Perez Refines Long Wave Theory
In the 1920s the first economists began to correlate core technologies as the principal driver of the economy. The Russian institute would be home to the original economists who began this field of study for the various business cycles lengths. Two would go on to become very famous however the one who launched the Long Wave Theory was Nikolai Kondratiev (Kondratieff). Because his work stood in stark contrast to the politics in Russia in the 1920s he was executed in one of Stalin's purges. Some of his work was translated into German and smuggled out to Austria where the economist Joseph Schumpeter began calling Long Waves Kondratieff waves. It was Schumpeter who would build on Kondratiev's work terming the current phase of the wave we are in the Gale force winds of creative destruction.
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In the latter 1990s a group of Macro-Economists who had been working to refine Kondratiev's or K-waves began publishing their work. In 2002, Carlota Perez, published Technological Revolutions and Financial Capital. Perez had refined decades of Long Wave theory into a functional expression as to what the waves looked and acted like. In the following we will review what Perez had uncovered.
In Perez's model the initial Industrial Revolution was set in motion by a set of core technologies which began with the automation of cotton spinning machines in England around 1770. The Age of Steam and Railways (2nd wave) followed around 1830 and began to spread to the USA. The Age of Steel, Electricity and Heavy Engineering (3rd wave) began around 1875. The 4th wave, the Age of Oil, Autos and Mass Production began around 1910. Finally the current wave (5th wave) the Age of Information and Telecommunications began around 1970 with Intel's invention of the microprocessor.
It will be only truly apparent after they have written the history books as to exactly what Perez had contributed but from the vantage point of today she accomplished several monumental things in her model. She allowed the data to stand on its own and therefore there is overlap between the Long Waves. Technology development is not an even or tidy process though it does constantly reoccur. She also described what the Long Waves look like and in so doing we are able to test her theory using real live and historical market data.
In the following chart Perez describes visually what Long Waves look like. We will take each major phase apart in a moment. The model demonstrates that each half of the Long Wave looks and acts very differently. In the first half the wave is driven by investors in the market place whereas in the 2nd half of the wave corporations fund the build out of the core technologies which power the wave.
In order to understand the properties of a Long Wave let's take each component apart in order to clearly understand them.
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