W. Arthur Lewis on stagnation, slowdowns and traps

The case for pessimism about sustained fast growth in any economy has rarely been so well put as in the following passage, one of my favorites, from Lewis’ 1955 book The Theory of Economic Growth:

“There are thus many pits into which a country may fall, as a result of prolonged growth: it may weary of material things, its entrepreneurs may behave less competitively, its public may create barriers to change, the distribution of income may alter unfavorably, it may exhaust its natural resources, it may lose its place in international trade, or it may run out of innovations. In addition, it may be a victim of natural disaster, or it may be ruined by war, by civil strife, or by misgovernment.

None of these is inevitable. On the other hand, when there are so many pits into which a country may fall, it is not in the least surprising that countries have fallen into one or more of these pits in the past. One cannot predict when the rate of investment in any particular country will begin to slow down–whether it will be after decades or after centuries. But the expectation that a long period of growth is in due course succeeded by slower growth, by stagnation, or even by decline seems fairly well supported by the little we know of the economic history of the past four thousand years.”

The passage comes from the section on secular stagnation in the book, a concept that is obviously having something of a renaissance these days. Lewis is mostly known today for his model of how labor in a poor country moves from a traditional to a modern sector, a concept many people feel captured something fundamental about how China and other developing nations work. But this book is not referred to much these days, though you can read a quite favorable recent overview of the whole thing here. I confess I have only dipped around in it–the prose style is not always invigorating–but each time to my benefit.

I like this passage because of the way it makes clear that economic growth is not easy and that lots of things can go wrong with it. It’s a simple point, but it’s basically why I’m never been that enamored of the concept of the middle-income trap. In its original formulation, it was the idea that middle-income countries tend to stop growing because their exports get squeezed between low-wage competitors and high-wage innovators. Sure, there are things that can go wrong in middle-income countries so that they fail to maintain fast growth–but lots of things can go wrong besides export competitiveness, and things can go wrong at pretty much any income level, not just the middle.

What’s interesting is to figure out what might be going wrong in each individual case (though I’m still waiting for an actual example of a nation that became “weary of material things”). It is indeed not surprising that a country may fall into a pit, but we still want to know which pit it is and why it fell, and not assume it’s always the same pit. As I’ve argued before, it’s not clear for instance that the middle-income trap model of declining export competitiveness is really the best explanation of what’s happening in China right now.

One Comment

  1. In a happy coincidence, Diane Coyle shares another excellent quote from The Theory of Economic growth:

    “The advantage of economic growth is not that wealth increases happiness, but that it increases the range of human choice … We do not know what the purpose of life it, but if it were happiness then evolution might just as well have stopped a long time ago, since there is no reason to believe that men are happier than pigs or fishes. What distinguishes men from pigs is that men have greater control over their environment; not that they are more happy. And on this test, economic growth is greatly to be desired. The case for economic growth is that it gives man greater control over his environment and thereby increases his freedom.”

    Reply

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