LESSON 5

The Phases of Economic Development and Its Impact to Business Environment

EXPECTATIONS
As we study and immerse ourselves in “Organization and Management” in the process, it is
necessary to discuss and differentiate the phases of economic development. The module is subjected
to discuss Module 4 – The Phases of Economic Development and Its Impact to Business Environment.

After going through the module, you are expected to:

1. differentiate the phases of economic development and its impact to business environment.

PRETEST
Fill in the Blank
Directions: Choose the CORRECT word from the table below and write your answer in the space
provided before the number.

Walt Whitman Rostow Five Stages of Economic Development

Seidel and Moichelle Taxes Profit at any cost

__________________ 1. It is a model that can have extremely negative implications down to road if
corners are cut and poor decision are made.
__________________ 2. According to them, the small and large businesses drive economic
stability and growth by providing valuable services, products and tax dollars that directly contribute
to the health of the community.
__________________ 3. It is used to maintain the infrastructure of a city, state or country-
road, bridges, tunnel, public transportation, libraries and other public buildings and services.
__________________ 4. He is economist in the Lyndon B Johnson administration from 1966-
1969.
__________________ 5. it is a model on economic development developed by Rostow.

LOOKING BACK TO YOUR LESSON 3

As we go further, let us try to recall our lesson about the forms of business organization.

 The Five Stages of Economic Development, is a model developed by Walt Withman Rostow. The
five stages are
1) Traditional Society, 2) Preconditions for Take-off, 3) Take-Off, 4) Drive to maturity, and 5) Age of
Mass Consumption. 

Partnership consists of two or more persons who bind themselves to contribute money or
industry to a common fund, with the intention of dividing the profits among themselves. 

Sole proprietorship is the simplest form of business and the easiest to register, through the
Bureau of Trade Regulation and Consumer Protection (BTRCP) of the Department of Trade and
2
Industry (DTI). It is owned by an individual who has full control/authority of its own and owns all
the assets, as well as personally answers all liabilities or losses. 

Corporation is a juridical entity established under the Corporation Code and registered with the
SEC. 
Cooperative is an organization established for the purpose of purchasing and marketing the
products or its members, i.e., shareholders, and/or procuring supplies for resale to the members,
whose profits are distributed to the members (in the form of patronage dividends), not on the basis
of the members’ equity.

Matching-type

Directions: Match the column A to column B. Write your answer in the space provided before the
number.

A B
____ 1. Marked by an increase in productivity a. Traditional Society
In Europe during the 1700s and 1800s b. Moden Society
____2. The economy is able to reinvest 10-20% c. Precondition for Take-Off
of what it creates into more production. D. Take-Off
____ 3. A society or economy is able to expor e. Age of Mass Consumption
production from other countries f. Drive to Maturity
____ 4. Number of middle-class jobs are fewer
than the total number of people.
____ 5. These societies relied heavily on agricultural labor.
ORGANIZATION
AND
MANAGEMENT
Module 3

THE FIRM AND ITS ENVIRONMENT

Lesson 5: THE PHASES OF ECONOMIC DEVELOPMENT AND ITS IMPACT TO BUSINESS ENVIRONMENT

After going through the module, you are expected to:

1. differentiate the phases of economic development and its impact to business environment.

PRETEST

Fill in the Blank

Directions: Choose the CORRECT word from the table below and write your answer in the space
provided before the number.

Walt Whitman Rostow Five Stages of Economic

Development

Seidel and Moichelle Taxes Profit at any cost

Walt Whitman Rostow Five Stages of Economic Development

Seidel and Moichelle Taxes Profit at any cost

_________________1. It is a model that can have extremely negative implications down to road if
corners are cut and poor decision are made.
__________________ 2. According to them, the small and large businesses drive economic
stability and growth by providing valuable services, products and tax dollars
that directly contribute to the health of the community.
__________________ 3. It is used to maintain the infrastructure of a city, state or country-
road, bridges, tunnel, public transportation, libraries and other public
buildings and services.
___________________4. He is economist in the Lyndon B Johnson administration from 1966- 1969.
___________________ 5. it is a model on economic development developed by Rostow.

LOOKING BACK TO YOUR LESSON

 As we go further, let us try to recall our lesson about the forms of business organization.
 The Five Stages of Economic Development, is a model developed by Walt Withman Rostow. The five
stages are 1) Traditional Society, 2) Preconditions for Take-off, 3) Take-Off, 4) Drive to maturity, and 5)
Age of Mass Consumption.  Partnership consists of two or more persons who bind themselves to
contribute money or industry to a common fund, with the intention of dividing the profits among
themselves.  Sole proprietorship is the simplest form of business and the easiest to register,
through the Bureau of Trade Regulation and Consumer Protection (BTRCP) of the
Department of Trade and Industry (DTI). It is owned by an individual who has full control/authority of
its own and owns all the assets, as well as personally answers all liabilities or losses.  Corporation is
a juridical entity established under the Corporation Code and registered with the SEC.
1
Cooperative is an organization established for the purpose of purchasing and marketing the
products or its members, i.e., shareholders, and/or procuring supplies for resale to the members,
whose profits are distributed to the members (in the form of patronage dividends), not on the basis
of the members’ equity.

Matching-type
Directions: Match the column A to column B. Write your answer in the space provided before the
number.
A B
____ 1. Marked by an increase in productivity a. Traditional Society
in Europe during the 1700s and 1800s
____ 2. The economy is able to reinvest 10-20% b. The Modern Society
of what it creates into more production
____ 3. A society or economy is able to export c. Precondition for Take-Off
production from other countries
____ 4. Number of middle-class jobs are fewer d. Take-Off
than the total number of people
____ 5. These societies relied heavily on agricultural e. Age of Mass Consumption
labor f. Drive to Maturity

BRIEF INTRODUCTION:

Economic development generally refers to the sustained, concerted actions of policymakers and
communities that promote the standard of living and economic health of a specific area. Economic
development can also be referred to as the quantitative and qualitative changes in the economy
(www.abbreviations.com).

Walt Whitman Rostow, also known as W.W. Rostow, was an economist in the Lyndon B. Johnson
administration from 1966-1969. He also published articles and developed models on economic
development. One of his most prominent ideas was the five stages of economic development. In this
model, he suggests that societies go through five stages of economic development as they develop
and grow.

Each of Rostow's five stages builds on the previous stage, becoming more complex and
integrated. Depending on the economic forces at play, the time it takes to move through each of
Rostow's stages varies. We'll begin by discussing each stage in detail, then we'll talk about how
Rostow's model has led to other ways of measuring development.

The Five Stages:

Stage One: Traditional Society

The first stage of Rostow's model and the one in which societies begin, is the traditional society.
The traditional society stage was prevalent prior to the 1700s, when most societies operated in a
relatively stable state and productivity didn't rise or fall dramatically. Trade existed, such as the spice
route between Asia and Europe, but it was timely, costly, and more of a luxury than a necessity.
Technology was very limited. Humans had access to little more than handmade tools, transportation,
2
and the printing press. That meant that producing goods was very human capital intensive, which
created large gaps in income inequality. These societies also relied heavily on agricultural labor
because a tremendous amount of labor was required to grow enough food to sustain the societies.

Stage Two: Preconditions for Take-Off

There is a period of transition between the traditional society and a society that takes off, and for
a certain time that society is establishing the preconditions for take-off. These preconditions are
mostly marked by an increase in productivity, such as was found in Europe during the 1700s and
1800s. A number of factors came together to make productivity increase; for example, population hit
a critical mass that made agriculture take up such a high percentage of labor, which provided
opportunities for the establishment of educational institutions, banks, and a market for luxury goods.

Stage Three: Take-Off

When the preconditions for take-off are met, a society can take off. Educated individuals start
inventing new processes and tools, and access to capital through financial markets and banks make it
possible to produce goods and services on a larger scale. This requires a different type of skill set from
human laborers, so the economy shifts from agriculture to production. This increases wages for
everyone, taking the economic structure from a structure of kings and servants to a wealthy class,
middle class, and lower class. A lower class still exists at this stage, either because of social norms that
discriminate against people or simply because the number of middle-class jobs are fewer than the
total number of people.

Stage Four: Drive to Maturity

The next of Rostow's five stages has a general length of time associated with it, the drive to
maturity. According to Rostow, the drive to maturity is about a 60-year period between the take-off
and the final stage, the age of mass consumption. During this short period, an economy (the collective
of all consumers and producers) is able to reinvest 1020% of what it creates into more production.
Processes are improved, quality of life is improved, and technology and new ideas continue to become
more central to society, while the cost of producing the needs for survival (like food and shelter)
becomes a smaller part of the economy. More importantly, the middle class grows at the quickest rate
of any economic class. For the modern-day U.S., this stage really took place from after WWI, from
about 1915, until around 1980, when the technology era began.
 Stage Five: Age of Mass Consumption

After the drive to maturity, an economy reaches maturity and begins the final stage, the age of
mass consumption. Think of the United States, much of Europe, and some of Asia today, and you can
see this stage of development at work. The quantity and quality of products and services increase. A
society or economy in this stage is able to export production, bringing in money from other countries
that helps the economy grow larger beyond actual consumption.

According to Seidel, Moichelle, (2019), Small and large businesses drive economic stability and
growth by providing valuable services, products and tax dollars that directly contribute to the health
3
of the community. They also provide jobs, strengthening the economic health of each community
where a business is based. Even if a business is headquartered elsewhere, employing people at each
local business contributes to the success of that region, as with the wages they earn, people buy
property, work, shop and otherwise invest in where they live.

Taxes are used, among other things, to maintain the infrastructure of a city, state or country –
roads, bridges, tunnels, public transportation, libraries and other public buildings and services,
including police officers and fire-fighters, all benefit from tax money collected from individuals and
businesses. These services are essential to the good health and positive qualities of local and national
citizens. In a capitalist society like that of the United States, business growth and increased sales
means collecting more taxes, which can directly translate to better maintenance and offerings of local
infrastructure and services that benefit the community.

 The success of business as a whole directly affects the world’s economy. At its core, businesses
are designed to serve a particular need that people have, and to provide trusted goods and services
related to that need. When consumer confidence or trust dips in business, it isn’t just sales that are
negatively affected. This mistrust has a ripple effect and can result in a decline in a country’s general
economy, weakening the strength of its currency and buying power.

 As businesses focus more and more on providing value to shareholders instead of directly to
consumers, their interests and tactics may not align with the best interests of the consumer. A “profit
at any cost” model can have extremely negative implications down the road if corners are cut and
poor decisions are made in the name of solely working to increase shareholder profit or are based
purely on greed. No matter how efficiently you make a product or how special the service is that you
deliver, if you lose consumer confidence as a result of your business decisions, consumers won’t
support you by purchasing your goods and services, and then nobody benefits.

 Business is vital to a country’s economy. Success of businesses can drive the success of an entire
country, including through contributions to the gross domestic product, or GDP, of a nation, which
affects their world standing. If a country supports businesses with goods and services that are in
demand, everyone in the country
benefits. From job creation that results in money being put back into the community to taxes that
help the government smoothly run and provide maintenance and improvements to the country’s
infrastructure, or in other ways that are helpful for its citizens, there are dozens of ways business
success translates to economic development.
  In addition to providing products and services that citizens and residents want, economic health
can allow for exporting goods and services to others who want those items, contribute to offering
avenues for education and training for citizens, create healthy business competition and provide
additional methods of strengthening economic development for the country as a whole.

 The role of business in relation to the economy is a pivotal one. Small businesses boost
economic revenue on a smaller scale, but one that’s of vital importance, directly and positively
affecting the health, quality of life and purchasing power of residents in the local community. But
small businesses don’t always stay small. Many nationally known brands today got their start as very
4
small businesses run out of someone’s home or garage. Start-ups can become multinational
companies that can have a huge and positive impact on the global economy, benefiting all of the
company’s employees and the communities in which those businesses thrive. Apple, Whole Foods,
Amazon and Starbucks were all ideas started on a small scale that have had incredible, explosive
positive impacts not just on the U.S. economy, but on a global scale.

Activity 1: Independent Activity

Directions: Using the Graphic Organizer, give your own idea about the five stage of economic
development and write your answer in a yellow paper.

Five Stages
of Economic
Developmen
t

Activity 2: Independent Activity

ESSAY
Directions: Enumerate the Rostow’s Stages of Growth and give your idea about its influence to the
business environment. Give 2 influences in each stage. Write your answer in the space provided.
 Rostow’s Stages of Growth Influence to Business Environment
1.
2.
3.
4.
5.

REMEMBER:

 Walk Whitman Rostow, also known as W.W. Rostow was an economist in the Lyndon B. Johnson
administration from 1966-1969. He also published articles and developed models on economic
development.  
The Five Stages of Economic Development model is developed by Walt Withman Rostow.
The five stages are
1) Traditional Society,
2) Preconditions for Take-off,
3) Take-Off,
4) Drive to maturity, and
5) Age of Mass Consumption.  
Taxes are used, among other things, to maintain the infrastructure of a city, state or country-roads,
bridges, tunnel, public transportation, libraries and other public buildings and services including police
officers and fire-fighters, all benefit tax money collected from individuals and businesses.  

Profit at any cost model can have extremely negative implications down the road if corners are cut
and poor decisions are made in the name of solely working to increase shareholders profit or are
based purely on greed.

CHECK YOUR UNDERSTANDING:

True or False:
Directions: Before each statement, write TRUE if the statement is correct or FALSE if the statement is
incorrect.

___________ 1. Preconditions for take-off are the second stage of economic development,
whereas productivity increased found in Europe during the 1700s and 1800s.
___________2. In the age of mass consumption, a society or economy is able to export
production, bringing in money from other countries that helps the economy grow larger beyond
actual consumption.
___________ 3. Success of businesses can drive the success of an entire country, including
through contributions to the gross domestic product, or GDP, of a nation, which affects their world
standing.
___________ 4. Traditional society stage was prevalent prior to 1900s, when most societies
operated in a relatively stable state and productivity didn’t rise of fall dramatically.
___________ 5. Drive to maturity is about 80-year period between the take-off and the final
stage.
POST-TEST

MULTIPLE CHOICE: Choose the letter of the best answer. Write your answer in the space provided.
____1. In which stage of economy reaches maturity and begins the final stage?
a. Take-Off
b. Traditional Society
c. Age of Mass Consumption
d. None of the above
6
____2. Who developed and published articles of the Five Stage of Economic Development?
a. Walt Whitman Rostow b. Seidel Rostow c. Moichelle Rostow d. Seidel and Moichelle Rostow

____3. Which stage had limited technology, and humans had access to little more than handmade
tools, transportation, and the printing press?
a. Take-Off b. Traditional Society c. Age of Mass Consumption d. None of the above

____4. Which stage is about the population hit a critical mass that made agriculture take up, such as a
high percentage of labor, which provides opportunities for establishing an educational institution,
banks, and a market for luxury goods?
a. Dive to Maturity b. Modern Society c. Take-Off d. Preconditions for Take-Off

____5. Which stage is used to educate the individuals to start inventing new processes and tools, and
access to capital through financial markets and bank make it possible to produce goods and services
on a larger scale?
a. Dive to Maturity b. Modern Society c. Take-Off d. Preconditions for Take-Off

____6. Which of the following is used to maintain the infrastructure of a city, state or country-roads,
bridges, tunnels, public transportation, libraries and other public building and services, including
police officers and fire-fighters?
a. Taxes b. Income c. Savings d. None of the Above

____7. Which of the following is a CORRECT arrangement of the Five Stages of Economic
Development?
a. Precondition for Take-off, Take-Off, Traditional Society, Age of Mass Consumption, and Drive to
Maturity
b. Traditional Society, Preconditions for Take-off, Take-off, Drive to Maturity, and Age of Mass
Consumption,
c. Traditional Society, Preconditions for Take-off, Age of Mass Consumption, Drive to Maturity, and
Take-Off
d. Age of Mass Consumption, Preconditions for Take-off, Traditional Society, and

____8. Which stage really took place after WWI from about 1915 until around 1980, when the
technology era began?
a. Age of Mass Consumption b. Drive to Maturity c. Take-off d. Traditional Society

____9. Which of the following is NOT one of Rostow’s five stage of economic development?
a. Age of Mass Consumption b. Drive to Maturity c. Take-off d. Technological Society

____10. Which of the five stages of economic development takes place over approximately 60 years?
a. Age of Mass Consumption b. Drive to Maturity c. Take-off d. Traditional Society