From Peter Drucker's Innovation and Entrepreneurship (emphasis added by me) —
“The Russian economist Nikolai Kondratieff was executed on Stalin’s orders in the mid-1930s because his econometric model predicted, accurately as it turned out, that collectivization of Russian agriculture would lead to a sharp decline in farm production. The “fifty-year Kondratieff cycle” was based on the inherent dynamics of technology. Every fifty years, so Kondratieff asserted, a long technological wave crests. For the last twenty years of this cycle, the growth industries of the last technological advance seem to be doing exceptionally well. But what look like record profits are actually repayments of capital which is no longer needed in industries that have ceased to grow. This situation never lasts longer than twenty years, then there is a sudden crisis, usually signaled by some sort of panic. There follow twenty years of stagnation, during which the new, emerging technologies cannot generate enough jobs to make the economy itself grow again — and no one, least of all government, can much about this.
“The industries that fueled the long economic expansion after World War II — automobiles, steel, rubber, electric apparatus, consumer electronics, telephone, but also petroleum — perfectly fit with the Kondratieff cycle. Technologically, all of them go back to the fourth quarter of the nineteenth century or, at the very latest, to before World War I. In none of them has a significant breakthrough been made since the 1920s, whether in technology or business concepts. When the economic activity began after World War II, they were all thoroughly mature industries. They could expand and create jobs with relatively little new capital investment, which explains why they could pay skyrocketing wages and workers’ benefits and simultaneously show record profits.”
Of course, the Kondratieff industry cycles don't apply to every industry and are hardly proven.
The key takeaway is that industries which no longer need additional capital to scale can see increasing profits simultaneously with increasing variable costs, but the increasing profits are a short-term phenomenon.
It's actually a pretty significant thing, if you think it through. Lightbulbs went off for me.
Profits increase greatly once all the railroad track is down, the stations are built, the business processes are understood, the public believes in railroads, and the low-hanging efficiencies of trains are improved. At that point, you just throw more cars on the end of locomotives, or run trains more frequently, and you profit more.
All the capital is in place.
This looks like a grand and golden thing for an industry, but it means you'll saturation sooner or later. Eventually, everyone that wants to travel by rail is traveling by rail; everything that makes sense to ship via rail is being shipped via rail, and then the party is almost over.
At that point, used to a "golden age" of rapidly rising benefits, wages, profits, and dividends, the railroad companies are likely not being cost-conscious and frugal. When growth slows down, the party is almost over. Worse yet, as new competitors like airline travel happen, reducing demand for passenger rail. Market and technology shifts happen like people replacing large physical goods with smaller, sleeker, or digital models.
When the industry hits decline, everyone panics and no one can deal with it.
But it could have been predicted.
The profitability of the railroad is built on the foundation of the capital investment, invention, innovation, and pioneering of laying down track, perfecting trains, building stations, mastering supply and maintenance, proving the market out and winning the public's trust, and so on.
But executives and investors are often shortsighted, and instead attribute the explosion in profitability to their own brilliance. Well, no — all the blocks are in place, they're able to much more cheaply add additional business with no capital investment.
Eventually, the market is saturated and growth is over; often, there's nowhere to go but down. But 20 golden years of partytime and high profits with no cost consciousness means they're not set up for the slowdown and fall.
The concept isn't universal, but as a tool, it helps the world make much more sense.