Theodore Schultz and Arthur Lewis
Citation: For their pioneering research into economic development research with particular consideration of the problems of developing countries.
The key idea
Schultz: human capital — education and health — is the dominant driver of long-run growth, not physical capital. Lewis: developing economies are dual, with traditional subsistence and modern capitalist sectors and labour reallocates between them.
The explanation
Schultz showed that returns to schooling explain a major share of US growth post-WWII and argued the same for developing countries. Lewis's 1954 paper modelled developing countries as having an 'unlimited supply of labour' at subsistence wages in agriculture; industrial wages rise above this only when the labour surplus is absorbed (the Lewis Turning Point). The two together built the first modern theory of development.
Why Africa should care
Lewis's dual-economy model is the cleanest description of structural transformation in African economies: 50-70% of labour still in low-productivity agriculture, transitioning toward higher-productivity sectors. Whether and where any African country has hit its Lewis Turning Point is a live empirical question — South Africa likely has, Ethiopia has not. Schultz's human-capital lens has motivated every major investment in African schooling and is the framework behind Kenya's universal-secondary-education push.
How to use it
When evaluating a country's growth strategy, ask: are we still in Lewis I (labour-surplus, industry-led) or Lewis II (labour-tight, productivity-led)? The right policies differ entirely.
Watch out for
Lewis's framework underweights services and informality, which dominate modern African employment. McMillan-Rodrik (2014) shows African 'structural transformation' has often reallocated workers into lower-productivity informal services, not higher-productivity industry.
Canonical works
- W. Arthur Lewis (1954) "Economic Development with Unlimited Supplies of Labour" Manchester School
- Theodore W. Schultz (1961) "Investment in Human Capital" American Economic Review
- Margaret McMillan and Dani Rodrik (2011) "Globalization, Structural Change, and Productivity Growth (with implications for African economies)" NBER Working Paper 17143
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