Kondratieff Cycles and the Covid Legacy

Driving a New Economic Cycle Can't Come at the Expense of Worker Protection and Equality

One theory (amongst many others) of economics is known as ‘Kondratieff Cycles’ or ‘Kondratieff Waves’, named after the Russian economist, Nikalai Kondratieff, who developed the concept.

Kondratieff Cycles posit that the global economy evolves in cycles of 40 to 60 years, each of which overlap (like waves). Each wave is characterised by a new innovation, or a fundamental structural overhaul in society, resulting in significant investment in the new technology and industry that drives the economy. 

These ‘long-cycles’ are considered to be self-correcting; once the defining industry and technology of a long-cycle reaches its peak, or societal overhaul occurs, new innovations emerge from that perturbation to drive a new cycle. 

In this theory, a number of Kondratieff 'long-cycles' have been identified. The first Kondratieff Cycle was the evolution of the steam engine and innovations in the cotton and textile industry during the Industrial Revolution. The second was defined by the advent of steel and railway industries, which overlapped with the first wave, and was dominated by the expansion of European imperial powers.

The third wave was characterised by the electrical and chemical engineering industries, which overlapped with the development of the petrochemical and automative industries in the fourth wave, both of which were dominated by America and Germany. 

The oil crisis of the 1970’s marked the end of the fourth wave, and the rising of the fifth cycle which had begun in the post-war period: the information-technology society. The fifth wave was defined by the emergence of computer-based technologies, rapid information exchange, and globalisation, which peaked through the 1980's to 2000's with unrepentant free market economics. As a Kondratieff Cycle, the fifth wave crashed on the rocks of the global recessions of the 2000’s (although this economic doctrine did not die with the end of the fifth wave, and remains the dominant ideology in countries like the UK and US).

The sixth wave began to swell during the early 2000's, and  is considered the emergence of the health economy, including biotechnology and artificial intelligence. However, the direction in which this wave will take economic growth and society is yet to be fully determined. And this is where the potential for harnessing the direction of this wave in relation to critical current issues - global pandemics, climate change, and the global burden of chronic non-communicable disease - becomes of particular interest. To quote German economist Leo A. Nefiodow, a foremost expert on Long Wave Theory who has written widely about the 6th Kondratieff Cycle:

“The health care sector is today and will be in future a new role, one which goes beyond the treatment of individual and healthy ailments and illnesses. In fact to contain the problems in the world we have to acknowledge that the health care sector is one of the main platforms and tool to achieve this goal. 

There is no lack of problems in the world today. At first sight they have many different causes. But if one looks more closely then you can see that they basically have their common ground in the human person.”

Nefiodow identifies health disparity in society as a fundamental driver of social problems. Covid-19 lay to bare health and wealth disparity in society, and the relationship between this factors and ethnicity. In the UK, the Covid-19 death rate among Black Britons was 2 times higher for women and 2.7 times higher for men, compared to White Britons. This related to employment; disproportionate numbers of minority groups in certain professions, for example London bus drivers and National Health Service (NHS) staff, died as a result of Covid. 21% and 26% of NHS and the London transport workforce, respectively, are from Black, Asian, or other minority ethnic backgrounds. And data from the OpenSAFELY study in the UK also demonstrated a linear increase in Covid-19 mortality risk with increasing social deprivation quintiles, with the highest risk in the most socially deprived areas compared to the least.

Employment, ethnicity, socio-economic status, health and wealth disparity, all intertwined. This is why the potential to shape the direction of a new cycle must take the failures of the market-driven fifth cycle into account. To quote Nobel Prize-winning economist Joseph Stiglitz:

“In rich and poor countries alike, elites promised that neoliberal policies would lead to faster economic growth, and that the benefits would trickle down so that everyone, including the poorest, would be better off. To get there, though, workers would have to accept lower wages, and all citizens would have to accept cutbacks in important government programmes. As wages stagnated and the stock market soared, income and wealth flowed up, rather than trickling down. How can wage restraint - to attain or maintain competitiveness - and reduced government programmes possibly add up to higher standards of living?”

Shannon K. O'Neil of the Council on Foreign Affairs has pointed out that, if research, innovation, and development are the future of job creation, governments are often best placed to invest in ways that can stimulate this innovation because they have more resources and a longer time-frame to work with. Climate change is a stark example of how trusting in the market to "innovate" a solution produces unsatisfactory outcomes, or even regression. Jason Furman, Harvard Professor of Economics, has argued that current challenges create a unique opportunity for job creation in new industries to cater to these issues, but this "labour reallocation" appears contingent on state investment in infrastructure and projects, akin to the New Deal.

And while the private sector will be a crucial pivot for any new cycle, the fifth cycle teaches us that, left to its own devices, the private sector and market produces corrosive practices to the detriment of workers. Worker support in the form of insurance, healthcare, parental leave, etc., were all once tied to the marketplace, providing stability. All of these protections have been divorced from employment, creating precarious conditions for workers. Once jobs go, so does an individuals’ and their families entire safety net, and it is globalisation that is largely responsible for employment instability. Unlike with previous cycles, for example the Industrial Revolution, where displaced agricultural workers could find new work in the cities, or emigrate to start a new life, these options are not available in the modern economy. Displaced workers are often older, lack the educational baseline to diversify into other fields or retrain, and in effect have nowhere to go. The US lost around 5-million manufacturing jobs between 2000 to 2016 alone. The danger is that any emerging sectors in a tech-based health cycle, if left to the private sector only, lend themselves to monopolies, which characterise the current tech landscape. These sectors have narrow employment scope for the wider workforce. Google, Apple, Facebook, and Netlfix, collectively employ ~300,000 people; General Motors alone employed double that in the 1960's.

The ability to arrive at a new economic settlement that balances innovations in this sixth wave with worker protection requires a hard look at the prevailing political and economic doctrines which underpin policy in the UK and US, two countries with the most appalling death tolls from Covid and almost analogous socio-economic issues driving those grim numbers. Whether these societies have the sense-making capacities to examine the status quo is questionable, a risk which Francis Fukayama perfectly encapsulated:

"The democratisation of authority spurred by the digital revolution has flattened cognitive hierarchies along with other hierarchies, and political decision-making is now driven by often weaponised babble. That is hardly an ideal environment for constructive, collective self-examination, and some polities may remain irrational longer than they can remain solvent."

The flattening of cognitive hierarchies was largely an unintended consequence of the fifth wave, but poses significant barriers to the effective direction of the sixth. Whatever this sixth cycle may be, it has to restore dignity in labour and the workforce, and balance market efficiency with economic security. To fail to do so would arguably be to watch the systems of democracy and capitalism come under further threat than they even currently are: why should anyway in a rich country living an impecunious life of instability at the bottom of gross disparity have any great allegiance to either system? As previous pivotal points in history have taught us, the biggest mistake in a crisis is not doing too much, but not doing enough.