Page 52 - Accelerating out of the Great Recession

THE DAMAGED ECONOMY

Phase 2, or “summer,” runs for a fleeting 5 years. In this phase,
the period of expansion reaches its peak and then
encounters difficulties. In particular, excess production
creates a shortage of resources, and the resulting effect—
increased costs—leads to lower profits. As a result, eco-
nomic growth slows down.
Phase 3, or “autumn,” endures for around 10 years. This phase is
characterized by the first recession in the K-cycle, after
which the economy enters a stable period of relatively flat
growth. In this plateau period, lower inflation and a positive
future outlook encourage people to take on more credit.
Phase 4, or “winter,” lasts for about 18 years. It begins with a
protracted recessionary downturn—up to 3 years in
duration—after the indebtedness of the autumn phase
destabilizes the economy. This is followed by a period of
up to 15 years of slower growth rates until the next spring
phase begins.

What are the driving factors behind these waves of economic
development? Economists are divided on the answer. Some
argue that the waves reflect changing patterns in capital accu-
mulation or the availability of commodities and food; others
contend that wars or social upheavals explain them. But the
dominant theory—articulated by Schumpeter—is that techno-
logical innovation is the main engine of economic development.
If we add one—possibly two—further waves since Kondratiev’s
death, K-cycle theorists have identified four or five waves of eco-
nomic development since the end of the eighteenth century,
together with the innovations that drove them.
The first wave, the age of industrial revolution, was driven by
the invention of the steam engine and the growth of the textile

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