The economy is dominated by subsistence activity where output is consumed by producers rather than traded. Any trade is carried out by barter where goods are exchanged directly for other goods. Agriculture is the most important industry and production is labor intensive using only limited quantities of capital. Resource allocation is determined very much by traditional methods of production.
Traditional societies are marked by their pre-Newtonian understanding and use of technology. These are societies which have pre-scientific understandings of gadgets, and believe that gods or spirits facilitate the procurement of goods, rather than man and his own ingenuity. The norms of economic growth are completely absent from these societies.
Stage 2 -- Transitional Stage
Increased specialization generates surpluses for trading. There is an emergence of a transport infrastructure to support trade. As incomes, savings and investment grow entrepreneurs emerge. External trade also occurs concentrating on primary products.
The preconditions to take-off are, to Rostow, that the society begins committing itself to secular education, that it enables a degree of capital mobilization, especially through the establishment of banks and currency, that an entrepreneurial class forms, and that the secular concept of manufacturing develops, with only a few sectors developing at this point. This leads to a take-off in ten to fifty years. At this stage, there is a limited production function, and therefore a limited output.
Stage 3 -- Take Off
Industrialization increases, with workers switching from the agricultural sector to the manufacturing sector. Growth is concentrated in a few regions of the country and in one or two manufacturing industries. The level of investment reaches over 10% of GNP.
The economic transitions are accompanied by the evolution of new political and social institutions that support the industrialization. The growth is self-sustaining as investment leads to increasing incomes in turn generating more savings to finance further investment.
Take-off then occurs when sector led growth becomes common and society is driven more by economic processes than traditions. At this point, the norms of economic growth are well established. In discussing the take-off, Rostow is a noted early adopter of the term "transition", which is to describe the passage of a traditional to a modern economy. After take-off, a country will take as long as fifty to one hundred years to reach maturity. Globally, this stage occurred during the Industrial Revolution.
Conditions for Take-off:
1:The requirements of take-off are the following three related but necessary conditions:
A rise in the rate of productive investment from approximately 5% or less to over 10% of national income or net national product;
2:The development of one or more substantial manufacturing sectors with a high rate of growth; he indicates the leading sectors in the economy. Rostow regards the development of leading sectors as the 'analytical bone structure' of the stages of economic growth. There are generally three sectors of an economy:
Stage 4 -- Drive to Maturity
The economy is diversifying into new areas. Technological innovation is providing a diverse range of investment opportunities. The economy is producing a wide range of goods and services and there is less reliance on imports.
After take-off there follows a long interval of sustained if fluctuating progress, as the now regularly growing economy drives to extend modern technology over the whole front of its economic activity. Some 10-20% of the national income is steadily invested, permitting output regularly to outstrip the increase in population. The make-up of the economy changes unceasingly as technique improves, new industries accelerate, older industries level off.
The economy finds its place in the international economy: goods formerly imported are produced at home; new import requirements develop, and new export commodities to match them. The society makes such terms as it will with the requirements of modern efficient production, balancing off the new against the older values and institutions, or revising the latter in such ways as to support rather than to retard the growth process.[3]
The drive to maturity refers to the need for the economy itself to diversify. The sectors of the economy which lead initially begin to level off, while other sectors begin to take off. This diversity leads to greatly reduced rates of poverty and rising standards of living, as the society no longer needs to sacrifice its comfort in order to strengthen certain sectors.
Stage 5 -- High Mass Consumption
According to Rostow, development requires substantial investment in capital. For the economies of LDCs to grow, the right conditions for such investment would have to be created. If aid is given or foreign direct investment occurs at stage 3 the economy needs to have reached stage 2. If the stage 2 has been reached then injections of investment may lead to rapid growth.
The age of high mass consumption refers to the period of contemporary comfort afforded many western nations, wherein consumers concentrate on durable goods, and hardly remember the subsistence concerns of previous stages. Rostow uses the Buddenbrooks dynamics metaphor to describe this change in attitude.
In Thomas Mann's novel, Buddenbrooks, a family is chronicled for three generations. The first generation is interested in economic development, the second in its position in society. The third, already having money and prestige, concerns itself with the arts and music, worrying little about those previous, earthly concerns.
So too, in the age of high mass consumption, a society is able to choose between concentrating on military and security issues, on equality and welfare issues, or on developing great luxuries for its upper class. Each country in this position chooses its own balance between these three goals.
Of particular note is the fact that Rostow's "Age of High Mass Consumption" dovetails with (occurring before) Daniel Bell's hypothesized "Post-Industrial Society."
The Bell and Rostovian models collectively suggest that economic maturation inevitably brings on job-growth which can be followed by wage escalation in the secondary economic sector (manufacturing), which is then followed by dramatic growth in the tertiary economic sector (commerce and services). In the Bell model, the tertiary economic sector rises to predominance, encompassing perhaps 65 to 75 percent of the employment in a given economy.
Maturation can then bring-on deindustrialization as manufacturers reorient to cheaper labor markets, and deindustrialization can, in turn, destabilize the tertiary sector. The suggestion is that mature economies may implicitly destabilize and cycle back-and-forth between the final stages of the Rostovian-Bell developmental phases as they rebalance themselves, over time, and re-evolve their economic base.
Criticism of the Model
1: Rostow is historical in the sense that the end result is known in the outset and is derived from the historical geography of developed society.
2: Rostow is mechanical in the sense the underlying motor of change is not disclosed and therefore the stages become little more than a classificatory system based on data from developed country.
3: His model is based on American and European history and aspiring to American norm of high mass consumption.
4: His model represents a "non-communist manifesto" or we can say a "capitalist manifesto".
