Rostow Development Model and Banglaesh Perspective

Submitted to:
Ms. Susmita Banik
Assistant Professor
Department of Economics
Stamford University Bangladesh

Submitted by:
Saifullah Ibna Sayed Jim
ID: ECO 066 055 05
Department of Economics
Stamford University Bangladesh

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Table of Contents

Introduction......................................................................................................3

The Five Stages of Development of Rostow Model........................................3

Main Points & Examples.................................................................................5

Weaknesses......................................................................................................6

Where does Bangladesh stand.........................................................................8

Need for a Paradigm Shift.............................................................................10

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Introduction

Despite facing ample challenges as encountered by most developing

countries of the world, Bangladesh economy should have consistently been
prepared for take-off. There are quite a number of glaring failures but the
commendable successes it has attained during the last one and a half decade
in macro management of the economy have formed a ground for take-off,
which may pave the way for resolving many of the critical development
problems such as poverty, illiteracy, unemployment and low productivity
within a foreseeable future. This is not an artificial attempt to altering
pessimism into expectation of false hope, rather to help build, on what has
already been attained, a foundation for what ought to be done next. It is
rather some sort of confidence building based on some positive change that
has already taken place in the economy.

Without going into the debate of the soundness of Rostow’s stage thesis, the
concept ‘take-off’ has been deliberately chosen in the present article to
express an emphatic drive that a developing country needs in setting
dynamism in its economy for a sustained development. The prerequisites for
‘transition’ and the ground setting needed for ‘take-off’ have been conceived
as prompt and timely actions needed for a desperate nation aspiring quick
development of the country.

Section-2 of the paper attempts to identify Bangladesh’s position as regards

take-off of the economy. While Section 3 and 4 highlight the need for a
development paradigm shift and the need for setting a revised strategic
vision for the country respectively, Section-5 emphasizes the necessity for
resetting the country’s strategic mission for development and highlights the
strategic direction of the country’s development. Section-6 outlines the
strategic actions the country needs to put in place for take off. Section-7
concludes.

The Five Stages of Development of Rostow Model

1. Traditional Society- Refers to a country that has yet to begin developing,

where a high percentage of people are involved with agriculture and a high
percentage of the country’s wealth is invested in activities such as the
military and religion, seen as “nonproductive” by Rostow. 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. Before 1990's Bangladesh was like this.

2. Transitional Stage-The preconditions for takeoff. Under the model, the

process of development begins when an elite group initiates innovations
economic activities. Under the influence of these well-educated leaders, the
country starts to invest in new technology and infrastructure, such as water
supplies and transportation systems. These projects will ultimately stimulate
an increase in productivity likely increasing the GDP. There is a limited
production function, and therefore a limited output. There are limited

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economic techniques available and these restrictions create a limit to what
can be produced. Increased specialization generates surpluses for trading.
There is an emergence of a transport infrastructure to support trade. External
trade also occurs concentrating on primary products. 1990's We were in this
stage.

3. Takeoff- Rapid growth is generated in a limited number of economic

activities, such as textiles or food products. These few, takeoff industries
achieve technical advances and become productive, whereas other sectors of
the economy remain dominated by traditional practices. 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.
Industrialization increases, with workers switching from the agricultural
sector to the manufacturing sector. The level of investment reaches over 10%
of GNP. The growth is self-sustaining as investment leads to increasing
incomes in turn generating more savings to finance further investment. Now
we Bangladesh are in belonging.

4. Drive to maturity- Modern technology, previously confined to a few

takeoff industries, diffuses to a wide variety of industries, which then
experience rapid growth comparable to the takeoff industries. Workers
become more skilled and specialized. The economy is diversifying into new
areas the economy is producing a wide range of goods and services and there
is less reliance on imports. Bangladesh on the way.
5. High Mass Consumption- Age of mass consumption. The economy shifts
from production of heavy industry such as steel and energy, to consumer
goods, such as motor vehicles and refrigerators. 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).

Main Points & Examples

Rostow’s development model was based on two factors. First, the developed
countries of Western Europe and Anglo-America? had been joined by others
in Southern and Eastern Europe and Japan. Second, many LDCs contain an
abundant supply of raw materials sought by manufacturers and producers in
MDCs. In the past, European colonial powers extracted many of these
resources without paying compensation to the colonies, as core countries do
to periphery. In a global economy, the sale of these raw materials could
generate funds for LDCs to promote development.

– According to the model, each country is in one of these five stages of

development. With MDC’s in stage 4 or 5, whereas LDCs are in one of the
three earlier stages. The model asserts that today’s MDC’s passed through
the other stages in the past. For example, the U.S. was in stage 1 prior to
independence, stage 2 during the 1st half of the 1800’s, stage 3 during the
middle of the 1880’s, and stage 4 during the late 1800’s, before entering

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stage 5 during the early 1900’s. The model assumes that LDCs will achieve
development by moving along from an earlier to a later stage.

– A country that concentrates on international trade benefits from exposure to

consumers in other countries. To remain competitive, the takeoff industries
must constantly evaluate changes in international consumer preferences,
marketing strategies, production engineering, and design technologies.

– Examples of countries adopting this method of development include areas

in East/Southeast Asia and Arabian Peninsula.

In Southeast Asia, a group of countries, Singapore, Taiwan, South Korea, and

the former British colony of Hong Kong came to be known as the “four
dragons” after adopting the international trade approach. They were lacking
in natural resources so they promoted development by concentrating on
producing a handful of manufactured goods, especially clothing and
electronics. Low labor costs enabled these countries to sell products
inexpensively in MDCs.

The countries of the Arabian Peninsula, which includes Saudi Arabia,

Kuwait, Bahrain, Oman, and the United Arab Emirates, went from LDC’s to
some of the wealthiest countries almost overnight due to increased petroleum
prices during the 1970’s. Arabian Peninsula countries have used petroleum
revenues to finance large-scale projects, such as housing, highways, airports,
universities, and telecommunications networks.
Weaknesses

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 countries.

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”.

Rostow’s thesis is biased towards a western model of modernization, but at

the time of Rostow the world’s only mature economies were in the west, and
no controlled economies were in the “era of high mass consumption.” The
model de-emphasizes differences between sectors in capitalistic vs.
communistic societies, but seems to innately recognize that modernization
can be achieved in different ways in different types of economies.

The most disabling assumption that Rostow is accused of is trying to fit

economic progress into a linear system. This charge is correct in that many
countries make false starts, reach a degree of transition and then slip back, or

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as is the case in contemporary Russia, slip back from high mass consumption
(or almost) to a country in transition. On the other hand, Rostow’s analysis
seems to emphasize success because it is trying to explain success. To
Rostow, if a country can be a disciplined, uncorrupt investor in itself, can
establish certain norms into its society and polity, and can identify sectors
where it has some sort of advantage, it can enter into transition and
eventually reach modernity. Rostow would point to a failure in one of these
conditions as a cause for non-linearity.

Another problem is that Rostow’s work considers mostly large countries:

countries with a large population (Japan), with natural resources available at
just the right time in its history (Coal in Northern European countries), or
with a large land mass (Argentina). He has little to say about small countries,
such as Rwanda, which do not have such advantages. Neo-liberal economic
theory to Rostow, and many others, does offer hope to much of the world
that economic maturity is coming and the age of high mass consumption is
nigh.

Limitations

Many development economists argue that Rostows’s model was developed

with Western cultures in mind and not applicable to LDCs. It addition its
generalized nature makes it somewhat limited. It does not set down the
detailed nature of the pre-conditions for growth. In reality, policy makers are
unable to clearly identify stages as they merge together. Thus as a predictive
model it is not very helpful. Perhaps its main use is to highlight the need for
investment. Like many of the other models of economic developments it is
essentially a growth model and does not address the issue of development in
the wider context.

Rostow’s thesis is biased towards a western model of modernization, but at

the time of Rostow the world’s only mature economies were in the west, and
no controlled economies were in the “era of high mass consumption.” The
model de-emphasizes differences between sectors in capitalistic vs.
communistic societies, but seems to innately recognize that modernization
can be achieved in different ways in different types of economies.

The most disabling assumption that Rostow is accused of is trying to fit

economic progress into a linear system. This charge is correct in that many
countries make false starts, reach a degree of transition and then slip back, or
as is the case in contemporary Russia, slip back from high mass consumption
(or almost) to a country in transition. On the other hand, Rostow’s analysis
seems to emphasize success because it is trying to explain success. To
Rostow, if a country can be a disciplined, uncorrupt investor in itself, can
establish certain norms into its society and polity, and can identify sectors
where it has some sort of advantage, it can enter into transition and
eventually reach modernity. Rostow would point to a failure in one of these
conditions as a cause for non-linearity.

Another problem that Rostow’s work has is that it considers mostly large
countries: countries with a large population (Japan), with natural resources
available at just the right time in its history (Coal in Northern European
countries), or with a large land mass (Argentina). He has little to say and
indeed offers little hope for small countries, such as Rwanda, which do not

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have such advantages. Neo-liberal economic theory to Rostow, and many
others, does offer hope to much of the world that economic maturity is
coming and the age of high mass consumption is nigh. But that does leave a
sort of ‘grim meat hook future’ for the outliers, which do not have the
resources, political will, or external backing to become competitive.

Where does Bangladesh stand

in terms of Take-off and the Pre-requisites – An Analysis from

Macroeconomic Management Perspective

Take-off stage, as Rostow defines, is the third of his five stages of

development viz: traditional, transitional, take-off, maturity and high mass
consumption (Rostow, 1960). It is a short ‘stage’ of development when
growth becomes self-sustaining. Investment must rise to a level in excess of
10 percent of national income in order for per capita income to rise
sufficiently to guarantee adequate future levels of saving and investment.
Also important is the establishment of what Rostow calls ‘leading growth
sectors’. Historically, domestic finance for take-off seems to have come from
two main sources. The first has been from diversion of part of the product of
agriculture by land reform and other means. The second source has been
from enterprising landlords who voluntarily plough back rents into
commerce and industry.

In practice, the development of major export industries has sometimes led to

take-off permeating substantial capital imports. The sector or sectors, which
led to the take-off, seem to have varied from country to country, but in many
countries, railway building seems to have been prominent. Certainly, an
improvement in the internal means of communication is crucial for
expansion of markets that facilitate exports, coal, iron and engineering.
However, Rostow argued that any industry could play the role of the leading
sector in the take-off stage provided four conditions are met. First, the
market for the product should be expanding fast to provide a firm basis for
the growth of output. Second, the leading sector generates secondary
expansion. Third, the sector has an adequate and continual supply of capital
from ploughed-back profits. Finally, the new production functions can be
continually introduced into the sector, meaning scope for increased
productivity.

Rostow contends that the beginnings of take-off in most countries can be

traced back to a particular sharp stimulus, which has taken many different
forms, such as technological innovation or more obviously a political
revolution, e.g., Germany in 1848, the Meiji restoration in Japan in 1868,
China in 1949, and Indian independence in 1947. Rostow is at pains to
emphasize that there is no one single pattern or sequence for take-off. Thus,
there is no need for developing countries today to recapitulate the course of
events in, say, Great Britain, Russia or America. The crucial requirement is
that the preconditions for take-off are met. Otherwise the take-off, whatever
form it takes, will be abortive. Investment must be over 10 percent of
national income; one or more leading sectors must emerge; and there must
exist or emerge a political, social and institutional framework, which exploits
the impulse to expansion. Examples are given of extensive railway building
in Argentina before 1914, and in India, China and Canada before 1895,
failing to initiate take-off because the full transition from a traditional society
had not been made.

The main economic requirement for transition phase, the preconditions for
take-off, Rostow says, is that the level of investment should be raised to 10
percent of national income to ensure self-sustaining growth. The main

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direction of this investment must be in transport and other social overhead
capital to build up society’s infrastructure. The preconditions of a rise in the
investment ratio consist of a willingness of people to lend risk capital, the
availability of men willing and able to be entrepreneurs and to innovate, and
the willingness of the society at large to operate an economic system geared
to the factory and the principle of the division of labour. On the social front,
a new elite must emerge to fabricate the industrial society and supercede the
authority in the land-based elite of the traditional society. The new elite must
channel surplus product from agriculture to industry, and there must be a
willingness to take risks and to respond to material incentives. Moreover,
because of the enormity of the task of transition, the establishment of an
effective modern government is vital. The length of the transition phase
depends on the speed with which local talent, energy, and resources are
devoted to modernization and the overthrow of the old order and in this
respect, political leadership will have an important part to play (Thirlwall,
1994).

Need for a Paradigm Shift: From Macroeconomic Stabilization to

Development Management

Why Development Management rather than economic management

needed?

 Development is a multi-dimensional problem, of which economic

development is one of the major concerns

 Economic development presupposes prior and/or simultaneous

development of socio-political, cultural and environmental development
 Economic development has been deviated from/de-linked to
environmental development

 Development in all spheres is steered and managed by political authority

 Politics itself needs to be developed for being conducive to economic

development

 Development is ultimately an overall management problem involving

integration of economic and non-economic factors such as maintenance
of law and order, good governance at all levels, promotion of appropriate
socio-political and cultural attitude, skill and vision conducive to
development, and formulation and application of pragmatic policies at
home and abroad supporting economic development.

 All these call for a management concept, which is more than a concept of
economic management, comprising factors not only of economic but also
the non-economic factors of social, political and cultural concerns. That
means, we need to develop a development management framework
having key variables capable to capture the whole dynamics of
development which can be eventually be used as progress monitoring
tool.

7. Conclusion and Recommendations

Bangladesh has the potentials to take-off. Many of the preconditions are

already met. Among these are the very high investment-GDP ratio, extensive
network of road and telecommunication, reawakening of manufacturing
sectors along with readymade garments as the lead sector having key
backward linkage with textile industries. Recent improvement in the law and
order situation with the tendency of sustenance may be added in the list of
preconditions for take-off. However, the major wanting factor remaining is

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the lack of quest for take-off by the political authority, i.e., the vision and
mission for take-off. It needs badly ‘good governance’. Further, the country
needs a paradigm shift in managing its economy, i.e., from macroeconomic
management to development management. The recently launched PRSP
requires a thorough revision to make it fit to the requirements of new
paradigm, the Development Management. It requires exercising another
strategic planning on take-off involving the political authority in power and
in opposition along with the technocrats based on take-off as the new vision
of development for the economy.

REFERENCES

1. Akkas, S. M. Ali (2005). “Macro Management of Bangladesh

Economy: Recent Shocks and Immediate Policy Interventions”.
Thoughts on Economics, Vol. 15 No. 1 & 2, January-June 2005.
Islamic Economics Research Bureau, Dhaka.

2. Akkas, S. M. Ali (1992). “National Economic Management and Budget

1992-93”. Thoughts on Economics, Vol. 1 No. 1, 1992. Islamic
Economics Research Bureau, Dhaka.

3. Ministry of Finance, Finance Division, Economic Advisor Wing.

Bangladesh Economic Survey, March 2008.

4. Ministry of Finance and Planning, Planning Commission, General

Economics Division: Bangladesh, Unlocking the Potentials, National
Strategy for Accelerated Poverty Reduction, October 2005.

5. Rostow, W. W. (1960). The Stages of Economic Growth. London:

Cambridge University Press.
6. Thirlwall, A. P.(1994). Growth and Development with Special
Reference to Developing Economies, Fifth Edition, ELBS with
Macmillan, UK, 1994.

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