This is the third part of the ‘Economics as if People Mattered’ talk about E. F. Schumacher’s book ‘Small is Beautiful: A Study of Economics as if People Mattered’. The Introduction looked at why we should re-visit Schumacher after all these years and Part 2 provided selected quotes about the fundamental values of Economics.
Here, I turn to what Schumacher has to say about employment. I think this is interesting, following on from what I have said regarding the effect of the current automation revolution on work, in my previous talk, ‘Automation, Education and Work’.
As with the previous part, each section here provides quotes followed by a short commentary that provides a summary and may provide some additional comments.
Bold text in the quotes is my emphasis, to provide a very short overview.
- There is universal agreement that a fundamental source of wealth is human labour. Now, the modern economist has been brought up to consider ‘labour’ or work as little more than a necessary evil.
- Contrast: the ideal from the point of view of the employer is to have output without employees, and the ideal from the point of view of the employee is to have income without employment.
- Modern literature paints frightening pictures of a brave new world sharply divided between us and them, 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 fiscal inducements, incentives, endless exhortations and threats.
- The primary task of technology is to lighten the burden of work.
There is the fundamental division between ‘them’ and ‘us’: the capital of the employer and the labour of the employee. Should the market be run in the benefit of ‘them’ or the benefit of ‘us’? Clearly, there needs to be some balance – the debate is ‘where?’.
- ‘The prestige carried by people in modern industrial society varies in inverse proportion to their closeness to actual production.’
- Virtually all real production has been turned into an inhuman chore which does not enrich a man but empties him.
- Karl Marx appears to have foreseen much of this when he wrote: ‘They want production to be limited to useful things, but they forget that the production of too many useful things results in too many useless people.’ to which we might add: particularly when the processes of production are joyless and boring.
- The technology of mass production is inherently violent, self-defeating in terms of non-renewables, and stultifying for the human person.
- Soul-destroying, meaningless, mechanical, monotonous, moronic work is an insult to human nature which must necessarily and inevitably produce either escapism or aggression.
- In contrast, most 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
Increasingly there is a bifurcation of the workforce into the ‘good jobs’ (well-paid prestigious ones) and the bad jobs, with a hollowing out of the middle. Schumacher’s description of the bad jobs as ‘meaningless, mechanical, monotonous, moronic’ is even better than the ‘lovely and lousy’ and the ‘dull, dirty, dangerous and demeaning’ alliterations. Those bad jobs that keep the economy going on a day-to-day basis are undervalued.
From Consumption to Well-Being
- I was tempted to formulate the first law of economics as follows: ‘The amount of real leisure a society enjoys tends to be in inverse proportion to the amount of labour-saving machinery it employs.’
- If you go from easy-going England to, say, Germany or the United States, you find that people there live under much more strain than here. And if you move to a country like Burma, which is very near to the bottom of the league table of industrial progress, you find that people have an enormous amount of leisure really to enjoy themselves. Of course, as there is so much less labour-saving machinery to help them, they ‘accomplish’ much less than we do; but that is a different point.
- … this is standing the truth on its head by considering goods as more important than people and consumption as more important than creative activity.
- since consumption is merely a means to human well-being the aim should be to obtain the maximum of well-being with the minimum of consumption.
Schumacher’s visits to Burma (now called Myanmar) perhaps left him with a rose-tinted view of living there. In the 2019 ‘World Happiness Report’ survey, on a scale of 3.08 for the Central African Republic (153rd place in the world) up to the first place 7.77 for Finland, Burma scores 4.36 (129th). This is not very impressive (the values for USA, Germany and ‘easy-going’ UK are 6.89, 6.99 and 7.05 respectively.
Perhaps the quality of life in Burma has deteriorated with political events since Schumacher’s time. And there is more to happiness than leisure.
Even so, he makes the point that the Western economic structures we have now direct society to consuming goods/services rather than the maximizing of well-being – in which many would choose the latter, at least partly through increased leisure.
Work is more than just fulfilling material needs
- Management assume that people work simply for money and promote dreams about automation doing away with manual work, and about the computer relieving men from the burden of using their brains.
- the function of work to be at least threefold: to give a man a chance to utilise and develop his faculties; to enable him to overcome his egocentredness by joining with other people in a common task; and to bring forth the goods and services needed for a becoming existence.
- Next to the family, it is work and the relationships established by work that are the true foundations of society. If the foundations are unsound, how could society be sound? And if society is sick, how could it fail to be a danger to peace?
- planning for full employment
Previously I have discussed:
- how work was more than about satisfying needs (Voltaire talked about ‘boredom’ and ‘vice’ as well as ‘need’), and
- how technology might lead to a future society of wide-scale unemployment and that we needed to spread the work out as widely as possible: to ‘spread the bread on the butter’ as Keynes said.
But Keynes and I were only looking far enough into the future that work was substantially reduced. ‘Let us see how things are when we get there’ was the attitude. But Schumacher looks at the value of work more fundamentally. The connection between an individual and the society in which they live is important.
An Alternative to Increasing Productivity
- Imagine we set ourselves a goal in the opposite direction [to increasing productivity] An incredible thought! Even children would be allowed to make themselves useful, even old people.
- [More time] for any piece of work we chose to undertake —enough to make a really good job of it, to enjoy oneself, to produce real quality, even to make things beautiful. Think of the therapeutic value of real work: think of its educational value. No-one would then want to raise the school-leaving age or to lower the retirement age, so as to keep people off the labour market. Everybody would be welcome to lend a hand.
- Suppose it becomes the acknowledged purpose of inventors and engineers, observed Aldous Huxley, to provide ordinary people with the means of ‘doing profitable and intrinsically significant work, of helping men and women to achieve independence from bosses, so that they may become their own employers
- this differently orientated technological progress [would result in] a progressive decentralisation of population, of accessibility of land, of ownership of the means of production, of political and economic power’.
Previously, I imagined that at some point in the future we might have a society where the proportion of people working full-time was much reduced as a consequence of automation, with needs provided through Universal Basic Income or, as I preferred, Universal Basic Services.
Speculating, the composition of society might comprise:
- 25% youth in education
- 35% retired
- 5% working age but inactive, probably for medical reasons
- 10% working age doing voluntary work
- 25% employed or self-employed, generally at 15 to 25 hours per week.
In contrast, Schumacher seeks to widen the percentage of people doing work (voluntarily or otherwise), perhaps to a composition like:
- 10% infants in education
- 15% youth in education and with some work
- 65% adult active (voluntarily or otherwise) to some extent, including the elderly.
- 10% inactive, probably for medical reasons and predominantly in old age
… such that 80% of the population are actively contributing to the functioning of society.
Productivity is no longer the objective! Certainly not in terms of goods/services provided per hour worked. But productivity could still be being maintained in terms of goods/services provided per unit salary. This would allow them to work in a more rewarding way, bringing craftmanship to their work instead of churning out the barest minimum quality to get the sale to take the profit. This probably involves a shift (or continuation of the shift) to higher formal self-employment and self-employment in the positive side of the gig economy. This probably involves a shift (or continuation of the shift) to self-employment – whether normal or in the (positive side of) the gig economy. This would have an equalizing, empowering effect. (This would presuppose a high level of universal benefits without a minimum wage.)
Integrated Work and Leisure within Society
- work and leisure are complementary parts of the same living process and cannot be separated without destroying the joy of work and the bliss of leisure.
- ‘a more humanly satisfying life for more people, a greater measure of genuine self-governing democracy and a blessed freedom from the silly or pernicious adult education provided by the mass producers of consumer goods through the medium of advertisements.’
- Everybody would be admitted to what is now the rarest privilege, the opportunity of working usefully, creatively, with his own hands and brains, in his own time, at his own pace —and with excellent tools.
- modern technology has deprived man of the kind of work that he enjoys most, creative, useful work with hands and brains
- the human being, defined by Thomas Aquinas as a being with brains and hands, enjoys nothing more than to be creatively, usefully, productively engaged with both his hands and his brains. Today, a person has to be wealthy to be able to enjoy this simple thing. He really has to be rich enough not to need a job.
- people who work in this way do not know the difference between work and leisure. There would be little need for mindless entertainment or other drugs, and unquestionably much less illness.
To answer the question of what work people want to do, we can look to how people choose to spend their retirement. In large numbers, they voluntarily choose to do ‘work’ that is creative and manual. In many cases, they call these activities ‘hobbies’.
What actually makes us happy? How does the fleetingly-short joy from the purchase of something that you don’t really need compare with hours spent in an enjoyable activity?
Freedom and Order: Innovation
- In our active personal relationships we can, in fact, be brothers to only a few… and we are called upon to show more brotherliness to them than we could possibly show to the whole of mankind.
- We always need both: (a) the freedom of the small, autonomous units (‘action is a highly personal affair’) at the same time as (b) the orderliness of large-scale co-ordination (the ‘unity of mankind’).
- Order requires intelligence and is conducive to efficiency; while freedom calls for, and opens the door to, intuition and leads to innovation.
- if no scope remains for creative intuition, for entrepreneurial disorder, the organisation becomes moribund and a desert of frustration.
- The great majority of economists and business efficiency experts supports this trend towards vastness.
- Nobody really likes large-scale organisation. Nobody likes to be ruled by rules. Yet, it seems, large-scale organisation is here to stay.
- A large organisation … goes through alternating phases of centralising and decentralising.
Even liberals and socialists have to recognise that we cannot, in practice, live in a world where a stranger on the other side of the world means as much to us as those we meet everyday at work.
For liberating, innovative dynamism, companies need to sit on the border between organizational order and chaos, like operating in Vygotsky’s ‘zone of proximal development’).
Freedom and Order: The Bias towards Order
- As soon as great size has been achieved, we want to transform the monolith to attain smallness within bigness – to create the feeling of it being a federation of numerous lively semi-autonomous units, each with its own drive and sense of achievement.
- The fundamental task is to achieve smallness within a large organisation.
- 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.
- ‘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. Loyalty can grow only from the smaller units to the larger (and higher) ones. The burden of proof lies always on those who want to deprive a lower level of its function, and thereby of its freedom; they have to prove that the higher level can actually do much better.
- The really helpful things will not be done from the centre; they cannot be done by big organisations;
- Administrators insist on accountability … This is logical enough: but real life is bigger than logic.
The continuous, simultaneousness achieve of multiple identities – of a small culture within a big one is difficult to achieve. The more typical series of departmental splitting and combining (or the spinning-off, mergers and takeover of companies) is far easier. In many cases, takeovers are only about achieving economies of scale.
But where an acquisition is diverse, executives all too often feel the need to impose the larger company culture on the smaller unit, eroding the established local company culture that has taken years to build.
In saying that we need to shift the bias from the big-ness of order to the small-ness of freedom, it is not to say simply that ‘Small is Beautiful and Big is Ugly’. It is just a change in the balancing act.
We have ‘progressed’ in the wrong direction. Since Schumacher’s time, the multi-national companies are far larger and the number of ‘companies of smallness’ (genuine ones, excluding one-man shells) is far less.
How should we deal with multi-nationals?
Worker versus Passive Ownership
- As regards private property the first and most basic distinction is between (a) property that is an aid to creative work and (b) property that is an alternative to it.
- There is something natural and healthy about the former -the private property of the working proprietor; and there is something unnatural and unhealthy about the latter —the private property of the passive owner who lives parasitically on the work of others.
- For it is not private ownership, but private ownership divorced from work, which is corrupting to the principle of industry. Private enterprise carried on with property of the first category is automatically small-scale, personal, and local. It carries no wider social responsibilities. Its responsibilities to the consumer can be safeguarded by the consumer himself. No great private fortunes can be gained from small-scale enterprises, yet its social utility is enormous.
- the question of scale is decisive. When we move from small-scale to medium-scale, the connection between ownership and work already becomes attenuated; private enterprise tends to become impersonal
- The owner … becomes exploitative if he appropriates profit in excess of a fair salary to himself and a return on his capital on higher than current rates for capital borrowed.
- Such property may be called passive property, or property for acquisition, for exploitation, or for power.
- It is unjust and socially disruptive if profits are appropriated by the owner alone. They should be shared with all members of the organisation. If they are ‘ploughed back’ they should be ‘free capital’ collectively owned.
- It is questionable whether economists should call it “property” at all … since it is not identical with the rights which secure the owner the produce of his toil but is the opposite of them.
- The so-called private ownership of large-scale enterprises is, as Tawney says, analogous to ‘the feudal dues which robbed the French peasant of part of his produce till the revolution’,
- All these rights —royalties, ground-rents, monopoly profits, surpluses of all kinds —are “property”.
- Precisely in proportion as it is important to preserve the property which a man has in the results of his labour, is it important to abolish that which he has in the results of the labour of someone else.
- If every member of a group puts something into a common pool on condition of taking something out, they may still quarrel about the size of the shares … But in industry the claims are not all admitted, for those who put nothing in demand to take something out.
These are rather bold statements! Presumably ‘property that is an aid to creative work’ includes property for general living (toothbrush, socks, …) and for leisure (creative activity rather than consumption – see earlier). Surely a worker should be able to save – to store a surplus – for spending later, such as in retirement. Can this surplus not be used productively, enabling other companies and the self-employed to invest in their future (including microfinance)?
The problems here are concerning workers versus rentiers:
- inherited wealth rather than wealth from ‘mixing’ labour (John Locke’s ‘Whatsoever then he removes out of the State that Nature hath provided, and left it in, he hath mixed his Labour with, and joyned to it something that is his own, and thereby makes it his Property’).
- investment in activities that are not socially useful (providing goods and services that are zero-sum or negative sum games) such as (i) owning property that denies others fair use, and (ii) trade that is not of benefit for the other party.
And since Schumacher’s time, the economy has shifted more in favour of the Rentier.
- The most prominent methods of doing away with so-called private ownership is generally referred to as ‘nationalisation’.
- The quality of an industry depends on the people who run it and not on absentee owners.
- The objection to public ownership is in reality largely an objection to over-centralisation. But the remedy for over-centralisation is the decentralised ownership of public property.
- ‘Nationalisation’ extinguishes private proprietary rights but does not, by itself, create any new ‘ownership’ in the existential —as distinct from the legal —sense of the word.
- A number of principles may be observed in all cases of nationalised enterprises providing public services.
- The chief danger of nationalisation is the planner’s addiction to over-centralisation.
- The thought that ‘the public interest’ can be safeguarded in the conduct of private business by delegating top or medium-grade civil servants into management is both naive and impractical.
Collective ownership by ‘the State’ is an extreme example of ‘Order’ over ‘Freedom’. The relationship between the worker and the wealth derived from their labour has been completely diluted. In talking about workers here (below and well as above), we are not saying anything that is anti-business. On the contrary, a worker benefiting directly from their labour is very entrepreneurial.
Schumacher doesn’t state this explicitly but the fundamental problem here is that the interests of the various stakeholders in a company are not aligned. Those stakeholders are:
- the executives
- employees, and
- the wider community, including the recipients of the goods and services
Stakeholdership is now far more dynamic than it was in Schumacher’s time.
- The association between a company and its investors is fleeting. A fund manager has no long-term (sustained) stakeholding interest.
- Private ownership has declined. Executives similarly have no long-term interest in the company.
- For employees, the labour market is far more dynamic. But they have an inertia acting against moving away from their locality – children’s schools, spouse’s job, house (with high transactional moving costs) and friends. The possibility of a ‘job for life’ is rare.
- The wider community too is more fragmented – in more ways than one. Companies are more likely to be spread across sites, regions and maybe countries. Sites are closed and relocated.
The corporate bodies themselves are more dynamic. Centralising and decentralising operates across companies. Parts of companies are spun off and there are mergers. These are all cycles of freedom and order.
The balance between the stakeholders is wrong and has got worse since Schumacher’s time. Investors have become too powerful. Executives must act according to the expectations of shareholders and have been able to reap very high rewards themselves. This has all been at the expense of employees and, most of all, communities.
Private Affluence from Public Squalor
- Under private ownership every bit of wealth, as it arises, is privately appropriated. The public authorities have hardly any income of their own and are reduced to extracting from the pockets of their citizens monies which the citizens consider to be rightfully their own. This leads to an endless battle of wits between tax collectors and citizens, in which the rich, with the help of highly paid tax experts, do much better than the poor. ‘More taxation for more public expenditure’ would not be a vote-catching slogan
- the discrepancy between private affluence and public squalor… the squalor of many mental homes…
- large amounts of public funds have been spent on ‘infrastructure’, and the benefits go largely to private enterprise free of charge.
- anyone involved in running an enterprise in a poor society where ‘infrastructure’ is insufficiently developed cannot rely on cheap transport; he cannot count on being able to recruit trained people: he has to train them himself.
- the profits of private enterprise greatly over-state its achievement.
- the contribution of public expenditure to the profits of private enterprise must be recognised in the structure of ownership of the means of production.
In the balance of power between stakeholders, the role of the community is barely recognised. Yet companies lament the lack of skills in their ‘human resources’ and deficiencies in ‘other’ infrastructure. The largest companies hold power over communities in their choice of location in their single-minded pursuit of capital gain.
Nimble companies run by a small executive can avoid tax by running rings around the lumbering democratic machinery of the state.
The Scott Bader Commonwealth
Schumacher gave details about Scott Bader Commonwealth Ltd, an example of a company with common ownership.
- Finding himself now in the position of employer, Ernest Bader never forgot that his success and prosperity were the achievements not of himself alone but of all his collaborators
- He decided to introduce ‘revolutionary changes’ in his firm, ‘based on a philosophy which attempts to fit industry to human needs’.
- The problem was (1) how to organise or combine a maximum sense of freedom, happiness and human dignity in our firm without loss of profitability, and (2) to do this by ways acceptable to the private sector of industry.
- Mere profit-sharing was not enough. There was a transformation of ownership.
- The firm shall remain of limited size –not beyond 350 persons. Remuneration for work shall not vary beyond a range of 1:7.
- Members cannot be dismissed by their co-partners for any reason other than gross personal misconduct.
- the Commonwealth shall devote 1/2 of the appropriated profits to the payment of bonuses and the other 1/2 to charitable purposes.
- Scott Bader and a few others remain as small islands of sanity in a large society ruled by greed and envy.
Scott Bader still operates under common ownership and is now a €230 million company employing almost 700 people across 6 manufacturing sites and 13 offices around the world (thus exceeding its 350 person limit!). It continues charitable funding local to sites and provides various amenities to Wollaston, Northamptonshire in which it is headquartered.
The important principle here is that there is total alignment between the interests of the employee and the interests of the owners of the company – since the company is owned not by separate investors but by its employees!
The founding Bader family were Quakers. The Quaker companies built by the Rowntree, Cadbury and Fry families, in model villages such as New Earswick and Bournville, are older examples in which the interests of the owners, management, employees and community were very closely aligned. But examples such as these have long since disappeared or been acquired by antithetical multinationals such as Nestle and Mondelez.
The number of examples of companies remaining today that are owned by their employees are few and far between. Two other examples are:
As already noted, the stakeholdership in companies is now far more dynamic than it was in Schumacher’s time.
Public Share of Equity
- there are 8 possible combinations of ownership: [Freedom | Totalitarianism] [Planning | Market] [ Private | Collectivised]. It is absurd to assert that the only ‘possible’ cases are Freedom-Market-Private and Totalitarian-Planning-Collectivised.
- My immediate purpose is to speculate on the possibility of devising an ownership ‘system’ for large-scale enterprise.
- The businessman never tires of claiming and complaining that taxes absorb a substantial part of what he believes to be really due to him alone. The public share of private profits (the company profits taxes) might just as well be converted into a public share of the equity of private business.
- I postulate that the public hand should receive 1/2 of the distributed profits of large-scale private enterprise by means of a 50% ownership of the equity of such enterprises.
- all enterprises exceeding this minimum size must be joint-stock companies.
- No question of ‘compensation’ would arise, because there would be no expropriation but only a conversion of the public hand’s right to levy
Schumacher is advocating the combination of Freedom-Market-Collectivised. As previously written about, James Albus proposed a scheme in the mid 1970s in which the free market coexisted with collectivised ownership. Similarities are interesting.
We might agree with the sentiment and principles here but it is difficult to see how this could be applied now with so many distributed multi-national companies.
Corporation tax is a payment by a company for the privilege of operating in a particular market – it is a payment for:
- Giving the company access to potential employees, without which it would not be able to operate. These potential employees have been pre-trained for the benefit of the company – since the age of 4.
- Giving the company access to potential customers, without which it would not be able to profit. The number of potential customers has been maximized through having been provided health and welfare services.
- Giving the company access to the infrastructure which is the means to get their materials from suppliers and their goods and services to those customers.
And the list can go on much further.
Even so, the problem with corporation tax is that it is a tax and companies don’t like to pay taxes (specifically, investors indirectly don’t like paying taxes). Whilst having no moral compunction themselves, companies can still be shamed into paying tax.
Photo credit: Daily Mail
Here is one straw man proposal from me.
It may only be a fairly cosmetic change / re-interpretation, but, as a straw man, I propose replacing corporation tax with a ‘community dividend’.
Instead of the company paying a tax to the country (or more generally, a polity), the country receives a dividend just like every other shareholder of the company. The country receives a benefit as if it were a shareholder in the company. And this benefit goes to the community which provides all the benefits afforded to the company. It won’t be a 50% shareholding, as suggested by Schumacher. Let us make it equivalent to UK corporation tax of 19%. This makes the shareholding 15.96% (19% divided by 119%).
Of course, everything is essentially the same. It is just a re-branding, but the re-branding emphasizes the active role that the community provides to the company and emphasizes the beneficiaries of the dividend (who suffer if the payment is not made). And there is no problem in being a shareholder of a foreign company.
Here’s one way of applying it so that it works internationally…
Starbucks is a notorious example of a company that has done everything within its power to avoid taxes. This has included having the parts of Starbucks that run the coffee shops paying a licence for the right to use the Starbucks brand to another part, and paying over the odds for buying their coffee beans from yet another part. Since being shamed in the UK in 2012, it has relocated its EMEA headquarters to London and has increased its tax payments. But it still has a highly convoluted structure that makes it impossible for any one country to properly assess liabilities.
Photo credit: Wall Street Journal
Of course, we cannot consider that the UK has a 15.96% shareholding in Starbucks. Let us make the shareholding proportionate to UK revenue. Of the 28,218 Starbucks outlets in the world, 884 are in the UK, representing about 3.1% of the total. But revenue is a smaller proportion: about 1.9%. This is based on £372M=$476M UK revenue out of $24.72B global revenue (you might argue about the figures but this is just an example – it makes little difference). This gives the UK government an effective shareholding in the company of about 0.3% and hence an entitlement to 0.3% of the profits. As the gross profit for Starbucks was $14.545B, this means that the dividend to the UK would be $44.7M – substantially more than it as ever had paid to it in any year.
This is a simple (and grossly simplified) calculation, but fair. It does not matter how convoluted Starbucks make their internal organization to obfuscate accounting, or whether the UK-based operation is for EMEA or any other collection of nations or regions. Every polity receives what it is entitled to, for being a quasi-shareholder (stakeholder) in the company. And this should operate at the lowest appropriate polity. Thus, if Starbucks only had UK outlets in Scotland, then Scotland should be the beneficiary of the dividend.