The difficulties with economic policy or: The system works like clockwork
Handelsblatt, Montag, 29. Dezember 2003 Bundeskanzler Gerhard Schroder (SPD) hat eine "new culture of innovation" Germany needs a new economy. (…) "Already in kindergarten and school the (natural) scientific curiosity and creativity of our children must be more strongly demanded. Our children must want to become explorers and inventors again."
There is nothing anyone can do about crises! Unprintable above us stand the laws of economics, unknown recurrences in terrible cycles of nature’s catastrophes.
An den von Monat zu Monat tiefer gefurchten Magengeschwurfalten des Bundesministers fur Wirtschaft und Arbeit kann man es am deutlichsten ablesen: Bei den fuhrenden Mannern der Regierung wachsen die Zweifel an der Tauglichkeit der Krisenrezepte. Germany is deep in the depression crisis, the unwilling electorate is running away from the SPD in droves and the economic institutes are once again postponing the economic upswing far behind.
The VW manager Hartz has done his work and Hartz One, Two, Three and Four are on the way. A new culture of "new culture of innovation" roll off the assembly line.
On the 15. January the chancellor invited to a "Innovation talk" to the chancellor’s office. The usual representatives of major German corporations were invited, such as Kai-Uwe Ricke (Deutsche Telekom AG), Heinrich von Pierer (Siemens AG) Roland Berger (Roland Berger Strategy, Consultants GmbH) Utz Claassen (EnBW AG) Eggert Voscherau, (BASF AG) and others. For a change, the automotive industry was not represented by VW. This time, the part was taken over by BMW Supervisory Board member Joachim Milberg. Afterwards the chancellor declared:
We want to tackle that now. We are working together to develop fields in which we are good in order to remain good: for example, in the automotive industry, where we are world leaders, in machine tool manufacturing, we are still world leaders, also in chemistry, in biotechnology, in nanotechnology.
Tasks and results of the innovation initiative the government has set out in a "9-point plan" summarized. For their implementation, a "Innovation Office" set up. The chancellor of all cars remains true to himself and to automobiles. In Great Britain one is more attached to the water and the waves. "Catch the wave" it was published on 18. February 1999, still during the Internet hype, in the Economist.
The graphic "the leading source of analysis on international business" to illustrate the surfing competition model of the world economy, has since been used in various publications and was recently included in an article by Jochen Ropke Elizaveta Kozlova on Telepolis (Coupling science and innovation through entrepreneurship generates growth).
The pace is increasing. The conditions of competition are getting sharper. The Economist presents a model of long waves getting shorter and shorter. Jumping on thus seems increasingly difficult, especially since the waves had to become negative from 2050 onward if the trend remained constant, as noted by an astute observer in the Telepolis forum. In the text, the Economist comments:
If, as seems likely, we are already a decade into this new industrial cycle, it may now be almost too late for the dilatory to catch up.
Whoever jumps onto the cyclical wave in time wins, whoever hesitates or otherwise arrives too late loses. Ulrich Schumacher , until recently CEO of Infineon, describes the battle for meters and seconds from his own experience:
Companies working in the IT industry or in telecommunications have to measure their time in dog years. (…) Product or product life cycles – the phase from the product idea through product development and serial production to the disappearance of the product from the market – have been reduced from ten to seven or five years. In some products of the IT industry even – as with the graphics card – to only six months. (…) What is the consequence of the fast product cycles?? You are in a permanent race for technical innovations. This has the advantage of being able to catch up very quickly – and the disadvantage of being at the tail end of the development just as quickly again.
Schumacher’s last sentence doesn’t quite fit in with the Economist’s panic about the end of the cycle. If you can catch up in development just as quickly as you can lag behind, why should it be too late for anyone?? And what do the shortening product cycles have to do with the long waves of the economy?? Ulrich Schumacher contrasts the product life cycles, which are constantly shortening in his industry, with overall economic innovation cycles, with a duration of about 50 years:
Because society is always changed by new scientific discoveries. This was true for the discovery of the steam engine as well as for the introduction of semiconductor technology, i.e. the computer. According to previous experience, there is a time span between these discoveries and their macroeconomic use, which has been estimated at 50 years. This span is a kind of learning process for society as a whole, which underlies the innovation cycles. The business cycle runs almost parallel to these innovation cycles. The end of an innovation cycle is followed by a recession or depression. Thus, the economy worldwide experiences a low point when an overall social learning process comes to an end.
Apparently, the Economist is conflating the shortening product life cycles with the 50-year societal innovation cycles and transferring the stressful experiences with the product life cycles to the long waves.
The long waves of the business cycle
In the 1920s, the Russian economist N. D. Kondratieff in analyzing extensive statistical data, that the economy develops in long-term cycles lasting about 50 to 60 years. The Austrian economist J. A. Schumpeter integrated this hypothesis into his developmental model of the capitalist economy and named the long waves of the business cycle in honor of its discoverer "Kondratieff waves".
Schumpeter designed a four.Phase model of economic development. A decade-long surge of extensive credit-financed economic innovation sets off a cyclical chain reaction that dominates economic and cultural events for the next 40 years and leads to a profound transformation of all sectors of society. In an idealized way, this model can be illustrated by the image of a sine wave.
At the beginning of a cycle, business founders appear in packs and try out new economic combinations. Since the entrepreneurs and their ideas are new, they have nothing to show for their ideas and need credit. If they find enough lenders (banks, venture capital, supplier credit or whoever has the ability to create credit) and their ideas prove to be viable, the new cycle starts.
In the first phase (grun) the economy is humming and the. The new entrepreneurs ask for equipment etc. the old companies are hiring new people. All capacities are utilized to the limit. There is full employment. In this phase, incomes, prices and interest rates rise due to the strong demand for credit. The new companies are making a surplus profit, the old companies are still working at full capacity. The economy is swimming in money. The sign of this period is inflation. However, this boom does not last long.
The overheated economy has built up enormous overcapacities. The demand from the old companies decreases and the new offers enter the market massively, competing with each other and with the offers of the old companies. In this second phase of the cycle (yellow) the system tips into recession. A downward spiral begins. The new companies reach the limits of their markets. Business is no longer running smoothly. In addition, at the latest now their credits become fallible. In this phase, the old enterprises reach the limits of their efficiency. Who does not calculate now sharply loses the game. The number of bankruptcies increases.
The sharp economic selection begins, the third phase of the cycle, the depression (red). All participants are massively over-indebted, incomes are falling and with them the markets are shrinking. Massive prere is exerted on prices and interest rates, with the result that the danger of deflation grows. In the depression the old disappears and the new is trimmed to normal mab. Although the entire development process was already a tough power struggle between the new and the old, during the depression phase this struggle enters its agonal stage.
Once this deadly selection process is over, the economy more or less slowly recovers to an average business level (light blue phase) and the whole cycle can start all over again with the appearance of a new pack of innovative entrepreneurs.
So much for the theoretical model. In practice, random events such as wars and other disasters disrupt the evidence of the long waves and shorter periodic oscillations of the business cycle override them. Schumpeter identified a total of three types of oscillations of different duration, the Kondratieffwelle with a length of about 56 years, oscillations of medium frequency, with a duration of about 9 to 11 years (Juglars), and short oscillations of about 36 months duration (Kitchins). The addition of the three waves no longer results in a sinusoidal oscillation. The individual waves have to be extracted separately from the empirical material. In addition, lack of comparability and reliability of economic data over the long periods complicates the empirical evidence of the long waves.
According to Schumpeter, a new long wave begins with a strong recovery after a long period of crises and depressions, interrupted only by relatively weak upswings. So let us insert the actual dates of strong recoveries after a longer period of crisis and depression into the Economist’s time series:
the beginning of the time series with 1785 is to be taken cum grano salis. The economic data from the 18th century. The data of the nineteenth century are sparse and unreliable. Therefore, the beginning of the second Kondratieff can be dated quite precisely to 1844, the beginning of a prosperity after years of crisis. The same is true for the beginning of the third Kondratieff in 1896. This year saw a powerful boom after a long period of weak upswings and severe crises that began with the Borsencrash of 1873. The crisis, which lasted more than 20 years, led not only Marx to predict that capitalism would not have a long life. Crises and depression periods of 20 years or longer are something completely normal in the context of the theory of long waves. For the end of the third Kondratieff and the course of the fourth Kondratieff, it is useful to look at a long-term time series of capital market interest rates.
The movement of prices, the development of incomes and the fluctuations of the capital market interest rates illustrate the phases of the cycle quite reliably. For Schumpeter, interest rate fluctuations are a function of the demand for capital, caused by the credit needs of innovative entrepreneurs. As the need for credit decreases during the innovation cycle, interest rates decrease and only with the beginning of a new cycle, i.e. the massive emergence of new innovative entrepreneurs, the need for credit increases again and with it interest rates. So the interest rate hike is not a cause of the economic fluctuations, but an embedded rough. Since one rightly calls the fourth the "American" Kondratieff called, we choose in the following U.S. economic data.
The chart of the U.S. discount rate from 1914 to the present vividly depicts the long depression period of the 1930s, the sluggish recovery in the 1940s, and a full Kondratieff cycle from the early 1950s to the present, culminating in the late 1970s. The shape of this Kondratieff obviously corresponds more to the second cycle at the end of the 19th century. The first signs of this were in the early twentieth century, when the third Kondratieff. We thus arrive at the following periodization:
Is there a computer Kondratieff??
Like the Economist, various German-language authors, such as Leo Nefiodow or Erik Handeler, liked to shorten the length of the Kondratieff cycles and introduced a separate Kondratieff for the computer boom of the last 10 years. They thus arrive at a sixth or even seventh Kondratieff. Since these theories have become widespread in Germany, it is worthwhile to make a few remarks about an alleged computer Kondratieff.
During the depression period, incomes stagnated or. incomes fall. They only rise again during the prosperity of a new long wave. A look at U.S. income statistics shows stagnation of middle incomes and a decline in lower incomes since the mid-1970s:
Figures do not add to 100% due to rounding; adjusted for inflation, source: New York Times, 5.9.1999, Gap Between Rich and Poor Found Substantially Wider, By David Cay Johnston.
The computer boom of the 1990s passed by the incomes of the lower and middle classes. Such an income development does not speak for a Kondratieff boom, the widening of the gap between rich and poor is typical for a depression, as well as the above presented interest rate level.
Computers and telecommunications are not "Technologies of the future", they are the crowning conclusion of a 50 year old paradigm. We follow the assessment of the former Infineon boss:
In the light of this theory (of 50-year cycles of social innovation), the companies listed as "Zukunftstechnologien" bezeichneten Innovationen Computer und Telekommunikation bereits nahezu "exhausted", because industrial production of the basic technology semiconductor products began 50 years ago.
Computers and telecommunication perfect the old industries. "The depression process fulfills, what the upswing promised" (Joseph A. Schumpeter). And the boom of the 60’s promised us pretty much what we have today: the futuristic household appliances from the Doris Day movie "Spy in top trousers" (The Glass Bottom Boat, 1966), the electronic miracle things of "Starship Enterprise" and James Bond. They are not the spring of a new epoch, they are the late summer bleeding of an epoch which is just passing away.
The Economist’s surf model of the world economy, the struggle for meters and seconds, for innovations in ever shorter product life cycles, is a crisis phenomenon of the Kondratieff depression. It is a symptom of intensified competition in the agonal phase of the long cycle.
The pulse of the world
Since Schumpeter’s appearance, two questions have preoccupied business cycle research:
- Are there economic reasons for the phenomenon that innovative entrepreneurs appear in packs at certain times??
- Why does such a cycle last just 56 years?
Schumpeter himself did not give a satisfactory answer to any of these questions. He understood his model as a description of the development process and rejected a causally understood explanation of causes.
Gerhard O. Man collected extensive empirical evidence for the cyclical accumulation of innovations. However, he found reasons only for the respective historical individual case, but not for the regular recurrence of the cycles.
Roland Wagner-Dobler noted that such innovation tides and floods of innovation also occur in the scientific community.
Jim Corredine suspects that the 56-year waves have developmental biological reasons. A Kondratieff cycle covers almost exactly the time span of two generations. The first generation creates new things, the second consolidates and develops the inheritance and the third generation creates new things again. Corredine thus suspects anthropological causes for the regular wave motion.
Theodore Modis reports in his book "Predictions" (German: "The predictability of the future") that the energy consumption, the use of horse power, the occurrence of fundamental innovations, the discovery of stable isotopes, the number of bank failures, the life expectancy, the incidence of cirrhosis of the liver, the world record over one mile, the share of female Nobel Prize winners, the number of murders, the ratio of female to male murderers and the choice of murder weapons oscillate in the same 56-year pulse as the economy, even if partially phase-shifted. It seems to be a cycle that determines the whole human life.
Lexiline, a think tank for unusual historical findings, notes a coincidence between the Kondratieff cycle, the accumulation of birthdays of important personalities, and the astronomical Saros cycle, a constellation of the sun, moon and earth that repeats every 56 years. According to this, economic cycles were dominated by astronomical cycles.
Michael Royston found this 56-year pulse in occidental history since the 12th century.
Josef Hahnl sees a connection between the fractal structure of economic cycles and the "Global Scaling"-theory, according to which a global standing gravitational wave structures natural and technical as well as social processes. The frequency of the Kondratieff wave would therefore be determined by a general natural constant.
Of course, the 56-year rhythm also applies to the Kondratieff theories themselves. Every 56 years, at the times of world depression, there is a flurry of publications on Kondratieff cycles.
Cesare Marchetti from "International Institute for Applied Systems Analysis" (IIASA) in Laxenburg, Austria, is amazed at the precision with which the cycles are executed.
The absolutely striking fact is that the system operates like a clockwork. The said centerpoints fall into specified positions in the (Kondratiev) cycle with the precision of one year. E.g. infrastructures construction waves are always centered six years after the bottom. The system seems to know (50 years ahead) that public works are needed to overcome recession. The agitation of the decision makers seems to be of no consequence, because no ripples appear in the long-term equation describing the process.
Emphasis in the original
The policy cannot shorten the duration of the depression process, at best it could mitigate the consequences for the society and keep the national or regional conditions for the next recovery. preserve regional conditions for the next upswing.
Could, if they heeded the lessons of the last Great Depression of the 1930s to 1940s became. However, it is not only German policymakers who seem hell-bent on emulating Bruning’s example and exacerbating the crisis with procyclical policies. The parallels go right down to the choice of words. Karl Georg Zinn offers as an example a statement by the Reichsverband der deutschen Industrie of 4. May 1931, which seems to be from today.
Back then, Bruning followed the recipes of the large corporations; today, Schroder does. But the large corporations, with their constant recipes for crisis, were not able to improve the situation then, nor are they able to do so today. They themselves are part of the battle between old and new, and they may well be among the potential losers. Let us take a look at the automotive industry.
According to Marchetti each industry has a characteristic development, which runs from the beginnings to the saturation in the form of a natural growth curve. Such a curve looks approximately like this:
The lower asymptote is the starting level. The upper asymptote is the final level. With their achievement, the development niche is filled. The turning point P is the point of maximum growth. If one does not represent the cumulated quantity as above, but the change of the growth rate in the time, one receives a bell curve, similar to the well-known Gaub distribution:
As the markets are saturated, the growth rate decreases. Declining growth rates are therefore a sure indication that a technology has reached the limit of its development.
Die Grafik zeigt die Wachstumsrate des KFZ-Bestandes in Deutschland von 1964 bis heute. One can clearly see the business cycles of medium duration (juglars) and from ca. In 1982 also the shorter cycles. In 1993, the reunification is reflected in the statistics. The trend has been steadily downward since 1964. Obviously, our curve shows only the second half of the growth process, the way to saturation. The automobile paradigm is exhausted. Other data confirm the finding. As reported by the ADAC, about 10% of the 11.000 km of the German autobahn network becomes a parking lot every day .
With the traffic gridlock, the automobile loses its acceptance. In 1981, Yacov Zahavi found that the time people spend daily on transportation is about one hour, and that they spend no more than 10% to 15% of their income on it. These limits are independent of culture and technological development. Sie gelten fur mittelalterliche Stadte genauso wie fur moderne Grobstadte. With increasing congestion, traffic therefore becomes a stress factor, forcing people to exceed this time budget.
In addition to stress, traffic causes enormous losses. The external costs of transport reached 530 billion euros in 1995, almost 8% of the gross national product, with road transport contributing 92%.
For 1995 the total external costs of transport (excluding congestion costs) are estimated on 530 billion Euro, or 7.8 % of the total GDP in EUR 17 (8.3% including congestion costs). The most important contributor is road transport, causing 92 % of the total costs.
And the stress is expected to increase even more. In its Transport Report 2000, for example, the German government ames that passenger traffic will increase by 20% by 2015. Good traffic is supposed to increase by 64%.
The "Future technology" The use of computers brings little relief, but rather exacerbates the situation. The Internet simplifies communication and thus trade, but the goods sold electronically also need to be transported. The result is a situation similar to that of the early 19th century. The railway was already known in the twentieth century. At that time, it was possible to produce goods faster and with less labor in the new factories powered by steam engines, but the new quantities of goods had to reach the markets and enormous amounts of coal had to be transported to the factories. Initially, the construction of canals increased the transport capacity, but this soon reached its limits. The solution was the railroad. The railroad revolutionized transportation and thus started a new long wave of economic development and a new culture of life, the bourgeois era. The later Kondratieff cycles experienced similar revolutions.
Cesare Marchetti predicts the birth of a new transport system in the first decade of the new millennium on the basis of this development logic of the previous Kondratieff cycles:
The key is a new kind of transport. In the past 200 years, the system has embraced a new means of transport every 50 years or so: barges, trains, autos, planes. One can view these vehicles and their infrastructures as products competing for market share. The secular evolution is beautiful. Clearly, air will be the big winner for several decades. But the beginning of the millennium must also give birth to a new mode of transport.
Weltweit ist die Arbeit an diesem neuen Transportsystemen langst in Gange. Innovative Transportation Technologies versammelt auf seiner Seite Hunderte von Projekten und Projektideen.
Innovationen, die eine neue lange Welle einleiten sind keine kurzatmigen Produktinnovationen, sondern ganze Bundel an Neuerungen, die die Lebensumstande grundsatzlich verbessern, d.h. zu mabgeblichen Zeit- und Krafteinsparungen fuhren. Da sie vollig neue Infrastrukturen schaffen, begrunden sie ein langfristiges neues Wachstum. These changes have to prevail against habits, established power structures and income privileges.
But whatever the outcome of the resulting power struggles, and whatever the more or less pointless policies of Cesare Marchetti "Clockwork" said mechanism ticks.