ORGANIZATION AND MANAGEMENT

Quarter 1 Week 5

LESSON TITLE: THE PHASES OF ECONOMIC DEVELOPMENT AND ITS

IMPACT TO BUSINESS ENVIRONMENT
MELC: Differentiate the phases of economic development and its impact
to business environment. (ABM_AOM11-Ia-b-3)

Enjoy reading…..
DISCUSSION
Economic development generally refers to the sustained, concerted actions
of policymakers and communities that promote the standard of living and economic
health of a specific area. Economic development can also be referred to as the
quantitative and qualitative changes in the economy (www.abbreviations.com).

Walt Whitman Rostow, also known as W.W. Rostow, was an economist in the
Lyndon B. Johnson administration from 1966-1969. He also published articles and
developed models on economic development. One of his most prominent ideas was
the five stages of economic development. In this model, he suggests that societies
go through five stages of economic development as they develop and grow.

Each of Rostow's five stages builds on the previous stage, becoming more
complex and integrated. Depending on the economic forces at play, the time it takes
to move through each of Rostow's stages varies. We'll begin by discussing each stage
in detail, then we'll talk about how Rostow's model has led to other ways of measuring
development.

Rostow's Five Stages Model

 THE FIVE STAGES:

Stage One: Traditional Society

The first stage of Rostow's model and the one in which societies begin, is the
traditional society. The traditional society stage was prevalent prior to the 1700s, when
most societies operated in a relatively stable state and productivity didn't rise or fall
dramatically. Trade existed, such as the spice route between Asia and Europe, but it
was timely, costly, and more of a luxury than a necessity. Technology was very limited.
Humans had access to little more than handmade tools, transportation, and the
printing press. That meant that producing goods was very human capital intensive,
which created large gaps in income inequality. These societies also relied heavily on
agricultural labor because a tremendous amount of labor was required to grow
enough food to sustain the societies.

Stage Two: Transitional Stage (Preconditions for Take-Off)

There is a period of transition between the traditional society and a society that
takes off, and for a certain time that society is establishing the preconditions for take-
off. These preconditions are mostly marked by an increase in productivity, such as
was found in Europe during the 1700s and 1800s. A number of factors came together
to make productivity increase; for example, population hit a critical mass that made
agriculture take up such a high percentage of labor, which provided opportunities for
the establishment of educational institutions, banks, and a market for luxury goods.

Stage Three: Take-Off

When the preconditions for take-off are met, a society can take off. Educated
individuals start inventing new processes and tools, and access to capital through
financial markets and banks make it possible to produce goods and services on a
larger scale. This requires a different type of skill set from human laborers, so the
economy shifts from agriculture to production. This increases wages for everyone,
taking the economic structure from a structure of kings and servants to a wealthy
class, middle class, and lower class. A lower class still exists at this stage, either
because of social norms that discriminate against people or simply because the
number of middle-class jobs are fewer than the total number of people.

Stage Four: Drive to Maturity

The next of Rostow's five stages has a general length of time associated with it,
the drive to maturity. According to Rostow, the drive to maturity is about a 60-year
period between the take-off and the final stage, the age of mass consumption. During
this short period, an economy (the collective of all consumers and producers) is able
to reinvest 1020% of what it creates into more production. Processes are improved,
quality of life is improved, and technology and new ideas continue to become more
central to society, while the cost of producing the needs for survival (like food and
shelter) becomes a smaller part of the economy. More importantly, the middle class
grows at the quickest rate of any economic class. For the modern-day U.S., this stage
really took place from after WWI, from about 1915, until around 1980, when the
technology era began.

Stage Five: Age of Mass Consumption

After the drive to maturity, an economy reaches maturity and begins the final
stage, the age of mass consumption. Think of the United States, much of Europe, and
some of Asia today, and you can see this stage of development at work. The quantity
and quality of products and services increase. A society or economy in this stage is
able to export production, bringing in money from other countries that helps the
economy grow larger beyond actual consumption.

According to Seidel, Moichelle, (2019), Small and large businesses drive

economic stability and growth by providing valuable services, products and tax dollars
that directly contribute to the health of the community. They also provide jobs,
strengthening the economic health of each community where a business is based.
Even if a business is headquartered elsewhere, employing people at each local
business contributes to the success of that region, as with the wages they earn,
people buy property, work, shop and otherwise invest in where they live.

Taxes are used, among other things, to maintain the infrastructure of a city,
state or country – roads, bridges, tunnels, public transportation, libraries and other
public buildings and services, including police officers and fire-fighters, all benefit from
tax money collected from individuals and businesses. These services are essential to
the good health and positive qualities of local and national citizens. In a capitalist
society like that of the United States, business growth and increased sales means
collecting more taxes, which can directly translate to better maintenance and offerings
of local infrastructure and services that benefit the community.

The success of business as a whole directly affects the world’s economy. At its
core, businesses are designed to serve a particular need that people have, and to
provide trusted goods and services related to that need. When consumer confidence
or trust dips in business, it isn’t just sales that are negatively affected. This mistrust
has a ripple effect and can result in a decline in a country’s general economy,
weakening the strength of its currency and buying power.

As businesses focus more and more on providing value to shareholders instead

of directly to consumers, their interests and tactics may not align with the best interests
of the consumer. A “profit at any cost” model can have extremely negative
implications down the road if corners are cut and poor decisions are made in the name
of solely working to increase shareholder profit or are based purely on greed. No
matter how efficiently you make a product or how special the service is that you
deliver, if you lose consumer confidence as a result of your business decisions,
consumers won’t support you by purchasing your goods and services, and then
nobody benefits.
 Business is vital to a country’s economy. Success of businesses can drive the
success of an entire country, including through contributions to the gross domestic
product, or GDP, of a nation, which affects their world standing. If a country supports
businesses with goods and services that are in demand, everyone in the country
benefits. From job creation that results in money being put back into the community
to taxes that help the government smoothly run and provide maintenance and
improvements to the country’s infrastructure, or in other ways that are helpful for its
citizens, there are dozens of ways business success translates to economic
development.

In addition to providing products and services that citizens and residents want,
economic health can allow for exporting goods and services to others who want those
items, contribute to offering avenues for education and training for citizens, create
healthy business competition and provide additional methods of strengthening
economic development for the country as a whole.

The role of business in relation to the economy is a pivotal one. Small

businesses boost economic revenue on a smaller scale, but one that’s of vital
importance, directly and positively affecting the health, quality of life and purchasing
power of residents in the local community. But small businesses don’t always stay
small. Many nationally known brands today got their start as very small businesses
run out of someone’s home or garage. Start-ups can become multinational companies
that can have a huge and positive impact on the global economy, benefiting all of the
company’s employees and the communities in which those businesses thrive. Apple,
Whole Foods, Amazon and Starbucks were all ideas started on a small scale that
have had incredible, explosive positive impacts not just on the U.S. economy, but on
a global scale.

CHECK YOUR UNDERSTANDING

True or False
Directions: Before each statement, write TRUE if the statement is correct or FALSE
if the statement is incorrect.
___________ 1. Preconditions for take -off are the second stage of economic
development, whereas productivity increased found in Europe during the 1700s and
1800s.
___________ 2. In the age of mass consumption, a society or economy is able to
export production, bringing in money from other countries that helps the
economy grow larger beyond actual consumption.
___________ 3. Success of businesses can drive the success of an entire country,
including through contributions to the gross domestic product, or GDP, of a nation,
which affects their world standing.
___________ 4. Traditional society stage was prevalent prior to 1900s, when most
societies operated in a relatively stable state and productivity didn’t rise of fall
dramatically.
 ___________ 5. Drive to maturity is about 80 -year period between the take-off and
the final stage.

POST-TEST

MULTIPLE CHOICE: Choose the letter of the best answer. Write your answer sheet.

____1. In which stage of economy reaches maturity and begins the final stage?
a. Take-Off
b. Traditional Society
c. Age of Mass Consumption
d. None of the above

____2. Who developed and published articles of the Five Stage of Economic
Development?
e. Walt Whitman Rostow
f. Seidel Rostow
g. Moichelle Rostow
h. Seidel and Moichelle Rostow

____3. Which stage had limited technology, and humans had access to little more
than handmade tools, transportation, and the printing press?
i. Take-Off
j. Traditional Society
k. Age of Mass Consumption
l. None of the above

____4. Which stage is about the population hit a critical mass that made agriculture
take up, such as a high percentage of labor, which provides opportunities for
establishing
an educational institution, banks, and a market for luxury goods?
m. Dive to Maturity
n. Modern Society
o. Take-Off
p. Preconditions for Take-Off

____5. Which stage is used to educate the individuals to start inventing new
processes and tools, and access to capital through financial markets and bank make
it possible to produce goods and services on a larger scale?
q. Dive to Maturity
r. Modern Society
s. Take-Off
t. Preconditions for Take-Off
____6. Which of the following is used to maintain the infrastructure of a city, state or
country-roads, bridges, tunnels, public transportation, libraries and other public
building and services, including police officers and fire-fighters?
u. Taxes
v. Income
w. Savings
x. None of the Above

____7. Which of the following is a CORRECT arrangement of the Five Stages of

Economic Development?
y. Precondition for Take-off, Take-Off, Traditional Society, Age of Mass
Consumption, and Drive to Maturity
z. Traditional Society, Preconditions for Take-off, Take-off, Drive to Maturity, and
Age of Mass Consumption,
a. Traditional Society, Preconditions for Take-off, Age of Mass Consumption, Drive
to Maturity, and Take-Off
b. Age of Mass Consumption, Preconditions for Take-off, Traditional Society, and

____8. Which stage really took place after WWI from about 1915 until around 1980,
when the technology era began?
c. Age of Mass Consumption
d. Drive to Maturity
e. Take-off
f. Traditional Society

____9. Which of the following is NOT one of Rostow’s five stage of economic
development?
g. Age of Mass Consumption
h. Drive to Maturity
i. Take-off
j. Technological Society

____10. Which of the five stages of economic development takes place over
approximately 60 years?
k. Age of Mass Consumption
l. Drive to Maturity
m. Take-off
n. Traditional Society
 ACTIVITY

Independent Activity

Directions: Using the Graphic Organizer, give your own idea about the five stage of
economic development and write your answer in a yellow paper.

RUBRICS
5 Expert
Piece is extraordinary, and very informative and well organized
4 Accomplished
Piece has an interesting style, and somewhat informative and organized.
3-2 Capable
Piece has little style, gives some new information but poorly organized.
1 Beginner
Piece has no style and, and gives no new information and very poorly organized
 REFLECTIVE LEARNING SHEETS

Reflective Question: Give the different phases of economic development. How can
it change your point of view as a student particularly in the field of business? Explain
in 1 to 2 sentences only. Write your answer in the space provided.

Phases of Economic Point of view

Development
1.
2.
3.
4.
5.

RUBRICS
5 Expert
Piece is extraordinary, and very informative and well organized
4 Accomplished
Piece has an interesting style, and somewhat informative and organized.
3-2 Capable
Piece has little style, gives some new information but poorly organized.
1 Beginner
Piece has no style and, and gives no new information and very poorly organized
 ANSWER KEY

Check your Understanding

TRUE or FALSE

1. TRUE
2. TRUE
1. TRUE
2. FALSE
3. FALSE

Activitiy

Independent Activity
Unlimited answer for this activity 1 using the rubrics below.
First phase. The smaller the population, the higher the economic growth. The bigger
the population, the lower the economic growth. Malthusian

Second phase. Government Local Economic Development (LED). The government

allows and encourages local people to work together to achieve sustainable economic
growth and development. Presently, we have like the public private partnership (ppp)

Third phase, understanding the pattern or behavior between economic growth and
environmental degradation. We start to care for the environment like the trees, proper
waste disposal and other matters that concerns mother earth.

Fourth phase, human resource management, this refers to the science of managing
and motivating people with due consideration of their knowledge, skills and set of
motivation and their contribution to the organization.

Fifth phase by warren Thompson is the transition from high birth and death rate to
lower birth and death rate as the country develops from pre-industrial to an
industrialized economic system.