Rostow's stages ofgrowth

Rostow's Stages of Economic Growthmodel is one of the major historicalmodels of economic growth. It waspublished by American economist WaltWhitman Rostow in 1960. The model

postulates that economic growth occurs infive basic stages, of varying length:[1]

1. The traditional society

2. The preconditions for take-off

3. The take-off

4. The drive to maturity

5. The age of high mass-consumption

Rostow's model is one of the morestructuralist models of economic growth,particularly in comparison with the"backwardness" model developed by

Alexander Gerschenkron, although the twomodels are not mutually exclusive.

Rostow argued that economic take-offmust initially be led by a few individualeconomic sectors. This belief echoesDavid Ricardo's comparative advantagethesis and criticizes Marxistrevolutionaries' push for economic self-reliance in that it pushes for the "initial"development of only one or two sectorsover the development of all sectorsequally. This became one of the important

concepts in the theory of modernization insocial evolutionism.

In addition to the five stages he hadproposed in The Stages of EconomicGrowth in 1960, Rostow discussed thesixth stage beyond high mass-consumption and called it "the search forquality" in 1971.[2] Below is an outline ofRostow's six stages of growth:

Overview

1. The traditional societycharacterized by subsistenceagriculture or hunting andgathering; almost wholly a"primary" sector economy

limited technology

Some advancements andimprovements to processes, butlimited ability for economicgrowth because of the absenceof modern technologies, lack ofclass or individual economic

mobility, with stability prioritizedand change seen negatively

This is where society generallybegins before progressingtowards the next stages ofgrowth

No centralized nations orpolitical systems.

2. The preconditions for take-offExternal demand for rawmaterials initiates economicchange.

Development of more productive,commercial agriculture and cashcrops not consumed byproducers and/or largelyexported.

Widespread and enhancedinvestment in changes to thephysical environment to expandproduction (i.e. irrigation, canals,ports)

Increasing spread of technologyand advances in existing

technologies

Changing social structure, withprevious social equilibrium nowin flux

Individual social mobility begins

Development of national identityand shared economic interests.

3. The take-offUrbanization increases,industrialization proceeds,technological breakthroughsoccur.

"Secondary" (goods-producing)sector expands and ratio ofsecondary vs. primary sectors inthe economy shifts quicklytowards secondary.

Textiles and apparel are usuallythe first "take-off" industry, ashappened in Great Britain'sclassic "Industrial Revolution"

An Example of the Take-offphase is the Agriculture (Green)Revolution in the 1960s.

4. The drive to maturityDiversification of the industrialbase; multiple industries expandand new ones take root quickly

Manufacturing shifts frominvestment-driven (capitalgoods) towards consumerdurables and domesticconsumption

Rapid development oftransportation infrastructure.

Large-scale investment in socialinfrastructure (schools,universities, hospitals, etc.)

5. The age of mass-consumptionthe industrial base dominatesthe economy; the primary sectoris of greatly diminished weight inthe economy and society

widespread and normativeconsumption of high-valueconsumer goods (e.g.automobiles)

consumers typically (if notuniversally), have disposableincome, beyond all basic needs,for additional goods

Urban society (a movement awayfrom rural countrysides to thecities)

�. Beyond consumption (The search forquality)

age of diminishing relativemarginal utility as well as an agefor durable consumer goods

large families and Americansfeel as if they were born into asociety that has high economicsecurity and high consumption

a stage where its merelyspeculation on whether there isfurther consumer diffusion orwhat the new generation willbring for growth

Rostow claimed that these stages ofgrowth were designed to tackle a number

of issues, some of which he identifiedhimself, writing:

"Under what impulses did

traditional, agricultural

societies begin the process of

their modernization? When and

how did regular growth become

a built-in feature of each

society? What forces drove the

process of sustained growth

along and determined its

contours? What common social

and political features of the

growth process may be

discerned at each stage? What

forces have determined relations

between the more developed and

less developed areas; and what

relation if any did the relative

sequence of growth bear to

outbreak of war? And finally

Rostow asserts that countries go througheach of these stages fairly linearly, and setout a number of conditions that were likelyto occur in investment, consumption, and

where is compound interest

taking us? Is it taking us to

communism; or to the affluent

suburbs, nicely rounded out

with social overhead capital; to

destruction; to the moon; or

where?"[3][4]

social trends at each state. Not all of theconditions were certain to occur at eachstage, however, and the stages andtransition periods may occur at varyinglengths from country to country, and evenfrom region to region.[5]

Rostow's model is a part of the liberalschool of economics, laying emphasis onthe efficacy of modern concepts of freetrade and the ideas of Adam Smith. It

Theoretical Framework

disagrees with Friedrich List's argumentwhich states that economies which rely onexports of raw materials may get "lockedin", and would not be able to diversify,regarding this Rostow's model states thateconomies may need to depend on rawmaterial exports to finance thedevelopment of industrial sector whichhas not yet of achieved superior level ofcompetitiveness in the early stages oftake-off. Rostow's model does notdisagree with John Maynard Keynes

regarding the importance of governmentcontrol over domestic development whichis not generally accepted by some ardentfree trade advocates. The basicassumption given by Rostow is thatcountries want to modernize and grow andthat society will agree to the materialisticnorms of economic growth.[6]

The traditional society

Stages of DevelopmentProcess

…

An economy in this stage has a limitedproduction function which barely attainsthe minimum level of potential output.This does not entirely mean that theeconomy's production level is static. Theoutput level can still be increased, as therewas often a surplus of uncultivated landwhich can be used for increasingagricultural production. Modern scienceand technology has yet to be introduced.As a result, these pre-Newtonian societies,unaware of the possibilities to manipulate

the external world, rely heavily on manuallabor and self-sufficiency to survive.[7]

States and individuals utilize irrigationsystems in many instances, but mostfarming is still purely for subsistence.There have been technologicalinnovations, but only on ad hoc basis. Allof that this can result in increases inoutput, but never beyond an upper limitwhich cannot be crossed. Trade ispredominantly regional and local, largelydone through barter, and the monetary

system is not well developed. Investment'sshare never exceeds 5% of total economicproduction. Countries in this stage couldinclude Ghana and Togo.

Wars, famines and epidemics like plaguecause initially expanding populations tohalt or shrink, limiting the single greatestfactor of production: human manual labor.Volume fluctuations in trade due topolitical instability are frequent;historically, trading was subject to greatrisk and transport of goods and raw

materials was expensive, difficult, slowand unreliable. The manufacturing sectorand other industries have a tendency togrow but are limited by inadequatescientific knowledge and a "backward" orhighly traditionalist frame of mind whichcontributes to low labour productivity. Inthis stage, some regions are entirely self-sufficient.

In settled agricultural societies before theIndustrial Revolution, a hierarchical socialstructure relied on near-absolute reverence

for tradition, and an insistence onobedience and submission. This resultedin concentration of political power in thehands of landowners in most cases;everywhere, family and lineage, andmarriage ties, constituted the primarysocial organization, along with religiouscustoms, and the state only rarelyinteracted with local populations and inlimited spheres of life. This socialstructure was generally feudalistic innature. Under modern conditions, these

characteristics have been modified byoutside influences, but the least developedregions and societies fit this descriptionquite accurately..

The preconditions for take-off

In the second stage of economic growththe economy undergoes a process ofchange for building up of conditions forgrowth and take off. Rostow said thatthese changes in society and the economy

…

had to be of fundamental nature in thesocio-political structure and productiontechniques.[4] This pattern was followed inEurope, parts of Asia, the Middle East andAfrica. There is also a second or thirdpattern in which he said that there was noneed for change in socio-political structurebecause these economies were not deeplycaught up in older, traditional social andpolitical structures. The only changesrequired were in economic and technicaldimensions. The nations which followed

this pattern were in North America andOceania (New Zealand and Australia).

There are three important dimensions tothis transition: firstly, the shift from anagrarian to an industrial or manufacturingsociety begins, albeit slowly. Secondly,trade and other commercial activities ofthe nation broaden the market's reach notonly to neighboring areas but also to far-flung regions, creating internationalmarkets. Lastly, the surplus attainedshould not be wasted on the conspicuous

consumption of the land owners or thestate, but should be spent on thedevelopment of industries, infrastructureand thereby prepare for self-sustainedgrowth of the economy later on.Furthermore, agriculture becomescommercialized and mechanized viatechnological advancement; shiftsincreasingly towards cash or export-oriented crops; and there is a growth ofagricultural entrepreneurship.[8]

The strategic factor is that investmentlevel should be above 5% of the nationalincome. This rise in investment ratedepends on many sectors of the economy.According to Rostow capital formationdepends on the productivity of agricultureand the creation of social overheadcapital. Agriculture plays a very importantrole in this transition process as thesurplus quantity of the produce is to beutilized to support an increasing urbanpopulation of workers and also becomes a

major exporting sector, earning foreignexchange for continued development andcapital formation. Increases in agriculturalproductivity also lead to expansion of thedomestic markets for manufacturedgoods and processed commodities, whichadds to the growth of investment in theindustrial sector.

Social overhead capital creation can onlybe undertaken by government, in Rostow'sview. Government plays the driving role indevelopment of social overhead capital as

it is rarely profitable, it has a long gestationperiod, and the pay-offs accrue to alleconomic sectors, not primarily to theinvesting entity; thus the private sector isnot interested in playing a major role in itsdevelopment.

All these changes effectively prepare theway for "take-off" only if there is basicchange in attitude of society towards risktaking, changes in working environment,and openness to change in social andpolitical organisations and structures.

According to Rostow, the preconditions totake-off begins from an externalintervention by more developed andadvanced societies, which "set in motionideas and sentiments which initiated theprocess by which a modern alternative tothe traditional society was constructed outof the old culture."[9] The pre-conditions oftake-off closely track the historic stages ofthe (initially) British IndustrialRevolution.[10]

Referring to the graph of savings andinvestment, notably, there is a steepincrease in the rate of savings andinvestment from the stage of "Pre Take-off" till "Drive to Maturity:" then, followingthat stage, the growing rate of savings andinvestment moderates. This initial andaccelerating steep increase in savings andinvestment is a pre-condition for theeconomy to reach the "Take-off" stage andfar beyond.

The take-off

This stage is characterized by dynamiceconomic growth. As Rostow suggests, allis premised on a sharp stimulus (ormultiple stimuli) that is/are any or all ofeconomic, political and technologicalchange. The main feature of this stage israpid, self-sustained growth.[4][10] Take-offoccurs when sector led growth becomescommon and society is driven more byeconomic processes than traditions. Atthis point, the norms of economic growth

…

are well established and growth becomesa nation's "second nature" and a sharedgoal.[1] In discussing the take-off, Rostowis noted to have adopted the term"transition", which describes the processof a traditional economy becoming amodern one. After take-off, a country willgenerally take as long as fifty to onehundred years to reach the mature stageaccording to the model, as occurred incountries that participated in the IndustrialRevolution and were established as such

when Rostow developed his ideas in the1950s.

Per Rostow there are three mainrequirements for take-off:

1. The rate of productive

investment should rise from

approximately 5% to over 10%

of national income or net

national product

2. The development of one or

more substantial manufacturing

sectors, with a high rate of

growth;

3. The existence or quick

emergence of a political, social

and institutional framework

which exploits the impulses to

expansion in the modern sector

The third requirement implies that theneeded capital must be mobilized fromdomestic resources and steered into theeconomy, rather than into domestic orstate consumption. Industrializationbecomes a crucial phenomenon as it helpsto prepare the basic structure forstructural changes on a massive scale.Rostow says that this transition does not

and the potential external

economy effects of the take-off.[3]

follow a set trend as there are a variety ofdifferent motivations or stimulus whichbegan this growth process.

Take off requires a large and sufficientamount of loanable funds for expansion ofthe industrial sector which generally comefrom two sources which are:

1. Shifts in income flows by way oftaxation, implementation of landreforms and various other fiscalmeasures.

2. Re-investment of profits earned fromforeign trade as has been observed inmany East Asian countries. Whilethere are other examples of "Take-off"based on rapidly increasing demandfor domestically produced goods forsale in domestic markets, morecountries have followed the export-based model, overall and in therecent past. The US, Canada, Russiaand Sweden are examples ofdomestically based "take-off"; all of

them, however, were characterized bymassive capital imports and rapidadoption of their trading partners'technological advances.[4][11] Thisentire process of expansion of theindustrial sector yields an increase inrate of return to some individualswho save at high rates and investtheir savings in the industrial sectoractivities. The economy exploit theirunderutilized natural resources toincrease their production.[1]

The take-off also needs a group ofentrepreneurs in the society who pursueinnovation and accelerate the rate ofgrowth in the economy. For such anentrepreneurial class to develop, firstly, anethos of "delayed gratification", apreference for capital accumulation over

Tentative take-off dates[3]

expenditure, and high tolerance of riskmust be present. Secondly, entrepreneurialgroups typically develop because they cannot secure prestige and power in theirsociety via marriage, via participating inwell-established industries, or throughgovernment or military service (amongother routes to prominence) because ofsome disqualifying social or legalattribute; and lastly, their rapidly changingsociety must tolerate unorthodox paths toeconomic and political power.

The ability of a country to make it throughthis stage depends on the following majorfactors:

Existence of enlarged, sustainedeffective demand for the product of keysectors.

Introduction of new productivetechnologies and techniques in thesesectors.

The society's increasing capacity togenerate or earn enough capital to

complete the take-off transition.

Activities in the key sector shouldinduce a chain of growth in othersectors of the economy, that alsodevelop rapidly.

An example of a country in the Take-offstage of development is Equatorial Guinea.It has the largest increases in GDP growthsince 1980 and the rate of productiveinvestment has risen from 5% to over 10%of income or product.

In the table note that Take-off periods ofdifferent countries are the same as theindustrial revolution in those countries.

The drive to maturity

After take-off, there follows a long intervalof sustained growth known as the stage ofdrive to maturity. Rostow defines it "as theperiod when a society has effectivelyapplied the range of modern technology tothe bulk of its resources."[3][4] Now

…

regularly growing economy drives toextend modern technology over the wholefront of its economic activity. Some 10-20% of the national income is steadilyinvested, permitting output regularly tooutstrip the increase in population. Themakeup of the economy changesunceasingly as technique improves, newindustries accelerate, older industries leveloff. The economy finds its place in theinternational economy: goods formerlyimported are produced at home; new

import requirements develop, and newexport commodities to match them. Theleading sectors in an economy will bedetermined by the nature of resourceendowments and not only by technology.

Tentative drive to maturity dates[3]

On comparing the dates of take-off anddrive to maturity, these countries reachedthe stage of maturity in approximately 60years.

The structural changes in the societyduring this stage are in three ways:

Work force composition in agricultureshifts from 75% of the workingpopulation to 20%. The workers acquiregreater skill and their wages increase inreal terms.

The character of leadership changessignificantly in the industries and a highdegree of professionalism is introduced

Environmental and health cost ofindustrialization is recognized andpolicy changes are thus made.

During this stage a country has to decidewhether the industrial power andtechnology it has generated is to be usedfor the welfare of its people or to gainsupremacy over others, or the world intoto.

A prime example of a country in the Driveto Maturity stage is South Africa. It isdeveloping a world-class infrastructure-including a modern transport network,widely available energy, and sophisticatedtelecommunications facilities. Additionally,the commercial farm sector shed 140,000jobs, a decline of roughly 20%, in theeleven-year period from 1988 to 1998.

This diversity leads to reduction in povertyrate and increasing standards of living, asthe society no longer needs to sacrifice its

comfort in order to build up certainsectors.[12]

The age of high mass-consumption

The age of high mass-consumption refersto the period of contemporary comfortafforded by many western nations,wherein consumers concentrate ondurable goods, and hardly remember thesubsistence concerns of previous stages.Rostow uses the Buddenbrooks dynamics

…

metaphor to describe this change inattitude. In Thomas Mann's 1901 novel,Buddenbrooks, a family is chronicled forthree generations. The first generation isinterested in economic development, thesecond in its position in society. The third,already having money and prestige,concerns itself with the arts and music,worrying little about those previous,earthly concerns. So too, in the age of highmass-consumption, a society is able tochoose between concentrating on military

and security issues, on equality andwelfare issues, or on developing greatluxuries for its upper class. Each countryin this position chooses its own balancebetween these three goals. There is adesire to develop an egalitarian societyand measures are taken to reach this goal.According to Rostow, a country tries todetermine its uniqueness and factorsaffecting it are its political, geographicaland cultural structure and also valuespresent in its society.[12]

Historically, the United States is said tohave reached this stage first, followed byother western European nations, and thenJapan in the 1950s.[4]

Beyond consumption (The searchfor quality)

When proposed, this step is more of atheoretical speculation by Rostow ratherthan an analytical step in the process byRostow.[13] Individuals begin having largerfamilies and do not value income as a pre-

…

requisite for more vacation days.Consumer products become more durableand more diverse.[13] New Americans willbehave in a way where the high economicsecurity and level mass consumption isconsidered normal. Rostow does make thepoint that it is possible with the large babyboom it could either cause economicissues or dictate an even larger diffusionof consumer goods.[13] With increasingurban and suburban population there will

be undoubtedly an increase in consumergoods and services as well.[13]

This stage was later discussed in Rostow'sbook Politics and the Stages of Growthpublished in 1971, in which he called thestage "the search for quality".[2]

1. Rostow is historical in the sense thatthe end result is known at the outsetand is derived from the historical

Criticism of the model

geography of a developed,bureaucratic society.

2. Rostow is mechanical in the sensethat the underlying motor of changeis not disclosed and therefore thestages become little more than aclassificatory system based on datafrom developed countries.

3. His model is based on American andEuropean history and defines theAmerican norm of high mass-consumption as integral to the

economic development process of allindustrialized societies.

4. His model assumes the inevitableadoption of Neoliberal trade policieswhich allow the manufacturing baseof a given advanced polity to berelocated to lower-wage regions.

5. Rostow's model does not apply to theAsian and the African countries asevents in these countries are notjustified in any stage of his model.

�. The stages are not identifiableproperly as the conditions of the take-off and pre take-off stage are verysimilar and also overlap.

7. According to Rostow growthbecomes automatic by the time itreaches the maturity stage butKuznets asserts that no growth canbe automatic there is need for pushalways.

�. There appear to be two paralleltheories of 'take-off' one is that 'take-

off' is a sectoral and non-linearnotion, and the other is that it ishighly aggregative.[14]

Rostow's thesis is biased towards awestern model of modernization, but atthe time of Rostow the world's only matureeconomies were in the west, and nocontrolled economies were in the "era ofhigh mass-consumption." The model de-emphasizes differences between sectorsin capitalistic vs. communistic societies,but seems to innately recognize that

modernization can be achieved in differentways in different types of economies.

Another assumption that Rostow took isof trying to fit economic progress into alinear system. This assumption isquestioned due to empirical evidence ofmany countries making 'false starts' thenreaching a degree of progress and changeand then slipping back. E.g.: In the case ofcontemporary Russia slipping back fromhigh mass-consumption to a country intransition.

Another criticism of Rostow's work is thatit considers large countries with a largepopulation (Japan), with natural resourcesavailable at just the right time in its history(Coal in Northern European countries), orwith a large land mass (Argentina). He haslittle to say and indeed offers little hope forsmall countries, such as Rwanda, which donot have such advantages. Neo-liberaleconomic theory to Rostow, and manyothers, does offer hope to much of theworld that economic maturity is coming

and the age of high mass-consumption isnigh. This does leave a potential "grimmeathook future" for the outliers, which donot have the resources, political will, orexternal backing to become competitivewith already developed economies.[15]

(See Dependency theory)

Development economics

Ragnar Nurkse

See also

Virtuous circle and vicious circle

Strategy of unbalanced growth

Low-level equilibrium trap

Dual economy

Big Push Model

1. Rostow, W. W. (1960). "The Five Stagesof Growth-A Summary" . The Stages ofEconomic Growth: A Non-CommunistManifesto. Cambridge: Cambridge

References

University Press. pp. 4–16. Archivedfrom the original on 2013-02-23.

2. Rostow, W. W. (1971). Politics and theStages of Growth. CambridgeUniversity Press.ISBN 9780521081979.

3. Rostow, W. W. (1962). The Stages ofEconomic Growth. London: CambridgeUniversity Press. pp. 2, 38, 59.

4. Mishra, Puri (2010). Economics ofDevelopment and Planning—Theoryand Practice. Himalaya Publishing

House. pp. 127–136. ISBN 978-81-8488-829-4.

5. Rostow emphasizes in Stages that"the stages of growth are an arbitraryand limited way of looking at thesequence of modern history: ... todramatize not merely the uniformitiesin the sequence of modernization butalso—and equally—the uniqueness ofeach nation's experience."

�. "Rostow's Stages of Development vs.Self- Sufficiency" . Lewis historical

society. 4 January 2011. Retrieved2014-03-15.

7. Rostow, W. W. (1960). The Stages ofEconomic Growth: A Non-CommunistManifesto. Cambridge: CambridgeUniversity Press. p. 10.

�. Brett Wallace (2008-02-02). "IBGeography: Development: RostowModel" . Slideshare.net. Retrieved2014-03-15.

9. Seligso, Mitchell A. "The Five Stages ofGrowth W.W. Rostow". Development

and Underdevelopment: The PoliticalEconomy of Global Inequality: 12.

10. Mallick, Oliver Basu (2005). "Rostow'sfive-stage model of development andist [sic] relevance in Globalization"(PDF). School of Social ScienceFaculty of Education and Arts theUniversity of Newcastle. Archived fromthe original (PDF) on April 2, 2012.

11. "Stages of Development" . Nvcc.edu.2004-04-22. Archived from the

original on 2004-06-18. Retrieved2014-03-15.

12. http://albahaegeo.files.wordpress.com/2011/03/rostow_lewis.pdf

13. Beckett, Paul A. The Journal ofDeveloping Areas 29.2 (1995): 284-86.Web.

14. Itagaki, Yoichi (1963). "Criticism ofRostow's Stage Approach: TheConcept of State, System and Type".The Developing Economies. 1 (1): 1–

Rostow, W. W. (1960). The Stages ofEconomic Growth: A Non-CommunistManifesto . Cambridge University Press.

17. doi:10.1111/j.1746-1049.1963.tb01138.x .

15. "Grim Meathook Future" is a quotefrom new media writer JoshuaEllis"Archived copy" . Archived fromthe original on 2006-03-29. Retrieved2006-04-18. .

Further reading

Baran, P.; Hobsbawm, E. J. (1961). "TheStages of Economic Growth". Kyklos. 14(2): 234–242.

Hunt, Diana (1989). "Rostow of theStages of Growth" . Economic Theoriesof Development: An Analysis ofCompeting Paradigms. New York:Harvester Wheatsheaf. pp. 95–101.ISBN 978-0-7450-0237-8.

Meier, Gerald M. (1989). "Sequence ofStages" . Leading Issues in EconomicDevelopment (Fifth ed.). New York:

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Oxford University Press. pp. 69–72.ISBN 978-0-19-505572-6.

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