Hans-Jörg Naumer: I personally think it will last for more than a decade. The underlying problems of our current crisis are fiscal deficits in the Eurozone and the United States. In addition, the current world economy has to deal with a serious liquidity overhang.
The creative power of crisis
Mr. Naumer, the latest economic crisis has been going on for several years. How long do you expect it to last?
But the good thing is that even though we are really struggling right now, there is always something on the horizon. We have to realize that having such troubles is always a part of a restructuring of the entire economy.
The ongoing crisis is the mere starting point of a new, long cycle of growth, a so-called 'Kondratieff-cycle'. According to Kondratieff, every crisis is a chance to grow.
If Kondratieff's theory is universal, why are there many countries now growing while others are in crisis?
Naumer: A global cycle of growth does not require a preceding global crisis. The emerging markets are not as harmed by the debt crisis as the Eurozone: the countries facing crises at the moment are mature. That's unfortunate for those countries but what we see in most emerging markets is actually nothing but a power shift driven by the catching-up process. China for instance is now experiencing the same economic phenomenon, the same economic miracle that Germany experienced sixty years ago.
Aside from the economic crisis, there is also a demographic crisis looming.
Naumer: It is a combination of several megatrends, globalisation being one of them, demography being another. The demographic change in Western societies should be treated accordingly.
Demographic change needs to be evaluated on a global scale and not from a single country's point of view. One society might be getting older whereas others are still on the rise demographically speaking. We know that the world population will continue to grow. Economically speaking, this means growing demand, especially supported by the aforementioned catching-up process of the emerging markets.
You said that there will be something on the horizon. What will the next Kondratieff cycle have in store?
Naumer: The beginning of a cycle of growth is usually propelled by a major economic bottleneck. For us that is the era of scarce commodities. Energy and our environment are resources that are in short supply. Climate change is the major wake-up call. Now it's important to improve efficiency in using those scarce commodities. They can no longer be exploited for free. They shouldn't have been in the first place.
That requires a radical change of the economy we know. Right now, our economy is parasitic. We are exploiting the Earth, for example by producing carbon emissions, but not paying a price. Major changes are necessary to make economic behaviour more symbiotic with the Earth.
Renewable energies and recycling are the first steps. The pressure to act is on us all. I can't say who will be on the winning side. It's definitely best to look for those industries that anticipate this change. If you'd like to invest in a car company, you better check out their alternative fuel technologies. Growth will be directly tied to sustainability. And that's a radical change.
Do crises and economic prosperity always have to be inevitably connected?
Naumer: Being humans, we'd of course love to see economic prosperity without any kind of crisis. Unfortunately, this has never been the case. All of the past cycles of growth started with a serious crisis. Take for example the world recession in the twenties, which kicked of the Kondratieff-Cycle of the automobiles.
The connection is competition. A prospering economy needs competition and competition is always accompanied by 'trial-and-error', as the philosopher Karl Popper once put it. It's basically figuring out what's best. The good is no longer good enough.
The downside of this is that this process might end up in a period of crisis. Over-investments in outdated industries or technologies lead to destruction. An ongoing competition, however, leads to development and, consequently, improvement.
So, crises should never be suppressed. What does this mean in practice?
Naumer: First of all, we need to accept the fact that crises are inevitable. Simply accepting this, without trying to improve the situation, however, is not an option. If we find ourselves in the middle of a crisis, we need to work hard to get rid of it but also use it as a basis for future learnings.
Previous crises ended with major inventions, the steam engine, for example. This time, is it more a case of rethinking our strategy?
Naumer: In a way, yes. The inventions to end the crisis have already been made. Renewable technologies are ready but now there is this bottleneck of energy efficiency and they are employed to fulfil this demand.
A cycle of growth always starts with demand. Take the automobile, for example. By the time the demand for cars as mass transportation devices arose, they had already been invented.
Europe seems to have reached the peak of the current crisis. Is it getting better?
Naumer: Hopefully, yes. Behind the current crisis lies the problem of liquidity supply. However, the innovations needed to overcome this are already here, and so is the growing demand. And that is crucial. We might have made bad investments but the financial capital is still present, ready to be invested, and seeking returns.
These returns are now found in new industries instead of the traditional, mature ones. The bubble burst because the majority of capital was tied up in these traditional sectors, like the real estate market in the United States. This capital is now freed and available for new investments.
This interview first appeared on the Allianz Knowledge website.
Hans-Jörg Naumer: "Being humans, we'd of course love to see economic prosperity without any kind of crisis. Unfortunately, this has never been the case."
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