Why does it not pay to exploit the poor?

Sir Arthur Lewis Nobel Laureate in Economic Sciences, 1979

Growing up in St. Lucia in the early 20th Century, Arthur Lewis witnessed firsthand a territory that was very poor and still dealing with the aftermath of slavery. Lewis counts as one of the few economists in the early fifties who placed the economic progress of poorer countries at the forefront of his research. He described a model of the economy where a modern capitalist sector and an underdeveloped sector are in tension, leading to long-lasting inequality and lower wages. His work on economic development, and theories about why some countries continue to in a cycle of poverty, challenged the thinking of the time. Importantly, he reasoned that instead of depriving the poor, investing in them actually pays off and aids a country’s economy. The aftereffects of his works were described like those of a blooming flower; they released the seeds from which numerous groundbreaking systems germinated.

A "first achiever" in many ways

Arthur Lewis was a trailblazer in many ways. He was the first black professor at the London School of Economics, the first economic advisor to the democratic government of Ghana, and the first president of the Caribbean Development Bank. He also worked for the United Nations, advised and assisted multiple governments, and travelled to the most remote parts of the world. Still, Lewis was known for his modesty and humbleness. Taught at home, he learned more in three months from his father than some students learn during two years at school.

Lewis considered his life to have been relatively normal. "I didn’t live a life as a first this or the first that. It would be a very tiresome way to live." Even after receiving a knighthood, Lewis never rested on his achievements nor his titles, but constantly fought for what he believed in. "I’ve never won an argument by saying, ‘look I’m a knight and you are not’. In my opinion, the only real test for your personal achievement is how far it brought others. Whenever you write or state something, it’s like the opening of a door. Therefore, the effects of publication or of the Nobel Prize must be such that a door is opened through which a lot of people want to go."

At a glance

Born: 1915, Castries, St. Lucia

Died: 1991, Bridgetown, Barbados

Field: Development Economics

Prize-winning work: Pioneering work in economic development research, with a focus on the causes of poverty in developing countries

A career of firsts: Was the first black person to be appointed to the faculty of the University of London. Something he admitted was unlikely to have happened 10 years before

A true race issue: Only noticed that he was treated as a black when looking for accommodation in London

Guilty pleasures: Dancing. He kept on dancing after being married. (Before marriage, he’d danced to get to know girls.)

Is unemployment indigenous to economic progress?

Throughout his travels, Lewis learned that one can only influence those economic fields where the patient recognizes the disease. The best-case scenario would be where the patient chooses the doctor, and jointly they fight the sickness while preparing for the healing process. We don’t know if Lewis could have been a doctor, but he acted as one for many developing countries. When asked about the state of progress he witnessed in these countries, he shared two conclusions. "The short answer is that there has been tremendous progress. And the long answer is unemployment is so much greater."

Lewis recalled that during his childhood in the Caribbean, the boys didn’t wear shoes, nor did they have bicycles, both of which are common goods today. He spoke about Barbados, where housing conditions had greatly improved, and that water supplies extended throughout the islands. At the same time, he remarked a puzzling phenomenon - consistently high levels of unemployment. "Unemployment is becoming indigenous to our system as a whole. It’s not a developing country phenomenon, it is a worldwide one."

Jesus Christ said: ‘The poor we have always with us’. He wasn't making a recommendation.

As Lewis explained, the development of any group within society is dependent on publically available resources like clean water, hospitals, schools, and roads. "You’re creating an urban working class and middle class, but that’s relatively small, and you’re doing it by putting education and these other things at the disposal of the existing working class, so you’re constantly expanding the proportion of the population," he said.

Why do the rich exploit the poor?

With inequality drastically rising over the last 50 years, many economists have tried to explain that any change in the distribution of income continuously moves in favor of those at the top. It was in 1980 that the Rockefeller Foundation turned to Lewis for support. He was needed to design new tools to tackle these issues. Lewis’s stance against inequality was very clear, and he argued against exploitation by using economic rational to his advantage.

"Why do the people with the power use it against the ones without power?” he asked. “On economic grounds, the sensible thing to do is to invest in the poor, not to kill them. We have always assumed that it would pay the rich to exploit the poor. We’ve always assumed that slavery paid. I’m sorry, but slavery doesn’t pay," maintained Lewis.

Slavery, as Lewis added, would have only paid off in the 19th century, when the labor force concentrated on producing goods with bare hands, when machinery wasn’t available. However, times have drastically changed - we not only see a large increase in the service sector, but are also in the process of developing a new concept of progress. For the past 5,000 years, many regimes were guided by the belief that the way to make progress was to destroy the enemy, enslave them, and deprive them of their resources. This comprehension has shifted towards a deeper understanding and demonstration that in fact the contrary is true: development and advancement of the "enemy" has positive effects on the entire evolution of the economic system.

Will racism destroy civilization?

Lewis often described his work on government advisory boards as a simple discussion between friends, who may or may not understand the subject better than he did himself. "I was a citizen of the world," he explained, "I was constantly around, available to all, a friend of mankind. Everybody who knew me knew that I was not a nationalist. I was born to be a citizen of the world."

However, Lewis also confronted criticism and experienced discrimination. He wanted to be a citizen of a world that granted equal standing to black people. Despite international efforts to curb the poison of racism over the last century, nationalism and xenophobia have continued to establish firm roots in major political movements and rhetoric. With hate crime having increased by 57 percent in the UK since the referendum held on membership of the European Union, and the United States noting a sharp rise in racially charged incidents or anti-Semitic aggression since the election of President Donald Trump, Lewis’s appeal to the economy is still very vivid.

"Racism will destroy civilization." Lewis made his point clear. "Those of us who see what’s happening should talk about it."

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The solution against racism was the one thing Lewis wished he could have given. He recalled that in Barbados people always asked themselves, ‘what’s the matter with us, why can’t we make it?’ "And I always say that I don’t have any doubts that my people could make it. They are self-respecting and they cherish things that other people take for granted."

The economist John Maynard Keynes once said that the difficulty lies not so much in developing new ideas, as in escaping from old ones. Lewis reminds us that it is time for humanity to take a step forward and make an important shift in our conceptual thinking. We must acknowledge that we are in times where the value of labor no longer rests on manual toil, but rather in cognitive skills. Exploitation and slavery have no added value. Discrimination based on race, gender, or other factors is nothing more than an obstacle to further human development, and thus should come to an end. He reminds us that the true road to industrialization is through education and investments in human capital.

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What does Lewis's work mean for us?

"He asserted that emerging market growth was driven by developed economy growth – this was the world of the late 1970s but, of course, also describes the world today.”

Paul Donovan 
Global Chief Economist UBS Wealth Management

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