Discover the key characteristics of capital intensive techniques in business operations and learn how they can drive efficiency and productivity in your organization.
Characteristics of Capital Intensive Techniques.
It has been strongly argued that those investment projects should be chosen which are capital-intensive rather than labor-intensive. The grounds on which this argument is based are:
- Enterprises using capital-intensive techniques lead to a large share of the resulting income going to entrepreneurs and a small share going to wage earners. Since the propensity to save is higher on the part of entrepreneurs, savings increase and a larger proportion of them are utilized for investment. Thus the rate of economic growth is accelerated.
- As a corollary to this, we can say that since the growth rate is much faster under capital-intensive techniques than under labor-intensive techniques, more employment will be offered to the labor force in the long run.
- In the majority of underdeveloped countries the growlh rate of population is very high and unless capital-labor ratio is raised output per head will not increase. So the use of capital-intensive techniques is indispensable for increasing the tempo of development.
- Further, capital poor countries can ill afford to waste capital through obsolescence and depreciation. Thus a small production of capital goods is required to be replaced in the future and more capital is available for further capital formation.
- Capital-intensive processes of production are more profitable than labor-intensive techniques because under the former productivity rises more rapidly in relation to costs. This is due to the economies of large scale production enjoyed by them.
- In reality, the use of highly capital-intensive techniques leads to the production of quality products and lowering of costs. Low costs mean low – prices and provide the basis for a rapid rise in living standards later on.
- A few capital-intensive projects have a greater total’ impact on the economy than a number of labor-intensive projects.
- For providing economic and social overheads large capital investments are essential in underdeveloped countries.