Monday, December 01, 2008

The Relevance of E. F. Schumacher in the Twenty First Century

by John Fullerton
The E. F. Schumacher Society
May 2008

The inevitability of globalization and the dominance of increasingly large and powerful global corporations and financial institutions are an accepted fact of contemporary economic life. Competitive forces pushing us further in this direction continue to build. The benefits of scale are real, furthered by accelerating technological advances. A former CEO of JPMorgan once proclaimed, “Size is not a strategy”. He was wrong. In 2001, an American banking dynasty came to a close with the take-over by Chase Manhattan Bank.

As industries mature, scale only becomes more critical out of competitive necessity. State capitalism from emerging powers China and Russia only raise the stakes further in our competitive global economy. Within this context, Fritz Schumacher’s best selling book, Small is Beautiful, and his ideas about human scale, decentralization, and appropriate technologies may seem quaint and out of touch. We may believe that “small is beautiful” in our hearts, but our head is teaching us that “big wins”. Experience has taught us to ignore our logical heads at our peril. Nevertheless, our conscience is telling us, now more than ever, that something is amiss. A new era is struggling to unfold. While the Obama phenomena may in some ways reflect this change, it does not by any means define it. We need to pause and reflect carefully in light of what we see happening to the health and prosperity of individuals, whole populations, other species, oceans, the soil, rainforests, the atmosphere, indeed the entire planetary system, if we are awake enough to notice.

Something about our global economic system is broken. I say that not as an environmentalist or as a human rights activist, but as a former managing director and nearly twenty-year veteran of JPMorgan and subsequently a hedge fund CEO. With the global credit crisis that emerged during the summer of 2007, and the ensuing financial and economic turmoil that some say is exceeded only by the Great Depression, the stability and even viability of our freewheeling, complex and interconnected global financial system has come into question. Even the “experts” are scrambling for answers as they reinvent the purpose and practices of major institutions, including even the Federal Reserve Bank itself.

The linkage between a global interconnected financial system and the real economy seems to loosen during boom times. Finance has become more abstract and ever more complex with previously unimaginable wealth accruing to the relative few who control increasingly massive concentrations of capital. But when the music stops, the linkage with the real economy reasserts itself, spreading the pain far and wide to those who saw little of the benefits during the boom times. Nevertheless, the credit crisis, brought on and exacerbated by financial abstraction run amok, does not in itself constitute a broken economic system. Our free market system is accustomed to correcting its own excesses, often with painful adjustments as part of the process.

Today we face two problems in our economic system. The first is a cyclical credit driven contraction, which leaves the entire middle class vulnerable and the poor distressed and increasingly desperate. The second problem is more profound. So far, we are mostly focused on its symptoms, such as the increased awareness of climate change risk, water shortages, the collapse of whole fisheries, rising raw material prices led by oil, and now food scarcities as well. However, these are only symptoms of the conflict between our growth driven economic system and the finite limits of the biosphere that are coming into clear focus.

We are at risk of being distracted by the current cyclical stresses in the financial system, which overshadow the more critical scale challenges we face. Unfortunately, many of the remedies for the first problem will inevitably be in conflict with the difficult choices we face in addressing the second. When stimulating growth is the solution to cyclical downturns, yet this growth of our resource intensive global economy presses against known physical limits of the biosphere, a contradiction arises we cannot ignore.

Our global economic system is broken not because of the credit crisis; it is broken because it is predicated on perpetual, resource driven growth with no recognition of scale limitations...

...Our challenge now is... to chart a practical path of convergence between the reality that exists in our economic system today and the principles we strive to uphold and upon which our long run prosperity undoubtedly depends. We will need to stimulate and utilize “appropriate” technological breakthroughs on this path, but at the same time remain grounded in truth. Clarifying the first principles of this truth, as best as our collective wisdom – both past and present - allows, is our most urgent task. The opening decades of 21st century may be our best chance to launch the critical transformation of our economic system to an economics of permanence. We need to get it right, as only our collective consciousness will allow.

At the end of The Kingdom of God is Within You, Leo Tolstoy underscores the importance of grounding our lives, and by extension, our society and institutions, including our economic system, which profoundly impacts all life on earth, on the bedrock foundation of truth.
“The sole meaning of life is to serve humanity by contributing to the establishment of the kingdom of God, which can only be done by the recognition and profession of the truth by every man.”
Transitioning to a sustainable and just economic system is the ultimate challenge of the 21st century. History no doubt will judge our generation by how well we acknowledge, embrace and take up this challenge. Before racing into action, into our Cartesian predisposition toward logical problem solving, let us begin by recognizing and professing the truth. E. F. Schumacher and the Schumacher Library is a beautiful place to start.

Read the entire article here.

© Copyright E. F. Schumacher Society and John Fullerton
E. F. Schumacher Society
140 Jug End Road
Great Barrington, MA 01230
efssociety@smallisbeautiful.org

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