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.
