Carlota Perez and Kondratiev Waves

In last Tuesday's class we briefly discussed technological revolutions that each had profound effects on the world's standard of living. This idea of a technological revolution process or cycle is a theory that Carlota Perez, a Venezuelan scholar, has put forward. This theory originated in the idea of Kondratiev waves, which (according to wikipedia--I know, not the best of sources, but hey, this is a blog...) "are described as regular, sinusoidal cycles in the modern (capitalist) world economy. Averaging fifty and ranging from approximately forty to sixty years in length, the cycles consist of alternating periods between high sectoral growth and periods of slower growth."

This theory of Kondratiev waves or technological explosions has (at least retroactively) proven to follow specific patterns. This pattern of 48-60 year cycles would place the appropriate time for a recession now and expansion would soon follow.

According to information found on the New School Department of Economics' website (http://cepa.newschool.edu/het/essays/cycle/empirical.htm),

"The NBER does not record Kondratiev Cycles (or "long waves") - as they, along with many economists, do not believe these cycles exist. Nonetheless, the following four Kondratiev waves have been identified - going through four phases of boom-recession- depression-recovery (the dates and labels are from Kuznets, 1940):

(1) The Industrial Revolution (1787-1842) is the most famous Kondratiev wave: the boom began in about 1787 and turned into a recession at the beginning of the Napoleonic age in 1801 and, in 1814, deepened into a depression. The depression lasted until about 1827 after which there was a recovery until 1842. As is obvious, this Kondratiev rode on the development of textile, iron and other steam-powered industries.

(2) The Bourgeois Kondratiev (1843-1897): After 1842, the boom reemerged and a new Kondratiev wave began, this one as a result of the railroadization in Northern Europe and America and the accompanying expansion in the coal and iron industries. The boom ended approximately in 1857 when it turned into a recession. The recession turned into a depression into 1870, which lasted until about 1885. The recovery began after that and lasted until 1897.

(3) The Neo-Mercantilist Kondratiev (1898-1950?): The boom began about 1898 with the expansion of electric power and the automobile industry and lasted until about 1911. The recession which followed turned into depression in about 1925 which lasted until around 1935. We can assume, that this third wave entered into a recovery immediately afterwards the which one might suspect lasted until around 1950.

(4) The Fourth Kondratiev (1950?- 2010?). There has been much debate among believers on the dating the Fourth Wave - largely because of the confusions generated by the low fluctuation in price levels and the issue of Keynesian policies and hence this debate is yet to be resolved. Perhaps the most acceptable set of dates is that the boom began around 1950 and lasted until about 1974 wherein recession set in. When (and if) this recession fell into its depression phase may be more difficult to ascertain (c.1981?), but what has been more or less agreed upon is that 1992 (or thereabouts) the recovery began and has been projected to give way to a boom and thus a new Kondratiev wave around 2010 or so."

This is extremely interesting because if this theory holds water, that would place my generation of organizational leaders in a prime position to seize the reins. If our generation carefully studies strategies for managing innovation and change we will be able to harness the power of this technological boom and hopefully make the most out of it.

The more I think about the prospect of great changes in the future and impending technological boom, the more I think that a wave analogy is applicable. Technological innovation is can be thought of like waves. Although waves cannot be controlled, we can understand and study the tides--as well as learn how to surf. The more we practice and study ways to effectively manage innovation, the greater the benefits we reap from this boom will be.

Perhaps this is all hype...but maybe it's not.

Check out this video:

http://www.youtube.com/watch?v=pMcfrLYDm2U

...and (on a completely random and unrelated note)

if you search 'Carlota Perez' on youtube, this is what you get:

http://www.youtube.com/watch?v=2aeRdIB4Q-s

I must say the music makes me dream of warmer places.