When taking long economic cycles into account (lasting from 45 to 55 years), the probability of social unrest occurring and wars being waged significantly goes up during periods of growth, according to new research by the American University in Cairo (AUC).
Lefteris Tsoulfidis, a Distinguished Visiting Professor at AUC’s economics department who led the findings, also discovered that technological innovations went up during recessionary periods. “During the downswing of a long cycle, falling profitability induces innovation investment and the associated with it ‘creative destruction’ of the capital stock that eventually set the stage for the upswing phase of a new long cycle,” reads an abstract of the research.
The findings were drawn from data on the US economy, which Tsoulfidis claims is reflective of trends across the world’s economies. One of the long cycles observed lasted from 1896 to 1940. This cycle’s “Belle Epoque” era of prosperity lasted from 1896 to 1920, during which the US faced major incidents of industrial action from labor unions and of course, the first world war. Overall, the period witnessed an average 3.75% growth rate in the world’s trade volume, and a 4.47% growth rate in global industrial production. This period also saw a 68% probability of wars taking place.
This is in contrast to the crisis era of 1920 to 1940, during which the Great Depression took place, that saw a 32% probability of wars, yet saw a 70% share of basic innovations, as opposed to the 30% share seen in the Belle Epoque era. This ended with the beginning of the second world war, ushering in a new long cycle which lasted until 1982. The same trends were observed during this cycle’s expansionary and contractionary periods.
As to why social unrest and wars were more likely during growth periods (explained as periods of high profitability), the research explains that they “most likely break out in the rising phase of the long cycle during which the world market expands with the annexation of new markets and so domestic and international tensions increase.”
During economic downturns, innovations tend to go up because “when profitability is low and declining, incentives for innovation are enhanced as the risk of default is increased to a point that exceeds the risk of innovation.”
According to Tsoulfidis’s research, we are currently in a long cycle that began in 1982 with the ICT and information revolution, the growth period of which ended in 2007 with the global financial crisis. Since not enough time has passed, there isn’t sufficient data to draw any conclusions on the current contractionary period. The lack of data also means some figures for the growth period can’t be measured since no comparisons can be made, such as the probability of wars.
The 1982-2007 expansionary period experienced a significant number of wars such as the Iraq-Iran war (1980-1988), the Falklands war (1982), the US invasion of Panama (1989-1990), the Gulf war (1990-1991), the Rwandan civil war (1990-1994), the Yugoslav wars (1991-2001), the first and second Liberian civil wars (1989-2003), the war in Afghanistan (2001-present), and the Iraq war (2003-2011).
However, many parts of the world have experienced social unrest and armed conflict since 2007, such as the heightened labor activity Egypt witnessed in the late 2000s, the Arab Spring uprisings of the 2010s, the armed conflicts in Iraq, Syria, Yemen, and Libya, and recurring unrest around the world in reaction to austerity measures. For the moment, it might seem this current period will debunk the study’s claim that recessionary periods have lower probabilities of wars and social unrest. It will be interesting to see what the research finds in the future when the current period becomes historical enough to by analysed from a perspective of distance and hindsight. How the study’s hypothesis holds up will also depend on the findings of the next growth period in the next long cycle.
With regards to innovations, current trends are consistent with the research’s conclusion. According to the International Monetary Fund (IMF), global trade is slowing down, a fact consistent with one of the study’s characteristics of the recessionary period of a long cycle. However, the last decade has seen far-reaching and life-changing innovations.
2007 witnessed the birth of the first iPhone which ushered in the smartphone era, a device now ubiquitous and on our person at all times providing us with 24/7 internet connectivity. The global economy has also been moving towards greater internet connectivity in all its aspects, something which is becoming a greater part of our everyday lives. This phenomenon has come to be known as the Internet of Things (IoT).
Artificial intelligence, robotics, and computing have also made significant leaps in the 2010s and are set to cause disruptions and sweeping changes to the economy and society in the future in the same manner as described in the research, the “’creative destruction’ of capital stock.” There is much potential for these technologies to pioneer a period of growth and economic expansion in the future, which would signal the end of the current long cycle and herald the beginning of a new one.