Lewis and Rostow
Outline the theories of Lewis and Rostow and discuss their relevance in analysing the problems of development in LDC’s
In the 1950’s, the two most prominent economists of the Western school were Arthur Lewis and Walt W. Rostow. Their theories had a significant impact on the policies of Western governments regarding development in LDC’s. Arthur Lewis claimed he was a classical economist because he disagreed with the neo-classical school. He argued that the neo-classical assumption of full employment is incorrect in the long-run, and that they therefore had no long-term perspective on development. However, Lewis has been categorised by other economists such as Hollis B. Chenery, as a Structuralist. This is because his famous ‘two-sector model’ focuses in the mechanisms through which LDC’s can change their economic infrastructure from an agricultural to a more modern industrial one.1 The emphasise on internal modes of production and reform of domestic infrastructure is a distinguishing feature of the Structuralists.
In the mid 1950’s Lewis, in his essay ‘Economic Development with unlimited supply of Labour’ put forward his theory of underdevelopment. He begins with the assumption that the economy of the LDC’s could be split into two sectors; the traditional sector, which is agrarian, and characterised by subsistence wages and a surplus of labour. Lewis referred to this as ‘disguised unemployment’. Because of the large labour force in the traditional sector, much of it unused, this results in zero marginal labour productivity. Wages are therefore kept at subsistence levels, which causes wages in the modern sector to be set at subsistence level. The modern sector is characterised as a highly productive, urban, industrial sector.
Lewis argues that surplus labour in the traditional sector can be gradually transferred to the modern sector with no loss to productivity because of the zero marginal productivity of labour in agriculture. To encourage the flow of labour
In the 1950’s, the two most prominent economists of the Western school were Arthur Lewis and Walt W. Rostow. Their theories had a significant impact on the policies of Western governments regarding development in LDC’s. Arthur Lewis claimed he was a classical economist because he disagreed with the neo-classical school. He argued that the neo-classical assumption of full employment is incorrect in the long-run, and that they therefore had no long-term perspective on development. However, Lewis has been categorised by other economists such as Hollis B. Chenery, as a Structuralist. This is because his famous ‘two-sector model’ focuses in the mechanisms through which LDC’s can change their economic infrastructure from an agricultural to a more modern industrial one.1 The emphasise on internal modes of production and reform of domestic infrastructure is a distinguishing feature of the Structuralists.
In the mid 1950’s Lewis, in his essay ‘Economic Development with unlimited supply of Labour’ put forward his theory of underdevelopment. He begins with the assumption that the economy of the LDC’s could be split into two sectors; the traditional sector, which is agrarian, and characterised by subsistence wages and a surplus of labour. Lewis referred to this as ‘disguised unemployment’. Because of the large labour force in the traditional sector, much of it unused, this results in zero marginal labour productivity. Wages are therefore kept at subsistence levels, which causes wages in the modern sector to be set at subsistence level. The modern sector is characterised as a highly productive, urban, industrial sector.
Lewis argues that surplus labour in the traditional sector can be gradually transferred to the modern sector with no loss to productivity because of the zero marginal productivity of labour in agriculture. To encourage the flow of labour