ORGANIZATION AND MANAGEMENT

Quarter 1-Week 5

THE PHASES of
ECONOMIC DEVELOPMENT

chonacamposano
Learning Competency:

•Differentiating the phases of economic development and its

impact to business environment (ABM_AOMII-Ic-d-8)

chonacamposano
 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.

chonacamposano
PRE-TEST:
Instruction: Based on the images below, identify which among the picture shows; an economic
growth or economic development.

chonacamposano
 Although material wealth accumulation is among the concerns of genuine
economic development, its greater concern is the total improvement of the
quality of people’s lives. This is in relation to sustainable economic
development, which ensures that the present needs of a particular generation are
fully met without endangering the ability of future generations to fully meet
their own needs.
Economic development and its causes have been the focus of study by
economists for centuries largely because it has the potential to reduce or remove
poverty, improve the standard of living, help achieve social goals such as
education and healthcare and substantially improve the quality of life of the
people.

chonacamposano
Economic development
● The action taken by the policy makers to raise the standard of living
of general public by developing human capital, critical infrastructure,
health, security, literacy/education, regional competitiveness, social
institution, and any other initiatives for the welfare of public as a
whole.
● A total process which includes not only economic growth or the
increase in the given amount of goods and services produced by the
country’s economy, but also considers the social, political, cultural,
and spiritual aspects of the country’s growth.

chonacamposano
Economic growth
● It is the raise in the value of goods and services produced in a country over time
normally in a year after adjusting the inflation. It actually measures the increase
in real gross domestic product (GDP). The most important formula to measure
the growth is GDP per capita that is also known as per capita income. It is
usually measure by GDP (gross domestic product), GNP (gross national
product), and NNP (net national product) with the help of production, or income,
or expenditure over time normally a period of one year. In economic, economic
growth means, capability or potential of government to achieve production at full
level of employment. Two countries performance is always measured on the
basis of economic growth comparison of both countries.
● Increase in the given amount of goods and services produced by the country’s
earning or a change in the amount of goods and services produced over a given
period.
chonacamposano
 Economic development phases are the distinct stages involved in the total process of
economic development in a particular country.

Key Differences between Economic Growth and Economic Development

● Economic growth means change in value of goods and services over time normally for a period
of one year. Economic development means changes in the socio-economic structure of country
that relates to growth to human development indexes (HDIs), decrease in equality, changes in
standard of living of public.
● Economic growth is measured through gross domestic product (GDP), GDP per capita, gross
national product (GNP), and net national product (NNP). Economic development is measured
through human development index (HDI), gender-related index (GDI), human poverty index
(HPS), literacy rate, infant mortality, socio-economic development.
● Economic growth brings only quantitative changes in the economy while economy development
brings both qualitative and quantitative changes in the economy.
● To measure the performance of two countries economic growth is used as a parameter while
economic development is only used to measure the progress of developing countries or nations.
● Economic growth deals with the change in the country’s economy output while economic
development deals with the structural changes in the economy.
chonacamposano
Phases/Stages of Economic Development

1. Traditional Society
● The first stage of Rostow's model and the one in which societies begin. This 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.
● This stage is characterized by a subsistent, agricultural-based economy with intensive
labor and low levels of trading, and a population that does not have a scientific perspective
on the world and technology.

chonacamposano
2. Preconditions for Take-Off
● 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. It is
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.
● Here, a society begins to develop manufacturing and a more national/international
—as opposed to regional—outlook.
● This generally described as “prerequisites for rapid economic growth.” It is the
intermediary step between a traditional, agrarian society and industrial explosion. It
primarily involves external investment and a much greater exploitation of natural
resources.

chonacamposano
3. 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.
● Rostow describes this stage as a short period of intensive growth, in which industrialization begins
to occur, and workers and institutions become concentrated around a new industry. This is where the
societies move toward full industrialization in certain specific ways, such as technological
innovations, urbanization, production of secondary goods such as textiles, and intense growth in
specific sectors.

chonacamposano
4. Drive to Maturity
● The next of Rostow's five stages has a general length of time associated with it,
the drive to maturity. It 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 10-20% 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.
● This stage takes place over a long period of time, as standards of living rise, the
use of technology increases, and the national economy grows and diversifies.

chonacamposano
5. Age of Mass Consumption
● After the drive to maturity, an economy reaches maturity and begins the final
stage, the age of mass consumption. 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 help the economy grow larger beyond
actual consumption.
● Rostow believed that Western countries, most notably the United States, occupied
this last "developed" stage. Here, a country's economy flourishes in a capitalist
system, characterized by mass production and consumerism.
● In the age of high mass-consumption, a society is able to choose between
concentrating on military and security issues, on equality and welfare issues, or on
developing great luxuries for its upper class.

chonacamposano
 World leaders gathered for the Millennium Summit, and thus adopted the United
Nations Millennium Declaration. They had committed their nations to a global
partnership in the pursuit of Millennium Development Goals (MDG). Below
are the goals of MDG to be fulfilled:
1. Eradicate extreme hunger and poverty
2. Achieve universal primary education
3. Promote gender equality and empower women
4. Reduce child mortality
5. Improve maternal health
6. Combat HIV/AIDS, Malaria, and other diseases
7. Ensure environment sustainability
8. Develop a global partnership for development
chonacamposano
 In the Philippines, the National Economic and Development
Authority (NEDA) has laid out the Philippine Development Plan
(PDP) 2011-2016, which “adopts a framework of inclusive growth,
which is high growth that is sustained, generates mass employment,
and reduces poverty.” The PDP is focused on economic and industrial
goals of the Philippines but also the social, environmental, and peace
and security aspects.

chonacamposano
 The PDP is focused on the following areas:
1. Pursuit of Inclusive Growth
2. Macroeconomic Policy
3. Competitive Industry and Services Sectors
4. Competitive and Sustainable Agriculture and Fisheries Sector
5. Accelerating Infrastructure Development
6. Resilient and Inclusive Financial Sector
7. Good Governance and the Rule of Law
8. Social Development
9. Peace and Security
10.Conservation, Protection, and Rehabilitation of the Environment and Natural
Resources
chonacamposano
 The MDGs and the PDP can help guide the management of businesses in the
Philippines setting. In particular, the PDP must be taken into consideration in order
to deem management as appropriate or country-specific.
The success of the quantified economic development targets of the country
will greatly benefit the people and also the business environment. In the planned
Integration of the 10 Southeast Asian Nations (ASEAN) Economic Community
(AEC) could help the Philippines achieve its goals of inclusive growth that creates
jobs and reduces poverty. Business sector also can achieve their goals and objective.

chonacamposano
 Managers of businesses here in the Philippines must be concerned about the
findings of the study, as these are new challenges for them.
The business market is regularly affected, defined, and shaped by economic
conditions. Economic forces are factors such as monetary and fiscal policies,
interest rate, employment, inflation rate, demographic changes, political changes,
energy, security, and natural disasters. All of these have a direct effect on how
businesses produce and distribute their products or services. The effect of these
economic forces in business is reflected in the economy.

chonacamposano
Four Main Economic Forces or Trends that affect modern business markets:
1. Government influence
2. International transactions
3. Expectation and speculation
4. Supply and demand for products

chonacamposano
Task 1
Instruction: Answer the question below:
Based on our discussion, what do you think are the adverse effects when
sustainable economic development practices in a country are not
implemented?

chonacamposano
 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.

chonacamposano
Task 2
Explain and contrast the following phases/stages of economic
development.
1. Traditional society and Preconditions for Take-Off
2. Take-off and Drive to maturity
3. Traditional society to Age of Mass Consumption.

chonacamposano