Dual Economy Model a Critique
3.7
DUAL ECONOMY MODELS: A CRITIQUE
The growth models considered in Chapter 2 are highly aggregative and some economists (Lewis 1954; Fei and Ranis 1961, 1964; Jorgenson 1961, 1967; Dixit 1968, 1971; Kelly et al. 1972) began to analyse the problems in terms of two sectors, namely agriculture and industry. Briefly, the socalled traditional noncapitalist agricultural sector is supposed to be unresponsive to economic incentives and here the leisure preferences are imagined to be high; production for the market does not take place and producers apparently do not follow profit-maximizing rules: ‘disguised’ or open unemployment is supposed to prevail throughout the rural sector and indeed the marginal productivity of labour is expected to be zero, and in some cases negative (Nurkse 1953). Income is equal to subsistence level (Leibenstein 1957:154) partly determined by physiological and partly by cultural levels (Lewis 1954). Further, capital has no role to play in agricultural production (Jorgenson 1967:291). Two sectors are linked by the influx of surplus homogenous labour from agriculture to industry. Nothing happens to the transfer of savings or capital and growth takes place when demand rises as a result of ploughing back of profits by the capitalists into reinvestment. The backward sector is eventually ‘modernized’ with the transfer of all surplus labour from agriculture. The extension of the Lewis model by Fei and Ranis (1964) also suffers from some limitations. First, no attempt is made by Fei and Ranis to account for stagnation. Second, no clear distinction is made between family-based labour and wage-based labour and nothing is said about the process of self-sustaining growth. The investment function is not specified and money, price, foreign exchange as well as terms of trade between agriculture and industry are ignored. The dual economy model of Jorgenson is based on familiar neoclassical lines but this hardly helps us to accept it as a more sound theory
DUAL ECONOMY MODELS: A CRITIQUE
The growth models considered in Chapter 2 are highly aggregative and some economists (Lewis 1954; Fei and Ranis 1961, 1964; Jorgenson 1961, 1967; Dixit 1968, 1971; Kelly et al. 1972) began to analyse the problems in terms of two sectors, namely agriculture and industry. Briefly, the socalled traditional noncapitalist agricultural sector is supposed to be unresponsive to economic incentives and here the leisure preferences are imagined to be high; production for the market does not take place and producers apparently do not follow profit-maximizing rules: ‘disguised’ or open unemployment is supposed to prevail throughout the rural sector and indeed the marginal productivity of labour is expected to be zero, and in some cases negative (Nurkse 1953). Income is equal to subsistence level (Leibenstein 1957:154) partly determined by physiological and partly by cultural levels (Lewis 1954). Further, capital has no role to play in agricultural production (Jorgenson 1967:291). Two sectors are linked by the influx of surplus homogenous labour from agriculture to industry. Nothing happens to the transfer of savings or capital and growth takes place when demand rises as a result of ploughing back of profits by the capitalists into reinvestment. The backward sector is eventually ‘modernized’ with the transfer of all surplus labour from agriculture. The extension of the Lewis model by Fei and Ranis (1964) also suffers from some limitations. First, no attempt is made by Fei and Ranis to account for stagnation. Second, no clear distinction is made between family-based labour and wage-based labour and nothing is said about the process of self-sustaining growth. The investment function is not specified and money, price, foreign exchange as well as terms of trade between agriculture and industry are ignored. The dual economy model of Jorgenson is based on familiar neoclassical lines but this hardly helps us to accept it as a more sound theory