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Rostow’s Theory of Growth | Theories | Economics

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In this article we will discuss about the Rostow’s theory of Growth.

At the end of the Second World War (1939-45) there was a renewal of interest in the subject of development economics and the stages of growth once again preoccupied many scholars. As a non-communist manifesto, W. W. Rostow’s stages of economic growth (1960, 1971) is a foray into positioning the sweep of modern economic history under capitalism into neat and hopeful epochs.

Rostow’s version is an outstanding examples of continuity and evolution. Moreover, if Marx’s theory is regarded as the banner of capitalism doomed, Rostow’s version may be referred to as a capitalism viable.

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Stages of Growth:

Rostow has conceived five universal stages; viz:

(i) The traditional society,

(ii) The preparation for the take-off—a stage in which communities build up their propensities in such a way as would be conducive to the take-off,

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(iii) The period of take­off in which the productive capacity of the community registers a distinct upward rise,

(iv) The stage of drive to maturity, the period of self-sustained growth in which the economy keeps on moving, and

(v) The stage of high mass consumption.

Let us analyse each stage in detail:

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(i) The Traditional Society:

A traditional society is one of the simplest and primitive forms of social organisation. It is one whose structure is developed within limited production function, based on Pre-Newtonian science and technology and old Pre-Newtonian attitude to the physi­cal world.

The characteristics are:

(a) Per Capita:

Within a limited range of available technol­ogy there is a low ceiling per capita output.

(b) Employment in Agriculture:

A high proportion of workforce (75% or more) are devoted in the production of agricultural goods. High proportion of resources are also devoted in the agricultural section.

(c) Social Mobility:

A hierarchical, hereditary, status-oriented social structure held down the mobility of society at that time.

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(d) Political Power:

The centre of gravity of political power was localistic, region-bound and primarily based on land ownership.

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(ii) Pre-Conditions for Take-Off:

It is that stage of economic growth in which the progressive elements creep into the otherwise barbaric and primitive psyches of the members of the society. People try to break free from the rigidities of the traditional society and a scientific attitude—a quest for knowledge in short—a questioning mid-set is very much visible in the changing face of the society.

The features are:

(a) Economic Progress:

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Economic progress became an accepted social value. At this time the change of human mind took place and they were able to think about their respective coun­tries.

(b) New Enterprises:

New types of enterprising people emerged on the society. Their objec­tive was to establish a firm or industry and produce output for a long time.

(c) Investment:

As the new enterprising persons emerged in the society, the gross invest­ment raised from 5% to 10%, so that the rate of growth of output outstrips the rate of population growth.

(d) Infrastructure:

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As different industries were established in different parts of the country, automatically transportation, more mobilised communication, roads, railways, ports were re­quired. So infrastructure was built all over the country.

(e) Credit Institutions:

At that time necessary credit institutions were developed in order to mobilise savings for investment.

(f) Mobilisation of Work Force:

Due to industrialisation a large portion of workforce was shifted from agricultural section to the manufacturing sector. This was experienced in Great Britain in the time of “Industrialisation (1760 onwards)”.

(g) Decline of Birth rate:

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At that time medical science was slowly developing. The citizens understood the essence of control of birth rate and death rates. At first the death rate was con­trolled and then the birth rate was controlled. This was the second stage of Demographic Transi­tion experienced by the developed countries.

(h) Political Power:

Centralised political power based on nationalism replaced the land- based localistic or colonial power.

(iii) The Take-Off Stage:

The take-off stage marks the transition of the society from a back­ward one to one that is on the verge of freeing itself from the elements that retard growth. In fact, it is one stage in which there is a dynamic change in the society and there is a meteoric rise in the standards set by the members of society in all walks of life like industry, agriculture, science and technology, medicine, etc.

There is a marked discontinuity between the first two stages as mentioned earlier and the stage of take-off. The winds of change are triggered by some important political event that revolutionizes the political structure or a sudden infuse of new techniques and methods of production attributed to formidable advances in science and technology.

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The former type of events took place in nations, like erstwhile USSR, East and West Germany, Japan, China and India. The latter category may be observed in nations like UK, USA and the OPEC countries. Events like the “Industrial Revolution” that was the brainchild of technological innovations in Britain since 1760s or say, the “Manhattan Project (1940s)” that signaled the arrival of USA on the world political scenario with a that are living examples of take-off stage as mentioned by Rostow.

The characteristics of this stage are:

(a) The Rate of Investment:

The first property of the stage of take-off is nothing but the rate of investment. At the time of “Industrial Revolution” the rate of investment was from 5% or less to over 10% of the national income. At this time, agricultural lands were acquired for industrialisation.

This led to a depression in the further period. For this purpose colonialism was required for Britain. As a result they came to India and other colonies for business purpose at the first time and gradually took the political power of this country.

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(b) Development of One Leading Sector:

At the time of Industrial Revolution (1760 on) we saw the development of particular secondary section of each country in Europe. In Britain we saw a large development in textile and iron and steel industry. As iron and steel industry is essential for development of every country each country experienced growth in iron and steel industry in Europe. Nowadays the development of a country is measured by per capita con­sumption of iron and steel.

(c) Existence of Different Frameworks in the Society:

There was the existence of political, social and institutional framework which exploited impulses to expansion in the modern sector and the potential external economies affected the take-off and gave the process of growth a sustained and cumulative character.

(iv) The Drive to Maturity:

Maturity in the context of Rostow’s theory refers to that state of economy and the society as a whole, when winning on all fronts becomes a habit or an addiction. Each and every effort to stimulate the economy meets with success and the time period when the society tastes success is a rather long one and the progress made on all fronts is there to stay.

It is a period when a society effectively applies the range of available modern technology to the bulk of its resources; and growth becomes the normal mode of existence. Industries like heavy engineering, iron and steel, chemicals, machine tools, agricultural im­plements, automobiles etc. take the driver’s seat.

Electric power generations as well as con­sumption are high due to sudden acceleration of industrial activities. Admittedly, it is diffi­cult to date this period precisely in view of indistinct or hazy demarcations between the end of take-off and the beginning of maturity. Rostow would date it as about 60 years after begin­ning of take-off.

The economic characters of this stage are:

(a) Shift in the Occupational Distribution:

As due to Industrial Revolution many industries were established in Britain and the countries of. Western Europe, the work force was shifted from agricultural sector to the manufacturing sector. The proportion of the working force en­gaged in the agricultural sector went down to 20% or less.

(b) Shift in the Consumption Pattern:

A new type of workforce was created which was termed white-collar workers. They were mainly officials or managing officials of a factory’s governing body. Due to high income their preferences were shifted to luxury goods. As a result the consumption pattern of non-agricultural goods increased. This led to development of the existing industries and also variation in tastes and preferences took place more rapidly in this period.

(c) Shift in the Consumption of Leading Sector:

The change in composition was observed to vary from country to country. The Swedish take-off was initiated by timber exports, wood pulp and pasteboard products followed by the emergence of railways, hydropower, steel, and animal husbandry and dairy products. The Russian take-off started with grain exports, followed by railways, iron and steel, coal and engineering.

The non-economic factors of “The Drive to Maturity” are:

(a) Entrepreneurial Leadership:

In the stage of drive to maturity the change in the entrepreneurial leadership took place. Cotton-steel-railway-oil barons gave way to the managerial bureauc­racy.

(b) Boredom:

Certain boredom with industrialisation gave rise to social protest against the costs of industrialisation.

(v) The Age of High Mass Consumption:

From maturity the economy moves with growth to high mass consumption, the stage at which durable consumer goods like radios, TV sets, automobiles, refrigerators, etc., life in the suburbs, college education for one-third to one half the population came within reach. In addition the economy, through its political process, expresses willingness to allocate increased resources to social welfare and security. This stage was defined in terms of shift in emphasis from problems of production to that of consumption.

Necessarily, therefore, attention veers towards problems of allocation of resources which, according to Rostow, came to be governed by the following considerations:

(i) Pursuit of national power and world influence,

(ii) Welfare state redistributing income to correct the aberrations of the market process,

(iii) Extension of consumer demand on durable consumer goods and high grade foods.

Comparison of Marx and Rostow:

Rostow posited the existence of five separate stages. The key among these was the take-off, which was impelled by one or more “leading sectors”. The fast growth of the leading sectors pulled along less dynamic parts of the economy.

Accord­ing to Rostow, high price elasticities of supply and demand in the leading sectors meant that demand pressures found supply response and that lower prices generated increases in total revenues to the new industries.

Structurally, the leading sectors also enjoyed high income elasticities of demand and they reaped increases in market sizes disproportionate to the size of income increases in the economy as a whole. Finally, external economies generated by the leading sectors further stimulated demand in sectors linked to the leading sector.

The result, at least in the countries to which the analysis applied, was an increase in the rate of growth of output that was, in Rostow’s words, self-sustaining- a permanent transition owing to these structural interactions between the leading sectors and the rest of the economy, from low (or no) growth to steady growth rates. The process was “Non-Marxist” because its analysis did not depend on reference to class struggles, growing unemployment, falling profit rates, and all the rest of the Marxian analytical tools.

Critical Review of Rostow’s Theory:

(i) Reduction of Growth:

Rostow’s theory reduces the economic growth to a single pattern. He only highlighted the growth of one or more sectors of the economy. He did not highlight the overall condition of the economy.

(ii) Mechanism of Evolution:

Rostow’s stages of growth failed to specify the mechanism of evolution which links different stages of growth. He explained the stages without any interrela­tionship.

(iii) Economic Variables:

By the stage theory Rostow described how the existing eco­nomic variables reduce the growth rate of the country. But he did not say anything about the solution of these problems. He did not explain how the variables interact and generate eco­nomic growth.

(iv) Lack of Symmetry:

Rostow’s stage theory was not based on a systematic scheme of causation,

(v) Predictive Value:

Paul Baran opined that Rostow’s theory had no predictive value and was without any operational significance for underdeveloped countries attempting to break through the barriers of underdevelopment.

(vi) Hoffman Thesis:

Although Rostow seemed to have been inspired by the Hoffman thesis, his conclusions were inconsistent with those of his mentor Rostow’s thoughts as regards the rate of investment were tied to the assumption of a constant marginal capital-output ratio.

Hoffman’s analysis stressed on an increasing ratio of the net output of capital goods to that of consumer goods in the manufacturing sector. This implied an increasing capital-output ratio over the various stages of industrialisation.

(vii) Habits of Saving:

It lacked originality as a piece of academic research. It had heavily borrowed from Max Weber’s and Tawney’s pioneering work in the field of sociology. Rostow’s reference to changing habits of saving, the increasing pursuit of economic motives in everyday life, etc. share the same passions as those of Weber and Tawney.

Conclusion:

Rostow had advocated his theory as an alternative to Marx’s theory. While Marx’s vision of the stages of growth was embodied in The Communist Manifesto (1848), Rostow described his own works as the Non-Communist Manifesto. In fact the bottom-line was that Rostow based his theory on the flows of the Marxian theory. He criticised Marx’s theory on the ground that if suffers from “economic determinism”.

The great merit of Rostow’s doctrine was that its main facts was on continuity and evolution of society and did not treat each stage as being mutually exclusive from the other stages. Moreo­ver, instead of limiting human behaviour to simple act of maximisation, Rostow interpreted human behaviour as an act of balancing alternatives and often conflicting human objectives.

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