Flattened Wave of N. Kondratiev: Investment in Science Intensive Sector Premature

          The last several years have seen such theoretical construct as the N.Kondratiev long wave become more and more popular. The construct describes global shift in economy occasioned by change of technological generations. Without entering the details and discussions around the Kondratiev 55-year cycle, we shall remark only that its chief value is the possibility to predict at least approximately the new stage of economy renovation, therefore, also periods of increment and slump of investment activity. The increasing clout of such an economic-technological doctrine is due to the fact that the humanity has evidently approached a global economic restructuring with the inevitable withering away of the old sectors and activities and simultaneous appearance of their substitutes. In expectation of a total replacement of the old system of things by new technologies of the type of nano-industry and bio-robots, the investors and businessmen are on lookout for new niches to invest their capitals.

          However, nothing is as simple as that. Two major recent circumstances in the world prevent the Kondratiev cycle from being perfectly regular. The first is related to the formation of the second wave of enterprise in the US. The matter is that within the last few decades the main accruement of the jobs in the states came not from the new science-intensive sectors, as appears from the Kondratiev wave, but from the old ones, which became to operate in a new wave. Peter Drucker, the legendary management expert, demonstrated convincingly enough that the jobs accrual in the US in the end of 20^th century could not be ensured by science-intensive branches. Rather, it came in the wake of the “second breath” of the traditional sectors of the American economy. Consequently, it’s too early to speak of the advent of the new phase of the Kondratiev cycle, though, according to its chronological part, it’s high time we should. In this way, the Kondratiev wave, is being flattened, as it were, and lengthened to the period of the delayed new sectors’ rise.

          So, what exactly does this phenomenon mean?

          Earlier it was widely believed that only a little part of the population is capable of independent business, whatever country is in question. The US, however, which became the vanguard and outpost of the world’s entrepreneurship, has shaken the thesis. Currently, its justice is questionable at all, for how can explain the fact that a huge number of Americans create their own enterprises and show miracles of innovations. To be just, the tendency is far from being ubiquitous. At this moment, the line of Kondratiev’s wave is being broken by US and Japan only, even Western Europe still functions within the long technological cycles. Against this background Russia looks rather specific, for we cannot witness either the first or the second wave of entrepreneurship. Withal, Russia like many other nations has to meet the challenge of US and Japan and try to fit into the development pattern of national economies.  Summing it up, the innovation economy which has dominated the western hemisphere, upset the applecart and seriously crumpled the Kondratiev cycle.

          The second circumstance is the retrogression to the previous technological stages occurring at the beginning of 21^st century. The matter is, that the newly-establishing economic order in the shape of economy of knowledge, has been in a way toppled by the explosive price rise of the products of the previous orders: agricultural and industrial. During the last several years the oil price hiked more than 7 times to exceed $125 a barrel. Russia’s Ministry for Economic Development has already slated gas price rise by several hundred percent within the next 3 years. Ironically, by doing so Russia has assumed the part of an international energy blackmailer, the same as Venezuela in the western hemisphere. Simultaneously the agricultural product prices have soared all round the world. For example the corn prices went 60% up within 2005-2007. Moreover, the plant cultivation industry also bears the burden of growing raw material for biological fuel. The situation is worsened by the global heating and climate changes, which raise risks and increase losses in agriculture. Against this background the information technologies looks far less convincing and their influence on the world economy is not as great as might have been expected on the basis of the properties of the modern phase of the human civilization development. In short, the reanimation of the agriculture and energy slow down the full manifestation of the Kondratiev wave.

          To the above two circumstances a third one may be added: the new spree of the arms race. During the last decade and a half the nuclear pool was expanded by India, Pakistan, North Korea; they are being steadily followed by Iran and Nigeria. Russia begins modernization of its armed forces; internal wars are ablaze in many points of the world, which involves greater demand for arms. Taking into consideration the growing creativity among the population of the world’s leading powers, we can infer that this creativity will be targeted at raising effectiveness of the old sectors of economy, rather than mastering new technologies.

          Well, to what extent are the above three circumstances important?

          Without exacerbating the situation, we should note the serious deficit of energy and food resources. The economists are already reckoning whether China can provide sustenance for itself or not. Most of them are optimistic, but the very formulation of the problem is symptomatic. Besides, if China solves the food problem, what can we expect from India, Pakistan and North Korea? The answer is not so obvious.

          So, as we can see, the traditional sectors (energy and agriculture) at this moment strengthen their positions, while the high technology sector falls short of seriously pressing them. All analysts coincide that the agricultural product and energy prices will keep on rising for the next few years. Consequently, the investment will be directed to those sectors, while the science-intensive economy will be underfed. In all probability, this tendency will be especially strong in Russia.

Balatsky Evgeny ,
03.07.2008. Views: 2441

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