Rostow's Theory of Economic Growth

The advent of industrialization brought a drastic change in the socio-economic conditions of the world's nations and introduced the concept of modernization. Before the period of 20th century, the western world was seen as the characterization of modernization that was able to climb the ladder starting from under development. Other countries tend to model themselves after the west to seek the way of growing culture of modernization.

Later, Rostow's Stages of Growth model was developed, that focuses on stages of industrialization, urbanization and economic growth and development on linear pattern observing the then countries.

Historical Background

Walt Whitman Rostow (1916-2003), an American economist and political official, developed his own theory on stages of economic growth after observing the linear pattern of economic development among nations. He propounded the concept of economic growth in his book "The Stages of Economic Growth". His model was so heavily influential that many people focused on the growth of their nation accordingly. The main objective of this theory was quoted as being to guide the underdeveloped countries to realise their potential and reach it to the fullest, stage by stage.

Stages of Economic Growth

Rostow penned a five-stage model of economic growth that attempted to show the development of nations from the stage of traditional society to the stage of high mass consumption. His theory was founded on research into the economic and social histories of numerous countries. According to him, a country that wants to become a developed nation must pass through the following five distinct stages −

Traditional Society

At this stage, the country suffers from social backwardness, a stagnant and static society, and high social stratification. The political power is more centralised and concentrated among a few property owners. People feel satisfied with the traditional way of life and have traditional community values. As a result, advances in science and technology are underdeveloped due to a lack of motivation to innovate and develop. Lesser technological advancements make it more labor-driven, which results in minimum wages. These further paves the way for the slow rate of growth due to limited output. Agriculture is the major economic activity, and it is too primitive and subsistence-oriented in nature. The state maintains a dominant role in irrigation due to the absence of private participation in agricultural infrastructure development.

Pre-conditions for Take-Off

This stage is both descriptive and prescriptive in nature. This serves as a transitory stage for an economy to enter the Take-Off stage. The economy is growing normally, and the nation is striving to become an industrial economy. A new governing elite group emerges at this stage to bring about new social, political, and cultural changes that lead to improved work cultures and private enterprise. Hence, there is an increase in the investment rate beyond 5 percent. The application of science gains importance for the sake of industrial growth. Both external and internal trade began to expand. Due to the substantial buildup of social capital, commercial activities get expanded. Agricultural productivity improves substantially due to the application of science and technology. The government is centralised and plays an effective role in this regard.

The Take-Off

This stage in a nation's development is known as the "great watershed". The industrial revolution, the political or social revolution, and new innovations triggered a sharp stimulus for nations to develop economically. The growth rate will accelerate sharply during this stage, but it will stay temporary and return to normalcy within two decades. The rapid growth is favoured by changing socio-cultural conditions. At this stage, there is an increase in the rate of investment beyond 10 percent, and apparently one or a few leading sectors (primary growth sectors) show a higher growth rate. Primary sector growth is followed by secondary sector growth.

Drive to maturity

At this stage, social inequality started to gradually decrease. The importance of human welfare is considered in addition to increased economic growth. Modern technology has been advanced in such a way that the potential of natural resources can be realised even further. Leading sectors in the former stage tend to lose importance when new industries come into the picture. The government's policies serve as an important determining factor in this regard. The proportion of labourers involved in agriculture will steadily fall as workers get into other organised sectors of the economy. Entrepreneurs' work methods are becoming more scientific.In this stage, the average rate of investment tends to stay the same as in the earlier stage.

High mass consumption

In Rostow's analysis, this stage of high mass consumption is the ultimate stage of economic growth. Progressive taxation and social security contribute to a more equitable distribution of wealth. Internal and external trade expands tremendously in this stage due to the mass consumption of goods and services. A nation will experience advanced technology with huge productivity. Competitive democracy plays a vital role in the political system. Historically, the United States was the first to reach this stage, followed by the United Kingdom in the 1930s and Japan in the 1950s, among others.

Criticism

Major points that criticized are −

• Many scholars find Rostow's theory too simplistic. For instance, higher savings don't necessarily translate into a high rate of investment.

• This theory has a poor empirical base as he did not clearly define the time frame for each stage.

• Each stage is not clearly demarcated and overlaps when applied to the real world.

• Most countries exhibit the phenomenon of economic dualism, and they cannot confine themselves to one stage at a time.

• He overemphasised economic growth over development.

• Rostow's theory was developed with Western countries in mind; it does not apply to developing countries such as Asian and African nations.

• He failed to reason out the movement of countries from one stage to the next.

• Countries historically have slipped back to former stage of economic growth too.

• Economic growth cannot happen automatically, as Rostow acclaims; it always needs a push factor.

Conclusion

Rostow's theory on economic growth is cited as a primary example of the interaction of geography, economics, and politics. When applied, business managers can get a valuable insight into economic growth and its futuristic predictions with the help of this model.

Frequently Asked Questions

What does Rostow's theory of economic growth exactly define?

Rostow's theory of economic growth uses a linear approach to study the economic growth of a country, using five stages.

• List out the five stages of economic growth as given by Rostow in his theory.

  • Traditional Society

  • Pre-conditions for Take- Off

  • The Take-Off

  • Drive to Maturity

  • High Mass consumption