“I was brought up on an interpretation of history which suggested that in the beginning was the family; then families got together and formed tribes; then a number of tribes formed a nation; then a number of nations formed a ‘Union’ or ‘United States’ of this or that; and that finally, we could look forward to a single World Government. Ever since I heard this plausible story I have taken a special interest in the process, but could not help noticing that the opposite seemed to be happening: a proliferation of nation states, The United Nations Organization started some twenty-five years ago with some sixty members; now there are more than twice as many…”
— E. F. Schumacher, Small is Beautiful, Chapter 5
In 1998, more than 5,000 corporate mergers with a combined value of more than $2 trillion took place in the United States. Federal agencies approved virtually every merger application, even when their own studies empirically verified the “convenience, humanity, and manageability of smallness. Consider the case of banks. In 1996, two Federal Reserve economists found no improved efficiencies when bank assets grow beyond $200 million, a size larger than 80 percent of the 12,000 banks operating in the United States. Other studies provided evidence that small banks serve their communities better. Small banks make over 80 percent of all commercial loans to very small business borrowers, concluded a 1996 Federal Research study. Fees for checking accounts and other basic services were on average 15 percent higher at large, multi-state banks than at small, community banks, concluded a 1997 study by the US Public Interest Research Group.
— David Morris, Institute for Local Self-Reliance, Boston (in the 25th anniversary edition, Hartley & Marks, 1999)
This chapter, the final one in the introductory section, looks at scale and goes to the heart of the title of the book, which – as I noted earlier – is not the one that Schumacher originally planned for it.
What the chapter says.
Schumacher starts by setting out three “truths which everyone knows” – all of which he has some reason to doubt.
- That the process of organization goes from families to towns, to nations, towards to world government.
- That a prosperous a country had to be big – the bigger the better.
- That modern technology requires companies to be even bigger than before.
In fact, he says, the process appears to be, at least as much in the other direction, a force pushing the opposite way.
As he says, the United Nations began in 1945 with only 60 member nations. Yet, when he was writing – for a 1968 lecture in London (this chapter was first published in Resurgence magazine later that same year) – the number had doubled. These days, it has more than trebled, to 193.
Also, if you were to look at Chrysler General Motors under Alfred Sloan or the National Coal Board under Lord Robens – where Schumacher worked for two decades – you would find, he said, a number of people trying to break down these huge organizations into smaller, more human units (more on this in Chapter 16):
“People find it most difficult to keep two seemingly opposite necessities of truth in their minds at the same time. They always tend to clamor for a final solution, as if in actual life there could ever be a final solution other than death. For constructive work, the principal task is always the restoration of some kind of balance. Today. we suffer from an almost universal idolatry of gigantism. It is therefore necessary to insist on the virtues of smallness…”
And there you have the phrase on which publisher Anthony Blond hung the title of the book on – though actually it was a quotation from Leopold Kohr, an old friend of Schumacher’s who wrote The Breakdown of Nations. Schumacher himself always claimed that what was most important was that cities, companies or nations should be the appropriate size.
What, for example, is the appropriate size for a city or a nation? There have been a number of answers, before and since, on the size of communities and cities. But Schumacher doesn’t get drawn into this cul-de-sac: “It is quite clear that above such a size nothing is added to the virtue of the city. In places like London, or Tokyo or New York, the millions do not add to the city’s real value but merely create enormous problems and produce human degradation…”
He then imagines the USA in the grip of megalopolis, with three cities of 60 million population each stretching from Washington to Boston, and the same from San Diego to San Francisco. The city of Brisbane in Australia now stretches for more than 70 miles along the Queensland coast. Or London, which in some ways stretches from Bishops Stortford in the north right down to the Surrey hills – and it would have filled the whole of south east England if it had not been for powerful planning legislation in the 1940s.
And those are just developed, first world cities – consider those cities that have now topped populations of over 20m, and there are now ten of them – from Tokyo (39m), Djakarta (34m), Chungong (32m), Seoul (26m). Shanghai (25m), Manila (24m), Sao Paolo (22m), Beijing (22m), Mexico City (22m) and Mumbai (21m).
“If this is somebody’s conception of the future of the United States, it is hardly a future worth having. But whether we like it or not, this is the result of people having become footloose; it is the result of that marvellous mobility of labour which economists treasure above all else,” said Schumacher. At that sort of scale most – if not all those places – will become completely ungovernable:
“In a mobile, footloose society the law of disequilibrium is infinitely stronger than the so-called law of equilibrium. Nothing succeeds like success, and nothing stagnates like stagnation. The successful province drains the life out of the unsuccessful, and without protection against the strong, the weak have no chance: either they remain weak or they must migrate and join the strong, they cannot effectively help themselves…”
So here is the problem. Despite all the political rhetoric, richer areas feed off poorer ones: as he says: “The successful province drains the life out of the unsuccessful.”
Yet the same applies to smaller nations next to more powerful ones, like Scotland versus England, or parts of divided cities like Camden New Jersey and Philadelphia or St Louis and East St Louis. Nor does the economic success of a place have much to do with its size – because there is no need to be part of a larger nation just to trade with anyone else. As Schumacher said: “If you want to trade with the whole world you don’t need to annex the whole world in order to do so.”
“But it does make a lot of difference if a poor community or province finds itself politically tied to or ruled by a rich community or province. Why? Because, in a mobile, footloose society the law of disequilibrium is infinitely stronger than the so-called law of equilibrium. Nothing succeeds like success, and nothing stagnates like stagnation. The successful province drains the life out of the unsuccessful, and without protection against the strong, the weak have no chance: either they remain weak or they must migrate and join the strong, they cannot effectively help themselves…”
The poor tend to stay poor come what may – because of these assumptions by the wealthy:
“Invariably, it proves that only such policies are viable as have in fact the result of making those already rich and powerful, richer and more powerful. It proves that industrial development only pays if it is as near as possible to the capital city or another very large town, and not in the rural areas. It proves that large projects are invariably more economic than small ones, and it proves that capital-intensive projects are invariably to be preferred as against labour-intensive ones. The economic calculus, as applied by present-day economics, forces the industrialist to eliminate the human factor because machines do not make mistakes which people do. Hence the enormous effort at automation and the drive for ever-larger units…”
What follows is the economic credo of Schumacher: that, if economics can’t grasp this, then it’s useless and needs to be condemned, so that we can start again:
“Therefore we must learn to think in terms of an articulated structure that can cope with a multiplicity of small-scale units, If economic thinking cannot grasp this it is useless. If it cannot get beyond its vast abstractions, the national income, the rate of growth, capital/output ratio, input-output analysis, labour mobility, capital accumulation; if it cannot get beyond all this and make contact with the human realities of poverty, frustration, alienation, despair, breakdown, crime, escapism, stress, congestion, ugliness. and spiritual death, then let us scrap economics and start afresh.”
What happened next?
As Schumacher said back in 1973: “It’s unbelievably urgent now.” In so many areas of public life, and almost everywhere we look around the world, you can see this same phenomenon – less successful neighborhoods kept down by their richer neighbors and no economic doctrine that can possibly help them find a way up using their own resources. It is the flashpoint of so many regional conflicts across the world.
Still, there has been considerable progress made in recent years since the book was published from, for example, the Schumacher Center for New Economics and their Berkshires program, and the idea that you can maximize buying power using the existing money flows into and out of an area.
Much of this has emerged from the USA – because, as well as being the world’s supporters of rigid economic orthodoxy, Americans are also the world’s great money-innovators.
The idea especially came from Jane Jacobs, who wrote a book in 1985 called Cities and the Wealth of Nations, which wrestles with these issues. She realized that when Detroit was falling apart, a nation like Singapore – basically just a city – was doing very well, then it may be that the size of your currency has a lot to do with your success. Because a single interest rate cannot possibly suit the needs of currency speculators on Wall Street as well as impoverished former miners in West Virginia.
It seems to be important to foster an interest in the granular detail of how money flows through the city, regional or local economies. And that’s what lay behind the successful development of micro-enterprises in Italy’s Emilia-Romagna area.
The success of small local banks, like the US community development financial institutions (CDFIs) or the German Spaakassen – especially when they’re federated and share risk and support – is part of this same movement of localization. Few governments track the profits according to the size of the company, so – given that UK SMEs earned 51 of taxable profits – how come all the efforts of the big banks go towards supporting the giants in the 49 per cent?
The answer is reliable information and the lack of it the bankers feel about local economies – because it requires information or local know-how that can’t be recorded electronically.
Pioneers in the USA, like Michael Shuman in the USA and Frances Northrop in the UK, are beginning to put some of these ideas into practical effect, with other initiatives like BALLE (the Business Alliance for Local Living Economies, now Common Futures), or Main Street USA or Platform Places in the UK, are managing to engage the energies and enthusiasm of local people to regenerate their local economies.
What is more, this will be real regeneration, not simply of the fabric of the place although the poor are expected to move out to impoverished places on the outskirts of the city – which is what the word ‘regeneration’ came to mean for some decades after Schumacher published his book. But that is the problem of trying to do such things on too big a scale and – as Schumacher warned, of doing it by numbers.
Kirkpatrick Sale being the exception that proves the rule – see his massive tome Human Scale – very few writers have tackled the giantism issue. That was until 2017, when a senior fellow and anti-trust researcher at the New America Foundation, Barry Lynn – now executive director of the Open Markets Institute – was sacked for upsetting their main funder, Google. Since then, he has launched a movement on both sides of the Atlantic dedicated to rolling back giantism in business – which has links to rising prices – by revitalizing the era of anti-trust.
Ironically, much of the movement that had led to a real horror story about the over-consolidation of American and UK business began with the jurist Robert Bork – briefly Nixon’s solicitor-general,- who argued the other way. And he was in post from 1973, from the publication of Small is Beautiful, until Schumacher’s death in 1977.
It just shows how quickly things can unravel – and especially, perhaps, when it comes to giantism which seems to attract so much nodding agreement, but so little real understanding.
Questions for discussion…
- Is small really beautiful? Or are we actually looking for some kind of balance between big and small? What about big generosity or a big sky?
- How should less affluent regions compete to support their indigenous local people?
- Was Schumacher right about the prospects of economics getting beyond its “vast abstractions”?
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