Chap 9 Development

Paths to Development and Rostow’s Five Stages of Development

Outline

• Development the mechanism• Rostow’s Five Stages of Development

Development

How it worksand

Hasn’t Worked

Defining Economic Development as a Process

A. Development is --

– investment of a surplus – that results in increasing knowledge and

productivity – that results in sustainable and growing

surpluses

How surplus based development should work

Production requires two factors: -- Labor & Capital

They are Combined through Technology

Production Goal is – Surplus beyond current consumption

This Surplus becomes additional future investment

• Increasing Investment leads to

– More Capital – translated into more tools of production

– Better Labor Skills -- through education – Productivity gains through above plus newly

invented technology– Even more surplus in the future

Where does the original Surplus come from???

• Original surplus is the “water that primes the pump”

India Mark Deep Well Hand Pump II /III

Where does the original Surplus come from???

Internal generation theory (or self-sufficiency)– Prof. Morris Morris argued ..."all societies have

roughly equal savings rates"...• Simply all have equal proportions of surplus (say 15%

of output) • However, More technologically advanced societies

have larger Gross Surpluses• Problem the rich get ever richer faster

– 1% of $1billion is $10million– 10% of $1million is only $100,000

Obtaining Surplus

External Procurement theory (trade, FDI, …)– Option 1 traditional 19th century theory: Sell

resources or resource based manufacturesCaution: "growth" based on ever increasing extraction of finite resources eventually collapses

Reality of 20th & 21st century: recent terms of trade have worked against most resource sales

– occasionally Oil has not faced this issue

Obtaining Surplus

External Procurement theory– Option 2 “Foreign Aid”, Borrowing, FDI

• theory: Borrow, Invest, Trade, and Repay

Caution: 1. Markets are not necessarily “free” and open2. Competition is stiff under current global

demographics3. Bankruptcy has not been an option4. Do the money lenders really want borrowers to

succeed?

Rostow’s 5 Stages of Development

Regardless of how the pump is primed, Rostow believes the long term path is well documented.

Prominent for his role in the shaping of American policy in Southeast Asia during the 1960s, he was a staunch anti-communist, and was noted for a belief in the efficacy of capitalism and free enterprise. He supported American military involvement in the Vietnam War.. He wrote extensively in defense of free enterprise economics, particularly in developing nations. Rostow was famous especially for writing the book The Stages of Economic Growth: A non-communist manifesto (1960) which became a classic text in several fields of social sciences.

http://www.instantcast.com/AllStars/Walt_Whitman_Rostow

Walt Whitman Rostow (also known as Walt Rostow orW.W. Rostow) (October 7 1916 – February 13 2003) was an American economist and political theorist who served as Special Assistant for National Security Affairs to U.S. President Lyndon B. Johnson.

http://www.slideshare.net/geographyalltheway/ib-geography-develpent-rostow-model?src=embed

1. Traditional Society-primary activity, mainly subsistence agriculture-socially captured surplus lost on religious and

military expenditures-indicators**

AFGANISTAN NEPAL-%urban 18% 10%-per capita income $345 $419-infant mortality 154/1000 62/1000** note the values in the next several pages generally come from UN Sources, but can vary based

on exact date and source

2. Preconditions to take-off

-young elite & their role-infrastructure & it’s role-indicators

INDIA GHANA-%urban 26% 36%-per capita income $976 $647-infant mortality 32/1000 52/1000

3. Take-off

-target sectors -channeling surplus-indicators

MALAYSIA THAILAND-%urban 51% 22%-per capita income $7,027 $3,841-infant mortality 16/1000 18/1000

Malaysia “Vision 2020”

“Hopefully the Malaysian who is born today and in the years to come will be the last generation of our citizens who will be living in a country that is called 'developing'. The ultimate objective that we should aim for is a Malaysia that is a fully developed country by the year 2020.”

PM Seri Dr Mahathir Mohammad

Vision 2020 on hold

Easier Said then DONE• Recent events have questioned such

grandiose goals• The Proton Car is a good example of how

cronyism can make things go bad– Starts as home grown brand to export

internationally– See following NY Times article from Oct 29th, 2009

Proton City : http://www.youtube.com/watch?v=JpXNfT5dvu4

An Example of a failure based on automotive production in Malaysia

4. Drive to maturity

-broadening and deepening – more products to export-skills of the workforce – more education-size of the surplus & investment grows-indicator countries

S.KOREA TAIWAN -%urban 74% 75%-per capita income $19,000 $31,000-infant mortality 5.9/1000 5.4/1000

5. Age of mass consumption

-consumer based economy-direction of trade flows-countries?

JAPAN USA -%urban 61% 75%-per capita income $34,225 $45,047-infant mortality 2.8/1000 6.3/1000

D. Ground truthing Rowstow

1. Oil Rich Middle East -- S.ARABIA KUWAIT

-%urban 85% 98%-per capita income $15,255 $38,374-infant mortality 12/1000 9.2/1000

Export of Resource based development, agriculture/pastoralist has vanished, per capita income way up, infant mortality low, but is this development sustainable??? What happens when the wells go dry??? Rostow doesn’t speak to this.

Indonesia is an oil rich country where exports seem to have begun declining.

D. Ground truthing Rowstow

2. East Asia -- other two tigers (dragons) HONG KONG SINGAPORE

-%urban 100% 100%-per capita income $43,800 $36,370-infant mortality 2.9/1000 2.3/1000

All measures say stage 5. These places have become major financial service centers and international corporate headquarters and/or regional front offices. They have ridden the wave of trade to the top, can they continue? Especially in face of a rival like China? Rostow leaves these questions unanswered.

http://www.slideshare.net/geographyalltheway/ib-geography-develpent-rostow-model?src=embed

** Compare maps 9.7.3 & 9.7.4

**

Where is China

1970s – Red Flag Canal -- Moved beyond traditional society– Young elite at work– What was the role of

infrastructure– Stage ???

Where is China

1980s & 90s – Era of Four Modernizations– Targeted export

sector– Surplus directed to

booming areas and industries

– Stage ???

Where is China2009 – Growing

Automotive Powerhouse– Entrepreneurial Owners

can be “Communists”– Broadening and deepening

of industrial base– Building a highway

network that rivals the USA– Stage ???

But there are problems with sharing the wealth

http://4.bp.blogspot.com/_FqryYTCchUM/SGFrBG0sWpI/AAAAAAAAA4I/dE60bOzITUo/s1600-h/rostow+model.jpg

Summary of Rostow Model with several historical examples

Blemish on Rostow’s record

"Their casualties are going up at a rate they cannot sustain....I see light at the end of the tunnel."

-Walt Whitman Rostow Dec 12,1967Rostow commenting on the Vietnam War as an

advisor to Pres. Johnson. He showed great faith in capitalism.

Another viewpoint

• "Somehow this madness must cease. We must stop now. I speak as a child of God and brother to the suffering poor of Vietnam. I speak for those whose land is being laid waste, whose homes are being destroyed, whose culture is being subverted. I speak for the poor of America who are paying the double price of smashed hopes at home, and death and corruption in Vietnam. I speak as a citizen of the world, for the world as it stands aghast at the path we have taken. I speak as one who loves America, to the leaders of our own nation: The great initiative in this war is ours; the initiative to stop it must be ours." - Martin Luther King Jr., 1967

My experience is that all societies around the world want development, but too often we ignore inconvenient facts while pushing our own agendas.My experience is that all societies around the world want development, but too often we ignore inconvenient facts while pushing our own agendas.