Appropriate or Underdeveloped Technology? 0471104671

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Szp) WILEY/IRM SERIES ON MULTINATIONALS

COl/suIting EdilOr: Dr Michel Gherlman Director, IRM, Paris

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Appropriate or Underdeveloped Technology? Arghi ri Emmanuel

Appropriate or Underdeveloped Technology? ARGHIRI

EMMANUEL

University of Paris I

Followed by a discussion with CELSO FURTADO and HARTMUT ELSENHANS Translaled by Timothy E. A. Benjamin from the ori ginal French work, -Technologic appropri�e au technologic sous- dtvelop¢eT

JOHN WILEY & SONS Chichester' New York· Brisbane ' Toronto ' Singapore

Contents PREFACE TO A DEBATE by Michel Ghertman .. ...............................

PART ONE CHAPTER ONE I. II. Ill. IV. V. VI. VII. VIII. IX.

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Copyright CI 1982 by I.R.M.. Paris AU rights reserved. No pan of this book may be reproduced by any means. nm transmitted, nor translated into a machine language without the wrinen permission of the publisher. British Library CQlalol"inl

in PllblicaJion DtJUJ:

Emmanuel. Arghiri Appropriate or underdeveloped technology?­ (Wiley/lRM series on multinationals) I Technology transfer 2. Underdeveloped areas--Technology I. Title II. Technologic appropri�e ou technologic sous-dtvelop�e? English 338.91'1124'01122

T174.J

ISBN0 471104671

Filmsct. printed and bound in Great Britain by Hazell Watson & Viney Ltd, Aylesbury, Bucks

IX.

X. XI. XII. XIII.

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9 9 12 14 16 19 22 23 25 27

Geographical Transfer and National Appro)ll"ia tion

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'Transfer' as a Short Cut ............................................................ The Import of Technology and Nalionallndependence The Constanls of Behaviour of Underdeveloped Countries .... The Vehicles of Technological 'Transfer' .................................. The Options Open to the Receiving Country............................ The MNC's Options ................................................................. The Role of the MNC in Technological Transfer...................... The Specificity of Ihe MNC...................................................... The Modes and ConSlraints of Financing ................................. The Spread of Technology in the Receiving Country ............... The Training of Technicians ......................................... . The Discontinuous Aspect of 'Transfer' and the MNC.. The General Cultural Framework of 'Transfer' ....... .

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44 46

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The Creation of Technology ................................

.. Production and Use of the Tool ........... Creativity for Creativity's Sake ......................... . . .. Technological Autonomy............................................. ........... The Production of Technology in the International Division of Labour ...................... .. ..... ... . . . ........ ........ . Peculiarities of the Marginal Utilities of Technology ............... . Marginal Costs .... ..................... ........................... . The Position of the LDCs................ . . ..... ..... The Question of the Adequacy of Techniques ................... . .............

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28 28 30 JI J5 J8 39

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V. VI. VII. VIII.

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CHAPTER THREE I. II. III. IV.

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of Technology .

II. Ill. IV. V. VI. VII. VB!.

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CHAPTER TWO J.

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Definitions and Mechanisms

Technology, Techniques and Fundamental Research........... Prices and Financing . .. ......... . . . .............................. ........................ Commercial Technology ,................ ....................... Technology as a Factor of Production .... .. . . . .. The Definitive Forms of Technology............ . . . Technology as a Commodity ........................ Technology and Growth ...... ... ......................... The Mode of Production of Technology. ........................... Imperfections in Competition and Technical Progess .. ....... .

49 52 53 50 l7 61 61 62

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65 68 69 70 71

Conrellls

CHAPTER FOUR I. II. III. IV. V. VI. VII. VIII. IX. X. XI. XII. XIII. XIV.

- The Proportion of Factors .... .......................

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Thc Inhcrent Tendcncy of Capitalism: 10 Save Capital, to Waste Labour .......................................................... The Two Terms of Choice: Sectors-Techniques ......... . The Machinc-Breakers ................................................ ............. The The The Thc

Substitution of Factors ............................ . Three Variables: Labour, Capital, Output ........... . Distinction betwecn the Short and the Long Term.. Age-Old Variations in the Output/Capital Ratio ..............

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Thc 'Plethora' the Factor Labour and the Mirage of Extensive Dcvelopment ......... ........... .. ... . . . . . . . . . . ... The Historical Precedents ............. . . . . . . . . . . . . . . . . . .. Present Day Realities .............. . .. ..... .... ... Di�tortions in thc Price of Factors...........

73

Preface to a debate ...

73

The Theorem of Factor Endowment............................

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. . ..... .... ...... ...... Fallacious Correlations between the Scale of Production, thc Consumption Model and the Proportion of Factors Alternatlvc Solutions... ................... . . . . . ... .. ....

76 77 79 81 83 ., 87 89 92 93 % 97 99

CONCLUDING REMARKS...

103

BIBLIOGRAPHY

112

PARTlWO COMMENTS by Cc1so FURTADO..... .

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REPLY to Cclso FURTADO ................ .

126

COMMENTS by Hartmut ELSENHANS..... Bibliographical Notes........................

141 157

REPLY to Hartmut ELSENHANS ................... ....................... .............

158

This book will shock. It criticizes, in a polemic style, the advocates of an 'appropriate' technology, tailor-made to meet the needs of developing countries. According to Arghiri Emmanuel, this is not a technology specially designed for these countries, but an impoverished technology. It does no more than increase their lagging behind developed countries, and their dependence upon them. For the author, what is important is the amount of goods produced and not the number of jobs created to produce these goods. It is the former and not the latter which establishes the level of social welfare, as well as economic and political independence. He argues that the most modern and capital-intensive technologies are more productive than the old or 'appropriate' technologies, which are more labour-intensive. Arghiri Emmanuel's argument can be summed up in three points: - he supports the view that the most capital-intensive technology, that is to say the most modern, maximizes the quantity of products made available to a country's population, and hence its social welfare; - the transfer of this most modern technology accelerates the devel­ opment of the most industrialized countries, and cuts short the develop­ ment path taken by the Third World. Having reached this conclusion, he criticizes those in favour of appropriate technology which perpetuates underdevelopment and poverty; - since multinational companies are the repositories of this advanced technology, they become the favoured means by which the Third World's technological development path may be cut short. This conclusion leads him to criticize sharply those who reproach the multinationals for being responsible for underdevelopment.

I - The

Superiority of the Most Modern Technologies

His premises concerning the social superiority of the most capital­ intensive technologies are set out in the sixth section of his fourth chapter entitled T he Three Variables: Labour, Capital, Output'. The author believes that these techniques - which thus increase the '

2

Appropriate or Underdevdoped Technology?

capital/labour ratio - should be distinguished according to the kind of consequence to which they give rise: a) Those which lessen output/labour and output/capital ratios. Such techniques minimize both social output and private profitability. They are therefore simply uneconomical and should be rejected. b) Those which increase both these ratios. They are the most advan­ tageous since, whilst saving labour, they increase at one and the same time, social output and private profitability. These are unquestionably welcome. c) Those which increase (he productivity of labour and lessen thaI of capital. It is this last-mentioned category that could be a problem, since, at a certain rate of wage, it might decrease private profitability. A case seems to emerge therein for the supporters of the labour-intensive technique, ' especially, if we assume, as the latter do, a zero marginal social cost of the factor labour. In reality, the conditions in which such situations can exist are rare. For one thing, if empirical studies have indeed shown that the output/capital ratio fell steeply at the beginning of the 19th century and more slightly later, overall productivity per unit of both labour and capital seems to have increased in the 20th century with the scientific and technical revolution. On the other hand, whatever the unemployment, the marginal social cost of labour is never nil. Even when these conditions do exist, however, (that is when capital­ intensive techniques, whilst increasing the productivity of labour, do lessen that of capital, as in (c), and labour social cost is indeed nil), capital-saving techniques should be rejected all the same, if only because they imply the keeping of wages at low levels, synonymous with no­ growth reproduction. Besides, if capital-using techniques, can, at a certain rate of wages, decrease private profitability, they are nonetheless preferable because they increase social output at any wage rate. Naturally, this implies that capital is, between countries, mobile enough to be considered as unlimited for any particular project in any particular host country. If this was not the case, Emmanuel would argue that the very question of choosing the techniques would bc nonsense, since the host country would then have no choice at all, the capital-using technique being materially excluded for lack of capital. Moreover, Arghiri Emmanuel quotes the works of Bettelheim and Sen, according to whom, even though a capital-saving technique might, in certain instances, increase the immediate output, the reduction in the � productivity of labour which this technique entails, would in the long \ run lessen the capacity to invest and, hence, hinder growth.

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Preface

3

In writing this, Arghiri Emmanuel uses a Marxist framework. He refers to Marx, Mao Tse-Tung and Rosa Luxembourg for whom, with the coming to power of socialism, 'immense scope will open up to the triumphant expansion of the Machine' (quoted by the author).

11- Technology Transfer as a Short Cut to Third World Development

It would be doubly impossible for the developing countries to follow the same path as that taken by the industrialized countries in the 1 9th century: they have no colonies, and at best would reach an annual growth rate slightly above I % (that of the English economy in the 19th century). All hope of an even relative catching up would be 'mathemat­ ically' impossible. Besides, the results achieved by the Third World bctween 1950 and 1 975 are much better: i.e. about 5%, or in other words, a doubling during this period of per capita revenue. Technology transfer is thus the variable making it possible to explain this post-Second World War growth. This transfer can take two forms. The direct form is that in which the developing country buys factories on a turnkey basis, together with l information concerning the ways and means of running them, and of Itraining technicians for repair and maintenance. The second form of transfer is indirect: calling upon multinational companies to invest locally, transferring technology to their own subsidiaries. Concerning those in favour of the creation of an indigenous technology, Emmanuel argues: 'A technology "appropriate" to the underdeveloped countries ' would be an underdeveloped technology; thai is to say, one which freezes and perpetuates underdevelopment. This is exactly what should be avoided.'

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The Role of Multinationals

According to Emmanuel, all the impetus in a market economy originates in demand or downstream: technicians of a given categorYI cannot exist without there being, as a prior condition, jobs for their skills.1 In European countries, this evolution has taken several centuries. Those in managerial positions in Third World countries possess an essentially

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Appropria/e or Uruterdevt'loped Technology?

literary training because of the jobs available in administnllion in these countries. In the steelmaking industry for example, 'you become a ! steelworker to produce wages for yourself and not steel for others'. The establishment of a modern factory accordingly constitutes a pre-condition to the steelmaker's existence. The multinational firm makes it possible to break out of this vicious circle and thus to eliminate some of the intermediate steps. By its very presence and need for staff, it indirectly induces technicians to embark upon their careers. It thus stimulates, I indirectly and without in the least intending to do so, the development of a whole educational system for all sorts of technicians. Arghiri Emmanuel considers this indirect effect as more important than the direct impact on the staff in service training. Herein lies the essential contribution of the multinationals to the Third World's short cut to development. Following this conclusion, Arghiri Emmanuel lashes the critics who blame multinationals for both setting up factories in developing countries and for shutting them down. He also notes that the incentives for investment act as a motivation for multinationals; he cites those offered by China and Vietnam, together with the requirements of these countries and many others, including Algeria, that the technology transferred should be the most advanced. It is not the multinational that is lining up to invest its capital and its technology, but rather the Third World countries who are lining up to entice multinationals to invest. A part of Arghiri Emmanuel's conclusions concerns the types of social relationships which coexist with this transfer of technology. 'If Western technology carries with it the social relations of a developed capitalism, the indigenous technology which is going to be supplanted by it carries, according to the same conception of technology's non-neutrality, other social relations which turn out to be much more inhuman and retrograde: Arghiri Emmanuel takes full responsibility for these conclusions. Even if the lRM (Institute for Research and Information on Multinationals) does not necessarily share them, a part of its aims is to publish such a text. These provocative and seldom raised arguments fuel the debate on a question which will remain topical for as long as the problems of development are not solved, that is to say for decades. Twelve years ago, Arghiri Emmanuel published 'The Unequal Exchange' (I), which dealt with Ihe exchanges of goods and services between countries at the Centre and on the Periphery. The role of technology transfer, sometimes with its corollary of investments, has since appeared to be a vital question, both for the Third World's development and for the North-South dialogue. In Arghiri Emmanuel's book 'Appropriate or Underdeveloped

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(1) Mupero, Paris, 1969; NLB, London & Monthly Review Press, New York, 1972.

I're/au

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TechnologyT, the first part provides us with the author's viewpoint on the matter. A version of this first part served as an introduction to the conference that Jean Masini, Vice-President of E.A.D.1. (European Association of Development Research and Training Institutes) organized in Paris on 10 October 1980, with the sponsorship of Paris University I (I.E.D.E.S.) (2). Amongst the criticisms - certain of which were as harsh and polemic as Arghiri Emmanuel's text - we have selected two. Their authors were kind enough to agree that these should be reproduced in the second part of this book. Professor Celso Furtado criticizes Arghiri Emmanuel's polemic methodology and his lack of interest in social structures which are of such fundamental importance for the understanding of economic questions. Professor Hartmut Elsenhans shows that development can! only take place following the creation of a mass market. It is the action of governments, and not that of multinational companies, which alone has the necessary thrust to achieve this result. Unlike Emmanuel, he radds that labour-intensive technologies do not necessarily lead to less production. Furthermore, technology transfer from countries at the Centre to those on the Periphery has the following drawback. By replacing high salary jobs by those with low wages, it reduces the world demand for goods and through this increases unemployment in developed countries, even without the shifting of manufacturing capacity. This book does not intend to bring the dcbate on technological transfer to an end. The IRM will encourage more research, giving priority to empirical analysis, so that theories and hypotheses dealing with this fundamental question can be improved and checked: fundamental for the most industrialized countries and for those, in varying degrees, considerably less industrialized. Beyond universities and specialized research institutes, this work is intcnded for the attention of the different advocates of development: governments, international organizations, national and multinational businesses and banks. They will find new perspectives to influence and steer their action. Furthermore, thanks to the role of the media, this research should help the public to understand these questions differently, and not simply in terms of stercotypes or the distressed, passionate reactions of special interest groups. Michel GHERTMAN Director, IRM.

(2) Institut d'Etude du Dl!veloppement Eeonomique et Social.

Part One

Chapter One

Definitions and Mechanisms

I. TECHNOLOGY, TECHNIQUES AND

FUNDAMENTAL RESEARCH

In current terminology, of which the ambiguities are directly propor­ tional to its spread, 'technology' and 'technique' often appear as synonyms. Many definitions, including the best, purely and simply neglect the distinction between the two notions. In the case of some such definitions, these notions are superimposed one upon another or are in conflict. Thus, in the case of Baranson ( 1 969), technology is 'the act of �onceiving the product... thlL!echniques of production and the manage­ ment systems sel up, so as to organize and carry out the production plans'. Others do not even take the trouble to distinguish between the two notions, clothing them both in generalities of an extreme kind. In this category is Galbraith's definition, 'the systematic application of scientific or other organized knowledge to practical tasks', or that, more accurate however, of Reuber, 'knowledg�Jegarding the i\Ldustrial arts' (I). Some attempts to render thedifference between the two terms explicit are in general no more successful than those which confuse them. Some of them are astonishingly simplistic. An example is the OECD attempt which suggests 'keeping the term" technology" for major technological

(I) J. K. Galbraith (1967), p. 12; G. L. Reuber (1973). This lattcr definition seems, by the way, to be derived directly from E. Mansfield (1968). p. 10, i.c.: 'society's pool of knowledge regarding the industrial arts'. Finally, it is characteristic that, in referring to these definitions in a document submitted to OECD in 1973. Frances Stewart doubtless finds them insufficiently vague and proposes: 'everything having to do with or implied by production in the economy', a sentence meaningless enough to avoid all controversy (OECD. 1973, p. 13).

Definitions r/lld Mechanisms

Appropriate or Unde"lel'efoped Technology?

10

{sic} developments which arc rooted in an important innovation, and using the term "technique" for innovations of lesser importance . . ' (2). For a clearer view, one must not take account of the woolly verbalism of a certain type of writing about the Multinationals: that which Mikoto Usui (3) very rightly calls the 'semantic anarchy' of recent years. One must go back to the permanent conceptual basis of economic science (4). 'Tech­ nique' will then appear as a combination of operations really usable in the 'production of a given commodity. 'Technology' will appear as the capacity, on the one hand, to create (or to choose) differcnl lechniques, and, on the olher hand, to instal, 10 use and perhaps to perfect those techniques. Seen from this angle, a 'technique' appears as a range of processes, a 'technology' as a range of knowledge. Thus, for example, printing by Linotype machine and by photocomposition are two different techniques for the production of newspapers, in the same way that pressure and solvent exhaustion are two different techniques for the extraction of oils. Respectively, on the one hand, they relate to printing technology; on the other hand, to that concerned with the transformation of oily substances. Techniques are substitutable for one another. Technologies can only improve and develop. In a similar way, one should separate the conventional use of the term 'technique' in the more 'economic' sense; that is to say, that which has to do with the quantitative relationship between the 'factors' brought together in the productive process: in the first place, the capital/labour relationship; in the second place, the relationships which bring into play other factors such as land, specialized labour etc. (5). All the same, it is obvious that the development of technology results in reality as much and as often - in the emergence of new manufacturing methods as it .

(2) OECD

(1978), p. 26. Scientific rigour is not the strong point of papers emerging from

internatiOfJal organizations. In certain cases OfJe even wonders whether what appears is not a mere typographical error and if one should not invert the two terms used in the le,;1. Thus, in the World Confederation of Labour (1976, p. 2) we read: 'technique': application in the eronOmtc field, in production, of theoretical knowledge: 'technology': coming to

fruition of a technique in a machine, an apparatus'.

Il) d. QECD, 1973, p. 54.

(.) [n this obscure battle of words, however, there are some noteworthy glimpses of

I

II

does - generally speaking - i n the substitution o f factors within the production function, Finally, the differentiation that we establish downstream between technology and technique, this latter being taken to have one or other of its meanings, should nOI cause us to lose sight of that further differentia­ tion which, upstream, separates technology from pure science. Of these, the first aims at an increase in returns, conceived according 10 the rationality of a giyen mode of produclion, The second is, in ilself, independent of any parlicular application, Wilhin Ihe historical frame­ work of existing social relations, the first seeks to use nature, and the second to understand it. The firsl is intrinsically normative; the second carries within itself its own ultimate purpose. Paraphrasing Marx's eleventh thesis on Feuerbach, one may say that the natural sciences are concerned with interpreting the world, and technOlogy with transforming it. Seen from another angle, technology is 'knowing how' - pure science is just 'knowing' (6). These distinctions are not mere idle theoretical subtleties, They express differences of substance. As for the upstream distinction between fundamental research (what Johnson calls 'curiosity-oriented' research) and technological applications, there is no reason to suppose that the two progress in parallel at all limes and places, nor that the country being ahead in the first field also has the prime position in the second, The well-known differences in this respect between the United States and Europe seem to illustrate this distinction (7), As for the downstream distinction between 'technology' and 'technique', there is between these two notions all the difference that exists between an object's inherent potential and the fulfilment of such potential. The former itself involves two steps. The first one is taken from the moment when a new technique has been conceived and mathematically tested, possibly on a pilot scale in a laboratory, A second stage is reached when the level of general technology relating to the manufacture and actual adoption of machines makes it possible to meet the new technique's requirements; for example, in terms of the resislance of materials, temperalures involved etc., and to solve the problems raised by the very act of selling up a productive unil.

clarity. One such is the doctoral thesis of Bernadette Madeuf who makes the distinction,

I

i" a rigorous and penetrating way, upstream, of technolog� from science; downstream, of

(6) A good picture of this difference is to be found by placing alongside onc another, on

especially pp. 220 ct seq.) Our own

the one hand, the laws of genctics and, on the other hand, the crosses achieved in botany or animal farming.

technology from technique. (B. Madeuf,

[977,

d.

approach on this point is not fundamentally different from hers.

IS) As to the proportion of this latter factor, one occasionally comes across the German term 'intelligenzintensitAI', especially in writers from the Eastern bloc

(d.

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for e,;ample,

R. Brauer, 1958, p. 39S). There is to my knowledge no French or English equiv3lenl. The

e,llpression 'organic composition of labour' which i myself forged in 'The Unequal Exchange' having a deliberate symmetry with 'organic composition of capital' differs from tntelligenz­ intensitiil in that it alludes 10 the relationship between skilled labour and total labour, whereas the German lerm has to do wilh the proportion of skilled, Of, more properly, of 'inlelleclual" labour inpl ll relali�e to the sum of all other inpUIS.

(7) This dissymmetry by which the economically significant applications are preferred to those of a more abstract kind. does not in itself prevent a higher proportion of United Stales than of est�rn European �ra duates in pure science taking up jobs, calling for an ordinary level of Skills, In manufacturing. But this does not mean lhat the Americansesteem fundamen­ kno..'.ledge �re than do Europeans, On the conlTary, il means that they do not look upon dlreclly productlVC �k - 'know·hoW - knowledge set 10 work _ as being any less prestigious than knowledge that Isnot SO lisee!, and, from this, that scientific staff in the USA do notdiselain' as doEuropeans, the idea of'gelling their hands dirty' .

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12

Appropriate or Underdeveloped Technology?

It is possible thai, for certain countries and in certain circumstances. a further significant constraint may exist: that of having available techni­ cians of adequate general qualification to assimilate the principle upon which the new technique is based, and to accept responsibility for mainlaining and repairing it.

II. PRICES AND FINANCING

The foregoing is still in the field of the, as it were, material pre­ conditions of the phenomenon. To move from an inherent technological potential 10 the fulfilment of a given technique, i.c. to the real develop­ ment of productive forces, certain economic conditions still have to be met. On the one hand, these concern prices (as much the purchase price of the inputs as the selling prices of possible substitutes for the output in question); on the other hand, the financing of fixed equipment and of the COSI of setting up the units applying the new technique. So far as the price of inpuls is concerned, we shall go into this in more detail later when we tackle the problem of choice of technique as a function of the price of factors. As for the price elasticity of substitute supply, a good current example is provided by what is called the 'tertiary' technique of crude oil extraction (or of 'enhanced oil recovery' (EOR)). This consists of injecting steam or detergents which infiltrate into the smallest pores in the rock and drive out oil molecules: i.e. those which neither the natural pressure of the deposit ('primary' technique), nor water injection ('secondary' technique) have been able to shift. It is estimated that the amount of this crude oil in known United States l oilfields is of the order of 300 billion barrels, of which 75 billion - or roughly half Saudi Arabia's proven reserves - can be brought out by existing technology. There are, however, two prior conditions. First of all, of course, prices. Before President Carter's liberalization law in July 1979 and the subsequent crude oil price rise to 16 dollars per barrel, there were very few wells for which 'tertiary' extraction was profitable. It is now beginning to be morc and more so, although it appears that only at a barrel price of 50 dollars will the whole of this immense reserve become commercially recoverable. Does this mean that the day such a price is reached, this quantity of 75 billion barrels will become available, with no further delay than that set by the need to manufacture the necessary equipment and by limits to the rate of extraction? No, and here we find the second prior condition: the financing problem. The investments needed to equip all United States

Defin itions and Mechanisms

13

oilfields with this technique exceed by far the available capital originating both from national savings and from that part of international loan capital likely to be attracted. Here we have the true limiting factor which precludes our grouping together the rate of technological innovation and the progress of techniques. This is also a universal factor. The constraint 0 prices (of inputs and substitute outputs), acts only within the framework of a market economy (8). As for the prior condition of having available accumulated funds, this exists, whatever the mode of production. It is yesterday's economic surplus which ensures today's investment, and, from this, the real progress of techniques; or, if one prefers it, which causes technology at the blueprint stage to be transformed into a concrete reality. It so happens though that the accumulation of capital or the creation of a surplus - the choice of term matters little - always lags behind the rate of additions to knowledge and inventions. Whatever the system, there is always a backlog of blueprints to be cleared (9). What does change, according to the system, is the form that this imbalance takes. t In the market economy, it takes the form of a growing shortage of capital in the financial market. In a centrally planned economy, it takes the form of an impossibility of indefinitely transferring material and human resources from the consumer goods sector towards that of means of production. But the result is the same. It is not because of ignorance that the spread of the watermill throughout Western Europe took a thousand years; it is because agriculture without such mills was not able limitlessly to feed those who would have had to build them, throughout the period necessary to do so. In the same way, it is not through lack of 'knowing-how', and even less through lack of just knowing, that, even in the most mechanized country in the world, the United States, all the navvies do not have an excavator available, nor all the masons a crane (10). One of the handicaps currently weighing upon underdeveloped countries is that, at the present level of technology, industrialization calls for quantities of capital per worker much greater than what was required, for example, in the 18th century for the establishing of the colton industry (8) Without taking into account that, in a market economy, at least in modern ones, there exists enough intervention for the State to make up for deficiencies in the workings of the market by using voluntarist stimuli. It is obvious that the day the American Government

judges as absolutely necessary the ·tertiary' extraction of crude oil, it will not hesitate to allocate production subsidies or to enact the necessary imporl taxes so that Ihe choice of technique takes place us if the price had really reached $0 dollars per barrel. (9) II goes without saying that this does not exclude in certain modes of production, ,

notably the capitalist mode, an additional sterilization of available technology, over and above that Which is due to Shortage of investment funds. (lO) The lag between invention and commen;ial application was $3 years for spindles, 22 years for TV and 79 years for fluorescent lamps. (J. Enos, 1962, cited by QECD, 1973, p. 42.) Besides this, 20 years after the first introduction, in 1919, of cigar·making machines, 25% of cigars were still being rolled by hand (e!. W. E. G. Salter, 1960, p. 48).

14

Ap{Jroprime or Undl!rtlel'/doped Technology?

in England. It would be a mistake to believe that this limitation only concerns the techniques thai arc more capital·intensive than those which they replace, even though this is most usually so. In fact, every new technique necessitates a special investment. Independently from the degree of mechanization, the replacement of a former process by a new onc necessitates per 5e an additional investment, if only that correspond­ ing to the accelerated obsolescence and to the scrapping of the former investment {II}. This is what explains the fact that, between countries with different factor prices, the rate at which installations arc downgraded can show considerable variations. Thus, the first use of automatic looms �oes back beyond 1914. In 1946, in England, however, only 6% of looms Installed were of this type as against 70% in the United States (12). On a world scale, the actual application of knowledge always lags behind the reservoir of knowledge potentially able to be applied and, a fortiori, is still further behind the reservoir of knowledge as such. It i also remarkable that the most serious problems relative to technology transfer today arise precisely when, in certain countries and circum­ stances, the influx of foreign capital makes it possible to attempt to run counter to this: attempting to apply more knowledge than that which i locally produced.

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Ill. COMMERCIAL TECHNOLOGY

Finally, it is often considered that 'technology transfer' includes such expenses as advertising: These should not be included: they do not aim to increase or to improve production, but to promote sales. This 'pseudo­ technology' serves only to create additional income for certain producers by increasing their market share, to the detriment of other producers or of consumers. It has nothing in common with true technology other than the fact that both can be protected by patents and give rise to royalty payments. On the other hand, one must not confuse the novelty of a production process with product novelty. If a new product generally implies a new manufacturing technique, the reverse is not equally true. To give two examples of major post-war technological innovations, the continuous casting process makes the same steels, and the shuttle-less loom the same materials as the more traditional process. On the contrary, the manufac(11) cr. W. E. G. Salter (1960). p. 145. Concerning the permanent excess belween the stock of technological knowledge and Ihe �ibililies of financing. cr. also: S. Kuzncts (1952). pp. 508-9 and E. Mansfield. in Williams, 1973. p. 199. (11) Saiter. idem, p. 49.

Definitions and Mechanisms

15

ture of transistors, nylon, ballpoint pens, 'commercial' innovations of the first importance in this same period, naturally necessitated their own specific technique. Just as frequent as the confusion between innovations in technology and those in end products, there is one more confusion between the pseudo-technology mentioned above and the pseudo-innovation. The latter consists of artificially differentiating between products placed on the market, not to meet real consumer needs, but to create the very additional oligopolistic rents also mentioned above. In the framework of this study there is a boundary that should not be crossed: that which separates the how (0 produce from the what (0 produce and consume. Many authors cross this boundary unconsciously and in a confused way. The question as to whether or not Pepsi-Cola is a useless variant of Coca-Cola, or even that both are or are not harmful, has to do with the criticism of the consumption model and has nothing to do with the question of 'technology transfer'. These drinks would not be less useless or less harmful if they were imported than if they were produced on the spot. As for providing incentives to consume them - an allegedly obligatory sequel to producing them - one may count on the importers, in their advertising and sales promotional effort, to be as efficient as the producers. It is one thing to leave or not to leave the market to fix the national consumption model. It is quite another thing to encourage or not to encourage an import-substitute production once, rightly or wrongly, the article in question has become part of the pattern of consumption. It is yet another thing still to ensure the recipes and the technical means of its manufacture, once - still rightly or wrongly - its consumption and production have become a reality. Only this last element concerns the present study. Certain innovations can indeed be 'pseudo'. If it is not a mere change of label or of packaging, the technology which brings them into being can in no way be pseudo (Il).

(11) E�n tho�gh, even .from the human needs viewpoint, one may logether with Galbrailh wonder If a rallonal haSIS really docs ellisl, upon which 10 qualify cerla;n innovalions as pseudo. Cl. J. K. Galbraith (1973), p. 49.

16

Appropriate or Underdeveloped TechT/ology?

IV. TECHNOLOGY AS A FACTOR OF PRODUCTION In the physical sense of the word, il is obvious that technology, in all its meanings, is well and truly a factor of production, and even one of the most important ones since represcnts man's capJi-H!Y- to harness na1lli:e. to his roductive effort. But in the economic sense, which interesls us here, all physical contributions are nol factors of production. For example, the damp environment which is reputed to be responsible for the beauty of English woollen goods, is not a factor of production in the conventional economic meaning of the term. Only paid contributions are counted as such. Even then they must be paid for by the owner of the product being considered; that is to say, in a market economy, the businessman or, more generally, the independent producer. Furthermore, they can only be quantified as the actual cost paid by the latter. It follows that those resources or services which are paid for by the community, whether reproducible or not (mineral or forest wealth, port facilities, roads, tunnels, viaducts, etc as well as police or administrative services or those of public education when this is free for all workers), are not factors of production if they are made available to the private firm without there being a quid pro quo. On the other hand, if there is such a quid pro quo (dues, taxes, tolls, etc.), it is this which is brought into capitalist accountancy as a

i!.

.•

factor or service cost, and, regardless of whether it is below, equal to or above its real cost to the community, or regardless of its material contribution to the production process, it being assumed that these two elements, social cost and social utility, can be measured by the same

standard. A conspicuous difficulty arises with indirect taxes which, for technical reasons, we shall not enter into here, are, at national account level, excluded from 'GDP at factor cost' - whilst being included in 'GOP at current prices'. But in conceptual terms there is no problem. They really do represent a productive service since the firm can neither produce nor function without paying them, and the fact that this is obligatorily so does not change the matter at all. After all, they are no more fictitious than certain royalties covering situation rents, mentioned above, such as brand names, goodwill, etc., and, in their turn, the 'services' that they remunerate are not more pseudo than those remunerated by the royalties in question. Since, ex posl, the 'value added' released by the sales price is necessarily equal to the sum of the monetary costs of the factors of production, one can say that what these latter 'produce' is only in the final analysis 'value

DefiniliollJ; (J1Il1 Mecium;::,ms

17

added', and that the remuneration of the factor is only the share of this 'value added' attributable to the owner of the factor being considered (14). The equality between the 'value added' and the sum of the rewards of the 'productive services' is not a condition of equilibrium but a necessary logical consequence of the definitions used. Since it is an algebraic sum which is involved, this is compatible with any sales price of the end product, profit having a residual character, and, as the case may be, being able to be positive or negative. This equality per Sf! does not tell us which one of its terms determines the other. The choice of which causality is the correct one, however, has important consequences. If we take the remunerations of factors as being given, we have no other condition to satisfy. There is, in fact, only a single set of prices which is compatible with a given combination of remunerations. On the other hand, if we postulate that it is the prices of end products which determine the prices of factors, we are faced with an infinite number of combinations of remunerations, all of them compatible with the same constellation of prices. In order then to ensure the uniqueness of the solution, we must at the same time assume that the additional product created by the use of an additional unit of each single factor, can be identified with the remuneration which effectively falls due to this same factor. Such is the basic hypothesis of the nco· classics (IS). In such a conceptual framework, the existence of technology, be it as a non-negotiable factor of growth, or as a universal factor affecting the return on all the others (a sort of 'factor of factors'), becomes a contradiction in terms (16). In such a framework, there only exists a single valid way to do things and the knowledge of this way is a free product made available, outside time and space, to those concerned. The problem for each country is what thing it should do, and not how it should do it (11). By the free play of market forces, each country, according to the neo­ classics, will choose a pattern of production necessitating an assortment of factors having, on average, the proportions which approximate the most closely to those with which it is endowed. As it is this assortment which is the only one which ensures the full employment of existing (I.) In shOT!, I see no more reason today than I did yesterday to give up the definition of the factor that I had proposed twclve years ago in my 'The Unequal Exchange·; that is to say, 'every established claim to a primary share in society's economic product'. (IS) Cf. R. C. O. Millthews, 1973, pp. 4 et seq. (16) Referring to this occult factor, A. Nussbaumer speaks of prerequisite to other growth factors (cr. B. R. Williams, 1973, p. 169). Estimates of its 'conlribution' 10 growth have, howe\'er, been made. Apart from the works of E. F. Denison, see on this subject H. G. Johnson (1975) pp. 20-2 L (17) 'Until very recenltimes. writes Galbraith, (technical knowledge) was in all countries, l iams Ed., 1973, p. 39. a nearly absolute social good'; in Wil

18

Appropriate or Ullderdn'eloped Technology?

factors the resulting situation is optimal from_ every point of view. Beside� since the supply and demand for each factor are in balance in all countri�s at the same level of employment. there remains no reason why the rates of remuneration should differ from one country to another. If, on the other hand, 'know-how is not a free product but ·mit.ra�es' from one country to another as a paid transaction, it c n, to � slmll r � � exlent be a service commodity like insurance or legal aid, but It can In no wa be a factor since all the factors are postulated, in this doctrine, as being i.mmobile at the international level. This structure collapses the moment we take into account the very simple fact that there exists not one but sev�ral ways of doing things. For our production to match our endowment I terms of factor�, we �an, � instead of choosing the thing that we are gomg to produce With a gIVen teChnique, choose the techni�ue (proP':'rtion �f factors) that we are . . going to use for the production of a glve thmg . T�ls IS one of the � . inevitable conclusions of the work of Leonhef, and It IS also one of the two considerations which conflict with the so-called H.O.S. (Heckscher, Ohlin Samuelson) model, the second being the fact that most factors are neith;r as immobile internationally, nor as immutable intra-nationally as the theory postulates. One can alter their relative quantities by import­ ing/exporting them or by increasing/decreasing their in�igenous pr?duc­ tion. This gives a second possibility: instead of adjustmg our chOice of specialization to match our assortment of factors, adjust this assortment to the needs of our specialization policy. The H.O.S. theory in other respects gets stuck in anothercontradiction. On the one hand factors are assumed to be homogeneous seen within the system as a �hole, but, on the oth�r hand, the idea of an ��pai� factor in the background, resulting in different levels of productiVity IS by definition excluded. Everything that contributes to production can be appropriated, and, following from this, is a fully-fledged factor. It follows . that the same assortment of factors must produce the same quantity of output everywhere. In these conditions, the comparative a�vantage a�d . disadvantage of a given country can only be due to the relative quantlhes of factors available to it in relation to the quantities required for the respective products under consideration. . . As Dockes notes, a way out would be to accept an mdetermmate number of factors. Thus, in Ricardo's example, four irreducible factors would be substituted for the simple factor of labour: vine-grower-in-the­ sun, vine-grower-in-the-fog; Latin c!othmaker, Anglo-Saxon cloth­ maker. In this case, the technological differences would be an integral part of the element specifying the factors, and, following from this, of each country's endowment in terms of factors. Like all the other elen:'e�ts of this endowment, these differences would then be factors of spec\3hz-

y

,

19

Definitions and Mechanisms

ation, but this very quality would contradict the whole idea of mobility and of 'transfer' seen at the international level (18).

V. THE DEFINITIVE FORMS OF TECHNOLOGY

In fact, there only exists a single case in which technology constitutes an autonomous factor of production, in the strict sense of the term. It is that in which it is protected by a patent or where the production under consideration is done under licence. In this case, it is predestined to be transferred. In all other cases, technology, whilst constituting a pro­ ductive force is not a 'factor' in the above sense. But whether a factor or not, transferable or immobile, paid or gratuitous, technology only has two modes of existence: informati�n aEd 'know-how' . It is only autonomous in the first instance: being then always transferable, it can constitute a specific (and, by definition, paid) factor if, as we have just said, it is protected by a patent. If it is not so protected, it is public property and circulates as a non-factor through the usual channels through which scientific knowledge spreads. On the other hand, in its second form, that of 'know-how' , it possesses no autonomy. Incorporated into the factor labour, it is indissociable from it. Finally, 'know-how' implies information, but information does not imply 'know­ how'. In one or other of its two forms, can technology also be 'incorporated' into the factor capital? 1 think that we should be careful in expressing such ideas. Unlike labour power, capital only has a single dimension, its quantity. It is by definition homogeneous. It is this which distinguishes it from capital goods. To transform capital goods into capital, it is precisely their qualities which have to be removed from the former. It is only to the extent that it has been able to rid itself of its qualitative trappings and become a pure quantity, and therefore a pure 'right' to a share of social product (in other words, pure social relation), that capital is truly capital. 11 is in this that it is fundamentally distinct irom means of production. - Thus to speak of a unit of capital A, quantitatively equal but quali­ tatively superior to a unit of capital B because the former incorporates l a more advanced technology, is a contradiction in terms. If the unit of capital A is in any way superior to a unit of capital B, this superiority can not reveal itself, in the world in which we live, otherwise than through a greater profitability. But the law of equalization of rates of profit results (II) For an e�cdlent report of th e

theory on

this point. d.

different contradictory ups and downs of nco-classical

B. Madeuf (1977), pp. 8 et seq, as wdl as pp. 20�24.

20

Appropriate or Underdeveloped Techn.ology?

in such a case in the unit of capital A no longer being qUQntitatively equal to that of capital B, but greater than it. In the capitalist world no 000quantifiable object can exist. Technology qua 'know-how' straightaway finds itself invested in some labour power or other, and whether it is manual or intellectual in nature does not matter much. At Ihis level of abstraction - the only level at which things can be clarified - the difference between the 'know-how' of the Stone Age man and that of today's engineer directing the launching of a rocket is only a difference of degree. No labour power has a zero qualification. Technology as such, in the capitalist relations of production, is 'incorporated' into the purchase price of labour power and, following from this, in the cost of the output. If the output consists of capital goods, there is no major disadvantage in saying that technology is incorporated in these concrete goods. This would be an image. But to jump beyond the transformation of quality into quantity and to say that technology is incorporated in capital qua capital, seems to us to be, at the best, no more significant than a literary metaphor, and, at the worst, a theoretical heresy (l�). There remains the other form that technology may take: information - in its strongest sense, that of a result of concrete and exploitable research. Here a distinction must be made. The real cost of research, including the cost of factors and therefore the remunerations to research­ ers, constitutes a capital good which, though it does not take a material form, is in no way different from other capital goods. It has as such the same status as that which we have attributed to other capital goods, so far as so-called 'incorporated' technology is concerned, and is subject to the same constraints, especially concerning its depreciation. The surplus of commercial value, if any, is then the mere capitalization of a rent, whether this be de jure, as in the case of protection by a patent, or de facro, as where it is derived from market imperfections, especially the slowness of its spread. Finally, it is also to the category of a situation rent to which certain advantages of a technological kind belong, advantages that seem to be enjoyed by very large firms, even when they use processes which have already become public property, and freely negotiable factors. What matters are the cumulative effects of the collaboration between men making up a team, and applying, during a long period and in the same conditions, a certain process which they themselves have refined. This is what Martin Brown calls technology incorporated into the firm, as distinguished from that incorporated into a single individual. This is a (19) I believe that it is as such a metaphor that we should view Marshall's formulation: 'Capital consists in great part of knowledge and organization' . (Principles of Economics, Book 4, chapter I, Section I.)

Defmilions and Mechanisms

21

kind of company-grown 'know-how', which i s something other than the sum of all the ·know-how' possessed by a collection of individuals (20). It is this difference which produces varying results. Take, as an example, a certain method of electrolysis used, by Pechiney. There is nothing secret about it, but even if one can obtain the identical equipment and recruit technicians of the same category, one cannot, at least before a certain time has passed, obtain the same results as Pechiney, any more than Pechiney could, if they wanted, imitate an Alcan process. What is involved, in fact, is a 'know-how' which, by its nature, is collective and indivisible, and which can only therefore exist as such, in such a way that it cannot be reproduced outside the firm which created it, unless one succeeds in enticing the entire team from the chief engineer down to the last foreman (and perhaps down to the last unskilled worker) (21). On these grounds one can say that capital appropriates the wage-earner' s 'know-how' , itself becoming the primary and natural condition of its existence. In all these cases, we have a situation rent enjoyed by the largest corporation. We have it, a fortiori, when the factors themselves are not perfectly mobile. As a matter of fact, very high level technicians are not, in reality, available to work for the highest bidder. The certainty of a job and of career prospects, the personal fulfilment as technocrat and even the social prestige which is offered by the major corporation count as much and even more than the rate of remuneration. This allows such a corporation to be more demanding than the small one when it comes to personnel selection and, remunerations offered being equal, to obtain the best candidates. Being itself a major corporation, the multinational naturally enjoys these advantages, which are derived from a certain 'sluggishness' in the mobility both of technology application and of factors. These advantages undeniably become more and more important in parallel with the increase in complexity of the processes used and as greater stress comes to be placed upon the specificity of techniques and of kinds of specialization. These advantages probably underly the considerable difference in productivity that one observes from firm to firm in a given branch. Even in the United States, where the rate of scrapping is considerably more rapid than in Europe (and especially than in England), it is not unusual to find, between the leaders in the branch and the average, variations in productivity of 100% (22).

(20) M. Brnwn, 1976, p. 12. (21) In the same way, one observes thaI a multinational firm can not generally detach wilh i mpunity an unlimited number of its technicians in order to estahli�h a new unit. 122) Cf. William Bowen, 197�. p. 86.

22

Appropriate or Underdeveloped Technology?

VI. TECHNOLOGY AS A COMMODITY

Nevertheless, the fact that in certain cases the major firms, including ' of course the multinationals, enjoy an oligopsonic situation in relation to the human vehicle for technology, does not strictly speaking make of the lalter a factor nor allow us to say that it is incorporated into capital (23). Can it be a form of commodity or incorporate itself into such? In ils form of 'know-how' it can quite obviously not be a form of commodity since it has no autonomous existence, being straightaway incorporated, as we have seen, into living labour. It matters little whether this labour is supplied by an independent producer, consultant, expert, owner of an engineering firm, etc., or by his wage-earners. By extending its meaning, it can be considered as incorporated into service goods, being part of the transfer under consideration, this taking place indirectly with the technology concealed in the labour incorporated into those goods. It is however wrong to speak, in this case, of transfer or assignment of technology. It is no more true of the architect or builder who delivers your house ready for use, who does not teach you how to build houses, than of the firm which sells you a factory on a turnkey basis and which does not teach you how to manufacture the necessary equipment, nor how to organize them for production. At this stage, there is neither transfer nor assignment of technology. To say that the delivery of a machine constitutes a transfer of the technology which is incorporated into it is as meaningless as to say that the delivery of a house constitutes a transfer of the architectural talent used in its construction. Quite the contrary, the export of the product, in this case the machine, rather constitutes a substitute for the transfer of the technology which would have been necessary in order to produce it locally, and is a sort of non­ transfer. Transfer only begins when information giving instructions how to /IJe the equipment is communicated, to the extent that such equipment includes new items of 'know-how' , implying the need to put the appropriate operators through re-training courses. It should still be made very clear that this in no case involves transferring the technology 'incorporated' into the machines received, in (13) C. A. Michnlet confers the quality of'factor of production' upon it without conditions, whilst nevertheless seeing it as being 'incorporated' into one or other of the other two factors, lubour and capital, which seems contradictory (cf. C. A, Michalet, 1973, p, 24), The same author, however, in an article jointly written with Bernadette Mudeuf. calls in queSlion again 'the approaches in which technology is ranked as a factor of production' (cf. B. Madeuf and C. A. Michalet, 1978, p, 295). On the other hand, the distinction between branches set out by C. A. Michalet on the basis of ·technological intensity', defined as the relatiOfiship between R & D e�penses and output (d. C. A. Michalet, 1973, p. 20) is 8 valid OfIe, whilst being different from the distinction which I proposed to make on the basis of what 1 called the 'organic cQmposition of labour', defined as the relationship between skilled and unskilled labour.

Definirions and Mechallisllls

23

other words the technology which has made the manufacturing of them possible, but rather the way to use them correctly, and this is so whether they serve to produce end products or other machines (24). We can obviously Dot pursue the same analogy, that of the house. which we used above, because the correct way to use that, even if some training for it were to be necessary, would have nothing to do with the technology of production. but rather would it concern the art of living. In any case, it is the contribution of the seller to this training, whatever its form - written or oral - and whether supplied once and for all or spread out over time, perhaps by monitoring and checking up on production, which constitutes a service article, 'transferred' as such, The rest of the training, that which the operators of these machines are going to learn for themselves, on IlJe job, using the equipment in question, also constitutes a technology transferred, but it is not a commodity. It would be appropriate to add here that when technology is indeed a commodity, according to the form just sketched out, it is thus to be described in exactly the same way as any other commodity. Neither the structure of its costs nor the possibly mono- or oligopolistic conditions in which it has been transferred will give it any specificity. Certain critics of the multinationals, grabbing at any available argument, have con­ sidered that what is concerned is a sui generis commodity - they claim it to be indivisible and non·consumable, considering that its marginal cost is nil. There is however nothing extraordinary about that. Technology is far from being the only commodity that has a marginal cost of nil or virtually nil. The nth copy of a book or (even better) the nth place in an auditorium is in exactly the same situation. This is no reason to reduce the price of printed matter as their sales increase, Nor is it a reason to reduce the price of seats as they are reserved, as the authors in question seem 10 want to see multinationals do.

VII. TECHNOLOGY AND GROWTH

In the light of the foregoing, the absurdity of certain attempts toevaluate the contribution of technology to the growth of social product clearly appears. Consciously or not, these research studies start from a certain version of the theorem of factor endowment, according to which techniques, as quantitative combinations of negotiable factors, especially of capital and labour, are constantly and everywhere identical. On this basis one can easily isolate the effects of non-negotiable technology, by attributing to it the p.) The correct way 10 usc them naturally includes their maintenance and. possibly. the mmor adjustments aod modifications needed to adapt them to local conditions.

Appropriate or Underde veloped Technology?

24

difference in productivity, the quantities of the other two factors being equaL It is this philosophy which seems to underlie most of the analyses presented at the International Economic Association Conference, 1972 (251· One mllst say that, unrealistic and unacceptable though it may be, this postulate is the only one which gives internal coherence to this kind of resecasonal variations of work in agriculture. it i s preci>cly necessary to modernize techniques before being able to frec excess manpower.

exists

The Proportion ofFaClor�'

91

only would she remain an underdeveloped country, but, within this category, she would be far from having broken through the barrier of the 55 countries listed by the United Nations as being in the bottom sub­ category, that of the 'least developed countries', considered as being those below the threshold of absolute poverty. She would also be far from catching up the Philippines or Thailand, and there would still be something like fifteen times as much progress to make in order to catch up the least developed of the developed countries, that is to say Greece. By putting only 10% of her population to work in North American or Swedish technical conditions, and leaving the remaining 90% in total idleness, she would on the contrary produce enough goods to distribute to both employed and unemployed twice what she could give them by putting everyone to work in conditions as exceptionally advantageous as those that we have en�isaged above. It goes without saying that, when comparing the two phases of growth, the extensive and the intensive, we have no intention of under-estimating the difficulties and the slowness of the process of absorbing under­ employment. But the asymmetry is not in terms of time; it is in terms of wealth produced. India might take hundreds of years to reach full employment. If techniques remain the same, the distance which separates her from the developed countries will not be significantly shortened. On the contrary, the phase of intensive growth may well be shorter. It will nonetheless be the only one which will really matter on the road to greater material welfare. Incidentally, if we have given so many comparisons, it is to show that, faced with the enormity of this asymmetry between the two stages of growth, before and after full employment, no option of the first stage can reasonably be taken up except as a function of the constraints and parameters of the second (136). To our knowledge, however, none of those who recommend lightweight or 'intermediate' techniques during this first stage has bothered to answer the question as to how, when the day comes, one will be able to get rid of them so as to move on to the advanced techniques necessitated by the second stage. This precariousness has two sides to it. The first is that any 'viscosity' in the later switching of techniques is of a kind to outweigh by its negative effects the ephemeral advantages - assuming that they exist and in the rare cases in which they can exist - of a labour-intensive technique. The second is the danger of seeing low wages not only determining the .

(tJ6)

A relevant remark of Beltelheim ( 1 9S9, p. 334): (When choosing a t echniquc)

.account must be taken not only of the present level of wage and of {he le\lC1 it will rcach

In {he immediate future, but also of the level it will have to reach over the period of time during which a given equipment could be used'. Let us add that thcse two distinct moments in the choice of techniques - below and aoo\lC full employment _ correspond to the expanded reproductions, extensive and intensi\lC respectively, of Marxi st terminology.

92

Appropriate or Umlerdeveloped Technology?

technique used in a given sector, but, by ricochet, showing this sector up as constilUting an optimal specialization in the international division of labour, whereas it enjoys no real comparative advantage, and whereas the institutional pseudo-advantages on which it is based are themselves temporary. This sector can then only continue to exist, in the face of foreign competition, through 'abnormal' wages, whereas the aim of ils establish­ ment is to contribute to crealing the conditions for their normalization. This second contradiction is more important than the first to the extent that the switching of sectors is considerably morc difficult than the switching of techniques. It is even more so if the sector under consider­ ation spreads out beyond the boundaries of import-substitution and, totally or partly, works for export (137).

X. THE HISTORICAL PRECEDENTS

The under-employment in underdeveloped countries which, in the minds of those in favour of labour-intensive techniques, induces the need for this choice, in no way differs, either quantitatively or qualitatively, from that which was rife in currently developed countries when they were on the eve of their industrial revolution or even in its first phase. To be convinced of this, it is enough to read the descriptions of mercantilists or certain novels of the 19th century. In certain cases in these texts, if one removed the dates and the names of places, one could easily take them to be modern 'anti-machine' writings selling out the 'specificities' of present day less developed countries. However, the countries 'in process of development' of former times did not end up by breaking up machines. On the contrary, their developmem was an increasing function of the use of such machines. The most striking proof of this correlation is provided by the United States, starting off from nothing and, in a relatively short time, overtaking the world industrial metropolis, England herself. What is significant is that this exploit was achieved not in spite o/but thanks to the low quality of its manpower and its 'abnormally' high wages, since it was this doubly excessive cost of labour power which induced the massive use of machines. On the other hand, the techniques of manpower substitution which the Americans used, especially during the first half of the 19th century, (1m Ricardo had not failed to allude 10 this danger in this Chapter XXXVI, which we quoted above, in which he recognized lhal, in certain cases. mechaniwlion can lessen 'gross output' whilsl at lhe same time increasing 'nel output',

The Proportion o/Facro!'s

93

were neither llUlOflOl1lOlIS nor naliollol. They were invented in Europe and applied in the United States. In the field of general technical knowledge, the Americans displayed no noteworthy performance. The only know-how which was specially theirs was the unconditional cult of the robot and their pitiless scrapping of equipment at the least sign of its obsolescence (138).

XI. PRESENT-DAY REALITIES

Beyond the opinions concerning the choice of techniques, what is really the proportion of factors which currently characterizes MNC investments in the Third World,';n comparison with the proportion which predominates in developed countries? This is the point at which the whole discussion ought normally to have started, but it is also the point which is the least discussed in current literature. We cannot claim to have read everything that has been printed on the subject of the multinationals and technology - there is so much of it but within the mass of publications that we have examined, we can only find a single figure. That of Reuber (139): 6,569 dollars of capital committed per wage-earner, on the average, for the whole of the Third World. We should still add that this only covers American manufacturing subsidiaries established in LDCs, and that it is not related in any comparative way either to the holding companies. or to the national firms in the LDCs. On the other hand, we do have some figures for the number of jobs created, of which the most recent are those of C. Vaitsos; that is to say, 2.5 million for all MNCs in the Third World as a whole (140). In order to establish the dimension of the organic composition of capital, we should normally add expatriates to Ihis. But by leaving them out, and relating the number of local wage-earners to the stock of direct investments, from all sources in the Third World as a whole and at the same time, i.e. about 40 billion dollars, we arrive al a figure of 16,000 dollars per wage­ earner. On the other hand, there emerges from Andreff's calculations, based on data published by 'Fortune' magazine, thai the same relationship in the United States works out at an average greater Ihan 30,000 dollars 0)8) Cf. W. E. G, Salter. 1960. pp. 72-73. Habakkuk ( 1 962, p. 122) quotes the Report of the American Commissioner to the 1867 Paris Exhibition noting thai, in the sleel seelor, the British. French and Germans were far superior to the Americans, as much in the field of qualily of output as in that 01 innovations. (1)9) Reuber, 1974, p. 152. (1-10) C. Vailsos, 1977 p. 2. .

Appropriare or Underde\-'e1oped Technology?

94

per wage-earner (l41). There results from this that Ihe capital-intensive­ ness in the developed countries would be about double that of the subsidiaries in LDCs. if we based our ideas on the figures of Vailsos, and four to five times as much if took Reuber's figures. Naturally, we are simply speaking of orders of magnitude. One must recognize thai, as inter-seclor averages, these relationships can reflect quite as much an application of more 'lightweight' techniques as the eSlablishmenl of more lightweight sectors. It seems that they represent the resultant of both differentials. We observe besides that those who make a speciality of criticizing the supposedly great capital­ intensity of MNC investments have not generally taken the trouble to make the distinction between sectors and techniques within each sector. All that we can ourselves do is to note that up till now there exists no proof that the capital-intensity of the subsidiaries is effectively equal to that of the holding companies and that, on the contrary, there exists at least a strong presumption that it is significantly lower. This does not mean that the MNC necessarily changes technique, properly speaking, according to the country in which it establishes itself. In general, it does not. The qualitative analyses of the 'critics' are, as a whole, fair in this respect. But what they lose sight of is that the basic technique is not the sole determinant of the number of jobs supplied by a factory, There are ancillary operations: those of storekeepers, dustmen, packers, ware­ housemen, accountants, shorthand typists, etc. It is the field of the continuous, the sole field in which the problem of the substitution of factors has practical application. The principal operations themselves are discontinuous. The marginal productivity of each factor is not only less than average productivity; it is quite plainly nil. This has the result that if you interview the director of an MNC concerning the 'technique' that he uses in his subsidiaries, he will quite naturally and with some pride reply that it is the same as that at the centre. In any case no other kind exists. The only more labour-intensive machines that are conceivable are those of the preceding generation. Thcy can only be found in the second-hand market, of which, quite rightly, the less developed countries do not want to hear (142). That does we

�����;������;�;;� ;;�=t��:t�

(I�I) The most recent ligures ( 1 979) except oil and mines are:

Average assets per employee First 1,000 US firms First 500 firms outside US A First 1,500 firms (whole world)

(In S US)

aW>e, S M.y, 16 Ju"", and II Au,,,,, 1980. 50\1, Q which, after dividing by ( I �11) gives:

(CII+ VII ) ( 1 +11 ) Q"

(6)

cll +vll Q"

(5)

c/ + v, Q,

>

. In economic terms, what ,h,·, demon" "" • ,·on means IS that, for the

144

Appropriate or Underdel'e/opeil Technology?

same profit rate, a technology is profitable if unit prices of production fall. Consequence: the unit cost of production falls. This result would be thus obtained if, as a condition for introducing a new technology, onc look its capacity to provide· an extra profit. In all the inequalities and equations above, p" should be replaced by P/m and by and the inequalities (I), (4) and (5) would by definition become equalities. The value of production realized in the market for the same quantities would be identical, but would give an extra profit for the new technology. Since lTE >rr onc would reach the inequality (5), and therefore the inequality (6). The pursuit of a fall in the unit costs of production and the pursuit of an extra profit constitute, formally, the same conditions of profitilble investment jn a capitalist regime. On the basis of our demonstration, three conclusions are inescapable: I) The organic composition of capital can only increase to the extent that productivity increases and that the profit rate remains at least stable. Wages being equal, innovation can only increase profit rate. If Emmanuel thinks that the law of the falling tendency of the profit rate has not been empirically verified, the formalization of the theory of profitable invest­ ment - which he shares - makes it possible to prove that all the theories of the crises of capitalism, based upon this law of Marx, can only exist in non-capitalist systems. 2) From that, all the demonstrations of the theories of imperialism being situated in the mainstream of Lenin's ideas, demonstrations developed by many other authors later, and according to which capitalism needs the periphery to make the profit rate increase, are without a theoretical basis, although there can be exploitation of the Third World. But if the Third World put an end to this exploitation by measures to control its external economic relations, it would not be because of this that the development of capitalism at the Centre would be threatened, 3) From the inequality (6), it seems obvious that technological progress - in the situation of constant wages - only takes place if the income paid to the factors involved (4) (which in principle constitute the final demand for consumer goods), diminish with technical progress. That could be demonstrated more easily in a system of quantities of production which would be based upon the work of Sraffa. In other words, real wages being equal, the sum of incomes able to be spent on final consumption is lower when there is a new technology. In conditions of wage stability, micro-economic profitability will only be guaranteed - except when there are increases in investment during the upper phase of the cycle - if technological progress creates in the middle term the conditions of under-employment. The objection to this is that, in reality, the quantity produced increases with productivity, which would necessitate either a fall in unit prices following the increase in productivity (which comes to the same thing as a rise in real wages), or 1T

roE'

Commellls by Hartmul Elsenhans

145

a rise in the nominal wage at constant prices which would make the selling of the output possible. Th � co."diriom· orprofoabifiy Of investment show thal the growth of the � caplIallst system IS ollly pOSSIble if real wages increase

We h�ve just demonstrated that, real wages being constant, the micro­ conom lC profitability of a new technology for an individual enter � prise IS only guaranteed jf the incomes from the factor of labou r and expense Iinked to the consumption of capital _ both being comp the . onent of effective demand - diminish, Naturally, one could raise an objections to that based �n the fact that e�ective demand can be swolle n by supplementary Investments, that IS to say by a rise in the rate of �ccumula.tion (�). Such automatism is often formulated via the following Idea: capital has a tendency to accumulate without limit. But 'the factor �apital', unlike investment funds in socialist economies, is only invested the pr.ofitable processes of production, these being characteriz ed _ wa�es bemg constant - by a reduction in the expenses of labour and of capital consumed. This is the problem that has already been raised by R�a Luxembourg on the subject of the impossibility of 'reali zing' the entl�et.y. of the surplus, If Rosa Luxembourg had not exclu posSibility (or the necessity so far as capitalism is concerned) ded the real. wages, she might have solved the problem before K of a rise in eynes; the . reahzatlon of the surplus then being dependent upon the extension of mass demand which motivates the making of investments that are at one and the same time new and creators of profit. For a c3pitalist system to maintain full employment, there must be . profitable Inves tments, which will bring in their train a fall in the unit costs �f production, and which, wages being constant, will not meet the . conditions (I) and (6) of our demonstration. That is possible if there are new technologies which would not be profitable in conditions wages, but which would be profitable to the extent that of constant real wages increased, This is described by conditions (7) and (8): 10

(7)

(8) >

v' being the sum of wages in the case of a rise in the ratc Therefore, what are involved here are technologiesof real wages. t�emselves to be too expensive under constant wages but which show which, under higher real wages, become profitable. In reality, these arc defensive

Appropriate or Underdeveloped Technology?

146

investments, because the capitalist tries to defend himself against the rise in wages by using more capital. Other investments can, on the contrary, be called rationalization investments. Many authors, for example Sturmer (1968), and Hollander (1969), have thus interpreted the dev�lopment of , capitalism by the joining together of investments to rat10nallze produc­ tion which arc made equally in the case of constant wages - and defensive investments, which only become profitable at higher real wages. In this context, HolI�nder develops the theorem of the necessity of the constancy of the coefficient of capital, observed by most economic historians from the second half of the 19th century. However, as we agree with Emmanuel concerning the fact �hat the wage rate expresses a power relationship, and that the wage-dnft must be interpreted in the very framework of this power relationship, there is no reason why, in the absence of full employment, the rise in wages should take place solely because of its interest for capitalist enterprises. On the contrary, I have supported the thesis that the development of capitalism depends on social agitation, that is to say on the prior social pressure exerted by the underprivileged (6). It is n.ot ca.pit� lism that creates social agitation, as Marx thinks, but the social agitatIOn of the underprivileged which forces the privileged to adopt a capitalist man­ agement of the economy. This pressure makes. itself felt before �he development of capitalism. It is also therefore the Impetus of the workmg class which, in practice - and this can diverge enormously from theory makes capitalism develop at the Centre. There is to be found the fundamental structural difference between the capitalism of the Centre and the capitalism called Peripheral. The latter can do without the possibility of an internal market because an external market exists. �ut this Peripheral capitalism is characterized by the absence of a mechamsm essential to the development of capitalism; that is to say, the expansion of the internal mass market. _

_

Emmanuel's thesis, according 10 which inw!srmellfS, decided UpOIi as a fimclion of the profoability of the individual enterprise, lead to a sub­ optimal capital-intensity, is bm'ed upon a false formaliwtion.

Emmanuel tries to prove that, for society, the introduction of machines is more profitable than it is for an enterprise, which comes to the same thing as saying, first, that the social utility of capital-intensive investments is greater than their micro-economic utility, and, then, that the rate of growth in a capitalist regime is sub-optimal. Emmanuel is here following the theories of investment of the 1950s. For society, the threshold from which the introduction of .a machine becomes profitable is defined by the value of the labour that It replaces,

I

Comments by fiarll1ll11 E/sen.lran.s

147

whereas for the enterprise the machine only becomes profitable when its operating cost (depreciation and intereslS on capital both included), is lower than the sum of the wages paid to the workers that it replaces. The value of labour added by the workers, however, is necessarily greater than their wages, the difference being made up by surplus value. This reasoning is supported by an example (page 76) which does not seem to us to be conclusive, even if one accepts the excessively simplistic assumptions upon which it is built. In examining Emmanuel's example, I am first of all impelled to make the following observations: - According to Emmanuel, labour-intensive technology is characterized by an advance of variable capital of 50 units of value and the production �f 100 units of value. Surplus value represents 50 units of value, which, In the absence of fixed capital, gives a profit rate of 100%. If the profit rate is identiclli in the two technologies, the purchase cost of the machine, including depreciation, can only be 50 units of value. Now, according to Emmanuel's thesis itself, concerning profitable investment, if wages are constant, a new technOlogy is only efficient if it entails a lowering of pr

=

(J) This in fact concerns the demon,tration that is missing in the work of Marx, that of an intensive expanded reproduction.

4)

eJ +VJ according to Elsenhans' equation (6) Q,

The rate of accumulation does not increase.

And however, contrary to Elsenhans, global effective demand increases, (e, + V,) < (el + V2) < (eJ + V3), because Q, < 02 < 0" and the level of employment (3,300 hours) remains unchanged. As for the rate of profit, nothing either allows us to confirm Elsenhans' affirmation, that is to say, that it increases automatically with the fall in unit cost. In the above demonstration, it is the opposite that happens: the rate of profit falls in parallel with the fall in costs: 10%, 9.78%, 9.55%. But that does not prove anything either, for the simple reason that in the absence of fixed capital, what comes out of this demonstration is not the profo rare, as a profolinvested capital ratio, but what in accounting terms is called an operating margin, that is to say the relationship of profo fO lurnover (or, which amounts to the same thing, the relationship of profit to production costs). Elsenhans' single-sector model, to the extent to which it also ignores the matter of fixed capital, suffers from the same lack, and what

Appropriate or Underdevdoped Technology?

166

Elsenhans seizes upon as the evolution of the rale of profit is in fact the evolution of the operating margin (4). That does not mean that the Marxian law of the tendency of the rale of profit to fall, is solidly based. I have already in the past ha? occasi�n to formulate my disagreement as much with the 'law' as with certam Leninist and Marxist theories on imperialism and on crises, and I do not think that on this point my ideas diverge from those o� Elsenha�s in �ny essential way. But we must not end up with the opposing law eIther, I.e. Ihat of the tendency of the rale of profit 10 rise, as ce.rt�in of the , . arguments developed by Eisenhans allow us I,D �limpse as hiS mtcntlon , , which How can the new technique be adopted wlthm a system m the power to decide belongs to the private entrepreneur, i� this technique . has the effect of reducing the rate of profit? The answer IS simple. It can do this by way of competition. This is once again something that quite . . obviously cannot be formalized in our demonstratIOns, SlOce t� es� I.atter ignore the multiplicity of indivjdual rates of profit. F?T each �ndlvldual entrepreneur, the sales price is given. Therefore, by IOtroducmg a new technique which lessens his OWII costs, the entrepreneur can sell more cheaply than the market price and nevertheless earn more tha� before. This is what Elsenhans seems to seize upon when he ment10ns the eventuality of an 'extra profit'. But his schema, made up of a single sector, or indeed even of a single enterprise, cannot take account of the fact that the 'extra profi!' made by one entity corresponds to an extra loss or to an extra failure-to-gain experienced by other entities. These 'other entities' will be encouraged to introduce the same technique, but in doing so, and in thus getting rid of their negative 'extra', totall¥ or . partially, they will ipso faCIO produce the disappearance of t �e �ltlVe extra of the first mentioned entity, or even ItS transformation IOta a negative extra. Finally, nothing prevents the sa�es price at the new point . of equilibrium from being diminished sufliclently for the operating margin related to the new level of capital invested to give us a lower �at.e . of profit than before, notwithstanding the fall in the cost pnce. ThiS IS expressed, although less than perfectly, in the above schema. It is the very micro-economic attempt to maximize the rate of profit which may lead to its macro-economic lessening. Finally, we shoul� note that this lessening is not necessarily sub-optimal macro-econom1cally. For, to the extent that the 'weightier' technique raises the level of use of capital, it in any case maximizes the mass of profit, and it is this particular (4) Thc cvolution of Ihe rate of profit also depends upon the slandard chosen. With a . siandard as inv riable lIS an hour of labour, which is the standard of the above Mar�lst type schema, the rale of profit falls. If. with Ihe same data, we bui!t a demonstratio:n ?f the . Sraffa type, in which the standard is one of the twO commodities pr�uced within Ihe

a

s)'lItem, the rale of profil would have risen from to% to 13% when passmg from the first 10 Ihe second period. and would then ha\"C become stable.

Reply 10 Hartmur Elsenhotls

167

maximization, and nOI that of the rate, that constitutes the contents of the optimum for capitalists taken as a whole, However so, and outside the question of the rate of profit, the above schema shows that the reduction of unit costs can very well be consistent with an expanded reproduction of the system, in spite of the remaining constant of real wages. It is this, above all, which we had to demonstrate. The question of the evolution of the rate of profit is quite independent from that of the equilibrium of the system. Elsenhans systematically confuses them. He does his utmost to demonstrate that

c/ +v/ Q,

>

which nobody disputes and which is besides not in need of being demonstrated since this inequality expresses nothing else than the fall in unit costs when the change from technique I to technique II is made, and since this fall constitutes, in a market economy, the very sille qua nOli condition of change of techniques. The thing that he ought to have demonstrated, that is to say

C/ +V/

>

CI/ +VI/

he does not even attempt, convinced as he is that the one inequality always accompanies the other. Why this conviction? Because, in the framework of a simplification that eliminates fixed capital, one inequality does in point of fact always accompany the other, this being so because the decrease of the cost/outPIII ratio is there confused with that of the capital/output ratio, which, by combining itself with that of the wliges/owpul ratio (the latter being derived from the constancy of real wages with the raising of labour productivity), gives us a rise in the rate of profit. On the other hand, as soon as one dissociates invested capital from the costs of current production, a fall of unit costs becomes compatible with a rise in the capital/output ratio, and, therefore with a fall in the rate of profit. In consequence, however neutral it may be in other analyses, this simplification is no longer neutral when it is the rate of profit that is involved, and it must be abandoned. For this purpose, I propose the following schema made up in physical terms (page 168), in which capital is properly distinguished from costs of production. As in the preceding schema, the organic composition remains, in spite of its diachronic raising, at all times equal in the two sectors, and the rate at which productivity progresses is everywhere the same. It follows that I corn is constantly equal to I steel, as formerly . All magnitudes are homogeneous. It also follows that the physical terms become identified with the value terms, and all ratios, organic composition, rates of profit, as well as unit costs, can be directly calculated.

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7.6%

End of lst Period

Production (f)........... .............................. Intermedidate consumption (c) ........................... Gross fixed capital formation .................................. Replacement of equipment scrapped (b) ............. Net (bled capilal formation...................................... Fixed capital of past period ...... . . ..... Fixed capital of thc following period Production (f) ...... . Opening stock (following period)

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110

ISO

450 37

4)4 166

637 491

..J1 491

Let us also note that, through a concern for symmetry with Elsenhans' formalization, namely with: r "" mj(c+v) (which is also that of Marx), we have maintained the assumption of 'advanced' wages. This assumption here takes the form of a corresponding stock of 'corn', created by the enterprises at the beginning of the period. In other words, we assume that the workers consume in tl the 'corn' produced in to' On the other hand, for the convenience of the calculation, we have assumed that the productive (intermediate) consumption of 'steel' relates to the output of the current period. It is however clear that these two conventional assumptions do not engender any bias in the results that is capable of affecting our point. Besides we assume that (a) the cycle is a one-year one, and that the life of equipment is 10 years, and (b) that material inputs are equal to one-tenth of production. Thus, as it should be, depreciation is propor­ tional to fixed capital, whereas the remainder of constant capital consumed is proportional to current production. Finally, in the manner of Sraffa, the 'quantity oflabour' in chronometric terms does not come into the picture. Commodities are produced by means a/commodities. The 'v' input is a given quantity of corn. (The fact that this corn is first converted into 'muscle power' before being converted into new output, does not concern capital.) The worker is a 'talking machine' that is fed with corn, just as others are fed with fuel. Productivity is measured, not in terms of units of labour but in terms of 'corn' , which, with constant real wages, amounts to the same thing. The final result is that the fall in unit cost: 0.67>0.65 > 0.64 does not prevent intermediate and final consumption from growing: 1650+550+ 1500< 1830+605+ 1500£1/ is compatible with

C, +V,

0;-

>

itself compatible with C, + VI < CI/ + VII

Q.E.D.

770

334 140

o o

0

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Elsenhans could object that the technique of the third period (organic

170

Appropriate or Underdeveloped Technology?

composition: 13.6) is not a valid one for the competitive capitalist. The capitalist of sector I, for example, having available, at the end of the second period, capital of 16,866 (15,712 of fixed capital plus 1,154 of variable capital), will find it more advantageous to invest it in the former technique, expressed by an organic composition of 12.2, that is to say, fixed capital of 15,588 for a variable capital of 1 ,278. If he does this, the structure of his production will be: ProfiJ Org 'c Unit Variable Fixed Depreccapital julian Materials Capital Surplus OlllpUI Rate comp'f/ COS! Prod'IY 0.65 4.033 1,278 1,802 5,155 10.68 12.2 516 1,559 15,588

In spite of the lower productivity (4.033 instead of 4.34) and its higher unit cost (0.65 instead of 0.64), the former technique procurcs for our capitalist a higher mass and rate of profit than those of the new technique; respectively, 1 ,802 instead of 1,783 for the former, and 10.68% instead of 10.57% for the latter. This is roughly the argument that J. E. Roemer uses in his discussion with A. Shaikh (5). What are involved here are thc motivations ex ante of the competitive capitalist. According to Shaikh, the lowering of unit cost is enough to make an innovation competitive. No! replies Roemer; account must also be taken of the additional fixed capital that this innovation requires. This fixed capital has, he says, a cost (6). This discussion is not over. For, the rale of capital accumulation being greater than the rate of demographic growth, the maintaining of the former technique is quile simply impossible socially speaking, without making a part of the capital unemployed. In the above example, it is clear that, with unchanged amounts of labour (1 ,500), the former technique can only absorb 12.2 x l,500= 18,300 of fixed capital. The capitalists have 20,415 of it available. There is therefore a surplus capital of 2,11 5. The situation is not in equilibrium. One of two things can then take place. Either this capital will push up the bids on the labour market, up to the point at which the new technique becomes competitive - this (S) J. E. Roemer. Technical Changc and thc 'Tcndency of the Rate of Profit to Fall', Journal of Economic Theory, voL 16, No. 2, 1977. A. Shaikh. An Introduction to the History of Crisis Theories, in US. Capitalism i" Crisi� , Union for Radical Political Economic>, 1978. A. Shaikh, Political Ecooomy and Capitalism: notes on Dobb's theory of crisis, Cambridge Journal of Economics, 1978. vol. 2. pp. 233-25 1 . J. E. Roemer, Continuing Controversy on the Falling Rate o f Profit, Fixed Capital and other Issues. Cambridge Journal of Economics, 1979. \'01. 3, No. 4. (6) It should however be noted thaI Roemer, to whom Ebenhans seems to refer, in the same context formulates a thesis which Elsenhans challenges, i.e. 'if innovations are not capital-using. labour-saving. they may be at once competitively introduced and soeially undesirable'. (1. E. Roemer, 1977. p. 414). -

Reply to Hartmut Elsrnhans

171

is the case of 'defensive' investment; or, if wages are rigid, it will cause the sales price to full down to the point at which the difference in unit cost makes the new technique preferable. In the above example, the sales price of the output of sector I, which equalizes the profitability of the two techniques, is 0.87; i.e.: (5,155 xO.87) - 3,353 (5,OlOxO.87) -3,227. Below 0.87, the technique of the third period (organic composition: 13.6) once again becomes preferable. Other combinations of variables inducing the use of the new technique can be envisaged. Do not forget that the rate of profit under question, hoth in the Marxist law and in our calculations (mine, as well as those of Elsenhans and Roemer) represents the average return on capital, whereas the rate thtlt is relevant in making the choice between techniques is that which interests the one who makes that choice, that is to say solely the active capitalist; i.e. =

total profit less interest paid on funds borrowed own funds It is necessary clearly to distinguish this rate from Ihe rate of general profit, i.e. total profit (including interestpaid) total assets In the event that the whole amount of available capital exceeds the employment provided by the former technique, the rate of interest could fall in parallel with the fall in the 'general profit rate', whereas the active capitalist will obtain a higher profit by what is called 'leverage'. Roemer himself mentions the payment of interest as a form of 'cost of capital' , but does not worry about the possible difference between its rate and the 'rate of current profit' Ihat he uses in his mathematical demonstration. I therefore think that Shaikh is right: what is decisive for the individual capitalist, in making up his mind whether to adopt the new technique, is the fall in unit costs, But, be this as it may, one must not confuse the existence of a state of equilibrium with the pathways through which one attains that state. The level of abstraction of each one of these two analyses is very different. The compatibility, in equilibrium (ex post) between a fall in the rate of profit and the fall in unit costs - and this in spite of the constancy of sales prices and of 'real wages' - is one thing. This compatibility is well and truly established by the above schema. The existence of a pathway leading us 10 it, that is to say the competitive viability (ex allte) of the corresponding technique, is quite another thing. The latter can neither be theoretically demonstrated, nor can it be excluded. A priori, therefore, it is also possible. Finally, let us not forget that, in the assumed conditions the new

172

Appropriate or Ullderdeveloped Technology?

technique is that which maximizes the mass of profit notwithstanding the fall in its rate: 21,915xO· 1057> 19,800xO·\068. This technique (capital intensive) is therefore optimal, not only for society as a whole, but also for capitalisis as a whole. This being so, it only remains for us 10 identify the criteria which make it competitive for the individual capitalist. As we have just seen, there exist several of these. So far as my reply 10 Elsenhans is concerned. let us add that all the foregoing is, after all, only of secondary importance. There are innova­ tions which lessen the rate of profit and others which increase it. My refutation of Eisenhans is limited to establishing that, with rcal wages being constant, overall consumption, both final and intermediate, does not necessllTily diminish as a result of technical progress, whatever illcidenwlly, may be {he effects of the laffer upon the evolution of the rate ofprofit· Were it to be shown by a+b that the sale innovations acceptable in a competitive situation are those that increase the general rate of profit, my position would not in essence be affected. What Elsenhans has lost sight of is that the simplifying assumption underlying his (6) of a sufficienlly long cycle for fixed capital to be thoroughly amortized, cannot legitimately be used here. For if, during its lifetime, the machine displaces more factors than its own manufacture has required, its lifetime is so much longer than the time taken by its manufacture, that for any given period of time the amount of factors employed for producing the machine exceeds the one saved by its use in the production of other goods. The difference represents what we call the net capital formation, without which there is no expanded reproduc­ tion, and this is precisely what is awkwardly missing in a model with no fixed capital at all. like Elsenhans' . To take account of this net capital formation, Elsenhans should either break down the denominators A" QII' into consumer final goods on the one hand and additional capital goods on the other, or deduct from the numerators the cost price of the latter, letting 01> 011 designate the final consumer good only. (Otherwise, his (6) does not make sense at all, as it relates the factor cost of the entire social production (c+v) to the quantity of the production of the final consumer good only (0).) If we write k, for the part of c+v required to produce these surplus capital goods with the former technique, and kJl for that required to produce them with the new technique, Elsenhan's (6) becomes: (c, +v, ) - k/ (cl/ +v,,)- kl/ (6,) > 0, 011 Our assumption of a constant real wage entailing Q, QIl ' and kll being by the definition of expanded reproduction greater than k't it suffices that =

Reply La Hartmut EheniWrlS

I7J

for the above (6a) to become - contrary to Elsenhans - perfectly compatible with

Elsenhans' long wear and tear of fixed capital in (6) would simply mean that production in the means-of-production department stopped dead until all existing means of production were used up and their value incorporated in the final consumer goods. As if people - probably warned of the impending Last Judgment - set down to eat up their capital, whilst, at the same time, deciding not to let production of consumer goods grow. It is tautological that in such a case, the more productive the technique the greater the unemployment it will entail. But in the real world teChniques are overlapping each other. Technical progress is continuous. It consists precisely in substituting 'longer' processes for 'shorter' ones, the relevant length here being not the life of each machine taken separately, but the distance that separates the first investment upstream from the final consumer article downsteam. On each shift of techniques, the system uses the labour power which the 'labour-saving' machines make superfluous downstream, in order 10 prepare upstream a still more 'labour-saving' process. Capitalists make men work today in order to be able to get rid of them tomorrow. But, since tomorrow they will do the same thing with a view to getting rid of them the day after tomorrow, the expanded reproduction of the system is theoretically possible to an infinite extent. Is this merry-go-round desirable? Is it absurd? Is it only possible in practice and in any circumstance, from the moment when each wooden horse is controlled by a separate rider who is there to knock another off his saddle? That is another question (7). What is certain is that not only is it theoretically (mathematically) po.uible, but that it has been histor­ ically verified in certain circumstances, especially during the first phase of development of capitalism . Why is this so in certain circumstances and not in others? Because this asymmetrical reproduction of the system, in which dept. II remains stagnant and dept. I accounts for the total amount of expansion producing so to speak more coal so as to manufacture more steel, and making more steel so as to produce more coal, according to Tougan Baranovsky' s formula - cannot run on indefinitely and without problems. (7) It is also another matter to observe that the merry·go-round rarely rotates at full speed. AI its cruising speed, during the very period