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.

 Professor W.W. Rostow, an eminent economic historian and a specialist on economic development has analyzed the process of economic growth and advocated the stages through which an economy passes to become developed. Prior to Rostow, approaches to development had been based on the assumption that ‘modernization’ was characterized by the western world (wealthier, more powerful countries at the time), which were able to advance from the initial stages of underdevelopment. Accordingly, other countries aspiring for a ‘modern state of capitalism and liberal democracy should model themselves after the West,.

Using these ideas, Rostow penned his classic ‘Stages of Economic Growth’ in 1960. Rostow relates social and institutional factors with economic forces of growth through a number of observable propensities of the community, viz., (1) Propensity to develop fundamental science, (2) Propensity to apply science to economic needs, (3) Propensity to accept innovations, (4) Propensity to seek material advance, (5) Propensity to consume,and (6) Propensity to have children. These propensities depend on the attitudes, motives and aspirations of the people ,which in turn, depend on the previous political, economic and social factors. The use of these propensities to explain the quantity and quality of labour and capital available in an economy involves a frank abandonment of the effort to make economic behaviour solely a function of what are conventionally regarded as economic motives. Thus according to Rostow, economic development ultimately depends upon both economic and non-economic factors.

Stages of Growth:

Rostow’s model asserted that all countries exist somewhere on this linear spectrum and climb upward through five stages in the development process. They are:

(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,

(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.

(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 structure of the traditional society was based on the primitive technology and orthodox ideas of the people. The facilities of modern science and technology were altogether absent. All economic activities in such societies were carried on with simple tools and implements, and were confined only to meet the domestic needs. All the pre-industrial revolution societies can be termed as traditional societies. Agricultural production was the main occupation and this was done mostly to suit the needs of the household with available primitive tools. The attitude of the people was very conservative and adverse. They were interested in spiritual and religious aspects of the world rather than material or physical world. The structure of such a society was hierarchical in character and it functioned according to the whims and wishes of the rich aristocrats and big landlords. In short, it is a society that is characterized by primitive methods of production in agriculture, absence of modern science and technology, and operation of the law of diminishing returns in agriculture. The structure of the society is based on inheritance, concentration of political power in the hands of big landlords and population growth along the Malthusian line. 

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.

(d) Political Power:

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

(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. According to Rostow, pre-conditions for take-off is an era, when society ‘prepares itself for sustained growth’. He further suggests that the precondition for take-off requires radical changes in three non- industrial sectors. First, there should be expansion of social overhead capital i.e., development of transport, communication, roads, etc. Secondly, radical changes should take place in agriculture so as to increase its productivity. Thirdly, there should be an expansion of foreign trade. Foreign capital and technical know-how should be imported to sustain industrialization in the initial stages of development. The precondition for take-off require evolution of modern science, development of technology, expansion of social overhead capital particularly transport, increasing agricultural productivity, widening the extent of the market and expansion of internal and external trade.

The features are:

(a) Economic Progress:

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:

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:

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:

Self-sustaining growth, according to Rostow, happens in the take-off stage. He defines this stage as: “an interval during which the rate of investment increases in such a way that real output per capita rises, and this initial increase carries with itself radical changes in production techniques and the disposition of income flows, which perpetuates the new scale of investment and perpetuates thereby the rising trend in per capital output”. Prof. Rostow calls this a great watershed in the life of modern societies. Growth, as a matter of fact, becomes automatic during the stages of take-off. Modern writers call it by different names such as “ big push”, “ initial push”, “critical minimum effort”, “great leap forward”, etc. Rostow has suggested the following three related conditions for making the growth process selfsustained: First, rise in the rate of productive investment from about 5 or less to over 10 percent of the national income or net national product. Secondly, the development of one or more substantial manufacturing sectors, with a high rate of growth. Thirdly, existence or quick emergence of political, social and institutional framework which exploits the impulse to expansion in the modern sector. The potential external economy affects the take-off and gives to growth an on-going character. Rostow also suggests that the leading sectors of the economy should be given more attention and should be developed. The emergence of the new political, social and institutional framework and organizing parties must be encouraged.

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. 

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.

(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:

Rostow defines this stage as “the period when a society has effectively applied a range of modern technology to the bulk of its resources”. During this period, many technical changes take place and society reaches technical maturity. The process of industrial development gets differentiated when the new leading sectors gather momentum to supplant the old leading sectors. Here, economic maturity is reached when regular growth becomes the habit of every sector of the economy. Rostow believes that the economy can attain technological maturity in sixty years after the beginning of take-of or forty years after the end of take-off. On the basis of such calculations, it has been predicted that the India economy may attain technological maturity by the year 2016 i.e., after the 12 th Five Year Plan. Rostow advocated three essential indicators of the drive to maturity situation. They are: (1) composition of working force (2) character of leadership changes, and (3)strive of the society to adopt new miracles of industrialization and advancement. 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:

Rostow defines this stage as “the period when a society has effectively applied a range of modern technology to the bulk of its resources”. During this period, many technical changes take place and society reaches technical maturity. The process of industrial development gets differentiated when the new leading sectors gather momentum to supplant the old leading sectors. Here, economic maturity is reached when regular growth becomes the habit of every sector of the economy. Rostow believes that the economy can attain technological maturity in sixty years after the beginning of take-of or forty years after the end of take-off. On the basis of such calculations, it has been predicted that the India economy may attain technological maturity by the year 2016 i.e., after the 12 th Five Year Plan. Rostow advocated three essential indicators of the drive to maturity situation. They are: (1) composition of working force (2) character of leadership changes, and (3)strive of the society to adopt new miracles of industrialization and advancement. 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. This is explained in the following figure. 

Fig: Rostow’s stages of economic growth 

In the figure, time is indicated on the X-axis and income on the Y-axis. In the beginning the growth of income curve is very slow. The income curves starts rising slowly in the period of preconditions for take-off. The increase in income is attributed to various economic and social changes. During the take-off period, the curve rises rapidly till it reaches the point S. The curve gets flatter after this point. After the attainment of maturity, the rate of progress slows down. The slow progress of income can be checked if new stimulants are injected into the economy. This income growth curve is popularly known as the ‘Gompertz Curve’.

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:

Though the efforts of Rostow in implementing stages of economic growth were acclaimed in general, yet these were also criticized on the following grounds:

1) The sequence of stages as given by Rostow is unwarranted as the economic system is like that of a human system. Moreover we cannot predict accurate results at any stage and to say that it would lead to the next stage in the prescribed time limit is just thoughtless.

2) The pre-condition stage shows overlapping effects as it is not essential that it must precede the take-off.

3) The selection of historical dates about the period of take-off to sustained growth is vague, purely intuitive and subjective and hence it is dangerous to rely upon them.

4) Rostow’s analysis being of poor reasoning may not help economies to take to sustained growth.

5) The capital-output ratio advocated by Rostow does not lead us anywhere.

6) The thesis of Rostow laying emphasis on increasing importance of the leading sectors has not been found practically viable.

7) Pre-conditions for take-off do not occur first in time.

8) Puzzling and misleading is the stage of sustained growth as no growth is purely selfsustaining.

9) Prof. Ian Drummond’s view is that stages, specially the take-off, are inherently plausible. Moreover the stages are not defined with sufficient precision.

10) Prof. Higgins feels that Rostow’s theory is very general and indeed far from a right and systematic theory of economic development. 

 Importance of Take-Off for Underdeveloped Countries

Now we will discuss how the take-off stage helps industrialization in the underdeveloped countries. The concept of take-off carries some important messages for these countries attempting to accelerate their economic growth. They are: First, the underdeveloped countries should make all possible endeavours to raise savings and capital formation for accelerating economic development. Secondly, the underdeveloped economies should concentrate on the growth of one or more leading sectors which could stimulate development activities. Thirdly, most of the underdeveloped countries are caught in the web of traditional values, patterns and attitudes. The traditional social system tends to minimize the importance of economic incentives, material rewards and rational calculations. In such a situation, the take-off stage stresses on the institutional changes in social structures for removal of inhibiting institutions and values.

To cite Prof. Dasgupta, “The term lacks precision and yet it is suggestive and can be given interpretation which is useful for an understanding of the process of economic development of an underdeveloped country. It is indeed the vagueness of the term that gives it strength for one can put an interpretation upon it to suit the conditions of the economy in which one is interested.” Prof. Higgins writes, “It is with both the problems and the cyclical movements of national income in such growing economies in the fourth stage that the bulk of modern theoretical economics is concerned. The students of the contemporary underdeveloped countries are more likely to be concerned with the economics of the first three stages. If we are to have a useful and adequate theory of economic growth, it must obviously be comprehensive enough to embrace these three stages as well, especially the economics of take-off. Thus the concept of take-off is more suitable for the industrialization of poor countries.”

Take-Off and India

It has been a debatable topic, whether the Indian economy is following Rostow’s stages of economic growth path and has entered the stage of take-off. We may thus analyse its performance of Indian economy as follows: Firstly, according to Rostow, one of the important conditions for take-off is raising of saving and investing ratio from 5 per cent or less to over 10 per cent of national income and maintaining it for two or more decades. Corresponding to this perception, in India the ratio of investment to national income increased from 5.5 per cent in 1950-51 to 10.4 per cent in 1964-65 at 1960-61 prices and the ratio of domestic savings to national income from 5.5 per cent to 10.5 per cent. 

Thus, India entered the take-off stage in 1950-51 and can be definitely said to have taken-off in the year 1964-65 when both savings and investment ratios were above 10 percent. Secondly, as Rostow had advocated, another condition for take-off is the development of one or more leading sectors in the economy. By 1964-65 the Indian economy witnessed considerable development of agricultural, industrial and tertiary sectors. To illustrate, the index of agricultural production (with June 1950 as the base) rose from 45.6 in 1950-51 to 158.4 in 1964-65 and the index of industrial production, (with 1956 as the base) from 73.5 to 186.9 over the corresponding period. Thus, India also seems to fulfill this condition of take-off. Thirdly, as per another take-off condition, in India planned development has generated the cultural framework that leads to expansion of the modern sector. The skills and attitudes of people are undergoing changes, modern technology is permeating the traditional society and the administrative efficiency and honesty have been showing signs of improvement. But, there is no hard and fast rule for the presence of all the three conditions for take-off. Nor should we jump to the conclusion that India has definitely taken-off during the Third Five Year Plan on the basis of the existence of the three take-off conditions of Rostow. It appears that India has tried a premature take-off.

Prof. Myint warns that a premature attempt at take-off ‘can result not only in wastage of scarce resources wrongly or inefficiently invested but also in a sense of disappointment and frustration which may have far reaching psychological and political consequences’. This has probably happened in Indian as analysed below: (1) Between 1950-51 and 1964-65, India’s net national income increased at a compound rate of 3.8 per cent per annum but per capita income in real terms increased at an annual average rate of 1.8 per cent, the rate of population growth being 2.5 per cent per year. (2) Estimates Committee of the Lok Sabha, in its ninth report revealed that there was nearly 80 to 90 per cent of unutilized capacity in some industries in 1965-66 and even in the case of priority industries, idle capacity was 40 per cent. (3) Further, the rate of domestic savings declined from 10.5 per cent in 1965-66 to 8.2 per cent in 1966-67 and to 8 per cent in 1967-68. (4) In addition to such trends, the existence of high inflationary pressures in the economy casts serious doubts about India having attained the take-off stage.

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.