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♣1♣ The Big Picture with Kondratiev and Kardashev

You have certainly heard the words: “data is the new oil,” and you probably wondered “are we indeed on the verge of a newera of innovation andwealth creation or …is this just hype andwill it blow over soon enough?”

Since our ancestors left the trees about 6 million years ago,we roamed theAfrican steppes and we evolved a more upright position and limbs better suited for walking than climbing. However, for about 4million years physiological changes did not include a larger brain. It is only in the last million years that we gradually evolved a more potent frontal lobe capable of abstract and logical thinking.

The first good evidence of abstract thinking is the Makapansgat pebble, a jasperite cobble – roughly 260 g and 5 by 8 cm – that by geological tear and wear shows a few holes and lines that vaguely resemble (to us) a human face. About 2.5 million years ago one of our australopithecine ancestors not only realized this resemblance but also deemed it interesting enough to pick up the pebble, keep it, and finally leave it in a cave miles from the river where it was found.

This development of abstract thinking that goes beyond vague resemblance was a major milestone. As history unfolded, it became clear that this was only the first of many steps that would lead us to the era of data and knowledge that we live in today. Many more steps towards more complex and abstract thinking, gene mutations and innovation would be needed.

abstract thinking:

Soon we developed language.With language we were able to transform learning from an individual level to a collective level. Now, experiences could be passed on to the next generation or peers much more efficiently, it became possible to prepare someone for something that he or she did not yet encounter and to accumulate more knowledge with every generation.

More than ever before this abstract thinking and accumulation of collective experiences lead to a “knowledge advantage” and smartness became an attractive trait in a mate. This allowed our brain to develop further and great innovations such as the wheel, scripture, bronze, agriculture, iron, specialisation of labour soon started to transform not only our societal coherence but also the world around us.

Without those innovations, we would not be where we are now. While it is discussable to classify these inventions as the fruit of scientific work, it is equally hard to deny that some kind of scientific approach was necessary. For example, realizing the patterns in themovements of the sun, we could predict seasons and weather changes to come and this allowed us to put the grains on the right moment in the ground. This was based on observations and experience.

Science and progress flourished, but the fall of the Western European empire made Europe sink in the dark medieval periodwhere thinkingwas dominated by religious fear and superstition and hence scientific progress came to grinding halt, and it is wake improvements in medical care, food production and technology.

The Arab world continued the legacy of Aristotle (384–322 BCE, Greece) and Alhazen (Ibn al-Haytham, 965–1039 Iraq), who by many is considered as the father of the modern scientific method.¹ It was this modern scientific method that became a catalyst for scientific and technological development.

scientific method:

A class of people that accumulated wealth through smart choices emerged. This was made possible by private enterprise and an efficient way of sharing risks and investments. In 1602, the East Indies Company became the first common stock company and in 1601 the Amsterdam Stock Exchange created a platform where innovative, exploratory and trade ideas could find the necessary capital to flourish.

In 1775, James Watt's improvement of the steam engine allowed to leverage on the progress made around the joint stock company and the stock exchange. This combination powered the raise of a new societal organization, capitalism and fueled the first industrial wave based on automation (mainly in the textile industry).

capitalism:

While this first industrialwave broughtmuchmisery and social injustice, as a species we were preparing for the next stage. It created wealth as never before on a scale never seen before. From England, the industrialization, spread fast over Europe and the young state in North America. It all ended in “the Panic of 1873,” that brought the “Long Depression” to Europe and the United States of America. This depression was so deep that it would indirectly give rise to a the invention of an new economic order: communism.

The same steam engine, however, had another trick up its sleeve: after industrialisation it was able to provide mass transport by the railway. This fuelled a new wave of wealth creation and lasted till the 1900s, where that wave of wealth creation ended in the “Panic of 1901” and the “Panic of 1907” – the first stock market crashes to start in the United States of America. The internal combustion engine, electricity and magnetism became the cornerstones of an new wave of exponential growth based on innovation. The “Wall Street Crash of 1929” ended this wave and started the “Great Depression.”

It was about 1935 when Kondratiev noticed these long term waves of exponential growth and devastating market crashes and published his findings in Kondratieff and Stolper (1935) – republished in Kondratieff (1979). The work became prophetic as the automobile industry and chemistry fuelled a newwave of development that gave us individual mobility and lasted till 1973–1974 stock market crash.

Kondratiev:

The scenario repeated itself as clockwork when it was the turn of the electronic computer and information technology (IT) to fuel exponential growth till the crashes of 2002–2008.

IT information technology:

Now, momentum is gathering pace with a few strong contenders to pull a new wave of economic development and wealth creation, a new phase of exponential growth. These contenders include in our opinion:

 quantum computing (if we will manage to get them work, that is),

 nanotechnology and development in medical treatments,

 machine learning, artificial intelligence and big data.

This book is about the last group: machine learning (statistical learning) and data, and if you are reading it then you are certainly playing a significant role in designing the newest wave of exponential growth. If regulators will listen to scientists² and stop using incoherent risk measures in legislation (such as the Basel agreement and UCITS IV), then it might even be the first phase of exponential growth that does not end in a dramatic crash of financial markets.

Working with data is helping a new Kondratiev wave of wealth creation to take off. The Kondratiev waves of development seem to bring us step by step closer to a Type I civilisation, as described by Nikolai Kardashev – (see Kardashev, 1964). Nikolai Kardashev describes a compelling model of how intelligent societies could develop. He recognizes three stages of development. The stages are:

Kardashev:

1 Type 0 society is the tribal organization form that we know today and has lasted since the dawn of the Homo genus.

2 A Type I society unites all people of a planet in one community and wields technology to influence weather and harvest energy of that planet.

3 A Type II society has colonizedmore than one planet of one solar system, is able to capture the energy of a star, and in some sense rules its solar system.

4 A Type III society has a galaxy in its control, is able to harvest energy from multiple stars, maybe even feeds stars into black holes to generate energy, etc.

5 There is no type Type IV society described in Kondratiev, though logically one can expect that the next step would be to spread over the local cluster of galaxies.³ However, we would argue that more probably we will by then have found that our own species, survival is a legacy problem and that in order to satisfy the deepest self-actualization there is no need for enormous amounts of energy –where Kardashev seems to focus on. Therefore, we argue that the fourth stage would be very different.

While both Kondratiev's and Kardashev's theories are stylised idioms of a much more complex underlying reality, they paint a picture that is recognizable and allows us to realize how important scientific progress is. Indeed, if we do not make sure that we have alternatives to this planet, then our species is doomed to extinction rather soon. A Yellowstone explosion, an asteroid the size of an small country, a rogue planet, a travelling black hole, a nearby supernova explosion and so many more things can make our earth disappear or at least render it unsuitable to sustain life as we have known it for many thousands of years or – in the very best case – trigger a severe mass extinction.⁴ Only science will be able to help us to transcend the limitation of the thin crust of this earth.

Only science has brought welfare and wealth, only science and innovation will help us to leave a lasting legacy in this universe.

But what is that “science”?

Notes

1 1 With “scientific method” we refer to the empirical method of acquiring knowledge based on observations, scepticism and scrutiny from peers, reproducibility of results. The idea is to formulate a hypothesis, based on logical induction based on observations, then allowing peers to review and publish the results, so that other can falsify of conform the results.

2 2 See elaboration on coherent risk measures for example in Artzner et al. (1997), Artzner et al. (1999), and De Brouwer (2012).

3 3 Dominating the universe has multiple problems as there is a large part of the universe that will be forever invisible, even with the speed of light, due to the Dark Energy and the expansion of the universe.

4 4 With this statement we do not want to to take a stance in the debate whether the emergence of the Homo sapiens coincided with the start of an extinction event – that is till ongoing – nor do we want to ignore that for the last 300 000 years species are disappearing at an alarming rate, nor do we want to take a stance in the debate that the Homo sapiens is designing its own extinction. We only want to point out that dramatic events might occur on our lovely planet and make it unsuitable to sustain intelligent life.