Emilia Zankina
Arthur Lewis, “The Theory of Economic Growth” 1955
The author: Arthur Lewis (1915-1991) was a political economist who was awarded the Nobel Prize for economic sciences in 1979. He is one of the first to point to the impediments of modernization posed by traditional societies in terms culture and societal structure.
Main idea: There is no single model for economic development. Modernization theory oversimplifies the process of development and omits important factors like culture, societal structure, economic relations in traditional societies, etc., that have great influence on economic growth.
Economic growth, in terms of human actions, is caused by
-the effort to economize
-increase of knowledge
-increase of the amount of capital or other resources per head
The effort to economize depends on the attitude of individuals or groups to wealth and their attitude towards the cost of effort. The attitudes to wealth depend on the character of the traditional society (whether it is more ascetic or more oriented towards material accumulation), whether or not wealth is perceived as a sign of power and social status, and to what extend the traditional society has limited horizons (it is unable to conceive wealth accumulation and progress). The cost of effort, on the other hand, depends on the attitudes to work, as determined by biology, climate, environment, tradition, and history, and the presence or absence of spirit of adventure (traditional societies are usually risk and competition averse). Finally the effort to economize depends on the responses that people have to the available resources.
Economic institutions could create opportunities for growth by offering incentives- material or non-material rewards, as well as a mechanism for the management of property. Institutions could further create opportunities for trade and specialization, which stimulate growth. The increase of trade increases the level of specialization, and so does the increase of the market as whole. The market also depends on the particular organization (price/money mechanism vs. barter exchange mechanism). Finally economic institutions determine the degree of economic freedom. Economic freedom depends on whether a society is individualistic or communitarian, whether it allows vertical mobility, and access to resources (land and labor). However, growth is not dependent on economic freedom. Command economies could be more successful in the early stages of development, so could be traditional societal structures that limit vertical mobility and access to resources.
Several issues should be considered in terms of economic growth. One is religion. Certain religions are more favorable to experimentalism, profit-driven behavior, and impersonal economic relations (protestant ethic) than others. The family is another issue to be addressed by development, as family structures change with economic growth- the richer a community the more narrow its definition of family becomes. The organization of agriculture is another important factor that determines the opportunities for growth- community vs. freehold tenure, fixed vs. proportionate rents, availability of credit, etc. Small-scale agriculture could prove better for under-developed societies than a large-scale farming. Finally, the cottage industry (crafts) is a necessary part of traditional societies that should be preserved as it economizes capital, utilizes excess labor and is not subject to mass demand that might not be present.
Institutional change is a result of a cumulative effect. Change could start either with economic growth followed by adaptation of the institutions or it could start with institutional change that would incite economic growth. It is not important how it starts as long as it reaches a level of accumulation. Institutional change happens in three phases- at first there is resistance to change, followed by an acceleration, and finally by a decline. Change happens in cycles, however stages are not inevitable and do not determine progress since the cycles evolve in a spiral.
Knowledge accumulation and dispersion is vital to economic growth. Knowledge is applied to growth in three stages- first is the growth of knowledge itself (appearance of literate societies and the scientific method make the accumulation possible), second comes the application of knowledge or new ideas (depends on the attitudes towards innovation and the institutional frameworks for creation and economic operation of knowledge), lastly is training (priorities in education- is it an investment or a consumer good, what are the industrial attitudes, and what is the level of business administration).
Once there is an effort to economize along with enough accumulated knowledge, and capital accumulation, economic growth is possible.
William McCord, “Springtime of Freedom “, 1965
Main idea: Development cannot occur without people being willing to change. The cost of development is high and requires some social prerequisites. Traditional culture is not at odds with development.
William McCord starts his treatment of economic development by describing the “transitional village” and the “transitional city”. The transitional village is isolated (geographically and politically), it is hierarchical (although some indigenous democratic structures exist in the hierarchy) and is subject to “conservative fatalism” (belief in fate). The transitional city, on the other hand, is overcrowded beyond its capacity, has excessive unemployment, it is secularized but not egalitarian, and it hosts socially isolated “anomic urbanites”.
Underdeveloped countries do have some advantages. They have unrealized potential (labor, land, etc.), are eligible for foreign aid, and have colonial heritage (infrastructure, civil service, etc.). There are four factors to make development possible:
-accumulate capital
-revolutionize agriculture
-encourage change in men and institutions
-industrialize
One can find capital through nationalization or confiscation of property, laisser-faire, or a middle of the road model. Neither nationalization, nor laisser-faire could be as effective as a mixed model. The state in a mixed model has to provide market institutions, redistribute wealth, and provide social services.
Transforming the village and its land has several advantages. It conserves resources, balances the economy, diversifies it, and absorbs excess population. Determined action can transform the village if such transformation is voluntary, the transition is initiated from above the village level, and includes land reform.
Industrialization is also necessary in development but it needs to happen together with rural development. Heavy industrialization alone cannot sustain economic growth. Small-scale industrialization is better for transitional societies.