The foundations of peace cannot be laid by universal prosperity, in the modem sense, because such prosperity, if attainable at all, is attainable only by cultivating such drives of human nature as greed and envy, which destroy intelligence, happiness, serenity, and thereby the peacefulness of man. It could well be that rich people treasure peace more highly than poor people. but only if they feel utterly secure – and this is a contradiction in terms. Their wealth depends on making inordinately large demands on limited world resources and thus puts them on an unavoidable collision course – not primarily with the poor (who are weak and defenceless) but with other rich people.
– E . F. Schumacher, Small is Beautiful, Chapter 2
Too much and for too long, we seemed to have surrendered personal excellence and community values in the mere accumulation of material things. Our Gross National Product, now, is over $800 billion dollars a year, but that Gross National Product – if we judge the United States of America by that– that Gross National Product counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage. It counts special locks for our doors and the jails for the people who break them. It counts the destruction of the redwood and the loss of our natural wonder in chaotic sprawl. It counts napalm and counts nuclear warheads and armored cars for the police to fight the riots in our cities. It counts Whitman’s rifle and Speck’s knife, and the television programs which glorify violence in order to sell toys to our children. Yet the gross national product does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country, it measures everything in short, except that which makes life worthwhile.”
– Senator Bobby Kennedy, March 1968
Chapter 2 is primarily about how economists measure success, and how their measurements are leading the world into great peril.
It is also the most pronounced spiritual chapter of the book, and none the worse for that – it puts wisdom and God at the heart of the new economics (“as if people mattered”).
What the chapter says.
These days, Schumacher says at the start of the second chapter, everyone believes that increasing prosperity is the path to peace. On the contrary, he says: “One may look in vain for historical evidence that the rich have regularly been more peaceful than the poor, but then it can be argued that they have never felt secure against the poor: that their aggressiveness stemmed from fear; and that the situation would be quite different if everybody were rich. Why should a rich man go to war? He has nothing to gain. Are not the poor, the exploited the oppressed most likely to do so, as they have nothing to lose but their chains? The road to peace, it is argued, is to follow the road to riches.”
The problem is that there are so many comfortable reasons for believing it – it isn’t exactly that we don’t want peace – but just that it isn’t hard to accept a little more prosperity too.
The issue, says Schumacher, is that it requires nothing more from us – nothing purifying or accepting, in fact it requires no moral effort at all: “Gandhi used to talk disparagingly of ‘dreaming of systems so perfect that no-one will need to be good’. But is it not precisely this dream which we can now implement in reality with our marvellous powers of science and technology? Why ask for virtues, which man may never acquire, when scientific rationality and technical competence are all that is needed?”
He then talks about his former colleague – the man who rescued him from detention as an enemy alien in 1942 – the great economist John Maynard Keynes, and the famous essay he had written a decade earlier in the 1930s called ‘Economic possibilities for our grandchildren’. Keynes warned that the time when we can relax into our economic future isn’t yet – and that, for at least another century, we need to “pretend for a while that foul is useful and fair is not”. Or as Schumacher puts it: “The road to heaven is paved with bad intentions.”
Next, he talks about fuel requirements in 1966, and his own calculations about what the situation might look like in 2000 (this chapter was taken from an article he had written for Resurgence magazine in 1970). The chapter borrows from some of the conclusions of the previous chapter:
“Exploratory calculations, of course, do not prove anything. A proof about the future is in any case impossible, and it has been sagely remarked that all predictions are unreliable, particularly those about the future. What is required is judgment and exploratory calculations can at least help to inform our judgment In any case, our calculations in a most important respect understate the magnitude of the problem. It is not realistic to treat the world as a unit. Fuel resources are very unevenly distributed, and any short- age of supplies, no matter how slight, would immediately divide the world into ‘haves’ and ‘have-nets’ along entirely novel lines. The specially favoured areas, such as the Middle East and North Africa, would attract envious attention on a scale scarcely imaginable today, while some high consumption areas, such as Western Europe and Japan, would move into the unenviable position of residual legatees. Here is a source of conflict if ever there was one…”
No country can just keep on growing and growing, Schumacher concludes:
“We find, therefore, that the idea of unlimited economic growth, more and more until everybody is saturated with wealth, needs to be seriously questioned on at least two counts: the availability of basic resources and, alternatively or additionally, the capacity of the environment to cope with the degree of interference implied.”
Schumacher uses the term GNP, whereas, mainly these days, most authorities use GDP – as they have done since 1991. The main difference between the two is that GNP (gross national product) measures everything (sometimes more than once!) and GDP (gross domestic product) measures the value of the total output of the national economy, but not – for example – the value of citizens living abroad and their businesses:
“If human vices: such as greed and envy are systematically cultivated, the inevitable result is nothing less than a collapse of intelligence. A man driven by greed or envy loses the power of seeing things as they really are, of seeing things in their roundness and wholeness, and his very successes become failures. If whole societies become infected by these vices, they may indeed achieve astonishing things but they become increasingly incapable of solving the most elementary problems of everyday existence. The Gross National Product may rise rapidly: as measured by statisticians but not as experienced by actual people, who find themselves oppressed by increasing frustration, alienation, insecurity, and so forth. After a while. even the Gross National Product refuses to rise any further, not because of scientific or technological failure, but because of a creeping paralysis of non-co-operation, as expressed in various types of escapism on the part, not only of the oppressed and exploited, but even of highly privileged groups.”
Then he concentrates on the non-materials elements of his argument.
Because Keynes said that universal prosperity isn’t attainable unless we keep our idealism muted, because“foul is useful”, then how can prosperity lead to peace, he asks?
“The exclusion of wisdom from economics, science. and technology was something which we could perhaps get away with for a little while. as long as we were relatively unsuccessful; but now that we have become very successful, the problem of spiritual and moral truth moves into the central position.”
That means, says Schumacher, that we have to study the “economics of permanence”. We need to“re-orientate around wisdom”: “There can be growth towards limited objectives, but there can’t be unlimited, generalized growth.”
So, what do we need from scientists and technologists, asks Schumacher? His answer is that we need methods and equipment which are:
- Cheap enough so that they are accessible to virtually everyone.
- Suitable for small-scale application; and
- Compatible with man’s need for creativity.
The final one on this list may be the most interesting because it is so reminiscent of the Victorian art critic John Ruskin who, in his book Unto This Last, famously named the opposite of wealth as ‘illth’, and warned that there were circumstances – even in 1860, when it could overwhelm wealth. Needless to say, illth is not a term modern economists use.
Ruskin is said to have influenced Catholic Social Doctrine – via Cardinal Manning and Pope Leo XIII – so we should not be surprised at this point to find Schumacher quoting Leo’s successor, Pope Pius XI, about the critical importance of meaningful work (more on this in Chapter 4):
“How could we explain the almost universal refusal on the part of the rulers of the rich societies – whether organized along private enterprise or collectivist enterprise lines – to work towards the humanization of work? It is only necessary to assert that something would reduce the ‘standard of living’, and every debate is instantly closed. That soul-destroying, meaningless, mechanical, monotonous, moronic work is an insult to human nature which must necessarily and inevitably produce either escapism or aggression, and that no amount of ‘bread and circuses’ can compensate for the damage done – these are facts which are neither denied nor acknowledged but are met with an unbreakable conspiracy of silence – because to deny them would be too obviously absurd and to acknowledge them would condemn the central preoccupation of modern society as a crime against humanity.”
Then he finishes: “Only by a reduction of needs can one promote a genuine reduction in those tensions which are the ultimate causes of strife and war.”
Schumacher then draws his conclusion, which is to find the permanent aspects of ourselves, and to build on them:
“They enable us to see the hollowness and fundamental unsatisfactoriness of a life devoted primarily to the pursuit of material ends, to the neglect of the spiritual. Such a life necessarily sets man against man and nation against nation, because man’s needs are infinite and infinitude can be achieved only in the spiritual realm, never in the material. Man assuredly needs to rise above this humdrum ‘world’; wisdom shows him the way to do it; without wisdom, he is driven to build up a monster economy, which destroys the world, and to seek fantastic satisfactions, like landing a man on the moon. Instead of overcoming the ‘world’ by moving towards saintliness, he tries to overcome it by gaining pre-eminence in wealth, power, science, or indeed any imaginable ‘sport’…
“I think Gandhi has given the answer: ‘There must be recognition of the existence of the soul apart from the body, and of its permanent nature, and this recognition must amount to a living faith; and, in the last resort, nonviolence does not avail those who do not possess a living faith in the God of Love.’
What happened next?
The new economics movement has, ever since then, shied away from explicitly spiritual statements – for fear of putting off mainstream economists and frightening the punters. I’m not sure this was wise…
Even so, at the heart of the new economics is a critique of measures of success, which feels more theological than economic.
In his presidential campaign in 1968, Bobby Kennedy condemned unlimited growth, and this has been the basis for the critique ever since. In that respect Schumacher was not describing a new idea.
In fact, the first economist who set out to demolish what he called the ‘religion’ of economic growth, was the deeply conservative economics professor at the London School of Economics, E. J. Mishan. He published The Costs of Economic Growth in 1967, but he had been hauling the book around publishers for two years. It is still wonderfully prescient, complaining – as Kennedy did – that GDP fails to distinguish between good things and the side effects of social and environmental failure.
The next breakthrough was also in the UK,when the Liberal Party in 1979 voted that reject GDP growth as ”neither achievable nor desirable”. It was an important moment.
Fast forward a decade to 1989, when Herman Daly, the World Bank economist, teamed up with the theologian John Cobb to write For the Common Good, which introduced the idea of an Index of Sustainable Economic Welfare (ISEW). It uses a formula like this one:
ISEW = personal consumption
+ public non-defensive expenditures
– private defensive expenditures
+ capital formation
+ services from domestic labour
– costs of environmental degradation
– depreciation of natural capital.
About seven countries have now tracked their ISEW. They included the UK, which – like most of the others – found that their index peaked around 1976, after which it began to decline.
Five years later, and Bill Clinton’s first set of mid-term elections led to a headline on cover of The Atlantic magazine: ‘If the economy’s up, why is America down?’ It was by John Cobb’s son Clifford, plus Ted Halstead and Jonathan Rowe. “Throughout the tumult of the elections last year political commentators were perplexed by a stubborn fact,” they began. “The economy was performing splendidly, at least according to the standard measurements. Productivity and employment were up; inflation was under control. The World Economic Forum, in Switzerland, declared that the United States had regained its position as the most competitive economy on earth, after years of Japanese dominance.”
They defined the problem as Schumacher had – that GDP leaves out “two large realms: functions of family and community on the one hand, and the natural habitat on the other”.
Cobb, Halstead and Rowe were all at the time employed by the new think tank, based in San Francisco called Redefining Progress – which was dedicated to doing the math in a whole new way, to get to a single number that could sum up ‘genuine progress’ more accurately: “If the chief of your local police department were to announce today that ’activity’ on the city streets had increased by 15 percent, people would not be impressed, reporters least of all. They would demand specifics. Exactly what increased? Tree planting or burglaries? Volunteerism or muggings? Car wrecks or neighborly acts of kindness? The mere quantity of activity, taken alone, says virtually nothing about whether life on the streets is getting better or worse. The economy is the same way. ‘Less’ or ‘more’ means very little unless you know of what. Yet somehow the GDP manages to induce a kind of collective stupor in which such basic questions rarely get asked.”
They also investigated the history of GDP, first proposed by Sir William Petty during the Anglo-Dutch war in 1667. It was then developed by the American economist Simon Kuznets from 1934 onwards. But as it turned out, Kuznets never approved of how GDP was to be used: “Distinctions must be kept in mind between quantity and quality of growth, between its costs and return, and between the short and the long run,” he wrote. “Goals for ‘more’ growth should specify more growth of what and for what.”
Unfortunately, Redefining Progress hit a difficult patch and didn’t survive. In London meanwhile, Nic Marks from the New Economics Foundation was developing his Happy Planet Index, that measured the efficiency with which each nation converts its environmental capital into sustainable well-being. The Happy Planet Index famously put the small Pacific island of Vanuatu top in the first index in 2006. Since then, the index has favoured central American countries like Costa Rica and Colombia.
The have now been so many alternatives to GDP that it almost makes the argument itself pretty clearly. They now include:
- Gross National Happiness, Bhutan’s contribution to the debate.
- Measure of Economic Welfare, developed by monetary economist James Tobin and William Nordhaus in 1972.
- Green National Product, inspired by the work of Joseph Stiglitz.
- Genuine Progress Indicator, introduced by Redefining Progress in 1995.
- Living Planet Index by the London Zoo for WWF.
- The Where-to-be-born Index, of the Economist Intelligence Unit.
- Human Development Index, from the UNDP.
…and so on
Nic Marks and the team behind the Happy Planet Index, have since developed it into a tool for measuring the success of corporate life.
The bottom line is that there is no bottom line – which is how the author of The Green Consumer Guide John Elkington explains his ‘triple bottom line’.
That means that anything that undermines the single-minded economic push for money alone – like ‘inclusive growth’ – can be a useful corrective.
Finally, there is another kind of bottom line about resources. the calculation – for everyone in the word to reach north American living standards – it would mean tapping the resources of five planets like our own.
Questions for discussion…
- Why don’t people understand that unlimited growth would require more than one planet? Are they just scared or are there some other reasons? How can they be convinced?
- Gandhi said that “Earth provides enough to satisfy every man’s need, but not for every man’s greed”. But how in practice might we tell the difference?
- Do you think Schumacher would have approved of all those alternative indicators? Or are they just trying to find that elusive element in mainstream economics – a single number?
Proceed to Next Chapter’s Guide | Return to Study Guide Table of Contents
