W. Arthur Lewis
Surplus labor remains an important idea in economic development, and he was the one who brought it back into economic theory.
Contributed Content (0)
Ask a Question
Which countries was Lewis thinking of specifically that had seen continued growth but no large increase in living standards? Africa's population exploded, so it's surplus labor increased even without productive export sectors. India and China can't have been that big yet. South America? South-east Asia?
Coincidentally, the FT has this story today: "China turns to robotics as labour costs rise" (http://www.ft.com/cms/s/0/2a804e04-0c95-11e2-a776-00144feabdc0.html).
It wasn't clear from the video that the issue wasn't just that the baseline chosen to see whether wages are rising wasn't just the wrong one. It said that the reason wages stay low is because poor workers from the countryside come and work so wages do not rise as there is a large supply. I don't see why the poor workers from the countryside's wages aren't rising given that they are moving to get these jobs so why haven't wages risen?
Has any country ever adopted an industrial policy that attempts to couple Paul Rosenstein-Rodan's theory of the Big Push with W. Arthur Lewis' concept of surplus labor? That is, spend massively in infrastructure and industry to move lots of people from the subsistence sector to the capitalist sector quickly so as to exhaust the surplus labor thereby raising wages and profits?
Surely, being in favor of protectionism because your surplus labor needs to be used, is a difficult proposition. Due to lack of imports, you need to produce more goods yourself, but that will only reduce the surplus labor if your exports still rise. That means the product quality must be sufficient without being able to source the best suppliers. Otherwise you export less *and* distribute export income among more workers in more industries making it less attractive for employees to move into export industries.
I'm interested in how this idea translates to developed economies with globalisation. I live in a country that suddenly has access to almost an infinite supply of labor in the form of migrant workers. The idea that "capital formation raises profits, not wages" appears to be a phenomenon we've been seeing in many developed countries over the past 5-10 years with the economic recoveries not being accompanied by wage recoveries.
I am currently living in India (for about a month now), and my casual observations lead me to wonder if the abundant supply of cheap manual labor here doesn't inhibit growth & the adoption of labor-saving (i.e., more efficient) technologies. I can imagine how wages would remain low with this abundant supply and how this would prevent more people from moving into the middle class. But how well accepted and verified is Arthur's theory now almost 60 years after the fact?
Does he say anything about how governments and ruling elites have created this pool of surplus or cheap labour to preserve their revenues? That is, it is not a natural phenomenon. Nor is there a simple labour market, as the summary seems to suggest. The market for systems analysts is not the same as for farm labourers. Without immigration your health service might not have enough skilled workers. Of course the medical schools and hospital managements might artificially create the shortages to save money and increase profits. A mismatch between labour skills and demand seems to characterize most industrial societies, but few are doing anything serious to redress the situation, no matter what Obama say. What are Americans to do when India can provide all its needs in programmers, Mexicans are the only people to do menial jobs, and online education (from other places on the planet) will reduce its need for professors? Will we take in each other's washing, Ricardo style?