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16 L. SCHLOGL AND A. SUMNER
where demand rather than supply determines the rate of accumulation.
From this basis Kaldor (and later Thirlwall) developed models where the
growth of exports leads to specialization which then leads to increases in
productivity and skills improvements. This then causes resources to move
to the export sector.7
2.3 economic development with structurAl
trAnsformAtion: lewis revisited
Arthur Lewis (see notably, 1954, 1958, 1969, 1972, 1976, 1979)
provided one of the best-known models of economic development in
developing countries. Although sixty years old in its earliest iteration, the
model remains relevant today to developing countries (see for contem-
porary discussion, Gollin, 2014). The dual model provides a heuristic
device or an ideal type, in the Weberian sense, for thinking about struc-
tural transformation and economic development with an emphasis on
labor, which is the factor of production that dominates most developing
countries.
Lewis argued that the driver of capital accumulation was a sectoral
movement of labor, from the “traditional” or “subsistence” or “non-
capitalist” sector (of low productivity, low wage, priced to average prod-
uct not marginal product, and thus with widespread disguised unemploy-
ment) to the “modern” or “capitalist” sector (of higher productivity, and
where wages are set by productivity in the “subsistence sector”). Crucial
is the existence of surplus labor in the traditional or noncapitalist sector.
Because of this wages are set just above subsistence across the whole econ-
omy, leading to the transfer of labor over time from traditional or noncap-
italist to modern or capitalist sectors and the capture of labor productivity
gains to capitalists as profits as these are the source of growth via reinvest-
ment. The floor for wages is institutionally set at subsistence. When the
surplus labor disappears an integrated labor market and economy emerge
and wages will then start to rise.
The Lewis model was intended as a critique of the neoclassical
approach in that labor is available to the modern or capitalist sector of an
economy not in a perfectly elastic supply but upward sloping rather than
flat, and with a distinction between surplus-producing labor and sub-
sistence labor (the latter of which was a negligible source of net profits
for reinvestment, which Lewis saw as the driver for growth). Lewis also
Disrupted Development and the Future of Inequality in the Age of Automation