Dual Economy Models Developing Economies some times known as Dual Economy Model. After discussing importance of Dual Economy Model as well as classifying the sector, include general and partial theory. We take up in detail: one of the famous, highly provocating theory given by Sir Author Lewis. In the third part, we cover: 1. Critical minimum effect thesis 2. Low level equilibrium trap Big-push theory General and Partial Theories of Development: Benjamin Higgins in his economic development say’s that development theories, that began from 1940’s and in particular 1950’s may be classified into broad parts: 1. General 2. Partial General Theory given by Boeke’s. We cursorily manner discuss two partial theories and another partial theory of Lewis. What is called General is that economic development is a function of not only economic inputs. Economic factors such as labor, technology, capital goods, various material inputs but also, sociological factors, cultural factors, psychological and historical, biological factors. All these equal effect economic development. When they considered, they call the theory general theory. Unfortunately we don’t have even today perfect general theory. Among the available, according to Benjamin Higgens, Boeke’s theory is somewhat general, come to Boeke’s theory little later. We have various types of sectors and various types of dual economy models. It is pointed out development economist that the analysis followed by Adam Smith classicals, Keynes, Neo-classical such as Marshall and post-Keynes such as Alder, Robinson all these economists dominated 1950’s including that of Karl Marx, what we find Aggregate Analysis, they never concentrated, discussed sectorial analysis, sub-sector analysis development economist told that the aggregate analysis unsuitable. This analysis will not permit to understand real problems there nature and they don’t enable to such way out of the problem. So these economists suggest sectorial analysis is important. Classification as some of you know is an important aspect research, a systematic study, we can classify. The sectors or sub-sectors are part in a nation into different classifications one of the well known classification followed classicals, Neo-classical and post-Keynesians is terms consumer goods and capital goods sector. This classification is nothing to do with social classes. Another classification is rural and urban. That is Rural Economy and Urban Economy. This classification is: 1. Subsistence economy 2. Surplus generating economy. Subsistence means, where whatever is produced simply consumed, no extra is available. Another modern classification is : 1. Exchange 2. Commercial 3. Industrial 4. Urban sector. As against this; 1. Traditional 2. Rural 3. Agricultural 4. Water-based sector. Today one of the models which we are going to take up that is Author Lewis: we follow last classification: The last classification is: Modern Capitalist Surplus Generating Sector Vs Traditional Agricultural Subsistence Economy. There are some theories which are called full development theories or perfect development theories. Others are called partial for our purpose; we consider one so called full development theory. This is given by Boeke. He is a Dutch economist. This economist lived, understood, real, analyzed problems of Indonesia. Which is South of Indonesia is one of the third world countries one of the less developed countries. Based o the experience he got in Indonesia economy Boeke published a work around 1942: in that he presented a general model. He says experience it can be applied to a large part of important world. We will see at the end, a really Boeke’s theory is general theory or not. First let us note its essence; Boeke’s theory is called sociological dualism. On the hand, I said full theory; on the other hand, I am saying dualism. The confusion is because; dualism is not different from general theory. A number of general and partial theories they are dual economy model including the general theory, written by J.H.Boeke’s model is called sociological dualism. According to Boeke third world countries suffer and are entering into vicious circle of poverty. Because of, clash of interest, clash of social methods. The poor countries emulate western culture, the western sociological system. The imported western social methods, acting or reacting on local indigenous culture and social methods leads to some type of clash. And because of this clash of interest third world countries are unable to come of the trap. He says, the modern capitalist sector which is generally industrial sector emulates, copies, follows the social methods of western culture. On the other hand, a local indigenous people they are bound by tradition similarly the wants the desires eating habits dressing style living and others of modern sector emulated the westerners. They largely not social, they are basically economic, on the other hand they local people such as India or Indonesia their wants are limited. Their social wants minimum subsistence they desire. Really speaking they do not have bundle of wants, unlike western nations. After seeing this clash of interest can be has to be solved. So that, these economies can escapes vicious circle. It may be pointed out. Boeke’s only stressed, social aspects, and ignored many other aspects that govern the development of our economy. We now touch upon briefly, discuss two more dual economy models. 1) Technological Dualism By Benjamin Higgens This model is presented by Benjamin Higgens. He criticizes Boeke and says that dualism vicious circle of poverty, the low level of income and mass poverty in third world countries is not because of social dualism, but because of technological backwardness. Third world countries used traditional age old, unproductive, inefficient methods, inefficient tools. Therefore, their productivity is low. They are unable to earn more; they are incapable of productivity modern sophisticated durable goods. So therefore, in third world economies in certain pockets like ocean always there are islands. But, islands are constant. Similarly, in these third world economies there are islands of capitalist society modern segment. Bulk of the ocean, Bulk of the nation is plagued by mass poverty and unemployment. In these sectors, they use traditional methods, unless the traditional sector grows, emulates, slowly practices modern methods, Applied part of science and technology. Poverty cannot be removed further Higgens points out in his Technological dualism capital accumulation that is new capital goods new machines technological progress. A large part of technological progress is inside the machines, is not separate unless modern machines modern capital, modern plant equipment are used. The income will be low essence of Benjamin Higgen’s technological dualism. We now come to another dualism. This is called organizational dualism. This is given by H.Mynit. He says in third world economies, a large part of segment, more than 4th/5th imperfect, unorganized, unregulated non-linked, loosely left without interaction with other parts. On the other hand, a small segment of the production is highly unorganized, highly correlated, having links. Thus, in third world economies we find organizational deficiencies are there imperfection are there proper type of organizations is not followed. Lewis model, which we are going to discuss shortly, is concerned with dualism in labor market. Two types of labor market will be there on the other hand, Mynit organizational dualism, dual market is only one of the components. There are many more markets let us says: 1. Wage market 2. Financial market 3. Manufacturing goods market 4. Textile market. In all these, we find organizational deficiencies are there. Hence, Mynit suggests that they should be integration, coordination, various segments in the economies, like the against of a human body, which are highly correlated. With these organizational imperfections third world countries cannot progress rapidly. We this we now take up prominent a very popular model given by Arthur Lewis. He is called sir you know is a title usually given by the British queen or king. He is Sir Aurthor Lewis. He is a Negro born but settled in England. He was awarded Nobel Prize in 1957. He contributed a lot to study of developing nations. He published a book, very title of the book the he says, “Economic development with unlimited supplies of labor”. You remember, you have already studied R. Nukes model, where the central theme is how to use disguise employed, underemployed, same problem Lewis takes up but the approach is different explanation is different, conclusion are different. Here in Lewis model, the entire focus is on converting, shifting, transferring, the rural traditional segments into modern economies. Now Author Lewis says, dualism is a hallmark is a distinguishing characteristic feature of poor countries. What do you mean by Dualism? Dualism is of various types. That is at the same time, in same area, same commodity or market. Two things will be there. Two different things will be there simultaneously, for example the same laborer, a school teacher, employed in government schools, get minimum of four to five thousand, same teacher who works with higher efficiency hardly get two thousand in a private unaided schools. Similarly, culture is different the way in which urbanite behaves, the culture or modesty or manner or ethics or principles with which ruralite will behave different. So there is dualism in culture, there is dualism in family life. There is dualism in way of life. There is dualism in wages. Simultaneously the money lender charges 24 to 30 to 40 percent. The modern banker charges hardly 15%to 18%. Thus for same RS 100 alone we are on the one hand hardly 15% on the other hand 30% to 40%. Similarly, wages also we find financial sector we find in Lewis model dual sector to sector. Stressed they pertained to urban and rural. To be specific, the urban exchange based means production not for eating or distribution but for sale modern using sophisticated modern technology capital Good. Communal means aimed at profit making then one sector is exchange, modern commercial capitalistic economy, traditional rural agricultural oriented subsistence economy there are the two segments or two sectors in a dual economy in Lewis model the process of development is inter-sect oral, inter-regional, and inter- temporal. Temporal means time over time from this year to next year to after decadence two decades changes will be there. From one sector to another sector, again changes will be there. Shift will occur commodities also in human labor mostly from rural areas to urban areas or factory areas. He explains development process Sir Author Lewis conducted his analysis largely in term of classical analysis. Classical analysis generally means thus followed by Ricardo, Mill and Adam smith. These classicals follow Macro long term dynamics approach. The same approach that is macro-approach that is macro- approach of the nation dynamic not strategic one change bringing another change rate of change long term not in one year or one decades, over educate or over a generation what type changes will occur. This approach like classical is followed. But followed by while classicals applied analysis to free enterprise economies, Lewis will apply to third world developing economies. Also we find in Lewis analysis some semblance some flavour of neo-classical analysis the concept of marginal productivity. His diagrammatic representation of development of a third world country over a period of time runs in terms of E-curves. Marginal productivity curves we will explain the diagram later, first we will take up other details. The details are assumptions, you know every theory, whether in chemistry or physics or in sociology. All theories are premised on a assumptions without assumption is not wrong. But the thing is assumptions are loaded or realistic or nearer to truth. That is more important. First, list the assumptions and at the end we take up. Some of the assumptions made by Author Lewisreally represent third world economies. We will briefly note various assumptions which Author Lewis made in his book before he analyzed the dual sector economy. One of the assumptions, early we stated there are only two sectors. The whole Indian economy, the whole Indonesian economy, he classified under two sector, Traditional Vs Modern Subsistence Rural Capitalistic Surplus exchange Agriculture Based economy That mean, there is no third sector, only two sectors. Second, traditional and modern sector act and inter-act what happen in traditional sector affects the modern sector. Especially, the availability of labor the productivity of labor in traditional sector and the subsistence wage prevails in rural economies. Third, an assumption is: that while in the traditional sector the wage paid to a laborer is subsistence. Subsistence is bare minimum for example in Hyderabad. The bare minimum is say Rs 500 to Rs 2000. That is minimum for eating, that is minimum for living in a place nothing more will be there, it is hardly sufficient for two meals and simple living. The subsistence wage in traditional sector, but in modern sector where the labor is somewhat skilled, somewhat educated some require demand higher wage. According to Lewis, the wage rate in modern sector is about 30% higher. This 30% higher is required to encourage living their rural family based area, urban area. Another assumption he made is pertaining to skilled labor, which is not a problem. So far we studied important theories some of the theories, we called general or other theories as partial one general theory we discussed mainly. Boeke’s partial theories, we discussed that of: a. Technological Dualism b. Organizational Dualism c. Economical Dualism One was given by Boeke, another by Benjamin Higgens and another by Myint. Economic dualism model is given by a number of people but we focused attention on Author Lewis. We also noted that Boeke’s so called general theory is not really general but partial because the model was based in Indonesia. And Indonesia does not represent less developed economies. It is also partial. Moreover, Boeke did not consider other aspects of dualism we took up Lewis model in which we started with who he is we noted that he is negro-born British Nobel laurate he contributed a lot to the third world countries by giving a model popularly known as Dual Economy Model.This Dual Economy model is given in a book capital formation with unlimited supplies of labor. This model is basical resemblance that of classicals at the same tine flavour of neo-classicals, he begins with two types of sector and he explain the characteristics final the important assumptions such as wage, the difference in wage, the types techniques used.
Posted on: Mon, 24 Mar 2014 04:05:38 +0000
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