PROJECT M
 
PROJECT M
Dennis Nacken

Surfing the waves of prosperity

Economies live through long waves of growth, Russian economist Nikolai Kondratieff wrote in 1925. Today, the end of information technology as a key innovation indicates the sixth Kondratieff cycle might be rolling in

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Surfing the waves of prosperity

Economies live through long waves of growth, Russian economist Nikolai Kondratieff wrote in 1925. Today, the end of information technology as a key innovation indicates the sixth Kondratieff cycle might be rolling in

Cycles of fast and slow growth

Nikolai Kondratieff made his idea of long waves of prosperity known to the world in his 1925 book The Major Economic Cycles, arguing that the 40 to 60 year long cycles consist of alternating periods between fast sectoral growth and relatively slow growth. According to the Russian economist, the cycles begin with key innovations which become the cornerstone of prolonged economic growth. Previous key innovations were the steam engine (first cycle), the railway (second cycle), electrification (third cycle), automobiles (fourth cycle) and information technology (fifth cycle). The term Kondratieff-cycles was coined by Austrian economist Joseph Schumpeter. Kondratieff himself was sentenced to death and executed in 1938 after having spent the last eight years in prison. To read more on Kondratieff-cyles, follow this link.


PROJECT M

According to Nikolai Kondratieff, economies have passed through five long waves of wealth since the invention of the steam engine in the eighteenth century. Where in the surf do we stand now?

Dennis Nacken

The 2008 financial crisis and the current debt crisis can be considered the mother of the sixth Kondratieff. In the past, transition periods between cycles have shown four characteristics that apply to what we see now: The potential of key innovations – personal computers and the information technology – has been exhausted. Information technology has dominated the fifth cycle, but buying a new computer now does not provide a significant increase in productivity. Second, economies have surplus financial capital which was clearly evident during the financial crisis. Third, societies are going through a period of severe recession and, last but not least, they experience social and economic upheaval as we have observed in financial regulation. These criteria indicate that the sixth Kondratieff is well under way even though the period of upheaval is not likely to come to an immediate end.

PROJECT M

If information technology has been exhausted as a key innovation, what will take its place for the next 40 to 60 years?

Dennis Nacken

According to our study, the sixth Kondratieff will probably be green and future growth will most likely lie in increasing efficiency of resources and energy. The drivers of the sixth Kondratieff stem from two sources: Globalization and demographics lead to shifts in demand whereas environmental technology, bio- and nanotechnology as well as a holistic concept of health affect the supply structure. These megatrends combined with so-called basis innovations have the potential to influence economics, politics and society and will boost productivity in multiple economic sectors.

PROJECT M

How will the green sector generate growth?

Dennis Nacken

Growth will be a matter of regeneration rather than consumption of natural resources. The technologies to achieve this change, as Kondratieff would require, are largely in place. Expansion will likely continue to be generated by a mix of economics, ecology and social commitment. The high-tech industry is expected to benefit from the green transformation of markets as demand for renewable energy, sustainable water management, recycling and more efficient propulsion technologies is rising.

PROJECT M

How will this translate into other sectors?

Dennis Nacken

The use of information technology in the so-called green sector will likely increase. Smart energy grids offer tremendous growth opportunities. Nanotechnology and biotechnology will increase the productivity of resources and energy. Both segments could play major roles in the sixth Kondratieff cycle by using new materials and new processes to make various sectors more sustainable through the use of fewer resources.

PROJECT M

In an earlier report on Kondratieff cycles, you wrote the emphasis was on health. What role do you expect for the health care sector?

Dennis Nacken

Health is now viewed less as a condition than a resource. It has moved from cost factor to driver of economic growth and employment. Consequently, the health care sector will grow in economic significance. Its driving forces are worldwide demographic change, progress in medical technology, a focus on maintaining good health and the fact that health is increasingly viewed as a commodity.

PROJECT M

How will this affect emerging markets?

Dennis Nacken

They still appear to be tapping into the productivity reserves of the fifth cycle, the information technology. In China, 35% of households own a personal computer and 34% of the population have access to the Internet whereas in the US, the penetration rate for computers and internet stands at 76% and 79% respectively.* The path of developed countries towards a knowledge economy seems to have been mapped out already. However, developing countries are catching up as 2010 investments in the renewable sector show: China was by far the biggest investor with nearly $50 billion out of $211 billion globally.

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