Tenets of Lewis’ Dualistic Theory of Development and its Relevance to the Historical Development Process of Zimbabwe. By Voccideo Chikura (Mr.)
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This paper was prepared by Voccideo Chikura from University of Zimbabwe (Department of Economics) , you are free to use it any way you find necessary and you are free to correct at your own discretion.
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THE DUAL SECTOR MODEL1 Inequality and Exploitation, a grey specter that looms within the background of the Dual Sector Model, explains why the Dual Sector Model behaves the way it does and facilitates its success. Based on this dichotomous “ghost”, sir Arthur Lewis, in the early 50s designed a model that tries to explain how growing economies in the Less Developed Countries (LDCs), grow. The “how” in this previous statement is not misguided. It should, from inception ,be noted that, the Dual Sector Model is not a strategy but a Development model, one that describe how, yet does not explain why, development occur .So the Dual Sector Model starts from the notion of two sectors in the economy ,an economy that is nay developed but will with time . It therefore explains how an economy moves from the one end of the development continuum, that is, underdevelopment to the other extreme based on the aforementioned specter that abides the background of the model. The essay below will outline the Dual Sector Model (herein the DSM) in itself and after the outline, an empirical test will be performed using Zimbabwean historical development path as a yardstick to this Lewisian Model. The outline will be based upon four points of interest based on the “specter”-Inequality and Exploitation. THE DUAL ECONOMY The most basic assumption proposed by Sir Arthur Lewis is that, the economy is composed of two sectors, namely the traditional sector and the modern sector. The traditional sector, also known as the backward sector, or the underdeveloped sector, or the subsistence sector (Hirota, 2002) is one whose economic activity is merely agriculture. This has a high population of little income relative to the resources available. High population result from high birth rates in these areas. The classicals from Smith to Marx argued or assumed that an unlimited supply of labor was available at subsistence wages in this sector (Gustav, 2004).The implication therefore is that, there is a high supply of labor, or more accurately labor surplus in these areas relative to capital which tends to zero or is negligible. With this ratio between resources and population being unbalanced, the implication is that marginal physical productivity of labor, a statistic that measures the change in output (agricultural output) induced by increasing a unit of labor (Nicholson & Snyder, 2008) is zero or negligible. Production functions of the rural sector are such that, 𝑞𝑟 = 𝑓𝑟(𝑙𝑟)
QR is output in the rural areas which is a function of labor and labor only. Because the marginal productivities are equal to zero, tends to zero or are negligible, labor can profitably be removed from this sector without reducing output. Salient about this sector is that it has low comparative incomes and hence low savings. The income provisioned by the agricultural endeavors are subsistent in nature. Neoclassical economists have often argued that there is some form of work utility that is derived by this rural labor but from a survival perspective, Lewis dismisses this notion. Therefore production and income is subsistent and suboptimal. So in summary, the
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traditional sector has – a high labor surplus, low incomes, low savings and low marginal physical product of labor. On the other hand there is the modern sector comprising the manufacturing sector and other actors twice removed from agriculture .These are habitual savers and high earners. It should be highlighted that when Lewis proposed the model, these earners were basically the Landlords/landowners. These are ready to invest from the profits realized .Thus the modern sector is also known as the capitalist sector comprising capitalists whom the Miriam Webster dictionary defines as “persons who have a lot of money, property, etc., and who uses those things to produce more money.” Production functions of the modern sector can be represented as; 𝑞𝑚 = 𝑓𝑚 (𝐿𝑚, 𝐾𝑜 ) Qm is the output in the modern sector Ko the capital available and Lm the labor available. So the modern sector is one that expands because it can employ at low costs labor from the traditional sector quite easily .Lewis like Adam smith saw that the relatively small modern sector as dynamic and expanding and he bailed on its ability to mobilize the redundant rural population (Gustav, 2004). Now the capitalists are high earners, has the capacity to save and invest within the sector of their choice but preferably the modern, on the other hand the traditional sector dwellers are poor, incapable of saving nor investing. The essence is that there is a gap in incomes and capabilities between the capitalists and the traditional sector dwellers –the peasants, hence the income inequality. The high earners can employ the peasants at low wages in the modern sector for its growth hence the exploitation. What this means? Ultimately, the capitalist sector absorb the surplus labor in the rural sector until a certain optimum point. So the implication is that, development occurs as a result of profitable transfer of labor from sectors of redundancy to high productivity. This can be derived from Kaldor's “first” and “third” law -that, a) The more rapid the high productive sector grows,-the manufacturing sector, the faster the economy will grow and, b) The more rapid the labor transfer, the faster the economy will grow (Thirwall 1983) So in summary, the capitalist sector is composed of the capitalist, with high incomes, high savings and investment rates and high marginal productivity of labor. So the transfer of labor from the traditional to the capitalist sector improves productivity and hence growth. This points us to our next destination. HOMO ECONOMICUS Another basic idea of Lewis was capital accumulation through the economic man-the capitalists mainly. Here we highlight that the players are rational and economic man –Homo Economicus. Lewis believed that the capitalists save and invest most of their income. The capitalists have a tendency to invest a huge share of their savings in a bid to gain more profits in the end .Price of labor (wages) are maintained at a constant rate in the manufacturing sector, for reasons that will
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be explained later, this means that, the capitalist sector can profitably absorb labor from the traditional sector and increase profits. These profits gained are then reinvested back into this sector thereby increasing productivity hence expanding the surplus. So with substantially low wages which are constant, we can increase the profits substantially by an increase in capital accumulation. The relationship can be represented by the following identity; 𝜋 = 𝑓𝑚 (𝐿𝑚 , 𝐾𝑚 ) − 𝑤𝑚 𝐿𝑚 Where 𝜋 = profits, 𝐿𝑚 =the labor employed, 𝐾𝑚 is the capital employed, 𝑤𝑚 =the wages all of the manufacturing sector. And the assumption of Homo Economicus means that profits equal capital, so the higher the profits, the higher the next rate of investment. So the more we increase capital the more our profits rises and therefore the process continues in that manner as long as the wage rate is fixed. Capital accumulation becomes high while the wages remain low which is conducive for an expanding surplus (Sen., 1966). So if the earners or capitalist keep on investing, it will absorb labor from the traditional sector until the surplus labor disappears and the result will be an advanced modern sector. This phenomena can be represented
The marginal productivity of labor is equal to the wages in the traditional sector. However in the manufacturing sector the wages are a bit higher, Gustav Ranis postulates that these are about 30% higher in the manufacturing sector. This wage difference is imperative to facilitate labor transfer as well as instil a psychological drill on the minds of the traditional sector labor force. Since the cost of living in the manufacturing sector is high, the wages have to be higher so that a rational mind can be attracted. Because the marginal productivities of labor is very low in the rural areas mostly because of a high population, the wages are low as well, shown at the left side of the diagram. The upper horizontal line indicates the wage rate in the manufacturing sector pegged at a constant level. So in the first wave of investment, the capitalists gain profits bound by area R1, P1 and the upper horizontal line. Since our assumption is “Homo Economicus”, all the income received is reinvested into the capitalist sector again now compounded. And since the wage rate is still constant ,the profits are still high and are reinvested giving a rise and expansion to the whole economy, this happens continually until all the surplus in the traditional sector is absorbed, when removing an extra worker there would result in the decline of output in the agricultural
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sector. The rationale behind this notion is that, the economic man who is profit oriented ,invests in the first stage in the manufacturing sector, after the production, he gets returns in profit and reinvests again, however, wage rate is constant and labor supply is consistent, it means then that as investment increase, with horizontal marginal costs, but increasing marginal productivities of labor in the manufacturing sector, the sector expands and so does profits and capital accumulation, the result is a growing economy (Schults, 1964). With this said, we may move to the next position. LABOR MARKET MISNORMERS Salient to the model again are the imperfections in the labor market. As earlier alluded, there is a surplus labor in the traditional sector. Even though all the labor is under employment, reality is that (to the model), most of the labor is disguisedly unemployed or redundantly employed. In this respect, the marginal productivities of labor are close or equal to zero meaning that the rural sector can produce the same output with less labor than currently present2. Thus labor supply exceeds demand. The laws of demand and supply tells us that when there is excess supply, prices tend to decline. Hence the wage rates are very low in the traditional sector and are subsistent in nature. The modern sector on the other hand has a higher wage rate, pegged at 30% higher by Lewis. So this price differential facilitates the move of labor from the traditional sector, technically – because there indicates a higher marginal productivity, psychologically- it reflects a higher bundle of choice and a lay man would say “Greener Pastures Ho”. Because generally life is a little more expensive in the modern sector, there has to be a higher wage in it so as to lure the people from the traditional sector. Without the differential, no transfer would occur because the economic man would see no incentive to do so.The wage in the manufacturing or modern sector is also dependent upon the wage in the traditional sector. In other words, because of the ideas highlighted above, the higher the subsistent wage in the traditional; sector, the higher the one in the manufacturing sector. The identity 𝑤𝑚 > 𝑤𝑟 should be maintained and according to Lewis- (1.3)𝑤𝑟 = 𝑤𝑚 , where 𝑤𝑚 is wage in the manufacturing (modern) sector and 𝑤𝑟 is wage in the rural sector. Another misnomer is the idea of a fixed wage rate in the modern sector. The wage rate in the modern sector, unlike that in the traditional sector, is independent on the marginal physical product of labor. It is constant despite the change in marginal productivities. This is important because to facilitate the growth of capital, marginal costs should remain constant thereby facilitating massive capital accumulation .Hence the capitalist sector can absorb labor from the traditional sector profitably into the modern sector. Of this notion, the presence of disguised unemployment in the traditional sector should be of paramount importance. Because we have a surplus, the wage in the traditional sector is low, and since that (wage) of the capitalist sector is dependent upon that in the traditional sector, we may 2
The average productivities increase though as labor is transferred, meaning that as labor is removed from the rural sector, the incomes also rise in this sector.
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note that the surplus in disguised unemployment is conducive for capital accumulation. One commentator had this to say, “…..a prominent feature in the development of a dual economy is the existence of disguised unemployment and redundant labor force.” (Jorgenson, 1962). So to Lewis, development basically comes as a result of exploiting the redundantly employed labor in the rural sector whose market is not competitively defined and employ it in the more productive modern sector, where capital accumulation then accelerates, and the average productivities of the farm based farmers in the rural sector also rise. It is of great interest to Matsuyama to note the influence of the linkages between these sectors as well, the backward and forward linkages are essential in ensuring that both the sectors grow (Matsuyama, 2008). So what is salient is that, the economic man exploits the labor market misnomer and improve his worth and at the same time improve the livelihood of those employed and their kin. REDISTRIBUTION AND REORIENTATION Finally, the idea of redistribution and reorientation. Our first point of departure was that within the dualistic model, there is a specter that consists of inequality and exploitation. The model explains how the surplus labor in the rural sector is transferred to the modern sector where there is deficient labor. So the basic idea is that when labor is redistributed, productivities of labor increase as they transit between sectors. This move will enhance the growth in incomes of the modern sector and its worth. Finally ,because the average productivities in the traditional sector has improved, and also because of trickle down as the workers repatriate incomes and the linkages strengthen ,there is growth in incomes of the traditional sectors .This results in the gap in incomes substantially closing, improving investments and accelerated growth. So the idea is that, labor is reoriented, income is redistributed and growth is resuscitated hence completing the essence of the model IS IT RELEVANT IN EXPLAINING ZIMBABWE’S DEVELOPMENT HISTORY? In effectively analyzing Zimbabwe’s development path, one need to make a distinction of eras that in themselves had different traits in as much as the Lewis Model is concerned. Basically there are three eras that are of interest when one wants to analyze this, that is, pre-colonial, colonial and post-colonial era. These have got differing intensities of the application or relevance of the Dual Sector Model. PRE-COLONIAL Before the imperialists came, the population was mainly engrossed in different economic activities that entailed optimal employment. Salient about this time is the fact that, there was no surplus labor nor a defined dual economy (Mutami, 2014). So there were miners mining and farmers farming their land at levels that were optimal for them. The dual economy therefore fails to hold ground because one of its basic assumption of dual economy as well as one on surplus labor and zero marginal productivities fail. COLONIAL A new wave of traits came in as a result of colonialism. Culmination of these traits is the period between 1958-1980.Here we have a distinct dual sector, with a poor rural sector composed
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mainly of the peasantry and the unemployed. These were marked highly by their racial “and capital accumulation disposition” (Mutami, 2014). So here cheap labor was successfully absorbed by the capitalist sector whose composition was mainly the minority. The rural sector was characterized by the reserve dwellers who were mostly disguisedly unemployed and had low marginal productivities and redundancies. Of interest again during this period is the fact that there was unlimited labor supply in the traditional sector that could be employed at low wage rates within the capitalist sector. So the transfer of labor from the rural sector, at cheap wages, into the modern sector facilitated industrial growth that so flourished during the aforesaid time. Therefore in explaining development, the Lewis Model can be used to have predicted “wisely” for Zimbabwe – then Rhodesia because its major tenets are displayed. However, it needs highlighting that, these conditions were not autonomous, and rather they were induced. The colonial government achieved creating a dual economy with the marginalized rural natives through dispossessing the natives of land and levying them exorbitant taxes 3 so that they will be induced to seek employment. So many proponents have often argued that the Lewisian traits displayed then are not to be bailed on since they were not autonomous. However, Lewis in propounding the model did not comment on the autonomy of the conditions. The fact that these conditions spurred development and were present gives us a glint of light to credit Lewis model as relevant to some trace extent. Hence the DSM can be a tool enough to explain development during the colonial era. POST-COLONIAL (POST-INDEPENDENCE) There seems to be a shift in the anatomy of the economy after independence in Zimbabwe where it displays new traits. Because of pro-black policies that government implemented during this time, the dual economy seems to disappear. Firstly, the economy has now more than two sectors, for instance, there is now duality within the dual economies (Hoseini, 2012).Particularly in the modern sector, there arose more than one sector within this sector. Because the urban areas or modern sector promised greener pastures, there was massive rural to urban migration after independence. However, the capitalist sector failed to absorb all the inflow labor of labor and the result is that within the modern centers themselves there is surplus labor. Keith Hart as cited by Hoisin, states that what was taking place in the LDCs was that “(instead of being transformed to formal workers in the modern formal capitalist sector, as predicted by the Lewis model), many traditional agricultural workers (and urban unemployed workers unable to find employment in the formal sector) were being transformed into the informal/hidden workers in the urban sector of the economy in those countries.” (Hoseini, 2012). So there developed a massive sector within one of the dual sectors which had massive employment rates. Schneider observes that, on average the share of the informal sector on African GDP as a percentage was 42% and for Zimbabwe in 1999/2000 was 59.4 %. Zimbabwe had the largest informal sector in Africa. What then this entails is that the dual economy folds because, we no longer have two distinct sectors
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Labor in the rural sector did not yield much monetary gains, so the introduction of hut tax, dog tax and on livestock was an instrument enough to spur the natives to search for employment in the modern sector.
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but multiple ones. So the formal informal dichotomy invalidates the DSM to some reasonable extent. Also somewhere where this model fails to prove relevance is its cold a shoulder towards external influence. Zimbabwe, a landlocked country has had massive brain drain recently with multitudes of the labor force migrating to greener pastured destinations mostly South Africa and Botswana. These better developed countries are absorbing the labor not only from the low productive rural sector but also the urban dialyzed sectors. The fact that the model expresses only the movement of labor from the traditional sector to the modern sector of the same economy is a con in its wake because Zimbabwean labor patterns are not as explained in the model. Furthermore, not only is there labor flight but also capital flight. Most of the productive companies within Zimbabwean capitalist sectors are Transnationals, for instance Delta Beverages 4 , British-American Tobacco. These are typical in repatriating income to their countries of origin. Historically there is a difference in investible funds accrued and those actually invested. Before independence, in 1975, before UDI, 25% of GDP was invested, a statistic that fell by 15 % in 1979 because of the war (Siedmann, 1982) .However gross operational profits amounted to 40% of GDP meaning a great disparity .Most locally generated surpluses accrued to TNCs which were estimated soon after independence to control 70% of the assets in the modern sector. A major portion was never invested locally, though laws restricted the outflow of capital to 5% of total profits, and firms retained over 75% of profits, only half of that was reinvested (Ibid). What this basically means is that, the notion that all the profits will be reinvested did not prove relevant in the post-colonial Zimbabwe. Due to ease of access on the international market (globalization), use of machinery increased in Zimbabwe as firms ventured in labor saving techniques (Bautista, 2002).The absorption of labor then followed a pattern different from that predicted by the DSM, this resulted in the formation of an informal sector for the sustenance of the in migrated rural labor force . Finally, after independence, there arose different wage systems that were pro-workers and this violated the idea of fixed wages. There emerged trade unions and workers unions that lobbied for changes in minimum wage and all which meant the change in the wage rate and not a constant level. In conclusion, it is therefore important to note that empirically, the DSM applies in some eras but roughly not in some. During the colonial era the white minority rule, in a bid to accelerate growth, created conducive for the DSM, however after independence, the dual economy collapses- the government moved to foster a pro-black development strategy, which saw the black capitalists adopting the black bourgeoisie and distort the dual economy. Hence in summary, precolonial Zimbabwe, DSM-inapplicable, Colonial-applicable, post-colonial, grossly inapplicable to a larger extent. 4
Delta is the current most profitable cooperation in the country which is typical of most transnationals in the country.
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References Bautista, R. M. T. K. M.-L. a. H. L., 2002. Macroeconomic policy reforms and agriculture: Towards equitable growth in Zimbabwe. Research Report No. 128, Washington, DC: International Food Research Institute. Gustav, R., 2004. ARTHUR LEWIS’ CONTRIBUTION TO DEVELOPMENT THINKING AND POLICY. 89(1). Hart, K., 1973. Harth, Informal Economic Opportunities and Urban Employment in Ghana. Journal of Modern African Studies, 11, 11(1), pp. 61-89.. Hirota, Y., 2002. Reconsidering of the Lewis Model :Growth in the Dual Economy.. journal Of Development Economics, 34(1), pp. 49-55. Hoseini, H., 2012. Arthur Lewis’ Dualism, the Literature of Development Economics,. Review of European Studies, 4 (4), pp. 132-141. Jorgenson, D. W., 1962. ‘Testing Alternative Theories of the Development of a Dual Economy’, in Adelman, I. and Thorbecke, E.The Theory and Design of Economic Development. Chicago: John Hopkins. Matsuyama, K., 2008. . Symmetry-breaking,” in LE Blume, SN Durlauf, eds.,. 2nd ed. s.l.:The New Palgrave. Mutami, C., 2014. The Efficacy of Agriculture-led Development in Zimbabwe: A Theoretical Review. Current Research Journal of Social Sciences, 6(4), pp. 107-112. Nicholson, W. & Snyder, C., 2008. Microeconomic Theory and Basic Principles and Extensions. 11 ed. Chicago: Thompson Western. Schnider, F., 2002. Size and Measurement of the Internal Economy in 110 Countries Around the World. Sydney, Workshop of Australian National Tax Centers. Schults, T. W., 1964. Transforming Traditional Agriculture. New Haven: Yale University Press. Sen, A., 1966. “Peasants and Dualism with and without Surplus Labor.”. Journal of Political Economy,, Volume 74, pp. 425-50. Siedmann, A., 1982. A DEVELOPMENT STEATEGY FOR ZIMBABWE. Zambezia, 10(1), pp. 13-34.
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