(A) Labour 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.
(B) 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 labour intensive technique.
To quote Prof. Myint, “the capital intensive or labour 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.”
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.
The arguments in support of the use of labour intensive technique are as follows:
(1) 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.
(2) 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.
(3) 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.
(4) 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.
(5) Higher Level of Consumption:
Labour intensive technique will be a useful method to raise the present level of consumption. These techniques tend to raise 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.
(6) 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.
(7) Creation of Economic and Social Overheads:
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 houses, 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.
(8) 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.
(9) Saving of Foreign Exchanges:
The adoption of labour intensive techniques would mean a considerable saving of foreign exchange resources. In short, these techniques are helpful to solve the problem of foreign exchange.
(10) 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.
(11) 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.
(12) 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:
Some critics have opposed labour intensive technique on the following grounds.
They have mentioned:
(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 favour 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.
(v) No possibility of research, modernisation.
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.”
Arguments For Capital Intensive Techniques:
(1) 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.
(2) 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.
(3) 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.
(4) 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 worker is an index of economic growth because it makes possible a higher rate of capital formation.”
(5) 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 centres 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.
(6) 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.
(7) 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 hydro-electric 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.”
(8) 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.
(9) 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:
The use of the capital intensive techniques is legitimately doubted in the early stages of economic development. In a sense, serious doubts have been raised by economists about the feasibility of using capital intensive techniques in less developed countries. In this connection Prof. Meier and Baldwin observed; “The experience shows that the more advanced techniques of the industrialized nations cannot be transplanted without considerable modification and adaptation to the particular economic technical and social needs of the poor countries.”
The arguments against the use of capital intensive techniques have been put forth as follows:
(1) 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.
(2) 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.
(3) 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 unutilized or remain under-utilized. In this connection U.N.O. Report observed that ‘automatic devices suited to conditions in advanced industrial countries, are often left unused in underdeveloped countries.” As a result the equipment which is suited to those countries produces much less in underdeveloped countries.
(4) Wasteful Use of Capital Resource:
Capital intensive technique involves a wasteful use of meagre 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.”
(5) 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.
Website – https://online-live-classes.schoolofeconomics.net/
Google Play App – https://play.google.com/store/apps/details?id=co.jones.oegpr
Facebook – https://www.facebook.com/VineettKumarJoshi?mibextid=ZbWKwL
Instagram – https://instagram.com/school_of_economics?igshid=NjIwNzIyMDk2Mg==
Telegram – https://t.me/SCHOOL_OF_ECONOMICS_VineettKumar
Whatsapp – https://whatsapp.com/channel/0029VaADTTTJuyA4EH56Ii3H
X / Twitter – https://x.com/Vineett_Joshi?t=pgHyrPhQixdQ4q71srxtSA&s=09
Threads – https://www.threads.net/@school_of_economics