E.F. Schumacher: A New Kind of Economics

Schumacher (1911-1977) was born in Bonn, Germany and would become one
of the most influential economic thinkers of the 20
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. 

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.

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.

the essay Buddhist Economics (first
published in 1966), Schumacher points out that Right
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).

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

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.

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.

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.

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.


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