Economic Development for Whom?

Walt W. Rostow’s (1962) dissatisfaction with Karl Marx’s explanation of the evolution of society and the cause of change therein, compelled him to try another dimension which integrates the relation of economics to social and political forces in the development of societies.

According to him, growth and development to economic maturity would follow through the following stages:

1. The Traditional Society. It is one which structure is developed within limited production functions based on pre-Newtonian science and technology and pre-Newtonian attitudes towards the physical world. Such a society is characterized by a limited level of productivity, pre-occupation with agriculture, a social structure with slow or no mobility and a value system that evolves on fatalism. The dynasties in China, the civilizations of the Middle East, and the world of Medieval Europe are typical examples.
2. The Preconditions for Takeoff. This is the traditional era which society prepares itself or is prepared by various forces for sustained growth. Economically, the significant changes are the development of extractive industries, increase in agricultural production, and building of social overhead capital as part of increases in total investments. Socially or politically, a new and more aggressive leadership arises and a strong sense of nationalism develops.
3. The Takeoff. This pertains to that decisive interval in the history of a society when growth becomes its normal condition. It is characterized by: a rise in the rate of productive investment; the development of one or more substantial manufacturing sectors with a high rate of growth; and institutional frameworks which exploit the impulses to expansion in the modern sector and the potential external economy effects of the takeoff.
4. The Drive to Maturity. This is the time when society has reached the stage of developing a range of modern technology for the harnessment of its resources. It is where the leading sectors of the take off stage are being supplanted by new ones and therefore the industrial process becomes differentiated. Countries that have reached technological maturity are Great Britain (1850), United States (1900), Germany (1910), France (1910), Sweden (1930), Japan (1940), Russia (1950), and Canada (1950).
5. The age of High Mass Consumption. At this stage, there will be a shift of attention from supply to demand, from problems of production to problems of mass consumption, and of welfare in the widest sense. In this post-maturity stage, three directions maybe pursued: the national pursuit of external power and influence, that is the allocation of increased resources to military and foreign policy; the use of resources of a mature economy in the attainment of a welfare state; the expansion of mass consumption levels into the range of durable consumers’ goods and services. The United States is the first of the world’s nations to move from maturity into the age of high mass consumption. Rostow emphasized the significance of technology, and investment in the growth of the economy. This became the basis of the claim that developing countries, lacking both advanced technology, and capital investments have to depend on industrialized countries to support their growth (Rostow, 1962).

The works of Simon Kuznets (1964), and Hollis Chenery (1981) are similar with each other and in a sense with the same directions as Rostow. Kuznets studied the developing countries looking at their growth rate patterns especially in national income. The analysis would look at the transformation of underdeveloped countries structure from agriculture towards industry, and services. The same is true with Chenery’s analysis that a country’s development lies in the structural change from agriculture to industry and services. In one of Kuznets findings, he mentioned that a country was less developed because of the low initial levels of their per capital product as they entered modern economic era or because of low rates of growth in per capita product during the past century or so — or both reasons. He also added that the size of a county has a profound effect on the structure of its economy, and particularly the degree to which a country will be involved in foreign trade.In the early stages of growth, the rate of savings and capital formation as a percentage of national income, and product rises, but after reaching a certain level those percentages no longer exhibit any clear trend that diverges significantly from the rise of Gross National Product (GNP) (Kuznets 1973, pp. 247-258).