Could the rise of micro-business offer a route to a better capitalism?

I’ve been re-reading E.F Schumacher’s Small Is Beautiful having not picked it up in about twenty years. It seemed like a good point to do so given the rise of micro-business that I’ve been exploring on this blog and elsewhere. The book was also first published forty years ago this year.

For those who don’t know, Schumacher was (rather incongruously) the chief economist for the UK’s National Coal Board whose most famous work was an enormous influence on three separate movements: modern environmentalism, intermediate technology, and the well-being movement.

The book is a frustrating read. In more than a few places it makes very sweeping statements about the nature of capitalism and the West that are justified on the grounds of “wisdom” or “common sense” rather than evidence.  It also has that common oppositional failing of characterising capitalism and modernity solely through their negatives while ignoring their rather significant positives.

Nevertheless the book is strikingly fresh when it deals with its core theme of the small scale enterprise.

Schumacher advances a number of arguments in favour of “smallness” but it is his emphasis on human creativity that is particularly interesting in an economy where the mission-focused, innovative micro-business seems to be growing in importance.

He argues that the notion of private property can only be truly meaningful when it operates at a small enough scale to allow people to act creatively. As soon as private property is applied at such a large scale that ownership is exercised passively then creativity for the owner and those working in the enterprise is destroyed.

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.

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. Social legislation and trade union vigilance can protect the employee. No great private fortunes can be gained from small-scale enterprises, yet its social utility is enormous.

It is immediately apparent that in this matter of private ownership 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 very idea of private property becomes increasingly misleading.

Schumacher argues that a number of aspects of our society and culture favour the large scale enterprise which crushes creativity but he feels technology plays a primary role. For too long there has been a focus on creating technologies for production by very large companies.  He calls instead for:

methods and equipment which are: cheap enough so that they are accessible to virtually everyone; suitable for small-scale application; and compatible with man's need for creativity…

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, or members of a self-governing, co-operative group working for subsistence and a local market ... 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'.

This is, of course, remarkably prescient. The development of the PC, then the internet and now digital fabrication technology has been a major driving force of the rise of micro-business and has unleashed a new wave of creativity in just the form Schumacher hoped for.

His overall view is summarized well below and also stands, I think, as a rather elegant summary of the ethos of the emerging micro-business movement:

The economics of gigantism and automation is a left-over of nineteenth-century conditions and nineteenth-century thinking and it is totally incapable of solving any of the real problems of today. An entirely new system of thought is needed … 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 …

The system of mass production, based on sophisticated, highly capital-intensive, high energy input dependent, and human labour-saving technology, presupposes that you are already rich, for a great deal of capital investment is needed to establish one single workplace. The system of production by the masses mobilises the priceless resources which are possessed by all human beings, their clever brains and skilful hands, and supports them with first-class tools.

The Alternative to the Alternative?

Schumacher’s concerns, however, go much further than an interest in small-scale enterprise for the sake of human creativity.  Like much of the world now after the 2008 Crash, his core concerns were to create a more stable economy that serves the interests of the less well-off far better, is more environmentally sustainable and offers more satisfying and secure employment.

However, unlike the current consensus on the alternative to pre-2008 capitalism, he doesn’t see any meaningful solutions coming from those who run the big state, big business or big monetary systems.  Schumacher believes it is the very “bigness” of these structures that is the cause of so many problems. It is this that concentrates wealth and power to such a degree that it makes a mockery of the notions of private property and enterprise and stifles the human creativity that can flow from those concepts. It is that concentration of wealth and power that allows bad decisions and greed by elites to lead to crises of such depth that they threaten economic systems and the well-being of whole populations as was the case in 2008.

The underlying assumption behind much of the accepted alternative to the pre-2008 economy is that those in charge simply made the wrong calls and with better guidance and analysis will not make them again. All we need is more socially minded corporate boards, better regulation of the banks, wiser central bankers and a bit of state intervention to balance the economy.

It is an assumption that occludes a very tough question that Schumacher might pose were he alive today: why did anyone ever have so much political and economic power in the first place to make mistakes with such all-encompassing and existential consequences not just in the banking sector but in politics, central banking and the wider corporate world?

It’s a tough question because it immediately reveals that an alternative that relies on exactly the same super-powerful elites to solve our problems can never remove the risk that the same all-encompassing and existential crises will occur again in the future. It wasn’t just the banks that were too big to fail but the giant political, corporate and monetary infrastructure built around them as well.

These insights raise the intriguing possibility that as the number and nature of micro-businesses expand and as a new generation looks to self-generated, small-scale experimental solutions to the world’s problems that a more stable, fairer and sustainable economy might be being created from the bottom up and under the very noses of the powerful elites who claim to have the solutions so soon after they delivered crisis.

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