Towards a Theory of Large-Scale Organisation
“Almost every day we hear of mergers and takeovers; Britain enters the European Economic Community to open up larger markets to be served by even larger organisations. In the socialist countries, nationalisation has produced vast combines to rival or surpass anything that has emerged in the capitalist countries. The great majority of economists and business efficiency experts supports this trend towards vastness.
In contrast, most of the sociologists and psychologists insistently warn us of its inherent dangers—dangers to the integrity of the individual when he feels as nothing more than a small cog in a vast machine and when the human relationships of his daily working life become increasingly dehumanised; dangers also to efficiency and productivity, stemming from ever-growing Parkinsonian bureaucracies.
Modern literature, at the same time, paints frightening pictures of a brave new world sharply divided between us and them, torn by mutual suspicion, with a hatred of authority from below and a contempt of people from above. The masses react to their rulers in a spirit of sullen irresponsibility, while the rulers vainly try to keep things moving by precise organisation and coordination, fiscal inducements, incentives, endless exhortations and threats.
Undoubtedly this is all a problem of communications. But the only really effective communication is from man to man, face to face. Franz Kafka’s nightmarish novel, The Castle, depicts the devastating effects of remote control. Mr. K., the land surveyor, has been hired by the authorities, but nobody quite knows how and why. He tries to get his position clarified; because the people he meets all tell him: ‘Unfortunately we have no need of a land surveyor. There would not be the least use for one here.’
So, making every effort to meet authority face to face, Mr. K. approaches various people who evidently carry some weight; but others tell him: ‘You haven’t once up till now come into real contact with our authorities. All these contacts are merely illusory, but owing to your ignorance … you take them to be real.’
He fails utterly to do any real work and then receives a letter from The Castle: ‘The surveying work which you have carried out thus far has my recognition … Do not slacken your efforts! Bring your work to a successful conclusion. Any interruption would displease me … I shall not forget you.’
Nobody really likes large-scale organisation; nobody likes to take orders from a superior who takes orders from a superior who takes orders . . . Even if the rules devised by bureaucracy are outstandingly humane, nobody likes to be ruled by rules, that is to say, by people whose answer to every complaint is: ‘I did not make the rules: I am merely applying them.’
Yet, it seems, large-scale organisation is here to stay. Therefore it is all the more necessary to think about it and to theorise about it. The stronger the current, the greater the need for skillful navigation.
The fundamental task is to achieve smallness within large organisation.
Once a large organisation has come into being, it normally goes through alternating phases of centralising and decentralising, like swings of a pendulum. Whenever one encounters such opposites, each of them with persuasive arguments in its favour, it is worth looking into the depth of die problem for something more than compromise, more than a half-and-half solution. Maybe what we really need is not either-or but the-one-and-the-other-at-the-same-time.
This very familiar problem pervades the whole of real life, although it is highly unpopular with people who spend most of their time on laboratory problems from which all extraneous factors have been carefully eliminated. For whatever we do in real life, we must try to do justice to a situation which includes all so-called extraneous factors. And we always have to face the simultaneous requirement for order and freedom.
In any organisation, large or small, there must be a certain clarity and orderliness; if things fall into disorder, nothing can be accomplished. Yet, orderliness, as such, is static and lifeless; so there must also be plenty of elbow-room and scope for breaking through the established order, to do the thing never done before, never anticipated by the guardians of orderliness, the new, unpredicted and unpredictable outcome of a man’s creative idea.
Therefore any organisation has to strive continuously for the orderliness of order and the disorderliness of creative freedom. And the specific danger inherent in large-scale organisation is that its natural bias and tendency favour order, at the expense of creative freedom.
We can associate many further pairs of opposites with this basic pair of order and freedom. Centralisation is mainly an idea of order; decentralisation, one of freedom. The man of order is typically the accountant and, generally, the administrator; while the man of creative freedom is the entrepreneur. Order requires intelligence and is conducive to efficiency; while freedom calls for, and opens the door to, intuition and leads to innovation.
The larger an organisation, the more obvious and inescapable is the need for order. But if this need is looked after with such efficiency and perfection that no scope remains for man to exercise his creative intuition, for entrepreneurial disorder, the organisation becomes moribund and a desert of frustration.
These considerations form the background to an attempt towards a theory of large-scale organisation which I shall now develop in the form of five principles.
The first principle is called The Principle of Subsidiarity or The Principle of Subsidiary Function. A famous formulation of this principle reads as follows: “It is an injustice and at the same time a grave evil and disturbance of right order to assign to a greater and higher association what lesser and subordinate organisations can do. For every social activity ought of its very nature to furnish help to the members of the body social and never destroy and absorb them.” These sentences were meant for society as a whole, but they apply equally to the different levels within a large organisation. The higher level must not absorb the functions of the lower one, on the assumption that, being higher, it will automatically be wiser and fulfil them more efficiently. Loyalty can grow only from the smaller units to the larger (and higher) ones, not the other way round—and loyalty is an essential element in the health of any organisation.
The Principle of Subsidiary Function implies that the burden of proof lies always on those who want to deprive a lower level of its function, and thereby of its freedom and responsibility in that respect; they have to prove that the lower level is incapable of fulfilling this function satisfactorily and that the higher level can actually do much better. “Those in command (to continue the quotation) should be sure that the more perfectly a graduated order is preserved among the various associations, in observing the principle of subsidiary function, the stronger will be the social authority and effectiveness and the happier and more prosperous the condition of the State.”
The opposites of centralising and decentralising are now far behind us: the Principle of Subsidiary Function teaches us that the centre will gain in authority and effectiveness if the freedom and responsibility of the lower formations are carefully preserved, with the result that the organisation as a whole will be ‘happier and more prosperous’.
How can such a structure be achieved? From the administrator’s point of view, i.e. from the point of view of orderliness, it will look untidy, comparing most unfavourably with the clear-cut logic of a monolith. The large organisation will consist of many semi-autonomous units, which we may call quasi-firms. Each of them will have a large amount of freedom, to give the greatest possible chance to creativity and entrepreneurship.
The structure of the organisation can then be symbolised by a man holding a large number of balloons in his hand. Each of the balloons has its own buoyancy and lift, and the man himself does not lord it over the balloons, but stands beneath them, yet holding all the strings firmly in his hand. Every balloon is not only an administrative but also an entrepreneurial unit. The monolithic organisation, by contrast, might be symbolised by a Christmas tree, with a star at the top and a lot of nuts and other useful things underneath. Everything derives from the top and depends on it. Real freedom and entrepreneurship can exist only at the top.
Therefore, the task is to look at the organisation’s activities one by one and set up as many quasi-firms as may seem possible and reasonable. For example, the British National Coal Board, one of the largest commercial organisations in Europe, has found it possible to set up quasi-firms under various names for its opencast mining, its brickworks, and its coal products. But the process did not end there. Special, relatively self-contained organisational forms have been evolved for its road transport activities, estates, and retail business, not to mention various enterprises falling under the heading of diversification. The board’s primary activity, deep-mined coal-getting, has been organised in seventeen areas, each of them with the status of a quasi-firm. The source already quoted describes the results of such a structurisation as follows: “Thereby (the centre) will more freely, powerfully and effectively do all those things which belong to it alone because it alone can do them: directing, watching, urging, restraining, as occasion requires and necessity demands.”
For central control to be meaningful and effective, a second principle has to be applied, which we shall call The Principle of Vindication. To vindicate means: to defend against reproach or accusation; to prove to be true and valid; to justify; i:o uphold; so this principle describes very well one of the most important duties of the central authority towards the lower formations. Good government is always government by exception. Except for exceptional cases, the subsidiary unit must be defended against reproach and upheld. This means that the exception must be sufficiently clearly defined, so that the quasi-firm is able to know without doubt whether or not it is performing satisfactorily.
Administrators taken as a pure type, namely as men of orderliness, are happy when they have everything under control. Armed with computers, they can indeed now do so and can insist on accountability with regard to an almost infinite number of items—output, productivity, many different cost items, non-operational expenditure, and so on, leading up to profit or loss. This is logical enough: but real life is bigger than logic. If a large number of criteria is laid down for accountability, every subsidiary unit can be faulted on one item or another; government by exception becomes a mockery, and no one can ever be sure how his unit stands.
In its ideal application, the Principle of Vindication would permit only one criterion for accountability in a commercial organisation, namely profitability. Of course, such a criterion would be subject to the quasi-firm’s observing general rules and policies laid down by the centre. Ideals can rarely be attained in the real world, but they are none the less meaningful. They imply that any departure from the ideal has to be specially argued and justified. Unless the number of criteria for accountability is kept very small indeed, creativity and entrepreneurship cannot flourish in the quasi-firm.
While profitability must be the final criterion, it is not always permissible to apply it mechanically. Some subsidiary units may be exceptionally well placed, others, exceptionally badly; some may have service functions with regard to the organisation as a whole or other special obligations which have to be fulfilled without primary regard to profitability. In such cases, the measurement of profitability must be modified in advance, by what we may call rents and subsidies.
If a unit enjoys special and inescapable advantages, it must pay an appropriate rent, but if it has to cope with inescapable disadvantages, it must be granted a special credit or subsidy. Such a system can sufficiently equalise the profitability chances of the various units, so that profit becomes a meaningful indication of achievement. If such an equalisation is needed but not applied, the fortunate units will be featherbedded, while others may be lying on a bed of nails. This cannot be good for either morale or performance.
If, in accordance with the Principle of Vindication, an organisation adopts profitability as the primary criterion for accountability—profitability as modified, if need be, by rents and subsidies—government by exception becomes possible. The centre can then concentrate its activities on ‘directing, watching, urging, restraining, as occasion requires and necessity demands’, which, of course, must go on all the time with regard to all its subsidiary units.
Exceptions can be defined clearly. The centre will have two opportunities for intervening exceptionally. The first occurs when the centre and the subsidiary unit cannot come to a free agreement on the rent or subsidy, as the case may be, which is to be applied. In such circumstances the centre has to undertake a full efficiency audit of the unit to obtain an objective assessment of the unit’s real potential. The second opportunity arises when the unit fails to earn a profit, after allowing for rent or subsidy. The management of the unit is then in a precarious position: if the centre’s efficiency audit produces highly unfavourable evidence, the management may have to be changed.
The third principle is The Principle of Identification. Each subsidiary unit or quasi-firm must have both a profit and loss account and a balance sheet. From the point of view of orderliness a profit and loss statement is quite sufficient, since from this one can know whether or not the unit is contributing financially to the organisation. But for the entrepreneur, a balance sheet is essential, even if it is used only for internal purposes. Why is it not sufficient to have but one balance sheet for the organisation as a whole?
Business operates with a certain economic substance, and this substance diminishes as a result of losses, and grows as a result of profits. What happens to the unit’s profits or losses at the end of the financial year? They flow into the totality of the organisation’s accounts; as far as the unit is concerned, they simply disappear. In the absence of a balance sheet, or something in the nature of a balance sheet, the unit always enters the new financial year with a nil balance. This cannot be right.
A unit’s success should lead to greater freedom and financial scope for the unit, while failure—in the form of losses—should lead to restriction and disability. One wants to reinforce success and discriminate against failure. The balance sheet describes the economic substance as augmented or diminished by current results. This enables all concerned to follow the effect of operations on substance. Profits and losses are carried forward and not wiped out. Therefore, every quasi-firm should have its separate balance sheet, in which profits can appear as loans to the centre and losses as loans from the centre. This is a matter of great psychological importance.
I now turn to the fourth principle, which can be called The Principle of Motivation. It is a trite and obvious truism that people act in accordance with their motives. All the same, for a large organisation, with its bureaucracies, its remote and impersonal controls, its many abstract rules and regulations, and above all the relative incomprehensibility that stems from its very size, motivation is the central problem. At the top, the management has no problem of motivation, but going down the scale, the problem becomes increasingly acute. This is not the place to go into the details of this vast and difficult subject.
Modern industrial society, typified by large-scale organisations, gives far too little thought to it. Managements assume that people work simply for money, for the pay-packet at the end of the week. No doubt, this is true up to a point, but when a worker, asked why he worked only four shifts last week, answers: ‘Because I couldn’t make ends meet on three shifts’ wages,’ everybody is stunned and feels check-mated.
Intellectual confusion exacts its price. We preach the virtues of hard work and restraint while painting Utopian pictures of unlimited consumption without either work or restraint. We complain when an appeal for greater effort meets with the ungracious reply: T couldn’t care less’, while promoting dreams about automation to do away with manual work, and about the computer relieving men from the burden of using their brains.
A recent Reith lecturer announced that when a minority will be “able to feed, maintain, and supply the majority, it makes no sense to keep in the production stream those who have no desire to be in it”. Many have no desire to be in it, because their work does not interest them, providing them with neither challenge nor satisfaction, and has no other merit in their eyes than that it leads to a pay-packet at the end of the week. If our intellectual leaders treat work as nothing but a necessary evil soon to be abolished as far as the majority is concerned, the urge to minimise it right away is hardly a surprising reaction, and the problem of motivation becomes insoluble.
However that may be, the health of a large organisation depends to an extraordinary extent on its ability to do justice to the Principle of Motivation. Any organisational structure that is conceived without regard to this fundamental truth is unlikely to succeed.
My fifth, and last, principle is The Principle of the Middle Axiom. Top management in a large organization inevitably occupies a very difficult position. It carries responsibility for everything that happens, or fails to happen, throughout the organisation, although it is far removed from the actual scene of events. It can deal with many well-established functions by means of directives, rules and regulations. But what about new developments, new creative ideas? What about progress, the entrepreneurial activity par excellence?
We come back to our starting point: all real human problems arise from the antinomy of order and freedom. Antinomy means a contradiction between two laws; a conflict of authority; opposition between laws or principles that appear to be founded equally in reason.
Excellent! This is real life, full of antinomies and bigger than logic. Without order, planning, predictability, central control, accountancy, instructions to the underlings, obedience, discipline—without these, nothing fruitful can happen, because everything disintegrates. And yet—without the magnanimity of disorder, the happy abandon, the entrepreneurship venturing into the unknown and incalculable, without the risk and the gamble, the creative imagination rushing in where bureaucratic angels fear to tread —without this, life is a mockery and a disgrace.
The centre can easily look after order; it is not so easy to look after freedom and creativity. The centre has the power to establish order, but no amount of power evokes the creative contribution. How, then, can top management at the centre work for progress and innovation? Assuming that it knows what ought to be done: how can the management get it done throughout the organisation? This is where the Principle of the Middle Axiom comes in.
An axiom is a self-evident truth which is assented to as soon as enunciated. The centre can enunciate the truth it has discovered—that this or that is ‘the right thing to do’. Some years ago, the most important truth to be enunciated by the National Coal Board was concentration of output, that is, to concentrate coal-getting on fewer coalfaces, with a higher output from each. Everybody, of course, immediately assented to it, but, not surprisingly, very little happened.
A change of this kind requires a lot of work, a lot of new thinking and planning at every colliery, with many natural obstacles and difficulties to be overcome. How is the centre, the National Board in this case, to speed the change-over? It can, of course, preach the new doctrine. But what is the use, if everybody agrees anyhow? Preaching from the centre maintains the freedom and responsibility of the lower formations, but it incurs the valid criticism that ‘they only talk and do not do anything’. Alternatively, the centre can issue instructions, but, being remote from the actual scene of operations, the central management will incur the valid criticism that ‘it attempts to run the industry from Headquarters’, sacrificing the need for freedom to the need for order and losing the creative participation of the people at the lower formations—the very people who are most closely in touch with the actual job. Neither the soft method of government by exhortation nor the tough method of government by instruction meets the requirements of the case. What is required is something in between, a middle axiom, an order from above which is yet not quite an order.
When it decided to concentrate output, the National Coal Board laid down certain minimum standards for opening up new coalfaces, with the proviso that if any Area found it necessary to open a coalface that would fall short of these standards, a record of the decision should be entered into a book specially provided for the purpose, and this record should contain answers to three questions:
Why can this particular coalface not be laid out in such a way that the required minimum size is attained?
Why does this particular bit of coal have to be worked at all?
What is the approximate profitability of the coalface as planned?
This was a true and effective way of applying the Principle of the Middle Axiom and it had an almost magical effect. Concentration of output really got going, with excellent results for the industry as a whole. The centre had found a way of going far beyond mere exhortation, yet without in any way diminishing the freedom and responsibility of the lower formations.
Another middle axiom can be found in the device of Impact Statistics. Normally, statistics are collected for the benefit of the collector, who needs—or thinks he needs— certain quantitative information. Impact statistics have a different purpose, namely to make the supplier of the statistic, a responsible person at the lower formation, aware of certain facts which he might otherwise overlook. This device has been successfully used in the coal industry, particularly in the field of safety.
Discovering a middle axiom is always a considerable achievement. To preach is easy; so also is issuing instructions. But it is difficult indeed for top management to carry through its creative ideas without impairing the freedom and responsibility of the lower formations.
I have expounded five principles which I believe to be relevant to a theory of large-scale organisation, and have given a more or less intriguing name to each of them. What is the use of all this? Is it merely an intellectual game? Some readers will no doubt think so. Others—and they are the ones for whom this chapter has been written—might say: ‘You are putting into words what I have been trying to do for years.’ Excellent! Many of us have been struggling for years with the problems presented by large-scale organisation, problems which are becoming ever more acute. To struggle more successfully, we need a theory, built up from principles. But from where do the principles come? They come from observation and practical understanding.
The best formulation of the necessary interplay of theory and practice, that I know of, comes from Mao Tse-tung. Go to the practical people, he says, and learn from them: then synthesise their experience into principles and theories; and then return to the practical people and call upon them to put these principles and methods into practice so as to solve their problems and achieve freedom and happiness.”
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The essay that follows is Schumacher, E. F. “The New Economics,” MANAS vol. XXII, no. 14, April 2, 1969. pp. 1-2, 7-8.
The New Economics
“I was brought up on an interpretation of history which suggested that everything started with a few families and then the families got together in tribes; a bit later a lot of tribes joined together into nation states; the nation states became bigger and bigger and formed great regional combinations, “United States of this,” “United States of that,” and finally we could look forward to a single World Government.
Ever since I heard this plausible story I have been observing what is actually happening, and I have seen a proliferation of countries. The United Nations started twenty years ago with about fifty or sixty members, now there are 120 and the number is still growing. In my youth, this was called “Balkanization” and was thought to be a very bad thing. But what I have been witnessing, over the last fifty years in any case, is a very high degree of Balkanization all over the place, that is to say, large units breaking up into smaller units. Well, it makes you think. Not that everything that happens is necessarily right; but I am sure we should at least notice that it is happening.
Secondly, I was brought up on a theory which claimed that in order to be prosperous a country had to be very big, the bigger the better. Look at what Churchill called “the pumpernickel principalities of Germany,” and then look at the Bismarckian Reich: is it not obvious that the great prosperity of Germany only became possible through this combination? All the same, if we make a list of all the most prosperous countries in the world, we find that in overwhelming majority they are very, very small; and if you make a list of the largest countries of the world, most of them are exceedingly poor. This again gives one some food for thought.
And thirdly I was brought up on the theory of the economics of scale; that, just as with nations so with business and industries, there is an irresistible trend, dictated by modern technology, for the scale of business organization to become ever bigger. Now, it is quite true that today there are business organizations that are probably bigger than anything known before in history; but the number of small units is not declining, even in countries like the United States, and many of these small units are extremely prosperous, and provide society with most of the really fruitful new developments. So the situation is no doubt a puzzling one for anyone who has been brought up the way I and most of my age group have been.
We are told, even today, that gigantic organizations are inescapably necessary, but where they have in fact been created, what happens? Take General Motors: The great achievement of Mr. Sloan of General Motors was to structurize this gigantic firm in such a manner that it became in fact a federation of firms, none of them gigantic. And in my own shop, the National Coal Board, which is the biggest “firm” in Europe, we are doing something similar. Strenuous efforts are being made to structurize it in such a way that, while remaining one big organization, it operates and feels like a federation of what we call “quasi-firms.” Instead of a monolith, it becomes a well-coordinated assembly of lively, semi-autonomous units, each with its own drive and sense of achievement.
Let us now approach our subject from another angle and ask what is needed. As in so many other respects, if one looks a bit more deeply one always finds that at least two things are needed for human life which appear, on the face of it, to be contradictory. We need freedom and order: the freedom of lots and lots of small units and the orderliness of large-scale, possibly global, organization. When it comes to action, we obviously need small-scale organization, because action is a highly personal affair, and one cannot be in touch with more than a limited number of persons at any one time. But when it comes to ideology or to ethics, to the world of ideas, we have to operate in terms of a world-wide unity. Or, to put it differently, it is true that all men are brothers, but it is also true that when we want to act, in our active personal relations, we can in fact be in touch only with very few of them. And we all know people who freely talk about the brotherhood of man while treating all their neighbours as enemies—just as we know people who have, in fact, excellent relations with their neighbours, but are at the same time full of the most appalling prejudices about all human groups outside their own particular circle. What I mean to emphasize is our dual requirement: There cannot be a unified solution of all human problems. For his different purposes man needs many different organizations, both small and large ones, both exclusive and comprehensive. Yet people find it most difficult to keep two apparently opposite necessities of truth in their minds at the same time. They always look for a final solution.
The question of scale might be put in another way. What is needed in all these matters is to discriminate, to get things sorted out. For every activity there is a certain appropriate scale, and the more active and intimate the activity, the smaller the number of people that can take part, the greater is the number of such relationship arrangements that need to be established. Take teaching: one listens to all sorts of extraordinary debates about the superiority of the University of the Air, or the teaching machine over some other forms of teaching. Well, let us discriminate: What are we trying to teach? It then becomes immediately apparent that certain things can only be taught in a very intimate circle, whereas other things can obviously be taught en masse, via the air, via television, via teaching machines, and so on.
What scale is appropriate? It depends on what we are trying to do. The question of scale is extremely crucial today, in political, social and economic affairs just as in almost everything else. What, for instance, is the appropriate size of a city? And also, one might ask, what is the appropriate size of a country? Now these are serious and difficult questions. It is not possible to program a computer and get the answer. The really serious matters of life cannot be calculated. We cannot directly calculate what is right; but we jolly well know what is wrong! We can recognize right and wrong at the extremes, although we cannot normally judge them finely enough to say: “This ought to be five per cent more; or that ought to be five per cent less.”
Take the question of size of a city. While one cannot judge these things with precision, I think it is fairly safe to say that the upper limit of what is desirable for the size of a city is probably something of the order of half a million. 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. So probably the order of magnitude of five hundred thousand inhabitants could be looked upon as the upper limit. The question of the lower limit of a real city, is much more difficult to judge. The finest cities in history have been very small by twentieth-century standards. The instruments and institutions of city culture depend, no doubt, on a certain accumulation of wealth. But how much wealth has to be accumulated depends on the type of culture pursued. Philosophy, the arts and religion cost very, very little money. Other types of what claims to be “high culture,” space research or ultra-modern physics, cost a lot of money, but are somewhat remote from the real needs of men.
I raise the question of the proper size of cities because, to my mind, this is the most relevant point when we come to consider the most desirable size of nations. I know one cannot draw the map as one sees fit, but it is still legitimate to ask what is the right size of a nation: And this question is closely interrelated with the question of the proper size of cities. Why? This idolatry of giantism that I have talked about is, of course, based on modern technology, particularly as it concerns transport and communications. It has one immensely powerful effect: It makes people footloose. Millions of people start moving about, deserting the rural areas and the smaller towns to follow the city lights, to go to the big city, causing a pathological growth. Take the country in which all this is perhaps most exemplified, the United States. Sociologists are studying the problem of “megalopolis.” The word “metropolis” is no longer big enough; hence “megalopolis.” They freely talk about the polarization of the population of the United States into three immense megalopolitan areas: one extending from Boston to Washington, a continuous built-up area, with sixty million people; one around Chicago, another sixty million; and one on the West Coast, from San Francisco to San Diego, again a continuous built-up area with sixty million people; the rest of the country being left practically empty; deserted provincial towns, and the land cultivated with vast tractors, combine harvesters, and immense amounts of chemicals.
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 labor which economists treasure above all else.
One of the chief elements of structure for the whole of mankind is of course the state. And one of the chief elements or instruments of structuralization (if I may use that term), are frontiers, national frontiers. Now previously, before this technological intervention, the relevance of frontiers was almost exclusively political and dynastic; frontiers were delimitations of political power, determining how many people you could raise for war. Economists fought against such frontiers becoming economic barriers—hence the ideology of free trade. But, then, people and things were not footloose; transport was expensive enough so that movements, both of people and of goods, were never more than marginal. Trade in the pre-industrial era was not a trade in essentials, but a trade in precious stones, precious metals, luxury goods, spices. The basic requirements of life had of course to be indigenously produced. And the movement of populations, except in periods of disaster, was confined to persons who had a very special reason to move, such as the Irish saints or the scholars of the University of Paris.
But now everything and everybody has become mobile. All structures are threatened, and all structures are vulnerable to an extent that they have never been before.
Economics, which Lord Keynes had hoped would settle down as a modest occupation, similar to dentistry, suddenly becomes the most important subject of all. Economic policies absorb almost the entire attention of government, and at the same time become ever more impotent. The simplest things, which only fifty years ago one could see to without difficulty, cannot get done any more. The richer a society, the more impossible it becomes to do worth-while things without immediate pay-off. Economics has become such a thralldom that it absorbs almost the whole of foreign policy. People say, “Ah yes, we don’t like to go with these people, but we depend on them economically so we must humor them.” It tends to absorb the whole of ethics and to take precedence over all other human considerations. Now, quite clearly, this is a pathological development, which has, of course, many roots, but one of its clearly visible roots lies in the great achievements of modern technology in terms of transport and communications.
While people, with an easy-going kind of logic, believe that fast transport and instantaneous communications open up a new dimension of freedom (which they do in some rather trivial respects), they overlook the fact that these achievements also tend to destroy freedom, by making everything extremely vulnerable and extremely insecure, unless—please note—unless conscious policies are developed and conscious action is taken, to mitigate the destructive effects of these technological developments.
Now, these destructive effects are obviously most severe in large countries, because, as we have seen, frontiers produce “structure,” and it is a much bigger decision for someone to cross a frontier, to uproot himself from his native land and try and put down roots in another land, than to move within the frontiers of his country. The factor of footlooseness is, therefore, the more serious, the bigger the country. Its destructive effects can be traced both in the rich and in the poor countries. In the rich countries such as the United States of America, it produces, as already mentioned, “megalopolis.” It also produces a rapidly increasing and ever more intractable problem of “dropouts,” of people, who, having become footloose, cannot find a place anywhere in society. Directly connected with this, it produces an appalling problem of crime, alienation, stress, social breakdown, right down to the level of the family. In the poor countries, again most severely in the largest ones, it produces mass migration into cities, mass unemployment, and, as vitality is drained out of the rural areas, the threat of famine. The result is a “dual society” without any inner cohesion, subject to a maximum of political instability.
As an illustration, let me take the case of Peru. The capital city of Peru, Lima, situated on the Pacific coast, had a population of 175,000 in the early twenties, just over forty years ago. Its population is now approaching three million. The once beautiful Spanish city is now infested by slums, surrounded by misery-belts that are crawling up the Andes. But this is not all. People are arriving from the rural areas at the rate of a thousand a day—and nobody knows what to do with them. The social, or psychological structure of life in the hinterland has collapsed; people have become footloose and arrive in the capital city at the rate of a thousand a day to squat on some empty land, against the police who come to beat them out, to build their mud hovels and look for a job. And nobody knows what to do about them. Nobody knows how to stop the drift.
So, when everybody and everything becomes footloose, the idea of structure becomes a really central idea, to which all our powers of thought and imagination must be applied; and, as I said, a primary instrument of structure is the nation state with its frontiers. A large country, I am quite certain, can survive this age of footlooseness only if it achieves a highly articulated internal structure, so that in fact it becomes a loose federation of relatively small states, each with its own capital city capable of offering all the culture and facilities which only a city can offer, including government. A city without government is obviously second-rate. But how can small countries be “viable”?
How can one talk about the economics of small independent countries? How can one discuss a problem that is a non-problem? There is no such thing as the viability of states or of nations; there is only a problem of viability of people: people, actual persons like you and me, are viable when they can stand on their own feet and earn their keep. You do not make non-viable people viable by putting large numbers of them into one huge community, and you do not make viable people non-viable by splitting a large community into a number of smaller, more intimate, more coherent and more manageable groups. All this is perfectly obvious and there is absolutely nothing to argue about. Some people ask: “What happens when a country, composed of one rich province and several poor ones falls apart because the rich province secedes?” Most probably the answer is: “Nothing very much happens.” The rich will continue to be rich and the poor will continue to be poor. “But if, before secession, the rich province had subsidized the poor, what happens then?” Well then, of course, the subsidy might stop. But the rich rarely subsidize the poor; more often they exploit them. They may not do so directly so much as through the terms of trade. They may obscure the situation a little by a certain redistribution of tax revenue or small-scale charity, but the last thing they want to do is secede from the poor.
The normal case is quite different, namely that the poor provinces wish to separate from the rich, and that the rich want to hold on because they know that exploitation of the poor within one’s own frontiers is infinitely easier than exploitation of the poor beyond them. Now if a poor province wishes to secede at the risk of losing some mythical subsidies, what attitude should one take?
Not that we have to decide this, but what should we think about it? Is it not a wish to be applauded and respected? Do we want people to stand on their own feet, as free and self-reliant men? So again this is a “non-problem.” I would assert therefore that there is no problem of viability, as all experience shows. If a country wishes to export all over the world, and import from all over the world, it has never been held that it had to annex the whole world in order to do so.
What about the absolute necessity of having a large internal market? This again is an optical illusion if the meaning of “large” is conceived in terms of political boundaries. Needless to say, a prosperous market is better than a poor one, but whether that market is outside the political boundaries or inside, makes on the whole very little difference. I am not aware, for instance that Germany, in order to export a large number of Volkswagens to the United States, a very prosperous market, could only do so after annexing the United States. 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 most important problem in this second half of the twentieth century is the geographical distribution of population, the question of “regionalism.” But regionalism not in the sense of combining a lot of states into free-trade systems, but in the opposite sense of developing all the regions within each country. This, in fact, is the most important subject on the agenda of all the larger countries today. And a lot of the Nationalism of small nations today, and the desire for self-government and so-called independence, is simply a logical and rational response to the need for regional development. In the poor countries in particular there is no hope for the poor unless there is successful regional development, a development effort outside the capital city covering all the rural areas wherever people happen to be.
If this effort is not brought forth, their only choice is either to remain in their miserable condition where they are, or to migrate into the big city where their condition will be even more miserable. It is a strange phenomenon indeed that the conventional wisdom of present-day economics can do nothing to help the poor.
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 economic 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. This means that those who have nothing to sell but their labor remain in the weakest possible bargaining position. The conventional wisdom of what is now taught as economics by-passes the poor, the very people for whom development is really needed. The economics of giantism and automation are a leftover of nineteenth-century conditions and nineteenth-century thinking and they are totally incapable of solving any of the real problems of today. An entirely new system of thought is needed, a system based on attention to people, and not primarily attention to goods—(the goods will look after themselves!). It could be summed up in the phrase, “production by the masses, rather than mass production.” What was impossible however in the nineteenth century, is possible now. And what was in fact—if not necessarily at least understandably—neglected in the nineteenth century is unbelievably urgent now. That is, the conscious utilization of our enormous technological and scientific potential for the fight against misery and human degradation; that is, a fight in intimate contact with actual people, with individuals, families, small groups, rather than states and other anonymous abstractions. And this pre-supposes a political and organizational structure that can provide this intimacy.
What is the meaning of democracy, freedom, human dignity, standard of living, self-realization, fulfillment? Is it a matter of goods, or of people? Of course it is a matter of people. But people can be themselves only in small comprehensible groups. 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 analysis, labor 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.
Are there not indeed enough “signs of the times” to indicate that a new start is needed?”
…
The following essay appeared in Resurgence, May 1975
The Critical Question of Size
Statisticians tell us that the proportion of ‘gainfully employed’ persons in the service industries is rising while that of industrial workers is falling. This is a development with far-reaching consequences. The production of goods can be and indeed has been, handed over to machines, and this has led to the so-called growth in productivity which in turn has made possible the growth of incomes. Where do the services stand with regard to the growth of productivity? Can the rendering of services be handed over to machines? The answer is an absolute No. If the human factor is taken out of the service, the service disappears and its place may or may not be taken by a labour-saving device. People’s need to render service to their fellows cannot be satisfied if machines take their place. The human element disappears.
Of course, it cannot disappear altogether, and where actual people continue to render actual services — teachers, nurses, and countless others — increases in productivity cannot be generally obtained, because they mainly depend on machines, not on people. To the extent that advances in wages are made dependent on advances in productivity, the service industries tend to fall behind. But the people in the service industries, not surprisingly, insist on keeping in step with the others. As a result, the service industries’ costs rise very much faster than those of other industries, and the pressure on them to ‘rationalise’ increases. But how can you rationalise services? Only by reducing the human element, by substituting machines, or by reducing the service. The drive for higher productivity and lower costs in the service industries therefore almost inevitably results in a further elimination of the human factor.
If my description is correct, it follows that our need to render service to our fellows is becoming more and more difficult to satisfy. The difficulty is compounded as the size of service organisations increases and as, in the pursuit of efficiency, they become more centralised and more ‘scientifically’ organised.
The bigger an organisation, the more difficult it becomes to keep the human touch.
This has many reasons, which have been more or less systematically identified by sociologists, systems analysts, and others. But you do not have to be an expert in sociology or systems analysis to be able to see that the human factor, as a person-to-person relationship, depends on a certain degree of intimacy, which no-one can achieve with large numbers of people. How many people do we get to know as people in the course of a lifetime? If we made a list of them we should find the number surprisingly small — perhaps a few hundred, certainly not a few thousand. If I work inside a group of people, I need to know not only how I get on with each of them; I also need to know how every one of them gets on with, and relates to, everyone else. The number of person-to-person relationships within a group rises much faster than the number of group members as the group increases in size. Among three people, there are three bilateral relationships; among twelve, there are sixty-six: among a hundred, there are 4,950 — more than anyone can keep in his head at the same time. In fact any large group of people will inevitably break down into small groups, whether such a breakdown is provided for in the organisation chart or not. Structures will emerge, and such structures are normally hierarchical, that is to say, there are a number of ‘levels’ between the top and the bottom. Everybody has a boss; the little bosses have bigger bosses and so on, if not ‘ad infinitum’, in general through quite a few layers of authority: the bigger the organisation, the more such layers there are likely to be.
Such structures cannot function without many rules and regulations which everybody, even the top boss, has to abide by. It follows that nobody, not even the top boss can act freely, though at each level there may of course be a certain amount of discretion.
One of our fundamental needs is to be able to act in accordance with our moral impulses. In a big organisation our freedom to do so is inevitably severely restricted. Our primary duty is to stay within the rules and regulations, which, although contrived by human beings, are not themselves human beings. No matter how carefully drawn up, they lack the flexibility of the ‘human touch’.
The bigger the organization, the less is it possible for any member of it to act freely as a moral being; the more frequent are the occasions when someone will say: “I am sorry, I know what I am doing is not quite right, but these are my instructions” or “these are the regulations I am paid to implement” or “I myself agree with you: perhaps you could take the matter to a higher level, or to your member of parliament.”
As a result, big organisations often behave very badly, very immorally, very stupidly and inhumanely, not because the people inside them are any of these things but simply because the organisation carries the load of bigness. The people inside them are then criticised by people outside, and such criticism is of course justified and necessary, but it bears the wrong address. It is not the people of the organisation but its size that is at fault. It is like blaming a car’s exhaust gases on the driver; even an angel could not drive a car without fouling the air.
This is a situation of universal frustration: the people inside the organisation are morally frustrated because they lack freedom of action, and the people outside are frustrated because, rare exceptions apart, their legitimate moral complaints find no positive response and all too often merely produce evasive, meaningless, blandly arrogant, or downright offensive replies.
Many books have been written about moral individuals in immoral society. As society is composed of individuals, how could a society be more immoral than its members? It becomes immoral if its structure is such that moral individuals cannot act in accordance with their moral impulses. And one method of achieving this dreadful result is by letting organisations become too large. (I am not asserting that there are no evil individuals capable of doing evil things no matter what may be the size of organisations or, generally, the structure of society. It is when ordinary, decent, harmless people do evil things that society gets into the deepest troubles.)
There are three things healthy people most need to do — to be creatively productive, to render service, and to act in accordance with their moral impulses. In all three respects modern society frustrates most of the people most of the time. Frustration makes people unhappy and often unhealthy. It can make them violent or completely listless. It makes them feel insignificant and powerless. As a sensitive British worker put it:
The factory I work in is part of one of those combines which seem to have an ambition to become the great provider, both in and out of work, for their employees. Recreational facilities abound; but the number of people using them is small in percentage. Perhaps others, like me, resent the gradual envelopment of recreation by the umbrella of factory life. Not only recreation either. The firm has a mania to appear responsible. Fingers of charity stretch ever further into communal life. The company bends over backwards to make amends for the lethargy that the factory has produced in the worker. The effect is treated while the cause is ignored. No wonder the worker is unappreciative.
“The alienating conditions of modern work,” says C. Wright Mills, “now include the salaried employees as well as the wage-workers. There are few, if any, features of wage-work . . . that do not characterise at least some white-collar work.” And David Jenkins in his recent book on Job Power comments: “White-collar and service work environments have been steadily degraded, with the growth of importance of these sectors and the refinement of management techniques, developed primarily for use in manufacturing, applied to other types of work … As a result of the refinements of dehumanising management techniques, white-collar workers have been rapidly catching up with blue-collar workers in terms of alienation.”
Work: A hateful necessity?
Alienation, frustration, boredom, brutalisation, resentment, lack of appreciation … the greatest single failure of the modern scheme of things is what it has made of human work. Anyone who can say, honestly and convincingly, “I enjoy my work”, has become an object of astonishment and envy. Work, as the sociologists say, has become purely instrumental; unlike sport, it is not being undertaken for the joy of it, since for most people the joy has gone out of it; it is undertaken as a hateful necessity because people have to make a living. Those who can get a living without doing work are being envied even more intensely than those who enjoy, actually enjoy, their work. This is where modern society has snookered itself. Its masters call upon the people to work harder, to do a fair day’s work for a fair day’s pay; but for most of them ‘a fair day’s work’ has become a contradiction in terms.
The people’s power derives from their power to work, to work creatively, to render service, to act in accordance with their moral impulses. Joyless, meaningless, ‘alienated’ work has no power. Let me again quote a British worker:
It is probably wrong to expect factories to be other than they are. After all, they are built to house machines, not people. Inside a factory it soon becomes obvious that steel brought to life by electricity takes precedence over flesh and blood. The onus is on the machines to such an extent that they appear to assume human attributes of those who work them. Machines have become as much like people as people have become like machines. They pulsate with life, while human beings become robots.
Too many people are imprisoned in organisations which, on account of their super-human size, make people insignificant and powerless.
If this is so — to the extent that this is so — people’s power is frustrated and paralysed. Neither the further development of this type of mechanisation nor the streamlining and perfection of this type of organisation can restore people’s power and lead us out of our predicament. Decent survival now depends on redesigning technology and redesigning organisations.
It strikes me as astonishing how little systematic study has been given to the all-pervading question of size. Aristotle knew about its importance, and so did Karl Marx who insisted that with changes in quantity you get at certain thresholds, changes in quality. Aristotle said: “To the size of states there is a limit, as there is to other things, plants, animals, implements; for none of these retain their natural power when they are too large or too small, but they either wholly lose their nature or are spoiled.”
Dangers of growth
Organisations, like these ‘other things’, may well grow to such a size that they wholly lose their nature or are altogether spoiled. An organisation may have been set up to render various services to all sorts of helpless, needy people; it grows and grows, and suddenly you find that it does not serve the people any more but simply pushes them around. There may be complaints that the organisation has become ‘too bureaucratic’ and there may be denunciations of the bureaucrats. There may be demands that the ‘incompetent bosses’ of the organisation should be replaced by better people. But few people seem to realise that bureaucracy is a necessary and unavoidable concomitant of excessive size; that bureaucrats cannot help being bureaucrats; and that the apparent incompetence of the bosses has almost nothing to do with their personal competence.
A large organisation, to be able to function at all, requires an elaborate administrative structure. Administration is a most difficult and exacting job which can be done only by exceptionally industrious people. The administrators of a large organisation cannot deal concretely with real-life problems and situations: they have to deal with them abstractly. They cannot enjoy themselves by devising, as it were, the perfect shoe for a real foot: their task is to devise composite shoes to fit all possible feet. The variety of real life is inexhaustible, and they cannot make a special rule for every individual case. Their task is to anticipate all possible cases and to frame a minimum number of rules — a small minimum indeed! — to fit them all. We all know that life, all too often, is stranger than fiction; the dilemma of the administrators, therefore, is severe: either they make innumerable rules the enforcement of which then requires whole armies of minor officials, or they limit themselves to a few rules which then produce innumerable hard cases and absurdities calling for special treatment: every special treatment, however, constitutes a precedent which is, in effect, a new rule.
The organisation as a whole, at the same time, is faced with a further dilemma: either it draws its best brains into the administration whereupon they may be missed at operational level: or it uses its best talents at operational level, whereupon there may be serious frustration down below, owing to incompetent administration.
If there is any truth in this (very rough) analysis, the conclusion is obvious: let us organise units of such a size that their administrative requirements become minimal. In other words, let us have them on a human scale, so that the need for rules and regulations is minimised and all difficult cases can be resolved, as it were, on the spot, face to face, without creating precedents — for where there is no rule there cannot be a precedent.
The problem of administration is thus reduced to a problem of size. Small units are self-administrating in the sense that they do not require full-time administrators of exceptional ability: almost anybody can see to it that things are kept in reasonable order and everything that needs to be done is done by the right person at the right time.
I should add that, as Aristotle observed, things must be neither too big nor too small. I have no doubt that for every organisation, as for other things, there is a ‘critical size’ which must be attained before the organisation can have any effectiveness at all. But this is hardly a thought that needs to be specially emphasised, since everybody understands it instinctively. What does need to be emphasised is that ‘critical size’ is likely to be very much smaller than most people in our mass society are inclined to believe.
Excessive size not only produces the dilemma of administration, it also makes many problems virtually insoluble. To illustrate what I mean, imagine an island of 2,000 inhabitants – I have in mind an island of this size which a little while ago demanded total sovereignty and independence. Crime on such an island isa rarity; maybe there is one single full-time policeman, maybe there is none. Assume, however, that some crimes do occur, that some people are sent to jail, and that they may return from jail at the rate of one person a year. There is no difficulty in reintegrating this one ex-prisoner into the island’s society. Someone, somewhere will find this person a room to live in and some kind of work. No problem.
A way to solve problems
The British Isles contain not 2,000 but 50 million inhabitants, and the number of people returning from prison every year is about 25,000. Arithmetic teaches us that 2,000:1 equals 50 million: 25,000.
But it is not true. Marx was more realistic than is dreamt of in arithmetic when he said that a change in quantity produces a change in quality. The problem of re-integrating 25,000 ex-prisoners into a society 25,000 times as large as that of the little island is quite a different problem, not only quantitatively but also qualitatively, a problem the solution of which escapes the devoted efforts of Home Office, Probation Service, and countless other organisations. Is it a matter of proportionately too little effort and money being devoted to this task of re-integration and rehabilitation? Could we solve the problem by having bigger prisoners’ aid organisations, more people, and more money? Maybe we can; maybe we cannot. I personally think we cannot. But the point is that the small island does not have the problem. The engine, as it were, is small enough to consume its own smoke. Or we might say: People’s power prevents the problem from becoming a problem. Not merely does it prevent crime from becoming a problem, it also prevents the consequences of crime from becoming a problem.
This, surely, is a matter of breathtaking importance. People’s power doesn’t solve problems: it avoids them. Of course, some work is needed to avoid problems; but this is the kind of work which people want to do. They want to do it because, to become real, they need to do it. They need to follow their moral impulses; they need to render service to their fellows, and they need to be creatively productive. So, when we need something, we do not expect to be paid for it. On the contrary, there are countless people who say: “This is what I want to do; I don’t expect payment for it, I don’t even want my expenses back: it is what I want to do.”
The question is: How can people’s power be ‘liberated’? By going for the small, the human, scale. I do not wish to be dogmatic on this because I do not know how to define what, in any particular instance, is the ‘human scale’. When many people are doing exactly the same thing — as for instance in a large orchestra with twenty first violinists and twenty second violinists, etc. — the proper scale, expressed in numbers of people, will undoubtedly be different from that of a team in which everybody is doing something different from everybody else. So there is no easy, generalised answer. It is, as they say, ‘Horses for courses’. But it is horses for courses; it is not the bigger the better, which is the all too common assumption of the modern world.
Whether in governmental or voluntary non-governmental organisation, the human touch and the mobilisation of people’s power remain wishful thinking unless the organisation is of the right size both geographically and numerically. ‘Right size’ is a difficult concept; the touchstone is the reaction of people — can they still give or receive individual attention? My own guess is that we should accustom ourselves to thinking in terms of very much smaller units than we may be inclined to, conditioned as we are by a society addicted to ‘rationalisation by giantism’. On a small scale people’s power can be mobilised but when the scale becomes too large, people’s power becomes frustrated and ineffective. What precisely, is the right scale, I cannot say. We should experiment to find out. I could imagine an arrangement whereby in this country, say, 20-25 units would be constituted, with an average of something like 2-2.5 million people each. All but a small percentage of the taxes raised in these units would be returned to them, to use as they saw fit. They would be the masters of their own fate, as if they were separate countries, and that there was no central ‘government’ to bail them out if they made a mess of things. The engagement of people’s power, may then become a phenomenon all over Britain. I have seen this happening in some parts of the world, for instance in China, but also in communities under entirely different systems. The discovery and mobilisation of people’s power may be nothing less than the condition of survival for the hitherto affluent societies of the West.