The Perfect Wave

Page 72-73: THE PERFECT WAVE:

In the next chapter I will explain what led to this experiment. I will describe in detail how the fourth Kondratieff Wave unfolded between 1948 and 2008; what disrupted it and what prolonged it. I will propose that the impact of technology and the sudden availability of a new outside world, created a break in the long-term pattern. First we must establish ─ as a mental tool ─ a model of a normal wave. Kondratieff was right to warn that each wave, building on the next, creates a new version of the pattern. But only by distilling the essence of the first three waves can we see how the fourth diverged.What follows is my 'normative' restatement of a long-cycle theory, merged with what is rational about the Marxist understanding of crisis:

  1. The start of a wave is usually preceded by the build-up of capital in the finance system, which stimulates the search for new markets and triggers the rollout of new technologies. The initial surge sparks wars and revolutions, leading at some point to the stabilization of the world market around a new set of rules or arrangements.

  2. Once the new technologies, business models and market structures begin to work in synergy — and the new 'technological paradigm' is obvious — capital rushes into the productive sector, fuelling a golden age of above-average growth with few recessions. Since profit is everywhere, the concept of allocating it rationally between players become popular, as does the possibility of redistributing wealth downwards. The era feels like one of 'collaborative competition and social peace.

  3. Throughout the new cycle, the tendency to replace labour with machines operates. But in the upswing, any fall in the profit rate is counterbalanced by the expanded scale of production, so overall profits rise. In each of the up cycles, the economy has no trouble absorbing new workers into the workforce even as productivity increases. By the 1910s, for example, the glass-blower displaced by machinery becomes the projectionist in a cinema, or the worker on a car production line.

  4. When the golden age stalls, it is often because euphoria has produced sectoral ove-investment, or inflation, or a hubristic war led by the dominant powers. There is usually a traumatic 'break point' — where uncertainty over the future business models, currency arrangements and global stability becomes general

  5. Now the first adaption begins: there is an attack on wagws and an attempt to de-skill the workforce. Redistribution projects, such as the welfare state or the public provision of urban infrastructure come under pressure. Business models evolve quickly in order to grab what profit there is: the state is urged to organize more rapid change.Recessions become more frequent.

  6. The initial attempt to adapt fails (as it did in the 1830s, 1870s and 1920s), capital retreats from the productive sector and into the finance system, so that crisis assume a more overtly financial form. Prices fall. Panic is followed by depression. A search begins for more radical new technologies, business models and new supplies of money. Global power structures become unstable.