Labour Intensive and Capital Intensive Techniques of Production | Economics

In this article we will discuss about the arguments in favour of labour intensive and capital intensive techniques of production.

Under-developed and undeveloped countries are always faced with many serious problems in so far as industry and economy are concerned.

Labour Intensive Techniques of Production:

Those who favour labour intensive techniques argue as under:

(a) Providing of Employment:

One of the most serious problems of poor countries is that of providing employment to millions of its people. In case labour intensive production techniques are adopted, main stress shall be on the labour and thus many people will get employment. This will increase employment opportunities and the nation will be in a position to solve this problem at least to some extent.

(b) Helps in the Proper Use of Raw Material:

Each nation has some raw material locally available to it. If labour intensive techniques are adopted then the very raw material is very usefully utilised e.g., cotton can be used for manufactured of cloth at village level with labour intensive techniques.

(c) Necessity of Capital is Reduced:

Poor countries are always short of capital due to various reasons. The people have low per capita income and as such their saving capacity is very low. The rate of capital formation is equally slow. The result is that these countries are forced to borrow from foreign countries. The nation is required to pay heavy interests. At the time of repayment, the nation is heavily strained and forced to have further borrowing.

(d) Encouragement to Cottage Industries:

Cottage and small scale industries are complementary of large scale industries. These also pay a very significant role in the economic life of a nation. In countries like Japan and Switzerland cottage industries play a more important role than large scale industries. If labour intensive techniques are adopted, then cottage and small scale industries will receive encouragement for the betterment of the nation as a whole.

(e) Helps in Raising Standard of the Family:

When labour intensive techniques are adopted with that cottage and small scale industries are run with the help of locally available raw material. In these industries then the women and children all get an opportunity to participate and join. Thus all the members of family become earning hands.

(f) Urbanization is Checked:

In case labour intensive techniques are adopted, then jobs will be locally available, because raw material is locally available. When the workers can get the job at their own place of living, they will never think of migration to cities. In this way urbanization is checked, which is of course a major problem of our modern society.

(g) Much of National Income is Saved:

Usually when the people migrate to cities, because of capital oriented techniques of production, a huge amount is spent by the state on providing amenities, security and facilities to them. If they remain in the villages then no such expenditure is incurred and it becomes available to the society for investment in the industry and for additional production. But when there is labour oriented technique of production, the people are not required to leave their villages.

(h) Quick Results Available:

Usually when capital intensive techniques of production are adopted, there is gap between production and investment. The people are till then supposed to wait; on the other hand in labour intensive techniques there is no gap between investment and production. The labour begins to work with the available skill and the society gets the product.

(i) Inflation is Checked:

Capital intensive techniques mean spending more and more capital in the industry. When more money is available in the market and gets circulated, then evil effect is that the economy cannot bear it. There then starts inflation. But on the other hand when there is labour intensive technique of production then no capital comes in the market and the nation is not faced with the problem of inflation.

(j) Monopolies Checked:

Capital intensive techniques of production ultimately result in the creation of monopolies. Every effort will be made to create a situation, when distribution, sale and production of a commodity are controlled by only one person or a group of persons. But if labour intensive techniques of production are adopted then there is no question of creation of monopoly situation and the society will be saved from the evils of monopoly situation.

(k) No Concentration of Power:

When there is labour intensive technique of production, the changes of concentration of economic power in the hands of few persons are reduced to the minimum. The workers and labourers work on small scale and cottage industries and whatsoever they produce they keep the reward with themselves.

On the other hand when there is capital oriented or capital intensive industry, capital gets concentrated in few hands and those who manage to get power begin to control social, economic and political life of the country and thus create problems for the whole nation.

(I) Discouragement to Capitalism:

Capital intensive techniques of production encourage capitalism, because those who have wealth will only be in a position to produce. We however, know that capitalism is now an outdated concept. But in labour intensive techniques of production, there is no danger of capitalism raising its ugly head.

(m) Advantages of Decentralisation:

Usually in capital intensive techniques of production, the industries get concentrated in few areas to get the advantage of external economies. In these days when wars and internal disturbances can break out at any time, if one area in which industries have concentrated, becomes a trouble spot, whole nation gets dislocated. There is always a desire that there should be decentralisation of industries. This helps in maintaining supplies partially, even in difficult times.

(n) Upliftment of the Poor:

In labour intensive techniques the poor workers are the real beneficiary. Firstly because they get employment, secondly they are not forced to migrate to cities where they would have been forced to pay heavily on rent and for maintaining themselves and lastly by not paying to the middle man, may that be even an industrialist or a capitalist. When they keep their earnings, with themselves obviously, their living standard rises and the poor get a chance to rise in life.

(o) Consumption of Goods Increases:

In capital intensive techniques of production, purchasing capacity of only few persons increases. In this way even if the industry is in a position to produce, it cannot have consumer market and thus producing capacity of the industry remains idle to a great extent. But when the poor have purchasing capacity due to labour intensive techniques of production, then consumer market gets widened and the industry gets encouragement more and more goods are produced to the advantage of the nation.

Capital Intensive Techniques of Production:

Economists like Dobb, are of the opinion that capital intensive technique of production has its own advantages. Some such advantages which have been mentioned in this regard are follows:

1. Quicker Rate of Growth:

When capital is available, new machinery can be set up. The nation proceeds on the path of industrialisation. The rate of growth is both faster as well as quicker. The result of all this is that nation is in a position to become self- sufficient very quickly and in many ways.

2. Bulk Production Possible:

In labour intensive techniques it is not possible to produce the goods in bulk. The labourers have their own limited capacity to produce. It is only bulk production which can meet the needs of the society. But in capital intensive production it becomes possible to produce goods in bulk, with which both national as well as international needs can be met.

3. Possible to Produce Goods at Cheap Rates:

One of the advantages of bulk production is that the goods are produced at cheap rates. In the case of labour intensive technique of production goods are bound to be costly and if the consumer is to purchase costly goods, then in the long run he is the sufferer.

4. More Amounts Available for Re-Investment:

When there is labour intensive technique of production, very little amount is saved for re-investment in the industry! We know that unless money for reinvestment from internal resources is available, no nation can progress. But the nation is not faced with this type of problem when capital intensive technique of production is adopted.

5. No Indifference to Technological Inventions:

If labour intensive techniques of production are adopted then the nation will have to go on using old obsolete methods of production. We know that those nations which do not take advantage of latest techniques of production made available to the society by scientific and technological inventions, will in the long run be the sufferer and continue to remain backward.

6. Quality Goods become Available:

In so far as quality is concerned goods produced manually cannot be of same high quality, as the goods which are produced with the help of machines to which capital intensive technique of production gives birth. Thus the society gets better quality goods with the help of capital intensive techniques of production.

7. No Stagnation in Economy:

Once the nation remains scientifically and technologically backward, then whole economy will become stagnant. A stagnant economy would obviously mean poor living standard of the people, less chances of employment, less respect in the international field and so on. From our actual practice we find that every nation is always keen to break the economic backwardness created by stagnant economy.

8. No Surplus Labour:

Though in the beginning it may appear that in labour intensive technique more workers are getting employment but in the long run one will find that if the life of the plant is taken as a span, then more people will be absorbed under capital oriented than labour oriented technique.

9. Possible to Cope with the Increasing Population:

In poor countries population is very rapidly increasing. For this increasing population, output per head must be raised. If labour intensive techniques are adopted chances of output coping with increased population are very low.

Both labour intensive and capital intensive techniques have their own advantages as well as disadvantages. A poor country cannot decide which of the two is better. Therefore, the nation cannot think in terms of ‘either’ or ‘or’ but must combine both the systems together, in such a way that the benefits of both are available to the society.