NIKOLAI Kondratiev`s life story was terrifyingly typical for Russians born in the concluding decades of the 19th century or the early decades of the 20th century. A brilliant economist and socialist who supported Lenin`s New Economic Policy that helped the Russian economy recover from the effects of the First World War, revolution and the civil war later fell foul of the Soviet dictator, Joseph Stalin. Purged from the Communist Party and imprisoned in 1932, Kondratiev was ultimately executed during the Great Purge of 1937-38.

Kondratiev, like his great contemporary John Maynard Keynes, developed a rare and stimulating insight into the working of the global capitalist economy. Stripped of the jargon that has sadly come to characterise academic output over the past 100 years, Kondratiev articulated a philosophy of economic history that was in its essential principles remarkably simple.

Kondratiev argued, from the perspective of the 1930s during the global economic depression that led many to argue that capitalism was doomed, that a greater conglomeration of forces was at work which may well lead capitalism out of its troubles. Economic history in the post-industrial revolution period appeared to unfold in 50-60 year mega-cycles or long waves.

Each mega-cycle was driven by technological innovation, inflationary pressures, the emergence of new sectors, increases in productivity and growing wealth. These factors combined to ensure that for about two generations, regional instabilities and brief recessions and plateaus aside, no general economic catastrophe occurred. The same absence of a general catastrophe, however, led to an increasing proportion of speculative and bad investments dependent upon rising prices. At some stage this proportion of speculative and bad investments would exceed the capacity of the market to bear them and lead to a crisis of confidence that culminated in a deflationary depression.

The deflationary depression, once it hit, would lead to falling income levels, massive job losses and great hardship. It would also, however, by making it harder to make a profit, place a premium on innovation and technological development. Eventually, capitalism would start to return to the path of growth thanks to the creativity and hard thinking necessitated in its darkest hour. The present crisis does qualify as precisely the kind of contraction that Kondratiev predicted also known as `Kondratiev waves` and it comes a little over 60 years since the present mega-cycle began.

The sums involved are greater than ever before and astronomical in their numerical values. The United States government spent $85 billion on rescuing AIG, a large insurance group. An additional $700 billion have been marked for dealing with the credit crunch and shoring up the banking sector.

Demand and therefore prices are falling leading to the prospect that the crisis will soon spread to developing countries that export the manufactured goods and raw materials, not to mention services, upon which global capitalism rests. The governments of the advanced industrialised countries are warning that even with comprehensive ameliorative measures a deep and long recession is likely.

The political repercussions of the crisis are as potentially destabilising as the economic ones are daunting. A deep recession in the United States and Europe will hit the exports and investment profiles of regional powerhouses like China, India and Brazil.

The impact on smaller economies that are heavily dependent on external transfers such as remittances or foreign aid/loans to make ends meet is likely to be much greater. If oil prices are badly affected by a deflationary wave then the incomes of oil economies like Iran and Saudi Arabia are liable to be slashed. Similarly, economic crisis in Venezuela or Russia might destabilise their respective governments in dangerous and unpredictable ways.

Even the advanced industrialised countries may not be immune to political destabilisation. Rightist and ultra-nationalist politicians may use the opportunity presented by hard times to blame immigrants for economic problems allowing the politics of hatred to once again rear its head in a part of the world that has not seen large-scale violence in almost three generations. Welfare states may be forced to cut their budgets and reduce social spending thereby exacerbating social tensions.

Certainly, the last major economic depression, which lasted from 1929 to 1940, produced catastrophic political results, triggered wars and mass migrations and undermined the European imperial system. Another major economic depression, if it sets in, could see the emergence of new ideologies and charismatic dictators, trigger wars and destroy for good American political and economic supremacy.

There are, however, good reasons to believe that the present crisis will not be as cataclysmic as a Darwinian mass extinction. One major factor is that unlike in the 1920s and 1930s the major world economies today are part of a system that monitors and regulates the international economy.

The fact that a great number of banks will have to be effectively nationalised does not mean that capitalism is dead. All it means is that state capitalism is temporarily filling the vacuum left by private failure and that capitalism is likely to evolve its way out of the present crisis.

It also means that a new consensus in favour of better regulation and more equitable distribution of wealth is likely to emerge in the world`s leading economies. n

The writer is a faculty member of the department of history at the Quaid-i-Azam University, Islamabad.

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