Understanding Disruption: Insights From The History Of Business

“Every age,” writes Harvard history professor Jill Lepore in her New Yorker article, The Disruption Machine, “has a theory about the past and the present, of what was and what is, a notion of time: a theory of history.”

Can history help us understand Clayton Christenson’s theory of disruption? Lepore’s article gives one set of answers, which I discussed here.

A richer and more complete set of answers can be found in a brilliant book by Carlota Pérez:  Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages (2002).

“Before I read this book,” writes W. Brian Arthur of the Santa Fe Institute “I thought that the history of technology was – to borrow Churchill’s phrase – merely ‘one damned thing after another’. Not so. Carlota Perez shows us that historically technological revolutions arrive with remarkable regularity, and that economies react to them in predictable phases.”

Pérez takes a long-term horizon: several hundred years—much longer than either Christensen or Lepore. She draws on many disciplines: history, economics, finance, technology, sociology and management. Ironically, the breadth and depth of the book is one reason why it has been neglected by academics. It’s too bold and wide-ranging for any of them to accept it as “one of theirs”...

Her main thesis is that disruption is not a new phenomenon. There has been a repeating pattern of massive disruption that has occurred regularly over the last 250 years at intervals of around 50-60 years. When a transformational technology appears, an explosion of energy can occur, as the existing ways of operating are disrupted by those who have mastered the new technology. New businesses prosper and old ways of doing things collapse and vanish. There is a huge expansion of investment driven by the financial sector. There is often over-investment, as wealthy investors begin to expect outsized returns and seek to extract rents. The resulting bubble in due course bursts. If society is able to rein in the financial economy and refocus it on the real economy of providing goods and services, enduring prosperity can occur. If not, society can slide into lasting decline with little or no real growth and increasing inequality.

By adopting a much longer time horizon and a multi-disciplinary perspective, her book helps us see how societies have made choices. When we look at very long time periods, we can see that the choices form patterns. Some societal choices have led to disaster. Others have led to lasting success. By understanding the choices that prior societies have made and their consequences, we can make better choices among the options now facing us.

She identifies five main eras where this has occurred...