Rostovian take-off model

Rostow's stages of economic growth model is one of the major historical models of economic growth. It was published by American economist Walt Whitman Rostow in 1960. The model postulates that economic growth occurs in five basic stages, of varying length:

# The traditional society
# The preconditions for take-off
# The take-off
# The drive to maturity
# The age of high mass-consumption

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 economic 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 social evolutionism.

Overview

In addition to the five stages he had proposed in ''The Stages of Economic Growth'' in 1960, Rostow discussed the sixth stage beyond high mass-consumption and called it "the search for quality" in 1971. Below is an outline of Rostow's six stages of growth:

1.Traditional society
Barter trading was still practiced to exchange good,here people use primitive and rudiment technology and are heavily reliant on subsistence farming.

2.Pre-conditions for take off
Here urbanization starts, people revolve from subsistence farming to commercial farming and there is improvement in transport networks like roads and railways.

3 The take-off
#* Urbanization increases, industrialization proceeds, technological breakthroughs occur.
#* "Secondary" (goods-producing) sector expands and ratio of secondary vs. primary sectors in the economy shifts quickly towards secondary.
#* Textiles and apparel are usually the first "take-off" industry, as happened in Great Britain's classic "Industrial Revolution"
#* An Example of the Take-off phase is the Agriculture (Green) Revolution in the 1960s.
4 The drive to maturity
#* Diversification of the industrial base; multiple industries expand and new ones take root quickly
#* Manufacturing shifts from investment-driven (capital goods) towards consumer durables and domestic consumption
5* Rapid development of transportation infrastructure.
#* Large-scale investment in social infrastructure (schools, universities, hospitals, etc.)
#The age of mass-consumption
#* the industrial base dominates the economy; the primary sector is of greatly diminished weight in the economy and society
#* widespread and normative consumption of high-value consumer goods (e.g. automobiles)
#* consumers typically (if not universally), have disposable income, beyond all basic needs, for additional goods
#* Urban society (a movement away from rural countrysides to the cities)
# Beyond consumption (The search for quality)
#* age of diminishing relative marginal utility as well as an age for durable consumer goods
#* large families and Americans feel as if they were born into a society that has high economic security and high consumption
#* a stage where it's merely speculation on whether there is further consumer diffusion or what the new generation will bring for growth

Rostow claimed that these stages of growth were designed to tackle a number of issues, some of which he identified himself, writing:

"Under what impulses did traditional, agricultural sociegties 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 the moon; or where?"

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.

Theoretical framework

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 the 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.

Stages of development

The traditional society

An economy in this stage has a limited production function which barely attains the minimum level of potential output. This does not entirely mean that the economy's production level is static. The output level can still be increased, as there was often a surplus of uncultivated land which can be used for increasing agricultural production. Modern science and 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 manual labor and self-sufficiency to survive. States and individuals utilize irrigation systems in many instances, but most farming is still purely for subsistence. There have been technological innovations, but only on ad hoc basis. All of that this can result in increases in output, but never beyond an upper limit which cannot be crossed. Trade is predominantly regional and local, largely done through barter, and the monetary system is not well developed. Investment's share never exceeds 5% of total economic production. Countries in this stage could include Ghana and Togo.

Wars, famines and epidemics like plague cause initially expanding populations to halt or shrink, limiting the single greatest factor of production: human manual labor. Volume fluctuations in trade due to political instability are frequent; historically, trading was subject to great risk and transport of goods and raw materials was expensive, difficult, slow and unreliable. The manufacturing sector and other industries have a tendency to grow but are limited by inadequate scientific knowledge and a "backward" or highly traditionalist frame of mind which contributes to low labour productivity. In this stage, some regions are entirely self-sufficient.

In settled agricultural societies before the Industrial Revolution, a hierarchical social structure relied on near-absolute reverence for tradition, and an insistence on obedience and submission. This resulted in concentration of political power in the hands of landowners in most cases; everywhere, family and lineage, and marriage ties, constituted the primary social organization, along with religious customs, and the state only rarely interacted with local populations and in limited spheres of life. This social structure was generally feudalistic in nature. Under modern conditions, these characteristics have been modified by outside influences, but the least developed regions and societies fit this description quite accurately.

The preconditions for take-off

In the second stage of economic growth, the economy undergoes a process of change for building up of conditions for growth and take off. Rostow said that these changes in society and the economy had to be of fundamental nature in the socio-political structure and production techniques. This pattern was followed in Europe, parts of Asia, the Middle East, and Africa. There is also a second or third 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 older traditional social and political structures. The only changes required were in economic and technical dimensions. The nations which followed this pattern were in North America and Oceania (New Zealand and Australia).

There are three important dimensions to this transition: firstly, the shift from an agrarian to an industrial or manufacturing society begins, albeit slowly. Secondly, trade and other commercial activities of the nation broaden the market's reach not only to neighboring areas but also to far-flung regions, creating international markets. Lastly, the surplus attained should not be wasted on the conspicuous consumption of the land owners or the state, but should be spent on the development of industries, infrastructure and thereby prepare for self-sustained growth of the economy later on. Furthermore, agriculture becomes commercialized and mechanized via technological advancement; shifts increasingly towards cash or export-oriented crops, and there is a growth of agricultural entrepreneurship.

The strategic factor is that the investment level should be above 5% of the national income. This rise in investment rate depends on many sectors of the economy. According to Rostow capital formation depends on the productivity of agriculture and the creation of social overhead capital. Agriculture plays a very important role in this transition process as the surplus quantity of the product is to be utilized to support an increasingly urban population of workers and also becomes a major exporting sector, earning foreign exchange for continued development and capital formation. Increases in agricultural productivity also lead to the expansion of the domestic markets for manufactured goods and processed commodities, which adds to the growth of investment in the industrial sector.

Social overhead capital creation can only be undertaken by the government, in Rostow's view. Government plays the driving role in the development of social overhead capital as it is rarely profitable, it has a long gestation period, and the pay-offs accrue to all economic sectors, not primarily to the investing entity; thus the private sector is not interested in playing a major role in its development.

All these changes effectively prepare the way for "take-off" only if there is a basic change in the attitude of society towards risk-taking, changes in the working environment, and openness to change in social and political organizations and structures.
According to Rostow, the preconditions to take-off begins from an external intervention by more developed and advanced societies, which "set in motion ideas and sentiments which initiated the process by which a modern alternative to the traditional society was constructed out of the old culture." The pre-conditions of take-off closely track the historic stages of the (initially) British Industrial Revolution.

Referring to the graph of savings and investment, notably, there is a steep increase in the rate of savings and investment from the stage of "Pre Take-off" till "Drive to Maturity:" then, following that stage, the growth rate of savings and investment moderates. This initial and accelerating steep increase in savings and investment is a pre-condition for the economy to reach the "Take-off" stage and far beyond.

The take-off

This stage is characterized by dynamic economic growth. As Rostow suggests, all is premised on a sharp stimulus (or multiple stimuli) that is/are any or all of economic, political and technological change. The main feature of this stage is rapid, self-sustained growth. Take-off 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 nation's "second nature" and a shared goal. In discussing the take-off, Rostow is noted to have adopted the term "transition", which describes the process of a traditional economy becoming a modern one. After take-off, a country will generally take as long as fifty to one hundred years to reach the mature stage according to the model, as occurred in countries th