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Kondratieff Wave

Economic cycles that alternate between periods of high and low growth rates

What is Kondratieff Wave?

The Kondratieff Wave is a concept that was introduced during the Russian Communist era by a sociologist economist, Nikolai D. Kondratieff. He noticed that agricultural products and copper prices underwent long-term economic cycles that he believed to be a result of technological innovation and periods of evolution.

Kondratieff first introduced the concept of long wave theory in his 1925 book, “The Major Economic Cycles.” Later in 1939, another economist, Joseph Schumpeter, suggested naming the long waves “Kondratieff Waves” in honor of the Russian economist’s work.

 

Kondratieff Wave

 

Economists estimate that the waves last for 40 to 60 years, with each cycle demonstrating alternate intervals of high and low growth rates. Since the 18th century, economists have identified five Kondratieff Waves, with the first wave occurring during the invention of the steam engine and lasting from 1780 to 1830.

The second cycle continued from 1830 up to 1880, driven by the growth of the steel industry and the railroads. The third, fourth and fifth cycles lasted from 1880 to about 2005, and economists believe that a sixth cycle started in 2005.

 

Who was Nikolai Kondratieff?

Nikolai Kondratieff was a Russian economist who is best known for suggesting that capitalist economies experience long-term cycles of boom that are followed by a cycle of depression; the cycles are now referred to as “Kondratieff Waves” or “K-waves.” His initial professional work was focused in the areas of agricultural economics and the problem of food supplies.

Kondratieff tutored at the University of St. Petersburg and the Agricultural Academy of Peter The Great. He was also the founder and director of the Institute of Conjuncture in Moscow. While at the Institute of Conjuncture, Kondratieff authored several articles and books on long cycles. In 1922, he published “The World Economy and its Conjunctures During and After the War,” which marked the start of his writings about long cycles.

Kondratieff also authored “The Major Economic Cycles” in 1925, a book that expanded his view on the theory of major cycles. However, by this time Kondratieff, who favored a partial market economy, had fallen out of favor with Stalin. He lost his position as head of the Institute of Conjuncture in 1928 and was arrested and imprisoned in 1930 during one of Stalin’s many purges.

In 1938, Kondratieff was subjected to a second trial during Stalin’s Great Purge and sentenced to another ten years of incarceration. However, the 10-year sentence was pointless, as he was executed by a firing squad on the same day he was sentenced. A year later, the wave cycles were renamed as “Kondratieff Waves” in his honor.

 

How Do Kondratieff Waves Work?

Kondratieff identified several long-term cycles that alternate between high growth and slow-growth economic cycles. The cycles were based largely on agricultural commodities and copper prices in European countries, where he observed periods of evolution and self-correction in the different economic activities that were carried out in the domestic economies. The cycles lasted approximately 50 to 60 years, and they were comprised of various stages that were repetitive in nature. The identified cycles include:

 

1. First Cycle

The first cycle occurred from 1780 to 1830, and was fueled by the invention of the steam engine and the growth of textile manufacturing.

 

2. Second Cycle

The second cycle lasted from 1830 to 1880, and was triggered by the genesis of the steel industry, coinciding with the invention of the Bessemer converter. Increasing rail transport supported mass transportation of both people and cargo, which led to rapid economic growth.

 

3. Third Cycle

The third cycle lasted from 1880 to 1930. It is notable for being the first wave to be triggered by the practical application of scientific knowledge. It occurred during the rise of electrical power, and was also the time period during which innovations in the chemical industry allowed for the mass production of commodities.

 

4. Fourth Cycle

The fourth cycle occurred from 1930 to 1970, fueled by the growth of the petrochemical industry. The petrochemical industry’s growth also supported the growth of the auto market. The cycle ended when the Organization of Petroleum Exporting Countries (OPEC) increased the price of crude oil in the 1970s, triggering a recession.

 

5. Fifth Cycle

The fifth cycle started in the 1970s, and it was triggered by the advent of computer-based information technology. The industrial society began transitioning to an information society, which turned the world into a global village. In this cycle, the information technology sector became the main driver of economic growth. This cycle is said to have ended around the start of the 21st century.

 

6. Sixth Cycle

Many economists believe that we are in a sixth Kondratieff wave that started around 2005. They primarily believe that this cycle will be fueled by advances in healthcare. Economic growth will be triggered by improved productivity in handling healthcare issues.

 

Criticism of the Kondratieff Long Wave Theory

Of course, not all economists buy into the Kondratieff Wave theory. One of the reasons why some economists refuse to accept the theory is the lack of agreement on the start and end years of a wave cycle. In other words, they assert that the imprecise nature of the theory weakens its validity.

 

Related Readings

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  • Aggregate Supply and Demand
  • Guide to Commodity Trading
  • Economic Indicators
  • Keynesian Economic Theory

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