Monday, April 6, 2015

WOODIN | Appendix A. The Kondratiev Waves (Updated May 15, 2015)

The Kondratiev industrial waves of about 50 years each were started by Scotsman James Watt's steam engine.

It was not just more efficient than the 1712 steam-engine design of Thomas Newcomen.

It made possible many new uses of the engine because it could drive a wheel.

Newcomen's boiler created steam that was fed into a closed container. When the steam cooled, it created a vacuum that pumped water up from coal mines.

Watt's Steam Engine, developed 1763-1775.
First Wave, Steamboats, 1800-1850. Watt, by introducing a separate steam condenser, permitted a shorter cycle. Instead of a chamber that slowly filled and emptied, his engine enabled a piston to cycle up and down, allowing for rotary motion. This invention led to riverboats and steamships in the first Kondratiev wave, 1800-1850. Watt shrunk the world.

(The American south was able to transport cotton  up and down the Mississippi and other rivers. New canals were built to take goods through to the Great Lakes. Combined with the new ability to harvest short-staple cotton via Eli Whitney's cotton gin, it meant that by 1850 the south producing three-fifths of American exports, with cotton accounting for most of that. It also created a demand for slaves and led to the Civil War, but that is another story.)

Second Wave, Railroads, 1850-1900. The second phase of the industrial revolution resulted from the transfer of the steam engine from boats to locomotives. This created the railway age. Many railways were built alongside canals, so that one mode of transportation could complement the other.

George Stephenson's Locomotive, Invented 1814.
First Railway (8 miles, for a Coal Mine), 1819.
Railways were faster than steamboats. The world shrank some more.

At the heart of this railway revolution was American Car & Foundry, which originated in Berwick, Pa. and in 1899 monopolized the railway-car supply business, making its CEO, Will Woodin, very wealthy.

Third Wave, Electricity, 1900-1950.  The steam engine was used to generate power and supply electricity to the public through electric utilities that wired every home. Thus the steam engine drove 150 years of economic growth.

These three spurts of growth of 50 years each, from 1800 to 1950, were the original  Kondratiev waves, named after Nikolai Kondratiev, a Russian who was executed by Stalin on September 17, 1938 during the Purges for refusing to toe the party line.

Fourth Wave, Cars and Petroleum, 1950-2000.  The fourth wave was the invention of the automobile and of ways to turn petroleum into plastic and other products.

Fifth Wave, Information Technology, 2000-2050. The fifth wave - Information Technology, 1990-2010 - was viewed as shorter, only 20 years. But one could argue that this wave is continuing and will keep going until 2050.

The Sixth Wave, ??. The chart at the beginning of this Appendix, based on Leo Nefiodow's extension of Kondratiev's work, shows "Psychosocial Health" as the next phase after technology/IT - shrinks, guidance counselors, rehab facilities and home care for almost everyone.

Certainly, jobs in health care have been growing, but this growth - like the growth of education - is running into limits to people's willingness or ability to pay for the services. Private health care appears to be a private choice and the appetite for health care services seems boundless. The problem is the cost side, who is paying, and how much they are willing to pay.

This leads me to the McKinsey projection of the sources of growth in coming years. They narrow these sources down to four, which they call "global trends". I list them in a different order than they do:
  • Technology.
  • Urbanization.
  • Graying of the global population.
  • Freer flow of trade, people, data.
Technology has broken through many predicted limits. Possibly the other three trends will do the same. Or, another scenario, we will see limits to urbanization and graying and free flow. We may see a backlash as we have in U.S. attitudes to trade and migration and open data.

The industrial revolution seems a simple process to manage by comparison - but only because we have seen how innovation addressed each problem and mostly solved it.