The Stages of Economic Growth Rostow’s Stages
This article presents a summary of a method for broadening the scope of modern economic history. The method involves categorizing the various stages of economic growth, which can be defined as follows: the traditional society, the prerequisites for advancement, the period of significant growth, the transition to a mature economy, and the era of widespread consumption.
Beyond the era of widespread consumption, challenges begin to emerge in certain societies, and they may become more prevalent when the diminishing relative marginal utility affects real income itself. These descriptive classifications are based on specific dynamic principles related to supply, demand, and production patterns.
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THE CLASSICAL THEORY
The classical theory of production has limitations due to its static assumptions, prompting economists to integrate it with Keynesian income analysis and dynamic variables. However, these attempts have often been too rigid and failed to capture the essential aspects of growth.
A dynamic theory of production is needed to examine income distribution and sector-specific investment.
Expanding production theory allows defining equilibrium positions influenced by factors like income, population, preferences, technology, and entrepreneurship. Historical investment patterns deviate from these due to imperfections in private investment, government policies, and the impact of wars. These deviations contribute to different growth paths.
Despite deviations, growing societies strive to approximate optimal paths, with certain sectors playing a crucial role. Considering demand elasticities is important, as growth is influenced by technological advancements and demand types with high elasticity.
Resource allocation is shaped by societal choices influenced by preferences, government policies, and welfare functions. Birth rates and population curves reflect changing decisions influenced by
incomes. Societal decisions, influenced by history, culture, and politics, interact with market forces to shape stages of growth.
Examining growth stages involves analyzing sectoral structure and societal choices in resource allocation, encompassing broader aspects of development and welfare beyond income and price elasticities of demand.
THE TRADITIONAL SOCIETY
Traditional societies experienced continuous change in various aspects such as trade, agricultural output, productivity, manufacturing, population, and income. However, their progress was limited due to technological constraints. While they displayed inventiveness and some innovative, high-productivity ideas, they lacked a comprehensive understanding of the physical world that could sustain ongoing inventions.
Instead, their achievements were sporadic and based on past knowledge rather than a systematic approach.
As a result of this productivity limitation, a significant portion (75% or more) of the workforce was engaged in food production. Additionally, a considerable portion of income beyond basic consumption levels was spent on non-productive or low-productivity endeavors such as religious and monumental structures, wars, lavish lifestyles for the land-owning elite, and for the less fortunate, struggles for land or extravagant events like costly weddings or funerals. The prevailing social values were shaped by the limited opportunities individuals perceived, and hierarchical social structures were common, although there were occasional avenues for upward mobility.
Political power typically resided in regional areas with landowners, despite intermittent conflicts with central authorities who held some control through their military and civil servants.
THE PRECONDITIONS FOR TAKEOFFS
The preconditions for economic take-off in Western Europe were established through the convergence of two factors: the development of modern science and lateral innovation from exploration. This led to increased specialization, interdependence, and market incentives. Britain
was the first to transition from this stage, benefiting from stability, nonconformists’ contributions, and naval/trading capabilities. The take-off set off a series of demonstration effects that transformed other societies or accelerated preconditions. Sustained industrialization required changes in transportation, agriculture, and imports. These developments required non-economic changes, including adoption of new techniques, presence of industrial entrepreneurs, and capable government.
The political dimension involved positive and negative demonstration effects, motivating individuals and societies to undertake modernization. Reactive nationalism propelled modernization but also posed challenges for economic development. Addressing grievances and focusing on economic growth tasks were essential. Nations “born free” from traditional societies, influenced by advanced societies, followed a different path.
THE TAKEOFF PHASE
The take-off phase can be defined as the period when rapid growth occurs in a specific set of sectors where modern industrial techniques are applied. Throughout history, these leading sectors
have included cotton textiles (in Britain and New England), railroads (in the United States, France, Germany, Canada, and Russia), modern timbercutting and railroads (in Sweden), as well as agricultural processing, oil, import substitution industries, shipbuilding, and military expansion. Unlike earlier industrial surges, the take-off phase is characterized by the self-sustainability of modern industrial techniques due to prior and concurrent developments This requires maintaining momentum in the three key sectors of the preconditions stage, expanding the pool of entrepreneurs and technicians, and institutionalizing capital sources to withstand structural shocks, reallocate investment resources, and continue growth.
Defining the take-off phase as spanning approximately two decades is justified by the need for the economy to exhibit resilience, as demonstrated by sustaining an annual net investment rate of at least ten percent. However, this familiar definition should not overshadow the full range of transformations necessary for growth to become an inherent aspect of a society’s habits and institutions. In non-economic terms, the take-off phase typically witnesses the definitive victory of those advocating economic modernization over those clinging to traditional societal structures or
pursuing different objectives. However, due to the transformative power of nationalism, the victory can take the form of mutual accommodation rather than the complete destruction of traditional groups by more modern forces. Examples include the role of the Junkers in industrializing Germany and the persistence of traditional elements in Japan beyond 1880.
Overall, the ability to maintain momentum for a generation encourages the society to persist and concentrate its efforts on extending the benefits of modern technology beyond the sectors that were initially modernized during the take-off phase.
THE DRIVE TO MATURITY
After the take-off phase, a society enters the “drive to maturity” characterized by the effective application of modern technology to a majority of its resources. New leading sectors replace older ones, sustaining overall growth. Technological maturity is symbolically dated for various regions, but flexibility is required to account for sectors or regions resisting full technological embrace. Complexity arises when considering cases with pockets of technological backwardness or underutilized modern technology.
Despite complexities, Russia can be considered a mature economy overall. In Britain, there was a gap between technological maturity and the subsequent stage of high mass consumption.
Income levels and consumption patterns at maturity vary among nations based on population-resource balance and income distribution policy.
As societies progress toward maturity, the workforce structure changes, with a decrease in agriculture and a rise in semi-skilled and white-collar workers. Rising real income per capita enables new consumer preferences. Industrial leadership also evolves, with professional managers playing a significant role.
These shifts in the workforce, industrial management, and societal outlook are accompanied by changes in mood and reflections on the utilization of the mature industrial machine. The focus shifts from further increments of material possessions to seeking new sources of satisfaction. Similar reflections were observed in the pre-1914 drive to maturity in Western Europe and the United States, as well as in later periods with countries like Japan and Russia.
THE AGE OF HIGH MASS CONSUMPTION
During the era of high mass consumption, mature economies had three possible paths: enhancing security, welfare, and leisure for the workforce through public measures; promoting widespread private consumption, including single-family homes and durable consumer goods and services; or seeking increased global power. Different societies made different choices during the first half of the twentieth century.
The United States embraced private consumption in the 1920s, leading to the emergence of new leading sectors like housing, automobiles, and electric-powered devices. Britain and Western Europe leaned towards public measures for social security, while Germany prioritized increased global power before 1914. In the 1930s, Britain experienced a recovery marked by high mass consumption, while France stagnated until the Second World War, and Germany’s recovery was driven by rearmament.
Motor vehicle production between the wars provides insights into the relative movements of the United States and Western Europe. By the late 1950s, Western European growth mirrored the American experience of the 1920s, with consumption patterns explained by income and price elasticities of demand. Even in Russia, there was growing interest in household appliances, but mass automobile production was still uncertain.
Overall, societies made distinct choices in the era of high mass consumption, leading to variations in their economic development and consumption patterns.
BEYOND CONSUMPTION
Moving beyond consumption, a notable development occurred in the world economic system, with unexpected and significant implications. Rich societies, particularly in Western Europe, Japan, and the Soviet Union, experienced a surprising increase in birth rates.
The United States saw the most pronounced rise, with the birth rate climbing during and after World War II. Americans seemed to perceive diminishing marginal utility in pursuing higher income and authority within bureaucratic institutions, instead opting for larger families and a shift towards family-oriented activities.
This population expansion necessitated the extension of societal resources and infrastructure investment, compounded by the previous growth in automobile ownership and suburban housing. The changing dependency ratio, with a higher number of young and elderly individuals supported by the working population, further impacted the pattern of American economic growth. It is expected to be based on different leading sectors compared to previous periods.
While this choice made by Americans may not apply universally, it signifies a shift in societies where the pursuit of basic necessities no longer dominates lives. New choices lie ahead, albeit with
challenges such as nuclear arms race and global organization as other regions progress through stages of growth. However, the era where scarcity dictates the human agenda is coming to an end, barring nuclear destruction and severe disorder. The day when labor becomes the prime necessity of life, as stated by Marx, is approaching.
COMPARISION WITH MARXISM
A comparison can be drawn between Marxism and the stages of growth outlined here. Both theories explore how societies incorporate compound interest and envision a stage where intense material labor is no longer necessary. However, there are differences, particularly regarding human motivation.
Marxism assumes profit maximization as the driving force behind human behavior, emphasizing the economic self-interest of individuals. In contrast, this analysis sees human behavior as a complex balancing act between various personal and national objectives, considering a range of options available to individuals. It recognizes the paradoxical nature of human existence and does not propose rigid historical stages.
This perspective acknowledges the influence of cultural, social, and political forces on a society’s economic evolution, going beyond mere property ownership and production techniques. These forces reflect human aspirations and shape a society’s performance.
Deviating from Marxism, this viewpoint sees the preconditions period as a transformative phase driven by reactive nationalism. It acknowledges that progress and urbanization can lead to declining birth rates and increased real wages for the working class. The income elasticity of demand becomes a significant force, influencing effective demand patterns and the sectoral structure of the economy.
Societal choices are influenced by powerful political and social processes that go beyond property ownership, especially in mature societies. This can result in the utilization of resources for establishing a welfare state supported by progressive taxation.
Lastly, as affluence is achieved, individuals are presented with choices that extend beyond labor as a primary necessity of life. These choices encompass population growth, exploration, improving quality of life, and addressing societal challenges resulting from idle hands.
The fundamental flaw in Marxism lies in its failure to recognize the complexity and inherent paradoxes of society. The body of thought about society, including classical economics, encompasses various ideologies that find balances between conflicting imperatives. Western societies have approached the threshold of communism without following Marx’s prognosis, navigating dilemmas through nuanced approaches and finding balances that respect conflicting interests.
