The Contribution of W.

Arthur Lewis to
Development Studies*

By

Andrew S Downes PhD

Professor of Economics and University Director
Sir Arthur Lewis Institute of Social and Economic Studies
University of the West Indies, Cave Hill Campus
St Michael, Barbados
Tel No: (246)-417-4476
Fax No: (246)- 424-7291
Email: asdownes@uwichill.edu.bb

May 2004

*prepared for the Elgar Companion to Development Studies edited by David Clark
The Contribution of W Arthur Lewis to Development Studies

William Arthur Lewis was born on January 23, 1915 in the small Caribbean country of St
Lucia. After receiving his primary and secondary level education in St Lucia, he entered
the London School of Economics and Political Science in 1933 where he read for the
Bachelor of Commerce degree. His excellent performance landed him a scholarship to
pursue a doctorate in industrial economics at his alma mater. He completed his PhD
degree in 1940 with a thesis which was subsequently published as a book entitled
Overhead Costs (1949).

Lewis joined the London School of Political Science and Economics in 1938 as an
Assistant Lecturer. He rose to the rank of Reader in Colonial Economics in 1947 before
joining the Department of Economics at the University of Manchester in 1948 as the
Stanley Jevons Professor of Political Economy. He left the University of Manchester in
1958 to become the Principal of the University College of the West Indies (UCWI) and
later the Vice Chancellor of the independent University of the West Indies (UWI). He
was offered the post of Professor of Economic and Political Affairs at Princeton
University in 1963 and later the post of James Madison Professor of Political Economy.
He remained at Princeton University until his retirement in 1983. During his attachment
at Princeton University, he took leave to be the President of the Caribbean Development
Bank (CDB) and visiting Professor of Economics at the University of the West Indies,
Cave Hill Campus. In addition to receiving a knighthood from the Queen of England in
1963, he was awarded the Nobel Prize in economics jointly with Professor Theodore W
Schultz, for his “pioneering research into economic development research with particular
consideration of the problems of developing countries” [see Wilkinson, 1999, Downes
2004]. He died in 1991.

Lewis’ work covered three broad areas, namely industrial economics, the history of the
world economy from the mid-nineteenth century and development economics. His work
in industrial economics was undertaken during the period 1938 to 1948 and covered such

1
topics as the nature of overhead costs, the two-part tariff, market structure (monopoly and
competition in the retail sector) and the pricing policies of public corporations. Much of
his work is still relevant today especially as it relates to the pricing of electricity and
telephone services and the design of competition policy.

Between 1944 and the late 1980s, Lewis was concerned with issues of economic
development and the history of the world economy. It is in these two areas that he made
seminal contributions to the field of development studies.

The core of development studies involves three basic elements: theoretical or

philosophical, empirical or historical and practical or technical [Toye, 1980]. From a
theoretical perspective, it draws on a number of social science areas: economics, politics,
sociology, management, anthropology, geography and law. It is primarily an inter-
disciplinary subject [Lipton 1970, Toye 1980].

Although Lewis is well-known for his work as a development economist, his

methodological approach to the study of developing countries involves the elements of
the development studies framework. He was concerned with historical processes, the
philosophy of the international economic order and domestic and regional economic
policy. He was an applied economist who approached a problem from its institutional
background. Because of his emphasis on policy matters, he argued that one must have a
good idea of the sociological background of an economic issue and also its political
linkages [Lewis 1986].

In the area of development studies, Lewis’ work covered several areas: development
theory, economic growth, development planning, education and human resource
development, economic integration and politics of developing states. His analysis of
world economic history sets the background against which these development areas were
analyzed. As he explained, a good part of his academic life was spent on two important
questions: what determines the terms of trade between industrial and primary products
and whether the ‘great depression’ was a unique event that had never happened before or

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whether it was one of a series of such events [Lewis, 1986]. A collection of Lewis’
papers and a bibliography of his books are contained in Emmanuel (1994).

As a development economist, Lewis is probably well-known for three important works:

his dual economy model of economic development with unlimited supplies of labour, the
theory of economic growth and development planning - the essentials of economic
policy.

His celebrated 1954 article and its later extensions published in 1958, 1972 and 1979
examined the process of economic development in the context of a two-sector economy
using classical methodological principles. His model illustrates the process of economic
transformation of country whereby excess labour in the subsistence sector would be
gradually absorbed by the capitalist sector. Implicit in this process is the industrialization
of the economy coupled with the gradual modernization of the agriculture sector. In
effect, Lewis advocated a ‘balanced development strategy’. His basic framework has
been employed to examine rural –to-urban migration, urban unemployment and the
determination of shadow wage rate in project evaluation [see Patnaik in this volume for
an elaboration of the model].

Probably Lewis’ main contribution to development studies as an inter-disciplinary subject

is provided in his encyclopedic text, Theory of Economic Growth (1955). Without using
a single mathematical formula, which is characteristic of ‘modern’ growth theory, Lewis
was able to explain the factors which underlie the growth and development process of a
country drawing on economics, sociology, psychology, management, demography,
politics and anthropology. With a simplicity of language and exposition and a historical
backdrop, Lewis was able to highlight and analyze many of the factors which are now
associated with the popular ‘endogenous growth theory’ [see Gylfason, 1999]. Lewis
argued that the “proximate causes of economic growth are the effort to economize, the
accumulation of knowledge and the accumulation of capital” [Lewis, 1955, p 164].

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One of his famous statements is that the “central problem in the theory of economic
development is to understand the process by which a community which was previously
saving and investing 4 or 5 percent of its national income or less converts itself into an
economy where voluntary saving is running at about 12 to 15 percent of national income
or more” [Lewis, 1954]. His explanation of the effort to economize centers on the value
system of the population and the nature of the economic institutions which encourage
people to postpone current consumption for future consumption. He analyzed such
factors as the attitude to work, wealth and social status, the spirit of risk and
entrepreneurship, the management of resources, trade relations, economic freedom and
markets, the family and other social institutions.

In the context of the accumulation of knowledge, Lewis argued that economic growth
depends on both technological and social knowledge (popularly called ‘social capital’).
He traced the growth of knowledge in different societal contexts and showed how such
knowledge has been applied to the production of new and better goods and services
which have enhanced economic and social welfare. Lewis placed great emphasis on
training and the need to develop the human resources of a country. This issue is further
developed in Lewis’ work on education and development where he distinguished
between education as a ‘consumption good’ and an ‘investment good’ [see Lewis, 1961].
In his administrative roles as head of the University of the West Indies and president of
the Caribbean Development Bank, he was able to put into practice the idea that the
accumulation of knowledge is a key element in the growth and development process.
Rapid capital accumulation is vital to the economic development process. Lewis links
this vital element to the savings of a country along with its ability to borrow externally to
finance development projects. It is important that the institutional framework be
developed to promote both savings and investment – stock market, banking system and
other financial institutions.

The role of the state in the development process was a major pre-occupation for Lewis
both in his academic writings and his advisory role to governments in Africa, Asia and
the Caribbean. In his two books on planning: The Principles of Economic Planning

4
(1949) and Development Planning: The Essentials of Economic Policy (1966), he
discussed the operational role of the government in the development process. As a social
democrat, he believed that government action was needed to secure economic outcomes
which were not easily obtainable through the market. He defined democratic socialism as
‘political democracy plus economic equality’ and was concerned with issues of inequality
and unemployment. Governments in developing countries need to engage in some form
of development planning to overcome obstacles and hasten the process of economic and
social development. He advocated ‘planning through the market’ and was critical of
‘planning by direction’ or centralized planning. Although formal development planning
is not in vogue today, with countries engaged in structural adjustment programs in
response to the process of globalization, many of the issues raised by Lewis are still
relevant – the need for a ‘strong, competent and incorrupt administration’, the promotion
of foreign trade, the appropriate allocation of public resources (finance), the role of the
private sector, and the need for balanced growth and development. Lewis was also
concerned about the need to promote political stability in developing countries
(especially in Africa) not only to attract foreign investment, but also to enhance social
capital formation and economic growth.

He was also conscious that economic growth has its costs and wrote an insightful
appendix to his book, Theory of Economic Growth where he examined the costs and
benefits of the growth and development process and the need to manage the transition
process very carefully. He noted the increase in human wealth and choice, the greater
control over the environment, gender dimension (‘women benefit from these changes
even more than men’ (p. 422) and international power and dominance. But he lamented
the change in social relationships, ethnic and racial discrimination, the inequality in the
distribution of income and wealth, the growth of individualism, the environmental
damage and geographical polarization which can accompany the economic growth
process. These topics are still high on the development studies agenda.

As indicated earlier, Lewis made seminal contributions to the study of the economic
history of the international economy. This area of study preoccupied his attention up to

5
the late 1980s. Indeed, his empirical studies of world trade and investment form the
precursor to the discussion today on globalization. He worked on the issue of
international transmission of growth and viewed the deterioration in the factoral terms of
trade experienced by primary producing countries as a result of their low productivity in
the production of food. He argued for several years that there was a need to raise
productivity in the agricultural sector of developing countries through the education of
farmers, control of social erosion, providing irrigation systems and improving rural
institutions. For small developing economies, he argued that regional integration was a
viable development strategy since they need to form coalitions in order to face the
vagaries of a dynamic global economic and political environment. His strategy of
regional industrial development in the Caribbean is a classic illustration of his suggestion
[Lewis, 1950].

As an inter-disciplinary, policy-oriented subject, development studies is not an easy field

of enquiry for one person. Although his focus was on economics, Lewis was able to
draw on the richness of his intellect and his exposure to the problems of development to
make valuable contributions to the study of economic, social and political issues. His
keen understanding of history and institutions formed the backdrop for his analysis of
important economic issues facing the developing world. Although he did not employ
modern econometric techniques in his work, he was a great exponent of the use of
empirical data as the foundation for applied economic analysis and policy making. He
has made lasting contributions in the areas of development theory, development planning,
economic growth, human resources development and economic policy formulation. His
exposition of the issues makes his writing easily accessible to a wide range of persons
working in the area of development studies.

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 References

1 Downes A S (2004): “William Arthur Lewis: 1915-1991. A Biography” in D

Rutherford (ed), Bibliographical Dictionary of British Economists (Bristol,
Thoemmes Press), forthcoming.

2 Emmanuel PAM (1994). Sir William Arthur Lewis Collected Papers 1941-1988
Volumes I, II ands III (Barbados, Institute of Social and Economic Research
(Eastern Caribbean), University of the West Indies).
3 Gylfason T (1999). Principles of Economic Growth (Oxford, Oxford University
Press).
4 Lewis W A (1949a): Overhead Costs: Some Essays in Economic Analysis
(London, George Allen & Unwin).
5 Lewis W A (1949b): The Principles of Economic Planning (London, George
Allen & Unwin).
6 Lewis W A (1950): “Industrialisation of the British West Indies”, Caribbean
Economic Review, vol 2, no 1, pp 1-61.
7 Lewis W A (1954): “Economic Development with Unlimited Supplies of
Labour”, The Manchester School, vol 22, no 2, pp 139-191.
8 Lewis W A (1955): Theory of Economic Growth (London, George Allen &
Unwin).
9 Lewis W A (1958): “Unlimited Labour: Further Notes”, The Manchester School,
vol 26, no 1, pp 1-32.
10 Lewis W A (1961): “Education and Economic Development”, Social and
Economic Studies, vol 10, no 2, June, pp 113-127.
11 Lewis WA (1966): Development Planning: The Essentials of Economic Policy
(London, George Allen & Unwin).
12 Lewis W A (1972): “Reflections on Unlimited Labour” in L E DiMarco (ed):
International Economics and Development: Essays in the Honour of Raul
Prebisch (New York, Academic Press), pp 75-96.

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13 Lewis W A (1978): Evolution of the International Economic Order (Princeton,
Princeton University Press).
14 Lewis W A (1979): “The Dual Economy Revisited”, The Manchester School, vol
47, no 3, pp 211-229.
15 Lewis W A (1986): “Autobiography: W Arthur Lewis” in W Breit and R W
Spencer (eds): Lives of the Laureates: Seven Nobel Economists (Cambridge,
Mass MIT Press), pp 1-19.
16 Lipton M (1970): “Interdisciplinary Studies in Less Developed Countries”,
Journal of Development Studies, vol 7, no 1, October, pp 5-18.
17 Patnaik P (2005): “The Lewis Model” (this volume)
18 Toye J (1980): “Does Development Studies Have a Core?”, Bulletin (Institute of
Development Studies, Sussex), vol 11, no 3, pp 14-20.
19 Wilkinson A (1999): Sir Arthur Lewis: A Bibliographical Portrait (Barbados,
Institute of Social and Economic Research, University of the West Indies).