I ATTACH A CV FROM ONE OF THE FUTURISTS I MET DURING A RECENT BROOKINGS SEMINAR.

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• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP88T00988R000200170014-8
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• Document Creation Date: December 22, 2016
• Document Release Date: July 18, 2011
• Sequence Number: 14
• Publication Date: June 27, 1986
• Content Type: LETTER

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ScStt W: Erickson
PFlE T'R~4WSIT/0
QETII~EEN ERAS
The Long-Wave Cycle
We are in a time of transition between economic eras-a midpoint
in the "Kondratieff cycle." Now is the time to examine our alternatives
and try to plan our economic future, says author Scott Erickson.
Modern society is in a time of
transition. Serious disturbances in
economic and social life as well as
the rapid development of technol-
ogy over the last few years have
convinced many that fundamental
alterations are now taking place. ?
Of the many changes that charac-
terize this transition, some of the
most interesting have appeared iri
the behavior of the economy. The
steady growth and development
that followed World War II became
une~?en by the early 1970s. The ebb
and flow of growth and other cur-
rentcharacteristics of economic be-
ha~rior escape convincing explana-
tion by conventional economics.
These changes, however, are
roughly consistent with the long-
wave or Kondratieff cycle in the
economy. The long wave is a 45-
to 60-year cycle of growth and de-
cline in economic development. It
is dri~?en by the establishment,
growth, and then overexpansion of
an interrelated complex of technol-
ogies and industrial processes that
eventually reach diminishing re-
turns.
In the 1920s, Nikolai Kondratieff,
a Russian economist, reported sta-
tistical evidence of long waves of
prosperity, recession, depression,
and recovery in the economies of
France, Germany, Britain, and the
United States. The Kondratieffcyde
is the lungest of several cycles now
used to explain business and eco-
numic behavior and provide insight
into the transitions industrial so-
defies pass through between eco-
nomic eras. It reflects an ebb and
flow in economic devebpment that
has now passed though nearly four
complete cycles since the begin-
nu~g of the Industrial Revolution
in the late eighteenth century.
? ?Dates for the lon6 wave have been
calculated by several economic his-
torians. They differ in detail but cell
a similar story. Kondratieff himself
suggested- the dices for the upward
and downward cnr~es of the first
three long waves shown in theclurt
below.
In the 1970s, JaoDb Van Duijn. a
Dutch economist, proposed a revi-
sion of the stages of the bng wave
based on his own review of the
available evidence (see dart on
page 41).
Some of the dates are slightly dif-
ferent between Kondratieff's and
Van Duijn's calculations, see they
investigated different data hom
different countries. What is nr
markable is how similar the aonclu-
sions are. Since the beginning of
' ~ , .
. KondratietPi Dates .. - -
.
t~art#. ~ ~~ ~ Downward .
1st Waw
1785-95 to 1810-17
1810-17 to 1844-51
~+d wael~
~e44-s~ b ~e7o-7s -
~ ~e7o-7s to t8eo-9e
~.
. .
3rd Wsw
1890-96 to 1914-20
1914-20 to (?)
}.
.. , ~ ,
the industrial era, the world econ-
omy has seen four fundamental
waves of development, each one
identified with a particular set of
technologies and commercial en-
terprises.
Studying tl? long Wave
The idea of a long wave in
economic development was well
known in the West by the mid-
1930s, but the period of unbroken
growth in the 1950s and 1960s-the
upswing portion of the fourth long
wave-pushed the long-wave thesis
into the background until it was re-
discovered during the economic
turmoil of the 1970s.
Discussion of the long wave
has recently been widespread, as
exemplified by the publication of a
new translation of Kondratieff's
Tht Long Wurx Cycle in 1984 and
MIT professor Jay Forrester's tes-
timony before the joint Economic
Committee of the U.S. Congress in
June 1984.
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times of prospPnty prohtat+lc
dustrial sectors are overbuilt and
grow beyond the site needed for
long-term equilibrium. Productive
opacity is expanded beyond mar-
ket opportunity, creating large
debt. This overexpansion is ended
by recession and depression, dur-
ingwhich excess productive capac-
ity is physically worn out and fi-
nandally depreciated until the
stage has been cleared for a new
era of rebuilding. Deceased profits
during this period make it difficult
to repay debt, forting some indi-
viduals, businesses, and nations to
default.
Several measures display this
kind of cyclical behavior. The U.S.
producer price index indicates that
since the beginning of the Indus-
trial Revolution there has been al-
most as much deflation as inflation
in paces. There have been four
price peaks in the last 200 years,
with tfie peaks occurring 45 to ti0
years apart.
Otherevents in industrial sodety
follow this same course. For exam-
ple, fauncial panic have occurred .
priman7y during the downward
portion of the wave. The fiat ~seri-
otu finandal panic in the l;nited
States nme in 1819, with others oc-
earring in 1833 and 1837, all in the
decIina~g portion of the first wave.
The panic of 1857, during a time
of general prosperity, was largely
confined tD the northern states.
Sma~ recessions occurred in the and oonduded that basic innova-
United States after the Civil War, lion tends to increase dramatically
but their significance was di- during the transition from one eco-
minished in 'comparison with the nomic era to another. He argued
severe depression that followed the that lord times between price peaks
worldn-idt finandal panic of 1873. in the bag wave stimulate innova-
Times rrntained troubled through- lion, which, in turn, pulls the econ-
out the 1670s and 1880x, with omy out of the depression. Two
another depression in the United studies since Mensch have also
States foDov-~ng the financial panic oonduded that peaks in basic inno-
of 1893- ~ vation in the industrialized world
inventions alto innovations that
adueve widespread rnmmercial
use seems to occur in dusters that
follow the economic cycles. Inven-
tion isconstant; application is cycli-
cal.
Major expansions of the long
wave grow around a highly inte-
grated and mutually supporting
combination of technologies. For-
rester and leis colleague Alan
Graham argue that, after such an
integrated pattern becomes estab-
lished, ineompah'ble innovations
are rejected as impractical ideas.
That is why basic innovations are
compressed into a window that
opens only every 50 yeah.
As prices go up, basic innovation
goes down; as prices fall, basic in-
novationgoes up. If existing goods
command high prices, the motiva-
tion to innovate is less. Basic inno-
vation is compressed into the tran-
sition between peaks of the long
wave.
Transitions
Dominant forces in the economy
and society tend to go through
transitions from one long wave to
the next. If, in fad, innovations
. ~..
, ?~ "_= ~~: ~ ~iit DuiJn's Dates
" .~~, .f
. ~:-.~.:
:..-,~;
r
'.T
Lst Wave
1783.1803
1815-1826
1826-1837
1637-1847
Ilhrrd 1Na!ve
. ~ : 11!?17--1866
}
~ X1886-1$75
. ~ X875-1884
, -.
? ~ fa8~4-1893
..
.
s
..
?~
Ord Wave
1893-1913
1921-1929
1929-1938
1938-1949
ilh WM -
'.3948-1467
~ '~Q67-1875
.~
'
'; .~
, - (+~ ' 7?
.~. _ .
~
wM~ea, w,in a Bess severe parnc ~n y, ,cycle.
1907, and continued until 1920, !n examining
when there way a worldwide reces- from pre~?ious clusters
Mensch
,
Sion. The Great Depression fol- points out that basic inno~~ations
owed in 1929. Starting at the end tend to arise from earlier inven-
of the 1930s there was prosperity lions. There is a gap between an
and price increase until about 1970. invention and the appearance of a
Major recessions occurred in 1973, basic innovation. For example, the
1979, and 1981. jet engine became commercially
Financial panics, recessions, and important as a basic innovation
depressions have been concentrated around 1941. But it was First dem-
in the downward arc of each of the castrated in a laboratory situation
four bag waves since the Indus- 13 years before, in 1928.
trial Revolution. Related variables, The gap between the appearance
loch as bank failures, bankruptcies, of the invention and the appear-
unemployment, and real estate ante of the barsic innovation is sig-
rnshes, have followed this same nificant. Invention is going on all
pattern. the time. But the transformation of
f8asie lnnovstion
long-wave patterns are reflected
in many aspects of individual and
institutional life, one of the most
important of which is the phenom-
enon of innovation. The frequency
of basic innovation tends to follow
speak-and-valley pattern as well.
Tn the 1970x, Gerhard Mensch, a
German economist, calculated and
tabulated the number of basic inno-
vations per decade since the mid-
tighteenth century. Basic inno-
vations are innovations that had
powerful economic consequences
and started new industries or
transformed existing ones.
Mensch measured the time of the
appearance of basic innovations
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 1st Wave
2nd Wave
3rd Wave
4th Wave
Sth Wave
Industry
Textiles
Railroads
Aubmobiles
Electrification
Miomtation
Material
Cotton
Iron
Steel
Plastic
Silicon
Energy
Water
Wood ~
Coal ~ '
.. ~~, OA ~
Solar
Communication
Overland
Telegraph
Telephone
Electronic
Space
Nation ~ ~~
Francs ~
~ . Great 8ritafit
Germany
?
_United States ~
United States .'
.:
help define the coming economic
era, there should be significant
transitions taking place in the busi-
ness and commercial sectors.
The leading industry-that
which resulted from and attracted
the focus of the most dynamic basic
innovations~f the fast long wave
was based on the manufacture of
cotton textiles. Building the great
railroads was the driving force dyr-
ing the second wave. The leading
industries of the third wave were
automobiles, especially in the'
United States, and, to a lesser ex-
tent, chemicals, espedally in Ger-
many. The fourth wave has been
characterized by electrification and
the use of electrical products, the
single most powerful example of
which has been television.
At the time of transition between
ales in the wave, the economy
alters because mature industries
are in decline. Gmwth goes on, but
only in innovative industries, not
in the mature industries. The steel
industry and the computer indus-
try mthe United States are exam-
ples.
Steel was a growth industry in
the United States during the third
bng wave. By the fourth long wave
in the 1960s it had passed its peak
but still dominated the U.S. and
world market after World War Q.
New steel-making technologies
such as the oxygen furnace were
available by the 1960s and were
widely used-but not in the United
States. Now, large American steel
corporations are being out-innovated
and out-produced around the
world-even by minimills in the
United States. Meanwhile, how-
ever, the computer industry, born
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in the late 1940s, is ahigh-growth,
innovative industry.
A major challenge faces organi-
zations that dominate an industry
as much as did U.S. Steel.. The
motivation to change is small. But
it is the entrepreneurial organiza-
tions that usually lead the economy
into the next wave. Economist
Peter Drucker has pointed out that
the long-wave depression is much
less severe when there is signi6-
cantentrepreneurial activity in the
economy. Tlus was the case in the
United States and Germany in the
1870s and 1880s, and it is true in
the United States today.
Entrepreneurial activity in the
United States took off in the middle
1970s and has continued to flourish.
An entrepreneurial environment
has existed during every spurt of
innovation between long waves,
but not all nations take advantage
of it. During the time of transition
between economic eras, there are
many possibilities. When there is
adequate freedom in the economy,
every possibility is tried. The ones
that work help define the next
economic era, as they are the ones
that attract investment and grow
to become the dominant industries
of the next wave.
The materials used by the domi-
nant industries tended to change
with each long wave. The dominant
material used during each wave
changed from cotton to iron to steel
to plastics.
The dominant energy source has
also changed with transitions in the
economy. Those innovations that
become successful during times of
transition help determine which
energy source becomes dominant
during the next bng wave. Chief
energy sources have undergone a
transition from water to wood to
coal and now to oil.
Early industrial activity was sup-
ported by direct application of
water power from rivers and
streams during the first wave. By
the second wave, wood had be-
come the dominant energy source
inmost places and was the primary
Innovations from
Prwious Surges
surge a+ ta7os to te9a
taandescent Nght (1887, 79)'
tlezi:ic locomotive (1$79, 38)
Telephone (1881, 21)
Mesthetics (1883. 52)
Ctrmieal tertiiizers (1885.45)
Gasoline motor (1886.26)
Aluminum (1667, 80)
Rayon (t89o, 33)
AntAOxins (t89a, t7)
RNrigerstion (1895, 22)
surye et 1930s and 1940s
Power steering (1930.30)
Radar (1934, 47)
Fluorescent light (1934, 82)
Oiese4electric bconwtiw (1934, 39)
Catalytic refining. (1935.20)
TNevision (1936, 29)
Nylon (1938. t t )
Automatic transmission (1939, 35)
Penicillin (1941, 19)
.Nt engine (1941, 13)
'(date of innovation, gears from date o1
invention)
eowor A4n K. Gnn~T, -nro laq W~v~.'rb~NrW
WlwnearFOrwsmp.va t,NO.SIF~N~rilII.07].
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? ~ ;~t~eaten~y of 8a ~nnovauons per >PeCaae
18
16
14
12
10
8~ -
6
2
0
Q
Mean
I I I I I 1 I 1
1740 50 1800 1850 1900 1950
Calendar Year
Chart showing tfte frequenry of Dasic irx~ovetions per decade. Tfte tngwnry d suM
innovatioru (the dark cane in tM ef,art) idtovrs a pattern d tows and bight muM Ise
that of bog-wave eCOnOfftie CyCkf.
:~riDduCePB Price a>ldes laoai~7~
1800 1825 1850 1875 1900 1925 1950 1973
Year
In this Mart. the frequency d t~asic innovatioru per decade (Oroken ine) is supa-
Mnposedover the producers price index for the tJniled States from t tI00 through tl73
(dark Wne). The inverse relationship Dstween eoortomic bws and times d great
irrrrovation is Cleary shown.
fuel for generating steam power in
railroad locomotives and other
steam engines. In the third long
wave, coal replaced wood as fuel
for steam engines and was used to
generate electricity. Oil and natural
gas have replaced coal as the pri-
mary fuel during the fourth long
wave, and they have bernme dom-
inant asthe fuel for almost all forms
of transportation.
During the first long wave, com-
munication traveled over land or
water. This was supplemented in
pass some messages more quickly.
Communication during the second
long wave was dominated by the
telegraph. Advances in electrical
technology in the 1880s brought
the wire-connected telephone and
the transcontinental telegraph to
the fore during the third long
wave. Since the 1930s, electrical
amplification has made possible
telephone, radio, and television
communication worldwide. With
each major change, not only has
the speed of rnmmunication been
increased, but also the reach.
Then has also been a dominant
national economy and military
power in each of these long waves.
England was the first nation to in-
dustrialize, but during the fist
wave--at least through the end of
the Napoleonic Wars-France had
the largest economy and was the
leading military power in the
world. Between 1815 and 1840,
France's place as dominant power
was taken by Great Britain. At the
end of the second long wave,
sometime between 1870 and 1895,
a united Germany took center stage
as the dominant economic and
military power. Between the 1920s
and 1945, in the last part of the
third long wave, the United States
? dearly became the dominant eco-
? nomic and m0itary power in the
world.
It is at least interesting to note
that each of the past economically
dominant countries has klt the ob-
ligation or the temptation to exer-
taseits military power on the world
stage. France failed in its attempt
to conquer Europe in the early
nineteenth century. Great Britain
k1t obliged to police the world
through the end of the nineteenth
century. Germany's quests to sub-
jugate Eumpeandthe world ended
in defeat in 1918 and 1945. The
United States has felt compelled to
police the world in this part of the
twentieth century.
The [riftlt 1.onD Wave
These are competing nndidates
slot what will emerge as the domi-
nant industry, material, energy
source, communications system,
and national economy in the fifth
bog wave. During this time of
111E FilTU11iST, August t 985 ~3
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Int~err~tional
nsition from one economic era
to the next, none of the competing
candidates is far enough ahead to
be a clear winner. For the next 20
years, there are going to be serious
competitors for dominance in each
of these categories. But by the end
of the transition, one set of forces
will emerge that will help shape the
fifth long wave.
The leading candidates in each
of the categories that will define the
fifth long wave are:
? industry: Computers, com-
munications egwpmatt, robotics
and cyberrtetis, DNA~ngineard
material, somatic modifications,
and spedalty drugs are potential
winners. "Information industry" is
probably the best way to desfsibe
the set of growing busirtesses and
other commertdal sctivities that is
most likely b become the fifth
wave's domirta:tt iftdustry, based
on advanced etec~oniic technology
and encompassing what is already
a large part of the work force.
? ibiate:iat- SBimn, composites,
ceramics, laminai3es, and engineered
plastics could dominate. The even-
tual cutting-edge material will be
the one most t3osely supporting the
information industry. This will
probably be s~Ort or a silicon sub-
stitute such ss gaIIitrm arsenide.
? ?nergy~ The wau~er here will
probably be the energy source that
is most compati7ble with the domi-
Want industry. The various forms
of solar enttgy--tenewabk, in-
novative, artd appiiatbie b high-
technology electrorfri~may well
combine to be flte dtief energy
source of the next wave.
? Commuaintioos:5paoe-based
satellite systems, frberoptia, micro-
wave systems, or asyrtchroetous
computer bulletin board systems
could all be used. The Watt domi-
nant cbmmunintions system will
pprobably be an deco+octic space-
basedsatellite system that bypasses
the current wire system.
? National eeofnoafii~ Leading
candidates are the United States,
the Soviet Union taurertdy one-
half U.S. GNP), japan (uur,e:ttly
one-third U.S. GNP), West Ger-
many (currently orte-fotu~t U.S.
GNP), the European Economic
Community (currently about equal
to U.S. GNP), China, a united Ger-
many, or a Pacific Rim ovnfedera-
tion.
In tl. .fth long wave, the United
States will probably still have the
largest national economy. We
should remember, however, that
national dominance is caused by
growth, innovation, and the exer-
dse of power, not by size per se.
Countries in dominant positions in
the past found difficulty in recog-
nizing when their dominance was
threatened.
The United States is far ahead of
other national economies at this
time, but differentials in growth
rate can accumulate over the two-
decade transition period that we
are now entering. For exampple,
Great Britain fell behind both Ger-
many and the United States at the
end of the nineteenth century by
having little real growth from 1873
to the early years of the twentieth
century. In many ways, the most
dynamic area of industrial develop-
ment today is in the Far East
(Japan, South Korea, Taiwan, Hong
Kong, and Singapore).
We find ourselves in a time of
transition between eras. Like other
transitions between previous long
waves, this rolls for a time of "high
thought." The 1980s and 1990s will
witness the demise of the fourth
long wave and the birth of the fifth
long wave. We are now experienc-
ing asurge of innovation in the
business and economic sectors.
Today's successful innovations will
define the character of the next
long wave. Our decisions about
these innovations-from now
through the 1990s, in the public
and private sectors-will help to
shape the next long wave in the
years to come.
A`_WY~
th? . ,,
Author
Soon W. Erickson is vice pnssideM of Infinity
Limited, where he works as a consultant on
strategic management and the future for U. S.
and foreign corporations. His address is 836
Chippewa Avenue, St. Paul, Minnesota
55107.
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