Growth Cycles
Description
Thornton Parker:
"What Is a Growth Cycle? The easiest way to explain the growth cycle concept is with the General Electric self-reinforcing cycle that ran for more than seventy years. One side of the company made equipment to generate and distribute electricity. The other side made everything it could sell that consumed electricity. As consumption increased, electric utilities bought more generation and distribution equipment. This led to more efficient utilities and economies of scale that lowered electricity costs and enabled new applications. Growth by one side of the company led directly to growth on the other. The flow of manufactured products created return flows of dollars to GE, which the company nurtured with its own credit operation, and there was an ever-growing flow of dollars from power consumers to the utilities.
GE is the only remaining member of the original Dow Jones Industrial Average. Through its growth cycle, it made countless contributions to science, health, food, transportation, manufacturing, communications, education, and everyday living. The cycle ran until institutional investors’ demands and the oil embargoes forced it to concentrate on increasing its stock price and reducing what came to be seen as wasting energy. We will return to GE below.
A few other companies, including Westinghouse and RCA created growth cycles with strong positions in many interdependent industries. As one part of these companies grew, it created demands or an environment for other parts to exploit. Unlike today’s practice of requiring all units to meet company-wide profit standards, there was often deliberate cross-subsidization. Individual technologies and products came and went, but the basic cycles allowed these companies to grow even when major product lines had problems or were discontinued.
Wall Street’s recent growth cycle has been mentioned, and growth cycles have played critical roles for countries. For example, in describing the British Industrial Revolution, Paul Kennedy explained how the massive increase of productivity in the early 1800s, particularly in the textile industries, stimulated the demand for more machines. This led to demands for more raw materials including cotton and iron, which in turn, created a need for more mining, shipping and communications. And so the beat went on." (http://www.ethicalmarkets.com/2009/05/07/from-wall-street-bird-nests-to-main-street-growth-cycles/)
Characteristics
Thornton Parker on the Principles of Growth Cycles:
"General principles of growth cycles can be applied by companies, industries, regions, nations, and perhaps the whole world.
• A few dominant industries and goals become drivers by establishing long-term growth trends.
• Growth by one dominant industry or toward a goal creates new opportunities for the others.
• Sales of goods and services among the dominant industries are matched by financial counter-flows that keep the cycle running.
• The cycle becomes a massive communications system with growth of the drivers becoming patterns that individuals, companies, and investors can understand and use to their advantage.
• The cycle spawns countless new technologies, products, markets, companies, and secondary industries. The dominant industries must be interdependent—not just complementary. The classic coal and ice man had complimentary businesses, but each could function without the other." (http://www.ethicalmarkets.com/2009/05/07/from-wall-street-bird-nests-to-main-street-growth-cycles/)
Examples
The U.S. and Japanense growth cycle examples are presented in the same article at http://www.ethicalmarkets.com/2009/05/07/from-wall-street-bird-nests-to-main-street-growth-cycles/
The article also explains the current meltdown by showing that the U.S. does not have a growth cycle at present but a Contraction Cycle.