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Russia and the next long wave

photo of Michel Bauwens

Michel Bauwens
10th July 2009


Full title of an article just published in Russian: Russia and the next long wave, and why its agricultural villages are important

By Michel Bauwens, http://p2pfoundation.net, May 25, 2009

Introduction

Here is a text I just wrote with the assistance of Franz Nahrada and Gleb Tyurin, a later version of which has been translated into Russian where it is part of a debate about the renewal of policies after the meltdown, see the Regnum version just below.

This essay consists in two parts. The first part is a general presentation of the nature of the present crisis, and how we can realistically expect a renewed period of growth. Second, what this could mean in the context of Russia, with special attention to the role of rural regions in general and villages in particular in this process of renewal.

A later draft has been translated into Russian and is available via http://www.regnum.ru/news/1181953.html

Part One: Understanding the Present Crisis

The Nature of the Present Crisis

My understanding of the present crisis is inspired by the works on long waves by Kondratieff, and how it has been updated in particular by Carlota Perez, in her work: Technological Revolutions and Financial Capital. This work has recently been updated and re-interpreted by Badalian and Krovorotov.

The essential understanding of these approaches that economic history can be understood as a series of long waves of technological development, embedded in a particular supportive institutional framework. These long waves inevitably end up in crisis, in a Sudden System Shock, a sign that the old framework is no longer operative.

Why is that so?

These waves have a certain internal logic. They start with a period of gestation, in which the new technology is established, creates enthusiasm and bubbles, but cannot really emerge because the institutional framework still reflects older realities. This is followed by a period of maturation, marked by institutional adaptation, massive investment by the state, and productive investment by business, leading to a growth cycle. Finally, a period of decline and saturation, in which the state retreats, business investments become parasitic, leading to a contraction cycle with speculative financial bubbles, which ends in a Sudden Systemic Shock (1797, 1847, 1893, 1929 or 2008).

To understand the current period, some dates are important:

- 1929 as the Sudden Systemic Shock ending the previous long wave – 1929-1945: gestation period of the new system – 1945-1973: maturation period, the high days of the Fordist system based on cheap domestic oil in the US – 1973: inflationary oil shock, leading to outward globalization but also speculative investment and the downward phase ending in the – Sudden Systemic Shock of 1929

The important thing is this, every long wave of appr. 50-60 years has been based on a combination of different structural developments in production and distribution. Whilst modern economics is totally focusing on the monetary side of things, the crisis is only explainable if we also look on the physical side.

So each long wave cycle was an interplay of

1) a new form of energy (f.e. the UK domination was based on coal, the US domination was based on oil); in the beginning of a new wave, the newly dominant power has particular privileged access to a cheap domestic supply, which funds its dominance; when that cheap supply dries up, a (inflationary) crisis ensues, which forces that power outwards, to look for new supplies in the rest of the world. This results in both dynamic globalization, but also in the awakening of a new periphery. Because the last phase is linked to globalization and the control of external energy supplies, it is also strongly correlated to military overstretch, which is a crucial factor in weakening the dominance of the main player.

2) some radical technological innovations (no more than 3 according to the authors); The 3 last ones: 1830: Steam and railways • 1870: Heavy engineering • 1920: Automotive and mass production –

3) a new ‘hyper-productive’ way to ‘exploit the territory’; This is where land use comes in. In the last period: industrial agriculture and the ‘Green Revolution’ where responsible for a hyper-productive agriculture. This latter phase of a long wave cycle is also marked by hyper-exploitation of existing land base. The example of the dust bowl in the American mid-West is an example. This leads to new methods of land-use that can be used to develop new types of land for the next up cycle.

4) an appropriate financial system: the new public companies, New Deal type investments (such as the Marshall Plan) in the growth cycle phase, morphing into the parasitic investments of casino capitalism in the second phase. Importantly, Badalian and Krovorotov note that each new financial system was more socialized than the previous one, for example the joint stock company allowing a multitude of shareholders to invest. In the growth phase, the newly expanded financial means fund the large infrastructural investments needed to create the new integrated accumulation engine; in the declining phase, the financial system overshoots the capabilities of the productive economy, becomes separated from it, and starts investing in parasitic investments. At that point financial capital tends to be disruptive to production to maintain capitalization.

5) a particular social contract. Here also, we can see waves of more intensive ‘socialization’. For example, the Fordist social contract created the mass consumer in the first phase, based on social peace with labour, while in the second parasitic phase, the part going to worker’s was drastically reduced, but replaced by a systemic indebtedness, leading to the current Sudden System Shock.

6) As we mentioned above, each wave has been dominated by a particular great political power as well, and in the second phase of expansion, a new periphery is awakened, creating the seeds for a future wave of dominance by new players.

Roots of the current crisis

It is important not to forget the essential characteristics of the contraction cycle: what enables growth in a first phase, becomes an unproductive burden in the second, declining phase of the wave.

If we review the 6 factors, it’s easy to see where the problems are:

1) The era of abundant fossil fuels is coming to an end; after Peak Oil, oil is bound to become more and more expensive, making oil-based production uneconomical. Nuclear Power is no real replacement for this, as its own raw material is equally subject to depletion.

2) The era of mass production, based on the car, requires a too heavy environmental burden to be sustainable.

3) Industrial agriculture destroys the very soils that it uses and is mainly based on depletable petroleum-derivates, while being unsustainably energy-intensive.

4) The financial system is broken and the $10 trillion bailout drains productive investments towards unproductive parasitic investments. Similarly to a losing gambler in a casino, existing players will tend to play for higher and higher stakes hoping to undo their inevitable defeat, thereby destroying valuable means that could be used for the productive economy.

5) The Fordist social contract, broken in the 80s, has led to the increased weakening of the Western middle class and a generalized precarity, which no longer functions after Sudden System Shock.

6) The old dominant power, the U.S. can no longer afford its dominance, and has awakened the periphery. The powers that see the opportunity to compete are looking for new societal structures that help them emerge. They cannot rely on the strategies of the dying long wave to achieve these goals, but must invent new ones.

Seeds of the new

1) The technology for renewable energy has been developed, but needs at least $150b annual investments in the U.S. alone, in order to become economical. A Green New Deal would jumpstart the new energy era. The wasteful heavy energy usage of the fossil fuel era will need to be replaced by smart precision-based energy usage. Solar energy will be the backbone of renewables but can be supplemented by other forms.

2) The era of mass production is ready to be replaced by more local production in small series, based on developments such as flexible and rapid prototyping based manufacturing, mass customization, personal fabrication and additive fabrication, multi-purpose machinery. This flexible system of manufacturing is faster, cheaper, more adaptive, more compatible with the solar and renewable energy, can only thrive by deepening participative engagement, thus requiring the re-awakening of production intelligence and personal initiative that were discouraged by the various forms of the industrial system, including the systems based on central planning.

3) Post-industrial organic agriculture has already proven more productive than destructive industrial agriculture, but needs to be generalized; land use needs to be re-expanded within cities where vertical agriculture can be developed more intensively. This form of agriculture uses diversity as its backbone and works with the most sophisticated feedback cycles of nature. It saves also human labour time.

4) The seeds of the new financial system, based on increased socialization towards civil society, have been developed in the last few decades: 1) sovereign wealth funds re-insert the public good in investment decisions; 2) Islamic banking and similar mechanisms avoids the hyper-leveraging that destroyed the Wall Street system; 3) microfinance broadens entrepreneurship and financing to the ‘base of the pyramid’; 4) crowdfunding mechanisms, social lending and various credit commons approaches expand the availability of credit; 5) flow money approaches through a circulation charge to discourage parasitic investments

5) The periphery of newly emergent countries has been awakened and will in all likelihood lead to a dominance of the East-Asian region. However, opportunities for other emergent players are still open, providing they find the appropriate local integration of the productive resources of the new long wave. In this context, we can see the emerging success of Brazil, while Russia has its enormous landmass as immense and under-exploited productive resource.

Peer to peer and the new social contract

A new long phase has been historically associated with an upsurge of the role of the state and the public sector, which alone can undertake the necessary investments which private investment cannot take up in the early phases.

However, we need to be aware of one of the fundamental characteristics of the new period, which is a revival of the role of civil society. The internet is enabling the self-aggregation of civil society forces in the creation of common value, i.e. through peer production. Global communities have shown themselves capable to be hyper-productive in the creation of complex knowledge products, free and open source software, and increasingly, open design associated with distributed manufacturing.

This means that a hybrid form of production has emerged that combines the existence of global self-managed open design communities, for-benefit associations in the form of Foundations which manage the infrastructure of cooperation, and an ecology of associated businesses which benefit and contribute from this commons-based peer production.

(In Russia, the earlier dominance of centralized planning with the destructive effects of neoliberal shock therapy, have led to a relatively under-developed civil society. This however, opens the opportunity for the Russian state to play the role of the enabler of such processes. The lead that the Russian authorities have already undertaken in the development of free and open source software shows that it is entirely possible to envisage a pro-active role in this respect. What needs to be understood is that the pattern to promote software development can be generalized to the promotion of open design development, including applications in the field of farming and land use.)

These companies, which enable and empower the social production of value, have become the seeds for the dominant companies of the future (Google, eBay, etc… ). Companies will need to open up to co-design and co-creation, while the distribution (miniaturization) of the means of physical production, liberates the possibilities for smaller more localized production units to play more essential roles. We believe that the role of solely profit driven multinational companies, without any roots in local communities, is reaching its historical end, and will be replaced increasingly by new models of entities combining profit with the realization of social and public goods. Socially-conscious investment, sovereign wealth funds, micro-finance, social entrepreneurship, fair trade and the emergence of for-benefit entities point to this new institutional future of entrepreneurship. For the state form, this means morphing from the welfare or neoliberal state models, to that of the Partner State, which enables and empowers social production.

The new social contract therefore will mean:

1) Expanding entrepreneurship to civil society and the base of the pyramid

2) New institutions that do well by doing good

3) Social financing mechanisms based on peer to peer aggregation

4) Mechanisms that sustain social innovation (co-design, co-creation) and peer production by civil society

5) Focus on more localized precision-based physical production in small series, but linked to global open design communities

Less discussed but also important is the spiritual dimension. Because post-industrial development is akin to pre-industrial development in its attention to the ‘immaterial’ aspects of development, (as well as localization and the stress on land-use) it connects back to the traditional pre-modern value systems, which are still very much alive in large parts of the world. Examples of this are the success of Islamic banking, the revival of Buddhist economics in the Himalayan belt (including the royally-inspired self-sufficiency economics in Thailand), all of which point to this connection with what we could call ‘neo-traditional economics’. Such neo-traditional economics, a critical reworking of a country’s traditions, in the light of all the achievements and failures of (post)modernity, can create the conditions for culturally acceptable local adaptations of the new growth regime.

Part Two: The potential for Russia and the role of the rural heartland

Russia has particular strengths which could be used in the coming period.

1) Though the fossil energy period is coming to an end, its own access to these increasingly rare materials will be very valuable in the transitional period, provided this period is used to actively develop its replacements

2) Russia has the worlds leading intake on solar energy, increased by global warming, abounds with enormous amounts of biomass and has the worlds largest land reserve for decentralized development.

3) It’s disastrous experience with neoliberal shock therapy has led to a revival and reprofessionalization of an active state apparatus which can be used for the necessary investments, fueled by the financing from the remaining fossil fuels, provided it can be combined with the energy and passion of the active elements of civil society.

4) Russia is strategically located between developed Europe and the dynamic East-Asian region – can draw strength from cooperation on both sides.

5) Russia can draw on its tradition of mass quality education to create the massive numbers of knowledge workers that the new period requires

According to Badalian and Krivorotov, new ways of intensive land use are critical to usher in a new productive long wave. Industrial agriculture based on petroleum derivatives which destroy the very soil on which they are used, are no long term solution for post-industrial agricultural development.

The solution would point in the following direction.

With the easy availability of carbon-based fossil fuels, it made sense to bombard the productive process with massive but wasteful energy usage, which has been the hallmark of the ‘western industrial method’. However, there is an alternative which will be particularly appropriate in the coming period. This alternative is based on the use of ‘smart renewable energy’, i.e. precision agriculture. Such agriculture would require intensive knowledge of the natural habitat, something which agricultural workers naturally possess, but interconnected with global open farming communities, so that knowledge can be exchanged on a permanent basis. In this way, the global knowledge of farming, can be applied to any locality.

This option would require the setting up of Global Villages, which combine local production, with deep interconnection through universal broadband. One of the problems of rural villages in the industrial era, is that such villages were isolated, and that dynamic young people wanted to leave for the cities, creating a permanent brain drain. But this no longer has to be the case. With contemporary internetworked technologies, farmers can be connected not just to world culture in general, but can closely work together with farmers facing similar situations and productive solutions can quickly move from one place to another, after being shared and experimented. The state could set up centers of expertise which would facilitate such processes. In this way, the productivity of agriculture would be significantly enhanced, and a non-isolated rural life would become a much more interesting proposition than in the previous period. If the Russian heartland can be successfully connected with global communities of machine engineers, a new wave of precision-based agricultural machinery could be developed, using renewable energies as fuel base.

Since land use has been so instrumental in past long waves, we should expect it to be very important for creating the conditions of the growth cycles of the new long wave, and such agricultural policy would be an essential and important part of the necessary reforms which would bring Russia to the path of a new dynamic period of growth and well-being. If an integrated policy of financing, education, universal broadband would be set up to support such rural ‘global villages’, a vibrant revitalization of the Russian heartland would occur. This productive renaissance would be greatly enhanced in combination with a renaissance of the traditional spiritual values embodied by the Orthodox Church, whose dynamic elements would be part and parcel of a rethinking towards optimal local practices that are in harmony with the local environments.”

Bibliography

• TECHNOLOGICAL REVOLUTIONS AND FINANCIAL CAPITAL. The Dynamics of Bubbles and Golden Ages. Carlota Perez. Edward Elgar, Cheltenham, UK, 2002 • Badalian L., Krivorotov V., “Technological shift and the rise of a new finance system: the market-pendulum model”, European Journal of Economic and Social Systems, Vol. 21, No. 2, 2008, p. 231-264. • P2P Bibliography of Michel Bauwens: http://p2pfoundation.net/Bibliography_of_Michel_Bauwens. Retrieved May 25, 2009 • P2P-based agricultural developments: updates via http://delicious.com/mbauwens/P2P-Agriculture . Retrieved May 25, 2009

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