marko_amnell DeleteThis @hotmail.com (Marko Amnell) wrote in message news:<f6852717.0409300658.16c3f97b DeleteThis @posting.google.com>...
> The book traces the interconnections between the West and the
> rest in the passage from traditional society to modern society.
Some rambling comments on the economic theory behind the
terms "traditional society" and "modern society"...
When I used these terms in talking about the Third World
and development, I was thinking of modernization theory,
a theory about long-term economic development which culminated
in the work of Walt Whitman Rostow. His writings weren't quite
as memorable as _Leaves of Grass_, but they have a certain
charm if you are interested in the dismal science. Things
never really worked out the way they were supposed to with
Third World development, but then again one of the main
intentions was just to counter Communist ideas about economic
development. Rostow's book _The Stages of Economic Growth_
had the subtitle "A Non-Communist Manifesto". Ideology was
always as important as practical success. Rostow's writings
were used for ideological purposes during the Vietnam War.
What are Rostow's five stages? In outline they are:
(1) Traditional society:
- economic structure develops within limited production functions
- pre-Newtonian science and technology
- pre-Newtonian attitudes towards the physical world
- improvements in agriculture can raise standard of living, but
absence of modern science and technology imposes limits
- economy based on agriculture, with a clan-based polity and
fatalistic mentality
(2) Pre-conditions for take-off into self-sustaining economic growth:
- e.g. Western Europe in late 17th and early 18th centuries
- medieval society disintegrates
- modern science grows
- trade develops
- society begins to accept the possibilites for production opened up
by modern science, so remaking of traditional society begins
- trigger for start of this stage in 17th century England was
reactive nationalism due to wars against Spain, Netherlands and France
- other European countries follow the British example
- trigger in Third World countries is incursion by external powers
(3) Take-off into self-sustaining economic growth:
- typical rate of capital investment rises from five per cent to
ten per cent of national income
- a series of sectors of industry are established
- in a decade or two the basic structure of the economy and the
social and political structure are transformed in such a way that
a steady rate of growth can be regularly sustained
- a particular group seizes the opportunities provided by their
resources within the expanding economy
(4) Drive to maturity:
- long period of progress with 10 to 20 per cent of national income
invested in new production capacity
- industries forge ahead, mature and level-off
- new industries arrive on the scene
- period of fine adjustment to social and institutional arrangements
so that eventually a mature economy and society is established
which rests on absorption of domestically-generated new technologies
(5) High mass consumption:
- leading sectors shift away from heavy industries towards provision
of consumer durables and services in the consumer marketplace
- welfare provisions are made
- shift from traditional society to modern society is complete
According to Rostow, these five stages are "both a theory about
economic growth and a more general, if still highly partial,
theory about modern history as a whole". So the theory is intended
to be more than just an arbitrary periodization of modern history.
Therefore, Rostow must offer some mechanism based on a dynamic
theory of production. In addition to the initial trigger of
reactive nationalism, the dynamic theory has basically two parts.
The first is a theory about the right path the economy should
take in shifting from one sector to another. The right path
involves a shift from raw-material production to manufacturing
and then to knowledge-based industries.
The second part is growth economics, such as found in the work
of Roy Harrod. Harrod basically invented growth economics in
his 1939 essay "An Essay in Dynamic Theory" (Economic Journal, 49).
In outline, the theory is as follows. Three variables are
introduced for the rate of economic growth:
Ga = The ACTUAL rate of growth
Gw = The WARRANTED rate of growth
Gn = The NATURAL rate of growth
Ga is just the actual rate of growth within the economy.
Harrod's basic proposition is that Ga = s/v, where
s = the marginal propensity to save
v = the marginal capital-output ratio
This equation can define a growth path for the economy when
connected to a statement about the entrepreneur's estimation
of future trends. That is the role of Gw. The warranted rate
of growth reflects the judgement of the businessman about
tomorrow's possibilities. It is determined independently of Ga.
Gn is the rate of growth that flows from a given rise in
population where more people means more production.
Harrod concludes that if by coincidence Ga=Gw=Gn then steady
economic growth at full employment occurs. But since Ga, Gw,
and Gn are are all determined independently, this state of
affairs is unlikely to occur, and even if it comes about,
it is unstable. This is the so-called "First Harrod Problem",
and leads to the prediction that the system tends to stagnate.
The "Second Harrod Problem" is the problem of stability.
If Ga diverges from Gw, then it is likely to continue to do so.
Once the growth path is lost, the rational corrective behavior
of the entrepreneur is such that things get worse not better.
Harrod concludes that long-term economic development requires
government intervention in the economy.<!-- ~MESSAGE_AFTER~ -->
>> Stay informed about: Birth of the Modern World 
FAQ
Profile
Private Messages
Log in
