Robert Mosolgo

Notes on Small is Beautiful

I just finished reading E.F. Schumacher’s Small Is Beautiful: A Study of Economics As If People Mattered, so I thought I’d jot down a few impressions before I forgot them.


Schumacher was a post-WWII British economist. He advised the British National Coal Board (the nationalized coal company) and rebuilding of postwar Germany.

The book was published in 1973, the same year as the oil crisis, which raised some questions about our dependence on imported petroleum.

Greed and Capitalism

Schumacher returns again and again to a quote from John Maynard Keynes:

For at least another hundred years we must pretend to ourselves and to everyone that fair is foul and foul is fair; for foul is useful and fair is not. Avarice and usury and precaution must be our gods for a little longer still.

In context, Keynes is claiming that eventually, people will recognize will give up a love of money because they find that it doesn’t satisfy. But first, a capitalist order must create material abundance.

For Schumacher, this triggers a series of conclusions:

  • Capitalism is predicated on greed.
  • Greed may “benefit” the greedy, but it doesn’t benefit other individuals or communities.
  • Since capitalism is built on greed, we shouldn’t expect a rising tide to lift all boats. On the contrary, we can expect “winners” to build boat lifts to raise their own boats.
  • As a society, when we set our sights on accumulating wealth (for example, by celebrating the rich), we promote greed among ourselves. We shouldn’t expect this to ever lead to the renunciation of material wealth.
  • Since the system is predicated on having more, we should never expect to have enough, and consequently, we shouldn’t expect this order to bring any kind of peace.

As a modern person, I ask myself, are we arriving at Keynes’s expected conclusion? He wrote:

When the accumulation of wealth is no longer of high social importance, there will be great changes in the code of morals.

I wonder when that “When…” is/was expected to arrive.

Human and Inhuman, Freedom and Order

Schumacher’s understanding of social malaise and environmental destruction boils down to a claim about organizational structure, something like: when an enterprise becomes so big that ownership becomes isolated from execution, it becomes inhuman (in the sense that decision-making can’t be made with human-to-human perspective), and as a result, workers are reduced to cogs, natural resources are reduced to consumable inputs, and and the like.

Schumacher assumes (observes?) that when humans make decisions regarding their neighbors and hometowns, they are more likely to consider the non-economic factors of their decisions. For example, a non-economic factor might be a beautiful landscape, a creatively engaging endeavor, or caring for something (or someone) who can’t care for itself. For a profit-oriented calculation at headquarters, these factors might be weighed less heavily.

To simplify one of Schumacher’s maxims to address this issue, he suggests that nothing should be centralized if it can be decentralized. He acknowledges that some order is required in order for our larger societal goals to be accomplished, but also, he warns that too much order stunts many non-quantifiable joys in life. So, by decentralizing, you can engage human entrepreneurial spirit in a way that is healthy for the localities it impacts.

Intermediate Technology

A large section of the book (“The Third World”) addresses development in poor countries. Schumacher criticizes the dominant mode of development, namely, the installation of capital-intensive heavy industries in large cities. He cites several problems:

  • The purchase of capital (eg, a factory) requires the poor country to take on debt from the rich country, leading to a kind of economic bondage
  • High-tech industries require a highly-educated workforce, which is often not available locally, so foreign workers (from rich countries) are employed instead of local people. Since Schumacher considers work (at its best) to be an edifying and satisfying experience, this deprives local people of an important benefit of the development.
  • High-tech, city-oriented development leads to a two-fold economy, where a metropolitan elite exists in a different sphere than their rural compatriots.
  • High-tech products can’t be purchased locally, so they must be exported. This doesn’t strengthen the local economy (eg, it doesn’t foster more local businesses). Similarly, high-tech industries may require very refined inputs which are not available locally, so instead of using local inputs, the enterprise will depend on imports from elsewhere.

Schumacher espouses a different approach, “intermediate technology”. In this approach, gradual improvements in technology are applied to slowly raise the level of economic activity in a community. For example, if human labor is readily available, a more low-capital, labor-intensive solution might be preferred to a high-capital, low-labor solution. For example, consumer goods might be made by hand instead of by machine, since that will employ more local people and can adapt to a greater variety of inputs. Additionally, several enterprises should be fostered, and they should target local markets, so that newly-employed people can participate in commerce with one another.

I have left out specific examples; the book is full of them.

You can see how this hangs on Schumacher’s conviction that work can be good for people. In “Buddhist Economics”, he highlights some possible benefits of employment, for example:

  • It challenges our ego by reminding us that we work together to accomplish things
  • It fosters social connections by bringing us into necessary contact with one another
  • It benefits individuals by developing their skill and wisdom
  • Finally, it produces the things a community needs to survive

All these goods focus on the people involved in the enterprise, not the capital or products. Capital should be used in service to the people, not people in service to capital.

Metaphysical Underpinnings for Economics

In “The Greatest Resource - Education”, Schumacher points out the any economic theory rests on a “meta-economics”, that is, a set of assumptions about what things are and what they mean. He describes it as

ideas that would make the world, and [our] own lives, intelligible to [us]; when a thing is intelligible, you have a sense of participation; when a thing is unintelligible, you have a sense of estrangement.

Importantly, these things are absorbed and transmitted without our active recognition of it. Our minds are “furnished” by our communities without our awareness (much less our permission!).

When it comes to our own “meta-economics”, outlines several of our assumptions about the world:

  • The universe is “the outcome of accidental collocations of atoms” (he quotes Bertand Russell)
  • The “higher manifestations of life … are nothing but … a superstructure erected to disguise and promote economic interest”, an application of reductionism to the human experience
  • “[R]elativism, denying all absolutes, dissolving all norms and standards, leading to the total undermining of the idea of truth in pragmatism…” I think this means, rejecting historical understandings of “right” and replacing them with “might is right”.
  • The notion that “valid knowledge can be attained only through the natural sciences and hence that no knowledge is genuine unless it is based on generally observable facts.” This may be contrasted with the claim that knowledge may be gained through qualitative means, like experience over time or intuitive exploration.

For Schumacher, since these ideas give rise to our economics, they can also be understood as the source of our social ills. Since they’re responsible for our sense of powerlessness, our quickness to consume and destroy the earth, and our dissatisfaction with these things, we can’t expect more of the same to remedy those ills.

Schumacher also prescribes a suite of assumptions which he think will give rise to the kind of economics he espouses:

  • The universe has a hierarchical structure (he says, “Levels of Being” or “Grades of Significance”) and it is “[our] task – or simply, if you like, [our] happiness – to attain a higher degree of realization of [our] potentialities, a higher level of being or ‘grade of significance’ than that which comes to [us] ‘naturally’.”
  • Many important tasks in life require the reconciliation of opposites, and these tasks are not impossible. (“How can one reconcile the demands of freedom and discipline in education? Countless mothers and teachers, in fact, do it, but no one can write down a solution.”) These tasks (“divergent”) are contrasted with “convergent” tasks, such as solving equations or taking measurements, which require finding a solution without clear problem space.
  • There are virtues and vices. Virtues, which benefit individuals and communities, should be pursued oneself and encouraged in others, while vices, which injure individuals and communities, should be challenged within oneself and discouraged in others.

Schumacher points to examples of these assumptions in several philosophical traditions outside post-Enlightenment Western thought.

(This post sat as a draft for a long time. I filled in the last part after returning the book.)

A Theory of Large Organizations

At the end of the book, Schumacher provides a positive theory of large organizations. Since I’ve returned the book, I’ll write the maxim that really stuck with me: anything that can be decentralized should be decentralized.

Toward the end of engaging peoples’ entrepreneurial spirit, underlings should be given as much autonomy and authority as possible. Besides doing better work, the boots-on-the-ground folks can make more appropriate consideration of local context.

Schumacher also imagined a really interesting relationship between government and big business. He pointed out that the current arrangement of taxation creates some bizarre incentives: since only profit is taxed, companies work to hide profit from the government. It’s impractical that the governemnt builds the infrastructure for businesses to thrive, then puts itself in the position of a bandit, trying to recapture (via taxation) its fair share of the gain.

What if, instead, big companies had the local government as a 50% shareholder? Shumacher proposes that the government party would be observer-only, except in circumstances when the local common good would require some representation. But, the government party would be entitled to 50% of the profit instead of taxing the business. In an arrangement like that, the business is incentivized to grow its profits, and the government doesn’t have to fight to recapture its investment in business infrastructure.

I don’t have any experience in that kind of large-scale thinking, but I found it an interesting scenario to imagine.

Schumacher’s Foundation

Interestingly, Schumacher clearly builds his vision on a Christian understanding of humans and work. He sees humans as reflecting their creator’s nature: creative, social, loving, and capable. At its best, work is not a necessary evil, but instead, it’s a good part of culture where people can engage those attributes. That perspective orients his thoughts towards goals other than “putting food on the table” (although sustenance is a goal), for example, engendering pride in one’s work, connections between neighbors, and the development and exercise of human skill.