Wednesday, 25 March 2015

The Long Wave - Part 18

In Part 17, I examined how the constraints on further capital accumulation, imposed by the drying up of labour supplies, following a period of extensive accumulation, create the incentive for a period of technological innovation, which is the basis of a period of intensive accumulation, which lies behind the Law of The Tendency For The Rate of Profit To Fall. But, this is the basis by which those previous constraints are removed, and which in turn creates the conditions for the rate of profit to once more rise. Wages fall, and surplus value rises, the value of constant capital is reduced, and the rate of turnover of capital rises. The new industries, with lower organic compositions of capital, and high rates of profit, which initially form only a small part of the total social capital, during the Winter phase of the cycle, grow, and become a larger part of the total social capital, as the Winter phase progresses, and turns into the Spring phase.

George Ray, writing in 1980, noted the role that microprocessors could play in the next Innovation Cycle, comparable to that played in previous cycles by the steam engine, electricity, the internal combustion engine, and the chemical industries.

“There are many who believe that the next great innovation, following in significance the motors of earlier Kondratiev cycles and comparable to them in width and depth of impact on the economy, will be the microprocessor. The importance of micro-electronics can be seen already in many areas and it is not surprising that the ‘microprocessor revolution’ has begun to merit serious discussion. It has been emphasized that the microprocessor is a chameleon and that it takes on the character of whatever program has been fed into it; it can detect a guided missile, operate a coffee dispenser, regulate the use of petrol in a car or control an industrial process. If properly programmed it can be used almost anywhere, in communications, in metal machining, and in widely varying applications, from libraries’ bibliographies to medical diagnosis. It is conceivable that it could be a candidate to lead a technological upheaval, giving the necessary push for a swing up out of Mensch’s ‘technological stalemate’.”

Mensch had detected an Innovation Peak in 1935, and with a 50 year cycle, Ray argues this should mean a similar peak in 1985. But, Ray seems to get himself a bit mixed up here. He writes,

“Mensch’s innovation peaks followed each other with a lag of 50-60 years; the most recent one was in 1935 – the next on that basis, should follow some time after 1985. Kondratiev’s cycles required about 25 years from trough to peak; if we consider 1975 as the trough, the peak will only be reached by 2000, but in the meantime should come the upswing. On past experience, if the indications in Table 1 are accepted, this is too soon after the innovation peak in 1985, since earlier there used to be 40 years between the peaks of the two series – but then the time lag between the innovation peak (1935 and the economic trough (1975) was also shorter than the 50 years observed earlier.”

Ray seems to have got his dates mixed up. I would argue that the Kondratiev upswing began after the war around 1949 – Ray himself talks about this upswing reaching a peak in the 1960’s, so the trough could not conceivably arrive in 1975 less than ten years later. In fact, if the upswing began in 1949, with a 25 year duration, it culminates in 1974, with a new downswing, not the trough of that downswing, starting from that point, and itself culminating in 1999, with a new upswing beginning from that point. On this basis too, Mensch's Innovation Cycle ties in almost exactly with this. If the Innovation Cycle peaked in 1935, that gives a 14 year gap to the start of the new Long Wave Boom in 1949. If the next Innovation Cycle peaked in 1985, that gives an identical 14 year gap to the start of the new Long Wave Boom from 1999.

The reason for this 14 year gap, is similar to the 13-14 year gap between high raw material prices causing a new round of exploration and development of primary products, and those products flooding on to the market, and causing prices to drop. Firstly, new technologies are not simply created to order overnight. Secondly, although a new technology such as the microprocessor might develop as a new base technology, it takes several years, before this new base technology is implemented in a range of new products, and longer still, before the industries based on these new technologies grow sufficiently to have a decisive effect as part of the total social capital.

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