The Kondratiev wave theory

By Alexandra Zoltai

NIKOLAI KONDRATIEV, A RUSSIAN ECONOMIST, WAS ONE OF THE FIRST TO POINT OUT THAT INDUSTRIAL ECONOMIES RESPOND TO CYCLICAL CHANGES IN PRICES AND OUTPUT

1780-1830

1830-1880

1880-1930

1930-1970

1970-~2008

Cyclical theories are classical models for explaining economic crises; their common feature is that they separate growth (expansion) and contraction phases in economic development and speak of a dynamic equilibrium with fluctuations instead of a static market equilibrium. It can be assumed that there are long waves in the capitalist economy, lasting an average of 50 years.

Kondratiev noted four empirical regularities, which are as follows:

Before or at the beginning of the rising tide of long cycles, significant changes take place in economic life: the emergence of inventions and their application, changes in the conditions of production, the expansion of world economic relations, changes in the circulation of money, the increase in gold production.

During the rising tide of long cycles, social upheavals and overthrows [revolutions, wars] are much more frequent;

In the period of the declining tide of long cycles, agriculture is also in permanent crisis; In the downturn period of the long cycles, the depression phases of the middle cycles of 8-11 years are longer and deeper, while the recovery is short and weak.

How the global economy works in 60-year cycles

George Friedman eloquently argues for three 50-year cycles (40 + 10 years) in the global economy of the last 150 years (Geopolitical Futures, 24 September 2021). The three cases are the United States between 1890 and 1930, Japan between 1950 and 1990 and China between 1980 and 2020. His point is simple and convincing. Based on cheap labour and productive innovation, all three nations manufactured low-cost products for the consumption of wealthy nations. After a 40-year period, rich customers were either unable or unwilling to buy those products and an approximately 10-year period of restructuring followed the 40-year success story. Friedman, however, can’t figure out the reason for his 40 + 10-year cycle. What if the real reason is that the cycle is longer and covers a 60-year period of time? Indeed, three 20-year mini-cycles add up to a 60-year period, because restructuring takes two decades rather than one. We entered Kondratiev’s world of 60-year business cycles based on the investment patterns of the domestic economy. These inner cycles tend to expand into the world economy in the case of our three large nations finally forming a global pattern.