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Contributions of Arthur Lewis and Amatyr Sen to Development (VC OPARAH, 2009)

Contributions of Arthur Lewis and Amatyr Sen to Development (VC OPARAH, 2009)


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Development issues: Arthur Lewis and Amatyr Sen. Importance of human capital and good governance
Development issues: Arthur Lewis and Amatyr Sen. Importance of human capital and good governance

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Published by: vince oparah on Jun 09, 2009
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The journey to gain knowledge in the study of development economics has been a fruitful one. Most topics and theories covered in the course all centered on the harmonisation of three critical economic challenges of economic growth, social equity and good governance.

Personally, I think two theorists and Nobel Laureate winners capture all the tenets of development. Arthur Lewis Dual economy thesis with emphasis on education, agriculture and good government provides most unanswered questions about development discourse. He can be criticized for referring himself as a political economist rather than development economists and yet cannot convince his employers to heed to his recommendations. Lewis usually threatens like a petulant schoolboy to walk out of a project if he did not get his way.

Similarly, Amartya Sen was not far from Lewis ideology with the difference being Sen’s use of inter-disciplinary concepts and seductive writing to explain his thesis on development as freedom. He also belongs to the school of think tanks as J.S Mills and Jeremy Bentham on utilitarianism. However, his over emphasis on human agency and far too optimistic view on ethical foundations of contemporary capitalism is a major criticism. He could not show beyond reasonable doubts that his believes that growing inegalitarianity has nothing to do with unregulated capitalism. It will be very interesting to read his views on the current global financial melt down if it becomes available.

While acknowledging that the course in general has been very educative and informative, the works of the above two mentioned actors fascinate me a lot and I have used this as a motivation to answer questions 2 and 5 of the Take-Home Examination in Chapters 1 and 2 of this paper. Chapter one begins on page 2 of this paper while Chapter two can be found on page 7.

-2Question 2: What is the most significant contribution of Arthur Lewis to development?

Introduction It takes an extremely academic brilliance for scholars from the Third world countries, especially a black man to become a Noble Laureate due to the global inequality between the North and South. In as much as few detractors have tried to discredit Late Professor Arthur Lewis on his intellectual achievements, his contributions to development has been and will always be appreciated globally by students and policy makers alike. One of his most significant contributions in development is his thesis of Dualism (two-sector model) in early 1950s (Findlay, 1980). In answering this question, I am going to give a brief historical introduction of this theory before explaining this dual economy thesis on the first part of this paper. On the second part, I am going to pin- point the significance of the theory as well as criticise the model before concluding that in as much as the model may not work in some countries; some developing economies should adopt this model depending on the stage they are in the development trajectory.

Lewis and the English Model Conceptual debates have always focused on which model or approaches countries must adopt to get developed economically. Lewis model concurs with the classic period of the Industrial Revolution between 1780 to 1840 in which real wage rate was relatively constant (Findlay, 1980). This theory is grounded on structural-change and focuses on the process by which underdeveloped economies can transform their home grown structures from agrarian societies to a more modern and industrially diverse economy. Lewis employs the tools of neoclassical price and resource allocation to describe the transformation process that take place between the traditional sector and the capital sector (Todaro and Smith, 2009). This theory has become the model for development in surplus labour Third World countries hitherto.

According to this Lewis model, the underdeveloped economy comprises two sectors of traditional and modern urban industrial sector. In the traditional sector, the sector is

-3overpopulated, rural and subsistence and all these factors mean that there is zero marginal labour productivity, which translates into surplus labour. Lewis usage of the term surplus labour explains the fact that this surplus labour can be withdrawn from the traditional sector without any loss of output. This surplus labour can then be transferred to the modern urban industrial sector where there is high productivity. However, the modern sector could include mechanised agriculture, but however classified into industrial sector. The key idea of this model is the process of labour transfer and the growth of output as well as employment in the modern sector. The modern sector employment growth and labour transfer are proliferated by output expansion in that sector as a result of more labour availability in the sector. The rate of expansion is determined by the rate of industrial investment and capital accumulation in the modern sector. This investment becomes realisable as a result of excess profits that the capitalists make from paying lesser wages and simultaneously achieving higher output (Todaro and Smith, 2009).

In view of the aforestated, the constant supply of labour from the traditional to the modern sector remains constant and the supply curve of labour becomes perfectly elastic (Todaro and Smith, 2009). My understanding of this analogy is that the workers from the traditional sector are very excited to come to the urban centers for the first place and getting a job as well as wages which they may or may not have earned in the traditional sector is more than enough incentives to work harder in the urban centers without complain.

To expand this thesis, it is important that I provide more explanations on how the system works. In the traditional sector, subsistence food production varies with the increase in labour inputs. Since most of the outputs are for consumption, lesser labour is required to produce more as most of the products will perish, any way. It is then a good idea to ready this surplus labour for the modern sector where they will be much more useful. One of Lewis assumptions about traditional sector are that all rural workers produce the same output collectively in a given amount of capital and mode of production and for this reason, the real wage is determined by average product and not marginal product as in the case of modern sector. Relating this assumption to the modern sector, the same labour

-4input in a given capital and technology will produce the same output. However, the reinvestment of profits in the mode of production with the same amount of labour guarantees higher output. The workers are kept on their toes thereby making labour to be competitive. The capitalist continue to higher more workers from the traditional sector as well as reinvest profits leading to more output etcetera. This process continues to raise the level of modern sector employment. Modern sector self-sustaining growth and employment expansion is assumed in Lewis model to continue until all surplus labour is absorbed. When surplus labour is exhausted, additional workers can be withdrawn from the traditional sector without distorting the pattern of production in the agricultural sector. However, the cost of food will increase because most of the foods at this period are not only for consumptions, but are sold to the industrial sector. Also, far lesser people are now producing the food as most of them are now in the industrial sector. The continuous growth of wages and employment ensures that there is a balance in the economy and this is what is meant by structural transformation from the traditional sector to the industrial sector (Todaro and Smith, 2009).

In the analysis of the significant of this theory, it is important to note that Lewis did not consider the problems of underdeveloped economies in isolation, put see the global economy as one and interdependent. However, he maintains that inequality in global terms of trade has been one of the factors making the LCDs to remain in perpetual poverty. For Lewis, the global economy is still characterised by two sectors of the traditional sector (LCDs) and modern sector (developed economies). The significance of this theory is located in its concerns with the problem of economic growth and social change in every society of the North or South. He sees the North as that experiencing full employment as both labour and capital are scarce, which is the neoclassical approach. This approach determines the reward for both labour and capital on the basis of marginal productivity principle. For the LCDs, he recommends that the classical approach of real wage for unskilled labour as a result of the subsistence priority of its development. The focus should be the welfare of the citizens in this case rather than competing with the global North in terms of wages and capital because there is no contest in this case (Findlay, 1980). In essence, countries should make there cloths according to the sizes of

-5their cloths. Lewis is not an advocate of the trade growth theory and maintains that the Third world countries should concentrate on producing more food by putting more labour and capital in food production to ensure enough consumption as well as have more for export. By the use of mechanised agriculture, more food will be produced even if it is not at there comparative advantage; which may be rare. For him, the North should concentrate on producing highly technological materials such as steel and by so doing, the trade dichotomy between the north and the South will be reduced significantly (Findlay, 1980).

Similarly, this theory helps in the explanation of lower wages received by labour in the developing world despite the fact that the labour is very intensive. The labour intensive goods manufactured by these countries are exported at a lower price, which means that there is no room for the workers to demand high wages knowing very well that the capitalists in these countries are not making much profit (Girvan, 2008). Again, this theory has been adopted by most countries in developing their economies thereby having to divide their countries into rural and urban sectors. Some countries like China are able to check rural-urban migration by proving jobs for their citizens in the rural areas through farming as well as becoming industrialised in the urban centers.

Even though there are so many criticisms about how this theory will work, the provision of education, good government and mechanised agriculture in a country is the key to economic development as Lewis suggests. Education will ensure that people produce enough food by making use of modern method of farming to produce enough food for consumption and export. The duty of government is to provide education and the amenities for this mechanised agriculture to function properly.

Limitation to Lewis Model Though Lewis model epitomises success having been tested and trusted from its applications in the industrialised countries, it also has its limitations. The first point has to deal with the notion that the speed of employment creation and labour transfer in the industrial sector is proportional to the rate of modern sector capital accumulation and vice

-6versa. Apart from the fact that capitalists can take the monies to reinvest else where in this era of globalisation, they can also reinvest in more sophisticated high-tech equipments which requires fewer labour. Take for instance in printing firms, the owner might decide to do away with machines that requires about 15 people to complete the process of printing books. With the use of computer, he might require just 5 people to do the job. In this case, he makes more profit without creating more employment opportunities for people (Todaro and Smith, 2009).

Secondly, Lewis assumption that surplus labour exists in rural areas while there is full employment in urban areas is out of order. At the moment, places where there are surplus labours in the rural areas are in some parts of Asian and Latin American continents where there are unequal land ownership. Other places continue to experience unemployment and lack of food in the rural areas and talking about full employment in urban centers does not exist, even in developed economies (Todaro and Smith, 2009). Again, Lewis posits that a competitive modern labour market guarantees the continued availability of real urban wages leading to the exhaustion of rural surplus labour. Even in the midst of recession and mass unemployment globally, union bargaining and workers rights distort wage patterns; which make the theory questionable (Todaro and Smith, 2009).

Conclusion Lewis model has been tested and trusted in so many countries with huge amount of success- with migration, terms of trade and industrialisation as its key significance. Aid dependency by the poorer countries and unequal balance of trade will be a thing of the past if the world economy will be treated as a single interdependent system. The ideal situation whereby the global south will keep producing food for the rest of the world and the rest of the world produces every other goods is not a bad idea. The anarchical nature of the world system means that this is not possible. In lieu of this, developing countries should develop their economies by coming up with policies that match the realities on the ground in their various countries, rather than trying to replicate what the developed economies did. The “do what we do argument and be like us” no longer make meaning in contemporary times.

-7Question 5: What are Amartya Sen’s main ideas in Development as Freedom and why are they relevant today?

Introduction Amartya Sen is another of the development economists with distinguished contribution to the subject through inter-disciplinary methodology. He uses a totally different approach which is focused on non-economic component of development; with belief in and emancipation of people. In essence, teaching a man how to catch a fish rather than giving him fish all the time is an approach worth emulating. This question will discuss Sen’s main ideas on the first part and the second part; it will focus on the relevance of this idea before concluding that people are the most important part of development.

Development as freedom Sen’s significant contribution has been to unite two concepts of valuable beings and doings (functionings) and freedom. Sen is of the view that one’s earnings and riches are just means to an end and not ends itself. One’s “capability to function” is the key to economic well-being and this determines whether one is poor or not. He believes that poverty cannot be measured by income or by utility as widely believed. Meaning that the most important thing is not material possession or the pleasure the material provides, but the personality is very important with regards to what the person does and can become. The utility approach places emphasis on the nature of commodity consumption whereas capability approach as posited by Sen is concerned with what the consumer make of the commodity. The attachment of meaning in this case is very important (Todaro and Smith, 2009). For example, if a four year old child is giving a cell phone as a gift, s/he will attempt to use it to call her friends from crèche having got used to seeing the parents speaking with cell phones; instead of regarding it as a toy. The situation will be different if a similar gift is given to an illiterate ground parent in the country-side who does not know what cell phone is, but has been longing to see or at least hear the voice of one of the loved ones in urban centre. S/he may regard it as a radio or rather luck it up in a safe thinking it is some sort of treasure.

-8On the concept of well-being or activities for the greater good of the society, the focus must go beyond availability of commodity in terms of discovering its usage in the functioning of people. What a person does with the commodity is very important according to Sen vis-à-vis possession and control. What choice does one make in life and how does one control owns’ life? This is central part of most understandings of wellbeing (Todaro and Smith, 2009). Relating this to the example I gave in the preceding paragraph, the well-being of the ground parent in a rural area who may be in an emotion wreck for not seeing the loved ones for a long time can be controlled or managed if s/he can realise that the gift is actually a means to talk to the loved ones s/he craves for. The ability to discern that the cell phone is not an end, but a means to an end is very important for the well-being of the person exemplified herein.

Furthermore, there are disparities between real incomes, which are usually measured and actual advantages of the income from the vector of functioning, according to Sen: Firstly, things that has to do with personal differences, such as disability, illness, age, or gender differences. Some society stills discriminate against the disabled members of the society and age/gender bias is still very ubiquitous. The second one is environmental diversities, such as the type of protection one requires against unfavourable climatic conditions. There is need to put on the right cloth or protection against harsh whether conditions. The third one is the type of environment one may find himself as to whether it is free from crime and violence as well as observation of norms and society values. Fourthly, the differences in relational point of views in terms of the importance of a commodity in a given society. For example, it requires a person to put on a nice cloth to appear in public without having low self esteem. However, it will look very unusual if the same person is to put on leather pants and jacket in places where the atmosphere is very hot. The fifth point is distribution within the household in the sense that there are uneven distributions in most household in form of gender bias (Todaro and Smith, 2009). These disparities have impacted positively on the redefinition of security in the United Nations Development Programme as I will show in the next section, later.

-9According to Sen, measurement of real income and level of consumption of commodity cannot be equated to measure of well-being. This is evident in consumption of quality instead of quantity as the case may be. One gets satisfaction in consumption of the goods one desires and not the one the one is being forced to consume due to none availability or affordability of the desired ones. Again, measurement of some basic foods relates to knowing the level of nutrition it provides to ones health. However, the same food cannot provide the same level of nutrition to different people eating the same food. It does show that the commodity is means to an end and not ends in themselves. So, the end is health provided by the nutrition unlike the utility approach regarding the commodity as the end instead of means to an end. Well-being can only be measured by the amount of nutrition in consumption and not the amount of goods consumed and anything contrary to this does not capture the meaning of development (Todaro and Smith, 2009). The key interest of this capability approach is that it goes beyond criticism of income as a measure of wellbeing to proposing an alternative avenue in the understanding of the meaning of poverty reduction and justice (Alkire, 2005).

In the same vein according to Sen, what make people happy vary as one man’s meat maybe another man’s poison. For instance, the ambition of a deprived member of the society may be to have daily food, cloths and shelter without bothering to have children while a middle class person in the society may want lots of children on top of the basic needs and comfortable job. For the middle class person, he may consider himself to be a failure in life if he does not have children. The deprived person is satisfied with getting the basic needs, which for him is an achievement. The good feel factor according to Sen is the functioning of a man. All these explanations made Sen to define capabilities as “the freedom that a person has in terms of the choice of functions, given his personal features and his command over commodities” (Todaro and Smith, 2009: 18). The achieved functionings at any given time can be described as the realisation of a pursuit successfully. One has the freedom to do make this pursuit. However, freedom in this sense does not necessarily indicate which method that success has to be achieved. Also, decision making process is not provided as to ensure that the method or path taken will

- 10 guarantee success or lead to one’s well-being or not. So, the intrinsic value of freedom becomes the key factor which can be attained by one’s capability (Alkire, 2005).

The relevance of Sen’s ideas The relevance of Sen’s ideas is located in the emphasis of health and education by development economist. There is general consensus that health and education of a nation has a strong connection with the level of wealth of a nation. Social inclusion and empowerment has reference to countries with high levels of income. Poor heath and education standards depict growth without development. Real income is essential and it takes education to utilise the income in a good sense that will transpire good health as to what type of nutrition one takes and how one can avoid diseases. So, “well-being” according to Sen should mean being well in terms of health, literacy and freedom of choice in life. People should be free to choose what to buy in free market as well (Todaro and Smith, 2009).

Income or consumption or pleasure and achievement may not define well-being adequately; however Sen’s analysis is part of what the United Nation’s Human Development Index uses in accounting for health and education level as well as income in its measurement of development in countries. The Human Development Index (HDI) attempts to rank countries on a scale of 0 as lowest HDI and 1 as highest HDI based on three goals. Longevity is measured by life expectancy at birth, knowledge is measured by average adult literacy and living standard is measured by real per capita gross domestic product (Todaro and Smith, 2009).

Also, policy makers apart from using this HDI to track the level of development in their countries, the World Bank make use of it to engage in poverty reduction in developing countries. The idea is that the more income is distributed through employment and social capital, the more poverty is reduced (Alkire, 2005).

The debate on democracy as leading to development is part of Sen’s pragmatic neoliberalism message. This argument posits that the role of the state should be limited in the

- 11 economy, while promotions of democratic liberal institutions are created to provide basic education and health care. Government should also be responsible to protect its citizens in the new definition of security as I mentioned earlier, as well as Millennium Development Goals target of countries. Thus; according to 1994 Human Development Report of the United Nations Development Programme (UNDP), human security is defined as “safety from such chronic threats as hunger, disease and repression” and protection from sudden and hurtful disruptions in the patterns of daily life-whether in homes, in jobs or in communities” (Paris, 2001: 89). The concept has become very broad as it encompasses different elements which include; economic security, food security, health security, and environmental security. Others are; personal security, community security and political security (Paris, 2001). This definition has been taken on board by most policy makers as state security has become responsibility to protect the citizen of a country by its leaders in al ramifications.

Conclusion Despite some criticisms of this capability approach which include; the fact that those in the “black holes” may not be able to choose what is best for them. The abstracts from power relations and focus on individual actors give a false promise to the poor. Also, sequencing prioritisation or conundrum between for instance, health over education and vice versa is a common dilemma facing some governments. Sen did not provide the sequences that development has to follow. However, development of human capital in any given society is very relevant in any countries development. This will guarantee that all facets of the economy have adequate personnel in charge of its daily activities. So goes the African saying that “one who has healthy wise people is better than one who has money and lonely”. Apart from the ability to rear good breeds, people will look after their health and themselves for the greater good of the society.

- 12 Bibliography

Alkire, S., “Why the Capability Approach?”, in Journal of Human Development, Vol. 6, No. 1, pp. 115-33.

Findlay, R., “On W. Arthur Lewis’s Contributions to Economics’ in Scandinavian Journal of Economics, Vol. 82, No. 1, pp. 62-79.

Girvan, N., “Sir Arthur Lewis- A Man of His Time; and Ahead of His Time”, in Distinguished Lecture, Year of Sir Arthur Lewis, UWI, St. Augustine, 20 February 2008, pp. 1-20. Accessed on 3 June 2009 at http://sta.uwi.edu/nlc/2008/documents/Girvan_Lecture_full.pdf.

Paris, R., “Human Security: Paradigm Shift or Hot Air?”, in International Security, Vol. 26, No. 2, University of Colorado, Boulder, 2001. Todaro M.P. and Smith S.C., Economic Development 10 th Edition, Addison-Wesley, New York, 2009.

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