Where is the Kondratiev spring?


Innovation - road towards the Kondratiev spring














There's a little irony in noting that what some claim to be one of the most penetrating insight into the workings of capitalism came from a 1920s Soviet economist. Nikolai Kondratiev, one of the proponents of the Lenin's New Economic Policy, believed that economies based on capital accumulation have an inner clock which drives cycles of growth. Not short term buisness cycles based on corporate inventories or investments, but a 50-60 year innovation driven long-wave which can shape human history no less.

While for others the Kondratiev's long-wave is nothing more than reading tea leaves, empirical data which correlates to economic activity, interestingly, appear to show a wave of just about the right period during much of the 20th century. For example, the long term peaks and troughs which modulate the steady growth of energy consumption.

Proponets of the Kondratiev wave point out that the global economy is now in a Kondratiev Winter, a period in which the excesses of the past must unwind and debt paid down before the economy can move forwards. In fact, it is argued that winter should have arrived some years ago, but the artificially low interest rates of the US Federal Reserve and others delayed the inevitable.

Of course, according to the long-wave idea a new warming Kondratiev Spring should eventually replace our economic winter, but perhaps not for some time. Past Kondratiev Springs are claimed to have been driven by the clustering of a series of technical innovations, which taken together, give rise to entirely new industries. Steam engines and power looms in the early 19th century, chemical and electrical engineering one cycle later. To shift the global economy into a new Kondratiev Spring will certainly need a new series of innovations, not just more debt driven consumption. So what innovations could ultimately drive forward growth in the first half of the 21st century?

Before we leap to immediate conclusions it first needs to be understood that there is often an extended lag between serendipitous discovery and large-scale commercial exploitation. For example, the first practical optical fibers were stretched on a lab bench in 1970, when communications relied mostly on pairs of twisted copper wires and analogue dial-up phones (available in 1 ringtone only).  Fiber had to wait until the mid-1990s before it went global with the FLAG project (Fiber Optic Link Around the Globe), as the rapid growth of internet traffic necessitated high-bandwidth data links.

So if we want to understand the future of innovation driven growth and a hoped for Kondratiev Spring, whether as a venture capatilist looking to take a punt on a start-up, or a national government spending R&D funds, we should look first at basic science. A dizzying range of recent inventive steps could well pan out into commercial innovations in the coming years. Everything from quantum computing to weak artificial intelligence, not mention the Nobel prize winning wonder material that is Graphene.

These opportunities for the future, as with all innovation driven growth, will be about improving productivity. And historically that means someone will lose their job, whether cottage industry weavers after the advent of power looms or shore porters after containerisation.

More recently the first wave of internet communication technologies laid waste to bank clerks, travel agents and laterally book and music store staff as the minimal transaction costs of the internet out competed the high street. In future, it is argued that the same wave of creative destruction will cut through service sectors such as healthcare and education.

The most basic healthcare services can in principle be replaced at some point by an on-line inference engine, medical database and chatbot front end, and even lab-on-a-chip home diagnostics. The Siri app for the iPhone4S is a clunky beginning. Similarly, a lecture posted on YouTube is delivered in the flesh only once, but can be viewed endlessly by anyone with a web browser at a cost somewhat less than upfront tuition fees. Lowering the cost of health care and barriers to education is no bad thing.

While the prospect of swaths of jobs vanishing through innovation is clearly unsettling  past technological revolutions have of course ultimately been for the better. Who really morns the passing of the hand reaped harvest, pick axe coal mining or wash houses? Innovation is a process which frees human labour to move on to more productive tasks, whether in enterprise or delivering specialised public services. And as with all waves of creative destruction, educational attainment and up-skilling is the key to ensuring that productivity gains lead to growing employment and prosperity.

So are we paving the way for a Kondratiev Spring? While government talks up innovation driven growth, the focus is often on near-market technology development. This is all well and good, however the innovations which will really change the world of the coming decades are still in university laboratories, or undiscovered to appear unannounced between someone’s ears. We need a fire hose of entirely new ideas for the future, not just better widgets for tomorrow.

First published The Herald 27 February 2012