Rostow’s Stages of Development

 Traditional Society
o characterized by subsistence agriculture or hunting and gathering; almost wholly a "primary"
sector economy
o limited technology
o Some advancements and improvements to processes, but limited ability for economic
growth because of the absence of modern technologies, lack of class or individual economic
mobility, with stability prioritized and change seen negatively
o This is where society generally begins before progressing towards the next stages of growth
o No centralized nations or political systems.
 Pre-conditions to "take-off"
o External demand for raw materials initiates economic change.
o Development of more productive, commercial agriculture and cash crops not consumed by
producers and/or largely exported.
o Widespread and enhanced investment in changes to the physical environment to expand
production (i.e. irrigation, canals, ports)
o Increasing spread of technology and advances in existing technologies
o Changing social structure, with previous social equilibrium now in flux
o Individual social mobility begins
o Development of national identity and shared economic interests.
 Take-off
o Urbanization increases, industrialization proceeds, technological breakthroughs occur.
o "Secondary" (goods-producing) sector expands and ratio of secondary vs. primary sectors in
the economy shifts quickly towards secondary.
o Textiles and apparel are usually the first "take-off" industry, as happened in Great Britain's
classic "Industrial Revolution"
o An Example of the Take-off phase is the Agriculture (Green) Revolution in the 1960s.
 Drive to Maturity
o Diversification of the industrial base; multiple industries expand and new ones take root
quickly
o Manufacturing shifts from investment-driven (capital goods) towards consumer durables and
domestic consumption
o Rapid development of transportation infrastructure.
o Large-scale investment in social infrastructure (schools, universities, hospitals, etc.)
 Age of Mass Consumption
o the industrial base dominates the economy; the primary sector is of greatly diminished
weight in economy and society
o widespread and normative consumption of high-value consumer goods (e.g. automobiles)
o consumers typically (if not universally), have disposable income, beyond all basic needs, for
additional goods
o Urban society (a movement away from rural countrysides to the cities)
What should development look like?

1. Accumulation of material wealth

2. Happiness/Freedom/Representation present in social institutions

Depends on objective. That’s where the debate is. More money could trickle down and grow the pie.
However, strong institutions and low inequality could make economic activity more efficient

However, you have to assume trade off

Development obstacle

Natural resource – natural resources are easier to steal than functioning labor markets which means
there’s a lot of conflict on ownership. Gov must have incentive to be cooperative and maintain stability
to create development. Dutch disease – causes countries to focus to much on a particular resource to
the detriment of other industries. Lack of diversity – make your country robust so that if an economic
event happens, it won’t take you down. Develop other economies like service economy, agri economy,
extraction economy, etc.

Landlocked – being landlocked with crappy neightbors is really bad because you rely on their
infastructure to pass trade

Conflict –

Bad governance

Aid

Types – grant or loan? Government or to communities? Conditional through promise or verified?

How foreign aid enters this equation in weak states is by changing the citizens’ power of “voice”
and “exit” and weakening the state's dependence on their citizens and hence becoming less
responsive to their needs. If the state receives international aid, it is less dependent on the tax
revenue that it collects from its constituents. A higher level of fiscal independence on the part of
the state decreases the bargaining power of the citizens. The government is threatened less by the
citizens’ “exit” option, and less hurt if it is implemented, hence this takes away a credible threat
to use at the negotiation table in order for the citizens to request improvement to their current
condition. At the same time, the lack of dependence for revenue decreases the “voice” action of
the citizen by weakening the effect a violent demonstration or everyday resistance has on
impacting the state's decision-making.

As long as the government of a nation receiving international aid knows that it will keep
receiving it, and there will be no repercussion on the side of the donors for failing to address its
constituents’ issues, it stays optimal for that government to keep ignoring the weakened demands
of its citizens. With weakened bargaining power and a less responsive state, there can be no
bargaining between citizen and state that will, in the long, run lead to economic and/or
development within the nation. Although international has done far-reaching things with respect
to increasing access to improved medical care, improving education, and decreasing poverty and
hunger, only in 1997 did the World Bank began to rethink its aid policy structure and begin using
parts of it specifically for building up the state capability of the aid-receiving nations [3]. Even
more recently, the Millennium Challenge Corporation, a US-based aid agency, started working
with developing nation to provide them with strictly development aid as they set and implement
goals for national development.

Foreign aid kills local industries in developing countries.[29] Foreign aid in the form of food aid that is
given to poor countries or underdeveloped countries is responsible for the death of local farm industries
in poor countries.[29] Local farmers end up going out of business because they cannot compete with the
abundance of cheap imported aid food, that is brought into poor countries as a response to
humanitarian crisis and natural disasters.[30] Large inflows of money that come into developing
countries, from the developed world, in a foreign aid, increases the price of locally produced goods and
products.[27] Due to their high prices, export of local goods reduces.[27] As a result, local industries and
producers are forced to go out of business.

Neocolonialism

Neocolonialism is where a state is “in theory, independent and has all the outward trappings of
international sovereignty. In reality its economic system and thus its political policy is directed
from outside”.[31] The political and economic affairs of a state under neocolonialism, is directly
controlled by external powers and nations from the Global North, who offer aid or assistance to
countries in the Global South or developing countries.[31] Neocolonialism is the new face of
colonialism, which is made possible by foreign aid.[32] [33]Donor countries offer foreign aid to
poor countries while bargaining for economic influence of the poor or receiving countries, and
policy standards that allow donor countries to control economic systems of poor countries, for
the benefit of the donor countries.[34]

Foreign aid creates a system of dependency where developing or poor countries become heavily
dependent on western or developed countries for economic growth and development.[35] As less
developed countries become dependent on developed countries, the poor countries are easily
exploited by the developed countries such that the developed world are able to directly control
the economic activities of poor countries.[36]

Aid Dependency

Aid dependence is defined as the "situation in which a country cannot perform many of the core
functions of government, such as operations and maintenance, or the delivery of basic public
services, without foreign aid funding and expertise".[37] Aid has made many African countries
and other poor regions incapable of achieving economic growth and development without
foreign assistance. Most African economies have become dependent on aid and this is because
 foreign aid has become a significant norm of systems of international relations between high and
low income countries across the globe.[37]

Foreign aid makes African countries dependent on aid because it is regarded by policy makers as
regular income, thus they do not have any incentive to make policies and decisions that will
enable their countries to independently finance their economic growth and development.[26]
Additionally, aid doe not incentivize the government to tax citizens, due to the constant inflow of
foreign aid, and as a result, the citizens do not have any obligation to demand the provision of
good and services geared towards development.[26]

Corruption

Main articles: Political corruption and Aid § Support of corrupt state structures

While development aid is an important source of investment for poor and often insecure
societies, aid's complexity and the ever-expanding budgets leave it vulnerable to corruption, yet
discussing it remains difficult as for many it is a taboo subject.[38]

Foreign aid encourages rent-seeking, which is when government officials and leaders, use their
position and authority to increase their personal wealth without creating additional wealth, at the
expense of the citizens.[26] Most African leaders and official, are able to amass huge sums of
personal wealth for themselves from the foreign aid received - they enrich themselves and do not
use the aid provided for its intended purpose.[

Nationalisation is when a government chooses to take an industry into state ownership in order to
safeguard the supply of a good or service.
Privatisation is the transfer of ownership of property or businesses from a government to a privately
owned entity.
Potential Benefits of Privatisation
1. Improved Efficiency – private companies have a profit incentive to cut costs and be more efficient.
2. Lack of Political Interference – Governments are motivated by political pressures rather than
sound economic and business sense.
3. Short Term view – A government many think only in terms of next election
4. Shareholders – a private firm has pressure from shareholders to perform efficiently
5. Increased Competition – more firms mean greater competition and efficiency
6. Government will raise revenue from the sale – only a one off benefit and future dividends are
lost.
Potential Benefits of Nationalisation
1. Natural Monopoly – Many key industries nationalised were natural monopolies. This means the most
efficient number of firms is one.
2. Externalities – Some of the nationalised industries had significant positive externalities.
A government can run public transport system could invest in public transport to help improve the
economic infrastructure.
3. Welfare Issues – Some industries play a key role in the welfare of consumers and citizens.
Government provision means that needy groups can be looked after and provided with basic
necessities.
4. Industrial Relations – Labour unions often favour nationalisation because they feel they may be
better treated by the government – rather than a profit maximising monopoly.
5. Government Investment – Some industries require long-term investment to improve services over
time. This long-term investment may not be profitable in the short-term, so without government
intervention they may suffer from lack of long term investment.

Free market

- Opportunity cost and comparative advantage (we do things at the expense of doing
other things and it is mutually beneficial for two actors to specialise in the industries
they have comparative advantage)
- Price and profit incentive allows for price to be determined by supply and demand
- Competition which allows for decreased prices and improved qualities
- Investment due to innovation and expansion where MNCs enter countries and create
jobs

Cons

 destroying infant industries

 promoting income inequality
 tolerating environmental degradation
 supporting child labor and sweatshops
 race to the bottom
 wage slavery

Protectionism is the economic policy of restricting imports from other countries through methods
such as tariffs on imported goods, import quotas, and a variety of other government regulations.

- Makes it harder for external players to compete

- Makes it easier and preferable for domestic players to compete

Pros

- Infant industry argument

- Externalities and market failure (environmental protection)
- Protection of jobs
- Anti-dumping – it is a predatory type of predatory pricing behaviour and a form of price
discrimination. Long term is that once foreign companies force domestic industry out of
business the foreign firm estabilishes itself as a monopoly

Cons

Tl dr invites retaliatory response, locked into trade wars, and harming people it was meant to protect

Protectionism
Market failure

Externalities

Free market - competition

Poverty trap

Incentives

Conditional aid and developmental aid

Privatization vs public