A Critical Look at Lewsi Smith’s Dual Sector Model Essay Sample

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The dual sector model, commonly known as the Lewis model (after its originator Sir William Arthur Lewis, winner of the Nobel Memorial Prize in Economics in 1979) is a model that seeks to explain the growth of a developing economy in terms of a labor transition between two sectors; the capitalist sector and the subsistence sector. The model employs certain assumptions that will ensure the manifestation of the model. First and foremost is the assumption that a developing economy has a surplus of unproductive labor in the agricultural sector. The model assumes that for the model to be practical in a developing economy there has to be a substantial amount of surplus unproductive labor in the agricultural sector (which is used to describe the subsistence sector). Secondly, the workers (surplus unproductive labor) are attracted to the growing manufacturing sector where higher wages are offered. This assumption depicts a natural human desire to seek self-improvement with respect to welfare and as such the attraction to the higher wages being offered by the manufacturing sector. Also, the model assumes that the wages in the manufacturing sector are more or less fixed.

This seeks to explain the fact that since the required minimum wage levels in the subsistence sector serve as a foundation for the wage levels in the capitalist sector (manufacturing sector). Since the wage levels in the manufacturing sector enjoys a level of stability. Also, the model assumes that entrepreneurs in the manufacturing sector make profit because they charge a price above the fixed wage rates (of its employed labor). Also, the model assumes that profits gained by entrepreneurs (in the previous assumption) will be reinvested in the business in the form of fixed capital. He finally assumes that an advanced manufacturing sector will mean an economy has moved from a traditional to an industrialized one. W.A Lewis’ division of the economy of an underdeveloped country into 2 sectors was: The Capitalist sector and the subsistence sector. According to Lewis, the capitalist sector represented ‘’the part of the economy which uses reproducible capital and pays capitalists thereof’’. The use of reproducible capital is a substantial basis for this sector’s high levels of productivity.

This sector was characterized by higher wages with respect to that of the subsistence sector. With respect to the subsistence sector, Lewis defined it as part of the economy which is not using reproductive capital. Adjusted as the indigenous traditional sector or the self employed sector he described it as having a relatively lower level of productivity and wages with respect to the capitalist sector. The model in a holistic ambition was meant to help solve the problem of developing nations experiencing disparities between the agrarian and industrialized sectors by relating and balancing each other. This was meant to eventually result in the industrialization development of the country along with its requirement. The model sought to establish the crucial role industrial growth played in a nation’s growth. It tried to explain how developing economies move from a traditional agriculture base to a modern manufacturing unit.

It’s assumption that a developing economy had unproductive labor in the agriculture sector and the less capability of high earnings from current skills brought to the fore the improvement in the life styles of such people as a result of the establishment of industries that provide better wage levels due to a desire to attract the surplus labor from the subsistence sector. Sir Lewis identified that developing nations (such as Ghana) were divided into two parts: a traditional agricultural sector (subsistence sector) that had abundance of labor but low wages and productivity: and a modern industrial sector which carried higher wages and higher productivity but more demand for labor (preferably surplus unproductive labor from the subsistence sector). He forecasted that profits will continue in the latter as long as investment continues and that if labor transferred from the traditional to the modern sector, eventually both production and wages will equalize. The above meant that the fixed labor supply was not really relevant to developing nations like Ghana with lots of underemployed workers.

But if there were dual sectors, it would help the economies of developing countries in the long term because manufacturing, which had a labor shortage, could pull from agriculture, which had an overabundance. The above advantages notwithstanding, the model has been criticized on quite a few grounds. 1. With respect to agricultural sector dependent underdeveloped countries like Ghana, the most basic problem with Sir Lewis’ model is the possible reduction in agricultural output as a result of positive opportunity costs during the peak of harvesting seasons. Here, the absorption of labor from the subsistence sector where opportunity costs of labor are very low can eventually lead to a shortage of labor in the agricultural sector‘s peak harvesting season. 2. This model disregards the complicated ad rigid process of transfer of unskilled workers from agriculture to industry sector. The model ignores the cost associated with the investment in education and skill formation by the capitalist.

The process by which the productivity levels of the recruited unskilled labor into the manufacturing sector will be enhanced is via skill training mechanisms such as education and the cost per head must be provided by the employer (capitalist). 3. The model assumes the existence of ‘perfect knowledge’’ by the existing labor force. The model assumes that the labor force in the subsistence sector all understand the dynamics of economic conditions that prevail in the country. For example in Ghana, the model assumes that the literacy levels of the labor force in the subsistence sector is very high or have ‘’perfect knowledge’’. This is a very contradictory point in that a major feature of developing countries is the high levels of illiteracy. 4. The model seems to have ignored the balanced growth between agriculture and industry. Given the linkages between the agricultural growth and industrial expansion in poor countries, if a section of the profit made by the capitalists is not devoted to agricultural development, the process of industrialization would be jeopardized.

In conclusion, this model’s practicality is questionable since it looks more realizable in over-populated and high level of literacy nations. With respect to Ghana, the model has positive sides since it encourages the diversification of the economy and eventually lowers the level of dependency on the agricultural sector. But for Ghana to embark on the full employment of the model, efforts towards increasing the literacy rate of the growing population should be prioritized and an improved mechanism to encourage the private sector and an across-board improvement in public service provision (as advised by Sir William Arthur Lewis to Dr. Kwame Nkrumah, then President of the Republic of Ghana).


* “Lewis’ Dual Sector: Model and Challenges of Economic development in Contemporary Africa”—- Political Articles.NET * ‘’Sir William Arthur Lewis, Economics explained-Black History Month-Unsung Heroes’’—TIME.com * ‘’The Lewis Model”—Caribbean Beat Magazine

* “The theory of Economic Growth”—Derrick Boyd (University of East London * “The Process of Rural-Urban Migration in Developing Countries”-Michael McCatty

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