Capital Cycle Revolution

Abstract

The following essays describe the operation of the capital cycle in a variety of industries, from cod fishing to global brewers and wind turbine manufacturers. A common theme linking these pieces is the importance of understanding how competition — or the supply side — evolves over time, and the role it plays in determining both industry and individual company returns on capital. In addition, some of the essays highlight the malign influence of regulation and the potentially disruptive impact of technology on particular industry capital cycles. An understanding of the capital cycle helps to identify and avoid speculative bubbles. All too often, high returns attract capital, breeding excessive competition and overinvestment. In recent years, for instance, there has been an epic burst of capital spending in the field of resource extraction. Four of the articles presented below highlight the dangers posed to shareholders over the last decade by ever rising levels of investment in the mining and the oil and gas sectors.