Book Review: Small is Beautiful

Small is Beautiful 
Economics as if People Mattered
by E.F. Schumacher
Blond & Briggs, Ltd., London (1973)
Pp 324

German economist E.F. Schumacher’s Small is Beautiful is more relevant today than when he wrote this gem of a book in the early 1970s. There is, without a doubt, a universal idolatry of gigantism (bigness). How big is big enough, one wonders. And ironically, once great size is achieved among nations, companies or portfolios, there is the ever pressing need to create smallness within the bigness, so the girth can be efficiently managed. 

The classic entrepreneurial mindset pursues bigness as its chief goal. Startup companies are often pressured to grow big, to grow fast, and most important of all, to grow without a conscience. Technology companies, in particular, are often pressured to adhere to the hockey-stick growth chart— after two or five years of slow incremental “normal” growth, then a sharp increase of astonishing growth shoots off the charts in a line resembling a hockey stick. The pressure placed on startups to aim for hockey-stick growth comes from the tribe of investors, angels, venture capitalists, and institutional lenders who demand a rapid return on their investment. 

The only problem with hockey-stick startup models is that this level of growth is rarely sustainable. There is no digital graveyard for the thousands of companies no one remembers. Consequently, there are no lessons to be learned by new entrepreneurs who would benefit by examining the mistakes of businesses who thought they were too big to fail. The final resting place for defunct companies that wanted to grow too fast and too big might only be the 404 error not found message that comes up on a dead white screen when searching for their last remains on the internet. 

Not every startup needs to be the next Alphabet (parent of Google), Amazon, Apple, Meta (parent of Facebook) or Microsoft. Nor should an entrepreneur feel forced to dream that big. Entrepreneurs launching today’s startups have the option of growing incrementally, at a snail’s pace if that meets their personal needs as well as the needs of the communities that they serve. 

The great attraction to becoming an entrepreneur is the freedom to choose how to make a living. Running and growing a business is an act of stewardship. An entrepreneur can opt to build a business that is grounded in solid utilitarian economic principles. The proposition is simple: an entrepreneur can conduct good business by examining both what is good for the business as well as what is good for the community. The scales that balance what is good for the business vs. what is good for the community are in a state of constant flux, but ultimately always approaching what is fair. 

Is it realistic to believe that business can be governed by morality, fairness and factor in the needs of the common good?

Schumacher gives sufficient treatment to the soulful wisdom of Mahatma Gandhi—the recognition of a living faith in the God of Love. Schumacher also weaves the Buddhist point of view, along with Christianity, and a juggernaut of world-class thinkers, Bertrand Russell, Soren Kierkegaard, Sigmund Freud, Charles Darwin, with a smattering of John Stuart Mill, who “looked upon political economy ‘not as a thing by itself, but as a fragment of a greater whole; a branch of social philosophy, so interlinked with all the other branches.…’” 

Lest we not forget, a sum is only as good as its parts, and we are all connected—quite a bit of philosophical larding regarding education, metaphysics and good old fashioned ethics. Regarding ethics, the question is posed: Who knows anything today of the Seven Deadly Sins or of the Four Cardinal Virtues? Schumacher’s pontification of ethics begs another question: Should anyone in business care about ethics?

There is no short shrift given to economists. A good dose of John Maynard Keynes explains the tendency for business people to give more weight to the short term than the long term as the driving force in business, “because in the long term as Keynes puts it with ‘cheerful brutality,’ we are all dead.” Adam Smith’s Wealth of Nations, whose classic division of labor commemorated in the pin factory, has able-bodied workers functioning as organically and as seamlessly as a healthy human body.

The numbers in “Small is Beautiful” regarding consumption, production, natural resources and technology are outdated, but the principles supporting the numbers to illustrate abuse, misuse and lack of efficiency ring truer today than they did in the 1970s. Back then, fossil fuels were seen as natural capital that were finite. Here we are fifty years later, examining fossil fuels, finite or not, as a major contributor to climate change, resulting in the accelerated destruction of the environment. 

Production, efficiency, and profit doesn’t have to be wicked, Schumacher asserts. Yet communities constantly run the risk of being victimized by misanthropic and evil profiteers soaking consumers for every bloody cent. Schumacher weighs in the heavies beyond the age-worn expressions of Buddha, Gandhi, Christ, and the I-Ching. Edward Copleston, an obscure English theologian by today’s standards, “pointed to the danger—the strong drives of human nature, such as envy and greed.”

There will always be the Gordon Gekkos of the world, who push the inevitable greed is good growth strategy that could care less about communities, and whether people have enough food, fresh air, and clean water. The politicians, business people, and lobbyists who do not want any government regulation claim that businesses are self-regulating and will always do the right thing—and that is a far bigger dream than what is espoused in “Small is Beautiful.” The reality is we must have government regulation to protect all the rest of us from the Gordon Gekkos of the world. 

Schumacher cares deeply about creating a world where the quality of life is an every day happenstance. He describes his holy trinity as “health, beauty, and permanence,” and believes universal prosperity is possible. We can all enrich ourselves; Schumacher believes this is the road to world peace. 

“Small is Beautiful” is an excellent discourse on the possibility of building economies around the needs of communities, not corporations. Climate change will drive home how reality—“advancing small, appropriate technologies, policies, and polities as a superior alternative to the mainstream ethos of "bigger is better"—will ultimately prevail. Lo and behold, we can enjoy work, and contribute to the entire community in which we live, without having to feed the behemoth. This book will make entrepreneurs see the merits in why thinking small is very, very good.