What Position Are We in the Kondratiev Cycle? - Huxiu#
#Omnivore
What Position Are We in the Kondratiev Cycle?#
This article discusses the Kondratiev cycle, which refers to the historical cycles of capitalism, as well as the challenges and changes currently facing the global economy. The author analyzes the historical background and development patterns of the Kondratiev cycle and explores what position the world economy is currently in within this cycle.
• The Kondratiev cycle is a long cycle of capitalism, lasting approximately 50-60 years;
• Each Kondratiev cycle is accompanied by a shift in the center of the world economy and the emergence of crises;
• We are currently in the depression phase of the Kondratiev cycle, facing challenges from geopolitical conflicts and economic recession.
Last time we talked about the real estate cycle, today let's discuss the longest cycle, the Kondratiev cycle. Currently, with global trade decoupling, the Russia-Ukraine conflict, and Israel's invasion of Gaza, various signs raise concerns about whether more fluctuations are brewing under the changing circumstances. But what does this have to do with the Kondratiev cycle?
What is the Kondratiev cycle?
Before the industrial revolution and the emergence of the capitalist mode of production, the cycles of society and economy were determined by nature and agriculture, which brought about the rise and fall of dynasties. After that, it was industrialization and capital. Prices and stocks, as shadows of "capital," effectively recorded the cyclical changes during the development of industry and capital, allowing us to summarize some classic cycles. For example, the approximately 10-year Juglar cycle, the approximately 20-year Kuznets cycle, and the approximately 50-year Kondratiev cycle, which we can also call the historical cycle of global capitalism or the long wave of capitalism.
The Kondratiev theory was first proposed by Soviet economist Nikolai Kondratiev in his 1925 paper "The Long Waves in Economic Life" and subsequent writings. By analyzing the fluctuations of major economic indicators such as wholesale price levels, interest rates, wages, foreign trade, and the production and consumption of coal and iron in major capitalist countries like France, Britain, the United States, and Germany over more than a century, he concluded that capitalism has an average long cycle of 50 to 60 years. This time corresponds to a human lifespan and is represented by a complete cycle in the Chinese calendar.
The Kondratiev cycle itself is a statistical phenomenon. The most compelling empirical evidence comes from data on price changes. Additionally, long-term interest rate fluctuations, world energy production, and innovation also support the long wave hypothesis. We can also find much supporting evidence in industrial production, unemployment, and investment.
Why do major economic indicators exhibit cyclical fluctuations of 50 to 60 years? It is generally believed that this is a result of the movement of capitalism itself, but what exactly drives the long cyclical movement of capitalism? Some attribute it to technological revolutions, where innovations affecting all aspects of life drive this change; others believe it is due to changes in the monetary supply caused by fluctuations in gold production under the gold standard; still others think it is due to limitations in energy supply...
Perhaps we can consider the diffusion of technological innovation as the primary driving force, but we need not adopt a technological determinism attitude, as the direction and intensity of technological progress largely depend on the specific social realities of the time. At the same time, we cannot ignore the cycles of updating factories and equipment closely related to capital accumulation, driven by the real estate boom in fixed asset investments. Additionally, the expansion caused by capital accumulation and geographically uneven development, with many new countries being integrated into the world system through wars and revolutions, has gradually placed capitalism on a cyclical trajectory.
The Five Kondratiev Cycles
Looking back at world economic history, we can roughly conclude that from the 18th century to the present, the world economy has gone through four complete long cycles, each round featuring a dominant country in the world industrial center, which becomes the center of capital accumulation and also the initiator of crises.
The first cycle was driven by the spinning jenny and the steam engine. The invention of the spinning jenny replaced the "increasingly expensive labor costs," revealing the prospects of mechanization; improvements in the steam engine and the invention of the safety lamp increased Britain's coal production. Shallow coal from Birmingham and orphans from London's workhouses were continuously transported to cotton textile factories in Manchester. During this cycle, Britain was the dominant country, and the industrial revolution placed it at the center of the world. After the Napoleonic Wars, the economic crisis triggered by significant fluctuations in financial markets and falling prices led the first Kondratiev cycle into a recession, culminating in a depression by the 1840s.
The second cycle was initiated by the steel and transportation industries. The invention of the internal combustion engine and electric motor changed the sources of human power, kickstarting the automobile industry; various steel-making methods were developed. The king of this cycle was undoubtedly the railways, which not only connected the German states and made the German bourgeoisie realize the importance of a unified market but also helped the United States recover after the Civil War. The turning point of this cycle was the 1873 stock market crisis, which triggered a 10-year economic recession, accompanied by protectionism and a pessimistic atmosphere at the turn of the century.
The third cycle was marked by innovations in electricity and engineering. During this period, electricity was widely used, with electric trams, telephones, radios, and electric lights being promoted. The center of accumulation had shifted from Britain to Germany and across the ocean to the United States, where the first automobile assembly line was established, leading to a boom in the automobile industry; monopolistic organizations like trusts and cartels spread worldwide. This gilded age ended with the stock market crash of 1929, followed by the "Great Depression," which exhausted the dividends of the industrial revolution, marking the end of this Kondratiev cycle.
The fourth cycle is represented by electronic computers, atomic energy, and aerospace technology, most of which emerged during World War II. In fact, the world had already begun to enter a recovery phase before the war. After World War II, the United States emerged as the dominant power, linking the dollar to gold while leading the post-war reconstruction of Europe and Japan with an economic imperialist stance. The enormous demand promoted economic prosperity for a considerable period. In 1966, U.S. growth peaked. The collapse of the Bretton Woods system is viewed as the turning point of the fourth Kondratiev cycle.
The fifth cycle is the internet cycle, where a large number of traditional industries were reformed through information technology, and the technological revolution also promoted innovations in financing, management, and logistics. This technological revolution and diffusion undoubtedly allowed the United States to win the Cold War. Thus, the 1990s, marked by the dissolution of the Soviet Union, was a prosperous period for this Kondratiev cycle, with China providing cheap production capacity to developed countries, suppressing inflation. However, the loosening of monetary discipline during this period laid the groundwork for the financial crisis. The 2008 crisis became the turning point of this cycle, leading the long wave into a recession. Economic growth since then has been primarily debt-driven, and to this day, this cycle has not yet ended.
What Happened at the Low Point of the Long Wave?
If we look back at specific historical moments, we will find that whenever the Kondratiev cycle enters a low point, it often breeds some kind of "change."
Let's start with the first Kondratiev cycle. As mentioned earlier, the turning point of the first Kondratiev cycle occurred after Britain finished the Napoleonic Wars. "Capital" recorded the abolition of the Combination Acts in Britain, and factories generally expanded. By 1825, a crisis occurred. Workers in the cotton textile industry were extremely impoverished, leading to movements.
A year later, Britain began to find ways to export steam looms to India in large quantities. However, with an oversupply of market goods and difficult circumstances, the situation remained stagnant for several years, leading to the cancellation of the East India Company's monopoly on trade with East Asia. At this time, British capitalists accelerated their invasion of the Chinese market, smuggling large quantities of opium into China. By 1834, there began to be some improvement, with a significant increase in factories and machines, but a shortage of workers. The new Poor Law was introduced to promote the movement of agricultural workers to factory areas, and children were abducted from various counties, but within three years, the situation fell back into stagnation and crisis.
By 1840, a severe depression set in, and workers began to mobilize, forcing the British army to intervene... Faced with a domestic crisis, Britain launched an invasion of China. This Opium War broke China's internal economic cycle, and China was thus passively integrated into the capitalist world system. At the end of this cycle, during the recovery phase of the second Kondratiev cycle, the "Communist Manifesto" was published.
This recovery phase allowed Britain, which had previously monopolized industry and just emerged from the quagmire, to suddenly find itself facing a series of competing industrial nations—surplus capital from Europe and the New World. Britain and France fought the Second Opium War to further expand the world trade market. The outbreak of the American Civil War and the resulting cotton shortages led to a "cotton famine" in Britain, impacting its textile industry, which then transmitted through credit and trade to other European countries, ultimately causing the global economic crisis of 1867-1868, marking the onset of the second Kondratiev cycle's recession.
The recession of the second Kondratiev cycle was another significant turning point in world economic history. After this, the British Empire began to decline, while Germany and the United States rose. During this process, Britain and France continued to demand "open the door, we want free trade" through cannons, while the U.S. and Germany adopted trade protectionist policies to cope with the crisis, leading other countries to follow suit, engaging in beggar-thy-neighbor policies. The technological revolution continuously enhanced the competitiveness of the U.S., Germany, and other countries, with their domestic markets increasingly occupied by their own industries, while Britain's international market share significantly shrank.
The upward phase of the third Kondratiev cycle saw several economic crises in the Marxian sense, but they were not fatal. During this period, the economy tended toward expansion; even when crises erupted, the economy had a strong self-repairing ability. When crises occurred, many countries immediately turned to trade protection and infrastructure development. At this time, capitalism was "well-capitalized," and the international communist movement entered a long period of decline.
However, as Engels said, "protective tariffs" themselves are merely preparations for the final, comprehensive industrial war that determines world market hegemony. Therefore, every element that offsets the repetition of old crises contains the seeds of much more intense future crises. Subsequently, we saw the outbreak of World War I, where major imperialist countries fought each other, severely damaging their vitality. There were two variables here: one was that the U.S. enhanced its economic and military strength during the war, and the other was the outbreak of the Russian Revolution, marking the turning point of the third Kondratiev cycle.
During the recession phase of the third Kondratiev cycle, capitalism still enjoyed several years of false prosperity. The post-war production boom stimulated the inflation of credit, and the speculative frenzy in securities fueled the illusion of prosperity. Finally, in 1929, the most prolonged, profound, and severe cyclical world economic crisis in history occurred, marking the official entry of the third Kondratiev cycle into the depression phase. The Great Depression significantly regressed capitalist industry and commerce, wasting decades of achievements in productivity development.
During that era, "capitalism" gained a poor reputation in both the East and the West. At that time, apart from a few die-hard Austrians, even most right-wing figures believed that capitalism was in a severe crisis. To prevent revolution, both Roosevelt and fascist parties turned to state intervention.
The recovery phase of the fourth Kondratiev cycle coincided with World War II, when the war machine was activated, leading to a reduction in unemployment in the U.S. and factories operating at full capacity to produce various military supplies. When machinery and equipment were insufficient, the government helped enterprises invest massively in expansion. This Kondratiev cycle was truly the American Kondratiev cycle, officially replacing Britain and pushing post-war capitalism into its "golden age."
By the late 1960s, the U.S. suffered losses and depletion in several wars, putting the gold reserves supporting the dollar as the global currency in jeopardy. Subsequently, France's de Gaulle dealt a blow that led to the decoupling of the dollar from gold in 1971, resulting in the collapse of the Bretton Woods system, compounded by the oil crisis triggered by U.S. support for Israel, leading to recession. Meanwhile, the Soviet Union, with its oil price advantage, entered a period of prosperity.
This recession prompted countries like the U.S. and the U.K. to ultimately complete their neoliberal turn in the 1980s, suppressing labor unions, abandoning internal industrial groups, and widening the wealth gap. Countries like France and Japan began to invest to catch up. Japan's catch-up continued into the 1980s but was suppressed by the U.S., leading to a bubble burst. The Comecon system, which could counterbalance capitalism, also collapsed. China began to take over the baton.
In addition, there are many marginal countries in Asia, Africa, and Latin America. Their attempts to cultivate industries and achieve modernization have always faced the threat of external debt and rising interest rates, ultimately leading to Latin America falling into a growth trap in the 1980s and Southeast Asia experiencing a bubble burst in the 1990s. Their efforts to transform into modern industrial countries essentially failed within this Kondratiev cycle.
The transition from depression to the next recovery phase of the Kondratiev cycle is slow, typically taking more than 10 years. During this period, the U.S. borrowed heavily and invested in research and development of information technology, once again leading the Kondratiev cycle. We may see the revival of some emerging economies, such as the "Four Asian Tigers" in the 1980s and China's rapid development around 2000, as it began to take on the industrial transfer from the West and Japan. Within the fifth Kondratiev cycle, these countries and regions can be considered the only remaining fruits. In contrast, other countries within this Kondratiev cycle have experienced varying degrees of widening wealth gaps, with the rise of populism leading to the degradation of political and social structures.
Where Are We Now?
The U.S. saw the emergence of the internet in the 1970s, leading it to enter the recovery phase of the fifth Kondratiev cycle first, while China followed suit in the 1990s. Then, in 2008, the U.S. entered a recession, and we almost entered it in 2014. This can be understood as the subprime mortgage crisis in the U.S. in 2008 being the first shock of the recession phase of this Kondratiev cycle, and 2014 being the second shock.
The coal bosses of that year became wealthy overnight due to the global commodity price surge. From 2002 to 2013, even during the recession, commodity prices remained high because, in 2008, China rescued the crisis through large-scale infrastructure investments, significantly boosting production capacity. It wasn't until the end of the recession phase that commodity prices lost support, banks raised interest rates, and market demand shrank.
In 2016 and 2017, the internet technology dividend disappeared, making it difficult for market demand to grow. From this perspective, it was also a low point for commodities. To change commodity prices, it often requires a technological revolution, but if that hasn't truly arrived, it can be through war or pandemics.
In 2019, when I wrote "American Factory," I mentioned that the next era "will be characterized by chaos. Chaos does not occur entirely by chance; it is a state of rapid and continuous fluctuations of all historical system parameters, stirring the inter-state system, ideologies, as well as climate conditions and pandemics... In chaos, the only certainty is that capital has an eternal profit-seeking and destructive nature." Pandemics and geopolitical conflicts can lead to significant fluctuations in commodity prices, but at that time, I did not anticipate that a major event would indeed occur in 2020.
The pandemic of 2020 can be seen as an accelerating event, leading to global supply chain tensions. The U.S., impacted by the pandemic, began nuclear-powered money printing, and many countries followed suit with their monetary policies. By 2021, quantitative easing had reached its limit, and after the stimulants wore off, commodity prices, which had risen in previous years, fell again. In 2022, the Russia-Ukraine conflict caused various commodities to surge violently.
According to previous Kondratiev cycles, the last few years of the depression phase often see the most severe price fluctuations, which also means that we are currently in the most difficult years of the depression phase. From the 规律 of the Kondratiev cycle, various geopolitical conflicts are often ignited at the end of the cycle.
I am reminded of more than 50 years ago, when the last Kondratiev cycle entered its recession phase, the third Middle East War broke out. We are currently at the bottom of the Kondratiev depression phase, compounded by the Juglar cycle. What needs to explode will explode. In October 2023, conflicts erupted again in Palestine. However, history only rhymes but does not repeat itself. This time, the Israeli-Palestinian conflict, combined with the depression phase and dissatisfaction with the hegemonic order behind it, has led to particularly strong resistance, with many "high-level individuals" having to exclaim that Israel has completely failed in public opinion.
You may ask, according to the 规律 of the Kondratiev cycle, this wave of depression will eventually end and then rise again. What new technologies will lead the new cycle? Looking back, it should not be the metaverse or web3, as these are still in the conceptual stage and merely represent a deepening of the internet. 5G is more of a technological accumulation. What can be vaguely seen as spreading is a series of low-carbon infrastructure, including solar panels, wind turbines, electric vehicles, and batteries, which may also be new technological cycles emerging from developments in artificial intelligence, quantum computing, and other fields.
The current global economy is in an extremely fragile period, with geopolitical tensions intertwined with economic recession, seemingly becoming the new normal. When economic recession arrives, no one can escape. The new technological cycle may be initiated by developments in new energy, artificial intelligence, and quantum computing. Both the U.S. and China may become the next dominant countries. Although the economy may recover in a few years, as Wallerstein said, the chance of achieving real change in the next cycle is only 50%. If we cannot end the dominance of capital over the world order, this will be another cycle of hegemony.
This content represents the author's independent views and does not reflect the position of Huxiu. Unauthorized reproduction is prohibited; for authorization matters, please contact hezuo@huxiu.com
If you have any objections or complaints regarding this article, please contact tougao@huxiu.com
Those who are changing and want to change the world are all on Huxiu APP