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Dynamics of world economic developement Kiuchi, Takashi 1960-12-31

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DYNAMICS OF WORLD ECONOMIC DEVELOPMENT by TAKASHI KIUCHI B. A., Keio Gijuku University, 195S  A THESIS SUBMITTED IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF ARTS i n the Department of Economics and P o l i t i c a l Science  We accept t h i s thesis as conforming to the required  standard  THE UNIVERSITY OF BRITISH COLUMBIA A p r i l , I960  In p r e s e n t i n g  t h i s t h e s i s i n p a r t i a l f u l f i l m e n t of  the r e q u i r e m e n t s f o r an advanced degree a t the U n i v e r s i t y o f B r i t i s h Columbia, I agree t h a t t h e L i b r a r y s h a l l make i t freely  a v a i l a b l e f o r r e f e r e n c e and s t u d y .  agree t h a t p e r m i s s i o n f o r e x t e n s i v e for  I further  copying of t h i s  s c h o l a r l y purposes may be g r a n t e d by t h e Head of my  Department o r by h i s r e p r e s e n t a t i v e s .  I t i s understood  that copying or p u b l i c a t i o n of t h i s t h e s i s f o r g a i n s h a l l not be a l l o w e d w i t h o u t my w r i t t e n  Department o f PQ&A.UJL  %o^sJL^  The U n i v e r s i t y o f B r i t i s h Columbia, Vancouver 3, Canada. Date  thesis  kfidJL  J,  U 6 0  financial  permission.  ::  Abstract Each of us i s s o l i t a r y .  Each of us dies alone.  That i s a f a t e against which we cannot s t r u g g l e , but there i s plenty i n our c o n d i t i o n which i s not f a t e , and against which we are l e s s than human unless we do s t r u g g l e . The people i n the i n d u s t r i a l i z e d countries are g e t t i n g r i c h e r , and those i n the n o n - i n d u s t r i a l i z e d countries are a t best standing s t i l l : the gap i s widening every day. poor.  I n d u s t r i a l i z a t i o n i s the only hope of the  Health, food, education; nothing but i n d u s t r i a l i -  z a t i o n could have made them a v a i l a b l e t o the very poor. Economists are i n c l i n e d t o be impatient i n attempting t o ameliorate t h i s s o c i a l c o n d i t i o n ; and are i n c l i n e d t o t h i n k t h a t i t should be done.  The lessons  which the present underdeveloped countries can l e a r n may l i e as much i n the past as i n the contemporary h i s t o r y of t h e i r developed  forerunners.  Such common problems as c a p i t a l  accumulation,  economic d i v e r s i f i c a t i o n , balance of payments, technolog i c a l development, population, labour, employment, land d i s t r i b u t i o n , c o l o n i a l i s m , dualism or p l u r a l i s m , p o l i t i c a l a f f a i r s and s o c i a l ideology are of importance.  However,  what are a b s o l u t e l y necessary are systematic comparisons of the processes of economic growth and of the economic s t r u c t u r e s of d i f f e r e n t countries by l i n k i n g non-economic  - ii f a c t o r s t o the s t r u c t u r e of modern economics.  Thereby i t  w i l l be p o s s i b l e t o c l a r i f y the character of the process of economic growth and t o d i s c l o s e the r e l a t i v e importance of the various f a c t o r s . Without o v e r - s i m p l i f i c a t i o n , dynamic theory can be d i v i d e d i n t o two categories; economic dynamic approach and s o c i o l o g i c a l i n s t i t u t i o n a l approach.  No "dynamics of  world economic development" i s as simple as t o be f u l l y explained by one of these approaches. As a r e s u l t of the i n e v i t a b l e process being a s y n t h e t i c theory from d i f f e r e n t opinions founded on d i f f e r e n t bases, the theory of Professor Walt Whitman Rostow must be considered.  I t seems that h i s theory i s  cogent, and s u c c e s s f u l i n e s t a b l i s h i n g a sequence of cause and e f f e c t i n the f i e l d of economic growth. A matter of f a c t u a l h i s t o r y observed i n the l i g h t of economics i s f u l l y discussed by using i l l u s t r a t i o n s of s i x t e e n countries i n the world. of economic development i s ascertained.  The process  The dynamics of  Professor Rostow i n d i c a t e s the ways of m o l l i f y i n g the dangerous c h a r a c t e r i s t i c s of the Union of Soviet S o c i a l i s t R e p u b l i c s , of coping with the vast number of underdeveloped countries, and of c l a r i f y i n g the meaninglessness of Marxism.  Here, our s o c i a l hope can f i n d the b a s i s on  which p o l i c i e s should be dependent.  - iii The t r i c k of g e t t i n g r i c h i s no secret and the world cannot survive h a l f r i c h and h a l f poor.  - iv CONTENTS ::  Abstract  ::  Acknowledgement  I.  Introduction Purpose of the Study Method of Treatment  II.  Emergence of "Dynamic" Theory 1. I d e n t i f i c a t i o n of Problems 2. Dynamics i n Economic Theory 3. I n s t i t u t i o n a l i s m and S o c i o l o g i c a l Considerations 4. Professor Rostow's Formulation of Conclusions from the above  I I I . The T h e o r e t i c a l Basis of Professor Rostow's I n t e r pretation 1. The Basic Theory 2. The Process of Development 3. I l l u s t r a t i o n s from Various Countries IV.  The A p p l i c a t i o n of Professor Rostow's I n t e r p r e t a t i o n 1. P o l i c y Views 2. C r i t i c i s m of the Marxian Standpoint  V.  Conclusions Prognosis  ::  Bibliography  ::  Acknowledgement The s e p a r a t i o n between Canada and Japan i s much  more bridgeable today than i t has ever been.  Still,  on  the one hand, i t i s a l l very w e l l f o r Canadians, i n t h e i r complacency) t o t h i n k t h a t m a t e r i a l standards of l i v i n g are of minor consequence.  On the other hand, i t i s evident  that the Japanese are not eating b e t t e r than at the subsistence l e v e l and are at present working harder than Canadians. Dean Geoffrey C. Andrew extended to me the very generous o f f e r of coming t o Canada.  Living i n a foreign  country imposes many new hardships, yet I s h a l l always c a l l t o mind the experiences of these two years w i t h the most pleasant memories. Professor John J . Deutsch decided my whole programme at the U n i v e r s i t y of B r i t i s h Columbia.  His  guidance made my post-graduate studies s u b s t a n t i a l . Dr. Joseph A. Crumb afforded me the most enjoyable one-to-one l e c t u r e s f o r a year. Dr. E. S t u a r t K i r b y d i d everything t o enable me t o complete t h i s t h e s i s .  With a deep understanding of  both Japanese and E n g l i s h patterns of thought, he checked every s i n g l e word i n t h i s work.  H i s kindness was of  major importance t o my t h e s i s . Dr. Robert M. Clark was the professor from whom  - vi I learned about the Canadian economy. Dr. Robert M. w i l l added stimulus t o my work.  I  appreciated h i s patience with me, as I f u l f i l l e d the mere r e q u i s i t e s of a poor student f o r one year and of a poor a s s i s t a n t f o r another. Mr. A. M i l t o n Moore took the l e a d e r s h i p i n our seminar and never f a i l e d t o comment on our r e p o r t s . Dr. John S. Conway proved t o be an i n s p i r i n g l e c t u r e r t o whom no one could l i s t e n d i s i n t e r e s t e d l y .  His  benevolence i s one of the things which I w i l l not e a s i l y forget. Professor Ronald P. Dore had been h e l p i n g me a l l along. did  Thanks t o h i s profound comprehension of Japan, I  not f a l l behind during these two years. There i s no excuse f o r my not knowing the  d i f f e r e n c e between Canada and Japan.  The f i r s t task, i s  f o r me t o save the poor from poverty. T. K. Acadia Camp, U. B. C. A p r i l I960  CHAPTER I. INTRODUCTION Purpose of the. Study Method of Treatment  "There i s no way of studying s o c i a l r e a l i t y other than from the viewpoint of human ideals. A 'disinterested  s o c i a l science' has never  existed and, f o r l o g i c a l reasons, cannot exist.  The value connotation of our main  concepts represents our interest i n a matter, gives d i r e c t i o n to our thoughts and s i g n i f i cance t o our inferences." Gunnar Myrdal  I.  Introduction Purpose of the Study Method of Treatment For better or f o r worse, recent developments  of economic growth theory have tended to s h i f t discussion of "dynamics of world economic development" from broad d e l i b e r a t i o n by s o c i a l s c i e n t i s t s to the s p e c i f i c assessments by p r a c t i c a l technicians. There are f i v e reasons why t h i s thesis i 3 to be written: F i r s t : systematic comparison of the course of economic growth and of the economic structure of d i f f e r e n t countries at varying stages of t h e i r development i s needed to understand the process of economic growth and to assess the importance of the factors which accelerate or retard economic growth. Second: there i s a pronounced dearth of systematic thorough studies of comparative economic growth and structure, although a large amount of work has been and i s being done by i n d i v i d u a l scholars, by research i n s t i t u t i o n s , and by governments. Third: i t i s necessary to have an e f f o r t to l i n k noneconomic factors to the structure of modern economics, and, primarily, the economic aspects of economic growth and structure and the effects of noneconomic  factors on economic l i f e must be considered. Fourth: the main contribution which economists seem to be able to make i s to c l a r i f y the character of the process of economic growth and to lay bare the r e l a t i v e importance of the various factors which accelerate or retard i t , because the areas most important f o r understanding the process of economic growth and differences i n economic features among countries are l i k e l y to be those that are most s i g n i f i c a n t from the point of view of economic policy. F i f t h : the main lessons which the underdeveloped countries of today can learn from the more developed countries may l i e as much i n the early as i n the contemporary history of forerunners. Starting with the consideration of the problems of "dynamic" theory, i t becomes clear that there have been two approaches to "world economic development." However, neither the economic dynamic approach nor the s o c i o l o g i c a l i n s t i t u t i o n a l approach i s more cogent than the theory of Professor Walt Whitman Rostow. "What oft was thought, but ne'er so well expressed." In Chapter I I , the main trend of dynamic theory i s traced to throw a new l i g h t on Professor Rostow's theory. Having established a h i s t o r i c a l background, a s t r i k i n g  - k -  c h a r a c t e r i s t i c of the new theory might be understood from a deeper perspective. The t h e o r e t i c a l basis of Professor Rostow's i n t e r p r e t a t i o n i s analysed i n Chapter I I I which consists of three sections: i d e o l o g i c a l , t h e o r e t i c a l and p r a c t i c a l . "No more calamitous notion than that abstract economics was economics proper." A matter of f a c t u a l history seen i n the l i g h t of economics i s f u l l y discussed.  Although, many economists  have f e l t d i s s a t i s f i e d with the deductive basis of dynamics, serious attempts to get to grips with the facts of world economic development have seldom been successful. What must be done i s to establish a sequence of cause and effect i n the f i e l d of economic growth. Chapter IV i s devoted to the a p p l i c a t i o n of Professor Rostow's dynamics.  In I960, every educated,  decent, i n t e l l i g e n t son of Western c i v i l i z a t i o n i s facing three massive problems: the Union of Soviet S o c i a l i s t Republics, the underdeveloped countries and Marxism.  Not  only to save the world, but also to save our own souls, we desperately need theoreticians based on f a c t s , planners based on theories, and fighters based on p o l i c i e s ,  who  would take upon themselves important s o c i a l functions in  democracy.  - 5 P r a c t i c a l l y , the world i s ruled by the ideas of economists. "The promotion of knowledge i s the most powerful p o l i c y . " Here, I would l i k e to get the facts straight and think things out stringently to make known a new dynamics of world economic development.  CHAPTER I I . EMERGENCE OF "DYNAMIC" THEORY 1. I d e n t i f i c a t i o n of Problems 2. Dynamics i n Economic Theory  .  3 . I n s t i t u t i o n a l i s m and S o c i o l o g i c a l Considerations 4. Professor Rostow's Formulation of Conclusions from the above  "Our trouble i s not ignorance.  I t i s just  that we know so many things that are not true." Josh B i l l i n g s  - 7 II.  Emergence of "Dynamic" Theory Making a systematic firsthand survey of "dynamic"  theory requires a great deal of work because as one of the growing theories, dynamic theory consists of an enormous number of arguments among American^British economists and Continental economists, Harvard School and Chicago School, and economists who belong to i n t e r n a t i o n a l organizations such as the United Nations, and free lancers.  As a matter  of f a c t , i t i s a melee involving hundreds of t h e o r i s t s and p r a c t i c a l men.  I would l i k e to summarize the discuss-  ions concerning dynamic theory to deduce a s t r i k i n g c h a r a c t e r i s t i c of Professor Rostow's theory.  1.  x  I d e n t i f i c a t i o n of Problems After World War  I I , the American p o s i t i o n i n the  world economy had drawn great interest from economists. In 1947,  the Council on Foreign Economic Relations and the  Twentieth Century Fund elaborated a study of America's role i n foreign trade and investment.  Norman S. Buchanan  of the University of C a l i f o r n i a and Friedrich A. Lutz of Princeton U n i v e r s i t y published "Rebuilding the World Economy."  The Council on.Foreign,Economic Relations  was  1 This i s not a comprehensive survey of dynamic theory. What I w i l l do here i s to trace the main trend of the theory and throw a new l i g h t on Professor Rostow's:theory. 2. Norman.S. Buchanan & F r i e d r i c h A. Lutz, Rebuilding the World Economy; America's Role i n Foreign "Trade and Investment, New York, Twentieth Century Fund, 1947.  organized by seven members, including Winfield W.  Fiefler  of Princeton University as the chairman, Winfield W.Bidwell of the Council on Foreign Relations., and.Paul G. Hoffman who was the president of the Studebaker Corporation as well as the chairman of the Committee f o r Economic Development. The main purpose of the Council was American foreign economic policy.  to reconsider  F i n a l l y , they brought  forward a recommendation on m u l t i l a t e r a l trade and reconstruction of the world economy with s p e c i a l emphasis on elimination of i n t e r n a t i o n a l economic unbalance by international c a p i t a l movement.  Also, i n connection with  the strong influence of changes i n the American domestic economy on the world economy, they advocated some domestic economic p o l i c i e s , such as the establishment  of a buffer  stock system with respect to raw materials which could be reserved, and the a b o l i t i o n of t a r i f f b a r r i e r s to increase imports. Afterwards, Norman S. Buchanan wrote a book, "Approaches to Economic Development" with Howard S. E l l i s of Harvard University.^  Thus he contributed a great deal  to the pioneering f i e l d of dynamie theory.  His approach  was very p r a c t i c a l and p o l i t i c a l , because of his previous career i n journalism.^ 3 Norman S.,Buchanan & Howard S. E l l i s , Approaches to Economic Development, New York, Twentieth Century Fund, 1955. k Kiyoshi Matsui, Koshinkoku Kaihatsu Riron no Kenkyu, Tokyo, Yuhikaku, 1953, pp. 32-55.  - 9P r e v i o u s l y i n 1945, A l v i n H. Hansen analysed the fundamental i n e q u a l i t y of the world economic s t r u c t u r e i n h i s work, "America's Role i n the World Economy. ^  In the  1  works of both Norman S. Buchanan and A l v i n H. Hansen, we f i n d a strong element of Keynesian thought.  At t h a t time,  Cleona Lewis wrote "The United States and Foreign  Investment  Problems," i n which she broke down the e f f e c t s of f o r e i g n investment on i n t e r n a t i o n a l and n a t i o n a l economies.^ On the other hand, without any connection w i t h modern economics, the type o f study which analysed the s o c i a l economic s t r u c t u r e of underdeveloped  countries as  such, had been c a r r i e d on mainly i n the United Kingdom and the Netherlands whose c o l o n i e s presented problems not only t o t h e i r mother countries but a l s o t o the world economic development.  J u l i u s H. Boeke of the Netherlands,  who had continued an enormous amount o f research on Indonesian s o c i e t y s i n c e 1910 and had advocated the 'dual economy' theory, wrote "The I n t e r e s t s of the Voicel e s s Far East; I n t r o d u c t i o n t o O r i e n t a l Economics" 1948? as a stepping stone t o h i s f o l l o w i n g r i c h volume: "Economie van..,Indonesie" i n 1953*  8  I t s E n g l i s h v e r s i o n , "Economics  5 ^ A l v i n H. Hansen, America's Role i n the World Economy, New York, Norton, 1945. '.. .7: 6 Cleona Lewis, The United States and Foreign Investment Problems, Washington, D.C.,.Brookings^ Institution,.1948. 7 7 J u l i u s H. Boeke.,_.The I n t e r e s t s o f the V o i c e l e s s Far E a s t : I n t r o d u c t i o n t o O r i e n t a l Economics, Leiden, Univers i t a i r e - Pres Leiden, 1948. ; 8 J u l i u s H. Boeke, Economie van Indonesie, Haarlem, v i e r d e herziene druk, 1953.  - 10 and Economic P o l i c y of Dual Societies as Exemplified Indonesia," appeared i n the same year.^  Deriving  by  Sugges-  tions from J u l i u s H. Boeke's theory, John S. F u r n i v a l l published a series of works, i n 1939 "Netherlands India; A Study of P l u r a l Economy, rtlO i n 1941 "Progress and Welfare i n Southeast Asia; A Comparison of Colonial P o l i c y and P r a c t i c e , "  1 1  and i n 194# "Colonial P o l i c y and  Practice; A Comparative Study of Burma and Netherlands India."  1 2  Nowadays he makes an e f f o r t to analyse the  p o l i t i c a l and economic s i t u a t i o n of Burma. ^ 1  A professor  of Oxford University, S a l l y H. Frankel, who was born i n the Union of South A f r i c a and graduated from the London School, had been continuing  h i s work on South A f r i c a  and b u i l t up the foundation of h i s ' m u l t i r a c i a l society' theory. ^ 1  9 J u l i u s H. Bbeke, Economics and Economic Policy oT Dual Societies as Exemplified by Indonesia, New York; International Secretariat, Institute of P a c i f i c Relations, 1953. ~ . . 10 John S. F u r n i v a l l , Netherlands India; A Study of P l u r a l Economy, Cambridge,.The:University Press, ±939• 7  —  s-r—'  •-•  • • •  12 John S. Furnivall,,, Colonial P o l i c y and Practice; A Comparative Study of Burma and Netherlands India, International Secretariat, I n s t i t u t e of P a c i f i c Relations, Cambridge, The" University Press,„ 194iL 13 John S.. F u r n i v a l l , An Introduction to the P o l i t i c a l Economy of Burma, Rangoon,Peoples' Literature.Committee and.House, 1957. The Government of Modern Burma, New York, International Secretariat, Institute of P a c i f i c Relations, 1958. . " - :. ..r , . . . .~ . : 14 S a l l y H... Frankel, The Economic Impact on Undefdeyelope Society; Essays on International Investment and S o c i a l Change, Oxford, Blackwell. 1953.  - 11 Hence, a f t e r 1948 "dynamic" theory has, roughlyspeaking, been developed d u a l i s t i c a l l y ; one i s the economic dynamic approach that, having i t s s t a r t i n the t r a d i t i o n a l theory of economic development,  i s primarily concerned  with economic adjustment through an international c a p i t a l movement, and another i s the s o c i o l o g i c a l i n s t i t u t i o n a l approach which originated from studies of the s o c i a l structure of underdeveloped  countries.  The economic dynamic approach had i t s basis i n the  thoughts of c l a s s i c a l economists, Adam Smith, Thomas  R. Malthus, and Giovanni B o t e r o , ^ and has been brought up i n the f i e l d of economics as a theory dealing with economic development problem.  and growth as well as the population  In t h i s category, we might include a l l such  distinguished theories as the followings: Adam Smith's formulation of development with natural harmony, the pessimistic population theory of Thomas R. Malthus, David Ricardo's theory of extinction of investment incentive and international s p e c i a l i z a t i o n based upon comparative costs, Karl H. Marx's philosophy of revolutionary development which i s founded on h i s t o r i c a l materialism, Alfred Marshall's. trade cyele„ theory and formulation of economic 15 Giovanni Botero was an I t a l i a n predecessor of a n t i mercantilists , In h i s book, Delle cause d e l l a grandezza e magnificenza d e l l e c i t t a , 1589, he compared the unlimited generative powers of human beings with the l i m i t e d product i v e powers of land.  • - 12 -  development without harmony, Joseph A. Schumpeter's theory of dynamic growth, and J . Maynard Keynes' theory of imperfect employment and theory of s e c u l a r stagnation. The s o c i o l o g i c a l i n s t i t u t i o n a l approach has a r i s e n from the study of the s o c i a l s t r u c t u r e of colonies which was necessary f o r c o l o n i a l a d m i n i s t r a t i o n .  It  includes not only S a l l y H. Frankel's idea of 'economic impact' on underdeveloped s o c i e t y , J u l i u s H. Boeke's theory of 'dual economy,' John S. F u r n i v a l l ' s ' p l u r a l s o c i e t y ' theory and Rupert Emerson s p e s s i m i s t i c i n t e r f  p r e t a t i o n of backward s o c i e t y , but a l s o Bert F. H o s e l i t z ' c o n s i d e r a t i o n of environmental conditions i n underdeveloped c o u n t r i e s , and Charles Wolf's i n s t i t u t i o n a l i s m , t o which I shall refer later.  This approach i s l a c k i n g i n s y n t h e t i c  t h e o r e t i c a l system, but i s worthy of a t t e n t i o n . These two approaches have o r i g i n a t e d s e p a r a t e l y , not only from the h i s t o r i c a l d i f f e r e n c e i n t h e o r e t i c a l background, but more important, from the d i f f e r e n c e of problems which economists have discussed with s p e c i a l emphasis.  Here I would l i k e t o set f o r t h a l l our major  questions: (i)  Problem of c a p i t a l accumulation and economic diversification — - w h i c h contains such problems as unders a v i n g , hoarding of g o l d , s i l v e r and gems,  —  ^  -  shortage of productive investment o p p o r t u n i t i e s , imperfection of the banking system, and usury. (ii)  Problem of balance of payments - — w h i c h mainly means p r i c e i n s t a b i l i t y of primary products, therefore i t implies f l u c t u a t i o n o f f o r e i g n reserves, d e f i c i t i n trade balance and d e t e r i o r a t i o n of terms of trade.  ( i i i ) Problem of t e c h n o l o g i c a l development which i n d i c a t e s l a c k o f s k i l l e d workers, operators, entrepreneurs, and low l e v e l o f productivity. (iv)  Problem of population, labour and employment which means over- and under-population, emigration, and disguised employment.  (v)  Problem of land d i s t r i b u t i o n which i m p l i e s land reform.  (vi)  Problem of i n h e r i t a n c e from c o l o n i a l i s m and of dual or p l u r a l s o c i e t y which includes imperfection of governmental bureaucratic o r g a n i z a t i o n s , i l l i t e r a c y , p r o v i n c i a l i s m , conventionalism, l a c k of co-operative s p i r i t and l a c k of w i l l t o work.  ( v i i ) Problem of p o l i t i c a l a f f a i r s and ideology  - Ik  -  - — w h i c h comprises p o l i t i c a l i n s t a b i l i t y , i d e o l o g i c a l c o n f l i c t , backwardness of p o l i t i c a l p a r t i e s and trade-unionism. In f a c t , among these problems are some which do not cause any t r o u b l e i n c e r t a i n countries; and sometimes they appear i n d i f f e r e n t forms,  ( i ) and ( i i ) are economic  problems, ( v i ) and ( v i i ) are p o l i t i c a l s o c i a l problems, and ( i i i ) , ( i v ) and (v) belong t o both categories, economic and s o c i a l .  Fundamentally, the economic dynamic approach  deals with the f i e l d s from ( i ) t o ( v ) , and the s o c i o l o g i c a l i n s t i t u t i o n a l approach analyses the points from ( i i i ) to  (vii). The problems of population and land are the  oldest questions i n economics.  P a r t i c u l a r l y , the population  problem has r e c e n t l y made tremendous s t r i d e s i n i t s dynamic a n a l y s i s and s t a t i s t i c a l c o n s o l i d a t i o n through c o n t r i b u t i o n s of the United Nations, demographers, and s t a t i s t i c i a n s . The r e a l substance of the population problem l i e s i n the consequence o f an unceasing race between production and population, which was r a i s e d as an issue a hundred and s i x t y years ago by Thomas R. Malthus.  In other words, i t  i s a question of increase and decrease i n per c a p i t a consumption.  The s o - c a l l e d Harrod-Domar formula has been  to some extent adopted as a t o o l t o analyse economic development, and s i n c e then the argument concerning the  - 15 growth r a t e of the economy and the growth r a t e of population has been g e t t i n g more and more heated.  However, we should  not ignore the f a c t that the population s t r u c t u r e i n a country, e s p e c i a l l y age d i s t r i b u t i o n , i s an a b s o l u t e l y important datum f o r f o r e c a s t i n g the f u t u r e employment s i t u a t i o n and c a l c u l a t i n g f l u c t u a t i o n of p r o d u c t i v i t y . To those countries that depend p r i n c i p a l l y upon primary products, land reform and i t s various accompanying problems are the p r e r e q u i s i t e s t o economic development from an i n s t i t u t i o n a l i s t point of view.  With respect t o  t h i s aspect, we must take account of the f o l l o w i n g r e g i o n a l s t u d i e s : those on Indonesia by J u l i u s H.. Boeke, ? Eastern 1  and Southern Europe by W i l b e r t E. Moor, ** Eastern Europe 1  and the Middle East by Doreen W a r r i n e r , ^ and China by 20 J . Lossing Buck, as w e l l as a report e n t i t l e d "Land Reform;.Defects i n Agrarian.Structure.as an Obstacle t o 1  v  16 Roy F., Harrod,.Towards a Dynamic Economics; "Some Recent Development of Economic Theory and Their A p p l i c a t i o n t o P o l i c y , London. M c M i l l a n . 1948. Evsev D. Domar. " C a p i t a l Expansion,'Rate of Growth and Employment," Econometrica, v o l . 14, A p r i l 1946, pp. 137-147. .~ ^ " 17 J u l i u s H. Boeke, The S t r u c t u r e o f Netherlands Indian Economy, New York, I n t e r n a t i o n a l S e c r e t a r i a t , I n s t i t u t e of P a c i f i c R e l a t i o n s , 194?. Id.Wilbert E. Moor, 'Economic Demography of^Eastern and Southern Europe, Geneva, League of Nations, 1945 ' 19 Doreen Warriner, Land arid Poverty I n the Middle East, London, Royal I n s t i t u t e : o f I n t e r n a t i o n a l . A f f a i r s , 1948. . 20 J . Lossing Buck, Some Basic A g r i c u l t u r a l Problems of China ,"Secretariat Paper No. 1, Tenth Conference o f the I n s t i t u t e o f P a c i f i c R e l a t i o n s , Stratford-on-Avon, September 1947, I n t e r n a t i o n a l S e c r e t a r i a t , I n s t i t u t e o f P a c i f i c R e l a t i o n s , 1947. —  Economic Development" by the United Nations. 21 The problems of c a p i t a l accumulation and balance of payments are c l o s e l y r e l a t e d w i t h each other; on t h i s a tremendous number of arguments have been presented by a great many economists, whose motivations and p r o p o s i t i o n s are so d i f f e r e n t , t h a t the s i t u a t i o n s are s u r p r i s i n g l y complicated.  I should not enquire e s p e c i a l l y i n t o them  here, however, I should mention s e v e r a l the names of noteworthy s c h o l a r s : Ragnar N u r k s e ,  22  Jacob ¥iner, ^ Hans W. 2  S i n g e r , ^ Norman S. Buchanan, ^ John H . . A d l e r , ^ Henry C. 2  2  2  21 United. Nations, Department' of Economic A f f a i r s , . Land Reform• Defects i n Agrarian S t r u c t u r e as an Obstacle t o Economic Development,. New York, 1951. "^"^ ~. 22 Ragnar. Nurkse, Problems of C a p i t a l Formation i n Underdeveloped Countries, O x f o r d , ' B a s i l B&ackwell,"1953. "Trade F l u c t u a t i o n s and B u f f e r P o l i c i e s of Low Income Countries A Symposium; The Quest f o r a S t a b i l i z a t i o n P o l i c y i n Primary Producing Countries," K y k l o s , v o l . 11, F a s c i c l e 2, A p r i l 1958, p. 141. ; 23 Jacob V i h e r , I n t e r n a t i o n a l Trade and Economic Development , Lectures d e l i v e r e d a t the N a t i o n a l U n i v e r s i t y of B r a z i l , Glencoe, Free Press, 1952. "24 Hans W. S i n g e r , ^The D i s t r i b u t i o n of Gains Between Investing and Borrowing Countries," American Economic :  Review, v o l . 40, No. 2, May 1950, pp. 473-485.  "The  Mechanics of Economic.Development; A Q u a n t i t a t i v e Model Approach," Indian Ecohomic^Revlew, August 1952. "Obstacles t o Economic Development," S o c i a l Research, v o l . 20, Spring 1953, pp. 19-31. "Problems of I n d u s t r i a l i z a t i o n of Underdeveloped Countries," I n t e r n a t i o n a l S o c i a l Science B u l l e t i n , v o l . 6, No. 2, 1954. 25 Norman S. Buchanan, I n t e r n a t i o n a l Investment and Domestic Welfare. New York, H o l t , 1945. " ~ ~ " 26 John H. A d l e r , "The F i s c a l and.Monetary Implementation of Development Programsy" -American Economic Review, v o l . 42, No.  2, May  1952,  pp.  584-6075:  - 17 W a l l i c h , ? and Peter T. Bauer. ^ 2  2  Generally speaking,  Ragnar Nurkse and Jacob Viner put importance on i n t e r national economic f a c t o r s , and, on the other hand, John H. Adler and Peter T. Bauer emphasize domestic factors such as domestic c a p i t a l accumulation.  In addition to  these works, some publications of the United Nations ^ 2  have to be referred t o . As I w i l l explain i n d e t a i l afterwards, the theory of economic development i s i n considerable confusion at present, mainly because of u n c l a r i t y about the purpose of the theory.  The main question i s , whether the purpose  i s i n d u s t r i a l i z a t i o n of countries, r i s e i n per capita income or increase i n s o c i a l welfare.  The indispensable  conditions f o r i n d u s t r i a l i z a t i o n are not only favourable situations of labour, c a p i t a l and land, but also soundness i n the credit system, p o t e n t i a l i t i e s of domestic and i n t e r national markets, existence of basic i n d u s t r i a l f a c i l i t i e s and promotion of progressive.entrepreneurship.  These  , 2 7 Henry C. Wallich, Monetary Problems of ah Export Economy:^The Cuban Experience,,Cambridge.,Harvard. University Press, 1950. Money, Trade and Economic Growth, New York, McMillan, 1951~ " S t a b i l i z a t i o n of Proceeds from Raw M a t e r i a l Exports," Round Table Conference. International Economic Association, Rio de Janeiro, September 1957. 28 Peter T. Bauer & Frank W. Paish, "The Reduction of Fluctuations i n the Incomes of Primary Producers," Economic Journal, v o l . 62, December 1952, pp. 750-780. 29 United.Nations,;Department of Economic A f f a i r s , Domestic Financing of Economic Development, New York, 1950. I n s t a b i l i t y i n Export Markets of Underdeveloped Countries, New York, 1952.  - 18 f a c t o r s should always be a p p l i e d f i r s t .  At the same time,  we must n o t i c e that i n d u s t r i a l i z a t i o n i s not n e c e s s a r i l y the best way t o r a i s e n a t i o n a l income per c a p i t a or t o increase n a t i o n a l w e l f a r e .  I t depends upon the growth  needed, the p r o p o r t i o n between population and land, or the r e l a t i v e d i f f i c u l t y of c a p i t a l f i n a n c i n g , and we may even imagine a case i n which a g r i c u l t u r a l i z a t i o n i s more recommendable as a t e n t a t i v e measure.  The problem o f  s o c i a l welfare often comes i n t o c o n f l i c t w i t h c a p i t a l accumulation, from a short term view-point.  Preference  between them changes our point of view on various aspects; f o r i n s t a n c e , the population problem.  Without a conscious-  ness of purpose, we could not understand the substance of a problem. A f t e r a l l , i n d u s t r i a l i z a t i o n and r a i s i n g per c a p i t a income aim t o increase the s o c i a l welfare of the inhabitants.  Then we r e a l i z e that dynamic theory has t o  be based on broad p o l i t i c a l , economic and s o c i a l analyses, l e a d i n g t o the o v e r a l l improvement of c o u n t r i e s . I t becomes completely necessary t o analyse the economic development of each country s e p a r a t e l y , and we might say that general t h e o r e t i c a l s t u d i e s , of i n t e r n a t i o n a l c a p i t a l movement and economic r e l a t i o n s h i p among underdeveloped and developed c o u n t r i e s , are not very cogent unless they have c e r t a i n r e a l i s t i c backgrounds.  But t h i s does not  - 19 -  mean that s o c i o l o g i c a l a n a l y s i s can be dynamic theory. Dynamic theory i s growing i n the d i r e c t i o n of a p o l i t i c a l economic theory which i s based upon a l l the ideas I have mentioned above.  Our present dynamic theory i s t r y i n g t o  analyse economic development by l o o k i n g a t s o c i e t i e s from the i n s i d e .  2.  Dynamics i n Economic Theory Among those economists who take the economic  dynamic approach, we n o t i c e s e v e r a l schools.  One of them  i s a school which i s t r y i n g t o e s t a b l i s h dynamic theory by f i g u r i n g out the purpose of economic development through c o n s i d e r a t i o n of i n t e r n a t i o n a l p o l i t i c s and economy. Beside Norman S. Buchanan, whom I mentioned before, are Eugene S t a l e y of Stanford U n i v e r s i t y , Raymond F. M i k e s e l l , a s p e c i a l i s t i n the Middle East a f f a i r s , and s e v e r a l more who might be ragarded as members of t h i s school.  Dynamic  theory i s such a changeful, varying subject, that i t i s q u i t e dangerous t o c l a s s i f y a l l the economists concerned with i t .  For instance, Norman S. Buchanan used t o be an  e n t h u s i a s t i c Keynesian, however, nowadays he i s e s t a b l i s h i n g a more general method.  And I would l i k e t o say that even  Raymond F. M i k e s e l l , judging from h i s p r a c t i c a l work i n the diplomatic f i e l d of the Middle East and i n e d i t i n g the Middle East J o u r n a l , and h i s t h e o r e t i c a l researches,  -  20 -  p a r t i c u l a r l y about f o r e i g n exchange and balance of payments,^° i s expected t o e s t a b l i s h a s i g n i f i c a n t theory i n the f u t u r e . Eugene S t a l e y expresses h i s thought i n h i s s t i m u l a t i n g book, "The Future of Underdeveloped Countries." He begins t o d e f i n e b a s i c human wants: a person wants an adequate l i v i n g , a sense of s e c u r i t y , a sense o f freedom and p a r t i c i p a t i o n , c r e a t i v e o p p o r t u n i t i e s , a sense of belonging, and a sense o f purpose.  S u c c e s s f u l development  should be taken t o mean: "Within the developing country 1. Higher l e v e l of production and r e a l income, widely shared. 2. Progress i n democratic self-government, reasona b l y s t a b l e arid a t the same time responsive t o the needs and wishes o f the people. 3 . Growth o f democratic s o c i a l r e l a t i o n s , i n c l u d i n g broadly shared freedoms, o p p o r t u n i t i e s f o r self-development, and respect f o r i n d i v i d u a l personality. 4. Less v u l n e r a b i l i t y t o Communism and other t o t a l i t a r i a n i s m s , by reason of f o r e g o i n g . In e x t e r n a l r e l a t i o n s 1. Growth of a t t i t u d e s that make f o r a more peacef u l world, and f o r freedom both from e x t e r n a l oppression and from use o f power t o oppress others. 2. Growth of mutually b e n e f i c i a l i n t e r n a t i o n a l trade and investment. 3 . Strengthening o f the o v e r - a l l resources of the f r e e world and the c o l l e c t i v e defense capacity of f r e e peoples against any aggression."31. .30 Raymond F. M i k e s e l l , Foreign Exchange, i n the Postwar World, New Yqrk,;Twentieth Century Fund, 1954. Postwar B i l a t e r a l Payments Agreements, New Jersey, P r i n c e t o n U n i v e r s i t y , 1955. 31 Eugene S t a l e y , The Future o f Underdeveloped Countries; P o l i t i c a l Implications' o f Economic Development, New York, C o u n c i l on Foreign R e l a t i o n s , 1954, pp. 92-95.  - 21  -  He analyses the development, problem from a f r e e world point of view and presents basic questions very c l e a r - c u t form.  in a  He t h i n k s economic development  means change i n s o c i a l i n s t i t u t i o n s . "Economic development i s a massive problem i n human education and s o c i a l readjustment. We are l e a s t l i k e l y t o go wrong when we t h i n k of i t i n these terms r a t h e r than as a problem i n mechanical equip- _ ment and mechanical s k i l l s , important as these are."-*^ ?  He admits the importance of the s o c i o l o g i c a l i n s t i t u t i o n a l approach from the  beginning.  On the other hand, Maurice Dobb discusses problem from a d i f f e r e n t angle.  the  He regards economic  development as a broad p o l i t i c a l and economic p r o p o s i t i o n , and stresses the s u p e r i o r i t y of s o c i a l i s t i c planned economy. A f t e r studying Soviet economic development f o r years i n the United Kingdom, he gave three l e c t u r e s at the U n i v e r s i t y of D e l h i i n India i n 1951  on economic development.  In  these he analysed the motivations towards economic growth through three f a c t o r s : d i v i s i o n of the labour f o r c e , c a p i t a l accumulation, and t e c h n o l o g i c a l innovation,  and  i n d i c a t e d the d i m i n i s h i n g trend of the r a t e of p r o f i t i n c a p i t a l i s t i c economy, as w e l l as the s u p e r i o r i t y of the s o c i a l i s t i c economy i n coercive absorption unemployment and i n . o r g a n i z i n g the.economy.  of  Norman S.  32 Eugene S t a l e y , The Future of Underdeveloped Countries; P o l i t i c a l Implications of Economic Development, New York, C o u n c i l on Foreign R e l a t i o n s , 1954, pp. 388-389.  - 22 -  -  Buchanan and Howard S. E l l i s c r i t i c i z e h i s proposals about r e - d i s t r i b u t i n g farm population, s l i g h t i n g the l i g h t i n d u s t r y and u t i l i z i n g the surplus labour f o r c e , as onesided.  J J  He i s a M a r x i s t (or a t y p i c a l R i c a r d i a n s o c i a l i s t )  and most of the c r i t i c i s m of h i s i n t e r p r e t a t i o n s i s concerned w i t h t h i s aspect.  However, aside from h i s one-  sided ideology, h i s a n a l y s i s has contributed considerably to dynamics i n economic theory. I have t o mention two groups very i n f l u e n c i a l w i t h respect t o dynamics i n economic theory: the Harvard group and the M. I . T. group.  In Harvard U n i v e r s i t y ,  there have been s i x prominent professors: three Keynesians, Seymour E. H a r r i s , A l v i n H. Hansen, Howard S. E l l i s ; an o r i g i n a l economist, Joseph A. Schumpeter; a Schumpeterian, G o t t f r i e d yon Haberler;^4 and Gunnar.Myrdal who has 33 Norman S. Buchanan & Howard S. E l l i s , Approaches t o Economic Development, New York, Twentieth Century Fund, 1955. 34 The admiration o f " G o t t f r i e d von Haberler t o Joseph"A. Schumpeter i s beyond our comprehension. He s t a r t s , "Joseph A. Schumpeter was one of the greatest economists of a l l time," and continues, "the time f o r a complete and d e t a i l e d a p p r a i s a l o f Joseph A. Schumpeter*s s c i e n t i f i c achievements and of h i s place i n the h i s t o r y of economics has not yet a r r i v e d . F u l l a p p r e c i a t i o n of a work of such magnitude and complexity requires greater time distance f o r proper p e r s p e c t i v e . " He says he would l i k e t o be a founder of the Schumpeterian School, but he concludes, "the main reason why no Schumpeterian School developed i s that Joseph A. Schumpeter was n e i t h e r a reformer nor ah e n t h u s i a s t i c p a r t i s i a h of c a p i t a l i s m , s o c i a l i s m , planning, or any other 'ism,' he was a s h o l a r and an i n t e l l e c t u a l . " - Henry W. S p i e g e l , ed., The Development of Economic Thought: Great Economists i n Perspective, New York, John Wiley, 1952. PP. 73$, 749 & 761.  -  23 -  established the theory of cumulative process of causation through c r i t i c i z i n g the u n i l a t e r a l c h a r a c t e r i s t i c of the c l a s s i c a l s t a t i c equilibrium theory and i t s trade theory. Among them, Gunnar Myrdal belongs to the Swedish School and has no d i r e c t connection with the Harvard School. The main figures i n the Harvard group have been Joseph A. Schumpeter and Gottfried von Haberler who were also influenced by the Vienna School.  Although A l v i n H.  Hansen i s certainly to be called a Keynesian, he has based his o r i g i n a l interpretation on a broad point of  35 view.-'-' The c l a s s i c a l system which we f i n d i n the Harvard group has been severely c r i t i c i z e d .  In t h i s  sense, we can set up a clear d i s t i n c t i o n between the Harvard group and the next M. I. T. group, although the l a t t e r has also been influenced considerably by the economics of J. Maynard Keynes.  In connection with  economic dynamics, we could pick out the following economists: Charles P. Kindleberger, Paul N. RosensteinRodan, Max F. M i l l i k a n , Harvey Leibenstein, Everett E. Hagen, Wilfred Malenbaum, and Francis M. Bator.  A l l of  them are members of the Center f o r International Studies of the Massachusetts Institute of Technology. 35 A l v i n H. Hansen, "Post-Keynesian Economics," American Economic Review, v o l . 4 5 , No. 3 , June 1955, pp. 360-372.  -  .- 4 - -r 2  In 1953, Ragnar Nurkse became remarkable as an economist i n the f i e l d of economic dynamics, by publishing a book e n t i t l e d "Problems of Capital Formation i n Underdeveloped C o u n t r i e s . P r e s e n t l y , he i s a professor at Columbia University.  Besides being loosely  connected with Gunnar Myrdal through the theory of the vicious c i r c l e , he i s isolated as f a r as schools 6 r sects are concerned. Ragnar Nurkse was born i n Estonia i n 1907, and a f t e r studying at Vienna University from 1926 to 1934, he worked f o r the Department of Economic Finance of the League of Nations f o r more than ten years. During t h i s time, he handled several publications of the League of Nations, which were concerned with the problem of international currencies during the two World Wars. He explains h i s thought on economic development i n the book "Problems of Capital Formation i n Underdeveloped Countries" which i s o r i g i n a l l y based upon h i s three lectures at the Economic Research Institute of B r a z i l i n Rio de Janeiro, the National Bank of Egypt i n Cairo, and the American Economic Society i n 1951 and 1952.  In t h i s  book he emphasizes the necessity of c a p i t a l formation to r e a l i z e economic development by blocking o f f the vicious c i r c l e . o f poverty.  According to him, t h i s could be done  36 Ragnar Nurkse, Problems of Capital Formation i n Underdeveloped Countries, Oxford. B a s i l Blackwell. 1955.  only by e f f e c t i v e exploitation of disguised unemployment. To r a i s e the inducement to invest, which i s supposed to be very rare i n underdeveloped areas, i t i s absolutely important to create external economies by public investment.  On the other hand, i t i s equally necessary to lower  the propensity to consume, which i s raised by the so-called demonstration e f f e c t .  For making saving a v a i l a b l e , we have  to adopt certain control p o l i c i e s with international cooperation, rather than adopting the t r a d i t i o n a l p o l i c y of economic i s o l a t i o n .  Thus c a p i t a l formation might be  practicable without foreign a i d . his view.  One  This i s the outline of  of his contributions i s to generalize  James S. Duesenberry's demonstration effect,^7 but  he  stresses the demonstration e f f e c t on the consumption side too strongly, and his theories of the buffer stock system and the buffer fund, could not avoid being c r i t i c i z e d by such p r a c t i c a l economists as S i r Sydney Caine, John H. Adler and Peter T. B a u e r . S i n c e Ragnar Nurkse proposes the establishment of a buffer fund by general taxation measures, which could be attained by domestic p o l i c y , therefore he has a d i f f e r e n t approach than the  others.  37 James S. Duesenberry, Income, Saving and the Theory of Consumer Behavior, Cambridge, Harvard University, 1949. 38 Ragnar Nurkse, "Trade Fluctuations and Buffer P o l i c i e s of Low Income Countries A Symposium; The Quest f o r a S t a b i l i z a t i o n Policy i n Primary Producing Countries," Kyklos, v o l . 11, Fascicle 2, A p r i l 1958, p. 141.  - 26 -  _  In t h i s respect we should not forget A l b e r t 0. Hirshman who w r i t e s h i s unique idea of 'development s t r a t e g y ' i n h i s recent work, "The Strategy of Economic Development. Jacob V i n e r , an- i n t e r n a t i o n a l economist a t . P r i n c e t o n U n i v e r s i t y , has a wide perspective.  In 1958  he was i n v i t e d as a guest t o the Mont P e l e r i n S o c i e t y t o which I w i l l r e f e r l a t e r .  He has done a noteworthy  amount of work i n both f i e l d s , academic and p r a c t i c a l . He has given l e c t u r e s a t the f o l l o w i n g u n i v e r s i t i e s ; the U n i v e r s i t y of Chicago (1916-1917, 1925), the Hautes Etudes I n t e r n a t i o n a l e s i n Geneva (1930-1931), Stanford U n i v e r s i t y (1937), Y a l e U n i v e r s i t y (1942-1943), the London School (1946), Cambridge U n i v e r s i t y (1946), and P r i n c e t o n U n i v e r s i t y (1946.-present), and worked f o r the United States T a r i f f Commission (1917-1919), the United States Treasury Department (1939, 1942), the United States Department of State (1943-1952), and the Economic Council of the League of Nations (1933).  In 1952, he published  " I n t e r n a t i o n a l Trade and Economic Development"^ and thereby entered the f i e l d of economic dynamics. H i s point of view, i s r e l a t i v e l y conservative and s i n c e he leaves the 39 A l b e r t 0. Hirschman, The Strategy of Economic Development , New Haven, Y a l e U n i v e r s i t y Press, 1958. ~~"' ^~ 40 Jacob V i n e r , I n t e r n a t i o n a l Trade and Economic Development , Lectures d e l i v e r e d a t the N a t i o n a l U n i v e r s i t y of B r a z i l , Glencoe, Free Press, 1952. rr  „ ' ..... , .:• hope of development t o various f o r c e s , he i s close t o 2 7  Ragnar Nurkse and the group of economists of the United Nations. In a d d i t i o n t o these economists, I must touch on the economic s p e c i a l i s t group of the United Nations as a group t a k i n g the economic dynamic approach.  This  group has published "Measures f o r the Economic Development of Underdeveloped Countries,"4-1 as w e l l as a few books on land reform, domestic f i n a n c i n g of economic development, and i n s t a b i l i t y i n export markets, which I have mentioned p r e v i o u s l y .  These p u b l i c a t i o n s have  decided the d i r e c t i o n of dynamics i n economic theory. They present domestic and i n t e r n a t i o n a l p o l i c i e s i n order t o provide f o r the unemployed, who are c l a s s i f i e d i n t o four categories: t r a d e - c y c l i c a l , seasonal, t e c h n i c a l , and d i s g u i s e d , and t o promote economic development.  We  should pay a t t e n t i o n t o the f a c t that they spend q u i t e a number of pages a n a l y s i n g such i n t a n g i b l e obstacles as t r a d i t i o n s and long-established s o c i a l customs.  They  b r i n g together a l l the p r a c t i c a l problems such as very d i f f i c u l t and d e l i c a t e choices: consumption or investment, human investment or m a t e r i a l investment, p u b l i c work or other productive a c t i v i t y , autarchy or f o r e i g n t r a d e , manufacturing i n d u s t r y or a g r i c u l t u r e .  They.also analyse  41 United Nations, Department;of Economic A f f a i r s , Measures f o r the"Economic Development of Underdeveloped Countries, New f o r k , 1951.  - 28 proportion of government and p r i v a t e work, method of procuring domestic c a p i t a l , r e c t i f i c a t i o n of trade p o l i c y of developed c o u n t r i e s , required amount of f o r e i g n c a p i t a l , and so f o r t h .  However, because they o f f e r many  i n t e r p r e t a t i o n s of various questions, l a c k of t h e o r e t i c a l consistency i s t h e i r c h i e f drawback. Hans W. Singer, who i s a c t i v e i n the Economic Department of the United Nations, i s an i n f l u e n t i a l f i g u r e , having w r i t t e n many a r t i c l e s since 1950.^  2  H i s economic  model of growth i s , i n s h o r t , s e t up i n order t o f i n d a meeting p o i n t , through the marginal e f f i c i e n c y of c a p i t a l , between the p r i o r i t y f o r manufacturing i n d u s t r y and the n e c e s s i t y of maintaining e q u i l i b r i u m among l o c a l i n d u s t r i e s . As a concrete proposal t o r e a l i z e such a meeting p o i n t , he c a l c u l a t e s the required amount of c a p i t a l under a few s u p p o s i t i o n s ; i f a l l the increase i n a g r i c u l t u r a l population were absorbed i n t o n o n - a g r i c u l t u r a l sections and given c a p i t a l equipment, i n the a g r i c u l t u r a l s e c t i o n p r o d u c t i v i t y might be r a i s e d without an increase i n i t s population (that i s , c a p i t a l deepening i s c a r r i e d out) and e x t e r n a l economies would be developed.  In order t o c a l c u l a t e the  42 Hans W. Singer, "The D i s t r i b u t i o n ; of Gains between Investing and Borrowing Countries," American Economic Review,  v o l . 40, No. 2, May  1950, pp. 473-485.  "The Mechanics of  Economic Development; A Q u a n t i t a t i v e Model Approach," Indian Economic Review, August 1952. "Economic Progress i n Underdeveloped Countries" & "Problems o f I n d u s t r i a l i z a t i o n of Underdeveloped Areas," Round Table on Economic Progress. I n t e r n a t i o n a l Economic A s s o c i a t i o n , Santa Margherita Ligure.  - 29  -  v e l o c i t y of economic growth from three data  the saving  r a t i o , the c a p i t a l c o - e f f i c i e n t , and the r a t e of increase i n population  he uses the Harrod-Domar formula.  Mainly  from the p r a c t i c a l aspect of t e c h n o l o g i c a l development, Norman S. Buchanan and Howard S. E l l i s 4 3 c r i t i c i z e Hans ¥. Singer's theory by reducing i t t o the f o l l o w i n g three p o i n t s : the i n f a n t i n d u s t r y argument  the view t h a t  s p e c i a l i z a t i o n i n exporting raw m a t e r i a l s hinders the progress of other i n d u s t r i e s ; the theory of e x t e r n a l economies  the view that the most important gain from  i n d u s t r i a l development i s not the product i t s e l f but the b e n e f i t which the whole s o c i e t y r e c e i v e s ; and a theory of the terms of trade  the view that the terms  of trade of countries s p e c i a l i z e d i n primary i n d u s t r y w i l l inevitably deteriorate. "World r e a l income per c a p i t a , and w i t h i t the standard of l i v i n g of the average human being, i s probably lower now than twenty-five years ago, and perhaps lower than i n 1900," i n d i c a t e s Hans W. Singer i n h i s "Economic Progress i n Underdeveloped Countries."  S t a r t i n g from t h i s  p o i n t , Gurmar Myrdal analyses i n e q u a l i t y i n the i n t e r n a t i o n a l economy and p o i n t s out the shortcomings e x i s t i n g . t r a d e theory.  of  He i s t r y i n g t o e s t a b l i s h a  new  43 Norman;S. Buchanan & Howard S. E l l i s , Approaches t o ~ Economic Development, New York, Twentieth Century Fund,  approach t o the problem-of economic development.^*  He  -  was born i n Sweden i n 1898, and a f t e r graduating from the department of law of the University of Stockholm, he received honorary degrees from Harvard University, Columbia University and the New School f o r S o c i a l Research i n New York.  During 1938 and 1942, he was invited by the  Carnegie Foundation to investigate the American Negro problem and made public "An American Dilemma"4-5 i  n  1944.  Afterwards, he f i l l e d various government posts i n Sweden, such as member of the Upper House, Minister of International Trade and Industry (1945-1947), and Executive Secretary of the Economic Commission f o r Europe (1947-1957).  Then he  v i s i t e d India i n order to make a study of. economic development and economic planning i n the region of South and Southeast Asia which was sponsored by the Twentieth Century Fund of New Y o r k . ^ controversial problems.  He has handled a number of  His c r i t i c i s m of the c l a s s i c a l  theory of international trade could be summed up as follows; 44 Gunnar Myrdal, Development and Underdevelopment; A Note on"the Mechanism^of National and International Economic'Inequality, Cairo, National Bank of Egypt, A p r i l 1957. Rich Land"and Poor; The Road to World Prosperity. New York, Harper, 1958. " . '' ' 45 Gunnar Myr.dal, An American Dilemma; The Negro Problem and Modern Democracy, New York. Harper, 1944. 46 He has not made public his idea a f t e r publishing "Rich Land and Poor; The.Road to World Prosperity," therefore we could see his recent thought only by a pamphlet, Indian Economic Planning; In I t s Broader Setting, New Delhi, Secretary, Congress Party i n Parliament, 1958.  i n the c l a s s i c a l theory, i n t e r n a t i o n a l m o b i l i t y of labour and c a p i t a l i s not a necessary c o n d i t i o n f o r balancing f a c t o r p r i c e s , namely, averaging n a t i o n a l incomes of various countries.  The theory of i n t e r n a t i o n a l trade has been  developed from the a b s t r a c t premise of i n t e r n a t i o n a l immobility of productive f a c t o r s .  This i s not n e c e s s a r i l y  wrong, but i t i s p o s i t i v e l y u n r e a l i s t i c and impossible t o e x p l a i n from t h i s the a c t u a l unbalance of the world economy.  As f a r as t h i s problem i s concerned, the c l a s s i c a l  theory i s ' u n r e l a t e d , and i f we apply t h i s theory without 1  considering i t s premise, i t might be 'wrong.' The most f a t a l premise of the c l a s s i c a l theory i s the premise of s t a b l e e q u i l i b r i u m . In other words, a f t e r a primary change, an economic system always adjusts towards a s t a b l e p o i n t where e q u i l i b r i u m can be a t t a i n e d , unless the next change i s caused. t h i s thought.  Gunnar Myrdal opposes  According t o him,^7 economic changes are  accumulative i f we leave economic process alone.  The  second change w i l l work i n the same d i r e c t i o n as the f i r s t , t h e r e f o r e i n e q u a l i t y instead of e q u a l i t y has been growing i n the world economy.  3.  I n s t i t u t i o n a l i s m and S o c i o l o g i c a l Considerations  k7 Gunnar Myrdal, Development,and Underdevelopment; X Note on the MechariisnTof N a t i o n a l and I n t e r n a t i o n a l Economic I n e q u a l i t y , C a i r o , N a t i o n a l Bank of Egypt, A p r i l  - 32  -  F i r s t of a l l , I must r e f e r to the Chicago School as a group t a k i n g the s o c i o l o g i c a l i n s t i t u t i o n a l approach. Being i n the wake of F r i e d r i c h A. von Hayek, many d i s t i n g u i s h e d economists w i t h new view-points have got t o gether since the end of World War  II.  The  chief active  members are M i l t o n Friedman and Bert F. H o s e l i t z , however, the School a l s o includes Peter T. Bauer of Cambridge U n i v e r s i t y , F r i t z Machlup who was States i n 1940 now  n a t u r a l i z e d i n the United  a f t e r graduating from Vienna U n i v e r s i t y  and  at Johns Hopkins U n i v e r s i t y , and Charles Wolf, J r . of  the U n i v e r s i t y of C a l i f o r n i a , who economic consultant  has r e c e n t l y become an  of the Rand Corporation.  These people  are on the same l i n e as the f o l l o w i n g c o l o n i a l s o c i o l o g i s t s : S a l l y H. Frankel, J u l i u s H. Boeke and John S. F u r n i v a l l , whom I mentioned before. This group opposes s t r o n g l y the ' m a t e r i a l i s t i c ' approach, which seems t o be quite popular i n the United Nations.  For example, S a l l y H. F r a n k e l ^ goes so f a r as  t o say that ' r e a l welfare' and  'increase i n n a t i o n a l income  per c a p i t a ' are completely d i f f e r e n t things.  At the back  of t h i s thought, he has e m p i r i c a l f a c t showing that there i s no close r e l a t i o n s h i p between the s t a t i s t i c s of n a t i o n a l income and the l i v i n g standard of various countries.  His  48 S a l l y H.,Frankel, The,Economic Impact on Underdeveloped S o c i e t y ; Essays on I n t e r n a t i o n a l Investment and S o c i a l Change, Oxford, B l a c k w e l l , 1953.  - 33 -  theory of 'economic impact' regards the process of s o c i a l s t r u c t u r a l change by e x t e r n a l economic impact as the process of f a r - r e a c h i n g s o c i a l economic re-adjustment. His theory i s f i l l e d w i t h a number of complicated f a c t o r s which cannot be explained i n terms of such formulary concepts as i n t e r n a t i o n a l investment, c a p i t a l accumulation or income.  Without a n a l y s i n g the p a t t e r n of s o c i a l welfare  i n r e s p e c t i v e c o u n t r i e s , he continues, economic growth cannot be discussed and here we have t o pay a t t e n t i o n t o s o c i a l t r a d i t i o n s , i n s t i t u t i o n s , and various c h a r a c t e r i s t i c s of 'dual economy' and ' p l u r a l i s t i c r a c i a l s o c i e t y * which have been brought about by r a c i a l d i f f e r e n c e and r a c i a l mixture. I t i s one of the conspicuous i n c l i n a t i o n s of dynamic theory t o study the r e l a t i o n s h i p between s o c i a l i n s t i t u t i o n s and economic development, and obviously they have taken the h i n t from the s t u d i e s which I have mentioned previously.  The p i v o t of the study ha£ J moved from Europe  t o the United S t a t e s , mainly because a f t e r World War I I , the United States has been obliged t o grapple w i t h the d i f f i c u l t problem of economic development i n underdeveloped countries.  I t has become a b s o l u t e l y necessary t o r e -  examine the s i g n i f i c a n c e and meaning of the t r a d i t i o n a l a b s t r a c t economic concepts.  Charles Wolf, J r . , who i s an  economist w i t h the Rand Corporation, Santa Monica,  - 34 C a l i f o r n i a , conducted research under a grant from the Ford Foundation on the problem of the s o c i a l system i n underdeveloped  c o u n t r i e s , while he was a t the U n i v e r s i t y  of C a l i f o r n i a a t Berkeley, j o i n t l y with Chandler Morse of Cornell University.  He made p u b l i c one o f the r e s u l t s of  the research p r o j e c t i n the American Economic Review.^9 According t o Charles Wolf, J r . , while inadequacies of e x i s t i n g technology and investment i n v a r i a b l y c h a r a c t e r i z e underdeveloped  economies, these c h a r a c t e r i s t i c s are  perhaps c o r r e l a t i v e r a t h e r than causal.  The inadequacy of  technology and c a p i t a l formation may be due l e s s t o the shortage o f information about techniques or of p o t e n t i a l savings, than t o the shortage o f the ' r i g h t * kinds o f i n s t i t u t i o n s — ' r i g h t ' implying those kinds o f i n s t i t u t i o n s which permit or s t i m u l a t e , r a t h e r than impede, the adopt i o n o f new techniques and the formation of productive capital.  I n other words, i n s t i t u t i o n s , as w e l l as c a p i t a l  and technology, are productive.  Growth-promoting i n s t i -  t u t i o n s may so b u i l d up the environment i n which f a c t o r s of production meet, t h a t the r a t e a t which  combinations  occur i s a c c e l e r a t e d . Charles Wolf, J r . w r i t e s , " I n s t i t u t i o n r e f e r s t o 49 Charles Wolf, J f . , ; " I n s t i t u t i o n s and Economic Develop' ment," American Economic Review, v o l . 45, No. 5, December 1955, pp. 867-883. He i s a l s o a coauthor w i t h Sidney C. S u f r i i i of C a p i t a l Formation and Foreign Investment i n Underdeveloped Areas, Syracuse U n i v e r s i t y Press. 1958.  •  - 35  —  organizations and p o l i c i e s , both governmental and p r i v a t e , " and i n s t i t u t i o n s may s t i m u l a t e or impede various behaviours l e a d i n g t o economic-growth by t h e i r e f f e c t on " ( i ) the d i r e c t c a l c u l a t i o n of costs and b e n e f i t s ; ( i i ) r e l a t i o n ships between production and d i s t r i b u t i o n (output and income); ( i i i ) the order, p r e d i c t a b i l i t y and p r o b a b i l i t y of economic r e l a t i o n s h i p s ; ( i v ) knowledge of economic o p p o r t u n i t i e s ; and (v) motivations and values,"  For  example, the i n i t i a t i o n s and enforcement of p r o t e c t i o n i s t commercial p o l i c i e s , such as the i m p o s i t i o n of t a r i f f s , f o r e i g n exchange taxes, s u b s i d i e s , or low i n t e r e s t l o a n , t o s t i m u l a t e investment i s a case of ( i ) ; the mercantile g u i l d or c e r t a i n types of insurance systems belong t o ( i i i ) . By u s i n g these f i v e items, C l a r i e s Wolf, J r . c l a s s i f i e s f u n c t i o n a l l y the various i n s t i t u t i o n s which have been developed i n underdeveloped countries and s t r e s s e s the importance o f t h e i r r o l e s i n economic growth. Bert F. H o s e l i t z of the Chicago School goes a step f u r t h e r i n t h i s problem,5° and analyses the r o l e of noneconomic f a c t o r s i n the economic change which occurs i n an economy as leaves a s t a t e of r e l a t i v e l y slow growth of s t a g n a t i o n and s t a r t s a process of r a p i d growth.  He t r i e s  t o analyse the problem of how t o account f o r the e x p l o s i v e change which has so aptly been.called an i n d u s t r i a l 50 Bert F. H b s e l i t z , "Economic Growth and Development; Noneconomic'Factors in-Economic Development," American Economic Review, v o l . 47, No. 2, May 1957, pp. 28-41.  - 36  revolution.  -  What i s most important to him about the  s t r u c t u r a l changes t a k i n g place during the explosive change period i s the adoption of p r e v i o u s l y e x i s t i n g i n s t i t u t i o n s f o r new ends, e s p e c i a l l y f o r c a p i t a l formation. Bert F. H o s e l i t z n o t i c e s a b i g d i f f e r e n c e i n the r a t e of investment a f t e r the explosive change i n an economy and explains t h i s phenomenon by asking whether or not general 'environmental c o n d i t i o n s ' have been created t o make an increase i n net c a p i t a l formation a t t r a c t i v e and achievable. The 'environmental c o n d i t i o n s , ' which enable the r a p i d growth, must be sought c h i e f l y i n noneconomic aspects of the society,, continues Bert F. H o s e l i t z .  Apart from  the build-up of economic overhead c a p i t a l , such as communications and t r a n s p o r t system and investment i n harbour f a c i l i t i e s , some warehouses, and s i m i l a r i n s t a l l a t i o n s favouring e s p e c i a l l y f o r e i g n t r a d e , most of the innovations introduced during the preparatory period are based upon changes i n the i n s t i t u t i o n a l arrangements i n the l e g a l , e d u c a t i o n a l , domestic or m o t i v a t i o n a l orders. Once these new i n s t i t u t i o n s have been created, they operate as g i f t s from the past, c o n t r i b u t i n g f r e e l y t o the vigorous spurt of economic a c t i v i t y i n the period of e x p l o s i v e growth.  To be concrete, the need f o r c a p i t a l  r e q u i r e s the a v a i l a b i l i t y of i n s t i t u t i o n s through which savings can be c o l l e c t e d and channeled  into projects.  - 37 -  :  Hence a banking system or i t s equivalent, i n the form of a s t a t e agency c o l l e c t i n g revenue and spending i t on development p r o j e c t s , i s required. On the other hand, he emphasizes the s i g n i f i c a n c e of the a v a i l a b i l i t y o f s k i l l e d labour of various kinds and i l l u s t r a t e s the d i f f e r e n c e of economic growth between Japan which was i n t e r e s t e d i n Dutch s t u d i e s , and China which had no t e c h n i c a l knowledge.  He a l s o analyses s o c i a l  m a r g i n a l i t y which i s a c t u a l l y a d r i v i n g f o r c e t o the i n s t i t u t i o n a l i z a t i o n o f entrepreneurship, and concludes t h a t the r o l e of s o c i a l m a r g i n a l i t y which might be regarded as s o c i a l deviance i s extremely manifest. From t h i s simple presentation we see that S a l l y H. Frankel's theory of s t r u c t u r a l change i s modernized and made concrete by Bert F. H o s e l i t z . One of the groups, using the s o c i o l o g i c a l i n s t i t u t i o n a l approach, i s the Mont P e l e r i n Society which has a close r e l a t i o n s h i p t o the Chicago School. This s o c i e t y has a d i f i n i t e purpose, t o study and develop the philosophy o f F r i e d r i c h A. von Hayek who made p u b l i c h i s idea of pure i n d i v i d u a l i s m by the book e n t i t l e d "The Road t o Serfdom."51  i n 1944, when the opinions on the post-war  economic system were sharply d i v i d i n g i n t o l i b e r a l economists and planning economists, F r i e d r i c h A. von 5 l ~ F r l e a r i c h A. von Hayek, The Road t o Serfdom, Chicago, U n i v e r s i t y of Chicago Press, 1944.  _  -  .  - 38 -  ,  _  Hayek published t h i s book, i n which he censures  planned  economy as t o t a l i t a r i a n i s m , from a purely i n d i v i d u a l i s t i c point of view.  Among the members of the S o c i e t y are the  l a t e Walter Eucken of Germany, Ludwig Erhard, M i n i s t e r of Economics f o r Germany, Henry H a z l i t t of the New York Times, Wilhelm Ropke of S w i t z e r l a n d , Peter T. Bauer of Cambridge U n i v e r s i t y , M i l t o n Friedman of the U n i v e r s i t y of  Chicago,  S a l l y H. F r a n k e l , F r i t z Machlup, a number of d i s t i n g u i s h e d people from the United S t a t e s , the United Kingdom, Germany, France, I t a l y , S w i t z e r l a n d , Japan and so f o r t h .  Recently,  the Mont P e l e r i n S o c i e t y has shown a deep i n t e r e s t i n economic growth, and p a r t i c u l a r l y Peter T. Bauer i s worth watching. To Peter T. Bauer, what i s c a l l e d the orthodoxy*  'new  represented by Gunnar Myrdal, Ragnar Nurkse,  a part of the M. I . T. group and the United Nations group, s u f f e r s from many misunderstandings various aspects.  and f a l l a c i e s i n  The d i s c u s s i o n s of the 'new  orthodoxy'  are based on the theme of the v i c i o u s c i r c l e of poverty and backwardness, however, although there are c e r t a i n d i f f e r e n c e s i n ways of expression, these arguments simply repeat the same theme.  For instance, according t o the  "Economics** of Paul A. Samuelson-* which i s the most popular 2  t e x t book i n north America: 52 Paul A. Samuelsbn, Economics; An. Introductory A n a l y s i s , 2nd e d i t i o n , New York, McGrow-Hill, 1951, p. 49.  "Backward nations cannot get t h e i r heads above water because t h e i r production i s so low that they can spare nothing f o r c a p i t a l formation by which t h e i r standard of l i v i n g could be raised .J 1  Ragnar Nurkse says i n h i s "Problems of Capital Formation i n Underdeveloped C o u n t r i e s " ^ that: "In discussions of the" problem of economic development, a phrase that crops up frequently i s 'the vicious c i r c l e of poverty.' It implies a c i r c u l a r constellation of forces tending to act and react upon one another i n such a way as to keep a poor country i n a state of poverty." And the same idea i s expressed i n Gunnar Myrdal's International Economy"^  a s  "An  follows:  " I t i s , iii f a c t , the r i c h e r countries that are" developing while the poorer areas, with the large population, are stagnation or progressing much more slowly. - — For mankind as a whole there has a c t u a l l y been no progress at a l l * As Mr. Hans W. Singer has r i g h t l y pointed o u t , " world r e a l income per capita, and with i t the standard of l i v i n g of the average human being, i s probably lower now than twehty-five years ago, and perhaps lower than i n 1900, because'the nations that have rapidly raised t h e i r economic standards have been a shrinking proportion of the t o t a l world population." Furthermore, continuously investment  the arguments follow t h i s theme  to cut o f f t h i s vicious c i r c l e , private  i s i n s u f f i c i e n t , and  inter-governmental  donations on a large scale and loans with subsidy by 53 Ragnar Nurkse, Problem's of Capital Formation i n Underdeveloped Countries, Oxford, B a s i l Blackwell. 1953, p. 4. '"" ~ ~' 54- Gunnar Myrdal, An Interhati onal Ecbhomy; Problems and Prospects, New York, Harper, 1956, pp. 1-2; ' ' 55. Hans W. Singer, "Economic Progress i n Underdeveloped Countries," Round Table bri Economic Progress, International Economic Association, Santa Margherita Ligure. :  - 40 developed countries are needed.  Peter T. Bauer- believes  that most of these discussions are fundamentally mistaken.56 According to Peter T. Bauer, these discussions f i n d underdeveloped countries a l l i n poverty, however, they usually use the term, underdeveloped countries, to cover the whole of Asia (with the possible exception of Japan), A f r i c a , L a t i n America (with Argentina sometimes omitted) and parts of Eastern and Southern Europe. way,  the underdeveloped areas contain about  of the population.of.the.world.57  Defined i n t h i s three-quarters  These areas are diverse  56 His b e l i e f i s shown i n the following l i n e s . "Over the past two decades there has grown up on both sides of the A t l a n t i c a new orthodoxy of thought regarding the ancient problem of economic development an orthodoxy that i s based l a r g e l y on f a l l a c y . "--r- I do believe that the new orthodoxy has tended to promote some very misleading doctrines and delusions. S p e c i f i c a l l y , I hold that the doctrine of an unbreakable vicious c i r c l e of poverty i n the underdeveloped areas i s l a r g e l y a myth. Lastly, I would stress that economic development i n a meaningful sense i s not jiist an increase i n the" volume of goods and services a nation produces. It i s an increase i n goods and services that people Want and have f r e e l y chosen. It i s a widening of human options. ' It i s not true that the younger nations are caught i n a vicious c i r c l e of poverty. It i s not true that they have stagnated or must stagnate. What i s true i s that t h e i r further advance depends fundamentally on t h e i r adoption of measures that w i l l free up rather than constrict exchange, i n d i v i d u a l e f f o r t , the d i v i s i o n of labour, and private c a p i t a l formation, and w i l l give play to what are sometimes s l i g h t l y referred to as the middle-class of •bourgeois' v i r t u e s . " Peter T. Bauer, "Economic Growth- and the New Orthodoxy," Fortune, v o l . 57, No. 5, May 1958, pp. 142-  .198.  ••  .  57 Peter T. Bauer & B e r s i l S. Tamey, The Economics of Under-developed Countries, Cambridge, Cambridge University Press, 1957.  - 41 i n many aspects, such as i n density and growth- of populat i o n , p o l i t i c a l and s o c i a l i n s t i t u t i o n s , economic growth, and economic q u a l i t y of people.  In s p i t e o f t h i s d i v e r s i t y ,  most of the t h e o r i e s b r i n g them up together f o r d i s c u s s i o n s . This i s completely wrong.  The p r e s e n t l y developed countries  used t o be underdeveloped, and they have accomplished p r o s p e r i t y w i t h l i t t l e e x t e r n a l c a p i t a l and no donations. Peter T. Bauer c r i t i c i z e s the theory of the v i c i o u s c i r c l e by using a number o f f a c t s and s t a t i s t i c s . Peter T. Bauer puts s p e c i a l emphasis on the investment i n cash crops a t the beginning formation.  of c a p i t a l  This s o r t o f investment i s very e f f i c i e n t  and has played a n o t i c e a b l e r o l e i n the process of economic development i n a good many c o u n t r i e s , but i t i s ignored even by the s t a t i s t i c s o f the United Nations.  And the  0  f a c t that rubber plants and cocoa trees are e x i s t i n g as cash crops i n Malaya and i n Ghana, denies the premise of the new orthodoxy* that the natives are incapable of T  e s t a b l i s h i n g long-run economic programmes.  There i s no  reason t o say that manufacturing i n d u s t r y i s the only measure t o promote economic development, and the study of economic h i s t o r y does not j u s t i f y the idea that governmental a i d on a large s c a l e s o l e l y makes i n d u s t r i a l i zation possible. I t seems t o me that Peter T. Bauer's theory i s  brought up from the antagonism to Ragnar Nurkse*s buffer p o l i c y which was revealed at the symposium of Kyklos i n A p r i l 1958,  p  and h i s theory i s the same as the idea of,  S i r Sydney Gaine, who i s an authority on Malayan a f f a i r s , besides being- Director of the London School of-Eeonomics. Thus, Peter T. Bauer, who strongly objects to the development projects based upon the 'new orthodoxy' theory, inevitably takes up the problem of p r i o r i t y i n national schemes i n assessing the gains of private enterprise, which i s explained by Gunnar Myrdal.59  The  'new orthodoxy' leaves no doubt that the increase i n governmental investment by compulsory saving i s absolutely necessary to r a i s e national product, however, Peter T. Bauer believes i t i s not necessarily i m p o r t a n t . ^  We  f i n d several cases of economic development without compulsory saving, and besides, nobody can be sure that forced saving effects c a p i t a l accumulation or increase i n output.  Compulsory saving i s merely a money s h i f t  58 Ragnar Nurkse, "Trade Fluctuations and Buffer Poliriies of Low Income Countries A Symposium; The Quest f o r a S t a b i l i z a t i o n P o l i c y " i n Primary Producing Countries," Kyklos, v o l . 1 1 , F a s c i c l e 2, A p r i l 1958, p. 141. In t h i s symposium, ten economists were i n attendance: Peter T. Bauer, Frank W. "Paish, John H. Adler, S i r Sydney Caine, Roy F. Harrod, etc. 59 Gunnar Myrdal, Development and Underdevelopment; A Note on the MechanisnTof National and International Economic Inequality, Cairo, National Bank of Egypt. A p r i l 1957, P P . 66-67, 73. 60 Peter T. Bauer & B e r s i l S. Yamey, The Economics of Under-developed Countries, Cambridge, Cambridge University Press, 1957, PP. 190-208.  ;  -  -43  -  •  from the p r i v a t e sector t o the p u b l i c s e c t o r , and i f we take account of i t s e f f e c t on p r i v a t e c a p i t a l  formation,  we would know compulsory saving makes l i t t l e c o n t r i b u t i o n t o c a p i t a l supply.  Whatever measures of investment we  formulate, the increase i n output i s not simple f u n c t i o n of investment and even though an increase i n output i s brought about, i t i s not always a d e s i r a b l e output. In b r i e f , before d i s c u s s i n g the problems of compulsory saving, development p r o j e c t or inter-governmental l o a n , Peter T. Bauer t h i n k s , c o n s o l i d a t i o n of o r g a n i z a t i o n f o r r a i s i n g r a c i a l c a p i t a l by underdeveloped countries themselves, and removal of r e s t r i c t i o n t o the i n d u c t i o n of f o r e i g n c a p i t a l , should be done.  He i s a  l i b e r a l i s t who advocates the n a t u r a l economic  development  through f r e e a c t i v i t y of p r i v a t e e n t e r p r i s e . In h i s "Economic A n a l y s i s and P o l i c y i n Underdeveloped Countries," Peter T. Bauer says we have t o remember the d i s t i n c t i o n s between p o s i t i v e economics, normative economics and the a r t of p o l i t i c a l economy. P r o p o s i t i o n s of p o s i t i v e economics r e f e r t o what i s , those of normative economics t o what ought t o be, and those of the a r t of p o l i t i c a l economy t o the means f o r obtaining s p e c i f i e d r e s u l t s . To him, p o s i t i v e economics has primacy i n the sense that the most s i g n i f i c a n t and d i s t i n c t i v e c o n t r i b u t i o n s the economist can make t o  normative economics and t o the a r t of p o l i t i c a l economy stem from the g e n e r a l i z a t i o n s e s t a b l i s h e d by p o s i t i v e economics.  At l a s t he d e c l a r e s , "I;.,shall d e a l almost  e n t i r e l y w i t h p o s i t i v e economics."^l  He continues, when  we understand the r e a l conditions of  underdeveloped  c o u n t r i e s , such economic g e n e r a l i z a t i o n s as the law of demand, the law of supply, Gresham's Law, the dependence of the d i v i s i o n of labour on the extent of the market, the tendency of i n d i v i d u a l s t o t u r n t o a c t i v i t i e s y i e l d i n g the highest net advantage w i t h i n the o p p o r t u n i t i e s open 62 t o them, become very u s e f u l .  Peter T. Bauer and M i l t o n  Friedman, the members of the Cambridge School of Economics, are f r e q u e n t l y confronted w i t h the 'Keynesians*  of Harvard  U n i v e r s i t y and M.-.I. T. w i t h respect to concrete problems 61 Peter T. Bauer, Economic Analysis'and P o l i c y i n Underdeveloped Gouhtries, Cambridge, Cambridge U n i v e r s i t y Press, 1957, PP. 6-7. ' 62 Peter T~. Bauer, Economic A n a l y s i s and P o l i c y i n Underdeveloped Countries, Cambridge, Cambridge U n i v e r s i t y Press, 1957, PP. 8-9. 63 The Cambridge Economic Handbooks, t o which both of them j o i n , were organized by J . Maynard Keynes f i r s t l y , and succeeded by S i r Dennis H. Robertson i n 1936 and"by Claude W. Guillebaud i n 1946. In the o r i g i n a l i n t r o d u c t i o n , J . Maynard Keynes wrote, "The w r i t e r s of these volumes b e l i e v e themselves"to be"orthodox members of the Cambridge School of Economics. At any r a t e , most of t h e i r ideas about the s u b j e c t , and even t h e i r p r e j u d i c e s , are t r a c e a b l e to the contact they have enjoyed w i t h the w r i t i n g s and l e c t u r e s of the"two economists who have c h i e f l y i n f l u e n c e d Cambridge thought f o r the p a s t " f i f t y years, Dr. M a r s h a l l and.Professor Pigou." Peter T. Bauer~& B e r s i l S. Yamey, The Economics of Under-developed* Countries, Cambridge, Cambridge Univers i t y Press, 1957, p. v.  -;. of approaches.  ... ~ 45 The a t t i t u d e of the Cambridge School t o  examine c l o s e l y various premises about n a t i o n a l income, labour f o r c e , n a t u r a l resources, human resources, and the r e l a t i o n s h i p between c a p i t a l and economic growth, i s a f r o n t a l challenge t o the 'new orthodoxy' who seem t o be t r y i n g t o apply a n a l y t i c a l t o o l s without c o n s i d e r a t i o n of those premises. M i l t o n Friedman i s the nucleus of the Chicago School and h i s a c t i v i t y i s now n o t i c e a b l e .  He was born  i n Brooklyn i n 1912 and during World War I I , he worked f o r the N a t i o n a l Bureau of Economic Research as a member of the research s t a f f .  At that time, he c o l l a b o r a t e d with  C a r l Shoup and Simon S. Kuznets and r e c e n t l y he s t a r t e d the  study on Keynes with a new approach. P r i m a r i l y , the Chicago School has been i n c l i n e d  to take a new look at the post-Marshallian economics brought up i n Europe.  M i l t o n Friedman f o l l o w s i n the  wake of t h i s b a s i c trend.  For instance, he admits the  usefulness of the u t i l i t y theory which was b u i l t up by L i o n Walras and others, however, he makes a searching i n q u i r y i n t o the problem of u t i l i t y measurement and t r i e s to formulate a more r e a l i s t i c system.  He c r i t i c i z e s Leon  Walras; "His problem i s the problem of form, not of content: of d i s p l y i n g an i d e a l i z e d p i c t u r e of the economic system, not of c o n s t r u c t i n g an engine f o r analysing  - 46 concrete p r o b l e m s . " ^  Therefore, as f a r as pure theory i s  concerned, he i s completely d i f f e r e n t than Joseph A. 65 Schumpeter. y  4.  Professor Rostow*s Formulation of Conclusions from the above As I explained a t the beginning, the f i n a l  determination of the genealogy of various approaches t o economic development r e q u i r e s greater time f o r proper perspective.  D i f f e r e n t opinions, seemingly founded on  d i f f e r e n t bases a t a t r a n s i t i o n a l p e r i o d , u s u a l l y become a broad system by improving each other a t a s y n t h e s i z i n g period. This process has been s t a r t e d i n the f i e l d of dynamic theory by Professor Walt Whitman Rostow.  First  of a l l , I should l i k e t o i l l u s t r a t e h i s p o s i t i o n with respect t o the whole dynamic theory. ° 64 M i l t o n Friedman, "Leon.Walras and His Economic System,** American Economic Review, v o l . 45, No. 5, December 1955,  P.  wr. •• - ••- -  ™""  65 Joseph A; Schumpeter, H i s t o r y of Economic"Analysis, New "York, 1954, p. 827. He says; "So f a r as pure theory i s -concerned, Walras i s ~ the"greatest of a l l economists." 66 This i l l u s t r a t i o n i s simply designed t o show the general p o s i t i o n s of a l l the economists I have mentioned p r e v i o u s l y i n order t o t r a c e the main trend of dynamic theory and throw a new l i g h t on Professor Rostow's theory. I t i s n e i t h e r a complete schematization of the approaches nor a comprehensive survey of the' t h e o r i e s . Since a thought of each economist i s many-sided, a s t r i c t c l a s s f i c f i t i o n of the t h e o r i e s i s very misleading and i t should be c a r e f u l l y avoided.  - 47 -  DYNAMIC THEORY  Sociological Institutional Approach  Economic Dynamic Approach  Chicago School C.WolfJr.J.H.BoekeJ.S.FurhivallS.H.FrankelB.F.HoselltzF.Machlup-  -Harvard Group hS.E.Harris -A.H.Hansen -H.S.Ellis L-G.HaberlerA M. I . T. Group ~ -C.P.Kihdleberger -P.N.Rbsehstein-Rodan -M.F.Millikan -H.Leibenstein -E.E.Hagen " -W.Maleiibaum -F.M.Bator (-U. N. Group L-H .W. Singer N.S.Buchanan E.Staley R.F.Mikesell •R. Nurkse -A.O.Hirs chman -J.Viner G. Myrdal M.Dobb  L  /Mont P e l e r i n Society F. A. Hayek-] f  Cambridge SchoolP.T.Bauer-1 M.FriedmanJ  L  V V  Walt Whitman Rostow Professor Walt Whitman Rostow was born i n New York i n 1916. A f t e r having made h i s doctor's degree i n Y a l e U n i v e r s i t y i n 1940,  .  - •' .}.• > he  began h i s career as an i n s t r u c t o r o f economics i n New York.  During these twenty years, he has done such works  as f o l l o w s :  - 48  -  Walt Whitman Rostow (Year) (Career) 1938  1939  1940  1941 1942 1943  1944 1945  (Publications)  • ---Investment & the Great Depression-^" ---Investment & Real Wages; 1 8 7 3 - 1 8 8 6 Explanations of ', "the Great Depression; l 8 7 3 - l £ 9 6 I n s t r u c t o r of Economics Columbia U n i v e r s i t y The Growth & F l u c t u a t i o n of ' the B r i t i s h Economy; 1 7 9 0 - 1 8 5 0 Business Cycles; m Harvests & P o l i t i c s ; 1 7 9 0 - 1 8 5 0 ' Adjustments &"Maladjustments a f t e r the Napoleonic Wars72  0 8  o 9  / u  1  A s s i s t a n t Chief German-Austrian Economic D i v i s i o n , Dep t of State T  1946  1947 1948 1949  1950  Professor of U.S. H i s t o r y Oxford U n i v e r s i t y — T h e American Diplomatic R e v o l u t i o n A s s i s t a n t t o Economic Secretary Economic Commission f o r Europe B r i t i s h Econ.omy of the Nineteenth Century7*«' (ditto)  73  Professor of U.S. H i s t o r y Cambridge U n i v e r s i t y — T h e United Nations» Report on F u l l Employment'5 The Terms of Trade , i n Theory & P r a c t i c e ' Professor of Economic H i s t o r y 0  1951  1952 1953  M.  1:  T.'  - -  The"Historical Analysis of the Terms of T r a d e 7 7 Some Notes on Mr. Hicks & History7°  (ditto) S t a f f Member Center f o r I n t ' l Studies M. I . T. " The Dynamics Process of Economic Growth of Soviet S o c i e t y 9 (ditto) <• -  78 0  - 49 1953 1954 1955  1956  (ditto) (ditto)  •The Prospects f o r Communist China8 1 •Trends "in-the " A l i o cat i o n <*o of Resources i n Secular Growth ^ •An American P o l i c y i n Asia°3 r  5  (ditto)  •The"Take-off i n t o S e l f - s u s t a i n e d Growth ^ 45  1957 1958 1959 I960  (ditto) (ditto) (ditto) (ditto)  -A Proposal; Key t o an E f f e c t i v e Foreign P o l i c y 85  •Rostow on Growth; A Non^Communist M a n i f e s t o  tfD  67 Walt Whitman Rostow, "Investment and the Great ~~ Depression," Economic H i s t o r y Review, v o l . 8 , Wo. 2 , May =  193-8.  6 8 Walt Whitman Rostow, "Investment and Real Wages; Economic H i s t o r y Review, v o l . 9 , No. 2 , May  1873-1886,"  1939,  P P . 144-159.  ~~  -69 Walt Whitman Rostow, "Explanations o f the Great Depression; 1873-1896;"An H i s t o r i a n ' s View of Modern Monetary Theoryy" Economic H i s t o r y , v o l . 4 , No. 15, February 1940, PP. 356-370.  "  "70 Walt Whitman Rostow, Arther'D. Gayer & Anna J . Schwartz, The Growth and F l u c t u a t i o n of the B r i t i s h Economy; 1 7 9 0 - 1 8 5 0 ; An H i s t o r i c a l , S t a t i s t i c a l , and T h e o r e t i c a l Study of the B r i t a i n ' s Economic Development, Oxford, The Univers i t y Press, 1941. • • -• • = • "71." Walt Whitman Rostow, "Business Cycles, Harvests and p o l i t i c s ; 1 7 9 0 - 1 8 5 0 , " J o u r n a l o f Economic H i s t o r y , v o l . 1, No. 2 , November 1941, pp. 206-221. 72 Walt Whitman Rostow, "Adjustments and Maladjustments a f t e r the Napoleonic Wars," American Economic Review, v o l . 3 2 , No. 1, Part 2 , March 1942, pp. 13-24. .".73' Walt Whitman Rostow, The American Diplomatic Revolut i o n , Ah inaugural l e c t u r e d e l i v e r e d before the U n i v e r s i t y of Oxford on November 1 2 , 1946, Oxford, Clarendon P r e s s , 1947.  " "  74"Walt Whitman Rostow, B r i t i s h Economy of - the Nineteenth Century; Essays, Oxford, Clarendon Press, 1948.  _  - - 50  -  Judging from h i s career and p u b l i c a t i o n s , we could see t h a t - h i s dynamic theory i s based upon a broad study of Europe, the United S t a t e s , the Communist area, and A s i a as w e l l as a h i s t o r i c a l perspective.  He commenced  extensive c o n t r i b u t i o n t o dynamic theory by "The Process 75 Walt Whitman Rostow, "The United Nations' Report on F u l l Employment," Economic J o u r n a l , v o l . 55, June 1950,  P  P  .  1,  1951,  3  2  3  -  3  5  0  .  ~  ~  "  76 Walt Whitman Rostow, "The Terms of Trade i n Theory and'Practice," Economic H i s t o r y Review, v o l . 3, No. 1, 1950, pp. 1-20. " - ' 77 Walt Whitman Rostow, "The H i s t o r i c a l A n a l y s i s of the.Terms of Trade," Economic H i s t o r y Review, v o l . 4, No. PP.  73-76.  78 Walt Whitman Rostow, "Some Notes on Mr. Hicks and H i s t o r y , " American Economic Review, v o l . 41, No. 3, June 1951,  PP.  pp.  25-48.  316-324.  •  79 Walt Whitman Rostow, The Process of Economic Growth, New York, Norton, 1952. ..;..80;.w~a.ltWhit;manRostow,; A l f r e d Levin & others, The Dynamics of Soviet S o c i e t y , Center f o r 'International s t u d i e s , M. I . TV, New York, Norton, 1953. 81 Walt Whitman""Rostow, Richard W. Hatch, Frank A. . Kierman, Jr.., Alexander E c k s t e i n & others, The Prospects f o r Communist China, Center f o r I n t e r n a t i o n a l S t u d i e s , M. I . T., Cambridge-New York, Technology Press of M. I . T. & Wiley, 1954. " 82 Walt Whitman Rostow, "Trends i n the A l l o c a t i o n of Resources i n Secular Growth," Economic Progress, ed., L. H. Dupriez, Louvain, I n s t i t u t de Recherches Economiques et S o c i a l e s , 1955. " 83 Walt Whitman Rostow & Richard W. Hatch, An American P o l i c y i n A s i a , Cambridge-New York, Technology Press of M. I . T. & Wiley", 1955. 84 Walt Whitman Rostow, "The Take-off i n t o S e l f sustained' Growth," Economic J o u r n a l , v o l . 66, March 1956, "  85 Walt Whitman Rostow, Max F. M i l l i k a n , Paul N. Rosenstein-Rodan & others, A Proposal; Key t o an E f f e c t i v e F o r e i g n P o l i c y , Center f o r I n t e r n a t i o n a l Studies, M. I . T., New York, Harper, 1957. "86"Walt Whitman Rostow, "Rostow on Growth; A NonCommunist Manifesto," Lectures d e l i v e r e d at the U n i v e r s i t y of Cambridge, Economist, August 15, 1959, pp. 409-416. Economist, August 22, 1959, pp. 524-531.  of Economic Growth" i n which he suggested that v a r i a t i o n s i n the behaviour of people relevant t o economic can be summed up i n a number of p r o p e n s i t i e s  development propensities  to seek m a t e r i a l g a i n , t o propagate and rear c h i l d r e n , t o s t r i v e f o r m a t e r i a l advance, t o pursue pure science, t o apply science t o the m a t e r i a l world, and he d i v i d e d the  growth process i n t o the accomplishment of c e r t a i n  preconditions  the achievement of the appropriate combi-  nations of those p r o p e n s i t i e s , and the process of development i t s e l f , which f o l l o w s when the preconditions have been met. H i s second d i r e c t c o n t r i b u t i o n i s "Trends i n the  a l l o c a t i o n of Resources i n Secular Growth" which  emphasizes s t r a t e g i c sectors of economic  development  i n which concentrated investment and other inputs lead t o r a p i d growth.  He makes a d i s t i n c t i o n between primary  growth, stimulated by increase i n demand p a r t l y and by innovations mostly, and the p a r a l l e l growth of supplementary growth s e c t o r s , needed t o supply the intermediate products and f a c t o r inputs f o r the primary sector.  The  increase i n income produced by these sectors s p i l l s over i n t o derived growth s e c t o r s , s e l e c t e d by the d i c t a t e s of income e l a s t i c i t y . Those two works are regarded as h i s preparatory stage.  He has become one of the most s t i m u l a t i n g economists  s i n c e World War I I , because of the f o l l o w i n g works.  "The  - 52 -  Take-off i n t o S e l f - s u s t a i n e d Growth" i s an epoch-making a r t i c l e i n the f i e l d of dynamic theory.  Not only by h i s  i n d u c t i o n of the theory of t a k e - o f f from wide p r a c t i c a l f a c t s , but a l s o by t a k i n g account of s o c i a l s t r u c t u r e and i n s t i t u t i o n a l o r g a n i z a t i o n as w e l l as economic f a c t o r s , the new movement t o f i l l up the gap between economic dynamic approach and s o c i o l o g i c a l i n s t i t u t i o n a l approach has been brought out.  On the one hand, he gives the  fundamental idea t o Bert F. H o s e l i t z who modernizes and makes concrete the theory of s t r u c t u r a l change of S a l l y H. Frankel by applying h i s t h e o r y . ? 8  On the other hand,  i t i s developed i n h i s next work with Max. F. M i l l i k a n "A Proposal; Key t o an E f f e c t i v e Foreign P o l i c y " which recommends the r e c o n s i d e r a t i o n of the e s s e n t i a l i n t e n t i o n of f o r e i g n a i d , u s u a l l y based upon the simple hope of preventing communization by g r a t i f y i n g the hunger of the poor masses of underdeveloped c o u n t r i e s . His t a k e - o f f theory, which he made p u b l i c i n 1956, was f i r s t l y adopted by both approaches, the M. I . T. group of the economic dynamic approach and the Chicago School of the s o c i o l o g i c a l i n s t i t u t i o n a l approach, and hence he was s i t u a t e d i n the middle of the two approaches. H i s p o s i t i o n was passive at t h i s stage.  However, during  87 Bert F. H o s e l i t z , "Economic Growth and Development; Nohecbnomic Factors i n Economic Development," American Economic Review, v o l . 47, No. 2 , May 1957.  -  53 -  the f a l l of 1958, a f t e r one year s i l e n c e , he made the most s t r i k i n g l e c t u r e s , "An Economic H i s t o r i a n ' s Way of Envisaging the Sweep of Modern H i s t o r y , " a t Cambridge U n i v e r s i t y , which were summarized  i n 'The Economist'  under the t i t l e of "Rostow on Growth; A Non-Communist Manifesto." The c r i t i c i s m of Peter T. Bauer t o the 'new orthodoxy' or those text-book-litoe-works by Charles P. K i n d l e b e r g e r , ^ Geral M, Meier and Robert E. B a l d w i n , ^ and Benjamin H. H i g g i n s  9 0  9  could be regarded as the attempts  t o synthesize the d i f f e r e n t approaches t o dynamic theory, but t h e i r arguments are e i t h e r very narrow and r e s t r i c t e d or simply c o l l e c t i v e .  As I w i l l discuss i n d e t a i l a f t e r -  wards, Walt Whitman Rostow has r e c e n t l y made a s y n t h e t i c dynamic theory based upon a c t u a l f a c t s by using the economic dynamic technique under the c o n s i d e r a t i o n of sociological institutionalism.  His a t t i t u d e i s no longer  passive but a c t i v e . In "A Non-Communist Manifesto," we f i n d the c h a r a c t e r i s t i c s of Charles Wolf, J r . , S a l l y H. F r a n k e l , Bert F. H o s e l i t z , P e t e r T. Bauer, as w e l l as Ragnar Nurkse, Eugene S t a l e y , and the M. I. T. group.  I n a sence, he  88 Charles P. Kindleberger, Economic Development, New York, McGraw-Hill,"1958. 89 Gerald~M. Meier & Robert E."Baldwin, Economic Development; Theory. H i s t o r y , P o l i c y , New York, Wiley, 1957. 90 Benjamin,H.Higgins, Economic Development; P r i n c i p l e s , Problems and P o l i c i e s , New York, Norton, 1959.  ;  - 54 -  sets down many f a m i l i a r t r u t h s i n a new and i n t e r e s t i n g f o r m u l a t i o n , however, as 'The Economist' says, h i s broad understanding of e x i s t i n g t h e o r i e s and h i s o v e r a l l research of p r a c t i c a l f a c t s make me b e l i e v e that h i s dynamic theory represents  one of the most s t i m u l a t i n g  c o n t r i b u t i o n s made t o economic and p o l i t i c a l thought s i n c e World War I I .  CHAPTER I I I . THE THEORETICAL BASIS OF PROFESSOR ROSTOWS INTERPRETATION 1 . The Basic Theory 2. The Process of Development 3. I l l u s t r a t i o n s from Various Countries  "We must not p i c t u r e t o ourselves an u n r e a l world as i t might, or ought t o be, and make schemes f o r i t . That way l i e s s o c i a l madness, leading t o a f a i l u r e of hot a s p i r a t i o n s and thence t o cold r e a c t i o n . economists  Our f i r s t duty as  i s t o make a reasoned  catalogue  of the world as i t i s . " Alfred Marshall  - 56 -  I I I . The T h e o r e t i c a l Basis of Professor Rostow's I n t e r pretation We have noticed that economic development i s to some extent dependent upon the p o l i t i c a l , s o c i a l and c u l t u r a l framework of s o c i e t i e s , however, no e f f o r t has been s u c c e s s f u l i n l i n k i n g such non-economic v a r i a b l e s t o the s t r u c t u r e of modern economics.  The p u r s u i t of the  problems of c a p i t a l accumulation, balance of payments, t e c h n o l o g i c a l development, population, land, c o l o n i a l i s m , and p o l i t i c a l a f f a i r s r e s p e c t i v e l y i n d i f f e r e n t countries has a meaning i n i t s e l f , but now the time has come t o i n t e g r a t e them and b u i l d up a s y n t h e t i c dynamic theory of economic growth on a g l o b a l b a s i s .  The f i r s t dynamic  attempt i s being made by Professor Walt Whitman Rostow.  1.  The Basic Theory The s o c i a l s c i e n t i s t cannot a f f o r d t o l a g i n  h i s s c i e n t i f i c formulations  too f a r behind the events  and problems ©f the a c t i v e world, because i n t e l l i g e n t democratic a c t i o n i s r e l a t e d t o the degree t o which problems are understood and the p u b l i c i s informed, and i t i s i n t h i s underlying f u n c t i o n of perception and education, that the s o c i a l s c i e n t i s t most importantly serves s o c i e t y , ^  Because Professor Rostow b e l i e v e s i n  I Walt Whitman Rostow, The Process of Economic Growth, Oxford, Clarendon Press, 1953 , p. 260.  - 57 - •  t h i s i d e a , a c t u a l h i s t o r i c a l f a c t s and economic a n a l y t i c a l techniques are a p t l y combined i n h i s dynamics. To Professor Rostow, as an economic h i s t o r i a n , i t i s a b s o l u t e l y necessary t o avoid making a disembodied response t o an a b s t r a c t s e t of Hegelian ideas, and, as an economic t h e o r i s t , he could not be s a t i s f i e d with economics i n the conventional market sense.  A c t u a l events  should be emphasized and o v e r - s i m p l i f i c a t i o n must be avoided.  I n the process o f economic development, he sees  a s e t of stages of growth  f i v e economic categories i n one  of which a l l s o c i e t i e s in,the world can be placed.  "They  are a matter o f f a c t u a l h i s t o r y seen i n the l i g h t of 2  economics,"  t h i s shows h i s b a s i c a t t i t u d e .  A long p e r i o d : E s t a b l i s h i n g the pre-conditions f o r t a k e - o f f ; I The t r a d i t i o n a l s o c i e t y I I The t r a n s i t i o n a l s o c i e t y  Stagnation Consolidation  A few decades:The c r u c i a l process; . . . . I I I The s o c i e t y i n t a k e - o f f A long period:Making  growth normal and automatic;  IV The maturing s o c i e t y V The mass consuming s o c i e t y  Adolescence Consummation  Roughly speaking, the economic development of a n y country can.be d i v i d e d i n t o three periods: a long 2" Walt Whitman;Rostow, "Rostow on Growth;"A Kon-Communi s t Manifesto," Economist, August 15, 1959, p. 409.  - 58 -  -  period of a century or more during which the pre-conditions f o r t a k e - o f f are e s t a b l i s h e d ; a few decades i n t o which the t a k e - o f f i s compressed; and a long period when economic growth becomes normal and automatic through the f l u c t u a t i n g years of sustained economic progress.  More p r e c i s e l y ,  the f i r s t and the l a s t periods c o n s i s t of two  stages  each, t h e r e f o r e there are f i v e stages: the t r a d i t i o n a l s o c i e t i e s i n which the i n a c c e s s i b i l i t y of modern science puts a c e i l i n g on p r o d u c t i v i t y ; the t r a n s i t i o n a l s o c i e t i e s which are created once a country i s r i c h enough t o devote more than about f i v e or ten per cent of i t s n a t i o n a l income t o investment and once a new l e a d i n g & l i t e has emerged which has the urge.and scope t o begin b u i l d i n g a modern i n d u s t r i a l s o c i e t y ; the s o c i e t i e s i n t a k e - o f f which s t a r t t o transform themselves so that economic growth becomes more or l e s s automatic; the maturing s o c i e t i e s i n which, dangerously  enough, the  imperatives of d i f f u s i n g the new technology l o s e t h e i r obsessive c o n t r o l over people's minds; and the mass consuming s o c i e t i e s which are i n some dilemma between three options, high mass consumption, welfare s t a t e , or e x t e r n a l expansion. Professor Rostow's theory i s based upon three kinds of s e c t o r .  F i r s t , primary growth sectors associated  w i t h p a r t i c u l a r l y favourable o p p o r t u n i t i e s f o r inno-  -  59 -  v a t i o n and resource discovery.  .  ~  Second, supplementary  growth sectors which expand as a response t o , or r e q u i r e ment o f , advance i n the primary s e c t o r s .  T h i r d , derived  growth sectors where advance responds t o growth of n a t i o n a l income, population, output and so f o r t h .  3  The main feature  of h i s dynamics i s the theory of t a k e - o f f which i s defined as follows:* " 4  "The i n t e r v a l during which the r a t e o f Investment increases i n such a way that r e a l output per c a p i t a r i s e s and t h i s i n i t i a l Increase c a r r i e s w i t h i t r a d i c a l changes i n production techniques and the d i s p o s i t i o n " of income flows which perpetuate the new s c a l e of investment and perpetuate thereby the r i s i n g trend i n per c a p i t a output." In' t h i s theory we f i n d the b a s i c c h a r a c t e r i s t i c s s  of h i s e a r l i e r work, "The Process of Economic Growth," i n which he analyses economic development by u s i n g s i x p r o p e n s i t i e s : the p r o p e n s i t i e s t o develop fundamental s c i e n c e , t o apply science t o economic ends, t o accept innovations, t o seek m a t e r i a l advance, t o consume, and t o have c h i l d r e n , ^ and d i v i d e s the growth process i n t o two p a r t s , namely, the accomplishment of c e r t a i n preconditions and the development process i t s e l f .  But the  Professor Rostow of seven years ago and h i s present thought.are d i f f e r e n t .  As a matter.of f a c t , he has  , . 3 Benjamin H., Higgins , Economic Development;' P r i n c i p l e s , Problems"and P o l i c i e s , New York, Norton, 1959, p. 237. 4 Walt. W h i t m a n Rostow., "The Take-off "into S e l f - s u s t a i n e d Growth, ""Economic J our r i a l , . v o l . . 66, March .1956,. p. 2 5 . : . 5" Walt Whitman Rostow, The Process of Economic Growth, Oxford, Clarendon Press, 1953, p. 11.  - 60 developed h i s o r i g i n a l theory t o the utmost extent i n order t o make answers t o the f o l l o w i n g questions. 4 How,  and under what impulses, do t r a d i t i o n a l , a g r i c u l -  t u r a l s o c i e t i e s begin moving towards modernization? 4 When and how does r e g u l a r growth come t o be a b u i l t - i n feature of each s o c i e t y ? 4 What forces d r i v e t h i s growth along and its  determine  contours?  4 How should the t r a d i t i o n a l s o c i e t y react t o the i n t r u s i o n of a more advanced power? With cohesion, promptness and vigour? By making a v i r t u e of fecklessness? By s l o w l y and r e l u c t a n t l y a l t e r i n g i t s t r a d i t i o n a l characteristics? 4 When independent modern nationhood i s achieved,  how  should the n a t i o n a l energies be used? In e x t e r n a l a g r e s s i o n , to r i g h t o l d wrongs or t o e x p l o i t new p o s s i b i l i t i e s f o r enlarged n a t i o n a l power? In completing the p o l i t i c a l v i c t o r y of the  new  n a t i o n a l government over r e g i o n a l i n t e r e s t s ? In modernizing the economy? 4 Once the t a k e - o f f i s s u c c e s s f u l l y achieved and growth i s under way, how f a r should the aim of d i f f u s i n g technology and maximizing the r a t e of growth be modified by the  -61  -  d e s i r e t o increase consumption per head and welfare? ft What r e l a t i o n does the r e l a t i v e sequence of growth bear t o outbreaks of war? ft When t e c h n o l o g i c a l maturity i s reached, and the n a t i o n has at i t s command a modernized i n d u s t r i a l machine, t o what ends should i t be put, and i n what proportion? To increase s o c i a l s e c u r i t y , through the welfare state? To expand mass consumption i n t o the range of durable consumer goods and of s e r v i c e s ? To gain s t a t u r e and power on the world scene by m i l i t a r y adventure? To increase l e i s u r e ? ft Where i s compound i n t e r e s t t a k i n g us? To communism? To the a f f l u e n t suburbs? To d e s t r u c t i o n ? To the moon?° Benjamin H. Higgins w r i t e s that Professor Rostow's conception of the stages of growth does correspond roughly t o the data and general information about economic development of various c o u n t r i e s , however d i f f i c u l t the dating of these stages may b e .  7  In replying to t h i s ,  6 Walt Whitman Rostow, "Rostow on Growth;"A Non-Communi s t Manifest o , "Economist, August 15, 1959, P» '409. 7. .Benjamin H..Higgins, Economic Development; P r i n c i p l e s , Problems and P o l i c i e s , New York, Norton, 1959, p. 237. n  - 62 Professor Rostow says, i n surveying the broad contours of each stage of growth, we are examining not merely the s e c t o r a l s t r u c t u r e of economies transforming themselves, but a succession of s t r a t e g i c choices made by whole societies.® With respect t o t h i s p o i n t , W. Arthur Lewis gives us a superb paragraph -in h i s "Theory of Economic Growth." 9  "Every"economist goes through a phase where he i s d i s s a t i s f i e d w i t h the deductive b a s i s of economic theory, and f e e l s sure that a much b e t t e r i n s i g h t i n t o economic process could"be obtained by studying the f a c t s of h i s t o r y . The i n s t i n c t i s sound; y e t the enthusiasms of t h i s phase seldom s u r v i v e any serious attempt t o get t o g r i p s w i t h the f a c t s o f " h i s t o r y . This i s because there are very few f a c t s i n the r e l e v a n t senses. We mean by t h i s , i n the f i r s t i n s t a n c e , t h a t " i t " i s o n l y " f o r a few countries and f o r very recent periods that any adequate q u a n t i t y of h i s t o r i c a l records e x i s t s ; and even when there are "plenty of records we cannot "always be c e r t a i n e x a c t l y what happened. We mean a l s o , more s i g n i f i c a n t l y , that the f a c t s which would i n t e r e s t the t h e o r i s t are hot what happened but why'it happened; and while h i s t o r y may record what happened, i t i s seldom able t o record why i t happened."  2. The Process of Development No two of the countries are a l i k e , and the problems of economic development are shaped i n each by i t s resources, i t s c u l t u r e , . i t s h i s t o r y , and i t s p o l i t i c a l 8 Walt Whitman Rostow, "Rostow on Growth; A Non-Communi s t Manifesto," Economist,.August.15, 1959,;pp. 409-410. 9 W. Arthur Lewis, The Theory of Economic Growth, London, A l l e n and Unwin, 1955, p. 15.  .  institutions.  - 63 -  r  -  Nevertheless, we have a general r e c o g n i t i o n  that there are common elements in- the growth patterns o f various c o u n t r i e s .  P r o f e s s o r Rostow formulates the process  of economic growth i n t o f i v e stages which are "a matter of f a c t u a l h i s t o r y seen i n the l i g h t o f economics." (i)  The T r a d i t i o n a l S o c i e t y The t r a d i t i o n a l s o c i e t y i s characterized by the  existence of a c e i l i n g on p r o d u c t i v i t y .  I t contains an  economy mainly a g r i c u l t u r a l , using more or l e s s unchanging production methods, saving and i n v e s t i n g p r o d u c t i v e l y l i t t l e more than i s required t o meet d e p r e c i a t i o n . Food production absorbs more than s e v e n t y - f i v e per cent o f the working f o r c e , s o c i a l h i e r a r c h y i s r i g i d , s o c i a l values are l i m i t e d , r e l i g i o u s f e a s t s and ceremonies, monuments and wars c o n s t i t u t e the greater part of consumption, f a m i l y and clan connections play a l a r g e r o l e , and p o l i t i c a l power i s extremely r e g i o n a l . Professor Rostow says as u n d e r :  10  " I m p l i c i t i n these c h a r a c t e r i s t i c s i s the need f o r a many-sided transformation before growth can be e s t a b l i s h e d and lead on t o maturity. A predominantly a g r i c u l t u r a l s o c i e t y must be transformed i n t o one predominantly occupied i n i n d u s t r y , communications, trade and"services. Man must come t o regard h i s p h y s i c a l environment hot as v i r t u a l l y a f a c t o r given by nature and providence, but as an ordered world that can be manipulated i n ways which y i e l d productive change." 10 Walt Whitman Rostow, "Rostow oh Growth; A Non-Commun i s t Manifesto," Economist, August 15, 1959, p. 410.  -64  To be concrete, a s o c i e t y must o r i e n t i t s commerce and thought t o the n a t i o n , the propensity t o have c h i l d r e n must d e c l i n e , income above munimum l e v e l s of consumption must be spent on t r a n s p o r t a t i o n , education and i n d u s t r y , and people must come t o be valued f o r t h e i r i n d i v i d u a l a b i l i t y t o perform i n c r e a s i n g l y s p e c i a l ized functions.  What i s important i s that some of them must  be w e l l advanced before growth can s e t i n a t a l l .  We  cannot expect any s i m u l t a n e i t y or sequence i n these changes. (ii)  The T r a n s i t i o n a l S o c i e t y The t r a n s i t i o n a l s o c i e t y i s the process of  e s t a b l i s h i n g pre-conditions  f o r take-off.  In most  general case the achievement of pre-conditions  requires  major change i n p o l i t i c a l and s o c i a l s t r u c t u r e and i n c u l t u r a l values, which are the matter of the p r o p e n s i t i e s . In another case the pre-conditions are i n i t i a t e d by a narrowly economic process, that i s , by the high l e v e l s of welfare which can be achieved by e x p l o i t i n g land and n a t u r a l resources.  This i s a matter of the y i e l d s .  The formula of growth t o become s e l f - s u s t a i n e d can be explained economically by using the rate of i n v e s t ment and the stock of c a p i t a l per c a p i t a .  According t o  Professor Rostow, the economic d i f f e r e n c e between a t r a d i t i o n a l and a modern s o c i e t y i s a question of whether  - 65  -  i t s r a t e of investment i s low r e l a t i v e to i t s r a t e of population growth or not.  Under f i v e per cent of n a t i o n a l  income i s low and over ten per cent i s high.  In order t o  r a i s e the r a t e of investment, the manipulation of modern technology, the i n t r o d u c t i o n of inventions p r o d u c t i v e l y i n t o the c a p i t a l stock, the preparation f o r lending money on long term t o back the innovating  entrepreneur-  s h i p , and the opportunity t o educate the people t o operate an economic system, are needed. " C a p i t a l formation i s not merely a matter of maximizing p r o f i t ; i t i s a matter of a s o c i e t y ' s e f f e c t i v e a t t i t u d e s towards science, a p p l i e d s c i e n c e , and r i s k - t a k i n g as w e l l as the a d a p t a b i l i t y of the working f o r c e . Of s p e c i a l importance here are the problem of increased p r o d u c t i v i t y i n a g r i c u l t u r e and the e x t r a c t i v e i n d u s t r i e s , and the problem of s o c i a l overhead c a p i t a l . " H We must watch the f a c t s that a g r i c u l t u r e and  the  e x t r a c t i v e i n d u s t r i e s make up a c c e s s i b l e n a t u r a l resources. The increase i n p r o d u c t i v i t y needs a great amount of working c a p i t a l which must be financed by i n c r e a s i n g output, loans, c a p i t a l imports, and the unexploited backl o g of innovations.  A g r i c u l t u r e must supply more goods  t o meet the r i s e i n population, more markets f o r the f u t u r e leading i n d u s t r i a l s e c t o r s , more sources of t a x a t i o n from which the government functions are financed, and more loanable funds t o the modern s e c t o r s . _ S o c i a l overhead 11 Walt Whitman R o s t w ; "Rostow on Growth; A Non-Commun i s t Manifesto," Economist, August 15, 1959, p. 410.  -  - 66 -  -  ;  c a p i t a l , which takes a long time t o be brought up, and y i e l d s the o v e r a l l returns t o the community as a whole although i t i s lumpy, must occupy a very high percentage of t o t a l investment. In the non-economic s i d e of the p r e - c o n d i t i o n s , a new l e a d i n g € l i t e who supersede the o l d land owners and b u i l d an i n d u s t r i a l s o c i e t y , xenophobic n a t i o n a l i s m which i s the strongest motive f o r c e t o be modernized, a demons t r a t i o n e f f e c t which has two sides i n the c o l o n i a l world the p o s i t i v e type demonstrates  the r e a l e f f e c t i v e power  of an a b i l i t y t o w i e l d modern technology; the negative type creates an accumulating resentment against more i n d u s t r i a l i z e d f o r e i g n e r s , and the movements of the s o l d i e r s , the p o l i t i c i a n s , the merchants and the i n t e l l e c t u a l s , talce the major r o l e s . t o the job than resentment  "The s o l d i e r s b r i n g much more of f o r e i g n domination or dreams  of f u t u r e n a t i o n a l g l o r y i n b a t t l e , " the p o l i t i c i a n s d r i v e home the triumph of the centre over the regions, the merchants f i n d i n modernization the prospect, and the i n t e l l e c t u a l s b r i n g about s o c i a l , p o l i t i c a l and l e g a l reform because they see i n modernization ways of i n c r e a s i n g the d i g n i t y and value of human l i f e f o r i n d i v i d u a l s and f o r the n a t i o n as a whole. F i n a l l y we must say t h a t , i n the period of prec o n d i t i o n s , the most important t h i n g i s the establishment  of an e f f e c t i v e modern government which i s capable of organizing the nation so that u n i f i e d commercial markets develop.  A t a x and f i s c a l system t o d i v e r t resources  i n t o modern uses must be created, the stock of s o c i a l c a p i t a l must be assured, and the r a d i c a l changes i n p r o d u c t i v i t y i n a g r i c u l t u r e and e x t r a c t i v e i n d u s t r i e s must be brought about. ( i i i ) The Society i n Take-off During the stage of t a k e - o f f , the country makes the complex t r a n s i t i o n t o a p o s i t i o n where sustained economic growth becomes p o s s i b l e .  In h i s o r i g i n a l  p u b l i c a t i o n about the theory of t a k e - o f f ,  Professor  Rostow defines the t a k e - o f f as r e q u i r i n g a l l three of the following  conditions:  x  "(a) A r i s e i n the r a t e of productive investment from (say) f i v e par cent or l e s s t o over t e n per cent o f n a t i o n a l income; (b) The development of one or more s u b s t a n t i a l manufacturing s e c t o r s , with a high r a t e of growth; (c) The existence or quick emergence of a p o l i t i c a l , s o c i a l and i n s t i t u t i o n a l framework which e x p l o i t s the impulses t o expansion i n the modern sector and the p o t e n t i a l e x t e r n a l economy e f f e c t s of the t a k e - o f f and gives t o growth an on-going character." The r i s e s i n r a t e and p r o d u c t i v i t y of investment, and self-reinforcement  of the developing process are  r e a l i z e d by many d i f f e r e n t human motivations which are 12 Walt Whitman Rostow, "The Tafce-orr i n t o S e l f - s u s t a i n e d Growth," Economic J o u r n a l , v o l . 6 6 , March 1956, p. 3 2 .  - 68 -  t e c h n o l o g i c a l , economic, p o l i t i c a l , s o c i a l and c u l t u r a l . The e s s e n t i a l problem i s the f a c t that the p r i o r development of the s o c i e t y and i t s economy r e s u l t i n a p o s i t i v e , sustained and s e l f - r e i n f o r c i n g response t o i t .  The  r e s u l t i s not a once-over change i n the production f u n c t i o n or i n the volume of investment, but a higher p r o p o r t i o n of p o t e n t i a l innovations accepted i n a r e g u l a r f l o w , and a higher r a t e of investment. ... W. Arthur Lewis describes t h i s s i t u a t i o n as follows: . 1 3  "The c e n t r a l problem i n the theory of economic development i s t o understand the process by which a community which was p r e v i o u s l y saving and i n v e s t ing f o u r or f i v e per cent of i t s n a t i o n a l income or l e s s , converts i t s e l f i n t o an economy where volunt a r y saving i s running at about twelve t o f i f t e e n per cent of n a t i o n a l income or more. This i s the c e n t r a l problem because the c e n t r a l f a c t of economic development i s r a p i d c a p i t a l accumulation ( i n c l u d i n g knowledge and s k i l l s with c a p i t a l ) . We cannot e x p l a i n any i n d u s t r i a l r e v o l u t i o n (as the economic h i s t o r i a n s pretend t o do) u n t i l we can e x p l a i n why saving increased r e l a t i v e l y to n a t i o n a l income." No matter how important i t i s t o analyse the t a k e - o f f i n terms of n a t i o n a l income, the p r o p o r t i o n of output i n v e s t e d , and an aggregate marginal c a p i t a l - o u t p u t r a t i o , we must consider what a c t u a l l y happens and the causal processes at work i n a t a k e - o f f . single.pattern.  There i s no  S t i l l as "a matter of f a c t u a l h i s t o r y  13 W. Arthur Lewis, "Economic Development"with U n l i m i t e d Supplies of Labour," Manchester School of Economic and S o c i a l "Studies, May 1954.  - 69  -  seen i n the l i g h t of economics," we can point out s e v e r a l aspects. The loanable funds required t o finance the t a k e - o f f come from two types of sources: from s h i f t s i n the c o n t r o l over income flow, i n c l u d i n g i n c o m e - d i s t r i b u t i o n changes and c a p i t a l imports, and from the plough-back of p r o f i t s i n r a p i d l y expanding s e c t o r s .  One  of the oldest  and most fundamental notions i n economics i s the notion of economic development occurring as the r e s u l t of income s h i f t s from those who w i l l spend, hoard or lend l e s s p r o d u c t i v e l y t o those who w i l l spend or lend more productively.  As a matter of f a c t , the supply of finance during  the t a k e - o f f period has three p o i n t s : ^ f i r s t , as a pre1  c o n d i t i o n , i t i s necessary that the community's surplus above the mass-consumption l e v e l does not flow i n t o the hands of those who w i l l s t e r i l i s e  i t by hoarding,  luxury  consumption or l o w - p r o d u c t i v i t y investment outlays; second, as a p r e - c o n d i t i o n , i t i s necessary that  institu-  t i o n s are developed which provide cheap and adequate working c a p i t a l ; and t h i r d , as a necessary c o n d i t i o n , i t appears that more than one sector: of the economy must grow r a p i d l y , and that the entrepreneurs i n such sectors plough-back a s u b s t a n t i a l . p r o p o r t i o n o f . t h e i r p r o f i t s i n 14 Walt Whitrnan Rgstow, "The Take-off i n t o S e l f - s u s t a i n e d Growth," Economic J o u r n a l , v o l . 6 6 , March 1 9 5 6 , p. 4 1 .  - 70  -  f u r t h e r productive investment. The existence and successful a c t i v i t y of entrepreneurs are required f o r t a k e - o f f , with s i g n i f i c a n t power over aggregate income flows and i n d u s t r i a l i n v e s t ment d e c i s i o n s .  The propensity t o accept innovations  depends more or l e s s on entrepreneurship.  Undoubtedly,  most t a k e - o f f s are preceded or accompanied by r a d i c a l change i n a g r i c u l t u r a l techniques and market o r g a n i z a t i o n . A requirement f o r t a k e - o f f i s a class of farmers w i l l i n g and able t o respond t o the p o s s i b i l i t i e s opened up f o r them by new techniques, land-holding arrangements, t r a n s p o r t f a c i l i t i e s , and forms of market and c r e d i t organization. Land reform creates two impulses t o t a k e - o f f . One i s the use of the flow of payments not from landlords but from peasants f o r a c t i v i t y which encourages  economic  development, and another i s the use of the investment of the  more e n t e r p r i s i n g landlords f o r commerce and industry.  In any case, the f e u d a l landlords s u f f e r a c e r t a i n confiscation effect. C a p i t a l formation i s aided by p r i c e i n f l a t i o n , which s h i f t s resources from consumption t o p r o f i t s ,  Banks  and c a p i t a l markets help t h i s s h i f t too. The existence of more than one growing s e c t o r , from which entrepreneurs plough-back a very high proportion  - 71  -  of p r o f i t s i n t o new c a p a c i t y i s another necessarycondition.  With respect t o t h i s problem, the demand s i d e  of the investment process must be taken i n t o account because i t may be the d e c i s i v e element i n the t a k e - o f f , r a t h e r than the supply of loanable funds.  Substantial  improvements i n the machinery of c a p i t a l supply cannot i n i t i a t e a take-off. Foreign trade i s an extremely important source of plough-back p r o f i t s .  From the n a t u r a l resources,  developing economies create major export i n d u s t r i e s , and the expanding y i e l d of these i n d u s t r i e s finances the import of c a p i t a l equipment.  Of course, c a p i t a l formation  i s not guaranteed by the development of export s e c t o r s . The key r o l e i n the t a k e - o f f process i s played by the various s e c t o r s which Professor Rostow d i v i d e s i n t o three parts. -* 1  "(a) Primary growth;sectors, where p o s s i b i l i t i e s f o r innovation or f o r the e x p l o i t a t i o n of newly p r o f i t a b l e or h i t h e r t o unexplored resources y i e l d a high growth r a t e and set i n motion. (b) Supplementary growth s e c t o r s , where r a p i d advance occurs i n d i r e c t response to of as a requirement of—-advance i n the primary growth s e c t o r s ; e. g., c o a l , i r o n "and engineering i n r e l a t i o n t o r a i l r o a d s . These sectors may have to be tracked many stages back i n t o " t h e economy. (c) Derived growth s e c t o r s , where advance occurs i n some f a i r l y steady r e l a t i o n t o t h e g r o w t h of t o t a l r e a l income, p o p u l a t i o n , i n d u s t r i a l production or some other o v e r a l l , modestly i n c r e a s i n g parameter. Food output i n r e l a t i o n 15 Walt Whitman Rostow, "The Take-off i n t o S e l f - s u s t a i n e d Growth," Economic J o u r n a l , v o l . 66, March 1956, p. 4 3 .  -72  -  t o population, housing i n r e l a t i o n to" f a m i l y formation are c l a s s i c derived r e l a t i o n s of t h i s order." Changes i n "Supply are a matter of primary and supplementary growth sectors and changes i n demand are l i n k e d t o derived growth sectors.  I t i s evident  that  primary growth sectors always play the main part i n the process of economic development.  The establishment of  cotton t e x t i l e i n d u s t r i e s , the i n t r o d u c t i o n of r a i l w a y s , and the modernization of armed forces can c o n s t i t u t e the l e a d i n g sectors.  Sometimes, raw m a t e r i a l i n d u s t r i e s and  f o o d s t u f f i n d u s t r i e s play the r o l e of leading s e c t o r s . " H i s t o r y i s f u l l of v a r i e t y , " and "there i s no one pattern or sequence f o r the t a k e - o f f . " (iv)  The Maturing S o c i e t y The t a k e - o f f requires a massive set of pre-  conditions going t o the heart of a s o c i e t y ' s economic o r g a n i z a t i o n and i t s e f f e c t i v e s c a l e of values.  The  r a p i d growth of more than one new manufacturing sectors i s a powerful and e s s e n t i a l engine of economic development.  For the t a k e - o f f to be s u c c e s s f u l , i t must lead on  p r o g r e s s i v e l y to sustained growth which implies f u r t h e r deep and slow-moving changes i n the economy and  the  s o c i e t y as a whole. Although the maturing s o c i e t y i s g r e a t l y influenced by the nature of the t a k e - o f f , we can  discover  - 73 -  s e v e r a l c h a r a c t e r i s t i c s of i t s long, f l u c t u a t i n g s t o r y of sustained economic progress. As the economy matures, o v e r a l l c a p i t a l per c a p i t a i n c r e a s e s , the i n i t i a l key i n d u s t r i e s decelerate as d i m i n i s h i n g returns operate, the pioneering entrepreneurs give way t o l e s s single-minded  industrial  l e a d e r s , the average growth r a t e i s maintained by a succession of new growing s e c t o r s , the proportion of population i n r u r a l p u r s u i t s d e c l i n e s , and the i n t e r n a t i o n a l aspects become more important.  Here we must  be c a r e f u l not t o confuse being t e c h n o l o g i c a l l y mature w i t h being r i c h . In t h i s maturing s o c i e t y , some proportion of the n a t i o n a l income i s s t e a d i l y ploughed back i n t o expanding productive capacity and as technique improves the s t r u c t u r e of the economy changes continuously. I t means the economy may face d i f f i c u l t balance of payments problems and makes i t s terms with the requirements of e f f i c i e n t production.  With the lapse of time, the  demand f o r f o r e i g n c a p i t a l slackens and domestic savings become abundant.  10  Professor Rostow emphasizes the importance of non-economic aspects of. the maturing s o c i e t y . T h e  new  16 Walt Whitman Rostow, Max F. M i l l i k a n , . P a u l N.Rdsenstein-Rodan & others, A Proposal; gey t o an E f f e c t i v e Foreign P o l i c y V Center f o r I n t e r n a t i o n a l Studies, M. I. T., New York, Harper, 1 9 5 7 , p. 4 8 . 17 Walt Whitman.Rostow, "Rostow on Growth; A'Non-Commun i s t Manifesto," Economist, August 1 5 , 1 9 5 9 , p. 4 1 4 .  - 74 -  t  •  modern elements a r e i n f u l l and confident power, with t h e i r opponents i n r e t r e a t o f d i s a r r a y .  Generally, t h e  power o f those who c o n t r o l c a p i t a l and technology i s not s t r o n g l y opposed. nor d e c i s i v e .  But, the s i t u a t i o n i s n e i t h e r s t a t i c  Because o f three reasons: f i r s t l y , a change  i n the working f o r c e comes.  The h i g h l y t r a i n e d t e c h n i -  cians and p r o f e s s i o n a l s perceive that they can achieve higher r e a l wages and greater s e c u r i t y although t h e i r r e a l wages are l i k e l y t o be r i s i n g .  Therefore, the  maturing process generates the kind of s o c i a l pressures which enforce humane m o d i f i c a t i o n s t o the process of economic development.  Secondly, a change i n the  of the leadership appears.  character  I t i s the changing process  from p r i m i t i v i s m t o the e f f i c i e n t manager of a h i g h l y bureaucratized  and d i f f e r e n t i a t e d machine.  Thirdly, a  change i n the idea which b e l i e v e s i n the merits of i n d u s t r i a l i z a t i o n i n e v i t a b l y comes out.  People get  t i r e d o f the miracle of the e f f i c i e n c y - a l m i g h t y society. "These changes i n the s t r u c t u r e , ambitions and outlook of the s o c i e t y lead up t o a set o f searching choices concerned w i t h future o b j e c t i v e s . — - M a t u r i t y , l i k e middle age, i s a time of dangerous as w e l l as promising choices."1° (v)  The Mass Consuming Society " H i s t o r y i s f u l l o f v a r i e t y , " and " c i v i l i z a t i o n ' s  18 wait Whitman.Rostow,... "Rostow oh Growth; A Non-Commun i s t Manifesto," Economist, August 15, 1959, pp. 414-415.  progress as a consequence of response t o some challenge" w i l l not be stopped, however, when the values of the market place and the imperatives of d i f f u s i n g the technology l o s e t h e i r monopolistic c o n t r o l over minds, "what happens next?"  new  people's  Geography, resources, values  and the p o l i t i c a l l e a d e r s h i p may determine the p a t t e r n of high maturity.  According to P r o f e s s o r Rostow, the  s o c i e t y has four broad o b j e c t i v e s which decide the s o c i a l balance. F i r s t , the n a t i o n a l p u r s u i t of e x t e r n a l power and i n f l u e n c e ; second, the welfare s t a t e i n which the a l l e v i a t i o n of the business c y c l e , the increase of s o c i a l s e c u r i t y , the r e d i s t r i b u t i o n of income, and m i t i g a t i o n of harshness are given a higher p r i o r i t y ; t h i r d , the expansion of mass consumption l e v e l s from b a s i c food, s h e l t e r and c l o t h i n g t o durable consumer goods and s e r v i c e s and f o u r t h , the increase i n l e i s u r e . The high consumption comes by no means to an end, but the balance among these four o b j e c t i v e s v a r i e s over time and between d i f f e r e n t s o c i e t i e s .  "There i s  bound t o be v a r i e t y i n the patterns of consumption t h a t w i l l emerge as compound i n t e r e s t grinds on and as the income e l a s t i c i t i e s of demand, i n t h e i r widest sense, r e v e a l themselves.in d i f f e r e n t . s o c i e t i e s . 9 n l  19 Walt"Whitman .Rostow,.. "Rostow on Groxvth; A Non-Commun i s t Manifesto," Economist, August 15, 1959, p. 416.  When t h e people l o s e t h e i r i n t e r e s t i n g a i n i n g food, s h e l t e r and c l o t h i n g which have taken up the. l i f e of most human beings s i n c e the beginning of time, "what happens next" besides the arms race and the t h r e a t of war?  Some b e l i e v e t h a t poverty and c i v i l s t r i f e are a  necessary c o n d i t i o n f o r a l i v e l y human existence.  The  great m a j o r i t y hope f o r b e t t e r s o l u t i o n s . In the end, i t i s the problem of a sense of the community of human d e s t i n y . "One thought ever a t the f o r e That i i i the Divine Ship, the World, b r e a s t i n g Time and Space, A l l peoples of the globe together s a i l , s a i l , the same voyage, Are bound t o the same d e s t i n a t i o n . " 3.  I l l u s t r a t i o n s from Various Countries The s c i e n t i f i c f o r m u l a t i o n should be based upon  the events and problems of the a c t i v e world.  Professor  Rostow's dynamics of economic development i s a matter of f a c t u a l h i s t o r y seen i n the l i g h t of economics.  I would  l i k e t o i l l u s t r a t e the economic growth of t h i r t y - n i n e countries through-out the world w i t h s p e c i a l emphasis on what Professor Rostow has used t o formulate h i s theory. These i l l u s t r a t i o n s do not intend t o cover the whole h i s t o r y of economic development. 20 Walt Whitman Rostow, Max.F. M i l l i k a n , Paul N. Rosenstein-Rodan & others, A Proposal; Key t o an E f f e c t i v e Foreign P o l i c y , Center f o r I n t e r n a t i o n a l S t u d i e s , M. I . T. New York, Harper, 1957, p. 151.  S e l e c t i o n of Countries Canada United States Mexico  ft North America  ft South America-  (Puerto Rico) (Panama) (Venezuela) (Colombia) (Brazil) Argentina (Chile)  ft Western Europe-  • Sweden Denmark Germany Belgium United Kingdom (Ireland) France (Switzerland) (Ethiopia) (Kenya) (Belgian Congo) (Nigeria) (Southern Rhodesia)  ft A f r i c a  ft Eastern Europe  -C Union of Soviet S o c i a l i s t Republics Turkey (Israel)  ft Middle East  ft A s i a  • Japan China (Hong Kong) (Indo-China) (Philippines) (Indonesia) (Thailand) (Burma) India (Ceylon) (Pakistan) 1— (Afghanistan)  ft Oceania  -C  Australia  -78(i)  North America A  Canada  B  United States  C  Mexico  - 79 -  Canada  C a p i t a l imports s t a r t t o represent an important increment t o domestic c a p i t a l sources / S u b s t a n t i a l economic progress / before a. t r u l y s e l f - r e i n f o r c i n g / growth process / To r a i s e the r a t e of productive investment, the s i g n i f i c a n t p o l i t i c a l & social restraints must be reduced ^Due t o the abnormally l a r g e i h v e s t ment i n r a i l w a y s f o r a n a t i o n of t h i s population, & t o r e l a t i v e l y heavy f o r e i g n investment, the gross investment p r o p o r t i o n i s extremely higher than appears t o mark other period /Substantial railway building f a i l s f t o i n i t i a t e a t a k e - o f f because of / the absence of the general preconditions '  /The t a k e - o f f i s i n i t i a t e d by a narrow economic process because of / the r i c h land & n a t u r a l resources by which high l e v e l s of welfare can" be achieved A sharp r e l a t i v e r i s e i n export p r i c e s & large new c a p i t a l imports create a newly favourable i n t e r n a t i o n a l environment -—-"18,000 miles of r a i l w a y l i n e $1 b i l l i o n net balance of f o r e i g n indebtedness /  The t a k e - o f f i s aided by the world r i s e i n g r a i n p r i c e s . This r i s e o f f makes a t t r a c t i v e the l a y i n g of vast r a i l w a y networks.  - SO—  Export of' g r a i n i s " a source of ploughed-back "prof i t s Foreign c a p i t a l flows a r e important as lumpy overhead c a p i t a l "construction, of long gestation period, i s required  •19'10-  <-•- |-Take-off ! t  ri  —k  World War ;  The development o f r a i l r o a d s serves t o enlarge the export s e c t o r which generates c a p i t a l f o r i n t e r n a l development  -1920-4  Great — Depression-1930-  -  T-1940-  •H igh mass c bnsumption  Secoiid • World War. -1  •1950- M a t u r i t y  -1960-  The era o f high consumption i s s t i l l gathering momentum." The pattern of consumption depends upon the income e l a s t i c i t i e s of demand i n t h e i r widest sense  - 81 - ~ United States  -The pre-conditions are e x p l i c i t l y b u i l t up  -1790—  The c r e a t i o n of the pre-conditions i s an economic & t e c h n i c a l matter, comprising the b u i l d i n g of s o c i a l overhead c a p i t a l & the f i n d i n g of an economic s e t t i n g i n which" a s h i f t t o industry i s p r o f i t a b l e  -1800-  -1810-  •-The i n d u s t r i a l boom  Napoleon's - — Invasion of -Russia  To r a i s e the r a t e of productive investment, the s i g n i f i c a n t ~ " p o l i t i c a l & social restraints must be eliminated i n the South  -1820-  Mohroe— Doctrine  -There i s no impact of an e x t e r n a l challenge — The t a r i f f s on - i cotton t e x t i l e s I L They play an I important r o l e I i n the t a k e - o f f /The t a r i f f s on / r a i l iron  -1830-  i  ! -1840-  -'  "/"~-A sharp r e l a t i v e r i s e i n export p r i c e s & l a r g e new c a p i t a l imports / create a newly favourable i n t e r n a t i o n a l environment --Export of g r a i n i s a source of ploughed-back p r o f i t s  The upshot i s marked by r a i l w a y & manufacturing development mainly confined t o the "East", •• ' -w h i l e the West & the South d i g e s t -Take-off the extensive " a g r i c u l t u r a l -1850expansion of the previous decade  Crystal Palace Exhibition  -1850-  ' ~ The upshot i s marked by a heavy -Take-off i n f l o w of f o r e i g n c a p i t a l , w h i l e the great r a i l w a y push i s c a r r i e d - \ o u t " i n t o the Middle West \ Foreign c a p i t a l flows are import a n t "as "lumpy overhead"capital |\ c o n s t r u c t i o n , of long g e s t a t i o n p e r i o d , " i s required C a p i t a l formation i s aided by p r i c e i n f l a t i o n which s h i f t s ^ resources from consumption t o -1860-J \ profits  C i v i l War-  — —  -1870European Slump  \ • ]  \ v  The economy i s run by men who know where they are going: Confident period  ^>'The p o s t - f a i l w a y - b u i l d i n g Age of Steel starts  -The Pennsylvania & Mid-Western c o a l - i r o n complexes are brought to l i f e  -1880-  -1900-  The r a t e of development, r e l a t i v e l y t o the United Kingdom, i s r a i s e d because a b i g backlog of unapplied technology i s a v a i l a b l e  - 83 -1900T. Roose-T velt  The r i s e of s t e e l i s the c e n t r a l symbol of the movement t o maturity i n the post-railway age The process of moving towards maturity generates the kind of s o c i a l pressures which enforce humane m o d i f i c a t i o n s t o that process A s h i f t of s o c i a l o b j e c t i v e s , r a t h e r than a d r a s t i c r e a l l o c a t i o n of resources, i s brought about  The progressive income t a x , which i s the most r e v o l u t i o n a r y of a l l forms of economic policy,""Is accepted. B i g business curbs I t s e l f or i s curbed. The trade unions are e x p l i c i t l y given this Prdgres- -j r i g h t t o organize. The f e d e r a l s i v e Era banking system i s created, p a r t l y t o e x e r c i s e a degree'of c o n t r o l over the business c y c l e . The -1910- M a t u r i t y p u b l i c i n t e r e s t wins" new recogn i t i o n i n the p o l i c y of conserv a t i o n , n a t i o n a l parks & r e s e r vations.  The muck-rakers: the doubt of i n d u s t r i a l maturity  First World War ! 1  -  —  (  -1920,r  The s o - c a l l e d Large View f a i l s t o take hold The resources i n c r e a s i n g l y f l o w i n t o the dimensions of consumption The trend of high mass consumption i s damped by the r i s e i n urban l i v i n g costs  - 84 -  The trend of h i g h mass consumption becomes palpable. The e g a l i t a r i a n bias & the t r a d i t i o n a l " h i g h wages make the trend d e c i s i v e  -1920-  The r i s e of a" new middle c l a s s : the era of the p r o f e s s i o n a l -High mass t e c h n i c i a n s & the white & blue consump- c o l l a r " workers The people f l o w t o the c i t i e s & t o tion the suburbs The r i s e of the automobile A" vast"migration i n t o new s i n g l e f a m i l y houses i n the suburbs, f i l l e d increasingly with radios, r e f r i g e r a t o r s & other gadgetry of a society", "whose s o c i a l \ m o b i l i t y & p r o d u c t i v i t y have a l l but" wipe out personal service." Food consumption i s s h i f t e d t o \ high grade foods" T. D r e i s e r : the doubt of i n d u s t r i a l maturity N  Great Depression  -1930-  — T h e Great Depression breaks the hold of a generation of p o l i t i c a l leaders whose d e s i r e i s t o re-create a pre-1914 normalcy. I t brings t o power leaders who i n s t a l l a v e r s i o n of the w e l f a r e s t a t e \  •  N  F. Roose-T velt  N  -  -  •  -  •  -- -  The Great Depression: i t s length i s r e l a t e d d i r e c t l y to "the" stage of growth. When investment comes t o be centred on i n d u s t r i e s & s e r v i c e s based on expanding consumption, f u l l employment i s needed t o support f u l l employment. Unless consumption l e v e l s press outward, capacity i n consumers' goods i n d u s t r i e s & those supplying them w i l l be under-used, & the impulse t o invest w i l l be weak  -—The i n d u s t r y i s s t a b i l i z e d a t a lower l e v e l Second World WarH-1940-  -  — T h e contours of the s o c i a l welfare s t a t e are rounded out  L1940-  I  Secohd U World War  (k resumption of the boom of the / 1920s, w i t h a resumed inarch t o the / outer suburbs & a resumed exten- ' / s i o h of ownership f o r c a r s , r e f r i ' gerators & gadgets / The"ebbnomic growth can no longer u "High mass continue t o be based so h e a v i l y on cbnsump- the d i f f u s i o n of standard consumer tion / durables.- In a l l sectors growth l curves are subject t o long run I deceleration I The prospect, t o t i d y up the s i t u a I t i o n a l i t t l e & enjoy the b e n e f i t s I of a f f l u e n c e w i t h a f o u r day working week, i s a l t e r e d by the l d e c i s i o n t o have more babies. The I consequent changes i n the age s t r u c t u r e of the population & i n the r a t e of f a m i l y formation are -1950of major economic s i g n i f i c a n c e t  I  /The s o c i e t y i s l e s s a f f l u e n t than / i t looks / The people behave w i t h curious new / obsession w i t h f a m i l y l i f e , / privacy, do-it-yourself, getting / away"in caravans &~motor boats, & w r i t i n g impiously about the Organization Man  -1960-  The era of high consumption does not come t o an end, because e f f e c t i v e demand i s sustained. Combined with the cumulative d e f i c i t i n s o c i a l c a p i t a l & the cost of the arms race, the i n crease i n the r a t i o of dependents t o producers i s l i k e l y t o l i n k a vigorous expansion of output w i t h a degree of auster i t y at the l e v e l of p r i v a t e consumption  - 36 -  Mexico  First ! — World Wart -•i  A s e r i e s of r e v o l u t i o n s  -1920-  5epression-l930• U __J  / '  /The development of modern cotton t e x t i l e industries i n substitution f o r imports marks the p r e - t a k e - o f f period  I  R e v i v a l of f o r e i g n investment helps the t a k e - o f f  !-l%0Seeohd World War I 1  L •__  Political stabilization " N a t i o n a l i z a t i o n of o i l s & minerals  Take-off  -1950-  The economy i s one of the underdeveloped countries which have passed through the t a k e - o f f process -I960-  - 87 (ii)  South America ft.  Puerto Rico  ft  Panama  ft  Venezuela  ft  Colombia  ft  Brazil  D  Argentina  ft  Chile  - 88 Argentina ! First j World War-j  \  -Substantial railway b u i l d i n g f a i l s to" i n i t i a t e a t a k e - o f f because of \ the" absence of the general pre\ conditions A l a r g e "quantity of f o r e i g n c a p i t a l import does not i n i t i a t e the takeN  \  -1920  Great --' Depression-1930  --  Off  "The War'stimulates the "growth of the modern sectors which tend t o slacken afterwards" ' The economy"seeks t o r e t u r n t o a pre-1914"normalcy" To r a i s e the r a t e of productive investment the s i g n i f i c a n t p o l i t i c a l & s o c i a l r e s t r a i n t s must be reduced A sharp f a l l i n terms of trade  i-The challenges I which r e q u i r e I the r a p i d I development of j manufactured I import sub1 stitutes -  —A war-time b l o c k age"of f o r e i g n j 1  [-19U01  Second -» World Warj  ---  t r a d e - J -  ~  "  ^The sustained t a k e - o f f i s inaugurated" w i t h the s t r u c t u r a l v i c i -Take-off ssitudes of the economy •—Consumption goods produced i n s u b s t i t u t i o n f o r "Imports play the r o l e of l e a d i n g s e c t o r  -I95O-  ---I960-  The economy i s one of the'underdeveloped countries which have passed through the t a k e - o f f process  - 39 -  ft Puerto R i c o  The economy attemptihg take-off", where l a r g e i n j e c t i o n of" American funds i n s u b s t r u c t i o n as"well"as i n i n d u s t r y t a k e s " p l a c e , & the apparent savings & investment rates'come" t o over f i v e per cent of net n a t i o n a l product. Whether the t a k e - o f f w i l l be successf u l remains t o be seen.  ft Panama  The economy attempting t a k e - o f f , where the apparent savings & investment r a t e s , i n c l u d i n g l i m i t e d net c a p i t a l imports, come t o over f i v e per cent of net n a t i o n a l "product'. Whether the t a k e - o f f w i l l be successf u l remains t o be seen.  ft Venezuela  A l a r g e quantity of f o r e i g n c a p i t a l import does not i n i t i a t e the t a k e - o f f , although i t contributes undoubtedly t o c r e a t i n g the p r e - c o n d i t i o n s . The" economy "has been f o r some time an' 'enclave economy,' w i t h a high i n v e s t ment r a t e ~„c on cent rated i n a modern export s e c t o r whose growth does not generate general economic momentum i n the economy, but i n the past"few years, the economy may have moved^ over i n t o the category of economy experiencing an authentic t a k e - o f f .  ft Colombia  Growing economy," where the apparent savings & investment r a t e s , i n c l u d i n g l i m i t e d net c a p i t a l imports, come t o over t e n per cent of net n a t i o n a l product.  ft B r a z i l  The economy i s one of the underdeveloped countries which are i n the midst of the t a k e - o f f process. The r a t e of development, r e l a t i v e l y t o the"West, i s r a i s e d because a b i g backlog of unapplied technology i s a v a i l a b l e .  ft C h i l e  The economy" attempting t a k e - o f f , where savings & investment r a t e s , i n c l u d i n g l i m i t e d net c a p i t a l imports, come t o over f i v e per cent of net n a t i o n a l product. Whether the t a k e - o f f w i l l be s u c c e s s f u l remains t o be seen.  - 90 ( i i i ) Western Europe E  Sweden  F.  Denmark  G  Germany  H  Belgium  I.  United Kingdom  A  Ireland  J  France  4  Switzerland  - 91 -  Sweden  Congress of Vienna  -The great transformation s t a r t s , no warfare i n t e r r u p t s the economic progress -1820-  -1830-  -1840-  -1850-  -1860-  A h i s t o r y of progressive l i b e r a l i z a t i o n of government & of economic development  -  92  -  The opening of B r i t i s h &f French markets f o r timber creates a newly favourable i n t e r n a t i o n a l environment „'The t a k e - o f f i s i n i t i a t e d by^a narrow economic process of the r i c h land & n a t u r a l resources by which the high l e v e l s of welfare can be achieved ' " The i n t r o d u c t i o n of the r a i l r o a d plays an important part i n the take-off '""' - Export of timber & pulp i s a source of ploughed-back p r o f i t s Foreign c a p i t a l flows are important "as lumpy overhead c a p i t a l c o n s t r u c t i o n of long g e s t a t i o n period i s required o f f H. lbsen(Norway): the doubt of i n d u s t r i a l maturity The timber i n d u s t r y , b u i l t oh the steam saw, plays" the r o l e of leading sectors because i t i n v o l ves the a p p l i c a t i o n of modern processing techniques •The t u r n i n g point i n t o maturity: the beginning of a phase of d i f f e r e n t i a t i o n of production. A depression i s marked by a sagging of the export markets. f-The t a k e - o f f i s a s u r g e " i n output • i n a few s e c t o r s . I t i s i n the j nature of investment that these I sectoral"surges should be overIdone. I t then becomes necessary ! f o r the economy t o re-group, f e i a l l o c a t e i t s resources, & resume I growth I n new l e a d i n g s e c t o r s . One J of the measures of whether take[off"has been achieved i s a s o c i e t y ' s \ L a b i l i t y t o redeploy i n t h i s way  /'  v  . . . .  \  x  The p o s i t i v e response takes place. A s h i f t from timber i n t o woodpulp, from the export of unplanned t o planned board & t o matches  -The Norland ores begin t o be e x p l o i t e d by modern methods  - 93 -  -The economy moves sharply towards the w e l f a r e s t a t e , b a s i c a l l y because i t i s not a g r a r i a n i n i t s p o l i t i c a l balance, & there i s the great weight of s o c i a l i s t d o c t r i n e s &"ideals w i t h i n the" i n d u s t r i a l " First i working force & among i n t e l l e c t u a l World War-j leaders t There i s a Surge from p i g i r o n i n t o h i g h l y r e f i n e d s t e e l & engineering industries _1920 H y d r o - e l e c t r i c power i s e x p l o i t e d , l a y i n g the b a s i s f o r " a h i g h l y s k i l l e d e l e c t r i c a l industry"which* i s t o h e l p the r a i l w a y s t o convert t o e l e c t r i c i t y from coal ""The economy faces severe problems of i r e c o n s t r u c t i o n & readjustment, & i t does not proceed s t r a i g h t away i n t o the age of consumer durables Great' Depression-1930-yMaturity The only period of normal p r o s p e r i t y -•- * which r e s t o r e s 1913 l e v e l s of output. This f a i l u r e t o expand corresponds t o a f a i l u r e t o make the l o g i c a l move i n t o the normal stage of growth beyond m a t u r i t y The Great Depression breaks the hold of a generation of p o l i t i c a l leaders whose d e s i r e i s t o re-create a pre-1914 normalcy. The r i s e of the T-1940-^ new regime imposes a q u i t e d i f f e r 1 ent set of imperatives. Rearmament 1 1 becomes a f a c t o r i n the recovery Second -| Imports are s u b s t i t u t e d by domestic World War] \ manufactured goods 1 'The economy i s ready f o r the welfare s t a t e or the age of durable con\ sumer goods The l a g i n the s h i f t t o the road can be accounted f o r by l a c k of c a p i t a l f o r road b u i l d i n g , by the monbpoli-195o fligh mass S t i c power of the railways & the Consump- pressure of the government 1 tion The t e c h n i c a l , p o l i t i c a l & s o c i o l o - tg i c a l obstacles are cleared away & the s o c i e t y behaves i n a remarkably "American" manner The p a t t e r n of consumption depends on the income e l a s t i c i t i e s of demand i n t h e i r widest sense -1960-1910-  v  v  V  w  v  T  N  -94 Denmark  Congress of Vienna  Formation of a modern national state  -1820-  -1830  ,  '  -1840-  PrtissoDanish War  ---1850-  -1860-  Close relationship to the other European nations  The pre-conditions are a c t i v e l y established by introducing modern techniques  - 95 -  -1860-  Th e end of subsistence economy -1870-The s h i f t t o meat & d a i r y products r e i n f o r c e s the development of a manufacturing s e c t o r i n the economy as w e l l as provides a major source of f o r e i g n exchange, because i t i n v o l v e s the a p p l i c a t i o n of modern" processing techniques H.Ibseh(Norway): the doubt of i n d u s t r i a l maturity  -1880-  •Take-off  -1890-  -1900-  -1910-  -The s o c i e t y moves sharply towards the welfare s t a t e , b a s i c a l l y because i t i s not a g r a r i a n i n i t s p o l i t i c a l balance, & there" i s the great weight of s o c i a l i s t doctrines & ideals within the*Industrial working f o r c e & among i n t e l l e c t u a l leaders" /The economy faces severe problems of r e c o n s t r u c t i o n & readjustment, & it-does not proceed s t r a i g h t away i n t o the age of consumer durables /The only period of normal p r o s p e r i t y which r e s t o r e s 1913"levels of output. "This f a i l u r e t o expand corresponds t o a f a i l u r e t o make the l o g i c a l move i n t o the normal stage of growth beyond maturity The Great Depression breaks the hold of a generation of p o l i t i c a l l e a d ers whose d e s i r e i s t o re-create a pre-1914 normalcy. The r i s e of the new regime imposes a q u i t e d i f f e r ent set of imperatives. Rearmament becomes a f a c t o r i n the recovery ^-The government begins t o create an environment of greater p r o s p e r i t y . Then income e l a s t i c i t i e s of demand express themselves i n a disproport i o n a t e r i s e i n demand f o r consumer durables & s e r v i c e s Because of the l a c k of strong e g a l i t a r i a n b i a s & t r a d i t i o n a l high wages, the worker takes slowly t o the idea that the gadgets, t r a v e l & other s e r v i c e s are r e a l l y f o r him /The t e c h n i c a l , p o l i t i c a l & s o c i o l o g i c a l obstacles are cleared away & the s o c i e t y breaks out i n t o the phase of durable consumers' goods & s e r v i c e s . The s o c i e t y behaves i n a remarkably "American" manner The era of high consumption i s s t i l l gathering momentum. The pattern of consumption depends upon the income e l a s t i c i t i e s of demand i n t h e i r widest sense  Germany  Congress of Vienna  -1820-  -1830-  A nationalism based on past humiliation & future hope makes the preconditions. Junkers & the West Germans share one s o l i d common conviction that they have a stake i n the creation of an independent modern state  -1840-  -1850-! Crystal -Palace -- ^ Exhibition -v  N.  -The introduction of the r a i l r o a d i s the strong i n i t i a t o r of the takeoff - " ' ' '• •' '• The enlargement & modernization of armed forces constitute a leading sector x  -1860-  Take-off  The post-railway-building Age of Steel starts  - 98 -1860-  •1870European Slump  Bismarck'si Concess- 1-1880ions Bismarck-J Era  " The r i s e of s t e e l i s t h e ' c e n t r a l -Take-off symbol of the movement t o maturity i n the post-railway age  -, j l j l  The Ruhr c o a l - i r o n complex i s brought to* l i f e The confident" period:"the economy i s run by men who know where they are going The r a t e of development, r e l a t i v e l y t o the United Kingdom, i s r a i s e d because a b i g backlog of una p p l i e d technology i s a v a i l a b l e ^^The process of moving towards maturity generates the kind of s o c i a l pressures which enforce humane m o d i f i c a t i o n s t o that process  1-1890-  -1900-  -1910- M a t u r i t y  - 99 -  -1910- Maturity>The economy moves sharply towards the welfare s t a t e , b a s i c a l l y because i t i s hot a g r a r i a n In i t s p o l i t i c a l balance, & there i s the great weight of s o c i a l i s t " d o c t r i n e s — _i & I d e a l s w i t h i n the i n d u s t r i a l " First ( working f o r c e & among i n t e l l e c t u a l World Warn leaders ~ ' *--" " /The economy "faces severe" problems / of r e c o n s t r u c t i o n & readjustment, & i t does not proceed s t r a i g h t away -1920- • — - j i n t o the" age of consumer durables" ,-The only period of" normal " p r o s p e r i t y ' which restores" 1913"levels 'of out1 / put. This f a i l u r e t o expand" cor/ responds t o a f a i l u r e t o make the v l o g i c a l move i n t o the normal stage of growth beyond maturity __---The Great Depression breaks the hold of a generation of p o l i t i c a l l e a d Great ers whose d e s i r e i s t o re-create a Depression-1930 pre-1914 normalcy. I t brings the breakdown of the system i m p l i c i t i n the V e r s a i l l e s Settlement & creates the regime which opts f o r a q u i t e d i f f e r e n t use of the p o t e n t i a l i t i e s of mature economies; m i l i t a r y expansion The l a g i n the s h i f t t o the road can be accounted f o r by l a c k of c a p i t a l T-1940f o r road b u i l d i n g , by the monopol i s t i c power of the r a i l w a y s & the Secohd pressure of the governments, by the World War l a t e r s t a r t with the concept of the mass produced c a r f o r the mass market, by the shortage of cheap suburban housing s i t e s Because of the l a c k of strong e g a l i t a r i a n bias & t r a d i t i o n a l high wages", the worker takes slowly t o -1950the idea"that"the gadgets,"travel 1 & other s e r v i c e s are r e a l l y f o r him 1 -The t e c h n i c a l , p o l i t i c a l & s o c i o l o g i c a l obstacles are cleared away & •High mass the s o c i e t y breaks out i n t o the cbhsump- phase of durable consumers' goods tion 1  1  The e r a of high consumption i s s t i l l gathering momentum  - 100 Belgium  Congress of Vienna  -1820-  -1830-  -1840-  Crystal Palace Exhibition  -1850-  -1860-  -Formation of a modern n a t i o n a l state  The perpetual n e u t r a l i t y i s guaranteed  -Take-off Great s t r i d e s i n the mining industry promote the t a k e - o f f  - 101 The r i s e of s t e e l i s the central symbol of the movement to maturity i n the post-railway age  The rate of development, r e l a t i v e l y to the United Kingdom, i s raised because a b i g backlog of unapplied technology i s available -The rapid i n d u s t r i a l i z a t i o n of the economy leads to labour unrest  - 102 The economy moves towards the welfare s t a t e , because i t i s not a g r a r i a n i n " i t s p o l i t i c a l balance & there i s the great weight of s o c i a l i s t doctrines & i d e a l s w i t h i n the i n d u s t r i a l working f o r c e & among i n t e l l e c t u a l leaders /The economy faces severe problems / of r e c o n s t r u c t i o n & readjustment, & i t does not proceed s t r a i g h t away i n t o the age of consumer durables /•The only period of normal p r o s p e r i t y which r e s t o r e s 1913 l e v e l s of output. This f a i l u r e t o expand corresponds t o a f a i l u r e t o make the l o g i c a l move i n t o the normal stage of growth beyond maturity —The Great Depression breaks the hold of a generation of p o l i t i c a l l e a d ers whose d e s i r e i s t o re-create a pre-1914 normalcy. The r i s e of the new regime imposes a quite d i f f e r ent s e t of imperatives. Rearmament becomes a f a c t o r i n the recovery ^The government begins t o create an environment of greater p r o s p e r i t y . Then income e l a s t i c i t i e s of demand express themselves i n a disproport i o n a t e r i s e in"demand f o r consumer durables & s e r v i c e s Because of the l a c k of strong e g a l i t a r i a n b i a s & t r a d i t i o n a l high wages, the worker takes slowly t o the"idea that the gadgets, t r a v e l & other s e r v i c e s are r e a l l y f o r him /The t e c h n i c a l , p o l i t i c a l & s o c i o l o g i c a l obstacles are cleared away & the s o c i e t y breaks out i n t o the phase of durable consumers' goods & s e r v i c e s . The Society behaves i n a remarkably "American" manner The e r a of high consumption i s s t i l l gathering momentum. The p a t t e r n of consumption depends upon the income e l a s t i c i t i e s of demand i n t h e i r widest sense  - 103 United Kingdom  The development of the cottont e x t i l e industry starts explicitly  The pre-conditions are very f u l l y developed. Progress i n a number of industries are considerable throughout the eighteenth century & the s o c i a l & i n s t i t u t i o n a l environment i s propitious  Substantial e a r l i e r progress a s e l f - r e i n f o r c i n g growth  before  - 104 There i s no impact of an e x t e r n a l challenge on the industry The c r e a t i o n o f the pre-conditions i s an economic & t e c h n i c a l matter, comprizing the b u i l d i n g o f s o c i a l overhead c a p i t a l & the f i n d i n g of an economic s e t t i n g i n which a s h i f t t o industry i s p r o f i t a b l e  -1760-  -The Black Country c o a l - i r o n complex i s brought t o l i f e . Exhaustion of charcoal supply creates a need of s h i f t t o new i n d u s t r i e s i n new districts  -1770-  American Revolution  — -1780-  The ~ Younger Pitt  \- — The s u b s t a n t i a l improvements i n the | banking system do not i n i t i a t e a I take-off  The o r i g i n a l s e c t o r of primary growth i s cotton t e x t i l e which i s l a r g e i n r e l a t i o n t o the whole economy, & of which e v o l u t i o n i s consequently a massive f a c t with wide secondary repercussions on the development o f urban areas or the demand f o r c o a l , i r o n ; & -1790-Take-off machinery, f o r c a p i t a l & t r a n s port. I t s t e c h n o l o g i c a l developments b r i n g a sharp reduction i n r e a l costs & p r i c e s , " t h e r e f o r e , 1 tap a source of e f f e c t i v e demand ( f o r r a p i d expansion The s t e e l i n d u s t r y r i s e s from the K railways & the r a i l w a y s a r i s e from i\ i \ the requirements of cotton t e x t i l e -1800-  ! \  k  -1810-  The t a k e - o f f i s based almost wholly oh domestic sources of finance C a p i t a l formation i s aided by p r i c e i n f l a t i o n which s h i f t s resources from consumption t o production  -  105  -  -1810-  Higher Corn Laws  --  , I |  — The economy i s run by men who know where they are going: Confident period  1 l i i li  -The process of moving towards maturity generates the kind of s o c i a l pressures which i n t u r n ' enforce humane m o d i f i c a t i o n s t o t h a t process  •1820-  -1830-  -1840Mines Act  Ten Hours Act Crystal Palace Exhibition  -1850-  -1860-  Maturity  The Golden" A g e o f V i c t o r i a n Industr i a l P r o s p e r i t y . The post-railwayb u i l d i n g Age of S t e e l s t a r t s  - 106 The r e l a t i v e r a t e of the development slows down, because only a rough approximation to the new technology created i n the previous year i s a v a i l a b l e . The l a t e comers have a b i g unapplied backlog of technology a v a i l a b l e  'The Fabian S o c i e t y : the doubt of i n d u s t r i a l maturity The economy does not move f a s t e r from t e c h n i c a l m a t u r i t y i n t o the age of high consumption, because: (1) maturity i s a matter"of v i r t u o s i t y & the spread of technique on the supply s i d e . The r e a l income per c a p i t a r i s e s , but i n the form of more & b e t t e r food, c l o t h i n g , housing, p u b l i c u t i l i t i e s & t r a n s port. The b i c y c l e boom begins the age of consumer durables, but i s then i n t e r r u p t e d by the wars. (2) the country i s a major industr i a l region i n the world" economy. C a p i t a l '& manpower are drawn t o the point of expected higher p r i vate y i e l d & r e a l wages. In spending c a p i t a l abroad to open up farming t e r r i t o r i e s or b u i l d i n g r a i l ways , the economy obtains i n v i s i b l e imports i n the short run & cheaper supplies' of primary goods i n the long run, b u t " i t b e n e f i t s mostly the whole world t r a d i n g ~ a r e a . (3) the t i m i n g of the stages of growth i s a f f e c t e d by i n t e r v a l s when resources are devoted t o war, d i v e r t e d t o gold mining, or wasted because p u b l i c p o l i c y f a i l s t o create the conditions f o r a r e g u l a r movement forward  - 107  -  -1910-  First ( World War-J Lloyd H George's J •• 1920Reforms  —  -j j I I I  —The process of moving towards maturity generates the kind of s o c i a l pressures which i n turn" enforce humane m o d i f i c a t i o n s t o that process  •  G. B. Shaw: the doubt of industr i a l maturity The. Great Depression breaks the hold of a generation of p o l i t i c a l leaders whose d e s i r e i s to r e - ' create a pfe-1914 normalcy. I t brings t o power governments that b u i l d p r o s p e r i t y of a s o r t on housing, the devaluation of 1931 & Empire Preference  Great" -- Depres s ion-193 0-  High mass consump• 1940- t i o n Second -, World War  -1950-  -1  I Y t  i  -1960-  /  ,/The t e c h n i c a l , p o l i t i c a l & s o c i o l o g i c a l obstacles are cleared away & the s o c i e t y breaks out "into the phase of durable consumers* goods & s e r v i c e s . The s o c i e t y behaves i n a remarkably""American" manner The era of high consumption i s s t i l l gathering momentum. The p a t t e r n of consumption depends upon the income e l a s t i c i t i e s of demand i n t h e i r widest sense  - 108 France  Congress of Vienna  -1820-  An a g r i c u l t u r a l economy  July Revo—1830^ lution  The close r e l a t i o n s h i p t o the United Kingdom makes the takeoff early  -1840-  •Take-off  Crystal Palace Exhibition  -1850-- \ --v  N  -I860-  The p o s t - f a i l w a y - b u i l d i n g Steel starts  Age of  - 109 The r i s e of s t e e l i s the c e n t r a l symbol of the movement t o maturity i n the post-railway age  -1870-  Eurdpean Slump  -1880-  -1890-  -1900-  -1910- M a t u r i t y  The r a t e of"development, r e l a t i v e l y t o the United Kingdom, i s r a i s e d because a b i g backlog of una p p l i e d technology i s a v a i l a b l e  The " s o c i a l s t r u c t u r e & the f a m i l y pattern hinder the economic growth ' '• Lack of c o a l - i r o n complex i s a f a t a l cause f o r a slow economic development  - 110 -1910- Maturity With stagnant population, a f i v e per cent investment"fate y i e l d s substantial growth i n r e a l output per capita — • The economy moves towards the 1 welfare state", because i t Is not First agrarian"in i t s p o l i t i c a l balance World War-! &" there is"the great weight of s o c i a l i s t doctrines & ideals within the Industrial"working force ~& "among" i n t e l l e c t u a l leaders -1920 , /The economy faces"severe" problems ' of reconstruction~& readjustment, & i t does not proceed straight away into the age of consumer Y durables' I -—The only period of normal prosperity which restores 1913 levels of outI 1 put. This f a i l u r e to expand corresponds to a f a i l u r e t o make the Great " "'- -- ' -l I l o g i c a l move into the normal stage Depression-1930of growth beyond maturity 'The Great Depression breaks the hold of a generation of p o l i t i c a l leaders whose desire i s to re-create a pre-1914 normalcy. I t brings to power a Popular Front government. The r i s e of the new regime imposes a d i f f e r e n t set of imperatives. Rearmament becomes a factor i n the recovery 1^-1940The lag In the s h i f t t o the road can Secbnd be accounted f o r by lack of c a p i t a l World War for road building, by the monopol i s t i c power of the railways & the pressure of the government, by the l a t e r s t a r t with the concept of the mass produced car f o r the mass market, by the l i t t l e a v a i l a b i l i t y of cheap suburban housing s i t e s -1950r  1 -The technical, p o l i t i c a l & sociolo! gical"obstacles are cleared away & High mass the society breaks but Into the consump- phase of durable consumers' goods tion The era of high consumption i s s t i l l gathering momentum  — I l l  -  4 Ireland  In-the eighteenth century, making a v i r t u e of Recklessness, the'oppressed I r i s h react to*the i n t r u s i o n of a more advanced power. The economy i s regarded as the pret a k e - o f f s o c i e t y , where the population pressure i s generated hot only by the easy spread of h i g h l y productive' measures of p u b l i c h e a l t h but also"by the easy acceptance of h i g h - y i e l d hew crops, p e r m i t t i n g a fragmentation of land-holdings, e a r l i e r marriage & a r i s e i n the b i r t h .rate.  4 Switzerland  The economy r e l i e s almost wholly on the s k i l l , motivation & energy of the people. The impetus comes from h a n d i c r a f t s and tourism.  - 112  (iv)  -  Africa 4  Ethiopia  ft  Kenya  4  B e l g i a n Congo  4 4  ...Nigeria Southern Rhodesia  -  113  -  4 Ethiopia  The pre-take-off economy, where the apparent savings &" investment r a t e s , i n c l u d i n g l i m i t e d net c a p i t a l imports, come t o under f i v e per cent of net national- product.  4 Kenya  The pre-take-off economy, where the apparent savings"& investment r a t e s , i n c l u d i n g " l i m i t e d net c a p i t a l imports, come t o under f i v e per cent of net n a t i o n a l product.  4 B e l g i a n Congo  The enclavei"economy, where the apparent savings & investment r a t e s , i n c l u d i n g s u b s t a n t i a l net c a p i t a l imports, come to over t e n per cent of net n a t i o n a l product, but the domestic pre-condit i o n s f o r sustained growth have not been achieved. The economy, associated w i t h major export i n d u s t r i e s , lacks a political, social & institutional framework which e x p l o i t s the impulses to expansion i n the modern s e c t o r . C u r r e n t l y , a l a r g e quantity of f o r e i g n c a p i t a l import does not i n i t i a t e the t a k e - o f f , although i t contributes undoubtedly t o c r e a t i n g the pre-conditions.  4 Nigeria  The enclave economy, where net c a p i t a l imports are l a r g e .  4 Southern Rhodesia  The enclave" economy, where the apparent savings & investment r a t e s , i n c l u d i n g s u b s t a n t i a l net c a p i t a l imports, come to over t e n per cent of net n a t i o n a l product, but the domestic pre-condit i o n s f o r sustained growth have hot been achieved. The economy, associated w i t h major export i n d u s t r i e s , lacks a political, social & institutional framework which e x p l o i t s the impulses to expansion i n the modern sector.  -  (v)  114  -  Eastern Europe K  Union of Soviet S o c i a l i s t Republics  -  115  -  Union of Soviet S o c i a l i s t Republics  -1790r —  Napoleonic Wars  I-LS00\ —  v  —  \  \  i-isio- \  -1820-  \  -1830-  \ \  -1840-  -1850l- -- /  Crimean -| War »  -1860-  ^A s e r i e s of m i l i t a r y i n t r u s i o n s / &~ defeats are the great engine / of change  /  - 116 -1860-  -1870-  The pre-conditions s t a r t e x p l i c i t l y The t r a d i t i o n a l c o a l i t i o n s among the commercial middle c l a s s , t h e more e n t e r p r i s i n g c i v i l servants & s o l d i e r s share one s o l i d common c o n v i c t i o n that they have a stake i n the c r e a t i o n of an independent modern s t a t e /The s u b s t a n t i a l economic progress ' before a t r u l y s e l f - r e i n f o r c i n g / growth process / K. H. Marx: the doubt of i n d u s t r i a l / maturity The s u b s t a n t i a l improvements i n the banking system do not i n i t i a t e a take-off  -1880-  -1890--/  /The i n t r o d u c t i o n of the r a i l r o a d i s / the strong i n i t i a t o r of a t a k e - o f f / T a r i f f s are imposed. They play an / important r o l e i n the"take-off t The t a k e - o f f i s aided by the world / r i s e i n g r a i n p r i c e s . This r i s e makes a t t r a c t i v e the l a y i n g of vast r a i l w a y networks A sharp r e l a t i v e " r i s e i n export p r i c e s & l a r g e c a p i t a l imports create a newly favourable i n t e r n a t i o n a l environment Export of g r a i n i s a source of ploughed-back p r o f i t s Foreign c a p i t a l flows are important as"lumpy overhead c a p i t a l constr u c t i o n , of long g e s t a t i o n p e r i o d , i s required  The s u b s t i t u t i o n of government bonds f o r "the great" landholders claim oh the flow of rent payments -1900r e d i s t r i b u t e s income i n t o t h e hands ' of'men more'inclined to"seek Take-off m a t e r i a l advance & t o accept innovations" I n d u s t r i a l output as a whole increases oh the average a t about eight percent per annum f  RussoJapanese War Tsarist Russia  -1910-  The enlargement & modernization of armed forces c o n s t i t u t e a l e a d i n g sector  - 117 -1910- -Take-off With i t s m u l t i p l e impact on growth, the r a i l w a y f i n i s h e s the t a k e - o f f C o a l , i r o n & engineering surge t o meet the" expanded home demand. The Baku petroleum f i e l d expands t o i t s n a t u r a l l i m i t & the U k r a i n i a n First c o a l - i r o n complex i s brought t o World War-j •-• life ^1920-  Expulsiori -of T r o t s k y r — G r e a t 1  —  Depress ion'-193 0F i r s t Five] -Tear P l a n j --  Ill940l  __  Second n World War J  ---  1 1  -_ .,  -1950Stalin's Death  /The economy i s run by' men who" know I where' they are going---Confident / p e r i o d : the broad p a t t e r n of economic growth under the commun/ i s t leadership / A d r i v e t o maturity: the"process / of i n d u s t r i a l d i f f e r e n t i a t i o n The post-railway age: the age of s t e e l , machine t o o l s , chemicals & electricity /Three s p e c i a l aspects: / (1) The government damps the r i s e / in"consumption & concentrates on c a p i t a l formation & " m i l i t a r y items, / g i v i n g a d i s p f o p o r t i b h a t e emphasis t o the metal using i n d u s t r i e s as opposed-to h o u s i n g , " t e x t i l e s or t r a n s p o r t ; (2) Despite l a r g e c a p i t a l outlays i n a g r i c u l t u r e , c o l l e c t i v i z a t i o n damps p r o d u c t i v i t y . (3) The surge t o maturity comes when the backlog of accumulated technological p o s s i b i l i t i e s i n clude developments, i n aeronautics, e l e c t r o n i c s & atomic energy  The r a t e of development, r e l a t i v e l y t o the West, i s r a i s e d because a b i g backlog of unapplied technology is available The process of moving towards maturity generates the kind of M a t u r i t y s o c i a l pressures which i n t u r n enforce humane m o d i f i c a t i o n s t o the process  •I960-  - 118 (vi)  Middle East L  Turkey  ft  Israel  'TURKEY  I  S  R  A  E  L  - 119 -  Turkey  First T World War-l I L -1920-  Great -- ' Depression-1930-  Against the background o f i n d u s t r i a l i z a t i o n , the t a k e - o f f i s inaugurated" ' Consumption goods produced"in s u b s t i t u t i o n f o r Imports play the r o l e of leading s e c t o r  -1940-  Secoiid World War  -Take-off  -1950-  •r  1 1 1  -1960-  Th e economy i s one of the underdeveloped countries which have passed through the t a k e - o f f process •Remarkable increase i n a g r i c u l t u r a l Income & p r o d u c t i v i t y I t remains t o be seen whether t h e take-off w i l l constitute a trans i t i o n t o s e l f - s u s t a i n e d growth, & whether the s o c i e t y can overcome i t s s t r u c t u r a l problems  - 120 The economy r e l i e s almost wholly on the s k i l l , motivation &" energy of the'pebple" as well" as on-huge" g i f t s & investments, from the United States & world-wide Jewish community. :  - 1 2 1 -'  (vii) Asia M  Japan  N  China  A  Hong Kong-  k.  Indo-China  A  Philippines  A  Indonesia  A*  Thailand  A  Burma  0  India  A..  Ceylon  A  Pakistan  A  Afghanistan s  I  - 122 Japan  -1820-  -1830-  Opium WarJ-l840-\  s  /  -1850Admiral Perry's Seven Black Ships  /  /  -1860-  /  /  >Their demonstration e f f e c t s cast the d i e The t r a n s i t i o n a l c o a l i t i o n between the Samurai & the g r a i n merchants, who share one s o l i d common conv i c t i o n t h a t they have a stake i n the c r e a t i o n of an independent modern s t a t e A g r i c u l t u r a l dynamism alone cannot l i f t the economy i n t o t a k e - o f f  - 123  Wlth cohesion, promptness & v i g o u r , the Japanese react t o the i n t r u s i o n of a more advanced power  -1860-  / C a p i t a l formatIon i s ~ a i d e d by p r i c e i i n f l a t i o n which s h i f t s resources ' from consumption to"production The t a k e - o f f is"based almost wholly on domestic"sources"of finance The s u b s t i t u t i o n of government bonds f o r the great landholders' claim on the f l o w of rent payments r e d i s t r i b u t e s Income i n t o the hands of men more i n c l i n e d ' t o " s e e k m a t e r i a l advance & t o accept innovations  r  -1870  -  1  i ,^-A" whole s e r i e s of new i n d u s t r i e s ^J-"" take h o l d , i n i t i a l l y sparked by I government i n i t i a t i v e , but turned -1880- — over to p r i v a t e e n t e r p r i s e as new men emerge ready" t o carry respons i b i l i t i e s & risks — — The t a k e - o f f i s b u i l t on r a i l w a y , on s h i p b u i l d i n g , on cotton, oh s i l k c u l t i v a t i o n & manufacture, on c o a l & p i g i r o n , & f i n a l l y on a surge of m i l i t a r y outlays h e l p i n g to b u i l d up the engineering -Take-off i n d u s t r y M e i j i Erart -1890Export of s i l k i s " a source of ' ploughed-back p r o f i t s . Moreover, the s i l k i n d u s t r y plays the r o l e S i i i o - ~ .. of l e a d i n g s e c t o r , because i t involves the a p p l i c a t i o n of"modern Japanese L _ processing techniques, & because War of i t s secondary e f f e c t which requires f o r uniform high grade yarn i n developing modern produc-1900t i o n techniques 1  *»»  "•-Modern i n d u s t r i a l s e c t o r i s s t i l l small & l a r g e l y dominated by textiles  -1910-  - 124  The remarkable purposeful forward surge t o m a t u r i t y , i n which a r e l a t i v e l y narrow array of n a t u r a l resources i s harnessed by a d i l i g e n t p o p u l a t i o n " t o the best that modern," technology can o f f e r , i s brought about *~--World War I s t i m u l a t e s the economy. The modern i n d u s t r i a l s e c t o r s t a r t s ' t o f a n out i n t o chemical" fertilizers, steel, & electrical equipment  J-19-10-  First ir World War-J l  -  -1920-  /  '  Great Depression-1930  t  -  /  /The Great Depression breaks the hold of a generation of p o l i t i c a l leaders whose d e s i r e i s t o r e - ~ "create a pre-1914 normalcy. I t brings about the regime which f o s t e r s m i l i t a r y expansion The engineering i n d u s t r i e s come i n t o t h e i r own, under the stimulus of Manchuria & of war outlays & preparations. The value of output i n metals, machinery & chemicals comes t o outrank t e x t i l e s  "  1-1940Maturity I Second -} World War 1 1  -1950-  -I960-  1 1  /The s o c i e t y breaks out i n t o the phase of durable consumers' goods & s e r v i c e s . The s o c i e t y behaves I i n a remarkably "American" manner J The era of high consumption i s s t i l l •—1 gathering momentum. The p a t t e r n of consumption depends on the -High mass income e l a s t i c i t i e s of demand consump- i n t h e i r widest sense tion  -  125  -  China  First i World WarH I L  -1920-  Great — Depres s i on-193 0-  K1940-  1 1  Secbhd World War 1  1  I  Communist Regime -j-1950-  F l r s t Five] Year Plan 1  By"slowly & r e l u c t a n t l y a l t e r i n g its traditional characteristics, the people react t o the i n t r u s i o n of a"more-advanced power The population pressure i s generated not only by the easy spread'of highl y productive measures of p u b l i c h e a l t h but a l s o by the easy acceptance o f " h i g h - y i e l d new crops, perm i t t i n g a fragmentation of land-"" h o l d i n g s , e a r l i e r marriage & a r i s e i n the b i r t h f a t e Substantial railway building f a i l s t o i n i t i a t e a t a k e - o f f because of the absence of the general preconditions" " The development of modern cotton t e x t i l e industries i n substitution f o r imports marks the pre-take-off period" /The economy attempting p u r p o s e f u l l y / t o take-off"under the n a t i o n a l plan • The F i r s t Five Year Plan: the a g r i c u l t u r a l p o l i c y may f a i l to produce the minimum s t r u c t u r a l balance / required f o r a s u c c e s s f u l t a k e - o f f , / r e q u i r i n g " r a d i c a l r e v i s i o n of investment a l l o c a t i o n s & p o l i c y o b j e c t i v e s at a l a t e r stage / A l l noh-governmerital pools of c a p i t a l / i s systematically transferred into the hands of the s t a t e . I t i s drawing h e a v i l y .for c a p i t a l resources oh"the mass of"peasants Exports t o the communist block wrung at great a d m i n i s t r a t i v e & human cost from the a g r i c u l t u r a l s e c t o r , are a source of ploughed-back p r o f i t s The enlargement & modernization"of '/ armed" forces c o n s t i t u t e a l e a d i n g sector The r a t e of development, r e l a t i v e l y to" the West," i s r a i s e d because a b i g backlog of unapplied technology Take-off i s a v a i l a b l e We"cannot judge whether the take-off e f f o r t s are s u c c e s s f u l or not  - 126 India  First | — World Warn --  Th e development of export sectors does not create c a p i t a l formation because t h e i r proceeds are used t o finance b u l l i o n imports  I  l  -1920-  Substantial railway building f a i l s t o i n i t i a t e a t a k e - o f f because of the absence of the general preconditions The development of modern cotton t e x t i l e industries i n substitution f o r imports marks the pre-take-off period  Great — Depression-1930-  /The economy attempting p u r p o s e f u l l y / t o t a k e - o f f under the n a t i o n a l plan I The F i r s t F i v e Year P l a n : the takeoff i s defined ex ante i n n a t i o n a l product terms The s e c t o r a l composition of the process i s not f u l l y worked out To f u l f i l the f u l l requirements f o r t a k e - o f f , the achievement of industr i a l momentum i s needed  l"-l%0Second -| World War 1  --  /To a l i m i t e d ' extent, the economy r e l i e s on income t r a n s f e r by the / route that a c e r t a i n c o n f i s c a t i o n e f f e c t a f f e c t s the f e u d a l landlords and the r e a l value of the government bonds exchanged f o r land depreciates /  /  /  -1950-/ r — '/ f  ,  F i r s t Five) Year Plan 1  — —  u  —  The rate of development, r e l a t i v e l y t o the West, i s r a i s e d because a big backlog of unapplied technology is available  -Take-off The economy i s one of the underdeveloped countries which are i n the midst of the t a k e - o f f process We cannot judge whether the t a k e - o f f -1960e f f o r t s are s u c c e s s f u l or not  - 127 -  4 Hong Kong  The economy r e l i e s almost wholly on the s k i l l , m o t i v a t i o n & energy of the people who have performed a kind of economic rope t r i c k , climbing i n t o i n d u s t r i a l i z a t i o n with v i r t u a l l y no v i s i b l e means of support.  4 Indo-China  The p r e - t a k e - o f f economy, where the apparent"savings & investment r a t e s , i n c l u d i n g l i m i t e d net c a p i t a l imports, probably come t o under f i v e per cent of net n a t i o n a l product.  4 Philippines  The economy attempting t a k e - o f f , where savings & investment r a t e s , i n c l u d i n g l i m i t e d net c a p i t a l imports, come t o over f i v e per cent of net n a t i o n a l product. Whether the t a k e - o f f w i l l be s u c c e s s f u l remins t o be seen.  4 Indonesia  The p r e - t a k e - o f f economy, where the apparent savings & investment r a t e s , i n c l u d i n g l i m i t e d net c a p i t a l imports, probably come t o under f i v e per cent of net n a t i o n a l product.  4 Thailand  The pre-take-off economy, where the apparent savings & investment f a t e s , i n c l u d i n g l i m i t e d net c a p i t a l imports, probably come t o under f i v e per cent of net n a t i o n a l product.  4 Burma  The enclave economy, where net c a p i t a l imports are l a r g e .  4 Ceylon  The p r e - t a k e - o f f economy, where the apparent savings & investment r a t e s , i n c l u d i n g l i m i t e d net c a p i t a l imports, probably come t o under f i v e per cent of net n a t i o n a l product.  4 Pakistan  The pre-take-off economy, where the apparent savings & investment r a t e s , i n c l u d i n g " l i m i t e d net c a p i t a l imports, probably come t o under f i v e per cent of net n a t i o n a l product.  4 Afghanistan  The p r e - t a k e - o f f economy, where the apparent savings & investment r a t e s , i n c l u d i n g l i m i t e d net c a p i t a l imports, probably come t o under f i v e per cent of net n a t i o n a l product.  - 128 ( v i i i ) Oceania P  Australia  AUSTRALIA  a. o  V  - 129 -  Australia  First | -World Warn — L.  —  -1920-  Great ' Depress i o n - 1 9 3 0 —  A sharp f a l l i n terms of trade  f-The challenges which r e q u i r e the r a p i d development of manufactured \ \ import substitutes K \ X — V— v — •A war-time block-1 \ X age of f o r e i g n X X v trade _ l X Second -\ T h e t a k e -off i s i n i t i a t e d X World War \ N by a harrow economic I •Take-off. process because of the X High Mass r i c h land & n a t u r a l c o n s u m p t i o n \ resources by which the \ high l e v e l s of welfare \ can be achieved 'Meat i n d u s t r y i s a substan-1950t i a l manufacturing s e c t o r Consumption goods produced i n s u b s t i t u t i o n f o r imports play the r o l e of leading sector N  N  v  N  v  v  -I960-  - 130 These case studies carry very important cations f o r today.  impli-  The v a r i e t y of s e c t o r a l patterns i n  the d r i v e t o maturity needs emphasis i n the world where so many nations are seeking t a k e - o f f . Very few nations have been endowed with a Pennsylvania, a Ruhr, a Black Country or a Ukraine. have some narrower range of n a t u r a l resources.  Most  Some must  r e l y almost wholly on the s k i l l , motivation and energy of t h e i r people.  However, the minds of the leaders of the  underdeveloped countries are l i k e l y t o be f i l l e d with v i s i o n s of the American, German and Russian patterns r a t h e r than the probably more r e l e v a n t Swedish and Japanese patterns.  CHAPTER IV. THE APPLICATION OF PROFESSOR ROSTOWS INTERPRETATION 1. P o l i c y Views 2. C r i t i c i s m of the Marxian Standpoint  "The best d e c i s i o n s are n e i t h e r bought nor sold.  They are the r e s u l t of disagreement,  where the l a s t word i s not I admit you're f  r i g h t , ' but 'I've got t o l i v e with the s. o. b., haven't I ? " Charles C u r t i s  - .132 IV.  The A p p l i c a t i o n of Professor Rostow's I n t e r p r e t a t i o n The past i s on top of us and with us a l l the time,  and there i s only one way of mastering i t , by knowing how these things have come t o be. Professor Rostow's dynamic theory which helps t o understand t h e i r nature, character, and t h e i r c o r r e l a t i o n t o the present r e a l i t i e s of l i f e , u l t i m a t e l y gives us cogent ideas t o provide a p o l i c y perspective on world economic development, and t o counterpoise the Marxian i n t e r p r e t a t i o n of economic dynamics.  1.  P o l i c y Views In a process of modern development, f i r s t the  United Kingdom, then France, Belgium, the United S t a t e s , Germany, Sweden, Denmark, Japan, Canada, A u s t r a l i a and the Union of Soviet S o c i a l i s t Republics have matured economically.  Mexico, Argentina and Turkey are l i k e l y  t o be the f o l l o w e r s . China, I n d i a and Yugoslavia may come next.  Burma, N i g e r i a , the B e l g i a n Congo, Southern  Rhodesia, Colombia, B o l i v i a and Ecuador are not f a r behind the forerunners.  Puerto R i c o , Panama, Venezuela,  •Peru, B r a z i l , C h i l e , I r a n and the P h i l i p p i n e s are a c t u a l l y attempting t o " t a k e - o f f , " and even countries now i n the "pre-take-off" stage, such as Indo-China, Thailand, Indonesia, Ceylon, P a k i s t a n , Afghanistan, I r a q , Egypt, E t h i o p i a , Kenya and I r e l a n d w i l l sooner or l a t e r achieve  - 133  - •'i  -  t h e i r "take-off." In s i x t y years' time, the world ought to contain many newly mature nations who are able t o apply t o t h e i r resources the f u l l range of science and  technology.  Compound i n t e r e s t w i l l continue t o operate i n the mature s o c i e t i e s , however, f o r the f i r s t time the arena of power w i l l be l i k e l y t o become t r u l y g l o b a l .  With respect t o  t h i s s i t u a t i o n , we have t o face two d i f f i c u l t  problems.  On the one hand, i t i s a question of how t o understand and how to deal w i t h that great empire S o v i e t S o c i a l i s t Republics.  the Union of  And on the other hand,  i t i s the problem of how t o deal with a number of countries which are p r e s e n t l y underdeveloped but are c e r t a i n t o become mature. (i)  The Union of Soviet S o c i a l i s t Republics T e c h n i c a l l y , s t r u c t u r a l l y and p s y c h o l o g i c a l l y ,  the Union of Soviet S o c i a l i s t Republics i s nowadays ready f o r the age of high mass consumption, which means i t s dangerous age.  Seven years ago, Professor Rostow  explained the s i t u a t i o n as under:^ "Without change or c o n f l i c t at the top of the' Soviet s t r u c t u r e we can expect no dramatic overt r e f l e c t i o n of those f o r c e s , a l l of which have a r i s e n from the dynamics of Soviet e v o l u t i o n but l i e outside the c a p a b i l i t i e s of the regime wholly t o . c o n t r o l . The s t a b i l i t y of Soviet p o l i c y s i n c e . ,,1 Walt Whitman Rostow, A l f r e d Levin & others, fhH Dynamics of Soviet S o c i e t y , Center"for I n t e r n a t i o n a l S t u d i e s , M. I. T., New York, Norton, 1953, PP- 258-259.  r-  134 -  the mid-1930's i s a r t i f i c i a l . I t represents a complete short-term t a c t i c a l success i n maintaining the" p a t t e r n of "Soviet rule"; but t h i s success has been achieved by h o l d i n g " i n check of f r u s t r a t i n g f o r c e s and a t t i t u d e s which are not d i m i n i s h i n g but are probably g a i n i n g i n strength as a secondary consequence of that p a t t e r n of r u l e . I t would be dangerous t o underestimate the c a p a b i l i t i e s of the Soviet regime t o maintain domestic order so long as i t maintains a minimum u n i t y a t the top, and, i n p a r t i c u l a r , so long as the s e c r e t p o l i c e continues i n existence as an e f f e c t i v e agent of the regime. Nothing i n t h i s a n a l y s i s j u s t i f i e s ah easy optimism concerning the timing of a change i n the Soviet system or concerning the process of t r a n s i t i o n . Nor w i l l such change n e c e s s a r i l y and a u t o m a t i c a l l y wofk i n the i n t e r e s t s of the United States and common humanity everywhere. Oh the other hand, i t i s important t o recognize the existence of these deeper forces and t o take those a c t i o n s which would maximize the change that t h e i r u l t i m a t e coming i n t o ' p l a y c o n t r i b u t e to"the development of a more peaceful and s t a b l e world, and thus accord w i t h our own i n t e r e s t s . " In respect of both the s t a r t of t h e i r t a k e - o f f and t h e i r a r r i v a l a t m a t u r i t y , the Soviets are about f i v e decades behind those of„the United S t a t e s .  By c a p i t a l i z i n g  2 For the sake of the f u l l understanding of t h i s problem, the f o l l o w i n g a r t i c l e s must be r e f e r r e d " t o : U". S. Congress, Trends i n Economic Growth; A Comparison of the Western Powers and"the Soviet B l o c , A study prepared f o r the J o i n t Committee oh the Economic Repoft by the l e g i s l a t i v e reference s e r v i c e of the L i b r a r y of Congress, 1955. U. S. Congress, Soviet Economic Growth; A Comparison"with the United S t a t e s , A study"prepared f o r the Subcommittee on"Foreign Economic P o l i c y of the J o i n t Economic Committee by the l e g i s l a t i v e reference s e r v i c e of"the L i b r a r y of Congress, 1957. G. Warren Nutter, "some Observations oh Soviet I n d u s t r i a l Growth," AmericanEconomic Review, v o l . 4 7 , No. 2 , May 1957, pp. 618-630. G.'Warren Nutter, "Measuring Production i n the U. S. S. R:; I n d u s t r i a l Growth i n the Soviet Union,"'American Economic Review, v o l . 4 8 , No. 2 , May 1958, pp. 398-411". T. S. Khachatufov, "The Economic E f f e c t i v e n e s s o f ' C a p i t a l Investment i n the U. S . S . R.,"; V. A b o l t i n , "Economic Aspects o f " P e a c e f u l Coexistence-of Two S o c i a l Systems," American Economic Review, v o l . 4 8 , No. 2 , May 1958, pp.  368-392.  - 135 on a b i g unapplied backlog of technology, they have been developing at enormous speed.  T h e i r economic strength  and p o t e n t i a l i t y must be very great, because t o reach t h e i r present maturity they have surmounted the d i f f i c u l t i e s of a t r a d i t i o n a l s o c i e t y w i t h i n t r a c t a b l e problems of land tenure, an i l l i t e r a t e serfdom, over-population on the l a n d , the l a c k of a .free-wheeling commercial middle c l a s s , and a c u l t u r e which i n i t i a l l y placed a low premium on modern productive economic a c t i v i t y .  Moreover, they have done  t h i s work w i t h low per c a p i t a consumption, against a background of the two World Wars and the Great Depression. This r a p i d and strong economic accomplishment . has been c a r r i e d out by c o n s t r a i n t s imposed by the s t a t e ; and the concentration of i t s investment i n heavy i n d u s t r y and i n d u s t r y r e l a t e d t o m i l i t a r y forces has made the development p o s s i b l e . Judging from P r o f e s s o r Rostow*s theory of growth, the Union of Soviet S o c i a l i s t Republics has been doing the same t h i n g that Germany and Japan d i d a generat i o n ago, but p o s s i b l y i n a s l i g h t l y l a r g e r s c a l e .  Now  the Russian Government i s caught up i n the three-way choice: To expand high mass consumption i n t o the range of durable consumer goods and s e r v i c e s ? To a s s e r t the s t a t u s and power of the new mature s o c i e t y on the world scene by m i l i t a r y adventures? and freedom?  To enhance human d i g n i t y  -  136  -^  As discussed p r e v i o u s l y , u s u a l l y maturity i s a time of dangerous as w e l l as promising choices.  But -  so f a r as the Union of S o v i e t S o c i a l i s t Russia i s concerned, the s i t u a t i o n i s more s e r i o u s than ever. e x p l a i n s i t as f o l l o w s :  Professor Rostow  3  "In terms of"the stages of growth, Russia i s seeking to convert i t s maturity- i n t o wo"rld primacy "by postponing" the advent of high mass consumption. But i t i s doing so hot because""its prospects of v i c t o r y : o v e r the West are a l l t h a t good; not because I t s s e c u r i t y could not"be more cheaply and e f f e c t i v e l y insured; not because i t i s i t is n a t i o n a l i n t e r e s t t o continue the arms race but because communism i s a curious form of s o c i e t y appropriate" only to the supply s i d e of the growth problem, and l i k e l y t o w i t h e r i n the age of high consumption." For making up a p o l i c y f o r d e a l i n g with t h i s great empire i n the time of danger, two aspects should have been taken i n t o account.  In the f i r s t p l a c e , the  Union of Soviet S o c i a l i s t Republics has performed a s e l e c t i v e and purposeful f e a t , i n the matter of r a t e s of growth, by devoting a r a d i c a l l y higher p r o p o r t i o n of investment t o heavy i n d u s t r y ; but a v a r i e t y of forces are making f o r d e c e l e r a t i o n .  This new phenomenon can be  i n t h e i r l a t e s t f i g u r e s f o r projected expansion.  observed  In the  second p l a c e , an enormous, fast-growing heavy i n d u s t r y i s not a g o a l i n i t s e l f , nor i s i t an i n t r i n s i c i n t e r n a t i o n a l advantage, t h e r e f o r e the composition of t h e i r output w i l l d e f i n i t e l y be changed.  The a l l o c a t i o n of economic resources  3 W a l t Whitman Rostow, "Rostow on Growth; A Noh-' Communist Manifesto," Lectures d e l i v e r e d at the -University of Cambridge, Economist, August 22, 1959, p. 526.  •  -  ..  - 137 -  must change because of the i n f i l t r a t i o n of consumers' goods i n t o the s o c i e t y .  Then, the economic s t r u c t u r e and the rates  of growth w i l l move c l o s e r t o those of the high mass consumption economies. With t h i s understanding  i n mind, two p o l i c i e s  are appropriate f o r making the Soviets give up "World power.  The f i r s t p o l i c y i s t o t r y t o make t h e i r choice  of attempted world dominion so u n a t t r a c t i v e t o the Russians as t o be u n a t t a i n a b l e .  The second policy, i s t o  s t r i v e t o make t h e i r choice of a high mass consumption economy as easy and as n a t u r a l as p o s s i b l e .  As a matter  of f a c t , the West must demonstrate c e r t a i n t h i n g s , t o persuade the Russians t o face the f a c t of the d i f f u s i o n of power and accept the stage of high mass consumption. The West should not l e t them get f a r enough ahead t o make a temporary m i l i t a r y r e s o l u t i o n r a t i o n a l , and the West should help the underdeveloped countries t o move i n t o takeo f f w i t h i n the democratic  orbit.  The Union of Soviet S o c i a l i s t Republics i s a big  country t o have come t o m a t e r i a l maturity so l a t e ,  but i t knows that other b i g countries are g r a d u a l l y coalescing towards s i n g l e s t a t e s .  As w i t h the leaders  of Germany and Japan i n the l a s t generation, t h e r e f o r e , the leaders of the Union o f Soviet S o c i a l i s t Republics may f e e l dimly and r e s e n t f u l l y aware that the only  - 138 r a t i o n a l a l t e r n a t i v e t o b i d d i n g f o r world domination  will  e v e n t u a l l y be t o accept a status as one middling n a t i o n s t a t e among s e v e r a l . F i n a l l y , no s p e c i a l l y mysterious a t t r i b u t e s must be a s c r i b e d t o the Russian economy.  From Professor Rostow's  dynamism, i t i s simply a great n a t i o n w i t h considerable endowments f o r c r e a t i n g modern economy and s o c i e t y .  The  organization's domestic imperatives and e x t e r n a l ambitions have produced a v e r s i o n of the common experience of growth which i s abnormally focused on heavy i n d u s t r y and m i l i t a r y potential.  The question i s whether the West can m o b i l i z e  Russian ample resources t o do the tasks t h a t must be done. In other words, i t i s a matter of s p i r i t , i n t e l l e c t , w i l l and i n s i g h t .  Whether the p o l i c y of the West f o r r e l e a s i n g  Russian resources t o increase human d i g n i t y and freedom, s o c i a l welfare and i n t e r n a t i o n a l s e c u r i t y , i s b r i n g i n g about good r e s u l t s or not, might be judged from the s t r u c t u r a l changes i n the Soviet economy.  What should  be watched are the s p e c i f i c a l l o c a t i o n s of t h e i r resources, ( i i ) The Underdeveloped Countries We are i n the midst of a great world t r a n s i t i o n . Outside North America, Western Europe, Japan and Oceania, and even i n parts of those areas, u n t i l r e c e n t l y the p a t t e r n of s o c i e t y remained e s s e n t i a l l y f i x e d i n the mold of lowp r o d u c t i v i t y r u r a l l i f e centred on i s o l a t e d v i l l a g e s .  • _  _  - 139  -  W i t h i n the past f o r t y years the two world wars and enormous improvements i n communications have fundamentally a l t e r e d the perspective of hundreds of m i l l i o n s of people.  This  r e v o l u t i o n i s r a p i d l y exposing p r e v i o u s l y a p a t h e t i c peoples t o the p o s s i b i t y of change.  The world community  i s becoming both more interdependent and more f l u i d than i t has been at any other time i n our h i s t o r y , and at the same time i t presents both a great danger and a great opportunity.  The danger i s that i n c r e a s i n g number of  people w i l l become convinced that t h e i r new a s p i r a t i o n s can be r e a l i z e d only through v i o l e n t change and the r e n u n c i a t i o n of democratic i n s t i t u t i o n s , and s i n c e the communists have recognized t h e i r o p p o r t u n i t i e s to e x p l o i t the r e v o l u t i o n of r i s i n g expectations by p i c t u r i n g communism as the road t o s o c i a l opportunity or economic improvement, t h i s danger i s increased by the existence of communism. Thus, i t i s an urgent n e c e s s i t y t o make up a p o l i c y on the problem of how t o deal with a number of the p r e s e n t l y underdeveloped  countries.  With respect t o  t h i s point we must n o t i c e that although China might be regarded as one of the exceptions, her f u t u r e depends g r e a t l y upon the p o l i c y of the West.  The next paragraph^  4 Walt Whitman Rostow, Richard W. Hatch, Frank A"."" "" Kierman, J r . , A l e x a n d e r E c k s t e i n & others, The Prospects f o r Communist China, Center f o r I n t e r n a t i o n a l S t u d i e s , M. I . T., Cambridge-New York, Technology Press of M. I . T. & Wiley, 1 9 5 4 , pp. 3 1 3 - 3 1 4 .  - 140 i n d i c a t e s the s i t u a t i o n . "A u n i f i e d , " c o n f i d e n t , "ambitious group of men'deeplycommitted" " t o t h e use of t o t a l i t a r i a n techniques have mastered"mainland'China. They" areTdriven" oh"by "their" i n t e r n a l " and e x t e r n a l ambitions t o " i n d u s t r i a l i z e r a p i d l y and expand*the"modern"units o f " t h e i r armed f o r c e s . They are" d r i v e n oh by the requirements of these tasks combined w i t h " t h e i r i d e o l o g i c a l commitment to" t o t a l p o l i t i c a l c o n t r o l to employ techniques which may of may not'be c o n s i s t e n t with t h e i r aims. They face i n the coming years a decisive passage of modern h i s t o r y at a time of intense power s t r u g g l e i n w h i c h they are caught up two ways: i n the SinoSoviet A l l i a n c e , and i n the i n t e r a c t i o n of China and the r e s t of A s i a . Thus, despite the unique powers the Communist regime e x e r c i s e s on the mainland, i t s f a t e r e s t s s u b s t a n t i a l l y with the peoples of the Free World and t h e i r government." At the same time, t h i s p o l i c y making i s a b s o l u t e l y important t o persuade the Russians to face the f a c t of the d i f f u s i o n of power and accept the age of high mass consumpt i o n , because now the underdeveloped focus of communist hopes.  countries are the main  I f the West could be s u c c e s s f u l  i n pushing them i n t o t a k e - o f f w i t h i n the democratic o r b i t , the Union of S o v i e t S o c i a l i s t i c Republics would not be able to maintain i t s hope of world domination by communist i c m i l i t a r y aggression. Any d e t a i l e d p o l i c y t o serve the purpose of developing the underdeveloped  economies must be based upon  an understanding of the economic problems these countries f a c e , and of the p o s s i b i l i t i e s and l i m i t a t i o n s of the i n f l u e n c e o u t s i d e r s can exert i n h e l p i n g them t o s o l v e these problems.  No two of these countries are a l i k e , and  - 141  -  the problems of growth w i l l be shaped i n each by i t s resources,  i t s c u l t u r e , i t s h i s t o r y , and i t s p o l i t i c a l  institutions.  Nevertheless,  as I have suggested, there  i s a r e c o g n i t i o n that there are common elements i n the patterns of development of d i f f e r e n t c o u n t r i e s , posing common i m p l i c a t i o n s f o r development p o l i c y everywhere. To e s t a b l i s h the pre-conditions of growth and t o make sure that growth i s maintained, the underdeveloped countries need c a p i t a l ; and t o make e f f e c t i v e use both of t h e i r domestic meagre c a p i t a l and of c a p i t a l from abroad, they need t e c h n i c a l a s s i s t a n c e .  One of the most note-  worthy points i n the development p o l i c y f o r the underdeveloped countries i n connection with Professor Rostow*s dynamics i s that the c a p i t a l and t e c h n i c a l a s s i s t a n c e from the developed countries must r e f l e c t the d i f f e r e n t stages of growth of the p o l i c y objects. The economies i n a "traditional™ stage can make productive use of s u b s t a n t i a l outside c a p i t a l only i n a few f i e l d s l i k e t r a n s p o r t , i r r i g a t i o n , mining, and power. amounts of c a p i t a l absorbed i n a g r i c u l t u r e and are very s m a l l .  The  industry  The economies i n a " t r a n s i t i o n a l " stage  have more opportunities f o r productive investment, a l though t h e i r capacity f o r c a p i t a l absorption i s l i m i t e d . This capacity depends on such f a c t o r s as the t e c h n i c a l and managerial capacity a v a i l a b l e , the s i z e , s t a b i l i t y  - 142  -  and motivations of the n o n - a g r i c u l t u r a l labour f o r c e , the  l e v e l of s k i l l s and education, the development  of  markets, the s t a t e of b a s i c f a c i l i t i e s f o r t r a n s p o r t , communications, power, and community s e r v i c e s .  The  economies i n the t a k e - o f f phase have new problems;  how  much of i t s output i s the economy w i l l i n g t o set aside f o r investment and how much can i t borrow i n normal i n t e r n a t i o n a l c a p i t a l markets?^  In t h i s matter of the r e l a t i o n s h i p  between the stages of growth and i n t e r n a t i o n a l ass i s t a n c e , s e v e r a l points have t o be taken i n t o account. The investment i n the production of raw m a t e r i a l s f o r export depends f o r i t s p r o d u c t i v i t y not on the domestic market but on the l e v e l of demand i n i n t e r n a t i o n a l markets. The r i s k s of investment i n the underdeveloped countries are  r e l a t e d w i t h the i;.question of whether the economy w i l l  grow continuously i n the f u t u r e .  As a matter of f a c t ,  nobody can p r e d i c t when the t a k e - o f f w i l l occur.  But as  soon as the country succeeds i n t a k i n g - o f f , i t s own output can generate the substance t o plow back i n t o i t s own c a p i t a l formation, and favourable p r o f i t prospects emerge, so that the requirement f o r f o r e i g n c a p i t a l i s reduced.^ 5 Walt Whitman Rostow, Max F. M i l l i k a n , P a u l N. Rosensteih-Rodan & others, A P r o p o s a l ; Key t o an E f f e c t i v e Foreign P o l i c y , Center f o r I n t e r n a t i o n a l S t u d i e s , M. I . T., New York, Harper, 1957, pp. 50-51.'" 6 Walt Whitman Rostow, Max F. M i l l i k a n , P a u l N. Rosenstein-Rodan & others, A Proposal; Key t o a h " E f f e c t i v e F o r e i g n P o l i c y , Center f o r I n t e r n a t i o n a l S t u d i e s , M. I . T., New York, Harper, 1957, pp. 51-54.  -143  -  ~  Another s i g n i f i c a n t i n d i c a t i o n which Professor Rostow"s theory suggests i s that there i s a p a r t i c u l a r l y c r i t i c a l period i n the process of economic  development  of<'.every country which determines whether the country w i l l develop i n t o a s e l f - s u s t a i n e d growth with expanding l e v e l s of w e l f a r e or s i n k back i n t o economic stagnation. The former case creates the hope f o r the development of mature democracy, and the l a t t e r case induces economic i n s t a b i l i t y and p o l i t i c a l chaos.  This c r i t i c a l d i f f e r e n c e  between an upward development and a downward stagnation i s often determined by f o r e i g n c a p i t a l a i d . No doubt these are not the only things that have t o be considered i n forming the p o l i c i e s , because there are many complex problems.  For instance:  "Most important, perhaps, the t o t a l problem of EastWest r e l a t i o n s h i p s i s complicated by"deep, often unconscious, issues of race and colour. The i n t e n s i t y of c e r t a i n anti-Western and anti-American r e a c t i o n s of the part of Asians i s undoubtedly caused by f i e r c e underlying resentment of r e a l of b e l i e v e d a t t i t u d e s of r a c i a l s u p e r i o r i t y i n the West."7 Of,  "Americans g e n e r a l l y t h i n k of Communism as a purposef u l conspiracy t o maintain i t s e l f i n power where i t has already seized power and t o expand i t s power t o the l i m i t compatible with the s e c u r i t y of i t s e x i s t ing bases. ----- I t i s e s s e n t i a l f o r us: t o understand that the A s i a n image of Communism i s very d i f f e r e n t ' from ours; and that an eff e c t i v e . e f f o r t t o b u i l d and 7 Wajt Whitman Rostow & Richard W. Hatch, An American P o l i c y i n A s i a , Cambridge-New York, Technology Press of M. I . T. & Wiley, 1955, p. 9.  - 144 -  •  s u s t a i n an a l l i a n c e must" recognize and cope w i t h these s p e c i a l a t t i t u d e s of mind."° In summary, then, the Western p o l i c y towards the underdeveloped  countries should aim at making the d i s s i p a -  t i o n of the n a t i o n a l i s t impulse i n eventual e x t e r n a l aggression as u n a t t r a c t i v e and d i f f i c u l t as p o s s i b l e , and making the b u i l d i n g of the domestic economy on the smooth modernization of the s o c i e t y as easy as p o s s i b l e .  For  r e a l i z i n g these purposes, the needs are: much c a p i t a l a i d ; a continuing j o i n t o r g a n i z a t i o n f o r applying the a i d funds and f o r g i v i n g o p p o r t u n i t i e s t o the leaders of the underdeveloped  countries t o be mixed up c o - o p e r a t i v e l y w i t h the  developed  c o u n t r i e s ' l e a d e r s ; much t a c t f u l n e s s , because  of the v a r i e t y of the underdeveloped  c o u n t r i e s ; the  a p p l i c a t i o n of a f r e e import p o l i c y t o t h e i r manufactured goods, by reason of the urgency of t h e i r search f o r markets; and emancipation of c o l o n i e s .  9  Carrying  out these p o l i c i e s i s not a matter f o r one s i n g l e developed country, t h e r e f o r e , a new i n t e r n a t i o n a l partnership program f o r world economic growth i s proposed.  Judging  from the previous study of dynamics of world economic development, the purposes of t h i s program must be t h r e e f o l d ; making.available s u f f i c i e n t c a p i t a l t o permit the under., 8. .Walt Whitman Rostow & Richard W. Hatch, An American" P o l i c y i n Asia/Cambridge-New York. Technology Press of M. I . T. & Wiley, 1955, p. 10. " .-9 "The Rostow D o c t r i n e , " An e d i t o r i a l comment, Economist, August 22, 1959, p. 512.  - •  ..  - 145 -  developed countries t o launch an u l t i m a t e l y s e l f - s u s t a i n i n g process of economic development; s t i m u l a t i n g and a s s i s t i n g the underdeveloped countries t o overcome obstacles t o t h e i r own development other than l a c k of c a p i t a l ; and c r e a t i n g a climate of i n t e r n a t i o n a l economic a c t i v i t y i n which the economies of the developed countries of North America, Western Europe, Japan and Oceania could  continue  t o grow. According t o Professor Rostow's theory, the underdeveloped countries would be d i v i d e d i n t o three categories. The countries i n the t r a d i t i o n a l stage should be o f f e r e d an expanded volume of t e c h n i c a l a s s i s t a n c e and such c a p i t a l as they could demonstrate they are ready t o use.  What i s  needed i s that the a i d would be on a grant b a s i s .  The  countries i n the t r a n s i t i o n a l stage should be o f f e r e d continuing t e c h n i c a l a s s i s t a n c e and as much c a p i t a l as they could absorb.  As long as the a i d meets the agreed  c r i t e r i a o f p r o d u c t i v i t y , i t should be borrowed a t favourable rates of i n t e r e s t on a long-term b a s i s .  The  countries i n t a k e - o f f should be o f f e r e d f o r e i g n c a p i t a l , judging from the view-point  of c r e d i t - w o r t h i n e s s , i n  connection with i n t e r n a t i o n a l sources of c a p i t a l . And with respect t o these p o l i c y views, t e n c h a r a c t e r i s t i c s might be pointed out: f i r s t , every request f o r a s s i s t a n c e which meets the c r i t e r i a of p r o d u c t i v i t y would  - 146 -  be granted; second, i t i s designed t o provide maximum i n c e n t i v e s t o the governments of the underdeveloped countries t o take the steps necessary t o promote develop- . ment and thus make t h e i r countries e l i g i b l e f o r a s s i s t a n c e ; t h i r d , economic growth i n many countries would depend more on the development of absorptive capacity than on the a v a i l a b i l i t y of c a p i t a l funds, t h e r e f o r e , the program should provide f o r the expansion of absorptive c a p a c i t y ; f o u r t h , the r e c i p i e n t countries must be convinced that the program does not have narrowly p o l i t i c a l  or m i l i t a r y  o b j e c t i v e s ; f i f t h , i t i s as important t o have agreed positive criteria wrong c r i t e r i a ;  of e l i g i b i l i t y as i t i s not t o apply  s i x t h , sponsorship should be i n t e r -  n a t i o n a l r a t h e r than n a t i o n a l ; seventh, the i n c e n t i v e e f f e c t s of the plan w i l l be much more pronounced i f i t i s a p p l i e d on a world s c a l e than i f i t i s l i m i t e d t o one or two regions of the world; e i g h t h , the program w i l l have very l i t t l e i n c e n t i v e e f f e c t i f i t i s not assured of c o n t i n u i t y over a number of years; n i n t h , though the underdeveloped  countries w i l l e s t a b l i s h home i n d u s t r i e s  and w i l l become somewhat more s e l f - s u f f i c i e n t , they must not develop as a u t a r c h i e s ; and t e n t h , there are a g r i c u l t u r a l resources which w i t h a l i t t l e . i n t e l l i g e n t  planning could be  made t o play a much more important part i n i n t e r n a t i o n a l e f f o r s t o promote development than i t has done t o date, e. g.  - 147 by the p r o d u c t i v e use of a g r i c u l t u r a l s u r p l u s e s . ^ I t seems t h a t a much-expanded long-term program of the developed c o u n t r i e s ' p a r t i c i p a t i o n i n the economic development of the underdeveloped  c o u n t r i e s i s one of the  few concrete instruments a v a i l a b l e f o r a c h i e v i n g the twof o l d r e s u l t s of i n c r e a s i n g the awareness elsewhere i n the world t h a t the g o a l s , a s p i r a t i o n s , and v a l u e s of the developed  c o u n t r i e s ' people are i n l a r g e p a r t the same as  those of peoples i n the underdeveloped  c o u n t r i e s , and  d e v e l o p i n g v i a b l e , e n e r g e t i c , and c o n f i d e n t democratic s o c i e t i e s through the whole world. 2.  C r i t i c i s m o f the Marxian Standpoint One  century has passed s i n c e K a r l H. Marx made  p u b l i c h i s great theory.  A c t u a l l y i t had a v a l i d i t y  in a  c e r t a i n p e r i o d of the world economic h i s t o r y , however, as J . Maynard Keynes s a i d a year b e f o r e the p u b l i c a t i o n of "The  General Theory o f Employment, I n t e r e s t and Money,"  K a r l H. Marx s u r e l y " i n v e n t e d a c e r t a i n method o f c a r r y ing  on and a v i l e manner of w r i t i n g , both of which h i s  s u c c e s s o r s have maintained with f i d e l i t y , " but we  can .  d i s c o v e r "nothing. but o u t - o f - d a t e controversialising"-'--'-. i n 10 Walt Whitman Rostow, Max.F. M i l l i k a n , P a u l N. Rosenstein-Rodan.& o t h e r s , A P r o p o s a l ; Key t o ah E f f e c t i v e F o r e i g n P o l i c y , Center f o r " I n t e r n a t i o n a l S t u d i e s , M. I. T., New York, Harper, 1957, pp. 57-69. . 11 Roy F. Harrod, The L i f e - o f John Maynard Keynes, London, M c M i l l a n , 1951, p. 462.  his theory, which has been regarded by a number- of people as a clue to the economic r i d d l e .  S t i l l Marxism has not  been eliminated from our contemporary economics.  Now  i s the time to make sure that the Marxist analysis i s not a v a l i d theory of society but simply furnishes a part of the mechanism f o r a theory of society. does not now exist.  Such a theory  To offset or replace Marxism, we need  a theory which takes account of the multiple motivations of human beings, one i n which economic forces, dynamically i n t e r a c t i n g over time, help determine other aspects of the society and are p a r t i a l l y determined by themselves. Professor Rostow once wrote: "The author has by no means solved the problem of formulating" an alternative to the Marxist system; but he would argue that the "focusing of attention on t h i s problem i s an urgent item on the agenda of the social"sciences. Further, i t s solution appears e s s e n t i a l both f o r a f u l l understanding of the process of economic growth i n the past and f o r the formulation of adequate public p o l i c y designed to sustain or accelerate economic growth i n the many portions of the world where this i s the majority w i l l of peoples and the enunciated aim of t h e i r governments."12 As f a r as the f i e l d of economics i s concerned, the. essence of the.Marxian standpoint i s as f o l l o w s .  13  12 Walt Whitman Rostow, The Process of Economic Growth, New York", Norton, 1952, p. 9. 13 Vladimir I. Lenin, "The Three Sources"and Three" Constituent Parts;of Marxism," C a p i t a l , The Communist Manifesto and"Other Writings by Karl Marx, New York, Modern Library, 1932, pp. xxi-xxvi. K a r l H." Marx, The German Ideology, 184o. Karl H. Marx, The Communist Manifesto, 1848. Karl H. Marx, Critique of P o l i t i c a l Economy,  - 149 -  ;  The fundamental p r o p o s i t i o n of Marxism i s the s o - c a l l e d economic or m a t e r i a l i s t i c i n t e r p r e t a t i o n of history.  The general character of the various processes  of l i f e i s fundamentally determined by the mode of production i n material l i f e .  Marxism proceeds t o the conclusion  that the e n t i r e h i s t o r y of s o c i e t y i s merely a record of class struggles.  Nineteenth-century  i n d u s t r i a l i s m had  g r e a t l y s i m p l i f i e d previous c l a s s alignments by s p l i t t i n g s o c i e t y i n t o two great h o s t i l e groups: the bourgeoisie, as s o l e owners of the means of production, and the p r o l e t a r i a t , devoid of a l l productive forces except t h e i r own  labour  power and hence at the mercy of the small c l a s s of bourgeois employers.  The dominant economic c l a s s , whenever faced by  the r e f u s a l of an outmoded economic c l a s s t o surrender i t s p o l i t i c a l l d o m i n a n c e , has been compelled t o erect a  new  p o l i t i c a l s t a t e of i t s own i n order to consolidate i t s economic power.  Marxism regards c o n t r o l of the p o l i t i c a l  s t a t e by the dominant economic c l a s s as the c e n t r a l f a c t in a l l history. The c l a s s s t r u g g l e i s o r i g i n a t e d and kept going by the existence of surplus value.  The worker alone  produces a l l wealth and i s r i g h t l y e n t i t l e d to the f u l l value ..of h i s c r e a t i o n . Marxism reduces a l l labour t o simple average labour, regards land as merely a passive agent and c a p i t a l as the product of past labour.  The exchange value  - 150 of everything i s determined by the labour time s o c i a l l y necessary t o produce these products.  The workers do not  r e c e i v e the f u l l value of t h e i r labour, but, with only t h e i r labour power t o o f f e r , receive from employers no more than enough f o r meager subsistence and the propagat i o n of the race.  Employers on the other hand, are s a i d  t o be pocketing as p r o f i t s the surplus value, the d i f f e r e n c e between what they pay t h e i r workers and what these workers produce^.  Marxism b e l i e v e s e x p l o i t a t i o n i n c a p i t a l i s t  s o c i e t y t a k i n g the form of surplus value, which grows ipace as i n c r e a s i n g e f f i c i e n c y of production shortens the labour time s o c i a l l y necessary t o produce the workers' subsistence. Industry concentrates i n t o l a r g e r and l a r g e r business u n i t s as wealth and income come i n c r e a s i n g l y i n t o the hands of an ever-diminishing number of people.  Pro-  duction i n c r e a s e s , but the consuming power of the working population r e l a t i v e l y decreases.  P e r i o d i c depressions are  f o r a time o f f s e t by various expansionist phases of c a p i t a l ism, but, with the drying up of both f o r e i g n and domestic markets, s o c i e t y becomes i n c r e a s i n g l y rent by devastating c r i s e s and enters upon a period of i n d u s t r i a l d e c l i n e leading inexorably t o the c o l l a p s e of c a p i t a l i s m . As the c l a s s s t r u g g l e i n t e n s i f i e s , the r i c h grow fewer and r i c h e r , the poor more numerous and poorer.  The i n c r e a s i n g number  and misery of the l a b o u r i n g c l a s s engenders a m i l i t a n t  _  c l a s s consciousness.  - 151  -  The p r o l e t a r i a t hampers and  the c a p i t a l i s t i c system i n every p o s s i b l e way.  attacks  When  conditions have become unbearable, and where c o n s t i t u t i o n a l means of reform have been of no a v a i l , the workers u n i t e i n a mass u p r i s i n g at some p r o p i t i o u s moment, overthrowing the r u l i n g c l a s s by the use of every method which c a p i t a l i s m has employed t o preserve i t s e l f .  Capitalism,  containing  w i t h i n i t s e l f the seeds of i t s own d e s t r u c t i o n ,  supplies  the motive power which brings about i t s i n e v i t a b l e e x t i n c tion.  With c a p i t a l i s m overthrown, the working c l a s s  assumes complete c o n t r o l .  The taSk of r e c o n s t r u c t i o n i s  c a r r i e d on f o r an indeterminate period under the of the p r o l e t a r i a n d i c t a t o r s h i p .  leadership  When, f i n a l l y , the working  c l a s s has come t o include the e n t i r e population, t h i s i n t e r mediate stage of s o c i a l i s m evolves i n t o communism, the completely c l a s s l e s s s o c i e t y , and c i v i l i z a t i o n has reached i t s f i n a l stage of development. Professor Rostow summarises the Marxist i n seven  thought  propositions.^  "(1) A s o c i e t y ' s p o l i t i c a l , s o c i a l and c u l t u r a l c h a r a c t e r i s t i c s are a f u n c t i o n of the conduct of the economic process u n t i l the stage of communism i s reached, (2) H i s t o r y moves forward by a s e r i e s of c l a s s struggles, (3) Feudal s o c i e t i e s were destroyed when they permitted the growth of a middle c l a s s 14 Walt Whitman Rostow, "Rostow on Growth; A Non~~ Communist Manifesto,";Lectures d e l i v e r e d a t the U n i v e r s i t y of Cambridge, Economist, August 22, 1959, pp. 528-529.  •  - 152 -  --  (4) C a p i t a l i s t i n d u s t r i a l " s o c i e t i e s " would create the conditions f o r . t h e i r own destruction, because they created a working f o r c e to which they a l l o c a t e d ' only a minimum wage;"and because t h e e n l a r g i n g of Industr i a l capacity would lead to a competitive s t r u g g l e f o r marketsV —-." "" ' " '' ' ' (5) An i n c r e a s i n g l y a s s e r t i v e p r o l e t a r i a t ' w o u l d be goaded t o s e i z e the means"of production (6) This s e i z u r e of power would occur i n a- s e t t i n g of d i s r u p t i o n caused b y " i m p e r i a l i s t wars . (7) A f t e r t h i s s e i z u r e of power, production' would be driven s t e a d i l y forward, without c r i s e s , and r e a l Income would expand u n t i l true communism became possible." v  There are c e r t a i n s i m i l a r i t i e s between Professor Rostow*s dynamics (the t r a d i t i o n a l s o c i e t y , the t r a n s i t i o n a l s o c i e t y , the s o c i e t y i n t a k e - o f f , the maturing s o c i e t y , and the mass consuming s o c i e t y ) , and the Marxist  standpoint  (feudalism, c a p i t a l i s m , s o c i a l i s m , and communism).  By ac-  cepting the f a c t s that economic change has s o c i a l and p o l i t i c a l e f f e c t s , and that there i s the r e a l i t y of group and c l a s s i n t e r e s t s which help t o create the causes of wars, both theories s t a r t from t r a d i t i o n a l or f e u d a l s o c i e t i e s and i n q u i r e i n t o the process of b u i l d i n g compound i n t e r e s t i n t o the s o c i a l s t r u c t u r e s .  And both i n d i c a t e the goal of true  a f f l u e n c e i n the end, although the mass consuming s o c i e t y and communism are extremely d i f f e r e n t . As Professor Rostow s a i d eight years ago,  the  problem of formulating an a l t e r n a t i v e to the M a r x i s t system i s an urgent item on the agenda of the s o c i a l sciences. Judging from the previous study, Professor Rostow*s dynamics c e r t a i n l y has a cogent c h a r a c t e r i s t i c as a non-communist  - 153  manifesto.  -  H i s b a s i c c r i t i c i s m of Marxism i s r e l a t e d t o  the f o l l o w i n g two aspects.  The M a r x i s t hypothesis omits  the r o l e of very long-run forces which have manifestations i n r e l i g i o n and the consciousness of n a t i o n a l i t y ; and i t gives an undemonstrated p r i o r i t y and fundamental causal p o s i t i o n t o economic motivations and economic processes i n s o c i a l and p o l i t i c a l l i f e . " ^ Human m o t i v a t i o n i s the key point of a t t a c k on Marxism.  Although the people i s a complex u n i t , seeking  power, l e i s u r e , adventure, c o n t i n u i t y of experience and s e c u r i t y ; concerned w i t h the f a m i l y , the values of the c u l t u r e ; and capable of being moved by a sense of connect i o n with other human beings, Marxism f i n d s nothing but the n o t i o n of p r o f i t maximization as human motivation.  The  h i s t o r i c a l background and Marx's personal experience made Marx t h i n k t h a t people's behaviour was not an act of balancing a l t e r n a t i v e and c o n f l i c t i n g o b j e c t i v e s . However, i n the f a c t u a l world seen i n the l i g h t of economics, patterns of choice, not a r i g i d i n e v i t a b i l i t y , are of s i g n i f i c a n c e .  As  a matter of f a c t , Marxism assumes that the d e c i s i o n s of a s o c i e t y are a f u n c t i o n of who owns property; so c a p i t a l i s t s o c i e t i e s would c l i n g f o r ever t o the f r e e market mechanism and p r i v a t e advantage.  Thus, Marxism can give no expla-  n a t i o n w h y . c a p i t a l i s t s o c i e t i e s accept progressive income 15 Walt Whitman Rostow, The Process of Economic Growth, New York, Norton, 1952, pp. 42-43.  - 154 tax and the welfare s t a t e , and why the working c l a s s j o i n s i n democratic p o l i t i c a l a c t i v i t i e s . "The outcome of s o c i a l c o n f l i c t i s i n f a c t l i k e l y t o be "governed by ultimate" considerations of communal continuity. K a r l Marx regarded the u l t i m a t e human solvent as cowardice and b e t r a y a l , not as' the"." minimum c o n d i t i o n f o r organized s o c i a l l i f e , "16 According t o Marxism, economic advantage, i . p r o f i t maximization, i s the cause of wars.  e.  But c o l o n i a l wars  were fought mainly because of n a t i o n a l p r e s t i g e and power, r e g i o n a l aggressions were aroused from the dilemma between a s s e r t i n g n a t i o n a l power on the world stage and c o n s o l i d a t i n g c e n t r a l governmental power over t r a d i t i o n a l forces i n the r e g i o n s , or concentrating on modernization, and massive wars were attempted t o win d e c i s i v e hegemony i n the world arena. C a p i t a l i s t s o c i e t i e s enjoy making s t r i d e s of economic growth without being dependent upon colonies.  Colonialism i s  v i r t u a l l y dead. World economic development has been t r a c i n g the route of the f i v e stages: the t r a d i t i o n a l s o c i e t y , the t r a n s i t i o n a l s o c i e t y , the s o c i e t y i n t a k e - o f f , the maturing s o c i e t y , and the mass consuming s o c i e t y , not only by the e f f e c t of p r o f i t motives.  As soon as people understand  that they need not d i e young or l i v e i n i l l i t e r a c y , there appear some.forces t o make.this process of development ~ 16'" Walt Whitman Rostow, "Rostow on Growth; A NohCbmmurilst Manifesto," Lectures d e l i v e r e d a t the U n i v e r s i t y of Cambridge, Economist, August 22, 1959, p. 529.  - 155  inevitable.  -  I t seems that s o c i e t i e s have behaved i n the  most Marxist way  i n the d r i v e t o maturity, nevertheless  people do the things needed to i n d u s t r i a l i z e a s o c i e t y not merely t o make money, but to have power, adventure, challenge and p r e s t i g e . ardent s t r i v i n g of men  Marxism cannot e x p l a i n "the long a f t e r they had made more money  than they or t h e i r c h i l d r e n could conceivably use."^7 An i n d u s t r i a l reserve army does not seem t o have a r i s e n , and the idea of stagnation of c a p i t a l i s m i s made u n r e a l i s t i c by r i s i n g r e a l wages. lead t o monopoly  Competition does not  i f monopoly develops, i t i s more because  of the economies of l a r g e s c a l e research and development than because s m a l l firms could not survive the market environment.  Owing t o trade unions and various  groups a r i s i n g from the democratic t o net marginal value product. has been making the amplitude  pressure  process, wages approximate  The Keynesian r e v o l u t i o n of cycles of unemployment  smaller and smaller through s e n s i t i v e economic p o l i c y . Since people p r e f e r a productive a c t i v i t y to l e i s u r e , they have a l o t of things to do p r o d u c t i v e l y .  Therefore, d i -  minishing returns are not l i k e l y t o p r e v a i l . Where the c l a s s struggle i s softened, what i s l e f t . i s not a dominance of t h e . p r o f i t motive and  progress,  17 Walt Whitman Rostow,""Rostow oh Growth; A NoriCommunist Manifesto," Lectures d e l i v e r e d at the U n i v e r s i t y of Cambridge, Economist, August 22, 1959, p. 529.  - 156 but a problem of balance between e x t e r n a l a s s e r t i o n , cons o l i d a t i o n - of c e n t r a l power, and economic growth.  Eventual-  l y , Marxism assumes that our compound i n t e r e s t appears i n the perverse form of mounting p r o f i t s , capable of heing d i s t r i b u t e d i n . h i g h c a p i t a l i s t l i v i n g , unusable capacity and war; but Professor Rostow"s dynamics asserts that on the other hand, our compound i n t e r e s t would face the between the n a t i o n a l p u r s u i t of e x t e r n a l power, the  choices welfare  s t a t e and the expansion of mass consumption. F i n a l l y , we have t o n o t i c e the f a c t that Marxism has formidable f o r c e as a technique of power, because i t could help t o e s t a b l i s h a system of s t a t e o r g a n i z a t i o n based on p o l i t i c a l determinism.  In a t r a n s i t i o n a l s o c i e t y ,  a w e l l - d i s c i p l i n e d m i n o r i t y can s e i z e power, which means the c o n t r o l of the army, p o l i c e , and means of communication. A c e n t r a l i z e d d i c t a t o r s h i p may supply e s s e n t i a l pre-condit i o n s f o r t a k e - o f f , through s e t t i n g up confusion  and  c o n f l i c t between t r a d i t i o n a l elements and modernizers. The Marxian standpoint  i s faulty, and  Professor  Rostow"s dynamic view i s v a l i d , t o i n t e r p r e t the world economic development.  But the outcome i s u n c e r t a i n .  CHAPTER V. CONCLUSIONS Prognosis  "The ideas of economists and p o l i t i c a l  philo-  sophers, both when they are r i g h t and when they are wrong, are more powerful than i s commonly understood. r u l e d by l i t t l e e l s e .  Indeed, the world i s P r a c t i c a l men, who  b e l i e v e themselves t o be q u i t e exempt from any i n t e l l e c t u a l i n f l u e n c e s , are u s u a l l y the slaves of some defunct economist.  Madmen i n  a u t h o r i t y , who hear voices i n the a i r , are d i s t i l l i n g t h e i r f r e n z y from some academic s c r i b b l e r of a few years back.  I am sure  that the power of vested i n t e r e s t s i s v a s t l y exaggerated compared with the gradual encroachment of ideas.  Soon or l a t e , i t i s ideas,  not vested i n t e r e s t s , which are dangerous f o r good or e v i l . " J. Maynard Keynes  V.  -  Conclusion Prognosis There i s a growing c o n v i c t i o n that world economic  development holds the key not merely t o save the world, but p r i m a r i l y t o save our own s o u l s .  Very few problems  are more engaging and more s i g n i f i c a n t than dynamics of world economic development. To study s o c i a l r e a l i t y , i t i s a b s o l u t e l y important t o approach from the viewpoint of human i d e a l s , because our thoughts are d i r e c t e d by a value' connotation. An enormous number of t h e o r i e s have been set f o r t h , but most of them l a c k cogency, due t o the f a c t that they emphasize many things that are not t r u e .  To speak of  development i s t o assume that the s o c i e t y i s proceeding, or f a i l i n g t o proceed, i n a c e r t a i n d i r e c t i o n .  Certain  standards or c r i t e r i a of such development are not so simple that they are explained by an economic dynamic approach of a s o c i o l o g i c a l i n s t i t u t i o n a l approach.  Capital  accumulation, economic d i v e r s i f i c a t i o n , balance of payments, t e c h n o l o g i c a l development, population, labour, employment, land d i s t r i b u t i o n , c o l o n i a l i s m , dualism or p l u r a l i s m , p o l i t i c a l a f f a i r s and ideology are very important problems per se; however, d i f f e r e n t opinions which are founded on those d i f f e r e n t bas6s must become a broad s y n t h e t i c system by improving each other.  Professor Walt Whitman Rostow  -  - 159 -  has been e s t a b l i s h i n g a dynamic theory with broad understanding of e x i s t i n g t h e o r i e s and o v e r a l l research of practical facts. As an economist, Professor Rostow makes a reasoned catalogue of the world as i t i s , because he b e l i e v e s that we must not p i c t u r e t o ourselves an u n r e a l world as i t might, or ought t o be, and make schemes f o r it.  H i s dynamic theory of economic growth on a g l o b a l  b a s i s i s based upon f a c t u a l h i s t o r y seen i n the l i g h t of economics.  F o l l o w i n g an i n e v i t a b l e process of  development, a l l economies i n the world have been t r a c i n g f i v e stages of growth. Almost two centuries have passed since the United Kingdom f i r s t attempted a t a k e - o f f .  Meanwhile,  France, Belgium, the United S t a t e s , Germany, Sweden, Denmark, Japan, Canada, A u s t r a l i a and the Union of Soviet S o c i a l i s t Republics have reached the stage of maturing s o c i e t y .  Mexico, Argentina and Turkey seem t o  have f i n i s h e d the process of t a k e - o f f , and China, I n d i a and Y u g o s l a v i a are t a k i n g - o f f now.  Burma, N i g e r i a , the  B e l g i a n Congo, Southern Rhodesia, Colombia, B o l i v i a and Ecuador are t r y i n g t o t a k e - o f f , and Puerto R i c o , Panama, Venezuela, Peru, B r a z i l , C h i l e , Iran and the P h i l i p p i n e s keep up with the forerunners. I t i s obvious that even Indo-China, Thailand, Indonesia, Ceylon, P a k i s t a n ,  - 160 Afghanistan,  I r a q , Egypt, E t h i o p i a , Kenya and I r e l a n d  w i l l sonner or l a t e r get out of- the pre-take-off  stage.  In the modern world there w i l l very soon be no e n t i r e l y traditional societies left. The f u t u r e never resembles the past.  Human  knowledge i s too weak t o t e l l what p a r t i c u l a r changes t o expect.  Nobody knows what the future holds.  Still  we must be guided by some hypothesis, because as moving beings, we are forced t o , a c t .  E v e n t u a l l y , the assumption  that the f u t u r e w i l l resemble the past i s the c h i e f determinant on how we a c t i n p r a c t i c e . When we know that the arena of s o c i a l c o n f l i c t w i l l become t r u l y g l o b a l i n s i x decades, and that the outcome of s o c i a l c o n f l i c t i s i n f a c t l i k e l y t o be governed by u l t i m a t e considerations of communal c o n t i n u i t y , three massive current problems should be considered: how t o m o l l i f y the dangerous c h a r a c t e r i s t i c s of the Union of Soviet S o c i a l i s t Republics; how t o cope with a number of the underdeveloped c o u n t r i e s ; and how t o c l e a r up the meaninglessness of Marxism.  The great empire which  s t r e t c h e s out from Europe t o A s i a has now reached i t s dangerous stage, f a c i n g i n e v i t a b l e choices.  The f a t e of  those l i v i n g i n the stage of high mass consumption as w e l l as those s u f f e r i n g g r e a t l y from the i n e q u a l i t y of the world economic s t r u c t u r e , w i l l be l a r g e l y determined by the nature of the pre-take-off conditions and take-  - 161 o f f i n the younger nations.  The minumum c o n d i t i o n f o r  organized s o c i a l l i f e i s the u l t i m a t e human solvent that the best d e c i s i o n s are the r e s u l t of disagreement, not of a s i n g l e motivation. Observing the past economic h i s t o r y of the world, we might know that the ideas of economists are very i n f l u e n c i a l whether they are r i g h t or wrong. we must make known the f o l l o w i n g f a c t s .  Thus,  As f a r as the  underdeveloped countries are concerned, the path of development i s an u p h i l l one.  However, given the w i l l i n g -  ness t o bear the costs of development, and given the p r e r e q u i s i t e s of s o c i o l o g i c a l and p o l i t i c a l development, the prospects f o r development are hopeful.  A f t e r the  r a t e of development i s a c c e l e r a t e d , the obstacles t o f u r t h e r development may be more e a s i l y reduced.  Professor  Rostow's theory shows that once momentum i s gained, the process tends t o be cumulative and each advance creates the conditions f o r f u r t h e r advance.  As f o r the developed  c o u n t r i e s , the current i n s t i t u t i o n a l i z a t i o n of many requirements f o r development makes continued growth possible.  There can hardly be seen any s i g n that changes  i n the p r e v a i l i n g economic and s o c i a l s t r u c t u r e are undermining the present i n s t i t u t i o n a l i z a t i o n of development requirements. I t i s t r u e , as J . Maynard Keynes once i n d i c a t e d ,  -  1 6 2  -  t h a t when we wish t o put our point of view c l e a r l y , we must sometimes pretend t o a l i t t l e more c o n v i c t i o n than we f e e l . Professor Rostow's theory i s , a t a munimum v a l u a t i o n , f u l l of i n t e r e s t and a p p l i c a t i o n t o the present world; and contains many f o r e s i g h t s f o r the f u t u r e .  I  consider i t may be rated much higher, as s u p e r i o r t o a l l other approaches, -replacing and i n v a l i d a t i n g them. Neither Marxism, nor the other non-Marxist views, s a t i s f y our contemporary value connotations; they are both too narrow. I b e l i e v e that the r i c h have as c l e a r a duty t o bear the burdens of the poor, as the poor have t o bear t h e i r own, but the burdens of the poor are born too much by themselves.  - 163 -  :;  Bibliography  A b o l t i h , V. ''Economic Aspects of.Peaceful Coexistence of Two S o c i a l Systems." 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