Nikolai Kondratieff (1892 -1938) was sent my Joseph Stalin to study the US wholesale market and its prices. While doing so he discovered that capitalist economies were subjected to economic cycles periodically

His major premise was that capitalist economies displayed long wave cycles of boom and bust ranging between 50-60 years in duration. Kondratieff's study covered the period 1789 to 1926 and was centered on prices and interest rates. Kondratieff's theories documented in the 1920's were proven right with the depression less than 10 years later.

Some prominent British economists refused to accept his views. Alfred Marshall and AC Pigou believed that there will always be continued demand for supply. However, this was proven wrong when over-supply created one of the devastating unknown facts of the world economy – the Great Depression.

Hence, it is a realistic view that the ‘peak and trough’ situation of a trade cycle is looming over the world over and right now we are in the ‘trough’ in Malaysia along with most of the countries in the world including the US and the European Union.

A Kondratieff cycle consists of four distinct phases:

a. Inflationary growth phase: During this phase productivity rises and prices remain stable, unemployment falls and wages rise. Just recall the situation in Malaysia between 1994 and 2000. A lot of accumulation took place and much of this money were invested in projects like Putrayaya and also spent on many ostentatious projects.

b. Stagflation: This follows the inflationary growth as growth reaches its limits. An economy will only support expansion to the limits of its resources – human and capital. We exceeded those limits in 1998.

Despite the period of economic crisis and currency devaluation, the government continued to talk about growth. How do you grow when there are no resources? This has been the telltale sign of Prime Minister Abdullah Ahmad Badawi mismanagement over the last five years.

What kind of growth have Malaysians seen during this period when we were actually moving into a period of recession with a credit card debt spending of RM33 billion existing in a retail market of RM70 billion?

The nation is now in a very seriously cash-strapped situation. Kondratieff is right. Malaysia is now in debt.

c. Excesses of the plateau: The collapse of the price structure. The price structure collapses when there are no resource structures to back it up. What we see in Malaysia today is simply artificial pricing of raw materials.

The local cement manufacturers are pricing their goods on external demand and imposing the same on local buyers. This is very unfair.

Even when the price of oil has fallen, the government is not able to reduce the price further as it is worried of taking on more debt burden for non-resource areas like the large government sector. Do we see the government in control of the prices from the basic roti canai to the luxury Mercedes Benz?

We are now in a quandary and chaos of pricing. Producers unilaterally price their products. A loaf of bread which used to be RM1.80 is now ringgit RM3.80. Despite many items being listed under the Price Control Act of 1954, basic things like cooking oil, cooking gas, rice, flour and all kinds of household goods have now become inflated.

Mobile phone bills have escalated due to innovation. As this narrows their profits, the mobile phone companies pass this cost on to the consumer. Does the government check on this? Do consumers have to pay 0.30 sen extra because of the mobile phones operators’ innovation? This amounts to cheating.

d. Depression: An exhaustion of wealth will create a period of retrenchment and companies will face a very strong period of low profits and closing down. This may last up to 15 years according to Kondratieff.

It looks like Abdullah has been lying with his projection of projects when none of them had really taken off. There is a manifest resource crunch prevailing now. Resources mean time, capital, raw materials, human, equipment, market, technology and finance.

A resource crunch is one which leads all of us into a depression, which is a recession that will last up till 2020.

The answers to many of our questions pertaining to the ‘mood cycles’ in economic thinking can resolved if policy-makers do understand and agree that business cycles are real and the role of government spending elevated by Lord Keynes may only help in reducing the gravity of the impact of resource crunch.

While we cast our anger on the government for not being receptive to mood of the business cycles, we must also be fair to ourselves that the growth effect felt in the country between 1994 and 1998 had been an initial experience and hence policy-makers could not make out the worst of its effects.

The consolidation of the Malaysian economy had only become evident after the ineffective administration of Abdullah was clearly understood. A government’s disarray in economic administration has become more responsible for the situation of a depression that may last for the next ten years.

What can learn from Kondratieff?

a. The war on terror may stop as soon as the expected victory of Barrack Obama in America is announced. Of course, all of us do expect for the best. With this we do expect Saudi Arabian investment to increase in American banks and the purchasing power of Americans to increase as a spillover effect.

This may spearhead our manufacturing sector and if the government makes special policies to encourage manufacturing in the SME and to increase it by leaps and bounds, we may be able to overcome the worst of the depression.

b. The government must remove the need for Approved Permits for automobiles and also reduce the importing of foreign cars as they drain away much of the money from the economy. Inflated prices make buyers into debtors and increase NPLs of the banks.

What can a bank do when a loan has been granted for a foreign car for RM100,000 when the actual worth is not even RM40,000? With the repossession, it also incurs the invisible loss of RM60,000

c. The enforcement units of the various departments must be brought under a National Price Control Ministry and serious measures must be taken against firms and companies cheating consumers under the pretext of marketing.

This must apply immediately to pay-TV companies and pay-phone companies.

d. Advertising on basic products must be immediately stopped. This must apply from curry powders to coffee powders whether they are branded or non-branded. Advertising of rice must not be allowed. This is the main cause for the price hikes of basic commodities.

e. Plan our economy to handle the next trough effectively in 2060.