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Beyond Kondratieff’s Hill

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Chris McCann, WhichPLM Expert and Director of Resilient.World, takes a look at what has changed since his piece from 2016. For those unfamiliar with Kondratieff – don’t let the title dissuade you …here, Chris talks about the Green Age, circular economy, business transformation, and the future using less materials, less energy, more communication, and more creativity. He believes, at precisely the moment we face some of the greatest challenges of our time, we’ve also been bequeathed the potential for transformative (and disruptive) solutions.

Climate change is not a crisis – it’s a matter of behaviour.

The great challenges we face in the 21st Century (of climate change, resource depletion, exploitation, food security etc.) are not insurmountable. Not by a long shot. They are, however, driven by particular views of the world that are no longer fit for purpose – that equate prosperity with growth, the failure to acknowledge that the planet has finite boundaries, and the heedless use of natural capital (‘the tragedy of the commons’). My brilliant colleague Kate Raworth makes this point very convincincinlgy in her book Doughnut Economics (and, if you can’t spare the time to read, listen to her YouTube performance). It is fortunate we are at a period in history where we see the emergence of alternative models, such as ecological economics.

That’s not to say that we, across the planet, are not in serious trouble. It turns out that Malthus was right, albeit a little delayed, and Deming too when he made the observation that ‘It is not necessary to change. Survival is not mandatory’. However, climate change and other 21st century ills are not a crisis, in the same way that putting a shotgun to one’s mouth is not aggravated assault. Behaviours are not set in stone, and anyone who has raised a four-year old child understands the importance of teaching impulse control. The United Nations acknowledges this, and in recent years has appointed behavioural advisors to ensure their insights are efficiently mainstreamed in various UN programmes and activities.

These two ideas, that of ‘seeing things as they really are’ (ecological economics) and behavioural alignment, are the jumping-off point in the development of an effective sustainability programme (both social and environmental). Behavioural alignment in the boardroom becomes a little easier, of course, as legislators step up, and as The Guardian newspaper recently reported:

“Mark Carney, governor of the Bank of England, has warned major corporations that they have two years to agree rules for reporting climate risks before global regulators devise their own and make them compulsory.”

How to square the circle of profitability and sustainability?

Far from dropping into some dystopian nightmare, there are those who have crunched the numbers and argue that what lays in the very near future is a new golden age (or more accurately a Green Age). An age of sustainable living, the good life driven by revised values and technological innovation.

Carlota Perez is a Venezuelan scholar with an impressive résumé. She researches the concept of techno-economic paradigm shifts and the theory of great surges, a further development of Schumpeter’s work on Kondratieff waves. Sounds like heavy stuff… but in a nutshell she lays out a history of five technological revolutions that follow a similar pattern of bang, bust and, hopefully, renewal. What she says about the current revolution and where we’re headed next is inspiring, and offers a tremendous vision of possibilities. Perez has examined the work of Soviet economist Nikolai Kondratieff, best known for proposing the theory that Western capitalist economies have long-term (50 to 60 years) cycles of boom followed by depression. These business cycles of expansion, stagnation and recession have today been expanded into four periods, with a turning point (collapse) between the first and second phases. Perez is one of those who hold the view that technology shifts are the key driver, with 5 technological cycles over the past 240 years:

  1. The Industrial Revolution – 1771. Typified by machines, factories and canals.
  2. The Age of Steam and Railways – 1829. Typified by coal, iron and rail.
  3. The Age of Steel and Heavy Engineering – 1875
  4. The Age of Oil, Electricity, the Automobile and Mass Production – 1908
  5. The Age of Information and Telecommunications – 1971

Each cycle takes approximately 40-60 years to spread across the world, and to reach maturity. Why revolutions? Because, and this is the key point, these technologies transform the whole economy. In each cycle there is the potential for enormous new wealth creation, requiring a new direction of change across all industries and eventually across society.

Perez gives the example of the USA at the dawn of mass production. Charles Erwin, President of General Motors, famously made the observation that ‘what is good for our country is good for General Motors, and vice versa’. And in many ways he was correct – the automobile was at centre of that technological wave, enabling the development of suburban housing, the creation of Fannie Mae (to fund federal housing), the innovation in electrical appliances to equip new housing as a result of huge demand, and spawning a thousand products and industries. The same effect was seen in each of the other 4 technological cycles, in each case driving change not just in the industry of origin but acting as an enabler for change throughout society.

Perez understands that each technological revolution propagates in two different periods. The first half (known as ‘installation’ and taking 20/30 years) establishes infrastructure and allows the market to pick the winners. It’s a period of ‘creative destruction’, a period of ‘out with the old and in with the new’, and is led by financial capital that always ends in a crash, because financial capital is speculative in nature – a lot of the wealth creation is false ‘betting’, with no real increase in productivity in the ‘real’ economy. Witness canal mania and canal panic, the same for rail, the same in the roaring twenties and the 1929 crash, and most recently in the Age of Information (the NASDAQ crash of 2001, which followed the establishment of new technologies during the internet and dotcom bubbles, and the 2008 crash following the period when finance innovated using software and internet technologies, developing a global reach but creating a globalisation bubble).

The second half (known as ‘deployment’ and again taking 20/30 years) reaps the full economic and social potential. This is the period of ‘post-crash’, where painful lessons from the crash produce a better understanding of its causes, and prompts institutional change – business and government come together to begin understanding how to create a true wave of wealth creation. It is this period that comes be known as the golden age, where the new technology has been fully installed and can act as a catalyst to help the rest of industries to innovate. In this second period the alliance between production and the state serves as a driver and innovator, and finance takes a service and facilitator role.

So, what will this new revolution look like?

It will be a Green Age enabled by information and technology, augmented by the implementation of Circular Economy strategies and, most particularly, the redesign of value chains through the application of Business Transformation methodologies. We will begin to see a move away from mass production, and mass consumerism. The future will be less about buying the same thing 17 times in a lifetime and more about living the good life using less materials, less energy, more communication, more creativity, more social living. We will see sustained efforts to reduce enormously the amount of materials needed to make the good life, and a greater emphasis on making the good life aspirational – a move back to durable products but with greater emphasis on maintenance, and elimination of planned obsolescence.

In the fabrication industries, for example, we will see custom designed materials, minimum energy and materials use, zero defects, zero waste, planned upgradability instead of built in obsolescence, disassembly and recycling. In the process industries we will see an emphasis on energy saving, on intelligent process controls where by-products are seen as a source of value (waste valorisation). In freight transport we will see a full awareness of environmental impact and full costing, optimising routes by bulk and weight, innovation in packaging and distribution. In the energy sector we will see multiple energy sources, local production, interactive users that buy and sell. And in urban development we will witness the ushering in of integrated cities where living, work, education and leisure all take place in close proximity and in environmentally intelligent buildings to reduce the need for transportation and maximise natural capital.

A shift to technologically enabled green consumption patterns is possible, but only through using desire and aspiration as drivers and not fear and guilt. What was the luxury life/good life under the mass production paradigm? Brand new is better than old; bigger is better than smaller; more is better than less; fabricated is better than handmade; keep up with the Joneses or fall behind. Under the new paradigm it will become increasingly vulgar to be a consumerist, and instead the aspiration will be high quality and durability. At the same time, as Verisio’s Chris Riley points out, the consumer will have a keen interest in the provenance of products, not only of where they are made but that the conditions in which they are made are just and fair. For us today the exciting news is that, at precisely the moment we face some of the greatest challenges of our time, we’ve also been bequeathed the potential for transformative (and disruptive) solutions.

Viewed through the lens of history, we are standing at the precipice of a new, sustainable moment.

Why the focus on renewable energy?

It’s something of a myth to suggest that ‘sustainability’ and ‘profitability’ are mutually exclusive. In fact, in the not-too-distant future we’ll find that the two concepts are joined at the hip. We’re already witnessing the emergence of a new breed of billionaire exploring investments in renewable energy, or using their existing wealth to develop ‘cleantech’ solutions. Elon Musk and Tesla may be the most well known of these, but the list also includes energy trader John Arnold and Bill Gates who, together with others, launched the $1bn Breakthrough Energy Coalition, and the world’s first ethanol billionaire Rubens Mello (net worth $1.4bn). Why the focus on renewable energy? Well, we’re an energy-based civilisation – energy powers everything from the food we eat, to the clothes we wear, and the homes in which we live. And, we’re heading into a fossil fuel constrained future. More particularly, though, there are fortunes to be made as the world begins to transition to a new energy reality; to be precise, an annual investment in the order of $1 trillion from now until 2050, according to DNV GL’s Energy Transition Outlook (ETO). Savvy investors and the capitalist imperative will, ironically, prove to be the catalyst for sustained and sustainable change. For the entrepreneurial-minded, change is the lifeblood of success. It’s at the boundary of ‘what is’ and ‘what will be’ where visionaries and futurists thrive, and in the process take others with them.

The information revolution is not just about ‘bits’ and ‘bytes’, however. There will be those players in value chains, of course, that will seize upon latest technologies but, without any accompanying context, will be unlikely to maximise their utility. In fact, without not only operational but also strategic application of technology it’s likely that many organisations won’t prosper. 20th century thinking won’t address 21st century problems. The information revolution allows not only the rapid deployment of technology, but also more particularly the rapid dissemination of ideas. We will reimagine our products with their end-of-life in mind; we will reconstruct not only our supply chains but also our value chains (and in the process, create wholly new revenue streams); and re-evaluate our business operations to take advantage of the new energy/resource reality. Instead of a linear economy that converts raw materials to waste at the fastest rate possible, our economy and our thinking will become circular and regenerative. And as always with these things, we’ll ask ourselves why we never operated in this fashion from the start.

An effective sustainability programme requires a process of Behavioural Alignment (board level, and cascading down through an organisation), the deliberate development of an organisational Circular Economy Strategy encompassing that organisation’s value chain, and implementation of that strategy through a structured Business Transformation approach that incorporates both operational and organisational design.

Beyond Kondratieff’s Hill the view is becoming not only clearer, but brighter.

Lydia Mageean Lydia Mageean has been part of the WhichPLM team for over six years now. She has a creative and media background, and is responsible for maintaining and updating our website content, liaising with advertisers, working on special projects like the Annual Review, and more.Joining mid-2013 as our Online Editor, she has since become WhichPLM’s Editor. In addition to taking on writing and interviewing responsibilities, Lydia has also become the primary point of contact for news, events, features and other aspects of our ever-growing online content library and tools.