When considering productivity in any society it is not sufficient to take account only of those who are employed or self-employed and to leave out of the reckoning all those who are unemployed and whose productivity therefore is zero.
— E. F. Schumacher, opening lines of Ch. 14
Colonialism, development, and now ‘free trade’ and globalization have meant that the best land in the South is used to grow crops for northern markets. Shifting the emphasis to diversified production for local consumption would not only improve the economies of rural communities, but also lessen the gap between rich and poor while eliminating much of the hunger that is now so endemic in the so-called ‘developing’ parts of the world.
— Helena Norberg-Hodge, founding director of Local Futures, from the 25th anniversary edition (1999).
Schumacher’s opportunity to address this task came in 1962 when India’s then prime minister Nehru, having read ‘Buddhist Economics’, asked him to advise on rural development in his country. It was then that Fritz came up with his concept of an intermediate technology.
— George McRobie, author of Small is possible, from the 25th anniversary edition (1999).
This chapter first saw the light of day in a talk Schumacher gave to the Indian Development Group in London in 1971.
What the chapter says…
Schumacher starts by setting out his stall on the evils of unemployment:
“When speaking of unemployment I mean the non-utilIization or gross under-utilization of available labour. We may think of a productivity scale that extends from zero, i.e. the productivity of a totally unemployed person, to 100 per cent, i.e. the productivity of a fully and most effectively occupied person. The crucial question for any poor society is how to move up on this scale. When considering productivity in any society it is not sufficient to take account only of those who are employed or self-employed and to leave out of the reckoning all those who are unemployed and whose productivity therefore is zero.”
The chapter is then structured on the basis of the four elements that he believes India will need to make his plan possible:
- Motivation
- Some know-how
- Some capital
- An outlet
These are four essential conditions for getting more work done anywhere – which is how you can solve a problem of unemployment. But in India, we are not talking about a few people – we are talking about hundreds of millions.
1/2 Motivation and know-how
Worse, these are peasants who are – generally speaking – regarded with disdain by the small educated elite, he says:
“I think it was the Chinese, before World War II, who calculated that it took the work of thirty peasants to keep one man or woman at a university. If that person at the university took a five-year course, by the time he had finished he would have consumed 150 peasant-work-years. How can this be justified? Who has the right to appropriate 150 years of peasant work to keep one person at university for five years, and what do the peasants get back for it? These questions lead us to the parting of the ways: is education to be a ‘passport to privilege’ or is it something which people take upon themselves.”
Schumacher quotes Leo Tolstoy who was talking about the same problem when he wrote: “I sit on a man’s back, choking him, and making him carry me, and yet assure myself and others that I am very sorry for him and wish to ease his lot by any means possible, except getting off his back.”
Somehow, says Schumacher, we need to create an ideology which makes educated people feel they have taken upon themselves an obligation and have not simply acquired a ‘passport to privilege’?
“This ideology is of course well supported by all the higher teachings of mankind. As a Christian, I may be permitted to quote from St Luke: ‘Much will be expected of the man to whom much has been given. More will be asked of him because he was entrusted with more.’ It is you might well say, an elementary matter of justice.”
As he explains: “The whole matter can be summed up in the question: what is education for?”
All educated people need to see themselves as servants of the nation – which “means after all as servants of the common people” – because that is the only way to generate enough leadership and communication of know-how to solve the problem of unemployment in the half million villages of India. It is. he says, “a matter of 500 million people.” If you need at least two people to look after a hundred, that means we somehow need to recruit 10 million helpers – about the whole educated population of India when he was writing:
“Now you may say this is impossible, but if it is, it is not so because of any laws of the universe, but because of a certain inbred, ingrained selfishness on the part of the people who are quite prepared to receive and not prepared to give. As a matter of fact, there is evidence that this problem is not insoluble; but it can be solved only at the political level.”
3 . Capital
What proportion of national income – in those days about £15 billion – might be available for our capital fund for job creation?
“I would say, without going into any details, you are lucky if you can make it five per cent,” says Schumacher. “Therefore, if you have five per cent of £15,000 million for ten years you have a total of £7,500 million for the establishment of jobs. If you want fifty million jobs in those ten years, you can afford to spend an average of £150 per workplace. At that level of capital investment per workplace, in other words, you could afford to set up five million workplaces a year. Let us assume, however, that you say: ‘No. £150 is too mean; it will not buy more than a set of tools; we want £1,500 per workplace’, then you cannot have five million new jobs a year but only half a million. And if you say: ‘Only the best is good enough; we want all to be little Americans right away, and that means £5,000 per workplace’, then you cannot have half a million new jobs a year, let alone five million, but only about 170,000.”
In couple of deft moves, he also defends himself against any number-crunchers who say that he has simplified his calculation too much – leaving out any increase in national income, partly as a result of the fund’s work. That is true, he says, but there will also be an increase in the population, which would cancel it out.
“The more sophisticated the technology, the greater in general will be the foregoing requirements. When the simple things of life, which is all I am concerned with, are produced by ever more sophisticated processes, then the need to meet [the] requirements moves ever more beyond the capacity of any poor society. As far as simple products are concerned – food, clothing, shelter and culture – the greatest danger is that people should automatically assume that only the 1963 model is relevant and not the 1903 model; because the 1963 way of doing things is inaccessible to the poor, as it presupposes great wealth. Now, without wishing to be rude to my academic friends, I should say that this point is almost universally overlooked by them. The question of how much you can afford for each workplace when you need millions of them is hardly ever raised. To fulfil the requirements that have arisen over the last fifty or sixty years in fact involves a quantum jump, Everything was quite continuous in human history till about the beginning of this century; but in the last half-century there has been a quantum jump, the sort of jump as with the capitalization of Ford, from $30,000 to $6,000 million,
He speaks of Ford because that was the example used by John Kenneth Galbraith, which Schumacher quotes approvingly, about how – at the beginning of an enterprise (1903 in the case of Ford) – the future is ‘near at hand’ because everything is simple:
“The choice of technology is the most important of all choices. It is a strange fact that some people say that there are no technological choices. I read an article by a well-known economist from the USA who asserts that there is only one way of producing any particular commodity: the way of 1971. Had these commodities never been produced before? The basic things of life have been needed and produced since Adam left Paradise. He says that the only machinery that can be procured is the very latest. Now that is a different point and it may well be that the only machinery that can be procured easily is the latest. It is true that at any one time there is only one kind of machinery that tends to dominate the market and this creates the impression as if we had no choice and as if the amount of capital in a society determined the amount of employment it could have. Of course this is absurd. The author whom I am quoting also knows that it is absurd, and he then corrects himself and points to examples of Japan, Korea, Taiwan, etc., where people achieve a high level of employment and production with very modest capital equipment.”
There are four stages for new thinking, he says – including ideas like the importance of technological choice:
“The first stage has been laughter and scornful rejection of anyone who talked about this. The second stage has now been reached and people give lip service to it, but no action follows and the drift continues. The third stage would be active work in the mobilization of the knowledge of this technological choice; and the fourth stage will then be the practical application.”
There are also the chance to leap to the fourth stage, he says:
“If there is a political ideology that sees development as being about people, then one can immediately employ the ingenuity of hundreds of millions of people and go straight to the fourth stage. There are indeed some countries which are going straight to the fourth stage…”
Then he also reveals his frustration that, after six years, ITDG was still virtually the only organization doing this work:
“It is not good enough that in this crucial matter one should be satisfied with one little group of private enthusiasts doing this work. There ought to be dozens of solid, well-endowed organizations in the world doing it. The task is so great that even some overlapping would not matter. In any case, I should hope that this work will be taken up on a really substantial scale in India, and I am delighted to see that already some beginnings have been made.”
4. Outlets
“There is, of course, a very real problem here, because poverty means that markets are small and there is very little free purchasing,” says Schumacher.
This is, after all, why development projects are advised to export. why the “extraordinary preoccupation with exports,” he asks, and answers like this:
“It is really a hangover of the economic thinking of the days of colonialism. Of course, the metropolitan power moved into a territory, not because it was particularly interested in the local population, but in order to open up resources needed for its own industry. One moved into Tanzania for sisal, into Zambia for copper, etc., and into some other place for trade. The whole thinking was shaped by these interests.
He suggests getting new buying power into a rural community via some kind of outside funded public works programme – and then making full use of the ‘multiplier effect’:
“The people employed on the public works want to spend their wages on ‘wages goods’, that is to say, consumers’ goods of all kinds. If these wages goods can be locally produced, the new purchasing power made available through the public works programme does not seep away but goes on circulating in local market and the total employment effect could be prodigious. Public works are very desirable and can do a great deal of good; but if they are not backed up by the indigenous production of additional wages goods, the additional purchasing power will flow into imports and the country may experience serious foreign exchange difficulties.”
Even so, it is misleading to deduce that exports are specially important for development, he says:
“After all, for mankind as a whole there are no exports. We did not start development by obtaining foreign exchange from Mars or from the moon. Mankind is a closed society. India is quite big enough to be a relatively closed society in that sense – a society in which the able-bodied people work and produce what they need.”
There then follows what must be the angriest section of the whole book:
“One must not be blocked by being too damn clever about it. We are always having all sorts of clever ideas about optimizing something before it even exists. I think the stupid man who says ‘something is better than nothing’ is much more intelligent than the clever chap who will not touch anything unless it is optimal. What is stopping us? Theories, planning. I have come across planners at the Planning Commission who have convinced themselves that even within fifteen years it is not possible to put the willing labour power of India to work. If they say it is not possible in fifteen months, I accept that, because it takes time to get around. But to throw up the sponge and say it is not possible to do the most elementary thing within fifteen years, this is just a sort of degeneracy of the intellect. What is the argument behind it? Oh! the argument is very clever, a splendid piece of model building. They have ascertained that in order to put a man to work you need on average so much electricity, so much cement, and so much steel. This is absurd. I should like to remind you that a hundred years ago electricity, cement and steel did not even exist in any significant quantity at all. (I should like to remind you that the Taj Mahal was built without electricity, cement and steel and that all the cathedrals of Europe were built without them. It is a fixation in the mind, that unless you can have the latest you can’t do anything at all, and this is the thing that has to be overcome.) You may say, again, this is not an economic problem, but basically a political problem. It is basically a problem of compassion with the ordinary people of the world. It is basically a problem, not of conscripting the ordinary people, but of getting a kind of voluntary conscription of the educated.”
No country has developed itself without putting its people to work, says Schumacher:
“But I ask: what sort of an education is this if it prevents us from thinking of things ready to be done immediately? What makes us think we need electricity, cement, and steel before we can do anything at all? The really helpful things will not be done from the centre; they cannot be done by big organizations; but they can be done by the people themselves…”
And finally, he rounds off the section by saying that: “If we can recover the sense that it is the most natural thing for every person born into this world to use his hands in a productive way and that it is not beyond the wit of man to make this possible, then I think the problem of unemployment will disappear and we shall soon be asking ourselves how we can get all the work done that needs to be done..”
What happened next?
Why are we still at Schumacher’s second stage – where a few people pay lip service to the idea of intermediate technology?
Judging by what he wrote in this chapter, Schumacher believed that India would act on his recommendation, but he could not have imagined what Nehru’s daughter Indira Gandhi would do in office.
Frustrated by what seemed to them India’s intractable problems, Mrs Gandhi and her son Sanjay declared a state of emergency which allowed them to suspend basic liberties for 21 months between 1975-7 – to organize forcible sterilization for the poor – all described in Salman Rushdie’s magically realistic novel Midnight’s Children.
On the other hand, the Peace Corps is an example of graduates who pay back by taking upon themselves a leadership role in a foreign country. Or on a far smaller scale, VSO (Voluntary Service Overseas) in the UK.
AmeriCorps is a more recent example. and nothing like that has emerged in the UK.
The problem here is that these projects face a policy dilemma – either you only include those donors who can afford to spend two years away (in the Peace Corps, for example); or you make volunteering a paid position, as it has been traditionally with AmeriCorps. In which case, you are not really volunteering…
One solution that has emerged since 1973 has been co-production, thanks to people like the Washington lawyer Edgar Cahn and the economics Nobel prizewinner Elinor Ostrom. Both of then have, in different ways, echoing the comment by Marcel Mauss that “charity wounds”.
Co-production – a phrase coined by Ostrom – means that public services are delivered by both professionals and users. It makes services and neighborhoods far more effective agents of change.
Cahn’s time banks or time credit systems also pay people in credits for the efforts they put in, building their local community, and they are exchangeable for whatever happens to be available – anything from theatre tickets or gym entry or refurbished computers.
Time banks, and other new kinds of currency too, can linkup unused assets with unused people. Two periods have demonstrated the huge potential of new currencies – first during the recession in the early 1990s, with Local Exchange and Trading Systems (LETS) in Canada and the UK, followed by the growth in printed notes after the success of Ithaca hours.
Then a decade later, after the banking crisis, more sophisticated currencies – based on the experience of BerkShares in Great Barrington, Massachusetts – began to spread.
Local currencies find it hard to sustain local interest without investment in constant marketing. There also appears to be major transaction costs for both businesses and customers, a challenge that may be overcome by the introduction of electronic payment options as piloted by BerkShares and the Bristol pound in Bristol.
Initial evaluations of the Eco-Pesa in Kenya, a local currency with dual environmental and economic aims, show it has been successful in strengthening the local economy, and effecting behavioral change.
Brazil is probably the country where local exchange systems are now most developed, largely because the Central Bank, having filed and lost a legal action against local currencies, has turned into a supporter of these initiatives – the only central bank in the world to do so. There are now 52 community banks in Brazil, issuing and managing social currencies – treated legally as food and transport tokens – but also organizing micro credit loans in both local and national currencies.
The community banks are often based in poorer districts and offer conventional loans at only 2 per cent APR or a social currency loan at no interest (for small loans). People can access these loans, bypassing credit protection agencies if neighbors vouch for them. The loans inject life into the social currency exchange system by creating demand for the social currency that other systems lack.
In 2003 the Banco Palmas Institute, the first community bank, created the Rede Brasiliera de Bancos Comunitarios, of which all community banks are members. There are worries among economists that social currencies might create inflation. In order to prevent inflation, social currencies need to be based in places where the economy is slow.
Local exchange currencies are largely experimental. Only in Latin America are they approaching the mainstream, though there are patches of early success elsewhere. Even in Argentina, the development of currencies was marked by a huge explosion and a huge collapse. The involvement of the Central Bank in Brazil may mark a whole new departure – with local currencies accepted as a public policy instrument to tackle poverty.
In this chapter, Schumacher mentions the importance of liquidity. His ‘multiplier effect’ was a Keynesian idea – Schumacherian new economists have translated that to look at why some places find it so hard to catch up.
Local money flows analysis shows that some high streets may have the same amount of money coming in, but in one of them it gets spent in the supermarket and then it leaves the area straight away. But in another place, the income gets passed on from local business to local business, over and over again. It is the same money, but every time it changes hands, it creates local wealth.
It is not the total amount of money that is important here. It is the diverse ecosystem of businesses, and maybe even the diversity of people that matters – because they can keep money circulating.
The original research by the New Economics Foundation on the local multiplier effect showed that every £10 spent with the organic vegetable box scheme was worth £25 for the local area, compared with just £14 when the same amount was spent in a supermarket.
Another study in a Chicago neighborhood showed that a dollar spent at a local restaurant yielded a 25 per cent greater economic multiplier effect than at a chain restaurant.
An LM3 (local money 3) study of the Brixton pound shows that a pound spent locally is worth £1.73 for the local economy. The implications of this for the local economy are pretty profound.
It means that sustainable economic success requires a diverse range of locally-owned high streets and town centre businesses which trade with each other. Outside investment is important, but only when it supports that local business – not when it corrodes it by taking local spending away from the area.
One way to tackle this is to make sure there are local lenders in every area. In this case, the UK is uniquely disadvantaged – because it has virtually no local banks. Microcredit, organized through groups of women primarily, originally through the Grameen bank in Bangladesh, also began in 1976, three years after the publication of Small is Beautiful. Grameen alone now serves more than 45m of the poorest people on earth, and has over 10m borrower-members. It is a clear example of how small is still beautiful.
Questions for discussion…
- Why are we still at the stage of paying lip service to the idea of intermediate technology?
- How come, in some areas, there are many people with needs – and people able to fulfill them – but no money to bring them together?
- How do we make sure that time credits never suffer from the reputation as ‘poor people’s money’?
Proceed to Next Chapter’s Guide | Return to Study Guide Table of Contents
