Those who do not learn history are doomed to repeat it – especially in the case of economics. The vigorous political economy debates of today dominate academia and wider political discourse, and history is indeed repeating itself with current debates regarding the nature of market failure, the case for state intervention on the grounds of efficiency and equity, and the interaction between economic and political forces. These debates grapple with the fundamental questions of economic policy that have ruled supreme since the birth of economics as an independent discipline two centuries ago. The life and works of W. Arthur Lewis, winner of the 1979 Nobel Prize in economics, are a testament to the rich history of this field.
Lewis was born in the British West Indies in 1915 and won a scholarship to LSE, graduating with first-class honours in 1937. But Lewis’ path was not entirely smooth. At the LSE, an institution founded by Fabian socialists, he was confronted with the same racism that he battled on the streets of London. Indeed, when he was considered for a temporary one-year appointment in 1938, the Director of LSE at the time wrote to the Board of Governors that “the appointments committee is, as I said, quite unanimous but recognise that the appointment of a coloured man may possibly be open to some criticism.”
Lewis became involved with the burgeoning decolonisation movement in Britain. The 1930s and 1940s were a period of upheaval not just on the decolonisation front: economics itself was facing a revolution. John Maynard Keynes had excited a generation of students with his critiques of the then-dominant ‘Treasury View’ in the face of massive and persistent unemployment. Lewis was Keynesian in macroeconomic matters but also more interventionist in microeconomic policy, and it was these views that set the foundations for his Nobel Prize in 1979.
In 1951, Kwame Nkrumah won a sweeping election victory in the British colony of the Gold Coast (soon to gain independence as the Republic of Ghana), and, in 1952, Lewis was invited by Nkrumah to write a report on industrialisation. Meanwhile, Lewis was developing his Nobel Prize-winning research on ‘surplus labour’, where he argued that developing economies have a surplus of unproductive workers in the agricultural sector, and that the path to development lies in the manufacturing sector. As the manufacturing sector grows over time, surplus labour becomes increasingly attracted to the higher wages there, and workers migrate to seek employment in manufacturing, where productivity is also higher. This theory implies that the main obstacle to development is inadequate investment in manufacturing. To the extent that this investment is held back by market failures in the manufacturing sector, Lewis believed the government should intervene to address these failures.
In his report on industrialisation, however, Lewis argued that the Gold Coast, unlike the West Indies, did not present a situation of surplus labour. Rather, it was faced with labour shortages, given the large amount of land available in agriculture. In this situation, the means through which surplus labour could be released into manufacturing, without inflating wages to the extent that investment would be choked off, was to increase agricultural productivity. This report revealed the remarkable pragmatism of Arthur Lewis as an economist and public policy specialist, a pragmatism that came to define his extraordinary work: identify the nature of the market failure first, then design the intervention.
How can one explain the seeming contradictions in Lewis? On one hand, he was a radical anti-colonist and firebrand critic of laissez-faire economic policies, on the other an economist whose pragmatism has come to define his work. While he was an advisor to Nkumrah’s government, he often acted as a check on its extreme statist tendencies by arguing against heavy state subsidising of industry on purely economic grounds, even leaving aside the propensity for corruption and use as political patronage.
Indeed, it was this practical mindset that allowed Lewis to support some industrial intervention in his first report on the Gold Coast, while at the same time asserting the primacy of agricultural development. It is what allowed him to support substantial taxation of cocoa while at the same time railing at the misuse of the funds so raised. That was Lewis in Ghana, and it was Lewis all along. It has also been political economy all along, and will continue to be so. During this Black History Month, each of us at LSE and across society would do well to remember the pragmatism of Lewis and his contributions to economics, as well as the wider political discourse. In ultimately striving to make the world a more prosperous place than he found it, W. Arthur Lewis is a meticulous reflection of the best of us.