ACKNOWLEDGEMENT

CERTIFICATE
TABLE OF CONTENTS
INTODUCTION

MAIN OBJECTIVES
RESEARCH METHODOLGY

CHAPTER SCHEME
INTRODUCTION

One important feature of technology is its use for creating wealth in an economy. This very
important feature of technology may be visible in the industrial or urban sector but relatively
not seen in the agricultural or rural sectors of developing countries. There exists significant
difference in the level of technology used in the industrial and the agricultural sectors. The
industries employ modern technology known for high efficiency of production and large
outputs per time. On the contrary, developing economies agriculture (predominantly
subsistence) is dominated by traditional technology characterized by high labour intensity
and low productivity in terms of input – output relationships. The differentiation in the
industrial and agricultural sectors in terms of technology generates what Wolgin (1978)
called the “dualistic problem”. He stated that “developing countries are likely to be subjected
to greater and greater technological dualism and the importation of modern efficient and large
scale technologies is expected to exacerbate the dualistic problem, create unemployment, and
lead to greater inequality in income distribution”. This paper provides hypothetical analyses
of the situation in Wolgin’s assertion
What is Dualism ?

The concept of dualism has had varying connotations depending on where, how and when it
was applied or discussed. According to Myint, dualism is defined as "as the continuing
coexistence of a 'modern' sector and a 'traditional' sector within the domestic economic
framework of an underdeveloped country.1

The concept of dualism must not be confused with whatever types of inequality and
heterogeneity may obtain in a given society. Dualism is a result of a pair of imbalances and
differences regarding the social structure of a country in its totality (i.e., there is dualism
between economic sectors, geo graphic areas, between different types of social relations and
political institutions). For this reason, the interpretations of dualism both in purely economic
terms (e.g., in terms of different marginal efficiencies of the same factors of production in the
same sector or in different industrial sectors, or of intrinsic scarcity of resources, or of limited
possibilities of substitution of specific technological processes, etc.) and in purely
sociological terms (e.g., in terms of social relations and traditional institutions which
contribute rigidity or pose obstacles to development) are too limited to offer an exhaustive
explanation of this phenomenon.2

Second, the concept of dualism should be dynamic. It must reflect the significant inequalities
and also deal with a process occurring over a considerable period of time. In fact, if the
analysis is limited to a given moment, it is difficult to establish whether the discontinuities
which have been found are normal characteristics of every process of development (given
that every process of development is, to a certain extent, unbalanced) or they just reflect a
structural tendency toward unbalanced development. Third, dualism must not be considered
an abnormal phenomenon which is a complex of perturbations that are in contrast to the
"normal" functioning of an economy of free competition rather it should be seen as an
intrinsic tendency toward a growing inequality and cumulative differentiation, i.e., as a
congenital aspect of the process of development

1
http://shodhganga.inflibnet.ac.in/bitstream/10603/34468/12/12_chapter%2005.pdf
2
www.jstor.org, Dualism in the Analysis of Underdevelopment
A dual economy is the one in which there exist two separate sectors within one country
divided by different levels of development, technology and different patterns of demand. The
credits for this concept to Julius Herman Bocke to describe the coexistence of modern and
traditional economic sectors in an economy.

KINDS OF DUALISM

There are mainlythree kinds of dualism :

1. SOCIAL DUALISM
2. FINANCIAL DUALISM
3. TECHNOLOGICAL DUALSIM

Social Dualism: According to Prof. Boeke, “Social Dualism is the clashing of an imported
social system with an indigenous social system of another style. Most frequently the imported
social syatem is high capitalism. But it may be socialism or communism just as well or
blending of both.”

The main problem of lower middle income economies like India is unemployment and
scarcity of capital. In India, since the development process always had an urban bias, the
Social dualism is an inevitable consequences in Indian economy. The social dualism in India
can be traced in the coexistence of advancement of science and superstitions complimentary
to the cost system, brain drain and illiteracy.

One part of the Indian economy is ready to adopt the new international economic order while
the other part is lagging far behind. The other part is still stuck in the shackles of evils.

Financial Dualism: Professor has developed the theory of Financial Dualism. Financial
Dualism means the coexistence of organised and unorganised money market in the LDCs.
The organized money market consists of the central bank, the commercial banks, the
cooperative societies and banks, the foreign banks and other unorganised financial
institutions like agricultural finance cooperation ( as NABARD in India), industrial finance
cooperation ( like the IFCI in India), the insurance companies (such as LIC, GIC, etc. in
India), and the development banks (like IDBI, SIDBI, etc. in India).

The unorganised money market includes indigenous bankers, moneylenders, both

professional and non-professional
Technological Dualism: The dualistic structure which occurs in most of the economies of the
world means the coexistence of two differentiated sectors within the same society, the
differentiation being in the technology used is called technological dualism and in the socio
economic modes of behaviour and organization.

Technological dualism, defined as the utilization of two different techniques in producing the
same commodity, must be due to the distortions in the factor markets such that different
entrepreneurs face different factor-price ratios.3

TECHNOLOGICAL DUALISM – ALL ABOUT IT.

INTRODUCTION:

Technological Dualism, is defined by Benjamin Higgins in his book ‘Economic

Development’, indicates the applications of different production functions in the advanced
sector as well as in the traditional sector. Under this kind of dualism, the advanced sector is
capital-intensive whereas te backward sector is labour-intensive.

In this type of dualism, “productive employment opportunities are limited; not because
of lack of effective demand, but because of resources and technological restraints in the
two sectors.”4
In a less developed country (LDCs) like India, the economy is represented by traditional rural
sector characterised by peasant agriculture, small and cottage industries and handicrafts
which are largely adopting labour-intensive techniques of production.

Prof. Higgins is of the opinion that different Resource Endowment and Production Function
across the traditional and modern sectors of the less developed economies is the fundamental
basis of technological dualism in these economies.5

3
www.jstor.org , A New Approach to Technological Dualism
4
http://www.economicsdiscussion.net/indian-economy/indian-economy-under-
dualism/18995
5
http://www.economicsdiscussion.net/dualism/technological-dualism-meaning-
characteristics-explanation-and-critical-appraisal/12993
On the other hand, the economy is also supporting an advanced modern sector consisting of
large-scale industries, like mining industries, iron and steel, plantations, power plants etc.
which are characterised by fixed technical coefficients, lower degree of substitutability of
factors and largely adopting capital-intensive techniques of production.

India is facing a peculiar situation in which the country is facing population explosion on one
side which is resulting from increasing natural growth rate of population and slow growth of
employment opportunities in the industrial sector due to its fixed technical coefficients.

Due to this low rate of absorption of labourers in the industrial sector, more and more
labourers are being engaged in the agricultural sector due to its variable technical coefficients
and hence the economy continues to be dependent on labourers and this issue of dualism has
become perpetual.

This increasing absorption of labour force in the agricultural sector has resulted in an increase
in the ratio of labour to both land and capital. Moreover, the increasing absorption of labour
has resulted into disguised unemployment in the agricultural sector. Due to this excess labour
supply, labour productivity, levels of technology, pace of mechanisation remain low in
agricultural sector. Moreover, when a hectare of land is shared by farmers more than the land
requires, per capita income also decreases and then that income hardly suffices their purpose
of self-sustenance. This leaves no scope for the farmer to think of the technological advanced
equipments and he sticks to his primitive methods.

Another peculiarity of technological dualism exists in the Indian labour market where an
artificially high wage rates prevail among the organised industrial labourers due to increasing
trade union activity and direct intervention by the government in the labour market.
Simultaneously, the level of wages in the unorganised rural sector remained low.

Thus considering all these peculiarities, Indian economy can be considered as a dualistic
economy.

Characteristics of Dual Sector:

The traditional rural sector has following main features:
1. It is engaged in peasant agriculture, handicrafts or very small industries.
2. Products can be produced with wide range of technologies and wide range of combinations
of labour and capital. Thus, the sector will have variable technical coefficient of production
i.e. different combinations of and labour are used.

3. The factor endowment in this sector is such that labour is relatively abundant factor and
techniques are labour intensive.

Features of Modern Sector:

1. This sector includes industries, plantation, transport and related activities as its principal
occupations.

2. There is a limited scope of Technical substitutability of factors of production. Accordingly,

technical co-efficient of production remains generally fixed and the labour techniques ratio
remains inclined towards more of capital intensive techniques.

3. Compared to labour, more of capital is utilized. Thus the process of production is

dominated by the capital intensive technique of production.

4. Besides labour and financial-capital, developed land also constitutes a major resource of
production in this sector. This sector caters to the domestic needs of the consumers as well as
producers goods for exports.

Explanation of Technical Dualism:

There are two fundamental basis of technical dualism, according to Prof. Higgins:

1. Differences in Factor-Endowment:
Difference in the availability of capital and labour is one of the two fundamental basis of
technical dualism. The traditional sector of the dual economies is generally characterised by
the abundance of labour but chronic shortage of capital.

So, production techniques are often labour intensive in this sector. In contrast, in the modern
sector, it is observed that more of capital is present as compared to labour. Thus almost two
distinct techniques of production are found to exist across two different sectors of the dual
economies which form the basis of technological dualism.
2. Difference in Production Function:
According to Prof. Higgins, difference in production function is second fundamental basis of
technical dualism. While there are fixed coefficients of production function in the modern
sector, these are often variable in the traditional sector. Higgins analyses this duality in the
context of “Factor proportions”.
Eckaus offered a detailed explanation of this feature of less developed countries. Higgins
used this concept in this descriptive analysis of problem of unemployment in less developed
countries.6

Technological dualism suggests that the existence of vast unemployment in less developed
economies is not just due to the lack of effective demand in the economy but also to the
‘resource’ constraint along with the technological backwardness.

KEY PROBLEM POSED BY TECHNOLOGICAL DUALISM

1. Unemployment

2. Disguised Unemployment

Developing countries are likely to be subjected to greater and greater technological

dualism and the importation of modern efficient and large scale technologies is
expected to exacerbate the dualistic problem, create unemployment, and lead to
greater inequality in income distribution.7

Higgins in his theory of technological dualism shows us that technological dualism in

underdeveloped countries is the cause of unemployment and disguised
unemployment. He thinks that the development in the modern sector can take place if
foreign capital is present in the economy. As a result of this industrialization in these
economies do not cause capital formation instead they are associated with ever

6
http://www.economicsdiscussion.net/dualism/technological-dualism-meaning-
characteristics-explanation-and-critical-appraisal/12993
7
https://www.scribd.com/doc/47449015/TECHNOLOGICAL-DUALISM-AGRICULTURE-
AND-THE-UNEMPLOYMENT-PROBLEM-OF-DEVELOPING-ECONOMIES-Egbe-B-E-
1-Ogar-A-M-2-Ibrahim-M-K-3-and-Albert-A-T
 increase in population. This is the reason for unemployment in these under developed
economies.

The problem of unemployment and disguised unemployment has been discussed

using two approaches:-

1. The surplus labour/agricultural surplus absorption approach:

The technical coefficients in the traditional sectors are variable. The unemployed
labour in the industrial sector will have no other option and thus they look for
employment in the traditional sector. As traditional sector is labour-intensive
therefore the inflow in labour can be absorbed in this sector as the technical
coefficients are variable.

Initially this absorption takes place by getting more land under cultivation so as to
keep the ratio of labour to land constant. For sometime the capital and labour
combination remain constant as the output rises. As resources are not unlimited the
good land tends to become scarce and due to inflow of labour the ratio of labour to
capital in the sector rises and hence the techniques tend to become increasingly
labour-intensive. When the point On is reached all the available land has already been
cultivated due to the high intensive labour techniques used and the marginal
productivity of labour falls below zero. Disguised unemployment starts making an
appearance at this point. Under these condition there is no incentive for farmers to or
small industries to make an investment in this sector even if they have the money to
invest. Nor will they be interested in introducing labour saving innovations even if
they knew about them. Since labour supply is in excess therefore labour as a group is
not interested in increasing their efforts. Thus methods of production remain labour-
intensive and economic and social welfare remain low.8

Higgins notes that the problem of disguised unemployment has become more and
more serious in the rural sector during the last two centuries. This happened as
technological progress took a form of capital intensive sector and not technological
progress took place in agriculture, handicrafts. The technological progress has been

8
https://www.revolvy.com/page/Technological-dualism
 rapid in modern sector. Particularly after the second world war both the trade union
activity and direct government intervention has led to increase in the industrial wage
rates in certain countries but these policies have had no effect on the rural wage rate.
As a result, the tendency towards technological dualism has increased.9

9
http://www.academia.edu/15211646/TECHNOLOGICAL_DUALISM_AGRICULTURE_A
ND_THE_UNEMPLOYMENT_PROBLEM_OF_DEVELOPING_ECONOMIES
 2. Two Production Functions Approach:

i. Modern Sector

Two factors of production (labour and capital) and two goods is the assumption
taken to show the technological dualism in the two sectors.

The production function in the industrial sector is shown. The horizontal axis depicts Labour
and the vertical axis is Capital. The curves which are isoquants show the combination of
labour and capital at some given level of output. The higher the curve the higher the levels of
output i.e. O1 level of output is least and as you go to O2, O3, O4 the output level increases.
The dotted line Pi shows the expansion path of the modern sector. From the figure 1 we can
see that the production process is capital intensive. For instance, to get an output of O1 then
OC1 amount of capital will be used and OL1 units of labour will be employed. If OL2 units
are available the excess supply of labour would not have any effect on production techniques
and L1L2 (excess labour) will remain unemployed or will try to seek employment in the
traditional sector. This proves that only when the capital increases more labour will be taken
in and output will be expanded. In this case the labour and capital have to be used in fixed
proportion to get any output. As we know the production process is capital intensive. Figure 1
shows that OC1 units of capital is used and OL1 units of labour is employed to get Q1 units
of output. if the availability of capital increases the producer would shift to the higher
isoquant curve showing higher level of output. Huggins argues that the technical coefficients
are not as rigidly fixed and therefore the small slanting dotted lines where two isoquants meet
in the figure above show that they are somewhat flexible.f there are very large differences in
the factor endowments such as given by CoLn the entrepreneurs would probably think of
using more labour-intensive technique. The slope of the expansion path (Pi) shows that
despite the increase in capital and output there is no significant improvement in the
employment.

Higgins notes that the problem of disguised unemployment has become more and more
serious in the rural sector during the last two centuries. This happened as technological
progress took a form of capital intensive sector and not technological progress took place in
agriculture, handicrafts. The technological progress has been rapid in modern sector.
Particularly after the second world war both he trade union activity and direct government
intervention has led to increase in the industrial wage rates in certain countries but these
policies have had no effect on the rural wage rate. As a result, the tendency towards
technological dualism has increased.

II. Factor proportion problem

This problem was discussed by Prof Eckaus in detail in his study. Prof Eckaus
begins with a simple case where one good is produced in the economy, national
product, with two factors of production labour and capital. It is assumed by him
that the factors given are used in fixed proportions. Eckaus finds out that the
relatively abundant factor i.e. labour faces structural unemployment. This happens
even if the technique used is labour-intensive. So from his study it showed that
structural unemployment of labour exists even when labour-intensive technique is
used. In the next step the national product is divided into two goods-one is output
of local enterprises which are relatively more labour-intensive and output of
 western enterprises which are relatively more capital intensive. Again the result is
the same very high capital-labour ratio results in structural unemployment of
labour. This cannot be removed even if it is adjusted, or by creation of increased
effective demand. This conclusion remains unchanged even if variable
coefficients replace the fixed coefficients in the more labour-intensive field of
employment. Some of the reasons for aggravation of these structural employment
is :- 10
1) If the technological progress takes a form of capital intensive sector.
2) If the rate of population growth is higher than the rate of capital accumulation
in the labour sector.
3) If government policies or the trade union are able to increase the wages to a
higher level.

Criticism:

Professor Higgins has attempted to present how disguised unemployment gradually rises in
the rural sector of dualistic society. But the theory has following defects:

(i) Assumption of Fixed Technical Coefficient:

Higgins wrongly assumes fixed technical coefficient in the industrial sector without any
empirical verification.

(ii) Factor Prices do not Entirely Depend Upon Factor Endowment:

This theory indicates how the factor endowment and different production functions result in
disguised unemployment. So disguised unemployment is connected with the factor prices.
But it has been found out that the factor endowments do not entirely determine the factor
prices.

(iii) Ignoring The Institutional Factors:

10
https://www.scribd.com/doc/47449015/TECHNOLOGICAL-DUALISM-
AGRICULTURE-AND-THE-UNEMPLOYMENT-PROBLEM-OF-DEVELOPING-
ECONOMIES-Egbe-B-E-1-Ogar-A-M-2-Ibrahim-M-K-3-and-Albert-A-T
There are many institutional and psychological factors which have been ignored by Higgins
in connection with their effect on factor proportion.

(iv) Ignoring the Use of Labor Absorbing Techniques:

According to Higgins that industrial sector employs highly capital intensive techniques which
are imported. But practically we find that all imported techniques are not labor saving. For
example, Japan's agricultural development is not due to capital intensive techniques.

(v) Size and Nature of Disguised Unemployment is not Assessed:

Higgins does not clarify the nature of disguised unemployment in the rural sector and excess
labor supply in the industrial sector. Moreover, he does not tell about the extent of disguised
unemployed due to technological dualism.11

SUGGESTIONS:

Although technological dualism is an inevitable attribute of development process, it

impedes agricultural growth rates and the employment prospects in developing economies.
For a sustained economic growth these challenges must be checked through proper
development planning. The checks must be two sector based just as technological dualism
itself. First, in the industrial sector, the economic planners would need to find out what and
how benefits will be shared between the sectors before an industrial development plan is
adopted. They should maximize investment potential of any industry, economize on scarce
foreign exchange, maximize the backward and forward linkages of any industry and
emphasize employment generation. Second, in the agricultural sector, a piece wise process of
transformation is required. Early in the process, appropriate – intermediate technology (in
factors and methods) that can be easily adopted by the agricultural sector (subsistent sector)
should be introduced. This technology is employment generating rather than
underemployment or unemployment stimulating (Olayide, 1980).Moreover, the agricultural
sector entrepreneurs should be provided access to extension services as well as credit

11
http://www.economicsconcepts.com/dualistic_theories.htm
facilities. This will facilitate the adoption of appropriate – intermediate technology and
thereby boost agricultural productivity.

As mentioned by Prof. Higgins ‘Technological Dualism’ arises due to different technological

structures in the pre-capitalist agricultural sector and the capitalist industrial sector. It is a
situation in which productive employment opportunities are limited not due to resource
constraints but due to different technologies applied in different sectors. Thus it is believed
that in the long run, technological progress does not help in removing disguised
unemployment. Rather, it tends to augment it. Looking at this dimension of the Technological
Dualism in India from the second five-year plan onwards (1956-1961), the excess labour
from the agriculture sector should have been absorbed in the expanding organized industrial
and service sectors, however this did not materialise. Because the Modern industrial sector
had the constraint of maintaining fixed capital and labour coefficients in the production
process, therefore creating any additional employment means a heavy investment in capital
goods and many of the entrepreneurs in India lacked such heavy investment. Further,
working in the technologically advanced industries requires high skill formation which is
difficult to acquire in short-run.12

CONCLUSIONS:

Stretching a bit further in the frame-work of Technological dualism, we hypothesised that,

i.e. co-existence of divergent technologies at same point of time leads to predominance of
slightly technologically advanced industries over existing traditional industries. Eventually
the technologically superior quality industrial goods might even take over the ‘Market Share’
of the hitherto traditional household based goods leading to slow deceleration of the latter
industries. Further the process of deceleration could have been accelerated especially after
adopting the Liberalisation Policy in India (post 1990).

Higgins in his theory of technological dualism shows us that technological dualism in

underdeveloped countries is the cause of unemployment and disguised unemployment. He
thinks that the development in the modern sector can take place if foreign capital is present in
the economy. As a result of this industrialization in these economies do not cause capital

12
http://ietd.inflibnet.ac.in/bitstream/10603/2719/17/17_chapter%2010.pdf
formation instead they are associated with ever increase in population. This is the reason for
unemployment in these under developed economies.13

13
https://www.scribd.com/doc/47449015/TECHNOLOGICAL-DUALISM-AGRICULTURE-AND-THE-
UNEMPLOYMENT-PROBLEM-OF-DEVELOPING-ECONOMIES-Egbe-B-E-1-Ogar-A-M-2-Ibrahim-M-K-3-and-Albert-
A-T