In economics, Kondratiev waves (also called supercycles, great surges, long waves, K-waves or the long economic cycle) are hypothesized cycle-like phenomena in the modern world economy.[1] The phenomenon is closely connected with the technology life cycle.[2]
It is stated that the period of a wave ranges from forty to sixty years, the cycles consist of alternating intervals of high sectoral growth and intervals of relatively slow growth.[3]
Long wave theory is not accepted by most academic economists.[4][bettersourceneeded] Among economists who accept it, there is a lack of agreement about both the cause of the waves and the start and end years of particular waves. Among critics of the theory, the consensus is that it involves recognizing patterns that may not exist (apophenia).
History of concept
The Soviet economist Nikolai Kondratiev (also written Kondratieff or Kondratyev) was the first to bring these observations to international attention in his book The Long Waves in Economic Life (1926) alongside other works written in the same decade.[5][6] In 1939, Joseph Schumpeter suggested naming the cycles "Kondratieff waves" in his honor. The underlying idea is closely linked to organic composition of capital.[7]
Two Dutch economists, Jacob van Gelderen and Salomon de Wolff, had previously argued for the existence of 50- to 60-year cycles in 1913 and 1924, respectively.
Since the inception of the theory, various studies have expanded the range of possible cycles, finding longer or shorter cycles in the data. The Marxist scholar Ernest Mandel revived interest in long-wave theory with his 1964 essay predicting the end of the long boom after five years and in his Alfred Marshall lectures in 1979. However, in Mandel's theory long waves are the result of the normal business cycle and noneconomic factors, such as wars.[8]
In 1996, George Modelski and William R. Thompson published a book documenting K-Waves dating back to 930 AD in China.[9] Separately, Michael Snyder wrote: "economic cycle theories have enabled some analysts to correctly predict the timing of recessions, stock market peaks and stock market crashes over the past couple of decades".[10]
The historian Eric Hobsbawm also wrote of the theory: "That good predictions have proved possible on the basis of Kondratiev Long Waves—this is not very common in economics—has convinced many historians and even some economists that there is something in them, even if we don't know what".[11]
US economist Anwar Shaikh analyses the movement of the general price level - prices expressed in gold - in the US and the UK since 1890 and identifies three long cycles with troughs ca. in 1895, 1939 and 1982. With this model 2018 was another trough between the third and a possible future fourth cycle.[12]
Characteristics of the cycle
Kondratiev identified three phases in the cycle, namely expansion, stagnation and recession. More common today is the division into four periods with a turning point (collapse) between expansion and stagnation.
Writing in the 1920s, Kondratiev proposed to apply the theory to the 19th century:
1790–1849, with a turning point in 1815.
1850–1896, with a turning point in 1873.
Kondratiev supposed that in 1896 a new cycle had started.
The long cycle supposedly affects all sectors of an economy. Kondratiev focused on prices and interest rates, seeing the ascendant phase as characterized by an increase in prices and low interest rates while the other phase consists of a decrease in prices and high interest rates. Subsequent analysis concentrated on output.
Explanations of the cycle
Technological innovation theory
According to the innovation theory, these waves arise from the bunching of basic innovations that launch technological revolutions that in turn create leading industrial or commercial sectors. Kondratiev's ideas were taken up by Joseph Schumpeter in the 1930s. The theory hypothesized the existence of very long-run macroeconomic and price cycles, originally estimated to last 50–54 years.
In recent decades there has been considerable progress in historical economics and the history of technology, and numerous investigations of the relationship between technological innovation and economic cycles. Some of the works involving long cycle research and technology include Mensch (1979), Tylecote (1991), the International Institute for Applied Systems Analysis (IIASA) (Marchetti, Ayres), Freeman and Louçã (2001), Andrey Korotayev[13] and Carlota Perez.
Perez (2002) places the phases on a logistic or S curve, with the following labels: the beginning of a technological era as irruption, the ascent as frenzy, the rapid build out as synergy and the completion as maturity.[14]
Demographic theory
Because people have fairly typical spending patterns through their life cycle, such as spending on schooling, marriage, first car purchase, first home purchase, upgrade home purchase, maximum earnings period, maximum retirement savings and retirement, demographic anomalies such as baby booms and busts exert a rather predictable influence on the economy over a long time period. The Easterlin hypothesis deals with the post-war baby-boom. Harry Dent has written extensively on demographics and economic cycles. Tylecote (1991) devoted a chapter to demographics and the long cycle.[15]
Georgists such as Mason Gaffney, Fred Foldvary and Fred Harrison argue that land speculation is the driving force behind the boom and bust cycle. Land is a finite resource which is necessary for all production and they claim that because exclusive usage rights are traded around, this creates speculative bubbles which can be exacerbated by overzealous borrowing and lending. As early as 1997, a number of Georgists predicted that a depression would occur in 2008.[16]
Debt deflation is a theory of economic cycles which holds that recessions and depressions are due to the overall level of debt shrinking (deflating). Hence, the credit cycle is the cause of the economic cycle.
There are several modern timing versions of the cycle although most are based on either of two causes: one on technology and the other on the credit cycle.
Additionally, there are several versions of the technological cycles and they are best interpreted using diffusion curves of leading industries. For example, railways only started in the 1830s, with steady growth for the next 45 years. It was after Bessemer steel was introduced that railroads had their highest growth rates. However, this period is usually labeled the age of steel. Measured by value added, the leading industry in the U.S. from 1880 to 1920 was machinery, followed by iron and steel.[19]
Any influence of technology during the cycle that began in the Industrial Revolution pertains mainly to England. The U.S. was a commodity producer and was more influenced by agricultural commodity prices. There was a commodity price cycle based on increasing consumption causing tight supplies and rising prices. That allowed new land to the west to be purchased and after four or five years to be cleared and be in production, driving down prices and causing a depression as in 1819 and 1839.[20] By the 1850s, the U.S. was becoming industrialized.[21]
The technological cycles can be labeled as follows:
Industrial Revolution (1771)
Age of Steam and Railways (1829)
Age of Steel and Heavy Engineering (1875)
Age of Oil, Electricity, the Automobile and Mass Production (1908)
Age of Information and Telecommunications (1971)
Some argue that this logic can be extended. The custom of classifying periods of human development by its dominating general purpose technology has surely been borrowed from historians, starting with the Stone Age. Including those, authors distinguish three different long-term metaparadigms, each with different long waves. The first focused on the transformation of material, including stone, bronze, and iron. The second, often referred to as the Industrial Revolution and Second Industrial Revolution, was dedicated to the transformation of energy, including water, steam, electric, and combustion power. Finally, the most recent metaparadigm aims at transforming information. It started out with the proliferation of communication and stored data and has now entered the age of algorithms, which aims at creating automated processes to convert the existing information into actionable knowledge.[22]
Several papers on the relationship between technology and the economy were written by researchers at the International Institute for Applied Systems Analysis (IIASA). A concise version of Kondratiev cycles can be found in the work of Robert Ayres (1989) in which he gives a historical overview of the relationships of the most significant technologies.[23] Cesare Marchetti published on Kondretiev waves and on the diffusion of innovations.[24][25] Arnulf Grübler's book (1990) gives a detailed account of the diffusion of infrastructures including canals, railroads, highways and airlines, with findings that the principal infrastructures have midpoints spaced in time corresponding to 55-year K wavelengths, with railroads and highways taking almost a century to complete. Grübler devotes a chapter to the long economic wave.[26] In 1996, Giancarlo Pallavicini published the ratio between the long Kondratiev wave and information technology and communication.[27]
Korotayev et al. recently employed spectral analysis and claimed that it confirmed the presence of Kondratiev waves in the world GDP dynamics at an acceptable level of statistical significance.[3][28] Korotayev et al. also detected shorter business cycles, dating the Kuznets to about 17 years and calling it the third harmonic of the Kondratiev, meaning that there are three Kuznets cycles per Kondratiev.
Leo A. Nefiodow shows that the fifth Kondratieff ended with the global economic crisis of 2000–2003 while the new, sixth Kondratieff started simultaneously.[29] According to Leo A. Nefiodow, the carrier of this new long cycle will be health in a holistic sense—including its physical, psychological, mental, social, ecological and spiritual aspects; the basic innovations of the sixth Kondratieff are "psychosocial health" and "biotechnology".[30]
More recently, the physicist and systems scientist Tessaleno Devezas advanced a causal model for the long wave phenomenon based on a generation-learning model[31] and a nonlinear dynamic behaviour of information systems.[32] In both works, a complete theory is presented containing not only the explanation for the existence of K-Waves, but also and for the first time an explanation for the timing of a K-Wave (≈60 years = two generations).
A specific modification of the theory of Kondratieff cycles was developed by Daniel Šmihula. Šmihula identified six long-waves within modern society and the capitalist economy, each of which was initiated by a specific technological revolution:[33]
Wave of the Financial-agricultural revolution (1600–1780)
Wave of the Industrial revolution (1780–1880)
Wave of the Technical revolution (1880–1940)
Wave of the Scientific-technical revolution (1940–1985)
Wave of the Information and telecommunications revolution (1985–2015)
Hypothetical wave of the post-informational technological revolution (Internet of things/renewable energy transition?) (2015–2035?)
Unlike Kondratieff and Schumpeter, Šmihula believed that each new cycle is shorter than its predecessor. His main stress is put on technological progress and new technologies as decisive factors of any long-time economic development. Each of these waves has its innovation phase which is described as a technological revolution and an application phase in which the number of revolutionary innovations falls and attention focuses on exploiting and extending existing innovations. As soon as an innovation or a series of innovations becomes available, it becomes more efficient to invest in its adoption, extension and use than in creating new innovations. Each wave of technological innovations can be characterized by the area in which the most revolutionary changes took place ("leading sectors").
Every wave of innovations lasts approximately until the profits from the new innovation or sector fall to the level of other, older, more traditional sectors. It is a situation when the new technology, which originally increased a capacity to utilize new sources from nature, reached its limits and it is not possible to overcome this limit without an application of another new technology.
At the end of an application phase of any wave there is typically an economic crisis and economic stagnation. The financial crisis of 2007–2008 is a result of the coming end of the "wave of the Information and telecommunications technological revolution". Some authors have started to predict what the sixth wave might be, such as James Bradfield Moody and Bianca Nogrady who forecast that it will be driven by resource efficiency and clean technology.[34] On the other hand, Šmihula himself considers the waves of technological innovations during the modern age (after 1600 AD) only as a part of a much longer "chain" of technological revolutions going back to the pre-modern era.[35] It means he believes that we can find long economic cycles (analogical to Kondratiev cycles in modern economy) dependent on technological revolutions even in the Middle Ages and the Ancient era.
Kondratiev waves associated with gains in IT and health with phase shift and overlap, Andreas J. W. Goldschmidt, 2004
Long wave theory is not accepted by many academic economists. However, it is important for innovation-based, development and evolutionary economics. Yet, among economists who accept it, there has been no formal universal agreement about the standards that should be used universally to place the start and end years for each wave. Agreement of start and end years can be +1 to 3 years for each 40- to 65-year cycle.
Health economist and biostatistician Andreas J. W. Goldschmidt searched for patterns and proposed that there is a phase shift and overlap of the so-called Kondratiev cycles of IT and health (shown in the figure). He argued that historical growth phases in combination with key technologies do not necessarily imply the existence of regular cycles in general. Goldschmidt is of the opinion that different fundamental innovations and their economic stimuli do not exclude each other as they mostly vary in length and their benefit is not applicable to all participants in a market.[36]
Joseph Alois Schumpeter was an Austrian political economist. He served briefly as Finance Minister of Austria in 1919. In 1932, he emigrated to the United States to become a professor at Harvard University, where he remained until the end of his career, and in 1939 obtained American citizenship.
Business cycles are intervals of general expansion followed by recession in economic performance. The changes in economic activity that characterize business cycles have important implications for the welfare of the general population, government institutions, and private sector firms.
Simon Smith Kuznets was a Russian-born American economist and statistician who received the 1971 Nobel Memorial Prize in Economic Sciences "for his empirically founded interpretation of economic growth which has led to new and deepened insight into the economic and social structure and process of development."
Nikolai Dmitriyevich Kondratiev was a Russian Soviet economist and proponent of the New Economic Policy (NEP) best known for the business cycle theory known as Kondratiev waves.
Carlota Perez is a British-Venezuelan scholar specialized in technology and socio-economic development. She researches the concept of Techno-Economic Paradigm Shifts and the theory of great surges, a further development of Schumpeter's work on Kondratieff waves. In 2012 she was awarded the Silver Kondratieff Medal by the International N. D. Kondratieff Foundation and in 2021 she was awarded an Honorary Doctorate by Utrecht University.
Social cycle theories are among the earliest social theories in sociology. Unlike the theory of social evolutionism, which views the evolution of society and human history as progressing in some new, unique direction(s), sociological cycle theory argues that events and stages of society and history generally repeat themselves in cycles. Such a theory does not necessarily imply that there cannot be any social progress. In the early theory of Sima Qian and the more recent theories of long-term ("secular") political-demographic cycles as well as in the Varnic theory of P. R. Sarkar, an explicit accounting is made of social progress.
The flying geese paradigm is a view of Japanese scholars regarding technological development in Southeast Asia which sees Japan as a leading power. It was developed in the 1930s, but gained wider popularity in the 1960s, after its author, Kaname Akamatsu, published his ideas in the Journal of Developing Economies.
The Grand Supercycle is the longest period, or wave, in the growth of a financial market as described by the Elliott wave principle, originally conceived and formulated by Ralph Nelson Elliott. Elliott speculated that a Grand Supercycle advance had started in the United States stock market in 1857 and ran to the year 1928, but acknowledged another interpretation that it may have been the third or even the fifth Grand Supercycle wave. However, these assignments have been reevaluated and clarified using larger historical financial data sets in the works of A. J. Frost and R.R. Prechter, and the start is now considered to be 1789, when stock market data began to be recorded.
Andrey Vitalievich Korotayev is a Russian anthropologist, economic historian, comparative political scientist, demographer and sociologist, with major contributions to world-systems theory, cross-cultural studies, Near Eastern history, Big History, and mathematical modelling of social and economic macrodynamics.
Leonid Efimovich Grinin is a Russian philosopher of history, sociologist, political anthropologist, economist, and futurologist.
The Juglar cycle is a fixed investment cycle of 7 to 11 years identified in 1862 by Clément Juglar. Within the Juglar cycle one can observe oscillations of investments into fixed capital and not just changes in the level of employment of the fixed capital, as is observed with respect to Kitchin cycles. 2010 research employing spectral analysis confirmed the presence of Juglar cycles in world GDP dynamics.
Christopher Freeman was a British economist, recognised as one of the founders of the post-war school of Innovation Studies. He played a lead role in the development of the neo-Schumpeterian tradition focusing on the crucial role of innovation for economic development and of scientific and technological activities for well-being.
A technological revolution is a period in which one or more technologies is replaced by another novel technology in a short amount of time. It is a time of accelerated technological progress characterized by innovations whose rapid application and diffusion typically cause an abrupt change in society.
Joseph Kitchin (1861–1932) was a British businessman and statistician. Analysing American and English interest rates and other data, Kitchin found evidence for a short business cycle of about 40 months. His publications led to other business cycle theories by later economists such as Nikolai Kondratieff, Simon Kuznets, and Joseph Schumpeter.
Tessaleno Campos Devezas is a Brazilian-born Portuguese physicist, systems theorist, and materials scientist. He is best known for his contributions to the long waves theory in socioeconomic development, technological evolution, energy systems as well as world system analysis.
Industrial dynamics is the study of the means and processes through which industries change over time, through their own processes of evolution – as first analyzed by Joseph Schumpeter. It is the complementary study to that of an industry’s comparative statics, which still dominates economic analysis. Industrial dynamics, as studied by scholars such as Carlsson and Eliasson, reveal the basic underlying forces driving industry evolution. Some industries, particularly those with rapid product turnover or high levels of capital expenditure, reveal special dynamics moving through intrinsic upturns and downturns that are not necessarily related to the wider economic fluctuations. These are known as cyclical industrial dynamics. They have recently come under investigation in the specialized literature.
The Kitchin cycle is a short business cycle of about 40 months, identified in the 1920s by Joseph Kitchin.
The Kuznets swing is a claimed medium-range economic wave with a period of 15–25 years identified in 1930 by Simon Kuznets. Kuznets connected these waves with demographic processes, in particular with immigrant inflows/outflows and the changes in construction intensity that they caused, that is why he denoted them as "demographic" or "building" cycles/swings. Kuznets swings have been also interpreted as infrastructural investment cycles.
Technological transitions (TT) can best be described as a collection of theories regarding how technological innovations occur, the driving forces behind them, and how they are incorporated into society. TT draws on a number of fields, including history of science, technology studies, and evolutionary economics. Alongside the technological advancement, TT considers wider societal changes such as "user practices, regulation, industrial networks, infrastructure, and symbolic meaning or culture". Hughes refers to the 'seamless web' where physical artifacts, organizations, scientific communities, and social practices combine. A technological transition occurs when there is a major shift in these socio-technical configurations.
Smihula waves are long-term waves of technological progress which are reflected also in long-term economic waves. They are a crucial notion of Daniel Šmihula's theory of technological progress.
References
↑ The term long wave originated from a poor early translation of long cycle from Russian to German. Freeman, Chris; Louçã, Francisco (2001) pp 70
↑ Hilbert, M. (2020). Digital technology and social change: The digital transformation of society from a historical perspective. Dialogues in Clinical Neuroscience, 22(2), 189–194. https://doi.org/10.31887/DCNS.2020.22.2/mhilbert
↑ Spectral analysis is a mathematical technique that is used in such fields as electrical engineering for analyzing electrical circuits and radio waves to deconstruct a complex signal to determine the main frequencies and their relative contribution. Signal analysis is usually done with equipment. Data analysis is done with special computer software.
↑ See: Nefiodow, Leo; Nefiodow, Simone (2014): The Sixth Kondratieff. A New Long Wave in the Global Economy. Charleston 2014, ISBN978-1-4961-4038-8.
↑ Devezas, Tessaleno (2001). "The biological determinants of long-wave behavior in socioeconomic growth and development". Technological Forecasting & Social Change. 68: 1–57. doi:10.1016/S0040-1625(01)00136-6.
↑ Devezas, Tessaleno; Corredine, James (2002). "The nonlinear dynamics of technoeconomic systems - An informational interpretation". Technological Forecasting and Social Change. doi:10.1016/S0040-1625(01)00155-X.
↑ Goldschmidt, Andreas JW[in German]; Hilbert, Josef (2009). Health Economy in Germany - Economical Field of the Future (Gesundheitswirtschaft in Deutschland - Die Zukunftsbranche). Germany: Wikom Publishing house, Wegscheid. p.22. ISBN978-3-9812646-0-9.
Archibugi, Daniele; Filippetti, Andrea (2013). Innovation and Economic Crisis Lessons and Prospects from the Economic Downturn. London: Routledge.
Barnett, Vincent (1998). Kondratiev and the Dynamics of Economic Development. London: Macmillan. ISBN978-0-312-21048-9.
Beaudreau, Bernard C. (1996). Mass Production, the Stock Market Crash and the Great Depression. New York, Lincoln, Shanghi: Authors Choice Press.
Devezas, Tessaleno (2006). Kondratieff Waves, Warfare and World Security. Amsterdam: IOS Press. ISBN978-1-58603-588-4.
Freeman, Chris; Louçã, Francisco (2001). As Time Goes By: From the Industrial Revolutions to the Information Revolution. Oxford: Oxford University Press. ISBN978-0-19-924107-1.
Kondratieff Waves. Almanac published by International N. Kondratieff Foundation and the Faculty of Global Processes of Lomonosov Moscow State University.
Mandel, Ernest (1964). "The Economics of Neocapitalism". The Socialist Register.
Mandel, Ernest (1980). Long waves of capitalist development: the Marxist interpretation. New York: Cambridge University Press. ISBN978-0-521-23000-1.
Marchetti, Cesare (1986). "Fifty-Year Pulsation in Human Affairs, Analysis of Some Physical Indicators". Futures. 18 (3): 376–388. doi:10.1016/0016-3287(86)90020-0.
Nyquist, Jeffrey (2007). "Cycles of History, Boom and Bust". San Diego: Financial Sense. Archived from the original on 2009-01-10. Retrieved 2009-04-30. Weekly Column from 11.09.2007 predicting a major turning-point between 2007 and 2009 and the start of a Great Depression.
Shuman, James B.; Rosenau, David (1972). The Kondratieff Wave: The Future of America Until 1984 and Beyond. New York: Dell. This book provides the history of the many ups and downs of the economies.
Solomou, Solomos (198). Phases of Economic Growth, 1850–1973: Kondratieff Waves and Kuznets Swings9. Cambridge: Cambridge University Press. ISBN978-0-521-33457-0.
Tausch, Arno; Ghymers, Christian (2007). From the 'Washington' Towards a 'Vienna Consensus'? A Quantitative Analysis on Globalization, Development and Global Governance. Hauppauge, NY: Nova Science Publishers. ISBN978-1-60021-422-6.
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