green economicsheterodox economics

“Small is Beautiful” – the foundational text of environmental economics?

One of the earliest books addressing environmental problems in relation to economics is E.F. Schumacher’s “Small is Beautiful”. Does this tome mark the onset of environmental economics? Was Schumacher the first environmental economist? The likely answer to both questions is no, and to see why, one needs to look back at Schumacher the man as well as the times in which he wrote.

Schumacher was born in 1911 in Bonn, one of Germany’s duller towns, and moved between England and Germany before eventually settling in Britain after Hitler’s ascent to power. Schumacher spent a brief period in an internment camp and later wrote for the observer, before joining the national coal board as an economic advisor in 1950 (cf. McCrum (2011) for a more complete biographical account). His wartime experiences, his professional position on the coal board as well as a journey to Burma (Myanmar) seemed to have shaped the outlook in ‘Small is Beautiful’ much more than his early studies at Oxford.
The book itself was published in 1973, at a time marked by the first oil price shock and the demise of the Bretton Woods currency system. It was written also at a time when government intervention in trade and production was more extensive and much more widely accepted than today –even in western market economies.

Although “Small is Beautiful” presents an unorthodox view from a bygone era and based on archaic social perspectives, it had a lasting and, in some areas, defining influence on post-modern society and some post modern political movements. It has had little effect in other areas. To see why, it should be instructive to highlight its main criticisms and proposed remedies. The main criticisms relate to the conventional priorities of modern economics:
From the onset, the focus is on a fundamental critique of conventional measures of economics success. Output measures such as GDP are seen as inherently flawed indicators of economic achievement, because the irreversible use of non-renewable resources amounts to an erosion of natural capital rather than an addition to wealth. This was not the first time concern about finite resources was raised of course. Hotelling did so in the 1930s and the Club of Rome did so in their 1972 “Limits to Growth” study. Thus, if Schumacher was not the first to draw attention to this concern, he was one of the voices drawing attention to it during the 1960s and 1970s as concerns with postwar recovery and reconstruction became less pressing.
Along with other modern critics, he went beyond the issue of simple resource exhaustion and addressed widespread environmental damage, as well as an exhaustion of nature’s ability to cope with the impact of human transformation of the environment. The latter point directly confronted the question of the resilience of nature as a functioning system, an eco-system in the literal sense, when subject to the cumulative impact of human transformations of the natural environment. This argument, developed beyond aesthetic concerns and was more original than simple fear of resource exhaustion. The topic is stated in the beginning of the book and taken up again in chapter 9 on nuclear energy.
A second angle from which Schumacher criticizes mainstream economic thinking is by widening the perspective to the non-economic consequences increasing material wealth. To put it bluntly: the accumulation of wealth and the workings of the modern economy are detrimental to the human soul. Again, this subject is taken up repeatedly in the book, most prominently in the chapter on “Bhuddist economics”. The central hypothesis advanced in Schumacher’s view of Bhuddist economics is that work should be a fulfilling activity and should therefore not be seen mainly or exclusively as the use of labour inputs in their role of materially productive resource.
In this and various other chapters, material affluence is seen as soul destroying. The urge to discover non-economic dimensions of resource usage surfaces again in the chapters on land use and education. The people of Burma are repeatedly referenced as a Bhuddist nation, living close to the land and practising much of what Schumacher preaches. That Burma was under military rule for most of the 20th century, and that some of these military rulers had utopian ambitions of their own, is more than a detail in this respect.

Size and Beauty
In spite of the book’s title, making the case for small scale organisation is not the main thrust of the text. The majority of Schumacher’s discourse is directed at modern economics’ failure to address human wellbeing holistically as well as its detrimental impact on the natural environment. A critique of centralised decision making and a call for decentralisation is part of this.
Issues like size and centralisation are prominently discussed in some chapters though. Chapter 5 is explicitly titled a question of size: nation states are said to grow too large to a point where richer regions exploit poorer ones while cities expand too far too fast, placing excessive mobility demands on the population.
This theme re-surfaces when excessive centralisation is criticised in the (then) European Communities’ agricultural policy and later when Schumacher suggests (in Chs 16-19) that industrial organisation should be decentralised. A company named Scott Bader co. -organized along socialist principles and with a self imposed size limit- is named as a positive example.
As in the case of non-renewable resources, objections to centralised and large scale decision making are not wholly original. Schumacher, however, appears driven by an almost spiritual motivation to favour activity on a human scale, where most earlier critics argued on pragmatic grounds or out of concern over complex decision making tasks.

Alternatives?
If these are the criticisms of modern economics, what alternatives does Schumacher propose? Many of Schumacher’s suggestions sound uncontroversial but have limited practical value. He often appeals to wisdom to complement materialistic concerns. Wisdom may indeed be useful, but how would you define it? Schumacher does not attempt this, and in not doing so side-steps a central problem. Concern with abstract categories like wisdom or holistic wellbeing may indeed matter. For them to become policy issues, they would need to be defined in such a way that political activists could test and demonstrate whether progress on these issues has or has not been made. In the absence of such a measurable and testable definition, wisdom and the wellbeing of the soul may well matter, but who would be impressed by a government which argues that a period in office was a success because a major economic recession was balanced by an increase in wisdom?
There is, indeed, a more fundamental criticism of Schumacher’s argument in that some of his objections may not call for policy measures at all. If exposures to wealth harms the individual soul, any person is free to protect himself by forgoing this wealth individually. If those who are so inclined lead by example they may even convince the rest of society and society may eventually follow -if the rest of society doesn’t do so, nobody’s individual salvation would be prevented. Indeed a number of hermits have followed this path indidivually, and hippy communes have attempted this solution collectively. Their souls are probable in excellent condition while the rest of society persists in its decadent ways.
Other suggestions by Schumacher are more concrete. In discussing economic development, ‘Small is Beautiful’ introduces the idea of intermediate technology to suit the circumstances of developing economies. The concept of intermediate technology has had some impact on the practice of development assistance, although the original text does not clearly limit this idea to underdeveloped countries. Another concrete proposal favours the partial nationalisation of private enterprises. This would not have seemed outlandish at the time the book was written, but socialist ideas quickly fell out of favour in mainstream debates during subsequent years.
Environmental economics, as it is now practised within mainstream economics, does not built on the direction of thought taken by Schumacher. Core concepts of environmental economics such as natural resource accounting or contingent valuation explicitly aim to assign monetary values to natural systems and non monetary aspects of social and environmental structures. This is precisely the kind of approach Schumacher would have opposed as an unjustified expansion of the remit of economic science, a usurpation of spiritual by materialist concerns.
Where Schumacher’s work did have a seminal impact -along with the work of the Club of Rome and others- was in the formation of the post-industrial ecologist movements. The Green parties of various European countries (most notably in Germany and various scandinavian countries) draw strongly on the intellectual tradition of ‘Small is Beautiful’ and similar works.
Outside the realm of ecologist parties and movements, Schumacher’s influence has largely been confined to particular ideas such as intermediate technology discussed above. Schumacher has also been invoked by other political leaders, such as the UK’s David Cameron, a Conservative Party leader and former Prime Minister. In the latter case, the points of reference are harder to identify and most likely are mirrored in concepts such as the ‘great society’ or ‘happiness’ -noble goals as vague as ‘wisdom’ and ‘fulfilment’. Cynics may argue that therein lies there appeal to non-ecologist politicians: they allow a change in party branding by appealing to a thinker with appeal beyond the usual voter base without creating the need to deliver concrete results.

References:
Hotelling, Harold (1931) “The economics of exhaustible resources” Journal of Political Economy 39(2) pp. 137-175

McCrum, Robert (2011) “E.F. Schumacher, Cameron’s Choice”, The Guardian, 27 March 2011, https://www.theguardian.com/politics/2011/mar/27/schumacher-david-cameron-small-beautiful

Meadows, Dennis (1972) “The Limits to Growth” Universe Books, New York

Schumacher, E.F. (1973) “Small is Beautiful”, Blond and Briggs, London

The Economist, Guru: “E.F. Schumacher”, http://www.economist.com/node/13355875

 

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.