HGAP 7.5 - 7.8

Rostow’s Stages of Economic Growth

a modernization theory that focuses on the shift from traditional to modern forms of society

Stage: Traditional 

Characteristics

• Depends upon primary sector activities (farming, fishing, hunting) for subsistence

• Uses limited technology

• Carries out local or regional trading

• Enjoys limited socioeconomic activity

Examples

• English colonies in North America in the 17th century

• Medieval Europe

• No entire country in this stage today

Stage: Preconditions for Takeoff

Characteristics

• Improves infrastructure

• Improves farming techniques and shfts toward commercial agriculture

• Exports agricultural and raw materials (international trade)

• Diffuses technology more widely

• Starts individual socioeconomic mobility

Examples

• US in early 19th century

• Nigeria today

• Afghanistan today

Stage: Take-off

Characteristics

• Develops major technological innovations

• Starts industrialization and primary sector begins to shrink

• Spreads entrepreneurial mentality

• Begins to urbanize

• Initiates self-sustaining growth

Examples

• US mid-19th century

• Japan, late 19th century

• Bangladesh today

Stage: Drive to Maturity

Characteristics

• Creates new industries while strengthening existing ones

• Improves energy, transportation, and communications systems

• Sees economic growth greater than population growth

• Invests in social infrastructure

Examples

• US late 19th century

• Germany, early 20th century

• Brazil today

Stage: High Mass Consumption

Characteristics

• Spends money on non essential goods (consumerism)

• Purchases of high order goods become common

• Desires to have a more egalitarian society

• Supports a strong tertiary sector

Examples

• US early 1920s to present

• Japan, mid-1950s to present

Criticisms of Rostow’s Model

Limited Examples - The model was based on American and European examples, so it did not fit countries of non-Western cultures or non capitalist economies

Role of Exploitation - Rostow’s model led to poorer countries getting trapped in a state of dependency upon wealthier countries

Bias Toward Progress - The model suggested linear change, always in the direction of progress. However, developing countries often need the assistance, money, and technology of developed countries to develop. And in some cases, countries might regress in economic development

Lack of Variation - In his model, Rostow suggested all countries have the potential to develop, but there are significant differences among countries, such as physical size, population, natural resources, relative location, political systems, and climate, that affect their ability to develop

Lack of Sustainability - The model assumed that everyone could eventually lead a life of high mass consumption but failed to consider sustainable development or the carrying capacity of the earth.

Need for Poorer Countries - Rostow’s model failed to recognize that most of the countries which reached the stage of high mass consumption did so by exploiting the resources of lesser-developed countries. Countries that were still developing would have difficulty finding other countries to exploit

Narrow Focus - The model focused on domestic economies and did not directly address interaction between countries, specifically globalization.

World System Theory (Core-Periphery)

includes both political and economic elements that have significant geographic impacts

Dependency Model

meaning that countries do not exist in isolation but are part of an intertwined world system in which all countries are dependent on each other

World System Theory - Core

Characteristics

• Includes the economically advantaged countries of the world

• Includes the headquarters of most large multinational companies and banks

• Focuses on higher-skill, capital-intensive production

• Promotes capital accumulation

• Dominates semiperiphery and periphery economically and politically

• Locates factories and service centers in semiperiphery and periphery countries

• Benefits greatly from international trade

Examples

• US

• UK

• Japan

• Australia

• Germany

World System Theory - Semi Periphery

Characteristics

• Includes most middle-income countries, sometimes called emerging economies

• Provides the core with manufactured goods and services that the core formerly provided for itself

• Shares characteristics of both core and periphery

Examples

• China

• Mexico

• Brazil

• India

• South Africa

World System Theory - Periphery

Characteristics

• Includes the least-developed countries

• Maintains many jobs in low-skill, labor-intensive production and extraction

• Provides the core and semi periphery with inexpensive raw materials and labor

• Receives jobs but few profits from manufacturing

• Attracts jobs by having weak laws protecting workers and the environment

Examples

• Afghanistan

• Zimbabwe

• Bolivia

• Kenya

• Laos

Criticisms of Wallerstein’s Model

Little Emphasis on Culture - It focused heavily on economic influence, investments and purchases of raw materials, but it paid little attention to the pervasive influence of culture, movies, music, and television

Emphasis on Industry - It was based on industrial production, but many countries have postindustrial economies based on providing services

Lack of Explanation - It is of limited practical use, suggesting that countries can change their status, but it does not explain how

Limited Roles - It focused too much on the role of countries, governments, and corporations. As a result, it failed to recognize the role of organizations such as UN agencies and private, nonprofit charitable NGO

Commodities

raw material such as coffee, cocoa, and oil, that have not undergone any processing

Commodity Dependence

when more than 60% of its exports are raw materials

Trade

occurs when one party desires a good or service that it does not have or cannot produce and another party has the desired good or service with which it is willing to part

Barter

a system of exchange in which no money changes hands

Comparative Advantage

the ability to produce a good or service at a lower cost than others

Complementarity

when a country has the income, goods, or services that the other country desires

Free Trade

laws that reduced barriers to trade

Neoliberal Policies

a set of reforms that reduced government regulations and taxation

Policies decreasing trade

In recent years, trade barriers have often reflected political and economic decisions. Since 2016, the UN has used economic sanctions more than 30 times, mostly to pressure countries to reduce human rights abuses. In 2018, the US government increased tariffs on many Chinese-made goods sold in the US. By making these goods more expensive for US consumers, the government hoped Americans would buy more US made goods and China would relax its barriers on US imports

Government efforts to promote economic growth (5)

Tax Breaks

• A tax holiday (a temporary exemption from some taxes)

• A tax break for money invested in research and development

Loans

• Forgivable loans (part or all of the loan doesn’t have to be repaid)

• Money to borrow at below-normal interest rates

Direct Assistance

• Land or building use free of charge

• Infrastructure such as roads and sewers paid for by the government

• A subsidy for each full-time job created

Changes in Regulations

• Legislation that weakens unions

• Legislation that reduces environmental rules

Tariffs

• Taxes imposed on imported products make these products less attractive and domestically produced goods more attractive

Trading Blocs

groups of countries that agree to a common set of trade rules

Mercosur

Southern Common Market, includes several South American countries

World Trade Organization (WTO)

global organization created in 1995 to monitor the rules of international trade y providing a forum for negotiating trade deals, settling disputes between its members, supporting the needs of developing countries, and helping companies follow similar international trade policies

Impacts of economic interdependence

Increased interdependence has strengthened the links among the countries economies. Growth in one country can result in new economic opportunities in other countries.

International Monetary Fund (IMF)

created in 1945 to aid countries caught in need of financial assistance

Outsourcing 

contracting work to non company employees or other companies

Offshoring

when tertiary and quaternary sector companies move their back offices to other countries

New International Division of Labor

a changed system of employment in the various economic sectors in the world

Basic vs. Non-Basic Economic Activity

Actions that create new wealth for a region vs. actions that do not generate new money for an area

Transnational/Multinational Corporations 

businesses that operate in multiple countries

Export Processing Zones (EPZ)

special manufacturing zones

Special Economic Zones (SEZ)

special manufacturing zones in China

Maquiladoras

special manufacturing zones in Mexico

Free-trade Zones

special manufacturing zones in Singapore

Postindustrial Economy

an economy that no longer employs large numbers or people in factories but has people who provide services and process information

Assembly Line

in which an item is moved from worker to worker, with each repeatedly performing the same task

Fordism

system of mass production that changed manufacturing and became standard practice across industries

Substitute Principle

in which businesses maximize profits by substituting one factor of production for another, has been applied to the labor force

Post-Fordist

when automation forced many workers to be unemployed, the remaining workers are often trained to do more than one job, so they can rotate among a few different workstations during a day, reducing the risk of injuries

Economies of scale

allows business owners to increase output with improved efficiency

Just-in-Time Delivery

a system in which the inputs in the assembly process arrive at the assembly location when they are needed

Locational Interdependence

the location decision for one factory is dependent upon the location of other related factories

Technopole

a hub for information-based industry and high-tech manufacturing

Growth Poles (Growth Centers)

the concentration of high-value economic development in the growth pole attracts even more economic development

Spin-off Benefits (Spread Effects)

positive economic outcomes beyond the growth pole

Backwash Effects

negative effects on one region that result from economic growth in another region

Corporate Parks (Business Parks)

where office building congregate and can take advantage of agglomeration economies

Sustainability

using the earth’s resources without doing permanent damage to the environment

Sustainable Development

the goal is to address problems caused by depletion of natural reasons, mass consumption of goods, pollution of air and water, and the impact of climate change

Ecological Footprint

impact on the environment

Causes of pollution

Pollution contaminates air and water with smoke, chemicals, and waste products. It has numerous causes:

• Some, such as volcanic eruptions, are natural events that humans do not influence

• Some are a mixture of natural events and human actions. For example, dust storms occur naturally in some dry regions. However, they are more likely to occur after farmers have removed the deep rooted natural vegetation that holds soil in place

• Some are completely the result of human actions. For example, people pollute the air when they burn wood, coal, or oil. They pollute water when they dump waste from industries and allow farm chemicals to flow into rivers or lakes

Impact of pollution

Pollution has large impacts on plants, animals, and humans. According to the Global Alliance on Health and Pollution, in 2015, pollution caused 16% of deaths worldwide.

Efforts to control pollution

One reason pollution is difficult to control is because it spreads so easily. Often, the person or business causing the pollution is not the one who suffers its effects. The solution was to force every company to reduce emissions. Under pressure from organized citizens, the federal government passed stricter laws on air pollution.

Climate change

Human actions are a major cause of climate change and the rise in temperature contributed to more frequent wildfires, hurricanes, floods, and droughts.

• Diseases once confined to areas around the equator could spread to new areas

• Ocean levels could rise as glaciers melt, which will threaten the homes and safety of the 40% of the global population that lives near coasts

• Refugee crises could become more common as more frequent floods and droughts cause millions of people to move in search of food, water, and safety

At the current rate of greenhouse gas emissions, temperatures could be 3.2 celsius warmer by the end of this century. Countries believe that increase could be as low as 1.5 celsius if countries reduce emissions to levels based on international agreements

Ecotourism

travel to a region by people who are interested in its distinctive and unusual ecosystem

Sustainable Development Goals (SDGs)

17 new goals that replaced MDGs but with more awareness of environmental challenges and ways to overcome them

Argentina and South Korea - changing economies

A century ago, Argentina was a much wealthier nation than Korea (the country was not divided between North and South Korea then). Its industrial growth created significant pull factors, and migrants poured in from Europe, particularly Italy. Korea was a heavily agricultural country, and its income per worker ranked it toward the bottom quarter of all countries.

Argentina has suffered massive inflation, military dictatorship, and heavy foreign debt. Argentina also had a huge debt with poor development plans resulting in a collapsed economy. Today it is a semipheral state that relies on agricultural exports. In contrast, Korea has been a success story of modern economic development, like many countries in East Asia. Through a combination of intense education, heavy government subsidies, tough trade restrictions, and strong corporations, Korea focused on making the products it exported. Today, Korea is a high-tech industrialized and exports, mostly manufactured goods, account for nearly half of its GDP.