Saturday, September 10, 2016

Summary: Rostow's Stages of Economic Growth

In 1960, W.W. Rostow outlined "modernization theory" in "The Stages of Economic Growth: A Non-Communist Manifesto." While it's now considered outdated, it was influential at the time, and therefore important to understand. Specifically, a lot of the discourse around the Green Revolution hinged on the ideas posited by Rostow. Many of Rostow's ideas, quite frankly, make my blood boil. But disagreeing with his world view does not make it less important to understand his ideas, in order to parse out how they have influenced the world since he wrote them. If you want to read an excellent book that discusses the application of Rostow's work in dept, I recommend The Hungry World by Nick Cullather.

Rostow begins with a caveat that his work is "an arbitrary and limited way of looking at modern history." He then takes a jab at Karl Marx. Each nation is at a particular stage of development, having previously gone through all of the prior stages in the correct order. Where he diverges from Marx is obviously that Marx sees the culmination of these historical stages as a Communist revolution, whereas Rostow's stages end in "mass consumption." Rostow rejects Marx's materialism, saying that societies are not just based on their economies, but also social and political elements. Or, as he puts it, societies are "interacting organisms" - a nod to Durkheim's functionalism.

Rostow provides England as the best example of the progression through these stages and the emergence into mass consumption. He sees the progression through the various stages as a good thing, as if the measure of any nation's "progress" is its similarity to England and the U.S.

Stage One: The Traditional Society
Rostow defines a traditional society as one based on "pre-Newtonian science and technology." That is, a society that does not yet believe that "the external world was subject to a few knowable laws, and was systematically capable of productive manipulation." In other words, these folks are at nature's mercy according to Rostow. If they want to grow more food, they can either plant more acres or maybe spend extra time weeding their crops, but they won't breed more productive varieties of seeds, and they certainly won't understand Mendelian genetics as the basis for seed improvement. They won't use tractors, or fertilizer, or herbicide, or any other application of science and technology.

Rostow reinforces this point, saying the "central fact about the traditional society was that a ceiling existed on the level of attainable output per head." He uses agricultural productivity as a specific example of this limit. With low agricultural productivity, most people in a traditional society have to farm, or presumably engage in some other way of provisioning food, fiber, and fuel (i.e. hunting and gathering).

Such a society had a hierarchy, but there was limited ability for individuals to get ahead. Societies are organized around families and clans. Everyone generally assumed that society would remain roughly the same over time. Power was often linked to land ownership.

He ends by saying that stating that all societies at this stage "shared a ceiling on the productivity of their economic techniques" does not mean they necessarily share very much at all, but he justifies the generalization by adding that he is grouping them together as such because the point of his paper is about the stages societies go through to get from this point to his top stage of mass consumption.

In summary, in this stage, because science and technology are absent, productivity is low, and the only way a society like this can feed itself is by devoting most of its population to agriculture. Furthermore, there's no potential for growth above a certain ceiling.

Stage Two: The Preconditions for Take-Off
The criteria he lists for this stage hare:
  1. "The idea spreads not merely that economic progress is possible, but that economic progress is a necessary condition for some other purpose, judged to be good: be it national dignity, private profit, the general welfare, or a better life for the children."
  2. At least some people in the society get an education that "changes to suit the needs of modern economic activity."
  3. Some people are willing to take risks for economic gain, and they do.
  4. There are some banks "and other institutions for mobilizing capital."
  5. Investment increases, particularly in transportation, communications, and raw materials for export.
  6. "Here and there, modern manufacturing enterprise appears, using the new methods."
  7. The nation builds an "effective centralized national state."

In other words, the society is still what he calls traditional, but maybe now there are some paved roads, buildings with electricity, phone lines, banks, schools, etc. Some people are getting a formal education, and maybe there's some manufacturing, and some entrepreneurs, and some kind of export industry forming. He says this begins taking place alongside traditional society. And at the same time, there's an idea spreading that more money and more stuff is a good thing that should be pursued. Meanwhile, with a central state power, one can now get power in the government instead of just getting power by owning lots of land.

Stage Three: Take-Off
According to Rostow "the take-off is the interval when the old blocks and resistances to steady growth are finally overcome. The forces making for economic progress... expand and dominate the society. Growth becomes its normal condition. Compound interest becomes built, as it were, into its habits and institutional structure." Rostow is very big on compound interest.

Stage Four: The Drive to Maturity
Rostow says "we can define maturity as the stage in which an economy demonstrates the capacity to move beyond the original industries which powered its take-off and to absorb and apply efficiently over a very wide range of its resources... the most advanced fruits of (then) modern technology."

So, presumably, in England it was the textiles industry that resulted in the take-off, and this post-take-off stage encompasses the rise of other industries.

A society in this stage can produce anything it wishes to produce, and if it cannot produce something, that is due to choice and not lack of technical ability. He speculates that it takes 60 years for a society to move through all of his five stages.

Stage Five: The Age of High Mass Consumption
In this stage, "the leading sectors shift toward durable consumers' goods and services." That's interesting, because he's assuming societies maintain a manufacturing industry instead of sending it all offshore. Of course, in his day, they did. With maturity, per capita income rises so that people can afford more than just their basic needs, and the structure of the work force changes to more factory and office jobs, increasing urbanization.

In this stage, a society can provide for public goods "through the political process." That is - the government pays for good roads, schools, water treatment and sanitation, libraries, fire departments, etc.

Rostow seems to see the desire for endless economic gains as an end in themselves as a good thing. Although that is how our economic markets seem to work today - corporations want to have growth and not just sustained profits every quarter - it rings of Weber's description of a calling in the Protestant work ethic - minus the religious elements of it of course.

This is simply a summary of the introduction of his writing, but I think it will suffice for now.

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