Our own Treasury officials confidently predict that New Zealand’s current recession will be shallow and short.
By 2010 – 2011 at the latest – we should all be out of the woods.
Let’s hope so.
Personally, I’m not quite so optimistic.
Why? Because earlier today I was reading about an economist who discovered the secret to predicting the economic future. And I’m not referring here to the immediate future – what’s going to happen to the stockmarket next week, or next month. No. I’m referencing a guy who was able to accurately predict what the global economy would look like ten, fifty, even a hundred years into the future.
His name was Nikolai Kondratiev.
In a saner, less bloodthirsty 20th Century, Kondratiev would have been celebrated as one of the Soviet Union’s greatest economists, and hailed throughout the world as the scholar who first discerned the long waves of economic expansion and contraction that periodicize the history of capitalism.
In the 20th century that actually happened, Kondratiev enjoyed only a few years of productive endeavour before falling victim to the political pathologies of Stalinism, dying in 1938, at the age of just 46, in front of an NKVD firing-squad.
His immediate offence was being too closely associated with the "New Economic Policy" (NEP) – an essentially social-democratic response to the abject failure of Lenin’s "war communism", which had brought the Soviet economy to its knees. Kondratiev believed that the development of heavy industry in the Soviet Union should only be attempted after the successful modernisation of its agriculture. Only when all Russians had enough to eat, and only upon the base of a thriving light industrial sector, producing agricultural equipment and consumer goods, should the growth of heavy industries be encouraged. Such thinking was anathema to Stalin and his henchmen, and Kondratiev was driven from his post as head of the Institute of Conjuncture and hauled off to the gulag.
His real crime, however, was to call into question the whole notion that economies could be made to perform according to the conscious interventions of human planners.
In his studies of capitalism he had discerned patterns of development that contradicted the linear notions of economic growth then favoured by his Soviet colleagues. Rather than progressing in a straight line, the evolution of the global capitalist economy appeared to describe a regular wave pattern, with a cycle of approximately fifty years.
For a detailed description of Kondratiev’s theories, follow the links here and here. Suffice to say that he and his followers, which included the great Czech-American economist Joseph Schumpeter, broke down the development of the global capitalist economy into five distinct waves of development.
The first wave, beginning in the late 18th Century was generated by the invention of the steam engine and the growth of factory-spun textiles.
The second wave commenced in the 1830s with the worldwide expansion of steam-powered transportation – especially railways.
The third wave got underway in the 1880s, driven by the growth of the steel, electricity, chemical and heavy-engineering industries.
The fourth wave witnessed the rise of the petrochemical, automobile manufacturing, and other mass production industries, which gathered momentum in the years immediately prior to World War I.
The fifth wave (our present) began in the 1970s with the revolution in telecommunications and information technology – giving birth to the age of the personal computer, cellphones, and the Internet.
Kondratiev’s waves have four distinct phases: Improvement – when the new inventions revolutionise the way people work and live. Prosperity – when the new technology has had time to bed-in and the wealth it is generating flows in all directions. Recession – when innovation slows and growth begins to falter. Depression – when wealth generation ceases and the economy collapses.
Kondratiev’s seminal work, The Major Economic Cycles, was published in 1925 – at the height of the Roaring Twenties – but working from his basic premises he was able to predict the Great Depression a full five years before it happened.
And Kondratiev’s foresight didn’t end with his prediction of the Slump. By plotting his fifty-year cycles along an axis divided into years, his disciples were confident of another steep slide into recession and depression in the late-1970s and 80s, and yet another big crash, timed for, yes, you guessed it, the start of the second decade of the 21st Century.
Historically, the contractionary phase of the Kondratiev Cycle tends to last not just for one or two years, but for anything from ten to fifteen years.
Kondratiev’s theory would suggest that times are about to get a whole lot worse before they get better.
Hence my pessimism.