Arguments for Labour and Capital-intensive Techniques!!

Arguments for Labour-intensive Techniques:

Should an overpopulated economy like India choose labour-intensive method of production?

Arguments for such techniques are:

The first argument in favour of labour- intensive or capital-saving technology is its high employment potential. Poor LDCs suffer from huge unemployment problem.


These countries also experience a huge army of surplus labour. By using labour-intensive industry like small-scale and handicrafts industry, employment possibilities of the unemployed labour force can be met in a greater way.

Secondly, this technique makes an equitable income distribution since this technique helps in raising the income level of a relatively large mem­ber of workers and hence poverty level gets reduced. This technique either increases employ­ment or minimises the problem of unemployment by absorbing workers.

This then increases output, consumption, etc. All these have the potentiality of spreading higher equality among masses. Thus, the roadmap for an egalitarian society is built up. Social justice—an important objective of growth and development—is ensured.

Thirdly, labour-intensive techniques are not import-dependent technologies as such. Being simple, these technologies are produced domes­tically. As a result, scarce foreign exchange reserves are not drained out. On the other hand, developing countries need to import capital-intensive techno­logies as these technologies are not manufactured in these economies. Thus, capital-intensive techni­ques of production fail to save scarce foreign exchange.


Fourthly, for the reduction of regional inequalities, this technique is considered to be an ideal one, since labour-intensive industries can be set up anywhere in the country. Establishment of these industries do not require large investment. Nor do these industries require social and economic infrastructures. That is why small-scale and cottage industries are set up even in rural areas. In other words, decentralisation or dispersal of industries is made possible through this technique.

Fifthly, another powerful argument in favour of labour-intensive techniques of production is that it can use local latent resources in a multifarious and varied manner. Often in rural areas and even in urban areas, one may find the presence of some skilled workers as well as small entrepreneurs who are deemed to be competent for running and managing small industries. Large-scale modem industries, however, do not entertain these local resources which are considered as ‘unfit’ for these industries. Thus, by building up small-scale and cottage industries, a country can utilise its latent resources in a more effective way.

Finally, underdeveloped countries suffer from shortage of capital. To fill this gap, foreign assistance is often recommended though these countries fail to attract such aid because of many reasons. Under the circumstance, a labour-saving capital-using technology can absorb very few people. This means that it would ‘create small islands of high productivity whilst leaving large parts of the economy untouched’. On the contrary, labour-using technology is capable of utilising scarce capital in an optimal manner in more important- areas of production, particularly consumption goods.

Arguments for Capital-intensive Techniques:

Some economists like W. Galenson and Harvey Leiben-stein have challenged labour-intensive techniques of production as ideal technologies for LDCs and have made a strong plea for capital intensive industries on the following grounds : First, the capital-intensive techniques of production will make possible a rapid rate of investment as this technology maximises productivity per worker minus consumption per worker.


‘On the contrary, labour-intensive technology attracts more employment but at low wages. Thus there is little leftover income for savings and investment. But the capital-intensive technology has the highest reinvestment quotient’ a faster economic development appears because of high income, savings, and investment.

Secondly, since economic growth rate tends D be higher and faster under capital-intensive technology, it generates more employment oppor­tunities over a long period of time compared to the labour-intensive techniques. Although small scale and cottage industries have the greater potential of employment of labour in the current period, capital- intensive industries open up employment opportunities in the long run on a wide scale. In other words, employment multiplier of this kind of industry is not weak as was assumed by Galenson, Liebenstein, etc.

Thirdly, economic development of any country or the sectoral activity largely depends on the availability of economic infrastructures. Capital- intensive techniques assist in the development of such infrastructures. Further, by building up infrastructural facilities, capital-intensive industries may be diversified.

Fourthly, it is strongly argued that capital- intensive plants enhance the skills and the efficiency of the workers as well as managers. In this way, it helps in removing the shortage of experience, competent and skilled personnel that an LDC experiences in its growth process. In other words, learning by doing argument is very strong in the case of capital-intensive technology.

Finally, mass production at a low cost is possible under labour-saving technology. Inexpen­sive products mean low prices. One of the main reasons towards increasing the size of a plant has been the economies of large-scale production.

What is now clear from the above discussion is that both the techniques have advantages. Some people argue: Small is beautiful, while others argue: Large is beautiful. Hence the controversy: Which technique is to be chosen?

Indeed, it is because of the conflict between employment and output, and between employment and savings in the choice of techniques, there is no ‘unambiguous’ answer.