The Problem of Technological Choice
A Rudra
DR
R A J , e x a m i n i n g the m u c h "
debated question of s m a l l scale
industries
in
the context of the
second F i v e - Y e a r P l a n , arrives at
the conclusion t h a t even if increase
in
employment
be not made an
objective i n itself a n d m a x i m i s a t i o n
of the rate of g r o w t h of the economy
be made the g u i d i n g consideration,
a case can be made o u t for s m a l l
scale industries: t h a t the o p t i m u m
technique in the sense of one w h i c h ,
w h e n adopted, makes the m a x i m u m
c o n t r i b u t i o n t o w a r d s increasing the
tempo of development can very w e l l
differ f r o m the most advanced technique.
V e r y few people w i l l differ f r o m
the view t h a t the o p t i m u m t e c h n i que, as defined above, is not necess a r i l y the most advanced technique.
We. however, differ f r o m D r . Raj
o n three things. W e differ f r o m h i m
on the method of analysis t h a t leads
h i m to his conclusions; we differ
from
him
on
the f o r m u l a
he
proposes f o r the choosing of the
o p t i m u m technique i n a n y i n d u s t r y ;
a n d we differ f r o m h i m on the point
t h a t there is a n y inevitable c o n t r a diction between
the choice of a d vanced techniques and a desire to
enlarge employment opportunities.
New Orientation
To s t a r t w i t h , we shall give a new
o r i e n t a t i o n to the problem by c a l l i n g it the problem of technological
choice r a t h e r
t h a n the problem of
technological change. D r . R a j t r e a t s
the problem in a w a y that, p e r m i t s
h i m to discuss the i n t r o d u c t i o n of
such technical innovations as m a y
f u r t h e r a g g r a v a t e the e m p l o y m e n t
s i t u a t i o n by 'displacing' some w o r k ers. W h i l e the i n t r o d u c t i o n of new
techniques in e x i s t i n g u n i t s of p r o duction is by no means ruled out in
planned development, the p r o b l e m of
'change', when it m a y mean a f u r ther w o r s e n i n g of the e m p l o y m e n t
s i t u a t i o n , is n o t one w h i c h in our
opinion is being debated in I n d i a in
the context of the second F i v e - Y e a r
P l a n . The problem relevant to the
P l a n , as we see it, is as follows. The
P l a n visualises increased production
of different q u a n t i t i e s in different i n dustries. T h e existing u n i t s of production are by a n d large supposed
to continue as before.
As to the
m a r g i n of a d d i t i o n a l production, the
question t h a t arises is: ' t h r o u g h w h a t
means to realise this?'. There are
c e r t a i n industries where the same
production can be o b t a i n e d t h r o u g h
different technological v a r i a n t s prom i s i n g l a r g e l y different volumes of
employment.
It is here t h a t the
•problem
of
technological choice'
arises and expresses itself in the
question: w h i c h technological v a r i a n t
to choose?
Before we set out on an e x a m i n a tion of the problem, we deem it i m p o r t a n t t o c l a r i f y t w o points w h i c h
Dr. R a j u n f o r t u n a t e l y leaves a bit
vague: firstly, how to measure the
'advancedness' of or w a n t of it in
a technique;
secondly,
w h a t the
scope or the p r o b l e m is like.
A Definition
As to the first, we l a y d o w n as a
definition t h a t technique A be considered more advanced t h a n technique
B w i t h r e g a r d to the production of
commodity C, if the production of
an equal q u a n t i t y of c o m m o d i t y C
(measured in physical units) requires
a smaller number of m a n hours of
labour, direct and indirect, if technique A is used t h a n if technique B
is used.
Thus, if the c o m m o d i t y C
is textile, we have to compare the
number
of m a n
hours of labour
spent to produce a y a r d of textile
t h r o u g h technique A a n d B, t a k i n g
i n t o consideration direct l a b o u r in
w e a v i n g as well the indirect labour
i n v o l v e d in such i n p u t items as y a r n ,
coal or electricity, t r a n s p o r t etc. as
also in the depreciation of capital.
As to the scope of the problem,
theoretically, the question of choice
arises in all
productive activities.
There m a y be d i f f e r e n t degrees of
a u t o m a t i z a t i o n in the m a n u f a c t u r i n g of steel or in the construction
of steam locomotives.
This, however, does not come w i t h i n the range
of the present problem, w h i c h concerns industries w h e r e i n the differences i n e m p l o y m e n t r e s u l t i n g I r o n
the adoption of a l t e r n a t i v e techniques are s i g n i f i c a n t l y large a n d w h a t
is more, the
employment-giving
techniques are such t h a t they a l l o w
of s m a l l scale p r o d u c t i o n , possibly
in t i n y u n i t s scattered in villages.
This, in practice, severely restricts
the scope of the p r o b l e m ; as a m a t ter of fact, h a r d l y a n y other indus*There can, however, be several
other a l t e r n a t i v e definitions, a l l of
t h e m being more or less correlated.
The
c a p i t a l - o u t p u t r a t i o a n d the
capital-labour
r a t i o are t w o other
measures o f t e n used as explieatum
for the vague concept of the " a d vaneedness" of a technique.
556
t r y except s p i n n i n g , w e a v i n g , food
processing, pottery a n d some leather
c r a f t s satisfies the specifications.
It is as w e l l to point out here t h a t
the 'scale' of production of a u n i t
a n d the 'technique' used are not the
sit me t h i n g . B o t h Dr. R a j ' s problem
a n d the problem
discussed in the
present a r t i c l e concern 'technique'
a n d not scale'. There seems, however, to be considerable confusion
in the proposals made by the p r o tagonists of small scale industries
as to 'scale' a n d 'technique'. It is
evidenced
by the m u l t i p l i c i t y
of
terms used, viz., " s m a l l scale industries', 'cottage industries',
'househ o l d Industries', 'village industries',
'hand industries' etc. H a n d poundi n g of rice by peasant
women in
villages and engineering enterprises
using power and machine tools, b u t
e m p l o y i n g less than ten •people (and,
therefore, n o t regarded as factories
under the F a c t o r y A c t )
are both
being considered as i l l u s t r a t i o n s of
w h a t they desire.
Questions of Analysis a l l n o w come to our difference w i t h D r . Raj's analysis.
According to h i m , if the objective be
the m a x i m i s a t i o n of
the rate of
g r o w t h of the economy, v a r i a n t A
is to be
regarded
as superior to
v a r i a n t B if the p r o p o r t i o n of the
surplus per w o r k e r in A to t h a t in
B Is larger t h a n the p r o p o r t i o n of
capital per w o r k e r in A to t h a t In
B; and the o p t i m u m
technology
should be a r r i v e d at by subjecting
a l l the competing
v a r i a n t s to this
comparison.
T h i s c r i t e r i o n is not, however, applicable to our
problem f o r
the
following
reason.
The
criterion
m u s t obviously be applied to industries separately
and individually,
irrespective
of
the
technological
choices made a n d amounts of i n vestible
funds
allocated
to
the
other industries.
I t m u s t therefore
be supposed t h a t
there is a given
a m o u n t of investlble f u n d
allotted
to the p a r t i c u l a r i n d u s t r y in question
before the choice in made. If it be
so, the result of the application of
Dr Raj's criterion w i l l he to m a x i mise the surplus obtained f r o m the
p a r t i c u l a r i n d u s t r y in question. One
is, of course, not interested in the
surplus accruing f r o m a n y one i n dustry, but that obtaining in the
e n t i r e economy.
Presumably, D r .
R a j w o u l d say
t h a t tf the same
Critertion be applied in every field
where there is scope f o r choice, the
overall surplus w i l l
automatically
be maximised.
T h i s is correct provided one starts
by m a k i n g an allocation of investible funds to different industries before the technological
choices are
made. This, however, is not possible. The impossibility can he dem o n s t r a t e d t h r o u g h Dr Raj's own
i l l u s t r a t i v e example.
He comparer
the surpluses to be obtained by i n vesting an equal amount, viz.. Rs.
160,000
through
three
different
techniques in the cotton, textile i n dustry. He shows t h a t in the case
o f v a r i a n t I I , there w i l l f o e employment for 800 workers and a surplus
of Rs. 480,000, while the more a d vanced v a r i a n t III w i l l give employment only to a single w o r k e r and
produce a surplus of only Rs. 94,500.
W h a t D r , R a j , however, overlooks
is that his calculations i m p l y t h a t
the production of cotton textile per
day t h r o u g h v a r i a n t II is 16.000 yds,
while t h a t through v a r i a n t I I I , i s
only 1280 yds.
Now surely these
v e r y different quantities of the same
commodity cannot be absorbed by
the same m a r k e t at the same price.
Market not Altered
To be accurate, the m a r k e t does
get altered by a change-over from
technique I I I t o technique I I . Thus,
the
production
of
36.000
yds.
through v a r i a n t II instead of 1.280
yds t h r o u g h v a r i a n t I I I means a n
additional income of Rs, 11,04.000
in the c o m m u n i t y . B u t this additional income of Rs. 11,04,000 w i l l not
surely be spent all on textile only;
for the additional supply of textile
in the m a r k e t is w o r t h precisely this
amount, namely, Rs. 1.1,04,000. Only
a part of it w o u l d be spent on textile and the rest would make a dem a n d on sundry
other consumer
goods, i n c l u d i n g food.
The supply
of these other consumer goods cannot, however, be made to
match
this changed demand, as we have
assumed t h a t the allocation of i n vestment f u n d to, a n d
choice of
technology for, the other industries
are made independently of the textile industry. We have carried out
the argument in terms of a closed
economy; but generalisation for an
open economy is not. difficult, as we
can s i m i l a r l y argue t h a t the amount
of a c o m m o d i t y t h a t
the foreign
m a r k e t w i l l absorb cannot change
with a
change-over
from
one
technology to
another any
more
t h a n the home m a r k e t can,
The root of the trouble lies, in our
opinion, in D r . Raj's unexplained assumption that the rate of g r o w t h of
the economy is maximised if one
obtains the m a x i m u m amount of
surplus f r o m a given
industry to
w h i c h a given investment f u n d has
already been allocated. Before we
pass on to w h a t we t h i n k is the correct approach to the
problem, we
give an example of another f a u l t y
criterion which also is meant to be
applied to industries
individually,
a n d is, therefore, very convenient.
We have seen t h a t the difficulty in
using Dr Raj\s criterion is that it
ignores the fact t h a t a m a r k e t can
absorb only a given q u a n t i t y of a
commodity at a given price.
Supposing one keeps the product i o n targets fixed and tries to choose
technologies in such a way t h a t the
pooled surplus from all industries
taken together is
the m a x i m u m ,
then the criterion of o p t i m a l i t y for
a n y given industry w i l l be to choose
that
technology which yields
the
m a x i m u m a m o u n t of surplus
per
u n i t of output.
This criterion w i l l
very often lend to the adoption of
the most 'advanced
technique' in
the sense of our definition. Thus, in
Dr. Raj's example, if indirect labour
per u n i t of output be assumed to be
the same between variants II and
I I I , the latter is more
'advanced'
t h a n the former. If we assume t h a t
the fixed production target of 1280
yds, per day has to be realised, it
can be seen t h a t variant II w i l l
yield a surplus of Rs. 38,400 whereas v a r i a n t I I I w i l l yield the same
a m o u n t as before, namely, Rs. 94,500.
But
if tins
criterion
does not
t r e a t production targets as a funct i o n of the choice of technology, it
treats the investible fund in the
p a r t i c u l a r i n d u s t r y in question wind
therefore the t o t a l investible fund)
as being determined by the choice
of technology, It has, therefore, to
be rejected likewise; for the total
investible fund is not really variable.
It is usually given before the problem of
choice of
technology
is
faced.
The problem has, in our opinion,
to be posed in the following manner.
Given a volume of investible fund
f o r the current year, it must be so
distributed in the different industries and a collective choice of technologies so made in the different i n dustries that
(i) the industries can g r o w in a
balanced way and
(ii) the aggregate surplus of all
the industries, taken together,
can grow at the fastest rate.
If
industrial surplus be considered
557
the main source of investment, then
the rapidest g r o w t h of the economy
means the rapidest g r o w t h of surplus year after year.
The investment fund for
the current
year,
therefore, has to be so utilised as to
conform to
the rapidest
possible
g r o w t h of the surplus. But it cannot be used in any way whatsoever.
It must be so distributed as to a l low the different industries to produce in a balanced fashion.
Thus, the production of fuel, power
and r a w materials must equal their
input requirements; producer goods
must be so produced t h a t they f i t
in w i t h the allocation of investment
funds to different industries as also
the
replacement
requirements of
different industries. Then, a given
allocation of the investment
fund
a n d a given collective choice of
technologies in the different industries determine the income generated
amongst different classes
of consumers; and
t h a t determines
the
amounts purchasers
w i l l w i s h to
spend on different consumer commodities.
The supply of different
consumer goods in physical quantity
must
m a i n t a i n certain
proportions
amongst
themselves
so
as to be in h a r m o n y w i t h the proportions between different consumer
demands.
Optimum collective choice
It is therefore not. possible to give
any f o r m u l a for individual choice of
the o p t i m u m technique for individual
industries. There w i l l be an optim u m collective choice, which w i l l
depend on such ratios as the surplus
per
worker,
capital-labour
ratio,
capital output r a t i o , rate of a m o r t i sation etc. for a l l the industries and
all the different techniques
taken
together.
It is not, however, our
position
t h a t n o t h i n g can be said as to the
particular problem of choice which
is being debated in the context of
the second Five-Year F l a n , We have
already seen that the range of i n dustries covered by the problem (e.g.
textiles, leather craft, pottery, food
processing etc) is very small indeed;
further, they are mostly consumer
goods industries.
As fur as these
industries are concerned, it can be
safely suggested that the choice in
these cases must be in favour
of
'advanced' technologies.
The reasoning is as follows.
In a closed economy where savings
amongst wage earners are negligible,
the surplus in the consumer goods
industries must roughly equal the
wages and salaries "paid out to the
May 1 2 1956
w o r k e r s in the producer goods i n dustries. W h i l e the share of the
n a t i o n a l surplus going into the producer goods industries can be and
should be increased by reducing
wastages of the surplus t h r o u g h
unproductive
activities
of
all
types,
capital
export
etc..
it
is
fundamentally
through
the
increase of surplus in the consumer
goods industries that the number of
w o r k e r s employed in the producer
goods industries has to be increased.
The techniques should therefore
be so chosen .for those consumer
goods industries where in scope for
choice exists that the net surplus of
the consumer goods industries i n creases.
This w i l l most probably
mean choice of such techniques in
those industries as w i l l increase the
net surplus per unit of output.* This
is so because we have to assume
that for these selected industries investment have to be so made that
the fixed production targets arc realised. We have already seen that
the industries, where our problem of
choice at a l l exists, are few in n a m
her and not very important, compared to the basic industries of the
economy, w h i c h arc agriculture and
the heavy industries.
THE ECONOMIC WEEKLY
t h a n i n the subsidiary industries, i t
f o l l o w s t h a t investment i n the l a t t e r
industries has to keep in view m o r e
or less fixed levels of production in
the industries in the next few years.
We shall now come to the question
o f employment. I t i s curious t h a t
o n l y s m a l l scale consumer goods i n dustries are discussed in the context
of expanding employment opportunities. Yet, if there are economic
activities where labour a n d c a p i t a l
can really substitute
each other,
they are more to be found in the producer goods industries than the consumer
goods
industries.
Thus,
earthenware pottery is not really a
substitute for chinaware, and k h a d i
cannot be deemed to satisfy the same
consumer needs as m i l l cloth. "But
a. well dug or a piece of l a n d levelled
by h u m a n labour is i n d i s t i n g u i s h able from one dug by a d r i l l e r or
one levelled by a bulldozer.
There is a c t u a l l y plenty of scope
for employment in the b u i l d i n g i n dustries. Mass application of paid
h u m a n labour to such activities as
b u i l d i n g of roads, houses, dams, etc.
-mimic;
Investment in these t w o sectors
has to be made year by year f r o m
considerations of long-term planni n g ; the g r o w t h of these t w o sectors
almost completely determines the rate
as well as the pattern of g r o w t h of
the entire economy. The g r o w t h of
the other industries has to c o n f o r m
to this overall pattern. The investment m a t u r i t y period in these basic
industries being very much larger
' W e have been cautious to use the
qualification 'most probably' and not
make the flat recommendation t h a t
the o p t i m u m technique for any one
of these industries w i l l be the most
advanced available; for, such a definite opinion
will
contradict our
own earlier standpoint t h a t one can
only have an o p t i m u m collective
choice and no o p t i m u m i n d i v i d u a l
choices.
While, by investing in
advanced techniques in the consumer
goods industries, we ensure a. larger
surplus from the consumer goods
industries in future years when i n vestments have matured, it may
(though not. necessarily? mean all o c a t i n g a l a r g e r share of the current
investible fund to the consumer
goods industries at the cost of the
producer goods industries, and t h a t
m a y mean ( t h o u g h n o t necessarily)
r e t a r d i n g the pace of g r o w t h of the
economy.
553
d i g g i n g of wells a n d canals, clearance of forests, t i l l i n g up of swamps
etc. has not been considered seriously as an economic proposition u n t i l
now.
L e t us suppose t h a t we have f o u n d
out the o p t i m u m collective choice of
technologies and t h a t they are being
applied.
The economy is g r o w i n g
in a balanced way, and the o v e r a l l
surplus is g r o w i n g at the m a x i m u m
speed subject to conditions of balance. N o w year by year the surplus
can be utilised for capital f o r m a t i o n
in t w o ways: it can be converted
i n t o capital goods t h r o u g h the i n t e r n a t i o n a l m a r k e t or it can be converted i n t o capital goods t h r o u g h
local production.
There Is, however, a l i m i t to the
production of capital goods v i a the
i n t e r n a t i o n a l m a r k e t because of the
objective situations o b t a i n i n g there;
there is also a l i m i t to the local production of capital goods of the type
of tools and machinery imposed by
the amount of capital stock a v a i l able in the producer goods sector. If
the entire amount of surplus is not
at a l l absorbed in these t w o ways, the
rest can be utilised to give employment t h r o u g h labour intensive activities in the producer goods sector,
i e., constructional activities, and
t h r o u g h the expansion of social
services. The first w i l l give employment to under-employed peasantry
and other unskilled w o r k e r s ; the
second to the
unemployed middle
class. As the fruits of their labour
do not enter the m a r k e t as competing commodities, difficulties of balance w i l l not arise as in the case of
consumer goods.
Thus, w h i l e the second Five-Year
P l a n protagonists of small scale i n dustries w a n t to solve the unemployment problem t h r o u g h the i n t r o duction of less advanced technologies
in a certain number of consumer
goods industries, our method of att a c k i n g unemployment consists in
expanding the surplus in the consumer goods
industries
rapidly,
w h i c h , as we have seen, means the
very opposite, i.e., the i n t r o d u c t i o n
of advanced technologies in the
same industries.
If an objection be raised t h a t
b u i l d i n g activities offer scope to a
very specialised type of labour or
o n l y to u n s k i l l e d labour, a n d therefore cannot be considered seriouely
as an employment giver, the answer
can be t h a t industries like w e a v i n g
a n d spinning, w h i c h are being curr e n t l y considered as employment
givers, do not offer any w i d e r scope
either!