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.