Kondratyev’s cycles and economic crisis



A prominent economist N. D. Kondratyev observed economic cycles in the scientific way. He founded the theory of Kondratyev’s cycles (K-cycles) that includes falling and rising phases of economics as the result of his scientific investigations. The base of this theory contains above-mentioned processes that connected with storing capital: centralisation, separation and losing value of capital.

In the first quarter of the XX century, Kondratyev proved his theory about huge cycles lasting about 50 years. He applied the analysis of several economic indicators, which were taken from 1790 to 1920 of Western European countries’ and the USA’s economics in his investigations. The scientist distinguished those cycles into two stages: gradually rising and falling tides. Besides, he enlightened mutual connection between huge and small cycles obviously in his works. Consequently, he offered the effective model of predicting economic dynamics of the world economy that lasts very long time.

Kondratyev mentioned the dual character of the cycles’ action in his scientific works. On the first hand, the reason for the cycles’ action is the disproportionality that appears because of disagreements between labour and capital in economics, on the other hand, the reason is forming a new position in economics because of developing producing devices and resources. A good example for this theory is changing the place of the industrial revolution age to the steam engines’ age.

The essential purpose in market economics is the activity for gaining profit and it provides re-occurrence of economic cycles. Kondratyev cites about this idea: “… undeveloped market economics serves as the fundamental factor of cycling, and if there is a cycling capitalistic manufacturing, it is continued to be in use”.

According to Kondratyev’s idea the main elements of long-lasting cycles are:

‒ The action of capitalistic economics reflects on some degrees of balance. The balance of main capital recourses (infrastructure of manufacturing and skilled labour force) with all factors of economic and social life defines this technical way of manufacturing. In this case because of the balance disruption the need for creating new storage of capital recourses appears;

‒ The process of renewing main capital does not go smoothly, in this case the essential role is played by scientific-technical ideas and innovations;

‒ The continuous process of a long-lasting cycle is identified with the average age of life of manufacturing infrastructural constructions, which are considered as main elements of society’s capital resources;

‒ All social processes — wars, revolutions, people’s migration are the results of economic mechanism’s reforming;

‒ Exchanging main capital resources and exiting out of economic falling, which continues considerably long time, need to gather natural and money resources. Having gained enough store, the opportunity to renew radically main capital resources appears, consequently, this implements a new rising phase of economics [1, p. 28].

There are also particular number of phases of Kondratyev’s cycles. Each cycle contains two phases — rising and falling phases. Nowadays the sixth rising phase of K-cycle is occurring. They are following:

‒ the rising phase of the first cycle covers the period from 1780–1790 till 1810–1817, the falling phase of it covers the period from 1810–1817 till 1844–1851;

‒ the rising phase of the second cycle covers the period from1844–1851 till 1870–1875, the falling phase of it covers the period from 1870–1875 till 1890–1896;

‒ the rising phase of the third cycle covers the period from 1890–1896 till 1914–1920, the falling phase of it covers the period from 1914–1920 till 1936–1940;

‒ the rising phase of the fourth cycle covers the period from 1936–1940 till 1966–1971, the falling phase of it covers the period from 1966–1971 till 1980–1985 (after Kondratyev’s age some scholars in their researches identified the period of 1970’s oil crises and stagflation in a scientific way being based on real economic indicators and the model of K-cycles);

‒ the rising phase of the fifth cycle covers the period from 1980–1985 till 2000–2007, the falling phase of it covers the period from 2000–2007 till 2015–2025 (it is obvious that this falling phase has begun at the beginning of the XXI century);

‒ it is predicted that the rising phase of the sixth cycle will occur from 2015–2025 till 2035–2045.

Nowadays a number of scientific investigations are being implemented by several scholars to find out the interval years of the sixth cycle’s falling phase and this issue is causing a number of discussions. The following ideas can prove that the interval period of the sixth cycle’s (which is identified by economists) rising phase is suitable for the reality. According to the information of the IMF (International Monetary Fund)’s official site, after slow-rising indicators that are felt in the whole world economics, economic activeness will accelerate slightly in 2017–2018 and this process will be exactly felt in developing countries [2].

Because of the movements of those cycles, the resources are re-divided in the intervals among cycles. The acceleration of this process causes “bubbles” to appear in economics. One cannot imagine the size of surplus producing crises without shakes of credit “bubbles” that is deepening with a strong credit crisis. The world economics faced such kind of situation in 2008: the credit “bubbles” got out of its limits and burst of that is felt clearly. The mortgage crisis occurred in the USA is considered as the world financial crisis by many people in the world, and it was the first stage of a credit crisis. It is one of the reasons of global economic disorder.

Besides, at the beginning of the XXI century as the result of derivative agreements, groundless rising of actives’ prices in the financial market caused to face “speculative bubbles” several times in the world economics. Nowadays, neither exact plans of solutions have been created, nor practical ways have been fulfilled for fighting against this process. Creating exact complex projects of such kind of solutions provides the stability of a national economics. In this case, fund and financial markets should attend actively, of course. If it is not implemented, it influences to a bank sector in a bad way. Because, falling the prices of securities (valuable papers) that are put to a bank as a deposit strengthens the crisis more and more. Here a depositor cannot manage to fulfil his responsibility in front of the bank and those securities are sold in fund markets, as the result it leads to increasing the supply of securities and falling their prices respectively. This causes to the banks to have a great deal of financial loss. Consequently, the problem of liquidation appears.

The rates of credit “bubbles” shakes and its volume in the world economics, besides possible outcomes of the happening credit crisis can be observed with the example of the USA’s situation. In the American economics the household debts became twice more than the nominal incomes — from 65 % till 133 % in the period from 1980 to 2008. Nowadays, there the household debts raised 33 % than their yearly incomes. The USA’s state debts raised from 1 trillion dollars that was in 1980 till 11,85 trillion dollars that was in 2008, consequently those debts becomes 80 % more than the USA’s GDP at that time [3, p. 91]. As we analyze the data, during nearly 30 years after 1980 the two third part of households’ nominal incomes was focused to the debt obligations in the USA, in 2008 each household’s debt obligations rose more than their nominal incomes and reached to 133 %. They were used to living on taking debts in their simple life. It was common for those people to pay their previous debt agreements. During those years the state debts raised to 1185 %. The USA’s external state debts contained 17,3 trillion dollars in 2015 [4].

According to the records, the level of the USA’s debt obligations became more than the accepted norm; diminishing highly the level of the state peoples’ current consuming can slightly weaken the process of credit “bubbles’” intensifying. That situation is connected with increasing the level of unpaid credits, which were taken from banks. Those factors leaded to highly decreasing of the USA’s GDP respectively. The GDP raised to 2,7 times from 1980 to 2000, and it raised to 1,7 times from 2000 to 2014 [5, p. 346].

Because of the culmination of credit “bubbles” surplus producing crisis the case of debt collapse comes to the existence. Those above-mentioned thoughts are characteristic to the Western countries, in a number of developed countries much consuming was implemented with the help of the previous gained incomes during many years.

As it is mentioned in a number of scientific investigations, the main reasons of the world financial-economic crisis’s happening that has begun in 2008 are following [6, p. 21–22]:

‒ shortage of a country budget and having negative trade balance of a huge developed countries during many years;

‒ acceleration of the country’s outer debt’s rising rate more than its GDP;

‒ being used to living on debts because of keeping irrational money-credit politics and refinancing rate in a low degree constantly;

‒ loosening the requirements of giving mortgage credits groundlessly and increasing prices highly in a house-flat market in a short amount of time;

‒ highly disruption of the balance between the regulation’s money and the financial institutes’ duties;

‒ presenting false reports about securities by rating organizations;

‒ disrupting factors of financial audit and professional ethics, and giving false audit summaries;

‒ appearing securities, which are highly risked and have complicated results, and having no well-formed system of ordering them.

While analysing main reasons of forming crisis, one can recognise that the financial sector becomes more superior rather than the real sector in economics. Moreover, implementing derivative agreements for gaining profit in financial markets causes to increase the volume of false “bubbles” more and more. As some economists’ “approaches” even very bit weakening of the country’s control on the financial sector in capitalistic relations helps to develop this unwanted process.

In our humble opinion, fulfilling the following tasks diminishes the influence of crises on the economics and assists to soften its outcomes:

‒ implementing an exact and effective mechanism that rules the activities of derivative agreements into a real practice;

‒ putting absolute restrictions on receiving securities, which have fast changeable prices, in the system of taking them into deposit supplies to a bank;

‒ setting a monitoring system on extinguishing the types of credit money constantly by bank organizations, using the data of this system along the whole country, and forming and developing consumers’ knowledge about how to get and use credit;

‒ developing the mechanism of controlling financial markets’ activities by the state;

‒ filling the composition of the state’s export products with the goods that were manufactured according to the latest innovative achievements and are durable to competition in the world market;

‒ localization of manufacturing the goods which are highly economical on natural resources;

‒ applying the latest mechanisms and technologies in manufacturing goods in the country, besides, diminishing the prices by modernizing the economics of this country and fulfilling the diversification of the economic fields;

‒ supporting the poor layer of the people by forming the state project having efficient ways of supplying them by the state in the real life;

‒ providing the exactness, objectiveness and being reliable of the data, which are presented about the financial markets as well, etc.

To conclude, implementing these above-mentioned tasks is seen in diminishing the influence of the economic crisis while it is happening, softening its outcomes, creating new projects that are against crises and increasing their effectiveness as well.

References:

1. Ваҳабов А., Жумаев Н., Хошимов Э. Жаҳон молиявий-иқтисодий инқирози:сабаблари, хусусиятлари ва иқтисодиётга таъсирини юмшатиш йўллари. Т., 2009. 28-б.
2. http://www.imf.org/external/pubs/ft/weo/2017/update/01/index.htm. The information of the International Monetary Fund’s official web-site.
3. Миллий иқтисодиётни инновацион ривожланиш йўлига ўтказиш. Илмий ишлар тўплами. “Иқтисод ва молия” журналига илова № 2 (4), 2013. 91-б.
4. http://www.globalfirepower.com/external-debt-by-country.asp.
5. UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT. Handbook of statistics 2015, p. 346.
6. Ваҳабов А., Жумаев Н., Хошимов Э. Жаҳон молиявий-иқтисодий инқирози:сабаблари, хусусиятлари ва иқтисодиётга таъсирини юмшатиш йўллари. Т., 2009. 21–22 б.