Conditions for the next long wave

This is a somewhat more fleshed out version of my previous thoughts on the conditions for a next long wave.


This is a general presentation of the nature of the present crisis, and how we can realistically expect a renewed period of growth, and on the role that peer production can play in this process.

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.
These waves have a certain internal logic. 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 new growth cycle.

Finally, this is followed by a period of relative decline, 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 of the previous period
– 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 2008

The important thing is this, every long wave of appr. 50-60 years has been based on a combination 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. This results in both dynamic globalization, but also in the awakening of a new periphery. This newly awakened periphery is the germ of a newly emergent power for a new long wave.

2) some radical technological innovations (no more than 3 according to the authors);

The 3 last ones were: 1830: Steam and railways • 1870: Heavy engineering • 1920: Automotive and mass production

3) a new ‘hyperproductive’ 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 hyperproductive (though ultimately self-destructive) agriculture

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.

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 power as well, and in the second phase of expansion, a new periphery is awakened.

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

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 less productive than smart organic agriculture

4) The financial system is broken and the $10 trillion bailout drains productive investments towards unproductive parasitic investments

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.

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 ‘economic’. 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.

2) The era of mass production is ready to be replace 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

3) Post-industrial smart 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

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.

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 has enabled the self-aggregation of civil society forces in the creation of common value, i.e. to peer production. Global communities have shown themselves capable to be hyperproductive 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 arisen 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. 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

1 Comment Conditions for the next long wave

  1. Avatarhappyseaurchin

    kondratiff waves…
    the scope of what constitutes these waves may have been re-interpreted
    and i trust that you are also factoring in belief systems as religious institutions morph too

    you may be right about the beginning of the next long wave
    it’s an interesting proposition
    and potentially a good move in terms of ‘talking strategically’
    and i see you as a representative talker of current flux and proponent of a new economic world

    the new social contract you define…
    i can not say much
    since my language does not fit into yours in a simple and straight-forward way…
    eg collective strategy
    eg vertical culture change

    be well!

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