Installation Phase
In Perez's formalization of Schumpeter's framework, every major technological revolution unfolds in two phases separated by a turning point. The installation phase is the first — driven by financial capital rather than production capital, characterized by speculative investment, rapid infrastructure deployment, and the disruption of existing economic structures. It is exhilarating for those positioned to benefit and devastating for those displaced. The gains are concentrated. The costs are diffused. The institutional framework is anchored to the previous paradigm and systematically inadequate to the new one. The AI transition, by this analysis, is deep in the installation phase — and the turning point has not yet arrived.
In the AI Story
Perez developed the framework in Technological Revolutions and Financial Capital (2002), drawing on the historical patterns of five technological revolutions since the 1770s. Each revolution, she demonstrated, followed the same two-phase structure: installation driven by finance, deployment driven by production, with a turning point typically marked by financial crisis and institutional transformation in between.
The installation phase is distinctive for what Perez calls its gilded age character: extraordinary innovation, extraordinary wealth concentration, and extraordinary institutional inadequacy. The gap between what the new technology makes possible and what the existing institutions can govern produces both the characteristic vitality of the phase and its characteristic inequality.
The AI transition exhibits the installation phase's features in sharp form. Investment is frenzied — hundreds of billions flowing into frontier AI development. Infrastructure is being deployed at a pace that rational investment timelines could not achieve. The disruption is extraordinary. And the institutional framework — antitrust, labor protection, social insurance, education — remains anchored to the previous paradigm.
The turning point — Perez's term for the critical moment between installation and deployment — is typically marked by financial crisis and political conflict. The AI transition may be approaching such a turning point. The SaaSpocalypse of early 2026 may have been an early tremor. The political crisis — the moment when the distributional asymmetry generates organized political response — has not yet fully arrived, but the conditions for it are accumulating.
Origin
Perez, a Venezuelan-British economist, developed the framework over several decades of work on technological change and finance. The 2002 book synthesized her theory and has become foundational for the contemporary neo-Schumpeterian tradition.
Key Ideas
Two phases, one turning point. Installation is driven by financial capital; deployment by production capital. The turning point between them is where institutional transformation occurs.
Gilded age characteristics. The installation phase combines extraordinary innovation with extraordinary concentration and extraordinary institutional inadequacy.
Predictable pattern, different specifics. The two-phase structure has repeated across five technological revolutions since the 1770s, suggesting it is structural rather than contingent.
AI in installation phase. The current AI moment exhibits every characteristic of the installation phase in sharp form, and the turning point appears to be approaching.
Appears in the Orange Pill Cycle
Further reading
- Carlota Perez, Technological Revolutions and Financial Capital (2002)
- Carlota Perez, Beyond the Technological Revolution (2015)
- Mariana Mazzucato, The Entrepreneurial State (2013)