PHASES OF ECONOMIC DEVELOPMENT

The Rostow's Stages of Economic Growth model is one of the major historical models
of economic growth. It was published by American economist Walt Whitman Rostow in 1960. The model
postulates that economic growth occurs in five basic stages, of varying length:

1. Traditional society
2. Preconditions for take-off
3. Take-off
4. Drive to maturity
5. Age of High mass consumption

Rostow's model is one of the more structuralist models of economic growth, particularly in
comparison with the 'backwardness' model developed by Alexander Gerschenkron, although the two
models are not mutually exclusive.
Rostow argued that economic take-off must initially be led by a few individual sectors. This
belief echoes David Ricardo's comparative advantage thesis and criticizes Marxist revolutionaries' push
for economic self-reliance in that it pushes for the 'initial' development of only one or two sectors over
the development of all sectors equally. This became one of the important concepts in the theory of
modernization in social evolutionism.

 Traditional society
1. characterized by subsistence agriculture or hunting and gathering; almost wholly a "primary"
sector economy
2. limited technology
3. A static or 'rigid' society: lack of class or individual economic mobility, with stability prioritized
and change seen negatively

 Pre-conditions to "take-off"
1. external demand for raw materials initiates economic change;
2. development of more productive, commercial agriculture and cash crops not consumed by
producers and/or largely exported
3. widespread and enhanced investment in changes to the physical environment to expand
production (i.e. irrigation, canals, ports)
4. increasing spread of technology and advances in existing technologies
5. changing social structure, with previous social equilibrium now in flux
6. individual social mobility begins
7. development of national identity and shared economic interests

 Take off
1. Urbanization increases, Industrialization proceeds, Technological breakthrough occurs
2. the "secondary" (goods-producing) sector expands and ratio of secondary vs. primary sectors in
the economy shifts quickly towards secondary
3. textiles and apparel are usually the first "take-off" industry, as happened in Great Britain's
classic "Industrial Revolution"
 Drive to maturity
1. diversification of the industrial base; multiple industries expand and new ones take root quickly
2. manufacturing shifts from investment-driven (capital goods) towards consumer durables and
domestic consumption
3. rapid development of transportation infrastructure
4. large-scale investment in social infrastructure (schools, universities, hospitals, etc.)

 Age of mass consumption

1. the industrial base dominates the economy; the primary sector is of greatly diminished weight in
economy and society
2. widespread and normative consumption of high-value consumer goods (e.g. automobiles)
3. consumers typically (if not universally), have disposable income, beyond all basic needs, for
additional goods

FORMS OF BUSINESS ORGANIZATION

After deciding to start a business, one of the important issues is the form of business entity that
will serve as the vehicle in pursuing the business.
The choice of the form of business or business organization depends on various factors. In
certain business, like banks, the law requires that the business entity must be a corporation. A small
business, like a sari-sari store, is better off as a sole proprietorship, although it could also be converted
to another form of business if the circumstances require that shift.

Sole proprietorship
Also referred to as “single proprietorship,” a sole proprietorship is the simplest form of business
and the easiest to register, through the Bureau of Trade Regulation and Consumer Protection (BTRCP) of
the Department of Trade and Industry (DTI). It is owned by an individual who has full control/authority
of its own and owns all the assets, as well as personally answers all liabilities or losses. The fact that it
is run by the individual means that it is highly flexible and the owner retains absolute control over it.
The problem, however, is that a sole proprietor has unlimited liability. Creditors may proceed
not only against the assets and property of the business, but also after the personal properties of the
owner. In other words, the law basically treats the business and the owner as one and the same. This
uniform treatment also has important tax implications. Partnerships and corporations may lessen their
tax liability through a myriad of business expenses and other tax avoidance techniques. These tax
deductions may not be applicable to a sole proprietorship. Also, the potential growth and reach of a sole
proprietorship pale in comparison with that of a corporation.

Partnership
A partnership consists of two or more persons who bind themselves to contribute money or
industry to a common fund, with the intention of dividing the profits among themselves . The most
common example of partnerships are professional partnerships, like in the case of law firms and
accounting firms. Just like a corporation, it is registered with the Securities and Exchange Commission
(SEC).
A partnership, just like a corporation, is a juridical entity, which means that it has a personality
distinct and separate from that of its members. A partnership may be general or limited. In a general
partnership, the partners have unlimited liability for the debts and obligation of the partnership, pretty
much like a sole proprietorship. In a limited partnership, one or more general partners have unlimited
liability and the limited partners have liability only up to the amount of their capital contributions.
Unlike a corporation, which survives even when a member/stockholder dies or gets out, a partnership is
dissolved upon the death of a partner or whenever a partner bolts out.

Corporation
A corporation is a juridical entity established under the Corporation Code and registered with
the SEC. It must be created by or composed of at least 5 natural persons (up to a maximum of 15),
technically called “incorporators.” Juridical persons, like other corporations or partnerships, cannot be
incorporators, although they may subsequently purchase shares and become corporate
shareholders/stockholders.
The liability of the shareholders of a corporation is limited to the amount of their capital
contribution. In other words, personal assets of stockholders cannot generally be attached to satisfy the
corporation’s liabilities, although the responsible members may be held personally liable in certain
cases. For instance, the incorporators may be held liable when the doctrine of piercing the corporate
veil is applied. The responsible officers may also be held solitarily liable with the corporation in certain
labor cases, particularly in cases of illegal dismissal.
The biggest businesses take the form of corporations, a testament to the effectiveness of this
business organization. A corporation, however, is relatively more difficult to create, organize and
manage. There are more reportorial requirements with the SEC. Unless you own sufficient number of
shares to control the corporation, you’ll most likely be left with no participation in the management. The
impact of these concerns, however, is minimized by the army of lawyers, accountants and consultants
that assist the corporation’s management.