Stages Traditional societies 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 economys 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. 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 this can result in increases in output, but never beyond an upper limit which cannot be crossed. Lacking modern science and technology, such innovation as occurs spreads slowly and inconsistently and is sometimes reversed or lost. Trade is predominantly regional and local, largely done through barter, and the monetary system is not well developed. Investments share never exceeds 5% of total economic production. 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 & submission. This resulted in concentration of political power in the hands of landowners in most cases; everywhere, family & 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. Pre-conditions to 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.[3] This pattern was followed in Europe, parts of Asia, the 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 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 & 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 markets 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.[6] 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 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 produce is to be utilized to support an increasing 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 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 government, in Rostows view. Government plays the driving role in 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 basic change in attitude of society towards risk taking, changes in working environment, and openness to change in social and political organisations and structures. The pre-conditions of take-off closely track the historic stages of the (initially) British Industrial Revolution.[7] 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 growing rate of savings and investment moderates. This initial & accelerating steep increase in savings and investment is a pre-condition for the economy to reach the Take-off stage and far beyond. 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.[3][7] 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 nations second nature and a shared goal.[1] 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 that participated in the Industrial Revolution and were established as such when Rostow developed his ideas in the 1950s. Per Rostow there are three main requirements for take-off: The rate of productive investment should rise from approximately 5% to over 10% of national income or net national product #The development of one or more substantial manufacturing sectors, with a high rate of growth; The existence or quick emergence of a political, social and institutional framework which exploits the impulses to expansion in the modern sector and the potential external economy effects of the take-off .[2] I.e., the needed capital is mobilized from domestic resources and is steered into the economy and not into domestic or state consumption. Industrialization becomes a crucial phenomenon as it helps to prepare the basic structure for structural changes on 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: Shifts in income flows by way of taxation, implementation of land reforms and various other fiscal measures. Re-investment of profits earned from foreign trade as has been observed in many East Asian countries. While there are other examples of Take-off based on rapidly increasing demand for domestically produced goods for sale in domestic markets, more countries have followed the export-based model, overall and in the recent past. The US, Canada, Russia and Sweden are examples of domestically based take-off; all of them, however, were characterized by massive capital imports and rapid adoption of their trading partners technological advances.[3][8] This entire process of expansion of the industrial sector yields an increase in rate of return to some individuals who save at high rates and invest their savings in the industrial sector activities. The economy exploit their underutilized natural resources to increase their production.[1] Tentative take-off dates.[2] The take-off also needs a group of entrepreneurs in the society who pursue innovation and accelerate the rate of growth in the economy. For such an entrepreneurial class to develop, firstly, an ethos of delayed gratification, a preference for capital accumulation over expenditure, and high tolerance of risk must be present. Secondly, entrepreneurial groups typically develop because they can not secure prestige and power in their society via marriage, via participating in well-established industries, or through government or military service (among other routes to prominence) because of some disqualifying social or legal attribute; and lastly, their rapidly changing society must tolerate unorthodox paths to economic and political power. A countrys making it through this stage depends on the following major factors: Existence of enlarged, sustained effective demand for the product of key sectors. Introduction of new productive technologies and techniques in these sectors. The societys increasing capacity to generate or earn enough capital to complete the take-off transition. Activities in the key sector should induce a chain of growth in other sectors of the economy, that also develop rapidly. In the table note that Take-off periods of different countries are the same as the industrial revolution in those countries. Drive to maturity 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. Tentative drive to maturity dates.[2] 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: Project Pat Work force composition in the agriculture shifts from 75% of the working population to 20%.The workers acquire greater skill and their wages increase in real terms. The character of leadership changes significantly in the industries and a high degree of professionalism is introduced Environmental and health cost of industrialization is recognized and policy changes are thus made. During this stage a country has to decide whether the industrial power and technology it has generated is to be used for the welfare of its people or to gain supremacy over others, or the world in toto. 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] Age of high mass consumption 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 Manns 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 this goal. 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, the United States is said to have reached this stage first, followed by other western European nations, and then Japan in the 1950s.[3]
Posted on: Mon, 10 Mar 2014 09:49:13 +0000
Trending Topics
Recently Viewed Topics
© 2015