The sixth Kondratieff wave. A glimpse into the post-COVID world

Futurists and Economists - a particular breed or subspecies of the former - are often mocked as people who excel at predicting the past, very much like generals are always prepared to fight the last war. Looking in retrospect at the major economic, geopolitical and financial crises of the last three hundred years, it is easy to find examples of intellectual myopia and erroneous diagnostics which have led to catastrophic failures. Few economists if any had predicted the severity and magnitude of the Great Depression following the Goldilocks economy of the 1920s. Similarly, in the 1970s you could count on your fingers the futurists and pundits - like Alvin Tofler - who correctly predicted that an era of prosperity would emerge for the United States and for the global economy with a long secular rally for stock markets over the 1980-1990s, out of the stagflation and geopolitical dislocations of the 1970s. More recently, most economists failed to predict the Great Financial Crisis of 2008. The few notable exceptions included Stern School of Business Professor Nouriel Roubini - also known as Dr. Doom, Nobel Prize Winner and Yale University Professor Robert Schiller - who co-created the Case-Schiller index with his colleague Prof. Karl Case - and the former trader turned philosopher and essayist Nassim Nicholas Taleb, whose Black Swan concept earned him worldwide recognition following the GFC.

Similarly, few futurists and gurus have predicted that a global pandemic could shake the foundations of the global economy to its core in 2020 leaving few options to policymakers around the world other than putting more than half the world's population in "lockdown mode". Ironically, as Nicholas Taleb aptly pointed out, the COVID-19 pandemic is not a Black Swan (cf. this article in the New Yorker). Indeed, epidemics and pandemics have been recorded in the history of mankind going back to immemorial times. Around A.D. 165-180, the Antonine Plague, which may have been smallpox, laid waste to the Roman army and may have killed over 5 million people in the Roman empire, according to Historian April Pudsey. Alongside climate change, epidemics are said to have contributed to the end of the Pax Romana, and served as a catalyst to accelerate the decline and ultimately the collapse of the Roman Empire. In the words of Kyle Harper, who published in 2017 a book supporting this thesis : "The Antonine plague coincided with the end of the optimal climate regime, and was probably the global debut of the smallpox virus. The empire recovered, but never regained its previous commanding dominance. Then, in the mid-third century, a mysterious affliction of unknown origin called the Plague of Cyprian sent the empire into a tailspin."

With all the Big Data that we have at our disposal, the super fast computers and the armies of AI analysts, the jury is still largely out on the likely shape of post-COVID world is easier to spot turning points in retrospect. Actually, AI algorithms have proven to do a poor job at helping us understand the dynamics of the COVID-19 pandemic (cf. this article in the MIT Technology Review). Amid all the prevailing doom and gloom, it is still possible to remain optimistic and to gain insights by taking a long view on the "day after" the pandemic. In this regard, the Long Waves Theory developed by Soviet Economist Nikola? Kondratieff in the 1930s is a useful framework. Looking at data on the French, English and American economies from the end of the XVIIIth century, Kondratieff observed In an article (translated and published in English in 1935 in The Review of Economic Statistics ,under the title The Long Waves in Economic Life) that beyond the short and intermediate business cycles identified by economists Joseph Kitchin and Clément Juglar , industrial economies followed long cycles, with coincident movements of interest rates, commodities prices and industrial production around their secular trends. 

Interestingly, Kondratieff related these long waves to the invention and diffusion of new technologies - a decade before Joseph Schumpeter forged his concept of creative destruction and demonstrated that innovation played a central role in economic growth. In Kondratieff's own words:  "During the recession of the long waves, an especially large number of important discoveries and inventions in the technique of production and communication are made, which, however, are usually applied on a large scale only at the beginning of the next long upswing."  Building on Kondratieff's theory, his followers have already identified five long waves (cf. the chart below). The fifth wave coincides with the Information Technology Revolution that took off in the 1980s. The 2010-2020 period could well correspond to the last leg of this long cycle - the "Improvement" leg coinciding with the commoditization of the digital technologies through the ascent of the Platform economy.   

The fifth Kondratieff wave has been structured around the diffusion and commoditization of information technologies - thanks to the exponential growth of computing power and to the move from centralised and clustered sources and repositories of information to decentralized and distributed networks. It has also seen the rise of genomics whose recent breakthrough - cf. the CRISPR gene editing technique -  the have been enabled by information technologies (very much like traditional microbiology has benefited from the progress achieved in physics and chemistry in the XIXth century). The most interesting technologies that will shape the Sixth Kondratieff wave will most likely appear at the junctures of different and seemingly unconnected scientific realms and theories. 

The start of a Sixth Kondratieff Wave based on technologies that are only in their infancy such as quantum computing and genetic (Re-)Engineering could trigger a set of radically different social, political and organisational features from the Fifth Wave extending over the 1980-2020 period. In this regard, the COVID-19 might well be seen in retrospect as a decisive turning point, provided creative solutions are found to solve the growing geopolitical dislocations (e.g. the economic war between China and the United States or the resurgence of Eastern-Western and Northern-Southern schisms and geopolitical tensions in Europe). These dislocations in themselves signal the end of an era and the beginning of a new one. Indeed, another striking intuition of Kondratieff is the assumption that "wars originate in the acceleration of the pace and the increased tension of economic life, in the heightened economic struggle for markets and raw materials". Hence, according to Kondratieff, there is a clear relationship between economic, financial and geopolitical cycles. This reminds us of the need to put back economic and financial analysis in a broader context of World-System Theory (This is one of the core tenets underlying The Multipolarity Report and my Research interests since the publication of my book on the BRICs economies in 2011).  

If this proves to be true, then the tech fuelled market rally that we have been observing since March will be vindicated ex post as it could be an early indicator of an upcoming economic upswing. Indeed, while all bubbles generally end up in tears and despair for market top riders and imprudent trend followers there is a fundamental difference between real estate bubbles, like the one that occurred ni the United States in the early 2Ks, and tech bubbles. The latter eventually translates into higher productivity by encouraging the diffusion of new ideas and innovations, whereas the former has mostly negative distributional effects - which fade away after the bubble bursts leaving no sizable impact on the economy growth trajectory and potential.   

Since the end of the 1960s, there have been many attempts made at describing and understanding the post-Fordist or post-Industrial economy (i.e. the Fifth Kondratieff Wave). I will not venture into a Grand Theory. I prefer to single out three principal antagonisms which I believe could shape the post-COVID world beyond technology: 

1. The tension between the need for physical proximity (shaped by culture and biology)  and the opportunities offered by ubiquity (driven by technology innovations)

2. The conflicting imperatives of security and individual choice. The solutions chosen to solve this inherent conflict have always determined and will continue in the future to determine the shape of political systems and societies - (e.g. Liberal vs. Authoritarian) - at the national level as well as at the international/global level (the latter emerging from the interactions between the former).  

3.  The dialectic between market forces (decentralized players) and states (centralised institutions) in framing and canalising those forces: this would determine the acceptable definition of justice as the equality of opportunity - the neo-Liberal or Rawlsian definition of justice -  or the equality of outcomes (the Socialist version of justice).  

Combining these three antagonisms could yield an extended range of alternatives to describe the shape of societies and economies encapsulating the technology-driven Sixth Kondratieff wave. One thing is pretty sure, the rise of remote working (cf. the chart below with data extracted from Google Mobility Reports, which shows the persistently lower frequentation of workplaces in many countries), e-commerce (cf. the 2Q 2020 e-commerce statistics unveiled by the US Department of Commerce, as outlined in the next section) and the renewed attention to global risks - be they epidemics, geopolitical conflicts, social inequalities or catastrophes induced by climate change -  will not erase the vital urge for physical bonding and security which emanates out of our Reptilian brain. Actually, these instincts could become more needed than ever as we experience the Paradox of connectivity, whereby Humans are becoming more and more isolated from each other - in a physical sense - all the more that their capacity to virtually "connect" increases.   

Alexandre Kateb