Chapter 2 discusses the Lewis model of development with surplus labour and the ongoing relevance of his dualist approach as demonstrated in the industrialization of Hong Kong, India, Bangladesh, etc. We show, using examples from the South African clothing manufacturing industry, that relatively high- and low-wage firms exist in the same industry by using different technologies and targeting different product markets. There is no necessary ‘race to the bottom’. Industrial policy can usefully promote competitiveness across a range of technologies, supporting labour-intensive technologies (especially in contexts of high unemployment) without undermining firms in more skill- and capital-intensive niches. The chapter concludes with a discussion of the implications of unemployment for development strategy, and for the relationship between development and inequality.