Labor Intensive Technique
In simple words labour intensive technique is that which uses comparatively larger amount of labour and small doses of capital. It is that technique by which more of labour and less of capital is required for the process of production. However, it can be defined as one in which a large amount of labour is combined with a smaller amount of capital. According to Prof. Myint,”labour intensive methods of production are those that require a large quantity of labour with a given unit of capital. ” With this method of production, it is possible to raise output by using the same amount of capital but greater amount of labour.
This technique fulfills two objectives of capital formation and skill. It raises agriculture production through the use of minor irrigation, better seeds, manure, implements and the introduction of short duration crops. Labour intensive technique has been illustrated with the help of diagram. In this diagramme, isoquant Q shows the initial level of output which is being produced by using OL labour and OC amount of capital. With the adoption of new technology a higher level of output is represented by the isoquant Q1; can be produced by the same amount of capital i.e. OC. In this case, greater amount of labour is OL. This shows that the technique is labour intensive.
Capital Intensive Techniques
Prof. Harvey Leibenstein, Paul Baran, Rostow, Hirschamn Maurice Dobb and Mahalanobis are the chief advocators of capital intensive technique. They consider that this technique is indispensable for accelerating the process of growth. Prof. Paul Baran has the strong opinion about the necessity of using the capital intensive in less developed countries.
He observed that such countries should make use of their ability to draw upon the scientific and technological advancement of the more developed countries if they want to industrialize at a faster rate. Capital intensive technique refers to that technique in which larger amount of capital is comparatively used. In such a technique the amount of capital used per unit of output is larger than what it is in case of labor intensive technique.
To quote Prof. Myint,”the capital intensive or labor intensive methods of producing a particular commodity are classified by the modern factory methods of producing consumer goods and mechanized methods of constructing roads, irrigation works and other projects. Here, because of lower labour costs and higher productivity, the net output per unit of capital may be comparatively higher.” Capital intensive technique has been shown in diagram 2.
In this diagram isoquant Q represents the initial level of output, using OL amount of labour and OC amount of capital. With the introduction of new technique a higher level of output is shown by labour (OL) but with greater dose of capital (OC1). Therefore, capital intensive technique is using more capital with the same amount of labour.
Choice of Technique
There is a great controversy on the question of choosing between labour intensive and capital intensive technique in less developed countries. All concerns differ to each other. Some are in favour of labour-intensive technique, others advocate for the capital-intensive technique. Before formulating any decisive opinion on the important question, let us study the arguments for and against each of these techniques.
Used of Labour Intensive Techniques (Arguments in Support)
More Employment Generation:
It needs no argument to say that labour intensive techniques are more employment generating. Underdeveloped countries face the scarcity of capital and abundance of manpower. The capital labour ratio in these countries is very low. So, labour intensive technique is indispensable if the problem of unemployment and disguised unemployment is to be resolved.
Utilization of Scarce Capital
Underdeveloped countries suffer from an acute shortage of capital and entrepreneurial resources. Keeping these facts in mind they will have to select a technique which can economies the use of these scarce resources. Thus, the adoption of these methods of production is more suitable in underdeveloped countries as it will release the scarce capital resources for other important uses.
Decentralisation
The use of labour intensive techniques will confer the benefits of decentralisation and avoid the evils of factory system. As these techniques are invariably associated with small and cottage industries and hence they can be fruitful in the establishment of an economically decentralised society. The present democratic governments have desired to attain decentralisation with social justice.
Favourable Effect on Distribution of Income
Labour intensive technique is also favored because it has favourable effect on distribution of income. A labour intensive project will tend to raise the income level of a relatively large number of low income workers. By providing more employment these methods of production tend to provide higher degree of economic equality to a common man.
Higher Level of Consumption
Labour intensive technique will be a useful method to raise the present level of consumption. These techniques tend to raide the level of wages. These increased wages will automatically be spent on consumption. In a sense labour intensive technique will ensure a higher level of consumption of the working classes.
More Production at Cheaper Rate
Another argument advanced in favour of labour intensive technique is that it provides the cheaper way of raising output in less developed countries. In a poor country, the social price of labour is likely to be below or even zero compared with the high price of capital. Therefore, the most efficient use of resources in a poor country will tend to favour labour intensive methods.
It is also argued that labour intensive technique would also mean a considerable saving in expenditure on the development of economic and social overheads. Industries using these techniques are usually set up in villages. Less spending is made on the building of housed, development of roads and other means of transport and providing civic amenities. Thus, there is a considerable scope of saving of expenditure on economic and social overheads.
Control on Inflationary Pressures
Labour intensive techniques have a counter-inflationary effect and hence they are preferred in developing countries. These techniques ensure quick and rapid increase in the supply of consumer goods which in turn is helpful in combating the inflationary pressure which has become a common feature in most of the underdeveloped countries.
Saving of Foreign Exchange
The adoption of labour untensive techniques would mean a considerable saving of foreign exchange resources. In short, these techniques are helpful to solve the problem of foreign exchange.
Social Equality
It is also pointed out by some supporters of labour intensive technique that it provides social justice as it is helpful to increase the income of a common man at village level.
Better Utilization of Local Resources
Labour intensive techniques are adopted in small scale and rural industries. Thus, there is ample scope of utilization of local resources.
Scope for Employment to Children and Women
Labour intensive technique is also supported on the ground that it provides employment opportunities to children and women.
Arguments against Labour Intensive Techniques:
i. Labour intensive technique is static and of short term in nature which cannot be applied in the long run period.
ii. As this technique leads the redistribute incomes in favor of those who have low marginal propensity to save, this results low rate of capital formation.
iii. There is no possibility of improved and more advanced skill during the course of labour intensive techniques.
iv. The production process is very costly.
No possibility of research, modernization.
Capital Intensive Techniques (Arguments)
The strong arguments have been forwarded by those who support the use of capital intensive technique. In the opinion of Prof. W.Galenson and H.Leibenstein,”Successful economic development particularly in the case of gross, backwardness, hinges largely upon the introduction of modern technology on a large scale as far as possible.”
Rapid Rate of Economic Growth
The use of capital intensive techniques results in much quicker and more rapid economic growth as compared to labour intensive techniques. If capital intensive techniques are adopted, a large share of national income will be going to entrepreneurs, in the shape of profits and a small share will be going to wage earners. As entrepreneurs propensity to save is high, a large portion of these profits will be saved and invested which would result in higher rate of capital formation and further accelerate the growth.
Modern and Efficient Method of Production
With the help of capital intensive techniques goods can be produced at a lower cost. Under labour intensive methods of production the consumers have to pay higher prices while under capital intensive technique of production one obtains cheaper goods produced on a large scale with modern methods.
Rise in Standard of Living
The availability of goods at lower prices leads to raise the standard of living as public gets cheap goods and more goods for use. Hence, capital intensive techniques ensure a rise in standard of living.
Higher level of Output per Worker
The use of capital intensive techniques enhances the productivity of labour and raises greater output per worker. According to Prof. Hirschman,”capital intensive techniques are bound to enhance skill and efficiency of the workers. Rising productivity per workers is an index of economic growth because it makes possible a higher rate of capital formation.”
Advantages of Labour Intensive Techniques
Capital intensive techniques ultimately prove to be more useful to the capital intensive techniques in the long period. Prof. Baran has rightly stated that,”If you use labour intensive techniques you will withdraw the disguised unemployed from the rural areas, their transfer to the industrial centers call for a certain outlay on housing, community services, hospitals, schools, etc.” If this outlay is taken into account, the labour intensive techniques may well involve a large outlay of capital per unit of output than the capital intensive alternatives.
Emergence of Most Efficient Productive Units
The implementation of capital intensive techniques would lead to the emergence of efficient productive units with most advanced type of techniques. It ensures the benefits of modern technology to the economy. On the other hand, the labour intensive techniques would result in the establishment of inefficient units operating with most backward and obsolete techniques.
Far Reaching Effect
The spread effects of capital intensive techniques are much wider and more stronger. The use of this type of techniques would have a far-reaching effect on the process of economic development in an economy. According to Prof. Hirschman,”When a government undertakes the construction of a large hydroelectric station or a steel mill, it cannot afford to let such ventures go wrong, it places itself under a far stronger compulsion to deliver than if it were to spend the same funds on large number of projects.”
Creation of Social Overheads
Capital-intensive techniques are essentially for the development of economic and social overheads. Therefore, development of infrastructure is a pre-condition for their rapid economic growth. Moreover, these projects are generally highly capital intensive.
More Profitable
The experience of different countries shows that capital intensive techniques are more profitable as compared to labour intensive techniques. This is due to the fact that capital intensive techniques enjoy more economies of large scale production.
Arguments against Capital Intensive Techniques:
It Needs Huge Amount of Investment
The foremost argument is that capital-intensive techniques are not in accordance with the factor endowment of underdeveloped countries. But underdeveloped countries are usually labour surplus economies and so highly capital intensive techniques do not suit them as they require huge capital investment which is beyond their reach.
Adverse Effect on Balance of Payment
The use of capital intensive technique will require huge impact on machinery, tools, implements and technical know how. This is likely to aggravate the balance of payments difficulties of such countries. It is no denying the fact that most of the underdeveloped countries have acute shortage of capital and plethora of unemployed manpower.
Difficulty of Maintenance
Import of machinery and equipment will not only be costly affair but it may create other obstacles regarding the repair, maintenance and availability of spare parts. Moreover, it is also expected that some of the equipment will be un-utilized or remain under-utilized. In this connection as a result the equipment which is suited to those countries produces much less in underdeveloped countries.
Wasteful Use of Capital Resource
Capital intensive technique involves a wasteful use of merge capital resources of the underdeveloped countries. According to Prof. Kindleberger,”Much of the adoption of modern technology is mere demonstration effect on the side of production, the attempt to run before one can walk. Such technology wastes capital, since it uses it too intensively in a narrow sector, and requires ignoring opportunities for profitable investment.”
Absence of Basic Facilities
The adoption of modern capital intensive techniques requires sufficient power, transport and communication facilities, adequate supply of technically trained personal and a large number of related services. But in practice these facilities are largely absent in underdeveloped countries and they are not very suitable for these countries.
Factors Influencing the Choice of Techniques in Economics
The choice of appropriate technology in underdeveloped countries is a difficult job. It is not possible to suggest a uniform pattern of technology for all the underdeveloped countries. They differ widely from each other in regard to factor endowments, level of income and capital information, demographic patterns, institutional arrangements and stage of economic development.
Therefore, it is possible to lay down certain consideration, which must be kept in mind, while making a choice of technology in a country. The following factors are the most important which influence the choice of technique.
Objective of Development:
There may be various objectives of development, such as:
i. Maximization of employment,
ii. Maximization of investment,
iii. Maximization of output at lowest possible cost,
iv. Freedom from dependence upon other countries, etc.
All these objectives affect the choice of technique. For example, if the objective of development is maximization of employment and freedom from dependence upon other countries, labour intensive technology should be adopted. On the contrary, if the government is in favour of external aid and wants to maximize output at the lowest possible cost, capital intensive technique should be favored.
Factor Endowment
The prevailing factor endowment in a country determines the type of technology that will be suitable for that country. If the country has abundance of labour and scarcity of capital then labour intensive techniques of production must be adopted. On the other hand, in case of labour scarcity and capital abundant economies, labour saving and capital intensive techniques will be most suitable. Thus, the type of factor endowment in a country is an important consideration in the choice of technology.
Technological Level already attained
The prevailing level of technology forms the basis on which further technological change can take place. New technology has to be supported by the existing technology and only that type of technology should be preferred which can be supported by the technologica level already attained by the country. Abrupt changes in technology are not in the interest of the economy
Resources Available
Technological development in a country is largely determined by the availability of resources for such development. The most important resources necessary for technological development is capital, skill, organisatioon and natural resources. The availability of all these inputs largely determines the extent to which experimentation in new forms of organisation can be undertaken. An over ambitious programme of technological change will merely result in waste of productive resources of the country. Hence, the technology must be in accordance with the availability of necessary inputs.
Institutional Structure
The institutional framework in a country also determines the type of technology that should be adopted by it. Economic, political and social institutions along with the aptitude of the people determine the technological level in a country. The socia system in a country may be rigid as not to permit any technological change. Under these circumstances social and institutional change must precede technological change.
Availability of Infra-structure
Choosing the technique, one must also account for the existing infra-structure comprising of transport, communication, power and related facilities in the country. Such techniques are to be preferred which are compatible with the existing infra-structure of the country. Expansion of infra-structural facilities is not possible over short-periods. Therefore, in the initial staged of growth, labour-intensive technique should be adopted. As infra-structural facilities are expanded, one can switch over to more and more capital intensive techniques of production.
Adoption of New Techniques (8 Suggestions)
Use of Labour Intensive Techniques
In their initial stages of growth underdeveloped countries should prefer to adopt labour intensive techniques. Such techniques should be, as far as possible, indigenously developed. Technology should aim primarily at the maximization of employment opportunities in less developed countries.
Co-ordination of Different Techniques
Any particular technique cannot be solely successful in less developed countries. While developing new techniques, proper consideration be made to the existing cultural, and social environment in the country. Coordinating the various possible techniques, the one that accelerates the process of growth should be adopted. Moreover new technology should be compatible with the existing technology.
Research
In less developed countries suitable modifications may be made to adopt the technology of developed countries. This need ‘research’ at various levels of the adoption of new know-how. Thus, seeking the help of advanced countries. Govt. of under developed countries should open research centres with trained personnel who would facilitate the task of adoption of new technology. Special incentives may be given for outstanding research.
Training Facilities
The underdeveloped countries should provide maximum training facilities to its workers. This would facilitate the adoption of new technology. Engineering institutions should be opened in the country in large number.
Minimum Costs
Less developed countries should choose such techniques of production that marginal productivity of the factors in their alternatives uses is equalized. In such a situation, costs of production would be minimum.
Import of Technique
Efforts should be made to import technology from abroad but only from those countries which assure of continuous maintenance of the hi-tec machinery and equipment.
Maximum Surplus
The underdeveloped countries should adopt such technology that generates maximum possible surplus. This would stimulate the capital formation and rate of growth.
Appropriate Plants
The under developed countries should invest in such plants that are within their limited means. They should not be over-enthusiastic to invest in large plants beyond their capacity. These plants will adopt latest technology, which in turn help to raise production and absorb maximum trained persons. Prof. Nurkse argued that in their initial stages of growth, underdeveloped countries, should depend more on simple tools and implements rather than the modern ones.