Whenever hard times are upon us, people start to wonder if crises could be predicted, if there is a way to avoid them, and if not – at least their impact to be mitigated. And we always come to the same conclusion – if the economy is going up and somebody starts talking about an eventual crisis, no one even wants to hear about it and everyone hopes they will somehow get away with it. And when the crisis starts raging, it becomes clear that there is no turning back and we start thinking about rescue measures. This is how humanity goes through crises and moves forward, until at a certain moment difficult years come again.
Who Drives Development
“When looking at the past, why is it that on the path of mankind we see historical cataclysms, catastrophes, we find remnants of destroyed civilizations? Why didn’t people have strong enough spirit, will to live, moral strength? Can we trust that everything happened just because they didn’t have enough material resources?” – these are the question that the famous film director Andrey Tarkovski asks in his “Sculpting in Time”book. He is not an economist, but simply looks at things from their existential side. And if we wind the tape one or two centuries back, we will clearly see that the development of human history, technology and the economy is not going in a straight line and is not just an upward one. What is the driving force behind development?
The Waves of Growth
In the nineteenth and twentieth centuries, economists and historians noticed that the acceleration of the economic growth came as a result of the technological progress. It was also not as secret that the economic development manifested in the form of waves of activity. Karl Marx noticed the link between innovation and economic growth. Many scientists became supporters of the wave theory of change and development of innovation and economies, including Joseph Schumpeter, Nikolai Kondratiev, James Utterbeck.
The Russian economist Nikolai Kondratiev was the first to define the main waves of economic development and innovation as a powerful drive in this process. This happened in 1925. Each wave, in his opinion, lasted between 40 and 60 years and consisted of alternating periods of high economic growth, followed by downturns and slow growth. Kondratiev believed that the rising economic wave was based on significant innovations in products, processes and organizations, with accompanying changes in the social sphere.
According to the Russian scientist, the turning point in the five big waves of growth happened around 1770, 1830, 1880, 1930, and 1980. Initially, he identified three phases in each cycle of economic development: expansion, stagnation and recession, but another turning point (collapse) was also noticed between the first and the second phase. The four phases can be defined as follows: Spring phase with inflationary growth, Summer recession phase, Autumn phase of deflationary growth, Winter depression phase. In recent decades, significant progress has been made in creating innovation and another dependency has emerged – the accelerated development of technologies is affecting the duration of the economic cycles and they are shortening.
Beyond the Good News
According to analysts who are well acquainted with the wave theory, the last great “shock” was in the 1980s, when the fourth cycle of Kondratiev ended. At that time, without the use of weapons, the geopolitical map of the world was reshaped. The Soviet Union fell apart, and its allies from the Eastern Bloc went through major political and economic transformations. While looking at Kondratiev’s cycles, back in 2016, analysts warned that 2020 would be the year of the Big Restart. But everyone loves the good news and no one wants to believe the bad ones. Until they really befall us. Sooner or later, the crisis comes and tests us. Now, however, it has surprised us with its ominous scenario.
The previous period was characterized by the development of IT, telecommunications and robotics. The next cycle is likely to be characterized by breakthroughs in nano-, bio- and information technology. We are now at the bottom and in order to push ourselves up, we have to take the bitter pill while we ask ourselves: Where to now? We will have to cure at least some of the diseases that led to this predictable collapse.
One thing is clear: The new redistribution begins.