Development and Underdevelopment in the History of Economic Thought

Kalecki meets Lewis: on Dualism and Structural Heterogeneity

Missaglia Marco, University of Pavia

The rightly celebrated model of Arthur Lewis on economic development (1954) took the coexistence of a modern (capitalistic) and a subsistence (pre-capitalistic) sector as an important feature of several concrete economies. However important, this coexistence was deemed to vanish over time. Depending on its structural socio-economic characteristics – prevailing technologies, population growth, etc. – an economy will either develop or decline. In the first case, the subsistence sector simply disappears, and the system moves toward a Solowian steady state typical of a mature economy. In the second, the pace of capital accumulation is not rapid enough and this time it is the modern sector to progressively disappear. So, it is either the heaven or the hell, and never a purgatory of persistent, structural coexistence between capitalism and pre-capitalism. Yet, in so many places around the world, output and productivity in the modern sector expand, but not enough employment is created and an “informal”, somewhat pre-capitalistic sector is continuously re-formed where workers are less productive and get lower wages. The purpose of this paper is to develop a simple model of a dual economy to understand under which conditions a Lewisian subsistence sector may structurally coexist with a Keleckian modern sector. Two novelties are proposed. First, the two sectors do not produce different things (“agriculture-industry”), but produce differently the same things or, equivalently, different things to satisfy the same needs (a family-run hotel and a five stars hotel run by a corporation). These are not just two sectors, but two modes of production. Second, increases in labor productivity do not arise as an unintended consequence of output expansion (the idea underlying the Kaldor-Verdoorn law), but as the deliberate decision of modern sector’s capitalists to introduce labor-saving machineries whenever the labor supply coming from the subsistence sector ceases to be "unlimited"

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Keywords: Dualism, economic development

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