Rostow's Stages of Economic Growth.pptx

Rostow's Stages of economic Growth

1. Rostow’s Stages of Economic Growth Prof. Nithin Kumar S Assistant Professor Department of Economics J.S.S Banshankari Arts, Commerce and Shantikumar Gubbi Science College Vidyagiri, Dharwad - 580004

2. W. W Rostow ( October 7, 1916 – February 13, 2003) Mr. Nithin Kumar S 2

3. Introduction Many economists have been of the opinion that economic development of a country passes through a number of stages. Walt Witchman Rostow has made a brilliant and magnificent contribution to such thinking. Rostow has classified the process of economic development into five stages. Therefore , it is more appropriate to consider Rostow's theory as an analysis of stages of economic development . Mr. Nithin Kumar S 3

4. Rostow’s Stages of Growth Traditional society Pre-take off stage Take-off stage Drive to maturity, and The age of high mass consumption Mr. Nithin Kumar S 4

5. 1. Traditional Society Traditional Society is also termed as primitive society. Agriculture will be the primary and predominant activity in such a society and more than 75 percent of the total labour force of the country depend upon this occupation . Mr. Nithin Kumar S 5

6. This is a society marked by utter lack of scientific knowledge and technology and contact with the outer world. People are not aware of the methods of effective utilization of natural resources and the ways in which output could be increased. Landlords wield power in the society and economic activities are determined according to status and conventions in the society. Mr. Nithin Kumar S 6

7. In Rostow's description, traditional society "is one whose structure is developed within limited production functions based on pre-Newtonian science and technology and pre- N ewtonian attitude towards physical world” The society is based on primitive technology and orthodox ideas . Mr. Nithin Kumar S 7

8. 2. Pre Take-off Stage This is a transformative stage building a magnificent foundation for a definite change. Many types of changes are visible in the society of this stage. Basic changes are found in social, political and economic structure. Savings and investment rise to the level of about five percent of the national product . Mr. Nithin Kumar S 8

9. In the pre take-off stage, land reforms become an integral part of development of agricultural sector. A revolutionary change to prepare agriculture to provide food grains to the growing population and raw materials to the industry takes place. This is a stage where a strong foundation is built for industrialization. Mr. Nithin Kumar S 9

10. It is a stage involving multi-faceted changes leading to establishment of a society which prepares necessary conditions for take-off of the economy. Pre take- off is a stage involving a very long period spanning to more than a century . Mr. Nithin Kumar S 10

11. According to Rostow , certain pre-conditions are needed for sustained industrialization, and pre take-off is a stage to prepare the economy to inculcate the needed conditions for industrial development. In his opinion, for rapid industrialization, four radical changes should occur in non-industrial sectors . Mr. Nithin Kumar S 11

12. Radical changes should take place in the agricultural sector in order to raise its productivity. Rise in agricultural output is very much needed to provide food for the growing population and raw materials to the industry. Failure of agricultural sector gives a severe push to the whole development process . Mr. Nithin Kumar S 12

13. Equally needed is the expansion of social overheard capital such as transportation, communications and other basic facilities. According to Rostow , expansion of transport and communications helps in the flow of goods and services from one place to the other and to maintain economic stability. Mr. Nithin Kumar S 13

14. Expansion of foreign trade is another essential factor for rapid industrialization. Exports are needed to pay off external debts. Growth of foreign trade helps in availing foreign capital and technical knowhow . Mr. Nithin Kumar S 14

15. Transition also requires social change. Social attitudes, expectations and values of people must undergo a definite change. Development is possible only when people are convinced about the desirability of economic growth . Mr. Nithin Kumar S 15

16. 3. The Take-off Stage The take-off is a very decisive stage in the evolution of an economy and it usually involves a period of three to four decades. In such a stage, economic growth occurs automatically and on its own. Rostow was of the opinion that in the take-off stage industrial revolution occurs as a result of progressive changes. Mr. Nithin Kumar S 16

17. Social values take a complete turn and incline towards attainment of development, growth makes advances at geometrical proportions and output and investment rise many fold. A true economic revolution occurs at this stage . Mr. Nithin Kumar S 17

18. Rostow has defined take-off stage "as an interval during which the rate of investment increases in such a way that real output per capita rises and this initial increase carries with itself radical changes in production techniques and the disposition of income flows, which perpetuates the new scale of investment and perpetuate thereby the rising trend in per capita output ". Mr. Nithin Kumar S 18

19. In Rostow's view, take-off stage is characterized "as an industrial revolution, tied directly to radical changes in method of production, having their decisive consequences over a relatively short period of time." During take-off stage, obstacles for development are overcome and the process of steady growth begins. Mr. Nithin Kumar S 19

20. Take-off stage ends in self-sustaining and self-generating economic growth. It is a crucial stage at the end of which the economy of the nation gets a strong assurance for growth . Mr. Nithin Kumar S 20

21. T ake-off period happened in select countries Country Take-off Period (years) Great Britain 1783-1802 France 1830-1860 Belgium 1833-1860 United States of America 1843-1860 Germany 1850-1873 Sweden 1868-1890 Japan 1878-1900 Russia 1890-1914 Canada 1896-1914 Argentina 1935 Turkey 1937 India 1952 China 1952 Mr. Nithin Kumar S 21

22. Rostow had stated that three conditions are essential for the economy to take-off. Productive investment out of national product should rise at the rate of five percent to ten percent. Development of one or more considerably strong manufacturing sectors having a very high rate of growth. A political, social and institutional framework which can stimulate evolution of the modern sector and can provide new dimension to growth, should emerge. Mr. Nithin Kumar S 22

23. For the economy to attain the take-off stage, rate of rise in output should be more than the rate of growth of population. Manufacturing industries should be in the fore front and they should have a guiding role for other sectors . Mr. Nithin Kumar S 23

24. Rostow was of the belief that this stage begins with one or the other decisive political, social or economic upheaval. German revolution of 1948, Meiji restoration in Japan in 1868 and political Independence that India gained in 1947 are some of the examples for such upheaval. Mr. Nithin Kumar S 24

25. 4. Drive to Maturity At the stage of drive to maturity, the economy experiences all- round development. Rostow defines this stage "as the period when a society has effectively applied the range of modern technology to the bulk of its resources." It is a period of long sustained growth spanning over four decades. Mr. Nithin Kumar S 25

26. Technology will be the effective tool for increase in output. Savings and investment get boosted in such a way that the process of economic development becomes automatic. At the stage of drive to maturity, the leading sector which had involved a few industries in its ambit will be all pervading. Mr. Nithin Kumar S 26

27. D ates for certain countries for having attained maturity . Country Year Great Britain 1850 United States of America 1900 Germany 1910 France 1910 Sweden 1930 Japan 1940 Russia 1950 Canada 1953 Mr. Nithin Kumar S 27

28. The following are the significant changes that take place in the society at the stage of drive to maturity. The composition of workforce undergoes changes. The working class becomes more skilled. According to Rostow , when the economy reaches the stage of maturity, the percentage of working force depending upon agriculture declines from about 75 percent to about 20 percent. Mr. Nithin Kumar S 28

29. Entrepreneurial leadership undergoes an attitudinal change. Efficient and polished managers will begin to control industries and there will be dynamic leadership. There will be substantial improvement in employer-employee relationship which leads to industrial peace and rise in industrial output . Mr. Nithin Kumar S 29

30. 5. The Age of High Mass Consumption This is a stage that comes after maturity and the final one in the process of economic development. The economy becomes prosperous at this stage. Production of durable consumer goods and services will be the prominent goal of the economy. Mr. Nithin Kumar S 30

31. The attention of the economy gets shifted from production to consumption of goods and attainment of welfare of people. This is a stage marked by incessant efforts on the part of the nation for removal of business cycles and attainment of economic stability . According to Rostow , the resources deployed in the following three directions lead to increase in social welfare . Mr. Nithin Kumar S 31

32. Implementation of a national policy aimed at extending power and influence beyond national frontier. Establishment of welfare state through equal distribution of national income by way of progressive tax system, higher social security and more leisure to the working class. Establishment of new commercial centers, production of cheap automobiles, construction of houses on a large scale. There will be diffusion of services on a mass basis and resources are directed towards production of consumer durables . Mr. Nithin Kumar S 32

33. In the age of high mass consumption, very high rate of population growth is caused by mass consumption of consumer goods, incessant full-employment and continuous belief of security in the economy . Mr. Nithin Kumar S 33

34. W.W. Rostow had opined that the United States of America was the first nation to attain the age of high mass consumption in 1920 . It was followed by Great Britain in 1930 and Japan and West European countires in 1950. Russia attained this stage after the death of Stalin . The following figure narrates the five stages elucidated by W.W. Rostow Mr. Nithin Kumar S 34

35. Mr. Nithin Kumar S 35

36. In Rostow's words, "these stages are not Just self- explanatory. They do not constitute an approach to generalize certain objective ideas about chronological order of development of modern societies. They have an internal logic and continuity. They have an analytical body structure deep rooted in the dynamic theory of production ." Mr. Nithin Kumar S 36

37. Critical Evaluation Classification of stages of development is irrelevant Overlapping of stages Absence of proper basis for the dates of take-off stage Irrelevance of order of stages Absence of effective classification of prerequisites Defective concept of self-sustaining growth Partial analysis Lack of sound reasoning Undue emphasis on certain aspects in the stage of high mass consumption Mr. Nithin Kumar S 37

38. 1. Classification of stages of development is irrelevant Classification of history into different stages of development is severely criticized by many thinkers. To state that all the economies should pass through these stages is misleading. Mr. Nithin Kumar S 38

39. 2. Overlapping of stages The stages of economic growth mentioned by Rostow are not mutually exclusive and they overlap each other. The characteristics of different stages are mixed up. Features of an initial stage are found in a later stage too. Therefore , it is very difficult to understand and clarify the nature and features of each stage. Mr. Nithin Kumar S 39

40. 3. Absence of proper basis for the dates of take-off stage The dates mentioned by Rostow pertaining to different countries for attaining take-off stage are not reliable. Empirical evidences are lacking in this sphere. This has rendered this theory to be unsound . Mr. Nithin Kumar S 40

41. 4. Irrelevance of order of stages Many writers have questioned the chronological order elucidated by W.W. Rostor . Rostow had stated that in each economy traditional society would be the first stage. But the critics have argued that countries such as the United States of America and New Zealand did not pass through such stage. Those countries were influenced by Great Britain which was already developed on a considerable scale and directly entered the transformation stage . Mr. Nithin Kumar S 41

42. 5. Absence of effective classification of prerequisites Absence of proper classification of the take off stage as well as its prerequisites constitutes another drawback of this theory. According to Rostow , certain prerequisites are essential for attainment of take-off stage. A country reaches the take-off stage only when these conditions are fulfilled. However , according to critics, the pre requisites mentioned by Rostow are accomplished only after the country attains the take- off stage. In this respect too, Rostow's analysis draws flak . Mr. Nithin Kumar S 42

43. 6. Defective concept of self-sustaining growth The concept of "self-sustaining growth" as stated by Rostow is defective and misleading. A Kuznetts averred, " any growth is neither self-sustaining, nor self-limiting; economic development is a continuous struggle ." Mr. Nithin Kumar S 43

44. 7. Partial analysis W.W. Rostow's theory, particularly his analysis of the take-off stage, fails to take into coginisance many factors which must be considered while making a description. According to H.J. Habakuk , "the analysis of take-off stage neglects the effect of historical heritage, time of entry to the processes of modern economic growth, degree of backwardness and other relevant factors on the characteristics of early phases on modern economic growth in different countries". Mr. Nithin Kumar S 44

45. 8. Lack of sound reasoning Rostow's ideas do not help us to understand the past or in building a promising future. His analysis of the pattern of growth is bitterly criticized. H.J . Habakuk had been of the opinion that the experience of European countries does not conform to Rostow's pattern of growth, and even economic development of underdeveloped countries does not lend any credit to Rostow's pattern of growth. Rostow's description of the process of economic growth lacks sound reasoning . Mr. Nithin Kumar S 45

46. 9. Undue emphasis on certain aspects in the stage of high mass consumption Critics point out that Rostow has laid undue emphasis on certain aspects in the stage of high mass consumption. According to A.K. Cairncross , "what is the significance of the three fold choice between national power, social welfare and high mass consumption in final stage when the same choice has had to be made all along the path of growth?" Mr. Nithin Kumar S 46

47. Conclusion Despite these criticisms, Rostow's theory cannot be dubbed as unsound or useless. The drawbacks found in the theory cannot render it to be irrelevant either theoretically or practically. Rostow's theory is said to be magnificent and unique since it highlights the importance of social and institutional factors needed for attainment of economic growth. Mr. Nithin Kumar S 47

48. He seems to be very much right in his attempt in incorporating non-economic factors as other set of forces needed to attain growth. Many writers have been of the view that Rostow was the first economist to take into consideration even non-economic factors in the theory of development . Mr. Nithin Kumar S 48