This according to me summarises a lot of the confusion surrounding India on whether we have become a developed nation/superpower or not. There’s this economic theory called Lewis’s Dual Sector growth model which is supposed to take countries from Developing to Developed. This model was the foundation stone of Developmental economics.
Put simply it states that the marginal productivity of labour in a slow growing sector is near zero while in another one is significantly high. This leads to labour mobility and without any reduction in the slow sector, growth in the other sector. The surplus is reinvested leading to capital stock formation. This process leads to GDP growth. We can crudely put agri as the slow sector and mfgr/IT as the second sector.
Long back economists realized that labour mobility is tricky. There is an endowment failure. A farmer cannot become an IT professional that easily. The model doesn’t work at all.
India is facing this issue in a big way. The solution, atleast partly, is to solve the endowment failure problem of the poor through better education and access to cheaper credit. These are problems that can be solved. It is an interesting challenge too. Frankly, it is my life’s ambition to make some reasonable savings and then exit corporate world and work on some such projects. God permit :-) Monday, July 10, 2006
