Economic cycles

Here, I want us to explore the long cycles that provide a larger pattern throughout economic history – and what implications that may have for us today.

Long cycles in the economy

Professor Lennart Schöön, one of my economic history teachers in the early 1990s, was influenced in various ways by Joseph Schumpeter and his theory of creative destruction. Among other things, Lennart Schöön studied the cyclical processes that characterize economic history and which he saw traces of as far back as antiquity. He was particularly interested in the volatile developments of the last 200 years (up till around year 2010), which had been characterized by three industrial revolutions – all driven by growth and technological development.

In his book Thoughts on Cycles (Tankar om Cykler, in Swedish), he described the long structural cycles of transformation that have characterized the capitalist system – and which lead in long cycles to the creative destruction described by Joseph Schumpeter.

At the societal level, Lennart Schöön observed centuries-long cycles, each starting with an industrial revolution:

• The first industrial revolution occurred at the end of the 18th century and manifested in the 19th with the spread of the steam engine.
• The second industrial revolution occurred at the end of the 19th century and manifested with the spread of electricity in the 20th century.
• The third industrial revolution occurred at the end of the 20th century and may still be manifesting itself in the many possibilities and spill-over effects of microelectronics.

Each industrial revolution has taken a long time to unfold

Lennart Schöön meant that it was no coincidence that each industrial revolution took a long time to unfold. The time lag was mainly caused by inherent inertia and resistance – of people, existing organizations and institutions, and investments already made. These factors instead contributed to stability, making the system less volatile. It also provided security for investors looking for a return on their capital. A certain degree of inertia should, therefore, not be considered bad.

When these long structural cycles coincide with other shorter cycles (which are easier to observe in the economy), such as the construction cycle and the general business cycle, the pressures to transform become both strong and extensive. This affects individuals, organizations, and institutions, as well as investments already made.

Especially in these intense phases of structural transformation, old, obsolete companies are eliminated, and new companies are created. At the same time, it is also what ultimately creates continued growth in the capitalist system by focusing resources instead on the new opportunities offered by the new, emerging technologies offer:

”Organizations and rules that have supported growth for some time become obstacles when new opportunities require new contexts… Growth, therefore, requires transformation on many levels.”

Although Lennart Schöön argued that his observations should not lead to the conclusion that the world’s development is destined, he noted that, throughout history, companies based on outdated technologies have had to give way to new companies. And, that this seems to have been good for society’s welfare and growth.

Klaus Schwab, economist and founder of the World Economic Forum, broadly agrees that the last 200 years have been characterized by the three industrial revolutions described by Lennart Schöön. He also argues that we are already witnessing the fourth industrial revolution, which will fundamentally change how we live and work.

He also argues that the fourth industrial revolution is significantly more complex and larger in scope than the previous industrial revolutions and that the consequences of the ongoing transformations are, therefore, difficult to grasp.

Technological development is simply redefining what it means to be human…

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Note by the author:

The text above is an edited excerpt from the book Navigera in i framtiden (Elisabet Lagerstedt, published in Swedish only, 2018). Translated from Swedish by DeepL Translate.

Since this text was first written, the sustainability revolution – or green transformation – has become a force for change and will have a real impact on companies and the economy in the wake of increasing climate change and nature loss. As shown through history, those who are not riding the waves of change will, over time, become replaced by those who do.

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Elisabet Lagerstedt

Elisabet Lagerstedt is the founder and director of Future Navigators. As a trusted advisor, consultant, and Executive Coach, she helps business leaders navigate beyond business as usual to build Better Business and co-create a better future - through insight, strategy, innovation, and transformation. Elisabet is also the author of Better Business, Better Future (2022) and Navigera in i Framtiden (2018).