What’s it: Kondratieff cycle is a long-run economic cycle. That’s according to the name of its discoverer, Nikolai D. Kondratieff, a Russian economist. He believed that such cycles were the result of and periods of technological evolution and innovation. Another term for a Kondratieff cycle is a Kondratieff wave.
Kondratieff cycle explained
Nikolai D. Kondratieff came up with the concept of the theory of long waves in 1925. He introduced the theory in his book, “The Major Economic Cycles.”
In 1939, economist Joseph Schumpeter suggested that the long waves theory’s name be changed to the name Kondratieff Waves or Kondratieff Waves. This change is to honor the work of the inventor.
Economists argue the Kondratieff cycle can last anywhere from 50 to 60 years and consist of several repeated phases. Each cycle shows high growth and slow growth.
According to Kondratieff, rising prices and low-interest rates initiated an upward phase. Meanwhile, in another phase, prices and interest rates fell.
Economists have identified five Kondratieff cycles:
The first cycle took place between 1780-1830. This wave came after the invention of the steam engine and the growth of textile manufacturing.
The second cycle is driven by the growth of the steel, steam engine, and rail industries. This second cycle lasted between 1830 and 1880. The development of the railroad had spurred rapid economic growth because of its function as mass transportation, both people and cargo.
The third cycle was driven by the practical application of scientific knowledge and lasted from 1880 to 1930. During this period, Werner von Siemens discovered the electrodynamic principle. It makes it possible to convert mechanical energy into electrical energy. Innovations in the chemical industry are also driving the mass production of commodities.
The fourth cycle took place between 1930 and 1970. The cycle was mainly driven by the petrochemical industry’s growth, which also spurred the auto market’s growth. The end of the cycle was marked by the OPEC policy of rising crude oil prices in the 1970s.
The fifth cycle began in the 1970s. The driver is the development of computer-based information technology. This cycle is believed to have ended in the early 21st century.
Most economists believe that the sixth cycle started in 2005. Meanwhile, other experts argue that it started in 2010. This cycle was driven by the development of environmentally friendly technologies, nanotechnology, and biotechnology.
Criticisms of the Kondratieff cycle
The Kondratieff cycle becomes one of the bases for explaining the effects of innovation and evolution in the economy. It is a principal heterodox school in economics.
However, some academic economists have criticized the theory of the Kondratieff cycle. They put this theory aside because it is not clear when the cycle starts and when it ends.
Although some economists argue that each cycle lasts between 50 and 60 years, there is no definite indication that a new cycle is starting. Thus, the absence of such information creates confusion as to where the cycle begins.
In some countries, the existence of long-term cycles also cannot be proven. This is due to limited historical data. In Indonesia, for example, to prove the existence of this cycle in the domestic economy, we must at least trace data back to the colonial period, something that is difficult to do.
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