An Age of Expansion
May1st, 2010
If we take a look at history, it is very easy to see the cycles of economic and technological development and decline that occur across time. There have been several waves of development since the 18th Century that have helped to spark some of the most impressive turning points in the history of the world. There are five of these cycles that are generally called Kondratieff Waves, named after Russian theorist Nikolai Kondratieff. Through extensive study and observation, Kondratieff came to the conclusion that capitalist markets move through a boom and bust cycle. Here are the five big waves that occurred as growth was sparked throughout the cyclical trends of the capitalist markets.
The Industrial Revolution, in 1777, was one of the initial waves that took place in the 18th Century. It introduced the world to mechanization and the world of factories as people began to gather and live in cities to be close to these factories. As things began to advance a little further, in 1829, the coal-powered steam engine surfaced in England and the railways became an ideal form of transportation. Then beginning around the 1870s, steel began to be mass produced which led to improvements in transportation as railroads became a lot more common, steamships were able to sail all the way across the world, and bridges and tunnels were built that were previously unimaginable. In 1904, the automobile was introduced to the average American household thanks to Henry Ford’s vision and the Model T. This made transportation easier and helped drive the steel, auto, and oil industries into an economic boom. Now we are heading towards the end of the fifth wave which is the age of information technology. When Intel created the microprocessor it introduced a whole new possibility of personal computers which impacted businesses across the world.
As each new cycle began, it helped to diversify the world with new types of organizations and jobs, more innovative management styles, and totally different ways of doing business. This process does not take place over night, and it usually takes an economic downfall to create a turning point like this. Despite the fact that times appear rough during a turning point, or recession, a lot of the strongest organizations are built during a transitional period. Recessions require new, up and coming companies to be innovative and think of new ways of doing business. According to Carlota Perez, the Author of Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages, there are two major phases in the Kondratieff Cycle that are split up by a recession or turning point.
The first period is referred to as the Installation. This phase occurs when a new technology is introduced to the marketplace and different companies arise to try and harness this technology and sell it to businesses and other consumers. Installation usually takes place as the major players from the previous cycle begin to reach maturity and their growth begins a heavy decline. For example, some of the major innovations from the previous cycle included the invention of the modern refrigerator and the vacuum cleaner. As computer chips were being developed, new technologies began to arise, and the manufacturers of the refrigerator and the vacuum were not able to develop any further innovative ideas. This reduced these products to commodities, as new companies with fresh ideas began to arise and try to harness the new computer chip technology.
Much of this lack of innovation from previous companies can be attributed to the past success of these great innovators. When many people come across success in something they do, they tend to want to stick with the old processes because they are associated with the feeling of success. As companies and technology begin to change, it is not always possible to drive success out of old processes and it becomes imperative to a company’s livelihood that it changes with the times. Occasionally, it will be possible to use new technology to improve old products, but it’s the ability to keep an open mind that will help old companies continue to be innovative.
After the Installation period, there is generally a transition period when the economy takes a break before it begins to build itself back up. This turning point can be a very short period or it can be longer such as the transition that took place for 15 years after the stock market crash of 1929. Many people feel that we are in one of those transition periods right now, which began with the burst of the dot-com bubble in 2001. As the transition period begins to phase out, the deployment period will begin and this is when we will start to see products and services arise that match the technological developments that took place during the installation phase.
Many people believe that the United States has been involved in a transition period since the burst of the dot-com bubble in 2001. It looked as though this period of transition between the installation phase and the deployment phase was going to be brief, but it was extended by the financial services industry, which was capitalizing off of easy profits by using derivative instruments. Although this recession has seemed long, the light appears to be peaking through the tunnel, and many people feel that we will begin to see extreme levels of innovation as we climb further and further out of this hole that we have dug ourselves into.
Through the next thirty years of the deployment phase, it is predicted that the companies that segment their market and begin to target a specific niche, will be the most successful. With the improvements in technology, it has become a lot easier to communicate and get each consumer exactly what they want. So in the coming years, this will be something to take note of as we watch some companies float while others sink to the depths of the corporate graveyard.
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