The Linear Stages of Growth Model

The linear-stages-of-growth model was accorded a framework (in the 1950s) by W. W. Rostow in “The Stages of Growth: A Non-Communist Manifesto”. The Rostow framework differed from Marx’s earlier exposition, and focused on accelerated accumulation of capital. The manifesto said that both domestic and international savings are utilized to spur investment. This serves as the primary engine to promote economic growth and hence, development. The model posits five consecutive stages that all countries must pass through on the way to development. These stages are

(i) Traditional society;

(ii) Pre-conditions for takeoff;

(iii) Take-off ;

(iv) Drive to maturity; and

(v) Stage of high mass-consumption.

 Increase in capital investment that leads to greater economic growth is illustrated mathematically with simple versions of the Harrod-Domar Model.

This theory, developed in the early years of Cold War, largely derives its credence from the success of the Marshall Plan. The Marshall Plan (officially the European Recovery Program) was formulated in the United States of America to rebuild, create a stronger foundation for the countries of Western Europe, and to repel communism after World War II. The reconstruction plan, developed at a meeting of the participating European states, was established on June 5, 1947.

The plan was in operation for four years beginning in April 1948. During that period nearly 13 billion USD in economic and technical assistance, were given to help the recovery of European countries that joined Organisation for European Economic Co-operation. By the time of the completion of this plan, the economy of every participating state, with the exception of Germany, had grown well beyond their pre-war levels. Over the following couple of decades, many regions of Western Europe enjoyed unprecedented growth and prosperity.

The Marshall Plan also came to be seen as one of the first steps towards integration that erased certain trade barriers, and fostered the setting-up of institutions to coordinate economic activity at a continental level. However, a major criticism of the theory following this plan pertains to a presumption that the prevalent conditions in developing countries are similar to those in post World War II Europe. The theory inadequately accounts for the distinctive milieu of political, social, and institutional features that hinder development. It came to be recognized that capital accumulation, while necessary, may not be sufficient to foster development.