Monday, June 18, 2018

Rostow, Revisited

I've previously written about Rostow's book. This one is about Rostow's article, also called the Stages of Economic Growth, published in The Economic History Review, New Series, Vol. 12, No. 1 (1959), pp. 1-16. By the way, as a disclaimer, this theory is pretty much bullshit.

The Traditional Society
His first stage is "the traditional society." Simply put, this is the society that has not yet industrialized. Because they have not industrialized, there is a ceiling to their productive capacity. Also, most people must work in agriculture.

Pre-Conditions for Take-Off
Rostow traces the particulars of Britain's industrial revolution to describe why and how they met the pre-conditions for take-off. Then he provides the general recipe needed.
  • First, a good transportation system that can allow for both commerce and efficient government.
  • Second, industrialized agriculture, at least to some extent. Presumably this means some combination of fertilizer, pesticides, mechanization, and hybrid seeds.
  • Third, increased amounts of imports financed by better production and marketing of an export, mostly natural resources.

Then he offers a second set of non-economic factors: willingness to expand markets and industrialize; a group of entrepreneurs who are free to operate; a way to disseminate industrialized agriculture (honestly, this sounds like the Gates Foundation now); good trade policy; and a supportive government that keeps the peace and supports industrialization. He doesn't specify (at least in this paper) how a society will get these things. They are just supposed to get them. Maybe he says it in the book.

Then he gets into how the "demonstration effect" works. So let's say a traditional society begins to get some foreign imports that are manufactured goods, and it has some industrialization. For one thing, he says, this gives people something to strive for by showing them what's possible. If they don't know what higher crop yields or motorcycles or Coca-Cola are, they can't want them. Once they see them, they will want the advantages of longer lifespans, better living conditions, convenient technology, new things to buy, and so on. That's the carrot. The stick is that traditional societies can get their butts kicked militarily by industrialized nations, and obviously the traditional societies won't want to let that happen. It's better to develop the wealth and technology to be able to defend yourself. He argues historically this has been a factor catalyzing and spurring on national development, and he actually defends imperialism saying that it is good because it sped up global development. Clearly, in his view, the impact of the center on the development of the periphery is a positive one. One roadblock to development is when the "men" in charge don't see the need for technological development.

Take-off involves a time when a few sectors have rapid growth thanks to technological (industrial) advancement. He cites sectors that have historically done the job as textiles, railroads, and logging. What makes take-off different from pre-take-off is that suddenly industrial advancement becomes a self-sustaining process, whereas before it was not. The three main factors he cited as precursors must continue to advance (improvement in transportation, industrialized agriculture, and export-led growth), but the group of technical workers and entrepreneurs must grow, and "the sources of capital must be institutionalized" so that the economy can sustain a shock and still survive.

He says a common result of take-off is that the economy sustains an annual rate of net investment of 10 percent. In other words, the profits from the current growth in business are reinvested to grow the economy even more. Those in society who want to modernize win a "social, political, and cultural victory" over those who don't.

The Drive to Maturity
Rostow defines maturity as when a society as applied modern technology to most of its resources. In other words, as Evans and Stephens (1988) put it, it's rationalization. During the drive to maturity the industrial economy is diversified so that there isn't just one or a few main industries. New leading sectors might overtake old ones. This might occur as older industries give rise to new ones - railroads to mining to turning mining products into something, or timber to paper. He poses a number of questions about when to consider a particular nation's economy mature. He points out differences within countries either regionally or by industry, which perhaps show that it's silly to treat development as if it occurs at the unit of the nation-state.

As societies rise to maturity, their agricultural workforce declines and the share of the urban workforce that are semi-skilled and white color increases. These people have both the taste and the income to consume a lot.

The Age of High Mass Consumption
This is Rostow's pinnacle stage, exemplified by the U.S. It is achieved when there is both technological saturation and a high enough per capita income.

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