BOOK REVIEW: "Small is Beautiful: Economics as if People Mattered" by E.F. Schumacher

Schumacher’s philosophical economics are the foundation of many modern concepts of ecological economics.  Central to this is the acknowledgement of the value of natural capital as the input to all economic production.  Until this is recognized the environment will be continued to be degraded.  This collection of essays argues against the conventional economic principles that economic growth and development of technology will hold the solutions to all our problems.  Schumacher also argues for more decentralized control of large enterprises, a form of nationalization that can successfully compete with conventional profit-driven businesses but with the welfare of employees and the commonwealth in mind.

Conventional economics argues that economic growth and expanding GNP will alleviate global problems of unemployment and poverty.  In fact continued growth is only leading to an increasing gap between the rich and poor as a result of profit-minded businesses overwhelming small-scale local business enterprises.  Schumacher suggests the use of intermediate technology in third world nations will better guarantee that economic aid is able to reach those most in need.  This is contradictory to the typical actions of the time, which focused efforts in single large business development in urban centers.  As Schumacher points out, this strategy not only diminishes the numbers of poor helped but often focuses on the use of complex technology from the west that requires little labor to implement.  Therefore, he calls for a shift in activity from capital to labor based enterprises to counteract unemployment and poverty.

Schumacher also argues that it is incorrect to assume that improvements in technology will be able to solve problems of the present sometime in the future.  More often we have seen that new technologies have only created more environmental concerns rather than eliminate those existing.  A key example of this is the development of nuclear energy as a replacement for diminishing fossil fuels.  While nuclear energy undoubtedly could fulfill many of our electricity demands it would likewise create more pollution and hazardous waste than either oil or coal.  Economic growth and new technology are more often the culprit rather than the solution to environmental woes.

Schumacher finishes with an example of one business, Scott Bader Co. Ltd. that has proven that you can be both a successful business and socially responsible.  The Bader family’s commitment to “a philosophy which attempts to fit industry to human needs” has defied the profit first principle and given more freedom and business shares to its employees.

Small is beautiful is a classic economics book that explores the possibilities for change in financial, social and environmental aspects of the business realm.  Schumacher writes with a conversational tone and focuses on the philosophical arguments for change.  SSC recommends this book for business owners interested in a classic read of the philosophical and economic reasoning for sustainability and corporate responsibility.

This book review comes from April Hansgate, one of SSC’s 2008 summer interns.