Economic Development: Examples, Rostows 5 Stages and Theories of Economic Development

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The five stages of Economidevelopment are major historical models ofeconomic growth published by American economistWalt Whitman Rostowin 1960. The models suggest that societies go through five stages of economic growth at different points as they develop and grow. Each of Rostow’s five stages builds on the previous stage, becoming more complex and integrated.

Economic Development Definition

Economicdevelopment is defined as the growth of thestandard of livingof a country’s people from alow-income(poor) country to ahigh-income(rich) economy. Economic development is the process and policies by which a nation improves the economic, political, and social well-being of its people. However, a country is said to undergo economic development when the localquality of lifesuch as political, education, health agriculture, social and well-being of its people are improved.

Indicators and Examples of Economic Development:

  • Steady accumulation of physical and human capital
  • Change in consumer demands
  • Increased urbanization
  • Constant power supply
  • Improved transport and communication networks
  • Shift from agriculture to industrial production
  • Demographic transition
  • Decline in family size

Four (4) Theories of Economic Development

Many theories have been proposed to explain spatial growth of economic development. Some of the theories stress the importance technical innovation, while others on natural resources. All these theories have been very interesting to economist and geographers. There are different theories of economic development; however, there are four major ones include:

  1. Classical liberal theory
  2. Social theory
  3. Structural theory
  4. Neo- classical theory
  1. Classical Liberal Theory of Economic Development: development here is understood as economic growth and capital formation. The key to economic growth was capital formation, these led to emphasis on large-scale infrastructures projects and on foreign aid loans. Under the classical liberal theory, we have the stages version, where underdeveloped countries were thought of largely as primitive or early versions of Western countries. Less developed countries (LDCs) needed to follow a pattern of development set by West especially the work of Alexander Gerschenkron and Walter Rostow.
  2. Social Theory of Economic Development: emphasis here is on the importance of human capital in development. The key to economic growth was education, health, fertility etc. Here concern is shifted from overall rate of economic growth to considerations of poverty, inequality, unemployment, urbanisation and other social ills such as arm rubbery cases, gangsters and so on. The social theories of development have a principle of philosophy in the small is beautiful. Some economists even question the desirability of the economic growth. For example Joseph Schumpeter.
  3. Structural Theory of Economic Development– Structural-change theory focuses on the mechanism by which underdeveloped economies transform their domestic economic structures from traditional to an industrial economy. This theory stresses transportation from traditional agricultural economy to a modern and industrial economy. The emphasis is on the conditions that are unique to the third world countries. Here, the key to economic growth was recognizing that the experience of Europe could be implicated in the context of former colonial countries. Concerned was therefore shifted to import substitution where we have high tariff and government protectionism. A Marxist version of these sets of theories, which is structural theories also developed based on Lenins analysis of colonialism. The structural theory believes in the dependency version and some economists feared that the third world would regress into a source of raw materials for the developed nations and that the economy will be divided into a core and periphery.
  4. Neo-Classical Theory of Economic Development– this theory emphasises the negative role often played in development. The key to economic growth is free market. Therefore, concern is shifted away from the role of government often considerable in structural theory to private investment and market efficiency. Government intervention is always seen as being counterproductive. The set of theories are currently the most widely practised. A principal proponent of these theories is Milton Friedman. The current trend for instance in Nigeria could be seen as an example where emphasis is on public private partnership participation (PPP). Example of classical liberal economic theories is the work of W.W Rostow. The work of W.W Rostow states that it is possible to identify all societies in the economic dimensions as lying within one of the free categories.

Rostow’sstages of economic growth (Rostow stages of economic development)

Most traditional societies are conservative, majority of the people practice subsistence agriculture. Land ownership is owned by a few elite (feudal lords) generally speaking, these societies because of the limitation on productivity had to devote a very high proportion resources to agriculture and flow from agricultural system. There was a hierarchical social structure with relativity narrow scope, but with opportunity to vertical mobility. Family and clan connection, they play a large role in social organisation. The value system of this society was generally towards what may be called a long run fatalism that is then assumption that the range of possibilities will be open to children. Walt Rostowbecame the most influential advocate of the stages of growth model of development- he argued that the advanced countries had all passed through a series of steps leading to development and growth.

Rostow’s Stages of Economic Growth (Stages of economic development)

  1. The traditional society
  2. The Pre-condition for take off
  3. Drive for maturity
  4. The stages of high mass consumption
  1. The traditional society: the traditional society is the stage whose structure is developed within limited production function based on Newtonian science and technology and on pre- Newtonian attitude towards the physical world. This stage is characterized by the dominants agriculture which is largely at the subsistence level and the non-realisation of potential resources. When men came widely to believe that the external world was subjected to a few low able laws and was systematically capable of manipulation. The conception of the traditional society is however, in no sense static, and it would not exclude increases in output. Acre rate could be expanded from some adhoc, technical innovations could be introduced in trade, industry and agriculture: productivity could rise for instance with the improvement of irrigation or discovery and diffusion of new crops, but the central fact about traditional society remains the same. This resulted from the fact that potentialities which flows from modern science and technology were either not available or not regularly and systematically applied.
  2. The preconditions for take-off: this stage involves establishment of new routes, transport network and financial institution. It is characterized by a gradual expansion of trade and increase in external influences and introduction of modern methods of production which is used alongside with traditional techniques. The stage marks the spread of not nearly that of economic progress, but that economic progress is a necessary condition for other purposes, be it rational dignity, private profit, general welfare or a better life for the children, education for some at least. The scope of commerce internally and externally widens here and modern manufacturing enterprises appeared using new methods. For example, in Nigeria and Ghana Dangote cement industries, but all these activities proceeded at a limited space within an economy and the societies were still mainly characterized by traditional low- productivity methods by the old social structures and values and by regionally based political institution that developed in conjunction with them.
  3. The take off stage: this is when all tradition is finally overcome and modern industrial society is developed. This stage is characterized by increase in the size of investment, establishment of major manufacturing industries and the transformation of political and social institutions, hence it is self-sustaining stage. During the take-off stage, the rate of effective investment and savings may rise from let say 5% of the national income to 10% or more. Although where heavy social overhead capital investment was required to create the technical pre-conditions for take-off of the investment rate in the preconditions period could be higher than 5%. For example, in Canada before 1890s and in Argentina, before 1914. In such cases, capital import usually forms a higher proportion of the total investment. In the pre-condition period and sometimes during the take-off, as in the case of Russia and Canada in 1973 they experience railway boom. During the take-off, new industries expands rapidly, yielding profit at large proportion of which are reinvested in new plants and these industries in turn stimulate through their rapidly expanding requirement for factory workers. The services to support them, and for the manufactured goods brought about further expansion of urban areas and in other modern industrial plants. The revolutionary changes in agricultural productivity are the essential conditions for a successful take-off; for modernization of society increases radically in its bill for agricultural product. In a decade or two with the basic structure of the economy, the social and political structures of the society are transformed in such a way that a steady rate of growth can be therefore regularly sustained. However, most of the third world countries are in the third stage.
  4. The drive for maturity: formally, we defined maturity as the stage in which an economy demonstrates the capacity to move beyond the original industries which powered it take- off and to absorbed and apply efficiently over a very wide range of its resources, if not the whole range . The stage of drive to maturity is characterized by steady consolidation of the new industrialized society. This stage is also characterized by continuous growth of investment and further expansion of industries as well as the development of large urban regional metropolitan development and improvement in transportation facilities. However, this is the stage in which the economy demonstrates that it has the technological knowledge as well as the entrepreneurial skill not to produce everything, but anything that they chose to produce. It may lack the raw materials or other supply conditions required to produces a given type of output economically , but it dependence is a matter of economic choice or political priorities rather than the technological or institutional necessity (the contemporary Sweden and Switzerland are the common examples nation in stage of development). Historically, it could appear that something like 60years was required to move the society from the beginning of take-off to maturity. Analytically, the explanation for some such interval may lie in the powerful arithmetic of compound interest applied in the capital stock. Combined with the broader consequences for a society to absorb modern technology of the three successive generations living under a regime where growth is the normal condition. Some 60years after take-off begins, (40 years after the end of take-off), what may be called maturity is generally attained. The economy focus during the take-off around the relative narrow complex of industries and technology has extended its range into more complex processes; for example, there may be a shift in focus from coal, iron and heavy engineering industries. Germany, France, Britain and United States had passed during the end of 19th century or shortly after through this transmission.
  5. The age of high mass consumption: this stage is characterized by mass production, the growth of quaternary occupations (professional occupations, engineers, consultants, firms, architects etc) and an increase in materialism (material wealth) as well as allocation of resources to social welfare (for example retirement benefits and unemployment benefits). According to Rostows model, developed nations like Britain, USA, Germany, Japan, USSR and Canada are in the fifth stage. Our society achieved maturity in 20th century. Two things happened during this period
  1. Real income per head rose to a point where a large number of people gained a command over consumption, which transcended basic food, shelter, and clothing.
  2. The structure of the working force changed in ways which increase not only the proportion of urban total population, but also the proportion of the working population in offices or in skilled factory jobs aware and anxious to require the consumption of the mature economy.

In addition to this economy changes in the society, the societies cease to accept the further extension of the modern technology and overriding objectives. It is this post maturity stage for example, that through the political process, western societies have chosen to allocate increase resources and social welfare and security. For the USA, the turning point was perhaps , Henry Fords moving assembly line of(1913-1914), but it was in the 1920sand again in the post-war decade (1946-1956) that this stage of growth was press to virtually its logical conclusion. In 1950s Western Europe and Japan appeared to have fully entered this stage, hence accounting substantially for a momentum in their economies is quite unexpected.

The developing countries were still in either the traditional society or the preconditions stage and had to follow a set of rules to take-off into self-sustaining economic growth.The principal strategy to help this take-off was the mobilization of domestic and foreign savings in order to generate sufficient investment to accelerate economic growth.