Transcript The Phases of the Economy

The Phases of the Economy
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According to economist W.W. Rostow,
technology has always been the driving force for
economic growth
Economic growth has always been the defining
characteristic of modern industrial societies
With the invention of the locomotive and
steamship, manufacturers were able to more
easily access natural resources which resulted in
the shift from handicrafts to mass production
W.W. Rostow’s modernization theory divides a
nation’s history of economic growth into five
stages which look at a nation’s society and
economy.
Stage 1: The Traditional Society
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Large agricultural sector and very limited
manufacturing production
The way things were done in the past controls
how things are done in the present
Resistance to technology simply because it is
new
Life centers around family with strong
attachments to spiritual life (church)
Examples: Europe in the Middle Ages; many LDC’s
today
Stage 2: Preconditions for Takeoff
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New ideas emerge that challenge long-standing
traditions
Although radical, these ideas prepare the people
of the country for alternative means of
production allowing for political reforms and a
more effective central government
Examples: Europe during the Renaissance
Stage 3: Takeoff
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Tradition finally gives way to the new ways of doing
things
Food production becomes commercialized and more
efficient
in national income finances the development of natural
resources and industrial expansion is made possible by
the growth of the labor force and new markets for
consumer goods
Great economic growth takes place but at the cost of
family
Society as a whole becomes less religious and more
secular
Examples: Great Britain around 1800 (Industrial
Revolution), US by 1820 and Canada between
1890 and 1914
Stage 4: The Drive to Technological
Maturity
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Sustained period of refinements to technology
which leads to manufacturing production so high
it exceeds the capacity of the domestic market
resulting in international trade
Widespread poverty is eliminated and society as
a whole actively pursues higher living standards
Leisure time and people begin to question the
role industry plays in eroding traditional and
family values
Examples: Great Britain in 1840, US in 1860 and
Canada between 1914 and 1950; more
recently Mexico and South Korea
Stage 5: High Mass Consumption
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The population has become primarily urban
Living standards for the majority of the people
are high, exceeding basic needs
Mass production triggers mass consumption;
people are taught to “need” products
Examples: US was first to enter this stage,
followed by Canada and other
industrialized nations
Measuring the Wealth of Countries:
GNP
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Organizations such as the World Bank use an
annual calculation called Gross National Product
(GNP) to measure a country’s wealth
The GNP is the sum total of the country’s Gross
Domestic Product (GDP), or income earned from
all domestic goods and services, plus the net
income earned on foreign investments
GNP= GDP+ net income on foreign investments
Measuring the Wealth of Countries:
GNP continued..
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Usually, the GNP for a country is divided by the
country’s total population to provide a figure
called GNP per capita, or for each person
GNP per capita= GNP/country’s total population
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Some economists use per capita GNP to
measure a country’s standard of living, or the
average degree of material comfort that a
country’s people enjoy
Per Capita GNP US$765 are LLDC’s
Per Capita GNP US$766-US$9385 are LDC’s
Per Capita GNP US$9386 are MDC’s
Measuring the Health of Countries:
The Human Development Index
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Some economists state that measuring a
country’s standard of living by per Capita GNP
solely is misleading
This is cause because the method ignores
pockets of terrible poverty that exist in some
MDC’s and the pockets of wealth that exist in
many LDC’s
Second, money should not be the only criterion
of a nation’s well being; social factors such as
education levels, life expectancy, gender
equality, and freedom from persecution apply
Measuring the Health of Countries:
The Human Development Index
continued…
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There have been a number of attempts to devise a more
complete system of measuring a country’s standard of
living
Today, the most common and authoritative measurement
of living standards is the United Nations Human
Development Index
Each year, the UN releases its Human Development
Report, which includes a list that ranks every country in
the world according to three basic factors:
1) Longevity (life expectancy)
2) Knowledge (literacy rates and educational attainment)
3) Income (GDP per capita)