E.F. Schumacher: A New Kind of Economics

E.F. Schumacher (1911-1977) was born in Bonn, Germany and would become one of the most influential economic thinkers of the 20th Century. His most well known book, Small is Beautiful: A Study of Economics as if People Mattered (1973) would give weight to the growing ecological concerns of the 70s. Schumacher was writing at a time when the dominant economic ideology was “the bigger the better”, in which large institutions, multinational corporations, unlimited economic growth and ever-increasing consumption were seen as signs of progress. When Schumacher became involved in the economics of developing countries he radically changed his views on economics. His work abroad convinced him that unlimited growth is not something that should be desired and it was something that was certainly not practical. 

In 1955 he was sent as Economic Development Advisor to the government of Burma. His goal was to introduce Western models of economic growth, but on arrival he soon found that the Burmese people had an economic system that was very suitable and workable for them. During his time in Burma, Schumacher would come across the Buddhist concept of the Middle Way - this would greatly influence his new economic philosophy. The main focus of Schumacher's economic philosophy would be on size – how big or small certain institutions, organisations and communities should be.

Small is Beautiful is a collection of essays published in 1973, at the height of the energy crisis and during the emergence of globalisation. The title of the book was coined by Schumacher's teacher, Leopold Kohr. Kohr described himself as a philosophical anarchist (someone who believes that the State has no legitimacy and we should not be required to obey it or its laws). He argued against the “cult of bigness” and centralisation, while promoting the ideal of small community life. In his own words: “...there seems to be only one cause behind all forms of social misery: bigness” (from The Breakdown of Nations, 1957). Schumacher would be influenced by Kohr's views on community life, but not so much his more anarchistic views.

In the essay Buddhist Economics (first published in 1966), Schumacher points out that Right Livelihood is one of the requirements of the Buddha's Noble Eightfold Path. This is the path that is supposed to lead to the end of dukkha (suffering). So how can we determine what is the right way to live? After the Buddha's awakening he told his followers that the right way to live involves following the Middle Way. The Buddha describes the middle way as a form of moderation, existing between the extremes of self-indulgence (the lifestyle of the rich) and self-mortification (the lifestyle of an ascetic monk).

This relates to Aristotle's idea of the Golden Mean, which says that a virtue lies in between the excess of a characteristic and a deficiency of a characteristic. Schumacher therefore promotes a lifestyle of “enoughness”, a lifestyle which avoids maximizing one's profit and acquisition of material goods, as well as avoiding abject poverty. Schumacher seems to be influenced by the Buddha's Third Noble Truth which says that to end suffering involves eliminating our desires. So to reduce human suffering, we must reduce our desire for money and material goods.

Laszlo Zsolnai, in the paper Buddhist Economics for Business, says that Buddhist economics differs from Western economics in a number of ways. Western economics is obsessed with self-interest, as exemplified in Adam Smith's classic The Wealth of Nations (1776), whereas Buddhist economics stresses the importance of generosity and reciprocity. Second, Western economics gives a lot of weight to maximizing profits, while an underlying principle of Buddhist economics is minimizing suffering and losses for all people.

An important point for Schumacher is that the GNP (Gross National Product) of a country is not a good indicator of the happiness of the people in that country. America has an extremely high GNP, but it also has some of the highest rates of stress, anxiety and depression. Countries which score highest in terms of GNH (Gross National Happiness) such as Costa Rica, Vietnam and Colombia have a GNP that is substantially lower than America's. It's interesting to note that the World Health Organisation predicts that depression will be the second most common health problem in Western developed countries by 2020.

A powerful component of Schumacher's model of economics involves the proper use of resources. He argued that unlimited growth is unsustainable because the planet does not have an unlimited supply of resources. He was already warning readers that fossil fuels would soon run out and that we can no longer rely on them, especially considering that they are non-renewable. According to Schumacher, economists wrongly view the planet's resources as a form of income, that is, a source of constant energy. Instead, we should view the planet's resources as a form of capital, that is, as a limited amount of resources and energy. In addition, our economic system should not contribute to the destruction of nature, but should preserve it for future generations of people.

Schumacher was worried about how inhuman technology, businesses and corporations had become. Modern organisations take away the satisfaction that we should get from work and instead turn us into nothing more than a cog in a machine. Karl Marx had a similar worry that capitalism forced workers to become alienated from their labour, because the labour was not productive or based on community (productivity and community being central to human nature).

Schumacher similarly claimed that creative work using our hands, the work which gives us the most satisfaction, is no longer valued; nor is the quality of human relationships. Essentially, the economic system is dehumanising because decisions are made on the basis of profit and not on the basis of human need. Schumacher was trying to promote a people-centred economics, one which would not degrade the environment or human happiness.

Things are done best, according to Schumacher, at the smallest appropriate scale. He thought that a city's population, for example, should not rise above 500,000. Schumacher would probably be shocked by how populated cities have no grown, but it is debatable whether cities such as London have exceeded an appropriate scale. It may very well be the case that they have, but even if they haven't, they might soon exceed it due to the exponential growth of the population. It does seem though that beyond a certain scale, people lose their creative power and bureaucracy takes over. For example, in a school of a 1,000 children, parents do not know the teachers, teachers cannot know all the children and all the children cannot know each other. In large hospitals, factories, businesses and corporations, increasing human well-being becomes lost in the aim to maintain the organisation for its own sake. The organisation becomes a sort of inhuman and separate entity.

Schumacher warned that although technology has made work easier, it has made work more dehumanising. He argued in favour of “technology with a human face” or “intermediate technology”. This kind of technology should help people help themselves, instead of making work unskilled, repetitive and boring. Schumacher also warned against technologies, especially in agribusiness, which contribute to the pollution of the air, soil and waters. Smallness, simplicity and non-violence were Schumacher's three main values and his message was that businesses, organisations, and economic and political systems should reflect these values for the sake of human well-being.

No comments

About Me

My photo
I'm a freelance writer who is interested in a variety of subjects, especially those which are philosophical, complex and involve a multitude of perspectives. I created this blog in order to share my thoughts, and to encourage debate and discussion about the most fascinating topics I can think of. Get in touch: samwoolfe@gmail.com