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Sunday, June 25, 2017

W. Arthur Lewis and the Tradeoffs of Economics and Economists

From Vox EU:

W. Arthur Lewis and the tradeoffs of economics and economists, by Ravi Kanbur, VoxEU: There is nothing new under the sun. The passionate political economy discourses of today consume us entirely. But they are in fact perennials, broaching the fundamental questions of economic policy that have ruled supreme since economics gained an independence of sorts from moral philosophy 250 years ago.1 The nature of market failure, the case for government intervention on grounds of efficiency and equity, and the interplay between economic and political forces are some of the tracks on which discourses have run for generations. The life and work of W. Arthur Lewis, winner of the 1979 Nobel Prize in economics, is a testament to the tradeoffs of economics, and of economists.
Arthur Lewis was born in the British West Indies in 1915. He won a scholarship to study at the London School of Economics, graduating with first class honours in 1937.2 And yet Lewis’s path was not entirely smooth. Even at the LSE, an institution founded by Fabian socialists, he faced the racism that he also met in the streets of London. When he was considered for a temporary one year appointment at the LSE in 1938, the Director of the LSE 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. Normally, such appointments do not require confirmation of the Governors but on this occasion I said that I should before taking action submit the matter to you” (Tignor 2006: 21).3
Lewis became involved with the burgeoning decolonisation movement in Britain, and consorted with the likes of C L R James, George Padmore, Eric Williams, and Paul Robeson. The 1930s and 1940s were a period of ferment not just on the decolonisation front. Economic policy in general was under discussion and dispute. From Cambridge, John Maynard Keynes had excited a generation of students with his critiques of ‘the Treasury View’ in the face of massive and persistent unemployment. Arthur Lewis was Keynesian in macroeconomic matters, but also more interventionist in microeconomic and structural policy. This set him against Sydney Caine, an influential official in the Colonial Office, in the work of the Colonial Economic Advisory Committee, on which Lewis served. Lewis described Caine as “a religious devotee of laissez-faire, and his headship of the Economic Department at this juncture is fatal” (Mine 2006).
In 1951, Kwame Nkrumah won a sweeping victory in the elections in the British colony of the Gold Coast (soon to become the independent country of Ghana) and in 1952 Lewis was invited by Nkrumah to write a report on industrialisation (Lewis 1953).4 At this very time, Lewis was fashioning his Nobel Prize winning argument on ‘surplus labour’, which he argued was the state of affairs in the West Indies, in Egypt, and in India (Lewis 1954). In these situations, the main brake on development was inadequate investment in manufacturing, and to the extent that this investment was held back by market failures in the manufacturing sector, the government should intervene to address them.
However, Lewis’s thrust in his report was that the Gold Coast, unlike India, did not present a situation of surplus labour. Rather, it was one of labour shortages given the large amount of land available in agriculture. In this situation the way of releasing labour for manufacturing, without pushing up wages so much that investment would be choked off, was to increase agricultural productivity. In labour shortage economies, that would have been priority number one. The Gold Coast industrialisation report revealed the evolving balance of Arthur Lewis as the economist. Identify the nature of the market failure first, then design the intervention.
Arthur Lewis was present in Accra for the celebrations when the Gold Coast became Ghana on 6 March 1957.5 But he was to return in October of 1957 for a fateful stint as the government’s chief economic adviser, at the invitation of Kwame Nkrumah. His 15 months as resident adviser in Ghana were tumultuous. There were some policy areas in which he sided with the government and Nkrumah. Perhaps the most famous of these is his general agreement that the surpluses from the cocoa price boom should be collected by the government and used for development purposes rather than passed through to cocoa farmers, a view very different from positions being advanced by Bauer (1954) at that time. However, in the main Lewis clashed with Nkrumah, especially on various ‘white elephant’ projects that were being considered and approved, many of them in the name of industrialisation.
The letters of this time provide a real insight into the clash between the economist and the politician. After a series of attempts by Lewis to intervene in the drafting on the Five Year Plan, his verdict on the plan was that it made “inadequate provision for some essential services while according the highest priority to a number of second importance….Alas, the main reason for this lack of balance is that the plan contains too many schemes on which the Prime Minister is insisting for ‘political reasons’” (Tignore 2006: 167). Nkrumah’s responses to Lewis were to be expected from a man who had famously said “seek ye the political kingdom first”. In an exchange that brought to a head Lewis’s decision to leave his post as economic adviser, Nkrumah emphasised “political decisions which I consider I must take. The advice you have given me, sound though it may be, is essentially from the economic point of view, and I have told you, on many occasions, that I cannot always follow this advice as I am a politician and must gamble on the future” (Tignor 2006: 173).
How can one explain the seeming contradictions in Lewis? On the one hand was the critic of laissez-faire economic policies, whom the radical anti-colonialists expected to be on their side. On the other was the economist who acted as a check on the extreme statist interventions proposed by this same tendency in economic policy discourse, arguing against heavy state subsidy to industry on purely economic grounds, even leaving aside its propensity for corruption and use as political patronage.
As a student, Lewis must have read John Maynard Keynes’s clarion call in his essay “The End of Laissez Faire” (Keynes 1926).6 This was, seemingly, a call to abandon the tenets of 19th century economic liberalism in favour of a more interventionist credo – “let us clear from the ground the metaphysical or general principles upon which, from time to time, laissez-faire has been founded” (Keynes 1926: 287-8). This is Keynes presaging the Lewis of the 1930s and 1940s railing against Sydney Caine and his laissez-fair policies for the colonies. And yet in the same essay Keynes hints at a different world view, a more nuanced perspective on state intervention:
“We cannot therefore settle on abstract grounds, but must handle on its merits in detail what Burke termed ʹone of the finest problems in legislation, namely, to determine what the State ought to take upon itself to direct by the public wisdom, and what it ought to leave, with as little interference as possible, to individual exertion’” (p. 288-91).
How like Lewis, or rather how like the economist Lewis became in Ghana.7 I have argued elsewhere that Edmund Burke’s question is the eternal question of political economy and accounts for the cycles of thought in economics (Kanbur 2016). This is what 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 (economic and political) misuse of the funds so raised. That was Arthur Lewis in Ghana, but it was Arthur Lewis all along. It has also been political economy all along, and will continue to be so.
Aryeetey, E, and R Kanbur (eds.), The Economy of Ghana Sixty Years After Independence, Oxford: Oxford University Press.
Bauer, P (1954), West African Trade: A Study of Competition, Oligarchy, and Monopoly in a Changing Economy, Cambridge University Press.
Kanbur, R (2016), “The End of Laissez Faire, The End of History and The Structure of Scientific Revolutions”, Challenge, 59 (1), 35-46.
Kanbur, R (2017), “W. Arthur Lewis and the Roots of Ghanaian Economic Policy”, In E Aryeetey and R Kanbur (eds.) The Economy of Ghana Sixty Years After Independence, Oxford: Oxford University Press.
Keynes, J M (1926), “The End of Laissez-Faire”, in The Collected Writings of John Maynard Keynes, Volume IX, Essays in Persuasion, Royal Economic Society, Palgrave MacMillan, 1972.
Lewis, W A (1953), Report on Industrialization of the Gold Coast, Accra.
Lewis, W A (1954), “Economic Development with Unlimited Supplies of Labour”, Manchester School, 22 (2), 139-191.
Mine, Y (2006), “The Political Element in the Works of W. Arthur Lewis: The 1954 Lewis Model and African Development”, The Developing Economies, XLVI-3, 329-355.
Tignor, R L (2006), W. Arthur Lewis and the Birth of Development Economics, Princeton University Press.
[1] The conventional dating for this is of course the publication of Adam Smith’s Wealth of Nations in 1776.
[2] I draw liberally on the comprehensive and excellent biography by Tignor (2006).
[3] Tignor (2006: 37) also recounts the story of how, despite his by then brilliant academic qualifications, his appointment to a Chair at Liverpool was blocked for reasons of “other considerations than high academic standing.” Finally, however, he did get his Chair, the Stanley Jevons Chair at the University of Manchester in 1948.
[4] Lewis’s transmittal letter on the report, written to Minister of Commerce and Industry K A Gbedemah and dated 5th June, 1953, notes the details of the assignment: “I have the honour to transmit herewith my Report on industrialization and economic policy, which I was commissioned to write by letter No. MCI/C,16/SF.3/18 from your Ministry, dated November 29, 1952. I visited the Gold Coast from December 15th, 1952, to January 4th, 1953, and travelled extensively in the country, covering about 1,800 miles by road and by air. I had the opportunity of visiting many industrial establishments, and I discussed the subject with as many persons as possible in the time available.” (Lewis, 1953, p. i).
[5] For an assessment of Ghana’s economy in the sixty years since independence, see Aryeetey and Kanbur (2017).
[6] For an assessment of this essay in the broader context of the evolution of economic thought, see Kanbur (2016).
[7] Tignor (2006) and Kanbur (2017) further discuss Lewis’s post-Ghana life and work.

    Posted by on Sunday, June 25, 2017 at 09:14 AM in Development, Economics, Market Failure | Permalink  Comments (58)


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