CAMBRIDGE – One does not have to spend much time in developing countries to observe how their economies are a mish-mash, combining the productive with the unproductive, the First World with the Third. In the modern, more productive parts of the economy, productivity (while typically still low) is much closer to what we observe in the advanced countries.
In fact, this “dualism” is one of the oldest and most fundamental concepts in economic development, first articulated in the 1950’s by the Dutch economist J.H. Boeke, who was inspired by his experiences in Indonesia. Boeke believed in a stark separation between the modern, capitalist style of economic organization that prevailed in the West and the pre-capitalist, traditional mode that predominated in what were then called “underdeveloped areas.” Although modern industrial practices had penetrated underdeveloped societies, he thought it unlikely that they could make substantial inroads and transform such societies wholesale.
When contemporary economists think of economic dualism, they think first and foremost of the Nobel laureate Sir W. Arthur Lewis. Lewis turned Boeke’s idea on its head, arguing that labor migration from traditional agriculture to modern industrial activities is the engine of economic development. Indeed, for Lewis, the coexistence of the traditional alongside the modern is what makes development possible.
To take an extreme example, labor productivity in Malawi’s mining sector matches that of the United States economy as a whole. If only all of Malawi’s workers could be employed in mining, Malawi would be as rich as the US! Of course, mining cannot absorb so many workers, so the rest of the Malawian labor force must seek jobs in considerably less productive parts of the economy.