By Donella Meadows
–February 4, 1993–
According to long wave theory, Bill Clinton has arrived too early to ride upward on an expanding economy with the politics of easy liberalism. Clinton’s presidency will span the bottom of an economic trough, which used to be called a “depression” and is now called a “structural adjustment.” It will be a time of uncertainty and danger. Clinton might get to be a Franklin Roosevelt, fending off fear and fascism, but it’s the wrong time for him to be a John Kennedy.
Long wave believers say that market economies are swung around not only by 4-7 year business cycles, but also by larger, longer cycles that last 40-60 years from peak to peak — or from trough to trough. There were long wave booms in the 1850s and 60s, in the 1900s, and in the 1950s and 60s. There were recessions during these times too. But during the upswings of long waves recessions tend to be short and shallow, while recoveries are robust and sustained.
During downturns, such as those of the 1830s, the 1890s, the 1930s, and the 1980s and 90s, recessions are deep and painful, while recoveries are, to quote recent economic writers, “weak,” “anemic,” “disappointing.”
In case you were deceived by the deficit-fueled spree of the 1980s, the U.S. economy has been in a downturn for more than a decade. Average real personal income in the U.S. peaked in 1973. Debt levels and business and bank failures during the last 10 years were higher than at any time since the 1930s. At the highest peak of the Reagan boom the real economic growth rate was lower than it was during the lowest trough of the 1960s.
The press doesn’t call what is happening a long wave downturn, but it regularly quotes analysts who say we’re not in any old business cycle. Stephen Roach, senior economist with Morgan Stanley: “This is not the normal recession and recovery…. The economy is feeling the pain of structural change.” Sam Ehrenhalt, regional commissioner of the U.S. Bureau of Labor Statistics: “The restructuring is unprecedented in its intensity and its scope.”
The long wave happens, say the theorists, because market economies build up way too many factories, steel mills, electricity plants. They can’t help doing that. No investor knows the sustainable demand for cars or computers, much less for electricity or steel. No single company knows what its market share will be. Good times stimulate a belief in further good times, and the economy grows too far. Finally it becomes apparent that there are many more banks and shopping centers and cars than are needed. Fierce competition breaks out. The losers go bankrupt. The winners cut costs and lay off workers, who then buy fewer computers and cars. The economy spirals downward.
We’ve already seen much of that down-spiral, but it isn’t over yet. A recent survey by the American Management Association found that 38 percent of top executives of large corporations plan further layoffs this year. The automobile industry is especially overbuilt. In North America six GM plants are closing, with at least two more expected to go. Volvo, after seven straight quarters of losses, is laying off 4500 and shutting down two plants. Europe has enough new plants coming on line to build 1.7 million more cars a year by 1995, but sales are falling. “The significant overcapacity in the industry in the U.S., Europe, and Japan will continue for a very long time,” says Lennart Jeansson, president of Volvo.
Professor John Sterman of the MIT Sloan School of Management made the connection between the long wave and politics in a recent speech to a Bank Credit Analyst Conference. He said that progressive politics come, understandably, during times of long wave expansion, when there is plenty of confidence and optimism. Around the peak of the long wave (the late 1910s, the early 1970s) comes what Sterman calls a “cosmopolitan” period — a time of growing international trade, “deepening foreign policy activism, and even imperialist adventure.” Production capacity is getting ahead of demand; corporations are searching for new markets.
As the decline becomes obvious, people become uncertain and pessimistic. The problems of the poor take second place to the security of the mainstream. Corporations blame regulators for their troubles and call for “free market” noninterference. The way is open for the conservative politics of Coolidge and Harding in the 20s, Reagan and Thatcher in the 80s.
Then comes the trough, the time Clinton inherits. High unemployment persists. Assets of all kinds lose value. None of the old formulas for doing business seem to work any more. Fear is pervasive. Says Sterman: “People are now out for themselves. [They] believe the only way to better themselves, or their social, ethnic, or religious groups is at the expense of others.” This phase he labels “parochial.” The last time it happened, it brought fascism in Europe and the New Deal in America.
The trough of the long wave is a time to worry not about inflation, but deflation, and not about deficit reduction but supporting basic consumption. Above all, it’s a time to resist the politics of fear and divisiveness. The most important thing a government can do at this point in the cycle is to assure fairness, and to maintain the welfare of the people, the infrastructure, and the land, in preparation for the long upswing, which is ahead, but not soon.
In all the ups and downs of history, it’s the toughest time to be president.
Copyright Sustainability Institute 1993