After clarifying the assumptions of Lewis, now we can have look at the Lewis’s Dual-Sector Model. Lewis’s model basically focuses on the transfer of unlimited agricultural labor to the capitalist modern sector of the economy. Since the supply of labor is assumed to be unlimited and eventually perfectly elastic, the wage that the growing capitalist sector has to pay for the workers is constant as long as it is somewhat higher than the subsistence earnings of the workers in the agricultural sector. If we look at Figure 3, BC represents the perfectly elastic supply of labor and the constant wage at level B, OA represents subsistence earnings in agricultural sector and OB represents the wage rate in the capitalist sector. At a fixed capital, the demand curve for labor is represented by the marginal productivity curve of labor D1 in Figure 3. According to this, profit maximization occurs at point Z where the marginal productivity of labor is equal to current wage. At this maximization point, the amount of labor that is hired by the capitalistic sector is OL. In Figure 3, area OBXL represents the total wages paid to the workers while the area BXE1 represents the capitalist sector’s surplus, in other words, profits.
At this point, the key element of Lewis’s Dual-Sector Model of development comes into the picture. Lewis emphasizes that the key to the process of the expansion of the capitalist modern sector is the use of the capitalist surplus through investment. As the capitalist sector expands, even more labor is transferred to capitalist sector from the agricultural sector which shifts the D1 curve to D2 curve. As a result, the capitalist surplus (profit) becomes even larger (area BYE2) which results in an even greater investment. Lewis points out that the growth in capitalist profits is crucial in this process and the share of profits in the national income is strategically important. As the capitalist sector expands and, the wage-price ratio remains constant, the share of profits in national income increases. This extension of the capitalist sector will continue until the supply of labor is not perfectly elastic anymore.
The Lewis model of development together with the contributions of Rostow, Gershenkron, Sen and Nurske influenced different types of agricultural policy choices that were generally made as part of the early development effort. Earlier we have been introduced to five different ways how agricultural sector contributes to an economy’s development and industrialization: 1) by supplying foodstuffs and raw materials to other expanding sectors in the economy; 2) by providing an ‘investable surplus’ of saving and taxes to support investment in another expanding sector; 3) by selling for cash a ‘marketable surplus’ that will raise the demand of rural population for products of other expanding goods; 4) by relaxing the foreign exchange constraint through exports or by saving foreign exchange through import substitution 5) by supplying constant supply of labor to the expanding sectors. Different policy choices such as extension policy, taxation policy and agricultural pricing policies are shaped towards the agricultural sector of the economy according to the different priorities given by different experts to the five contribution ways above.
Rostow focuses on the stages of economic growth and he believes that certain prerequisites are required in order to move from one stage of economic growth to the other. He emphasizes the role of technology and a vital need for an agricultural revolution to be able to create a modern industrial sector. He points out that in order to create a modern industrial sector, a flow of labor and food surplus is necessary from agricultural sector to the modern industrial sector. He argues that this flow of labor and food surplus can be achieved through the advancement of technology since technological innovations bring more efficiency to production. In this way, more food can be produced in agricultural sector using less labor and these surpluses of labor and food can be transferred to the industrial sector. Rostow also briefly mentions the need of a flow foreign exchange into the modern industrial sector. He points out that increased access to foreign exchange is vital to permit the less advanced countries to increase the supply of the equipment and industrial raw materials it could not then itself supply. However, Rostow sees the flow of labor and food surpluses from agricultural sector to the industrial as a priority for an industrial development and he aims to achieve this through technological advancement. As a result, Rostow would be in favor of an extension policy towards agricultural sector and support technological advancement and increase of knowledge in this sector of the economy.
Gerschenkron doesn’t reject Rostow; however, he modifies him. Gerschonkron argues that there are varying degrees of backwardness at the traditional stage and different countries start their industrialization processes at different levels. As a result, he continues his argument that not all the developing counties follow the industrialization path of Great Britain having the exact same preconditions. He claims that the certain preconditions (prerequisites) that Great Britain had necessary for its industrialization can certainly be replaced with others. However, Gerschenkron agrees with Rostow on the point that the labor and enough food to feed this labor should be transferred from the agricultural sector to the industrial sector for a successful industrial revolution although his method of transferring is different. He is in favor of not investing in traditional sector of the economy and keeping the rural income at a subsistence level. He could achieve this through various taxation policies and in this way a cash need would be created on the part of the farmer families which would cause them to sell surplus food. Also the agricultural workers whose incomes are at subsistence level would prefer to transfer from agricultural sector to the modern sector of the economy. As a result, both food and labor would be taken out of the rural sector to the urban sector.
Lewis’s Dual-Sector model of development and the contributions of San and Nurske to this model all complement each other so we can actually treat the models of these three experts as a single model. Throughout his model, Lewis mainly focuses on the transfer of unlimited labor from agricultural sector to the industrial sector at a constant wage. He emphasizes that the capitalist surplus (profit) that the capitalist sector will earn as a result of the unlimited labor at a constant wage will bring economic expansion, investment and eventually industrialization in modern sector of the economy. However, another significant issue that Lewis, as well as San and Nurske points out is that food supply from agriculture sector to the modern sector should keep up with the modern sector’s demand for food to feed its labor. If agricultural sector can not supply the necessary food, the modern sector will have to consume a larger share of its output in feeding its labor force, and this will leave a smaller surplus for capital accumulation which will result in a smaller economic expansion in industrial sector. As a result, the priorities of Lewis, Sen and Nurske are transferring the food and the labor surplus from the agricultural sector to the industrial sector in order to achieve economic development. They can achieve their development model through two different agricultural policies: Tax Policy and Pricing Policy. Using the pricing policy, the government can keep the price level of agricultural products low relative to the industrial products which will keep the agricultural sector under pressure and at subsistence levels. And using additional tax policies such as land clearing taxes and head taxes, the government can put even more pressure on to the agriculture sector in order to squeeze food out of the rural areas and bring the agricultural labor with subsistence income levels to the modern industrial sector of the economy.
Different then Rostow and Gerschenkron, Lewis, Sam and Nurske don’t give priority to the technological advancement in the agricultural sector at least in the short term. They argue that although technological advancement can occur in the long run, it is not a necessity for a short term development policy. As a result, they are not in favor of an expansion policy.
In conclusion, after examining the priorities and agricultural policies of the five different economic development experts, Lewis, Rostow, Gershenkron, Sen and Nurske, it is not very hard to see that all these scholars had some degree of an urban bias. Although, Rostow and Gerschenkron emphasized some kind of a technological advancement and an agricultural revolution in the rural sectors of the economy, all five of the scholars were mainly focused on urban development and industrialization in modern sector. During the specific historical time we are looking at, concentration on urban development, harsh agricultural policies geared towards agricultural sector and neglect of rural areas have pushed resources away from activities where they could help growth and benefit of the rural poor. As Michael Lipton points out that the most important class conflict in the poor countries of the world even today is between the rural classes and the urban classes. The rural sector contains most of the poverty, and most of the low-cost sources of potential advance; but the urban sector contains most of the articulateness, organization and power. And unfortunately the inequality and gap between the rural and the urban sector has been growing each day…
