Digital Transformation in the economic theory of Kondratieff wave

Digital Transformation in the economic theory of Kondratieff wave

Jürgen Böhm

CIO at 7BC AG

Michał Grela

Relationship Manager at Future Processing

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No doubt we are witnesses to a huge industry disruption which is caused by the digital transformation. It affects not only the IT world, but a lot of innovative industries, changing the world we know as we speak. But how to predict what impact will it have and how to embed it in the economics?  

Our guest will tell us more about the economic perspective of the disruption and how it is reflected in the Kondratieff Wave theory. It is especially interesting to investors and governments since it helps them to understand how periods of uncertainty or crisis relate to long-term economic and social trends. According to the theory, since XVIII c. we have experienced 5 Kondratieff cycles and it seems that COVID 19 is driving us towards the 6th Kondratieff very quickly.  

Michał Grela (MG): Hello and welcome to yet another episode of IT leadership insights by Future Processing. Today, the topic of the conversation is digital transformation in the economic theory of Kondratieff wave and what’s next. No doubt, we are witnessing a huge industry disruption, which is caused by the digital transformation. We all know that. It affects not only the IT world, but also a lot of less and more innovative industries changing the world we know as we speak. How do we predict what impact will it have and how do we embed it in the economies? Our guests today, Jürgen Böhn, will tell us something more about the economic perspective of the disruption and how it is reflected in the Kondratieff wave theory that actually explains that. This is especially interesting to government and investors, since it helps them to understand how periods of uncertainty or crisis relates to this long-term economic and social chance and how this contractive unit reflects what’s actually happening at this moment.

So according to the theory, since 18th century, we have experienced five Kondratieff cycles. And it seems that COVID-19 is driving us towards the sixth Kondratieff cycle as we speak very quickly right here right now. So let’s dwell into that with our guest today. Jürgen, I’m super happy to have you. Can you say something about yourself and your experience please?

Jürgen Böhn (JB): Yeah. Thank you, Michael. Thank you for your invitation. I will give you a short introduction about my company and myself. So at the end of the last millennium, I heard first from the Kondratieff cycles in the presentation of Leo Nefiodow. It was a bit in the presentation that time, the corporation in Germany, my former employer, he was convinced Mr Nefiodow that cycle social health is the six Kondratieff of cycle. I was very excited about the story of the 15 years along the economic cycles.

At the beginning of this millennium, I saw many signs for another cycle. I also knew the people are not mutual enough for a cycle social health with a kind of human evolution. I started my own research about Kondratieff cycles and found that digitization or better called digital transformation has to be the six Kondratieff. This was the time when I changed from Diamler and founded my own company. The Seven Business Consulting Corporation, 7BC, as a company of the six Kondratieff. We support people by transforming their company into the next Kondratieff cycle. In 2010 our company won the Best in Cloud award of the German COMPUTERWOCHE. I think that’s enough of my company and myself.

MG: That sounds like you founded your company being super inspired by something that was perhaps not that popular yet. What was the biggest challenge for you?

JB: Biggest challenge, yes, it’s good. We were ahead of our time, when I claimed in 2010 that the Public Cloud and only the Public Cloud would prevail some manager laughed at me. But there were and still are too much fear and concerns about the new technologies. In my opinion, there are only three reasons not to use the Public Cloud. The first is it’s not allowed from a legal perspective. The second is the functionality you need cannot be provided with the Cloud. And the third is most important, in my opinion, the connectivity you need is not available in your own environment. Entities, not the security reasons, because security reasons we have a lot of more in on-premise installation every time.

MG: Okay, that’s an interesting side note, but you mentioned that you are so ahead of your time and you started to play the game that people were not playing back then yet. So I believe you must have… you definitely came across extraordinary reactions.

JB: Yes, it’s like that. I had often a discussion about self-driving cars and that a machine cannot decide like a human. And I always said to them that the machine did not asleep and don’t smoke and drink, take no drugs and that at the end has no phone call there while driving. That was one of these reactions. And another reaction was always from chairman’s driving big cars will say,” we will always have cars with a driver”. And I said “yes, that’s true. They’re also still horse drawn carriages. But these are not relevant for our economy.”

MG: That’s very relevant example. Very good answer to that. Well, I really liked it, but the topic of the conversation is the Kondratieff cycles and contractive waves. Could you give our listeners just an overview and explaination of what is the concept of Kondratieff waves all about?

JB: Yes. Let’s talk about Nikolai Kondratiev , the Russian scientist. He is the founder of these long way fury and the history was that he was ordered by Stalin to find out when capitalism will fail. But in 1926, he published his findings and he demonstrated in an article that the economic development in the industrialized countries, since the end of 18th century was governed by three large ways, steam engine, railroad, and steel and electronics industry. And I think that was not, what’s Stalin and wants to hear from him.

MG: How can we prove it? How can we actually tell the cycles are taking place?

JB: Yes, we have to do some theories of Kondratieff of cycles so that everyone could understand what happens here. Kondratieff cycles could be generally proven by a statistic economic data. Important different levels will be concerned over a period of 42 to 60 years. The first level is the technology level: a bundle of interacting basic technology, data mines, the speed and direction of innovations. On basis of these technology innovations, new products and services will be developed continuously. If a company or a country is a lack of these technologies, they will be not part of the cycle responsibly this way. The second level is the economic level that new markets emerge, new innovations came up through the basic technologies and continuous high growth rates where it happened. And the third is the social level, the basic innovations lead to entire restructuring, the society, its aspects whole society with restructuring and growth. And Important is that States with companies which master the basic innovations build up the most successful economy, as well as the States can be world power status.

Maybe again, the theory of the Kondratieff cycle has many definitions and as well as self-appointed mentors, many friends, as well as some enemies. In my opinion, the cycles are more a logical irresistible to it. Because when you live in a cycle, you do not have the data. You need to approve the cycle. After the cycle, you have no chance to write this way. My definition is like that. When basic technologies lead to powerful innovations, which are again the basis of new products and services, and if this affects a broad quantity of the economy and global society, then you can do data analysis and statistics. But at the end more and more people feel the power of these new change. I think most of us feel the power of the digital transformation. Some are afraid, some stay apart, but I think we want to serve this way, which coming up now.

MG: That’s great. Nicely said, I really liked the part when you said that if you are in a cycle, you just observe it, but you don’t have enough data to prove you are in a cycle actually, but after the cycle it’s too for you to serve the way. I believe so far, five Kondratieff cycles have been distinguished: steam engine, railroads and steel, the electric technology, the automobile and the information technology, but there are different approaches to that. And I know that the Leo Nefiodow of scientists you’ve mentioned, he says that the next cycle will be about the social health, but there are other scientists like Mr. Goldschmidt, who observed that there’s a shift and overlap of the Kondratieff of cycles of IT and health. And I know that your opinion is also slightly different. My next question will be, could you please elaborate on and tell us why you believe that the next Kondratieff of wave will be or already is about digital transformation and how is it different from the information technology Kondratieff, if that already is behind us.

JB: I will try this, that development we have seen over the last 10 years clearly show us in my opinion, that digital transformation cannot be an extension of the Kondratieff cycle of information technology. Rather, it’s clear that in my opinion, that digital transformation is the six Kondratieff of cycle we are currently in. All preconditions relevant to a Kondratieff cycle are met by the digital transformation. That is perhaps why Mr. Goldsmith also came up with the idea that there are an overlap of the cycles of information technology and health.

MG: What sort of arguments would you use to prove the concept that digital transformation is the next Kondratieff cycle?

JB: Yeah. We have to talk about the fact of the account of their cycle. Let us talk about basic technologies, because they are very important for the definition of a Kondratieff cycle. We have these three basic technologies, it’s internet, network of data systems, people, products, and machines. A Short introduction. In 1997 I listened to a scientist in a conference in Chicago at that time, he said, “internet will change our life tremendously”. I think no one in this conference believed him and me too, that is the first one. Internet is one technology. The second is virtualization. Computer services are now able to copy copied, scalable, and flexible. That is in my opinion, the liberation of the computer from his former math, narrow metal coat, you have no these metal things behind your desk and so on. And then the third technology is to the contractive cycle is Broadband.

Everything is almost everywhere available and at high speed, I know we know these technologies for a long time, but the combination of that technology grew up to an extra ordinary economic way. We called Kondratieff cycle digital transformation. And again, the basic innovation out of these technologies are emerged in the last decade, as you know, by sure. It’s Cloud, mobile, Big Data and analytics, social media, 3D printers, and Internet of Things, machine learning, respectively, Artificial Intelligence. All these innovations are service of the digital transformation play. For example, Cloud as an innovation use the technologies, internet virtualization and products, and its spaces for a lot of new products and services. States which radically penetrates both the economy and the society will have tremendous growth and full employment. Something about Germany. Unfortunately, Germany is still too dependent today upon the automotive industry, which means a large part of their economy and society are still captured in the fall Kondratieff cycle.

And we still have in Germany a lack of Broadband implementation. Even the innovators of the Silicon Valley is digital transformation have failed to catapult the US economy and society into a digital age. So perhaps the great players will once again be like the original internet inventors of the automobile. The breakthrough of digital transformation, as well as that of the automobile industry will not take place in that country that developed those innovations. Maybe we will realize later that we’ll say like that. Valley responsibly, the Silicon Valley was not enough to ride this way. And shall I say it… Yes. I think I predict at the end of these Kondratieff cycle, the US is no longer a power nation. It seems to be unbelievable. And I think it depends not on a former or actual president of the USA. I think even look at the, at the Great Britain. They perhaps can also not believe no longer be a power station, but it’s a hundred years ago.

MG: Lesson to learn. Definitely. That’s really curious statement. you’ve mentioned the technological, economic and social consequences of the Kondratieff. So what would be the consequences of the sixth Kondratieff if digital transformation, when it comes to technology economics and the social aspects?

JB: The consequences on new products and markets, we have it, smartphones, tablets, variable digital currency, and mobile health, many more came up in the last 10 years. For example, back to the automotive industry, automotive technology GE is a main industry today. In the future, respectively in the next 10 years, I think automotive industry will be a support process for the necessary physical mobility. A car is then something like a self-driving device, perhaps as a part of a local public transportation system. As well financial institutions have no chance to survive with the current services. And I think every work that can be automated will be automated in the next decades and to be aware this economical way, we’re run around the globe the next 20 to 30 years.

MG: That’s amazing. It’s amazing to be a part of it and to observe the change. You said yourself 30 years ago, or 20 years ago in Chicago, when you heard about internet and heard the statement that is going to disrupt the way we work, socialize, live, everything we do, no one believed it. And today, if we say no, every work that can be automated will be automated, the cars will be self-driving cars, we will work and live in a different way… I don’t think people believe it, even though they are observing the transformation as it happens in front of their eyes. Look at the smart phones. You said, who would have thought, you’re going to have the knowledge of the world in your pocket back 10 years ago. It’s amazing how the world changed. And still people I think are neglecting the fact that the change is happening, but let’s get back to the wave cycles, sixth digital transformation. But what about the seventh cycle? The one that is yet to occur in the future. What’s your take on that?

JB: I think it’s really time to talk about the seventh Kondratieff of cycle. I think that it’s never silly to look back to the theory of the Leo Nefiodow about the cycle socia health. Now it is perhaps the first time that we have the chance to shape the next cycle. I will say I learned a lot from Leo Nefiodow books and his speech. I agree with him that the next Kondratieff cycle, the sevens should be a human cycle.

The question is, in my opinion, when everything is automated and nearly everything could be done by a machine, what is the sense of human life? What could be respectively makes the difference between a machine and human beings? I think it’s very important to think about this despite effect that the way it will go along the next decades. We should have the following experts aspects on our again, it’s humanity, no greed, no hunger on this planet, boundless social awareness to all people of this world. Equal opportunities for all, cycle social health, with impact to all people and the local and common effort to save our planet. Normally we should have these aspects every day on a watch window, but we do not. I think let’s now, while running the digital transformation wave, let’s now shape the seventh Kondratieff cycle.

MG: That’s incredibly interesting bearing in mind that for the last six cycles, few hundreds of years, the humanity was focused on development, actually forgetting about the most important aspects of what makes human a human and the concept that the seventh wave be about actually looking at the quarrels of humanity, just wellbeing, generally speaking, is definitely something I look forward to. And as you said, it’s the first time in the history of humanity, we are conscious enough and aware enough to be able to not only serve the wave, but shape it. And that’s definitely something I look forward to.

That was really interesting and very informative. Thank you for sharing your thought on that. I’m sure it will spark plenty of conversations and thoughts. It will definitely give me some sleepless nights, the conversations we had. Thank you Jurgen for sharing that. And thank you, our listeners for listening to another episode of our podcast. Do share it on social media and we’ll be back soon with new conversations. Thank you.

JB: Thank you very much.