Contributed Content (0)
Ask a Question
Which countries was Lewis thinking of specifically that had seen continued growth but no large increase in living standards? Africa's population exploded, so it's surplus labor increased even without productive export sectors. India and China can't have been that big yet. South America? South-east Asia?
Coincidentally, the FT has this story today: "China turns to robotics as labour costs rise" (http://www.ft.com/cms/s/0/2a804e04-0c95-11e2-a776-00144feabdc0.html).
W. Arthur Lewis introduced a new model known as Dual Sector Model or Lewis Model (Giving credits to his name). The new model came with the idea of a combined analysis of economies. You can have a clear view of his ideas here:
"Lewis combined an analysis of the historical experience of developed countries with the central ideas of the classical economists to produce a broad picture of the development process. In his theory, a "capitalist" sector develops by taking labour from a non-capitalist backward "subsistence" sector. At an early stage of development, the "unlimited" supply of labour from the subsistence economy means that the capitalist sector can expand for some time without the need to raise wages. This results in higher returns to capital, which are reinvested in capital accumulation. In turn, the increase in the capital stock leads the "capitalists" to expand employment by drawing further labor from the subsistence sector. Given the assumptions of the model (for example, that the profits are reinvested and that capital accumulation does not substitute for skilled labor in production), the process becomes self-sustaining and leads to modernization and economic development.
The point at which the excess labor in the subsistence sector is fully absorbed into the modern sector, and where further capital accumulation begins to increase wages, is sometimes called the Lewisian turning point. It has recently been widely discussed in the context of economic development in China."
Source: Wikipedia - http://en.wikipedia.org/wiki/W._Arthur_Lewis
In modern economics, we may find it difficult to relate some of the ideas that Lewis contributed to the processes, but that time when he was introduced his theory, it became an instantly appreciated plan mainly for it's core values on economic aspects. He won the honorary Nobel Memorial Prize in Economics in 1979 to mark his sign clearly before the modern economists.
Hope it helps a bit to understand and have a general view on Dual Sector Model or Lewis Model.
It wasn't clear from the video that the issue wasn't just that the baseline chosen to see whether wages are rising wasn't just the wrong one. It said that the reason wages stay low is because poor workers from the countryside come and work so wages do not rise as there is a large supply. I don't see why the poor workers from the countryside's wages aren't rising given that they are moving to get these jobs so why haven't wages risen?
Has any country ever adopted an industrial policy that attempts to couple Paul Rosenstein-Rodan's theory of the Big Push with W. Arthur Lewis' concept of surplus labor? That is, spend massively in infrastructure and industry to move lots of people from the subsistence sector to the capitalist sector quickly so as to exhaust the surplus labor thereby raising wages and profits?
Surely, being in favor of protectionism because your surplus labor needs to be used, is a difficult proposition. Due to lack of imports, you need to produce more goods yourself, but that will only reduce the surplus labor if your exports still rise. That means the product quality must be sufficient without being able to source the best suppliers. Otherwise you export less *and* distribute export income among more workers in more industries making it less attractive for employees to move into export industries.
I am currently living in India (for about a month now), and my casual observations lead me to wonder if the abundant supply of cheap manual labor here doesn't inhibit growth & the adoption of labor-saving (i.e., more efficient) technologies. I can imagine how wages would remain low with this abundant supply and how this would prevent more people from moving into the middle class. But how well accepted and verified is Arthur's theory now almost 60 years after the fact?
Does he say anything about how governments and ruling elites have created this pool of surplus or cheap labour to preserve their revenues? That is, it is not a natural phenomenon. Nor is there a simple labour market, as the summary seems to suggest. The market for systems analysts is not the same as for farm labourers. Without immigration your health service might not have enough skilled workers. Of course the medical schools and hospital managements might artificially create the shortages to save money and increase profits. A mismatch between labour skills and demand seems to characterize most industrial societies, but few are doing anything serious to redress the situation, no matter what Obama say. What are Americans to do when India can provide all its needs in programmers, Mexicans are the only people to do menial jobs, and online education (from other places on the planet) will reduce its need for professors? Will we take in each other's washing, Ricardo style?