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The Rostow's Stages of Growth model (also called "Rostovian take-off model") is one of the major historical models of economic growth. It was developed by W. W. Rostow. The model postulates that economic growth occurs in five basic stages, of varying length:[1]
Rostow's model is one of the more structuralist models of economic growth, particularly in comparison with the 'backwardness' model developed by Alexander Gerschenkron, although the two models are not mutually exclusive.
Rostow argued that economic take-off must initially be led by a few individual sectors. This belief echoes David Ricardo’s comparative advantage thesis and criticizes Marxist revolutionaries push for economic self-reliance in that it pushes for the 'initial' development of only one or two sectors over the development of all sectors equally. This became one of the important concepts in the theory of modernization in the social evolutionism.
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Rostow claimed that these stages of growth were designed to tackle a number of issues. •Traditional society o subsistence agriculture or hunting and gathering oLimited technology oRigid society; no mobility w/ fluidity upwards •Pre-conditions to “take-off” oUsually an external force that wants a society’s raw materials oCommercial agriculture/ cash crops oMore control over physical environment More advance technology Irrigation oChange in social structure Social stratification Social mobility begins Individuals think more like a country and not just a local unit •Take off oManufacturing truly begins oMove from primary to secondary oFirst happened in Great Britain w/ Industrial revolution oTextiles & apparel are usually the first industry •Drive to maturity oWider industrial base oConsumer durables Better transportation Refrigerators More investment in social infrastructure oConcerned w/ environment •Age of mass consumption oIndustrial base dominated economy Automobile oDisposable income
Some of which he identified himself and wrote, "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 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 moon; or where?"[2][3]
Rostow asserts that countries go through each of these stages fairly linearly, and set out a number of conditions that were likely to occur in investment, consumption and social trends at each state. Not all of the conditions were certain to occur at each stage, however, and the stages and transition periods may occur at varying lengths from country to country, and even from region to region.[4]
Rostow's model is a part of the liberal school of economics, laying emphasis on the efficacy of modern concepts of free trade and the ideas of Adam Smith. It disagrees with Friedrich List’s argument which states that economies which rely on exports of raw materials may get “locked in”, and would not be able to diversify, regarding this Rostow’s model states that economies may need to depend on raw material exports to finance the development of industrial sector which has not yet of achieved superior level of competitiveness in the early stages of take-off. Rostow’s model does not disagree with John Maynard Keynes regarding the importance of government control over domestic development which is not generally accepted by some ardent free trade advocates. The basic assumption given by Rostow is that countries want to modernize and grow and that society will agree to the materialistic norms of economic growth.[5]
Economy in this stage has a limited production function which could barely attains basic minimum level of output. It does not entirely mean that the economy's production level is static. The output level can still be increased as there is surplus of cultivable land which can be used for increasing agricultural produce. The state as well as the farmers were aware of the irrigation methods and expanded this facility. There were technological innovations but only on ad hoc basis. All this resulted in increase in output but there always existed an upper limit which could never be crossed which basically was because there was lack of application and constant development of modern science and technology. Trade was done in barter system and the monetary system was not well developed. The investment level is less than 5%.
There were numerous changes in size of population and quality of life because of wars, famines due to crop failures and epidemics like plague. Volume fluctuation in trade was due to political stability or instability. Manufacturing sector and other industries had a tendency to grow but were limited by the inadequate scientific knowledge and backward frame of mind which also lead to low labour productivity. In this stage self sufficient regions are present.
Due to agricultural dominance there was establishment of a hierarchical social structure in which there was no vertical mobility. This resulted in concentration of political power in the hand of land owners and family became a major institution with high importance placed on clan connection in the social organization. This social structure was feudalistic in nature.
In the second stage of economic growth the economy undergoes a process of change for building up of conditions for growth and take off. Walt Whitman Rostow said that these changes in society and the economy had to be of fundamental nature in the socio political structure and production technique.[3] This pattern was followed in Europe, parts of Asia, Middle East and Africa. There is also a second pattern in which he said that there was no need for change in socio political structure because these economies were not deeply caught up in social and political structures. The only changes required were in economic and technical dimensions. The nations which followed this pattern were North America, New Zealand and Australia.
There are three important dimensions to this transition are firstly shift from agrarian to industrial or manufacturing society. Secondly trade and other commercial activities of the nation should broaden market reach to not only local areas but also international markets. Lastly the surplus attained should not be wasted on the conspicuous consumption of the land owners but should be spent on development of industries, infrastructure and also preparation of self sustained growth. Furthermore, agriculture becomes commercialized and mechanized to to technological advancement and there is growth of entrepreneurship.[7]
The strategic factor is that investment level should be above 5% of the national income. This rise in investment rate depends on many sectors of the economy. According to Walt Whitman Rostow capital formation depends on productivity of agriculture and creation of social overhead capital. Agriculture plays a very important role in this transition process as the surplus quantity of the produce is to be utilized to support urban population and also be a major part of export to earn foreign exchange for development. Increase in agricultural productivity will lead to expansion of domestic markets for manufacturing commodities which will further lead to induced investment in the industrial sector. Further agricultural surplus should be invested in modernization.
Social overhead capital creation would have to be taken only by the government. The Government Would have to play a major role in it as social overhead capital is lumpy in nature, it has long gestation period and indirect routes of pay-offs thus the private sector would not be interested in playing any role in it's development.
All these changes would be effective only if there is basic change in attitude of society towards risk taking, changes in work environment and changes in social and political organisations and structures. Basically the pre-conditions of take-off is beginning of the industrial revolution.[6]
According to the savings and investment graph there is a steep increase in the rate of savings and investment from the stage of pre take-off till drive to maturity and from the stage of drive to maturity it starts stabilizing. This steep increase is needed for the investment required for the economy to reach the take-off stage and the economy to grow further.
This stage is characterized by dynamic economic growth. Which was as Rostow suggests began due to a sharp stimulus of either economic, political or technological in nature. The main feature of this is the self sustained growth.[6][3] Take-off then occurs when sector led growth becomes common and society is driven more by economic processes than traditions. At this point, the norms of economic growth are well established and growth becomes a nations second nature.[1] In discussing the take-off, Rostow is noted to have adopted the term “transition”, which is to describe the process change of a traditional economy to a modern economy. After take-off, a country will take as long as fifty to one hundred years to reach maturity. Globally, this stage occurred during the Industrial Revolution.
As per Rostow the requirements for a nation to take-off are the following three main conditions:
Industrialization becomes a crucial phenomenon as it helps to prepare the basic structure for structural changes in a massive scale. Rostow says that this transition does not follow a set trend as there are a variety of different motivations or stimulus which began this growth process. Take off requires a large and sufficient amount of loanable funds for expansion of the industrial sector which generally come from two sources which are:
The take-off also needs a group of entrepreneurs in the society who would induce innovation and help produce growth in the economy. The entrepreneurial activity is conducive to firstly a proper set up of a valuation system. Secondly, they need to feel that they can not secure prestige and power in the society and lastly, the society should tolerate the unorthodox path of attainment of materialistic and political goals. The success of passing through this stage depends on the following major factors:
In the table note that Take-off periods of different countries are the same as the industrial revolution in those countries.
After take-off there follows a long interval of sustained growth known as the stage of drive to maturity. Rostow defines it "as the period when has effectively applied the range of modern technology to the bulk of its resources."[2][3] Now regularly growing economy drives to extend modern technology over the whole front of its economic activity. Some 10-20% of the national income is steadily invested, permitting output regularly to outstrip the increase in population. The make-up of the economy changes unceasingly as technique improves, new industries accelerate, older industries level off. The economy finds its place in the international economy: goods formerly imported are produced at home; new import requirements develop, and new export commodities to match them. The leading sectors will in an economy be determined by the nature of resource endowments and not only by technology. On comparing the dates of take-off and drive to maturity these countries reached the stage of maturity in approximately 60 years.
The structural changes in the society during this stage are in three ways:
During this stage a country has to decide whether the industrial power and technology it has generated is to be used in the welfare of the people or to gain supremacy of the country over the world.
This diversity leads to reduction in poverty rate and increasing standards of living, as the society no longer needs to sacrifice its comfort in order to build up certain sectors.[9]
The age of high mass consumption refers to the period of contemporary comfort afforded many western nations, wherein consumers concentrate on durable goods, and hardly remember the subsistence concerns of previous stages. Rostow uses the Buddenbrooks dynamics metaphor to describe this change in attitude. In Thomas Mann’s novel, Buddenbrooks, a family is chronicled for three generations. The first generation is interested in economic development, the second 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 high mass consumption, a society is able to choose between concentrating on military and security issues, on equality and welfare issues, or on developing great luxuries for its upper class. Each country in this position chooses its own balance between these three goals.There is a desire to develop an egalitarian society and measures are taken to reach it. According to Rostow a country tries to determine its uniqueness and factors affecting it are its political, geographical and cultural structure and also values present in its society.[9]
Historically United states is said to have reached this stage the first and followed by other western European nations and Japan in the 1950's.[3]
Rostow's thesis is biased towards a western model of modernization, but at the time of Rostow the world's only mature economies were in the west, and no controlled economies were in the "era of high mass consumption." The model de-emphasizes differences between sectors in capitalistic vs. communistic societies, but seems to innately recognize that modernization can be achieved in different ways in different types of economies.
The most disabling assumption that Rostow has taken is of trying to fit economic progress into a linear system. This assumption is false as due to empirical evidence of many countries making false starts then reaching a degree of progress and change and then slipping back. Eg: In the case of contemporary Russia slipping back from high mass consumption to a country in transition the main cause being political change and environment and also Cold War.
Another problem that Rostow’s work has is that it considered large countries with a large population (Japan), with natural resources available at just the right time in its history (Coal in Northern European countries), or with a large land mass (Argentina). He has little to say and indeed offers little hope for small countries, such as Rwanda, which do not have such advantages. Neo-liberal economic theory to Rostow, and many others, does offer hope to much of the world that economic maturity is coming and the age of high mass consumption is nigh. But that does leave a sort of 'grim meathook future' for the outliers, which do not have the resources, political will, or external backing to become competitive.[11] (See Dependency theory)