined by Perez, are outlined in the image above.