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Five Stages of Economic Development

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  • 0:03 Rostow's Five Stages Model
  • 0:51 The Five Stages
  • 4:23 Other Ways to Understand
  • 6:18 Lesson Summary
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Lesson Transcript
Instructor: Dr. Douglas Hawks

Douglas has two master's degrees (MPA & MBA) and a PhD in Higher Education Administration.

Countries and their economies develop at different rates, depending on a number of factors. In this lesson, we'll discuss Rostow's five levels of economic development and look at other systems used to track economic development.

Rostow's Five Stages Model

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

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, 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.

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.

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.

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 10-20% 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.

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.

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