Page - (000027) - in Disrupted Development and the Future of Inequality in the Age of Automation

2 ECONOMIC DEVELOPMENT AND STRUCTURAL TRANSFORMATION 17 rejected the assumptions of neoclassical economists of perfect competi- tion, market clearing and full employment and Lewis (see 1958, pp. 8, 18) made the distinction between productive labor, which produced a surplus, and unproductive labor, which did not. There have been various critiques of the Lewis model, many of which are of a “red herring” variety as Ranis (2004, p. 716) puts it, meaning they are easily responded to or actually criticisms of Lewisians rather than the writing of Lewis himself. Many relate to the assumption of labor abundance in the subsistence sector (and thus the dominance of the wage from that sector across the economy), and the emergence of the urban informal sector, although Lewis’s conception of surplus labor explicitly included the urban informal sector (see discussion in Fei & Ranis, 1964; Harris & Todaro, 1970; Minami, 1973; Rosenzweig, 1988; Schultz, 1964; Todaro, 1969). A set of contemporary challenges throws up greater levels of complex- ity. First, domestic labor migration may not be permanent but circular (back-and-forth) or “commuting.” Second, the contemporary scale of inter-sectoral resource flows via the growth of remittances further blurs the line between sectors. Finally, the Lewis transition can take a variety of forms beyond the anticipated one by Lewis and it is by no means guar- anteed that the transfer will be from low- to high-productivity activities as flagged by McMillan and Rodrik (2011). A transfer from low-produc- tivity agriculture to low-productivity services has been the experience of many developing countries and a reversing of the Lewis transition has also been a phenomenon noted in a number of developing countries in “premature deindustrialization.” In sum, the Classical School approach to economic development is that economic development is driven by changing structures of GDP and employment that lead to productivity growth. As a result of the pro- ductivity rates between sectors differing so substantially, the transfer of labor and production is a major source of productivity gains and thus economic growth. notes 1. One hybrid is Diao et al. (2017, pp. 3–4) seek to link the structural dual- ism of Lewis with the neoclassical model by arguing that the neoclassical model shows the growth process within the modern sector and the dual model shows the relationship among sectors.