Economic Efficiency of New Technology

an indicator that characterizes the results for the national economy and the economic suitability of producing and using new technology.

A distinction is made between fundamentally new technology, which has just been introduced, and new technology, which has been introduced to an insufficient extent. Fast reactors, lasers, cryogenic power lines, and ground-effect machines are examples of fundamentally new technology; computers and automatic transfer lines with numerical program control are examples of new technology. Fundamentally new technology requires large capital investments for debugging, for converting to mass production, and for advancing into new areas of application. However, such technology promises a substantial result in the future. New technology requires less investment for debugging and refinement, and expenditures for production depend on the scale of possible introduction. The result of such technology may be obtained in a shorter period of time and depends on the scale of introduction.

The methods used to determine the economic efficiency of new technology are the same as the methods used to determine the economic efficiency of capital investments. The methods are based on a comparison of expenditures for new technology and the result obtained from the technology. A distinction is made between the absolute, or general, efficiency and the relative efficiency of new technology. Absolute efficiency is measured as the ratio of the result obtained from new technology—for example, a growth in output, a reduction in the prime cost of production, or an increase in profits—to the expenditures for the development and introduction of the technology. Relative efficiency is used to select the best available variant of new technology by determining the payoff period for capital investment or by comparing discounted expenditures for different variants.

In order to determine the economic potential of the introduction of new technology—that is, the result obtainable from the maximum number of units of new technology under optimum conditions—and the actual or possible scale of introduction for individual years, the following are calculated: the reduction in expenditures for production of new technology that is equivalent in capacity to old technology; the growth in output that may be obtained as a result of using the new technology; and the increase in the profits of the producer and the user of the new technology due to the increase in output, the reduction in the prime cost of production, or changes in prices.

The conversion to the manufacture of new producer goods entails additional expenditures on the part of the producer, especially when sufficient experimental testing and other preparatory work have not been done. Initially, such additional expenditures may result in lower profits or even in losses. The user may also bear additional expenditures owing to the conversion to new technology. The additional expenditures are compensated by a subsequent increase in profits as production is increased and prime cost is reduced. Moreover, a temporary reduction in profits or temporary losses may be offset by bank credit. The price of new technology is set at a level that would motivate the producer to fabricate the technology and the user to adopt it.

Besides indexes of value, certain other indexes may be used to evaluate the economic efficiency of new technology. These include the release of labor power, the facilitation and sanitization of working conditions, a reduction in the consumption of scarce materials, and improvements in the quality and reliability of products. Such improvements may not always be reflected in the value and prime cost of the products.

A distinction is made between the planned and the actual economic efficiency of new technology. Planned efficiency is determined on the basis of planning data pertaining to the amount of output, the amount of capital investment, prime cost, and the payoff on capital investment. Data pertaining to the planned and actual economic efficiencies of new technology are used to determine desirable trends for the development of the technology and to plan the introduction of the technology. If the price of new technology is not known when the efficiency of the technology is being planned, the expenditures for the technology may be determined on the basis of estimates of production outlays or, in the absence of such estimates, on the basis of consolidated norms and analogs.

The actual economic efficiency of new technology is measured as the ratio of the reduction in the prime cost of production or of the increase in profit due to the introduction of the technology to the capital investments for the introduction of the technology. The expenditures for new equipment include expenditures for the delivery and installation of the equipment, for the construction of working areas, and for the augmentation of the circulating productive capital associated with the introduction of new technology. Savings in capital investments due to the release of working areas and savings in circulating productive capital are deducted from the expenditures for new equipment. The data obtained are compared with the expenditures that would be required for the old technological base and for the same amount of output. In addition to capital investments, the prime costs of production associated with the new and old technologies are also compared. If the introduction of new technology entails an increase in output, the prime cost is scaled to the increased output; the constant portion of the expenditures and changes in the prime cost are taken into account.