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Maybe we face a Kondratieff plunge

Maybe we face a Kondratieff plunge

Welcome to the fully integrated global economy

by Meghnad Desai

Fri 6 Sep 2013

Welcome to the fully integrated global economy. There is no decoupling, no hiding from the general chaos. Slow growth will be the result. No more bumpy rides; it is a hard slog through mud and slush.

In spite of the slightly better economic news from the US and euro area, there are plenty of negative developments out there – not least in emerging market economics. Perhaps the world is witnessing confirmation that we are subject to the notorious fluctuations of the Kondratieff Cycle. We may be at the start of another long downswing.

The financial market upsets hitting a range of emerging economies show their weak capacity for macroeconomic stability policies. China, India and Brazil have in various ways failed to see the macro imbalances coming or to do anything effective to correct them.

These cycles – named after the Soviet economist Nikolai Kondratieff – are never precisely calibrated in terms of length or phases. Kondratieffs are long cycles of around 50 years on average. If you think of the Keynesian quarter century as the boom phase of the Kondratieff – 1945-71/73 (some start the cycle in 1940) – and the downward phase as 1971-73 to 1989-91, that makes a 45 to 50 years cycle.

In an eerie parallel, the 19th century downturn began in 1871 as well. Continuing in this vein, we can time the boom phase of the latest cycle as 1992-2008, a rather shorter boom than the earlier Keynesian quarter century. You could extend it by adding four years since the emerging market economies did not slump until this year.

The 19th century boom phase lasted from 1896 until 1913. That would bring us up to 1992-2013, marking a 20 year cycle. Can we then expect a downward phase of 2008-13 until 2030-33?

You have been warned.

Lord (Meghnad) Desai is Chairman of the OMFIF Advisory Board. This commentary is based on an article in the OMFIF Monthly Bulletin for September.

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