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Economics As If People Mattered

Small Is Beautiful by E.F. Schumacher Harper and Row, $2.95, 365 pp.

By Adam W. Glass

SMALL IS BEAUTIFUL is a different kind of economics book. Its 300 pages contain not a single graph. Published three years ago in London, it is just now gaining recognition on this side of the Atlantic. Economists, foreign students from Southeast Asia and Africa, and readers of periodicals such as the Coevolution Quarterly have passed it from hand to hand. The book seems to enjoy a readership far in excess of the number of copies sold.

In writing the book, author E.F. Schumacher has drawn heavily on his own experience. A founder of the Intermediate Technology Group of which he writes, he is also president of the Soil Association, one of Britain's oldest organic farming leagues. Twenty years as chief economist and head of planning for the British National Coal Board shaped his opinions on nationalized industry. A former Rhodes scholar, Schumacher is also a close student of Ghandi, non-violence and ecology.

More than anything else, however, Schumacher is practical. Whether discussing subsistence agriculture in his chapter "Two Million Villages," or the principles of big business organization, he treats topics often approached by fantasy-prone utopia-builders in a convincing, down-to-earth manner.

"The great majority of economists," writes Schumacher, "are still pursuing the absurd ideal of making their 'science' as scientific and precise as physics, as if there were no qualitative difference between mindless atoms and men made in the image of God." Through the economist's theoretical lens, we are all merely so many atoms, with greed as our organizing principle instead of electronegativity. Questions of what is good for us may therefore be put safely aside. The physicist does not worry about what is good for the atoms; neither should the task of the economist be to determine what's good for people, but rather, what laws govern their economic behavior.

Schumacher's answer to the philosophy of positivism--which says that only through the methods of the natural sciences can valid knowledge be obtained, and that "no knowledge is genuine unless based on generally observable facts"--is that economics is not a science. It is not free of an underlying ideology or philosophy. What's more, it should not try to be. Neoclassical economists--Samuelson and his colleagues--have gone astray, writes Schumacher, surreptitiously sneaking value judgments into their theoretical toolkits, and by choosing the wrong values.

SCHUMACHER THEREFORE makes no attempt to veil the values on which he bases his economics. For him, permanence, along with the cardinal virtues of health and beauty, is the qualitative criterion on which economic activity should be judged. If an activity cannot be sustained over a long time without poisoning the environment or degrading the social structure, then it is not worth continuing, regardless of its effect on GNP. What we really need from scientists and technologists is not "fantastic satisfactions" like space flight but methods and equipment... "cheap enough to be accessible to everyone; suitable for small-scale application; and compatible with man's need for creativity."

One of the many interesting implications for economics that derive from Schumacher's alternative metaphysics is a major change in foreign aid and development policy. Two phenomena that characterize many developing countries today are mass unemployment and mass migration into the cities. Schumacher sees these twin evils linked by "mutual poisoning." Successful creation of a modern economic sector in the cities destroys the natural economy of the rural areas. The countryside, in turn, exacts its revenge, however; the rural population floods into the cities. This migration saps the cities' resources and makes them impossible to manage. The modern sector can't grow to absorb the entire population of the country. In the end, argues Schumacher, production methods adopted by poor countries destroy their chances for self-reliance and self-help.

As an example of this process Schumacher cities the example of an African textile mill. The firm's manager proudly assured Schumacher that his factory was as highly automated as any in the world. It has to be, in order to produce a product that could compete in world markets. As a result, it provided almost no local employment. Even worse, the raw material (cotton fiber) had to be imported, because the local product was too short for the machine to spin into top-quality yarn!

Instead of the creation of a mini-Detroit in one corner of the country, Schumacher poses the alternative concept of "intermediate technology." Under intermediate technology, the amount of capital per man employed is closer to $250 than to $6,000 (roughly the minimum amount of capital needed to provide a workplace in a factory).

About a year ago, Schumacher appeared on public T.V.'s "Nova", demonstrating intermediate technology's answer to the two ton tractor. Consisting of a blade attached to a motor driven winch, 50 yards of cable, and an anchor, the "intermediate plow" works as follows. One farmer walks ahead of the plow and plants the anchor. His partner then starts the plow's lawnmower engine and winches himself, plow and all, right up to the anchor. The first man runs ahead and sets the anchor again.

It is a labor-intensive method designed for countries where labor is abundant. A two-ton tractor, by contrast, would require a peasant family's entire income just to keep it in gasoline and thirty-weight oil.

Schumacher does not limit his examples to Third World countries. The British worker-owned plastics factory which he describes, and of which he is currently a director, applies his views in an advanced industrialized economy. The Scott Bader Commonwealth is solidly placed in the ranks of modern industry, a leading producer of polyester resins as well as alkyds, polymers, and plasticizers. Its unique construction limits the size of the corporation to 350 people, however, in order that "every person in it can embrace it in his mind and imagination." If growth beyond this size appears necessary, new fully independent units are to be set up along the lines of Scott Bader. Also, the ratio of the highest wages paid to the lowest must not exceed 7:1 before taxes. Applied to General Motors, this arrangement would limit chairman T.A. Murphy's salary and benefits to $95,000, instead of the approximately $1 million he currently receives.

No Scott Bader products may be sold to customers who are known to use them for war-related purposes. Profits are divided three-fifths for taxes and re-investment, one fifth for charitable purposes outside the company, and one fifth to partners in the Commonwealth.

DESPITE THESE self-imposed restrictions, during twenty years the company has increased its sales from $625,000 to $5 million in a highly competitive market. This commercial success does not prove worker ownership superior to stockholder-owned companies: conventional firms have had equal or greater successes. The merit of the Commonwealth idea lies in its accomplishment of human objectives which ordinarily are given second place or ignored entirely in commercial practice.

One who appraises Small Is Beautiful as a book solely about economics may wonder why the book is highly valued in so many different quarters, possessing a following that could almost be called a cult, and including such unlikely fans as Jerry Brown and Dean Rosovsky. The religious idiom Schumacher employs provides a clue to the origin of this deeper appreciation.

SCHUMACHER QUOTES from the Sermon on the Mount, the Book of Proverbs, and Pope Pius XI during his discourse. He attacks the inadequacy of GNP materialism with "a revolutionary saying that 'man shall not live by bread alone but by every word of God.'" To his credit as a propagandist, Schumacher never forces his religious beliefs on the reader. But neither does one leave this book feeling that religious references are made for poetic effect.

Though open to other influences, as his frequent references to Gandhi and his chapter, "Buddhist Economics," indicate, Schumacher comes across as a believing Christian whose faith informs his daily life and practice. Yet, ever thoughtful of his reader, he accommodates the agnostic by explaining the "rational" functionality of religion. For Schumacher, the primary task for men of the 20th century is one of metaphysical reconstruction; that is, putting a new of set of values in place of those destroyed by 19th century thought in social theory, natural science, psychology, and philosophy.

Although a discussion of ethics is only one part of the book, it is key to understanding Schumacher's purpose. He seeks to prove that only a discussion of values and value judgments, a task of metaphysical reconstruction if you will, can provide solutions in the broad problem areas he outlines in his book. If Schumacher has a mission, it is to save us from the type of economics which deems human values either too vague and subjective to be adopted as goals, or as being automatically realized through the successful pursuit of wealth and power. Small is Beautiful is both a polemic against and a prescription for replacing this type of "crackpot realism."

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