DEFINITION AND TIMING

After take-off there follows what might be called the drive to maturity. There are a variety of ways a stage of economic maturity might be defined: but for these purposes we define it as the period when a society has effectively applied the range of (then) modern technology to the bulk of its resources.

In terms of sectoral development the drive to maturity sees the industrial process differentiated, with new leading sectors gathering momentum to supplant the older leading sectors of the take-off, where deceleration has increasingly slowed the pace of expansion. After the railway take-offs of the third quarter of the nineteenth century—with coal, iron, and heavy engineering at the centre of the growth process—it is steel, the new ships, chemicals, electricity, and the products of the modern machine-tool that come to dominate the economy and sustain the overall rate of growth. This is also, essentially, the case with the later Russian drive to maturity, after 1929. But in Sweden after 1890 it was the evolution from timber to wood-pulp and paper; from ore to high-grade steel and finely machined metal products. The leading sectors in the drive to maturity will be determined, then, not merely by the pool of technology but by the nature of resource endowments; by the character of the take-off, and the forces it sets in motion; and it may be shaped to a degree, as well, by the policies of governments.

AN APPROACH TO THE DEBATE

A good many economists and historians have commented on The Stages of Economic Growth. In replying to the debate, I have grouped the questions raised analytically rather than ad hominem. One or another critic is sometimes strongly associated with a particular line of argument; and this will naturally emerge, where necessary. But my purpose here is to get at certain issues of substance in as constructive a way as I can rather than to perpetuate the title of Henry Rosovsky's engaging review article, ‘The Take-off into Sustained Controversy’ (Journal of Economic History, June 1965, pp. 271–5). I believe that we are at a point in the study of economic growth where a good many of the issues under debate can be resolved or lucidly narrowed in ways which would permit us to get on with the common job from a reasonably common perspective.

I have, therefore, organized this exposition around the following questions of substance:

Is the stages of growth a teleological argument, as Myrdal claims, ‘in which a purpose, which is not explicitly intended by anyone, is fulfilled while the process of fulfillment is presented as an inevitable sequence of events’? (G. Myrdal, Asian Drama, New York, 1968, p. 1851.) Or, in more familiar terms, how self-sustained (or automatic) is self-sustained growth?

Does the stages of growth violate the uniqueness of the historical cases?

A REMARKABLE PARALLEL

Before turning, in chapters 8 and 9, to the relevance of the stages-of-growth to issues of war and peace, it may be useful to examine briefly a matter of both historical and contemporary interest: the nature and meaning of the relative paths of growth of Russia and the United States.

When we think journalistically of Russian economic development a number of images may come to mind: an image of a nation surging, under Communism, into a long-delayed status as an industrial power of the first order—symbolized by the Russian success in launching the first earth and solar satellites; an image of a pace of industrial growth unique in modern experience, held at forced draught by a system of state controls that constrains consumption, maintains unexampled rates of investment, and avoids lapses from full employment; an image of a planned economy so different in its method and institutions as to require forms of analysis different from those applicable in the West. In short, the conventional image is of a story apart.

There are, of course, profound special elements in the story of the evolution of modern Russian society and of its economy; and, before we finish, we shall try to identify the nature of its uniqueness. But the first point to grasp is that Russian economic development over the past century is remarkably similar to that of the United States, with a lag of about thirty-five years in the level of industrial output and a lag of about a half-century in per capita output in industry.

This book presents an economic historian's way of generalizing the sweep of modern history. The form of this generalization is a set of stages-of-growth.

I have gradually come to the view that it is possible and, for certain limited purposes, it is useful to break down the story of each national economy—and sometimes the story of regions—according to this set of stages. They constitute, in the end, both a theory about economic growth and a more general, if still highly partial, theory about modern history as a whole.

But any way of looking at things that pretends to bring within its orbit, let us say, significant aspects of late eighteenth-century Britain and Khrushchev's Russia; Meiji Japan and Canada of the pre-1914 railway boom; Alexander Hamilton's United States and Mao's China; Bismarck's Germany and Nasser's Egypt—any such scheme is bound, to put it mildly, to have certain limitations.

I cannot emphasize too strongly at the outset, that the stages-of-growth are an arbitrary and limited way of looking at the sequence of modern history: and they are, in no absolute sense, a correct way. They are designed, in fact, to dramatize not merely the uniformities in the sequence of modernization but also—and equally—the uniqueness of each nation's experience.

As Croce said in discussing the limits of historical materialism: ‘…whilst it is possible to reduce to general concepts the particular factors of reality which appear in history … it is not possible to work up into general concepts the single complex whole formed by these factors’.

THE TWO CASES

We consider in this chapter the preconditions for take-off: the transitional era when a society prepares itself—or is prepared by external forces—for sustained growth.

It is necessary to begin by distinguishing two kinds of cases history has to offer.

There is first what might be called the general case. This case fits not merely the evolution of most of Europe but also the greater part of Asia, the Middle East, and Africa. In this general case the creation of the preconditions for take-off required fundamental changes in a well-established traditional society: changes which touched and substantially altered the social structure and political system as well as techniques of production.

Then there is the second case. This case covers the small group of nations that were, in a sense, ‘born free’: the United States, Australia, New Zealand, Canada, and, perhaps, a few others. These nations were created mainly out of a Britain already far along in the transitional process. Moreover, they were founded by social groups—usually one type of non-conformist or another—who were at the margin of the dynamic transitional process slowly going forward within Britain. Finally their physical settings—of wild but abundant land and other natural resources—discouraged the maintenance of such elements in the traditional structure as were transplanted, and they accelerated the transitional process by offering extremely attractive incentives to get on with economic growth.

THE ACHIEVEMENT OF REGULAR GROWTH

We turn now to analyse narrowly that decisive interval in the history of a society when growth becomes its normal condition. We consider how it comes about that the slow-moving changes of the preconditions period, when forces of modernization contend against the habits and institutions, the values and vested interests of the traditional society, make a decisive break-through; and compound interest gets built into the society's structure.

As suggested in chapter 3, take-offs have occurred in two quite different types of societies; and, therefore, the process of establishing preconditions for take-off has varied. In the first and most general case the achievement of preconditions for take-off required major changes in political and social structure and even in effective social values. In the second case take-off was delayed not by political, social and cultural obstacles but by the high (and even expanding) levels of welfare that could be achieved by exploiting land and natural resources. In this second case take-off was initiated by a more narrowly economic process as, for example, in the northern United States, Australia and, perhaps, Sweden. And, you will recall, as one would expect in the essentially biological field of economic growth, history offers mixed as well as pure cases.

The beginning of take-off can usually be traced to a particular sharp stimulus. The stimulus may take the form of a political revolution which affects directly the balance of social power and effective values, the character of economic institutions, the distribution of income, the pattern of investment outlays and the proportion of potential innovations actually applied.

This final chapter considers how the stages-of-growth analysis compares with Marxism; for, in its essence, Marxism is also a theory of how traditional societies came to build compound interest into their structures by learning the tricks of modern industrial technology; and of the stages that will follow until they reach that ultimate stage of affluence which, in Marx's view, was not Socialism, under the dictatorship of the proletariat, but true Communism. As against our stages—the traditional society; the preconditions; take-off; maturity; and high mass-consumption—we are setting, then, Marx's feudalism; bourgeois capitalism; Socialism; and Communism.

We shall proceed by first summarizing the essence of Marx's propositions. We shall then note the similarities between his analysis and the stages-of-growth; and the differences between the two systems of thought, stage by stage. This will provide a way of defining the status and meaning of Marxism, as seen from the perspective of the stages-of-growth sequence. Finally, we shall look briefly at the evolution of Marxist thought and Communist policy, from Lenin forward; and draw some conclusions.

THE SEVEN MARXIST PROPOSITIONS

Marxist thought can be summarized in seven propositions, as follows.

First, the political, social and cultural characteristics of societies are a function of how the economic process is conducted. And, basically, the political, social and cultural behaviour of men is a function of their economic interests. All that follows in Marx derives from this proposition until the stage of Communism is reached, when the burden of scarcity is to be lifted from men and their other more humane motives and aspirations come to dominance.

In this chapter we leave the relatively safe world of history to examine the implications for the future of the onward march of compound interest in the various parts of the world when combined with a not wholly unrelated fact; that is, the existence of modern weapons of mass destruction. And having stated, in terms of the stages-of-growth, where it is that the nations stand and appear to be going, we shall suggest briefly and in broad terms how we might go about solving our great common problem—the problem of reasonably stable and secure peace.

THE REVOLUTION IN WEAPONS

First, the weapons and what they have done and are doing to the world arena of power.

There is the story of an American negro community, set in a southern farming area, which was beset with drought. Finally, under the guidance of their pastor, they turned to prayer. For a time they prayed; but the sun continued to shine with a bright cruelty; and the corn stalks were stunted and beginning to wither at the edges; and the cracks multiplied in the dry ground. Then, at last, it rained. At first they wondered at the miracle and were grateful. But as the rain persisted, day and night, beginning to wash away the stunted growths, they grew restive; until the pastor, feeling a special responsibility, resumed the monologue: ‘Lord,’ he said, ‘we suffered from drought; we prayed; and we asked for rain. But what you've given us is plumb ridiculous.’

Historically, primary commodities from the region have been exported to developed country markets. Countries such as India, Pakistan, Sri Lanka and Malaysia were under Western domination till the end of World War II, and they were suppliers of cheap raw materials to the colonial masters. This trade pattern continued even after their independence. Even now a good proportion of the region's primary commodities are exported to them. The only new additions are Japan and the newly industrialized countries. However, as the economic upheavals during the last two decades would have shown, reliance on only the traditional developed markets may be disadvantageous.

An alternative is to concentrate on trade among primary commodity producer countries themselves. Countries of South Asia and ASEAN taken as a unit comprise a huge market. Their total population of about 1.33 billion in 1987 makes it a viable unit for concentrated marketing activities. Moreover, the populations of most of these countries are increasing. Although per capita GNP of some countries such as Bangladesh and Bhutan are low. with the ongoing development plans, they are expected to increase. Their income elasticity of demand for most primary commodities except for essentials such as rice is high. In other words, demand for the commodities is expected to grow fast as incomes increase. The close proximity of these countries could result in transport being cheaper and quicker. Moreover, consumer habits and tastes in these countries are uniform. The sophisticated packaging and health requirements which exporters need to comply with in developed markets are relatively unknown here. Hence countries in the region could realize these advantages inherent among themselves and endeavour to increase trade. Increased trade could be either bilateral or multilateral. Bilateral deals and special trading arrangements for primary commodities or otherwise are nothing new to these countries. Therefore, as a matter of policy, at the highest levels of government, they could grant priority to primary commodity trade between regional countries.

However, present trade in primary commodities among countries in the South Asia-ASEAN region is not at encouraging levels.

The Association of South East Asian Nations (ASEAN) and South Asian Association for Regional Co-operation (SAARC) are two Asian regional groupings striving for the speedy development of member countries. The ASEAN member states, Brunei, Indonesia, Malaysia, the Philippines, Singapore and Thailand, are economically better off compared to their SAARC counterparts — Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka. A late starter, the SAARC is organizationally less mature than ASEAN.

As in the case for most regional groupings, fast changing global economic scenarios have prompted these Asian economies to form a group to help absorb the occasional shocks and enhance their economic capabilities. Even though free trade is obviously the best policy from the point of view of world welfare, preferential trading within a group to promote intra-regional trade is regarded as a “second best” policy inherent in customs union theories.

Tariff reduction — considered as one of the many aspects of preferential trading — is generally aimed at achieving greater competition within the region, as well as increasing the size of markets, and using economies of scale eventually to lower costs. Preferential Trading Arrangements (PTA) have been adopted as one of the measures to promote intra-regional trade in ASEAN.

This paper highlights the operation of ASEAN PTA, and identifies issues which could be of relevance to SAARC that has yet to incorporate trade co-operation in its sphere of activities.

This article has examined the scope of ASEAN-South Asia regional co-operation in the development of trade in primary commodities as a component in South-South co- operation. The first section of the analysis examined what countries in the region could attempt to achieve within the global institutional framework. The active support of the North is mandatory; otherwise the attempt would be mere rhetoric. The second section focused on the improvement of the production-marketing process of the commodities. It's success would depend on the willingness to help a competitor or ability to compete. The third section was on the intra-regional trade within the group, which is limited mostly because of the complementary nature of the commodities. In addition to these factors, low productivity and regular production shortfalls in certain primary commodities could impede co-operation among countries in the region. Although promising on the surface, as a component in the South-South co-operation, this has its own drawbacks.

Overview

The development ideology prevalent during the 1970s called on the state to play a more active role in the development process. The influence of this ideology is more apparent in developing countries such as those in the Association of Southeast Asian Nations (ASEAN) than in developed countries as their governments have established various state enterprises to correct perceived market failures, rationalizing that the market mechanism is unable to provide both collective and merit goods. Moreover, the private sector's inability to invest in sectors or industries with unusually high commercial and non-commercial risks became natural conduits for government assistance and direct economic participation. In the Philippines, the government took the responsibility for providing most public utilities, including public transport services. Transport per se formed part of a new ideological package called the “eleven basic needs of man.” Conceived by Mrs Ferdinand Marcos, the ideology rationalized the existence of the Ministry of Human Settlements in the early 1970s, and made it imperative for government to provide facilities, or access to it. to satisfy people's “basic needs”. Thus, government built and managed infrastructure requirements (for example housing and recreation facilities) and provided direct services (for example the operation of the Food Terminal, Inc. and the Metro Manila Transport Corporation [MMTCj) whenever applicable. In Malaysia and Singapore, similar inclinations were apparent in government efforts to institutionalize and improve the delivery mechanism for public utilities and the different modes comprising the transport system.

Specifically, the initiative and more importantly, the push to “marketize” stateowned enterprises (SOEs) in the Philippines, particularly utilities, have been selective. Among the public utilities which the government either fully owns, or maintains a majority ownership of, only a few are expected to be in the hands of the private sector in the next few years. More notable among these are the Manila Gas Corporation, a subsidiary of the National Development Company, and the Metro Manila Transport Corporation. In the water utilities sector, there is no similar tendency to privatize, or at least create a contestable environment to promote greater efficiency in such firms as the Metropolitan Waterworks and Sewerage System and the Local Water Utilities Administration.

National and International Developments

Privatization as a National Phenomenon

The modern state in Europe, developed out of the national consciousness of its citizens, is by its very nature a national state. This does not mean that we cannot find different forms of public life in a country or congruence between governments in different countries. Belgium may serve as an example; after establishing a new constitution, the Walloon and the Flemish parts of the public administration have developed in different directions. The nature of public law, which is quite similar on the whole continent, confirms the second statement. However, the administrative practice of the European Community (EC) highlights what in administrative science is classified as the difference between classical administration — such as in France, Germany, etc. — and civic culture administration — for example Great Britain.

Despite such distinctions, the line between public and private functions is drawn by the political-administrative culture of the national state. This can clearly be seen by the different meanings for the term “privatization”. Even within the European context, it is difficult to discuss privatization under this term as different approaches are subsumed according to the various national experiences. For some, extending the autonomy of a public enterprise or introducing profit orientation constitutes privatization. For others the term privatization is restricted to a transfer of ownership either in the formal sense of changing the legal structure, or in the material sense of an actual transfer of ownership. Taking into consideration the situation outside Europe, including the developing countries, means adding more problems to the understanding of the term privatization. Often, the only solution is to specify the respective politico-economic problem.

The distinction between public and private functions in the first place determines which instruments can be applied later to change this distinction in favour of the private sector. This is obvious in the case of the United States of America. In accordance with the distinctive administrative culture there the discussion on privatization centres on certain instruments such as contracting-out, franchise, voucher system and self-service arrangements.

Public enterprises (PEs) are one of the major factors in the world economy. Their share of the national product in industrialized and developing countries is estimated at half that of multinational enterprises (Ramamurti 1985). In most developing countries, PEs share in the gross domestic product (GDP) ranges between 7 and 15 per cent (Hafsi et al. 1987). Public enterprises are set up and used as one of the instruments by government to achieve multiple socio-economic and political goals (Priebjrivat 1986). For example, PEs may, among other things, be expected to promote industrialization, to advance technology, to create jobs, to defend national interests, to reduce regional disparities, and to save declining industries (Vernon 1984). The 1980s, however, have witnessed a market reversal of the roles played by the public and private sectors in the industrialized economy. Instead of government control and centralized planning, there has been a renewed emphasis on markets and competition. Privatization then came into fashion. “Markctization”, as used here, refers to making the market more efficient through various forms such as changes in ownership, policy, governance, and management of the PE sector. Thus, it does not mean privatization in the narrow sense, although it does involve inviting greater participation by the private sector in providing competition or performing functions including investment and management which were previously the government's domain. Here, if the autonomy of management is extended or if methods of business and profit orientation are introduced into the operation of specific PE, it is regarded as marketization (Konig 1989).

Likewise in Asia, a remarkable economic growth has been experienced recently especially in ASEAN member countries. The private sector is becoming more efficient and its role as the engine of growth is notably increasing. The public sector meanwhile begins to reconsider its role in the economy. Together with the deficit problems, the governments of ASEAN countries are now considering the restructuring of various economic sectors (Ng and Wagner 1989). Yet, some empirical evidence both in Europe and in some Asian countries have led to the question whether privatization is the only means to improve public sector efficiency and profitability (Bishop and Kay 1989; and Ng 1989).