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Kondratieff Waves of Innovation

I've spent half a century writing for radio and print (mostly print). I hope to still be tapping the keys as I take my last breath.

Nikolai Kondratieff was a Communist-era Russian economist who plotted the surges that occur in capitalist societies. He presented his long wave theory in his 1925 book The Major Economic Cycles. He hypothesized that since the Industrial Revolution, which started in the late 18th century, economies have risen and fallen in a pattern every 40 to 60 years.

Kondratieff Wave Basics

According to Kondratieff, capitalist economies proceed through waves called spring, summer, autumn, and winter. He said spring last about 25 years and marks the period when innovations take hold and drive economic growth. During the summer spell, five years long, the economy overheats, eventually causing the bubble to burst. In the fall, the economy comes to life a bit over about a decade. Then, comes winter when the economy tanks and causes a recession that can last for 15 years.

Finally, along comes another innovation and the cycle starts again.

Others, such as economist Joseph Schumpeter, have extended Kondratieff's work to identify five waves. Suggestions of a sixth began in about 2005.

The First Kondratieff Wave

The harnessing of the power of steam kicked off the first wave and lasted from 1780 to 1830. The English Baptist preacher and ironmonger Thomas Newcomen gets the credit for inventing the first workable steam engine in 1712; it was used to pump water out of a tin mine.

Newcomen was improving the work of others that came before him going as far back as the first century of the Christian Era. A Greek engineer built an experimental machine called an aeolipile to demonstrate that steam produced pressure when contained in a vessel.

Scottish engineer James Watt improved Newcomen's design and turned the power output into a rotary motion that could be used to drive machinery. Soon, textile mills, foundries, and factories were pumping out low-cost goods thanks to the power of steam. Hand production in cottage industries vanished.

The Second Kondratieff Wave

Steel and railways were the backbone of the second wave. The Bessemer Converter, named after its inventor Sir Henry Bessemer, was a groundbreaking development in steel making. It was a process for removing impurities from pig iron that dramatically reduced the time and, therefore cost, of making steel.

In 1830, there were 40 miles of railroad track in the United States. By 1880, 93,200 miles of railways crossed America. That period coincides with the second Kondratieff wave that spanned the years from 1830 to 1880.

The Third and Fourth Kondratieff Waves

The next wave “occurred during the rise of electrical power. It was also the time period during which innovations in the chemical industry allowed for the mass production of commodities” (Corporate Finance Institute). It lasted from 1880 to 1930 when the Great Depression brought everything to a crashing halt.

It has been postulated that in the depths of economic troughs, creative thinkers are spurred to do what they do best—develop new technologies. So we saw the automobile become a common item and the development of the petro-chemical industry to cater to its needs and the increasing demand for feedstocks by the plastics and other businesses.

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In the late 1970s, the Organization of Petroleum Exporting Countries hiked the price of oil massively. That ushered in the end of cheap gasoline and the end of the fourth wave.

The Fifth Kondratieff Wave

Computer-based technology triggered the fifth wave. Developed countries began to transition from manufacturing to information and services. The world became what has been called a global village.

Some people say the fifth wave came to an end at the start of the 21st century, others believe we are in the winter phase of the fifth wave. This is the period that Kondratieff described as the “Economy in the throes of a debilitating depression that tears the social fabric of society, as the gulf between the dwindling number of 'haves' and the expanding number of 'have-nots' increases dramatically.”

There's certainly plenty of evidence that we live in a time of gross income inequality, but, as of this writing, January 2022, signs of the economy being in a slump are scarce. At the same time, some academics and economists say that winter is passing and we are moving into the spring of the sixth Kondratieff wave with overlap between the two phases.

The Sixth Kondratieff Wave

Biotechnology and health sciences are said to be the drivers of the current wave with optimistic forecasts about the decline of globalization and the growth of environmentalism. We won't know for several decades whether or not a sixth wave is upon us; we'll only be able to tell with the benefit of hindsight.

Criticism of Kondratieff Theory

Kondratieff's wave theory is not universally accepted by economists, academics, and market watchers; some call it bunkum. The main criticism is that Kondratieff cherry-picked events to match his theory and ignored myriad other factors that cast doubt on his analysis. Kondratieff and Schumpeter don't factor in wars, pandemics, or famines.

Milder arguments with Kondratieff's theory involve the start and end dates of waves and the length of the cycles.

Like his waves, Kondratieff's theory goes in and out of popularity. Currently, it is receiving more attention than three or four decades ago.

Bonus Factoids

  • Political science Professor William Thompson of Indiana University delved far deeper into history than Nikolai Kondratieff. According to his research, “Modern economic growth appears to have been initiated in Song China in the tenth century, migrated to the Italian city states, and was then assumed by a sequence of states on the Atlantic edge of Western Europe before moving across the Atlantic to the United States.”
  • Kondratieff was head of the Soviet Union's Institute of Conjuncture, but his advocacy for a partial market economy did not suit Joseph Stalin's Communist orthodoxy. Losing Stalin's favour usually had fatal consequences and it did in Kondratieff's case. He was arrested in 1928 and dispatched to the Siberian gulag where he went mad. It's believed he was executed by firing squad in about 1938. During Mikhail Gorbachev's failed attempt to reform the Soviet Union in the 1990s, Kondratieff was officially rehabilitated.

Sources

  • “Kondratieff Wave Theory: Is it any Use?” Simon Wilson, MoneyWeek, June 8, 2006.
  • “Build Back Better: in the Winter of the 5th Kondratieff Wave.” The Good Economy, June 2, 2020.
  • “The Sixth Kondratieff, the Growth Engine of the 21st Century.” Leo Nefiodow, sociostudies.org, undated.
  • “Kondratieff Wave.” corporatefinanceinstitute.com, undated.
  • “Kondratieff Waves and the Greater Depression of 2013 – 2020.” Christopher Quigley, financialsense.com, February 24, 2012.
  • “The Kondratieff Waves as Global Social Processes.” William R. Thompson, World System History, unknown publishing date.


This content is accurate and true to the best of the author’s knowledge and is not meant to substitute for formal and individualized advice from a qualified professional.

© 2022 Rupert Taylor

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