Small is Bountiful

Joseph Stalin had a very easy method of estimating the size of new factories. He would find out the size of the largest factories in the west and then order that a bigger one be built. Whole cities were conjured up out of thin air to support vast industrial complexes. Nor is it any accident that these new cities were often built by slave labor, since the human person was sacrificed to mere size and power. But as simplistic as this method might seem, the dictator was only following in the economic orthodoxy received from both East and West. For capitalist doctrine dictated that bigness by itself lead to economies of scale and more efficient production. And Karl Marx, who was a great admirer of capitalist production technique, had decreed that increasing scale of industrial establishments led to a “wider development of their material powers.”

This cult of bigness as an end in itself had its justification in economies of scale. However, it totally ignored the corresponding dis-economies of scale. But there were more serious problems, as the cult made certain assumptions about the nature of man and even about nature itself, assumptions which do not bear up under close examination. Man had to be reduced to a utility-maximizing hedonist, guided only by pleasure and pain. But even this was too “humane” for the neo-classical economists; man had to be further reduced to a mere cog in an economic machine, at best equal to any other factor of production. But this stood economic science on its head: instead of being a tool to serve man's material needs, man became a tool of the machine, just another servo-mechanism in an industrial complex. And just as man was reduced to a cog, so nature was reduced to just another undifferentiated resource to be consumed in the name of “efficiency.” It became impossible from within economic theory to distinguish between natural and man-made objects, and between renewable and non-renewable resources. In other words, by reducing man and nature to mathematical abstractions, economics made a clean break with reality, becoming less of a science and more of a cult. Economics lost any descriptive power whatsoever, and lost any predictive power it might have had. As the economist Paul Ormerod noted:

By definition, any model necessarily abstracts from and simplifies reality. But the model of competitive equilibrium is a travesty of reality. The world does not consist, for example, of an enormous number of small firms, none of which has any degree of control over the market in which it is operating. ...it is large multi-national companies…which dominate the world economy. It is entirely illegitimate to make the link between the model and the observed success of the Western market economies.

It was in this climate of giganticism that the English economist E. F. Schumacher wrote, in 1973, his classic work, Small Is Beautiful: Economics as if People Mattered. The title is significant because Schumacher wished to restore the human person to his central place in economic theory, a task that also meant restoring a human scale to economic enterprise. At the time he wrote his classic work, Schumacher was a recent convert to Catholicism, and found in the Church's social encyclicals precisely the tools he needed to correct economic science. This may strike some as rather odd; that a purely moral doctrine was necessary to complete a purely “scientific” endeavor. But in fact the humane sciences (and economics is certainly a humane science) are all rooted in the moral order, that is, in some theory of proper human action. Thus, Schumacher did not make economics less scientific and more “moralistic,” but both more moral and hence more scientific.

It has been 35 years since Schumacher's book was published, a long enough period of time to evaluate his impact. This task has been undertaken by Joseph Pearce in Small is Still Beautiful: Economics as if Families Mattered, a book which updates Schumacher's work and applies it to the current situation. This is a necessary task, because economics deals with a world that is always changing, and economic theories must be constantly re-examined over time to see how well they bear up under the weight of experience. And in Pearce's judgment, Schumacher has stood the test of time, for small, as it turns out, is not merely beautiful, but bountiful; in terms of hard-headed economic reality, returns to small capital exceed those to large capital. Indeed, bigness creates a cancer, an internal “logic” which can only sustain itself by growth at any cost, particularly costs in terms of the environment and the human person. Of course, cancerous growth must sooner or later kill the host, and this is the process that we witness today, in the parade of tragic headlines about the economy. Indeed, as capital accumulates, it must take on ever-greater risks to get even a marginal return, and as the risks pile up, the danger to the credit system (and hence to the whole economy) become unmanageable (see The Investor's Dilemma and The Investor's Dilemma II.)

Pearce takes each of the principles of Schumacher and examines our current situation in light of these principles. Here we will find the current themes of free trade, land use, the environment, sustainability, democracy, technology, and militarism (among others) analyzed in terms of the failure of current economic theory to understand these things, or to make meaningful statements about them. Schumacher's understanding of human scale and human purpose, on the other hand, provides the practical tools with which we can understand and interpret the current situation. This emphasis on the practical is crucial. It is easy to come up with abstract systems and explanations; but systems that have never existed and theories that cannot be tested should be viewed with suspicion. As The Wit has noted, “philosophy is easy; plumbing is hard,” and if a system can't be plumbed in practice, one would be well-advised not to install it. Of ideas that deal with the operations of the day-to-day world, practice is the only true test of an idea.

The ideas of well-distributed property, human-scale production, family-centered economics, worker-owned firms, etc., are derided by the theorists as mere Romantic notions. But in fact, these ideas are well-tested, not only in history, but in the present moment. We may point to thousands of examples, from large-scale enterprises like the Mondragón Cooperative Corporation (with 80,000 worker-owners and $20 billion in sales), to the economy of Emilia-Romagna (40% of which comes from cooperatives), to thousands of ESOP's, and to thousands of other examples. These ideas work, and it turns out that it is the theorists of the established order who occupy a fantasy-land that is not well-connected with reality. The example that Pearce takes particular delight in is that of the success of the micro-breweries. I like this example, not only because I like good beer, but because 35 years ago, when the industry was dominated by two companies (Busch and Miller), I wrote a paper predicting that they would face challenges from regional and micro-breweries, enterprises that did not exist in any numbers at that time.

This book is a useful and valuable addition to any distributist's library, and I recommend it to all who are interested in understanding our current situation, and the way out of it.