What Are the Limitations of the Lewis Model?

NB: We do not resell your papers. Upon ordering, we do an original paper exclusively for you.

NB: All your data is kept safe from the public.

Table of Contents

Introduction
Background
The Limitations
The Caribbean experience
The Chinese experience
Conclusion
References

Introduction

Arthur Lewis was the first to make the subject of development economics a serious discipline. This was most popular after the war when Lewis wrote heavily on development theory which emphasised the function of the state in some countries of so-called Third World. Lewis wanted to apply existing economic theory to the economic problems of the developing countries, particularly those in the Caribbean. He was an expert in economic theories and issues and applied these theories to real experience. (Ranis 2004)

The main limitation of the Lewis model is that there were two models: that of Lewis’s original ideas and advocacy for the economic development of the tropical countries, and the Lewis model advocated by Fei and Ranis (1963) that disregarded most of Lewis’s original ideas.

First, I will describe the Lewis model, compare it with the original ideas of Lewis, and provide an analysis of its influence on principles. Then I will discuss the limitations of the Lewis model and how the limitations came about.

Background

Economic development seems to be a new discipline but it actually started when Adam Smith published his book Wealth of Nations which focused on the economic problems of the developing world, particularly Africa, Latin America and the so-called Third World (Todaro & Smith 2012). Arthur Smith came later but his ideas were fresh and based on actual experience.

Development economics deals with the distribution of ‘scarce productive resources’ and its growth over a considerable period of time, along with the economic and political forces that will bring about immediate and fast improvements of living standards for peoples of the developing world (Todaro & Smith 2012).

Arthur Lewis is known for his ideas on development economics and the so-called ‘Lewis Model’ but little of this construct actually reflects the original ideas of Lewis. Figueroa (2004) argued that Lewis’s 1954 paper (Theory of Economic Growth) referred to two different models; one case focused on the national economy and another on the world economy. The national economy draws the reader to the Lewis model. But Lewis focused himself on the global economy, on the problem that caused poverty among nations and the sharp contrast between poor and rich countries. The Lewis methodology was analytical and investigative instead of prognostic. Lewis cited some economies that had been developing and had remained there for so long, for example, Sri Lanka, which had been in poverty for a hundred years. (Figueroa 2004)

Lewis was born in a poor neighborhood. He witnessed the sharp contrast between rich and poor and experienced the harsh realities of living in a country where there are privileged and ruling elites and deprived people who hardly earned $2 a day. Lewis wanted to change them all but he knew it would be a gradual one. Any type of government can provide the strategy but he preferred the democratic type. He also explained the role of good leaders in leading the people to abundance. (Figueroa 2005)

Lewis used dichotomies for his various books and essays; for instance, ‘capitalist and subsistence sector, capital importing and capital exporting economies, countries with high population to land ratios and those with high land to population ratios’ (Figueroa 2005, p. 74). While still young, Lewis was well aware of the subsistence economy, or that situation where production was enough only for personal consumption, and workers work for their basic needs and their families (Todary & Smith 2012).

Lewis’s best publicized ideas formed the basis for the work of Fei and Ranis (1963) and by Todaro (2000). However, these authors tended to deviate from Lewis’s classical approach by using classical methods in their socio-economic analysis. The authors also focused on the closed model, thereby ignoring Lewis’s preferred area of analysis, the global economy (Figueroa 2004). Social mobility is important for the success of a society; in a society there are leaders and followers. Good leaders lead their nations to success (Figueroa, p. 77).

The Lewis Model is done in a classical way and analysed by many writers, making this simple subject available with extensive literature. The labor market assumptions drew serious challenges from various authors and economists.

The classical model consists of two schools of thought, the agricultural and non-agricultural, which has deviations. An instance we can cite here is that of the agriculture category which portrays the capitalist orientation: farmers would rent the land from feudal lords (capitalists) and hire small farmers to till the land. Landlords get their share from farmers without tilling the soil while capitalist farmers also get their share as they apportion the profits from small farmers who till the land belonging to the landlords. The non-agricultural group gets its sustenance from capitalists. This is where the classical thought deviates. The agricultural sector was productive but the non-agricultural one was dynamic and growing. Landlords were becoming members of a new segment, the new entrepreneurs and members of the commercial world.

On the other hand, the Lewis Model depicts a different view, quite opposite to the classical thought, although it also portrays a two-sector scenario where agriculture is seen as a non-capitalist sector being participated in by landlords and workers who bargain for wage issues. Lewis emphasised ‘organisational dualism’ but his ultimate aim was the shifting of labor to cope with rapid population growth. His thesis aimed from a dualistic type to a one sector economic growth. He also believed that technology could do much more for economic growth. Importation could deal with food shortage. (Ranis 2004)

There are contrasting views on the application of Lewis’ well-known model. Some scholars pointed out that Lewis favored industrialisation as the key factor to economic development and that he disregarded agriculture as having to do with development. However, this seems ironic in the sense that Lewis focused on raising agriculture productivity, particularly in food production. Lewis’s classical tradition seemed lost as researchers related his ideas on socio-economic issues with capital accumulation. Lewis’s opinion on world economy model was neglected and his opinion on agriculture was overlooked. Ranis and Fei’s concept of the Lewis model focused on the departure of agricultural workers to industrial. (Figueroa 2004)

The Lewis model simply states that there is a dualistic nature during economic change or transformation. In his ‘Theory of Economic Growth’ written in 1954, Lewis exposed matters beyond the topics of social science with variables that included ‘biological, historical, institutional, psychosocial and social’ (Figueroa 2005, p. 73). His later studies and works focused on the primary forces affecting the speed of economic development (Kirkpatrick & Barrientos 2004). Lewis dealt heavily with the problems of development in developing tropical countries and causes of poverty. He was cited in the World Development Report 1999/2000 because of his work mostly focusing on the development process. He summarized this development as long and complicated, and that social change is a significant part of it.

Lewis assumes that there is an unlimited supply of labour in densely-populated countries, although he says that it is not true in all countries. There are jobs performed by almost every kind of worker in the ports, markets, retail trading, and other similar jobs that are provided with small salaries and very common in overpopulated countries. (Lewis 1954)

Lewis’s primary focus was in world economy and development and the circumstances around the existence of the rich and poor countries (Figueroa 2005). In discussing the dual model of the world economy, Lewis drew from world history to provide a connection between the static and the dynamic models. He started this with an explanation of the open economy, assessing the outcomes of exporting capital. The world economy comes into view after Lewis analysed the ‘relationship of capital exporting and importing and mutual trade between a labour-scarce and a labour-surplus economy’ (Figueroa 2004, p. 740). For the tropical countries, Lewis’s world economy model states that the key factor to economic growth is by focusing more on agricultural productivity, particularly on food production (Figueroa, p. 741).

Economic growth is generated by redeploying unproductive labor from agriculture to non-agriculture, the emerging industrial segment. But other authors, particularly Tignor (2006), successfully showed that Lewis supported the view of balanced growth; meaning, a simultaneous growth of the agricultural and industrial sectors. As a long-time government consultant, Lewis showed the need for a government-private sector partnership (Ranis 2004).

Pantin (2009) analysed the elements of the Lewis methodological approach. First, Lewis was concerned of the present, the ‘here and now’. Lewis presented himself as an ‘applied economist’ because he wanted to apply the theoretical with the practical. Lewis was determined to identify ‘the core problem(s) of central contemporary concern’ (Pantin 2009, p. 50). Lewis knew the important issues he was dealing with. His use of the analytical method helped to point the possibility of transforming the overpopulated tropical countries. But Fei and Ranis prescribed a model based in the technological and economic issues of sectoral transformation.

Lewis was not for industrialisation per se; rather, he cited examples of countries that became successful in exporting agricultural products. The British West Indies (BWI) could have followed the example of successful industrialising countries.

Agricultural productivity could be developed along with industrialisation. Lewis advocated industrialisation but he believed that the tropical world should raise its agricultural productivity. Lewis regarded Britain as having a successful industrial revolution because it dealt with a related agricultural revolution. For labour-scarce countries, Lewis recommended a development that should first be based on agricultural development. These countries should aim for agricultural surplus. (Figueroa 2004, p. 748)

The Limitations

This section discusses the limitations of the Lewis model and methodological approach. When we speak of limitations, we also touch on disadvantages and outcomes as a result of this model.

Many of Lewis’s original ideas were lost in the Lewis model. The main problem of the Lewis model is that the dual economy usually refers to industry and agriculture, which is not what Lewis intended to propagate. It made industrialisation Lewis’s primary concern. Ranis and Fei (as cited in Figueroa, 2004) said that they used it primarily for convenience reasons but later it became an important part of their model. These two authors suggested that the primary feature of the labor surplus economy model is the prevalence of the agricultural sector, playing alongside the industrial sector (Fei and Ranis, 1964 as cited in Figueroa, 2004, p. 743). They have produced an interesting work in their application of the Lewis model but, as said earlier, it did not bear Lewis’ own insights. They first modified Lewis ideas and later changed it entirely.

The Caribbean experience

Lewis’s thesis and proposals are questionable if we are going to apply them on the current situation. His views of foreign investment could be the result of inexperience in the area of foreign direct investment (FDI). Lewis specified importation to be implemented instead of industrialisation (Pantin 2009, p. 54). His methodological approach was applied on the British West Indies by the British colonial power but it did not have much success because of the strategy of import in place of industrialisation.

The methodological approach was applied to the Caribbean countries, described by Lewis as a place mired in poverty. The current causes of situations in the Caribbean exhibit the countries’ dependence on the natural environment in order to provide economic development. Livelihood practices and small entrepreneurship are also dependent on the natural environment. Lewis recorded in 1938 that Trinidad and Tobago’s exports were mainly oil-based products, with a record 60% of all exports. In the current situation, it is even higher, which means exports are more dependent on the natural environment. Caribbean tourism is also dependent on the natural environment and is a major industry in the different areas of the region. Environmental issues have been raised by concerned groups on the impact of tourism. (Pantin 2009)

The Caribbean, encompassing Latin America, accounts to having 40 per cent of the Earth’s biodiversity and is believed the ‘highest diversity in the World (UNEP, 2000)’ but animal and marine are endangered (WCMC/IUCN, 1998 as cited in Pantin, 2009, p. 55) because of exports. Exploitation of natural resources, destruction of the environment due to cultivation of sugar and banana, and construction of condominium and houses, have damaged the natural habitat, also causing ‘erosion and silted over permanent streams’ (Pantin 2009, p. 55). Studies conducted in 1980 and 2000 showed that agricultural land has increased by 20 percent, but forest cover has decreased by 1.7 per cent, and fish catch decreased by 12 per cent (UNEP 2000 as cited in Pantin, p. 55).

The denuded water shed provided an impact on the produced water quality. Urban population has also impacted on waste management as Caribbean industries are not using waste-water treatment (UNEP 1999 as cited in Pantin, 2009, p. 56). Due to deforestation and improper agricultural land practices, more than 10 million tons of soil is deposited in coastal waters.

Tourism has affected insular ecosystems in the Caribbean region, causing deforestation and wearing down of upland forests to give way to real estate development and road works. Tourism also caused ‘beach loss, lagoon pollution and reef damage from sand mining, dredging and cruise ship and anchoring’ (McElroy and de Albuquerque, 1998 as cited in Pantin 2009, p. 57). Impacts of tourism were attributed to construction, waste disposal and management. Because of tourism, the Caribbean has ‘one of the highest per capita water withdrawal rates in the world’ (UNEP, 1999 as cited in Pantin 2009, p. 57).

The Chinese experience

China’s economic development and rise as an economic power has captured some features of the Lewis model. (Islam & Yokota 2008)

The Turning Point view is the main forecast of the Lewis model, i.e. the wage of laborers remains flat until it reaches a turning point where the wage changes and rises rapidly. Many researchers focus their attention on the model’s assumptions with the use of micro data. Others have directed their research on macro dynamic data to investigate the Turning Point view and the time it reaches the turning point. Some researchers use wage data produced for a period of time to find the Turning Point. In analysing China’s data, researchers used the agricultural sector to refer to the traditional sector of the Lewis model and they estimated the agricultural production for a certain period of time.

The study of Islam and Yokota (2008) found that the agricultural wage did not remain flat; instead, it increased. But this finding is still within the assumptions of the Lewis model as there are really some deviations before the wage can reach the Turning Point. The study also found that China follows the Lewis model assumptions in reaching the Turning Point. As shown in the study, the China model appears to correspond with the Lewis Turning Point, particularly in the agricultural sector. (Islam & Yokota 2008)

Again, this study shows deviations from the original Lewis model. As Lewis himself stated, deviations from the assumptions are part of the model, which means there are increases in the wage even if the Turning Point has not been reached. Another limitation of the Lewis model is that there are few empirical studies investigating the turning points of wages, from low wage to a sudden rise in wages. There have been methods used by some researchers in determining the Turning Point but this has not been fully applied.

One study, that of Islam and Yokota (2006 as cited in Islam & Yokota, 2008), revealed an optimistic view of China’s economic growth which was found to abide by the rules of the Lewis model. But this is one study that is not supported by other studies. Perhaps, researchers have to delve more on the Turning Point issues in future researches.

Conclusion

The views and proposals of Arthur Lewis and the Lewis model are two different cases. Lewis did not propose industrialisation as the path to development but only on certain circumstances. On the other hand, the Lewis model as proposed by other authors, particularly Fei and Ranis (1963), made it appear that Lewis advocated industrialisation. This is one of the primary limitations of the Lewis model. An example is the Jamaican case. The Caribbean governments proceeded with industrialisation during the late 1940s but not in consonance with Lewis’s proposal or specific advocacy (Figueroa 2005). Lewis promoted agricultural productivity along with industrialisation.

The Lewis model, as proposed by Ranis and Fei (1963), has problems in interpreting the model explained in Theory of Economic Growth. This model refers to industry and agriculture and that industrialisation is the ultimate goal of economic development which is in contrast to the original ideas of Arthur Lewis.

References

Fei, J & Ranis, G 1963, ‘Innovation capital accumulation and economic development’, American Economic Review, vol. 53, no. 3, pp. 285-313, 2013, via ProQuest Research Library.

Figueroa, M 2004, ‘W. Arthur Lewis versus the Lewis model: agricultural or industrial development? The Manchester School, vol. 72, no. 6, pp. 736-750, 2013, via ProQuest Research Library.

Figueroa, M 2005, ‘W. Arthur Lewis’s social analysis and the transformation of tropical economies’, Social and Economic Studies, vol. 54, no. 4, pp. 72-90, 2013, via ProQuest Research Library database.

Islam, N & Yokota, K 2008, ‘Lewis growth model and China’s industrialization’, Asian Economic Journal 2008, vol. 22, no. 4, pp.359-396, 2013. Web.

Kirkpatrick, C & Barrientos, A 2004, The Lewis model after fifty years. Web.

Pantin, D 2009, ‘Little cays can open mighty doors: the potential of small island developing states (SIDS) in the transition from capitalism to econologism’, Journal of Eastern Caribbean Studies, vol. 34, no. 4, pp. 49-81, 2013, via Business Source Complete database.

Ranis, G 2004, Arthur Lewis’ contribution to development thinking and policy. Web.

Tignor, R 2006, W. Arthur Lewis and the birth of development economics, Princeton University Press, Oxfordshire, UK.

Todaro, M & Smith, S 2012, Economic development , 11th edn. Web.

Click Here To Order Now!