Why Nations Fail: The Origins of Power, Prosperity, and Poverty

by Daron Acemoğlu

The “dual economy” paradigm, originally proposed in 1955 by Sir Arthur Lewis, still shapes the way that most social scientists think about the economic problems of less-developed countries. According to Lewis, many less-developed or underdeveloped economies have a dual structure and are divided into a modern sector and a traditional sector. The modern sector, which corresponds to the more developed part of the economy, is associated with urban life, modern industry, and the use of advanced technologies. The traditional sector is associated with rural life, agriculture, and “backward” institutions and technologies. Backward agricultural institutions include the communal ownership of land, which implies the absence of private property rights on land. Labor was used so inefficiently in the traditional sector, according to Lewis, that it could be reallocated to the modern sector without reducing the amount the rural sector could produce. For generations of development economists building on Lewis’s insights, the “problem of development” has come to mean moving people and resources out of the traditional sector, agriculture and the countryside, and into the modern sector, industry and cities. In 1979 Lewis received the Nobel Prize for his work on economic development.