Small is Beautiful, by E.F. Schumacher

Peaceful relations among humans on earth, and peaceful relations between humans and the other life forms on the planet, are imperative for the survival of planet earth as a habitat for life as we know it. Making the achievement of peace an affirmative goal for all humanity is noble and essential.

Re: Small is Beautiful, by E.F. Schumacher

Postby admin » Tue Jan 05, 2016 3:30 am

Nineteen: New Patterns of Ownership

J. K. Galbraith has spoken of private affluence and public squalor. It is significant that he referred to the United States, reputedly, and in accordance with conventional measurements, the richest country in the world. How could there be public squalor in the richest country, and, in fact, much more of it than in many other countries whose Gross National Product, adjusted for size of population, is markedly smaller? If economic growth to the present American level has been unable to get rid of public squalor - or, maybe, has even been accompanied by its increase - how could one reasonably expect that further 'growth' would mitigate or remove it? How is it to be explained that, by and large, the countries with the highest growth rates tend to be the most polluted and also to be afflicted by public squalor to an altogether astonishing degree? If the Gross National Product of the United Kingdom grew by, say, five per cent - or about Pounds 2,000 million a year - could we then use all or most of his money, this additional wealth. to fulfil our nation's aspirations'?

Assuredly not; for under private ownership every bit of wealth, as it arises, is immediately and automatically 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. Not surprisingly, 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, normally do very much better than the poor. In an effort to stop 'loopholes' the tax laws become ever more complicated and the demand for - and therefore the income of - tax consultants becomes ever larger. As the taxpayers feel that some- thing they have earned is being taken away from them, they not only try to exploit every possibility of legal tax avoidance, not to mention practices of illegal tax evasion, they also raise an insistent cry in favour of the curtailment of public expenditure. 'More taxation for more public expenditure' would not be a vote- catching slogan in an election campaign, no matter how glaring may be the discrepancy between private affluence and public squalor.

There is no way out of this dilemma unless the need for public expenditure is recognised in the structure of ownership of the means of production.

It is not merely a question of public squalor, such as the squalor of many mental homes, of prisons, and of countless other publicly maintained services and institutions; this is the negative side of the problem. The positive side arises where large amounts of public funds have been and are being spent on what is generally called the 'infrastructure', and the benefits go largely to private enterprise free of charge. This is well known to anyone who has ever been involved in starting or running an enterprise in a poor society where the 'infrastructure' is insufficiently developed or altogether lacking. He cannot rely on cheap transport and other public services; he may have to provide at his own expense many things which he would obtain free or at small expense in a society with a highly developed infrastructure; he cannot count on being able to recruit trained people: he has to train them himself; and so on. All the educational, medical, and research institutions in any society, whether rich or poor, bestow incalculable benefits upon private enterprise - benefits for which private enterprise does not pay directly as a matter of course, but only indirectly by way of taxes, which. as already mentioned, are resisted, resented, campaigned against, and often skilfully avoided. It is highly illogical and leads to endless complications and mystifications, that payment for benefits obtained by private enterprise from the 'infrastructure' cannot be exacted by the public authorities by a direct participation in profits but only after the private appropriation of profits has taken place. Private enterprise claims that its profits are being earned by its own efforts, and that a substantial part of them is then taxed away by public authorities. This is not a correct reflection of the truth - generally speaking. The truth is that a large part of the costs of private enterprise has been borne by the public authorities - because they pay for the infrastructure and that the profits of private enterprise therefore greatly over- state its achievement.

There is no practical way of reflecting the true situation, unless the contribution of public expenditure to the profits of private enterprise is recognised in the structure of ownership of the means of production.

I shall therefore now present two examples of how the structure of ownership can - or could - be changed so as to meet the two fundamental criticisms made above. The first example is of a medium-sized firm which is actually operating on a reformed basis of ownership. The second example is a speculative plan of how the structure of ownership of large-scale firms could be reformed.

The Scott Bader Commonwealth

Ernest Bader started the enterprise of Scott Bader Co Ltd in 1920, at the age of thirty. Thirty-one years later, after many trials and tribulations during the war, he had a prosperous medium-scale business employing 161 people, with a turnover of about Pounds 625,000 a year and net profits exceeding Pounds 72,000. Having started with virtually nothing, he and his family had become prosperous. His firm had established itself as a leading producer of polyester resins and also manufactured other sophisticated products, such as alkyds, polymers, and plasticisers. As a young man he had been deeply dissatisfied with his prospects of life as an employee: he had resented the very ideas of a 'labour market' and a 'wages system', and particularly the thought that capital employed men, instead of men employing capital. Finding himself now in the position of employer, he never forgot that his success and prosperity were the achievements not of himself alone but of all his collaborators and decidedly also of the society within which he was privileged to operate. To quote his own words:

'I realised that - as years ago when I took the plunge and ceased to be an employee - I was up against the capitalist philosophy of dividing people into the managed on the one hand, and those that manage on the other. The real obstacle, however, was Company Law, with its provisions for dictatorial powers of shareholders and the hierarchy of management they control.'

He decided to introduce 'revolutionary changes' in his firm, 'based on a philosophy which attempts to fit industry to human needs'.

'The problem was twofold: (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 and means that could be generally acceptable to the private sector of industry.

Mr Bader realised at once that no decisive changes could be made without two things: first, a transformation of ownership - mere profit-sharing, which he had practised from the very start, was not enough; and, second, the voluntary acceptance of certain self-denying ordinances. To achieve the first, he set up the Scott Bader Commonwealth in which he vested (in two steps: ninety per cent in 1951 and the remaining ten per cent in 1963) the ownership of his firm, Scott Bader Co Ltd. To implement the second, he agreed with his new partners. that is to say, the members of the Commonwealth, his former employees, to establish a constitution not only to define the distribution of the 'bundle of powers' which private ownership implies, but also to impose the following restrictions on the firm's freedom of action:

First, the firm shall remain an undertaking of limited size, so that every person in it can embrace it in his mind and imagination. It shall not grow beyond 350 persons or thereabouts. If circumstances appear to demand growth beyond this limit, they shall be met by helping to set up new, fully independent units organised along the lines of the Scott Bader Commonwealth.

Second, remuneration for work within the organisation shall not vary, as between the lowest paid and the highest paid, irrespective of age, sex, function or experience, beyond a range of 1:7, before tax.

Third, as the members of the Commonwealth are partners and not employees, they cannot be dismissed by their co-partners for any reason other than gross personal misconduct. They can, of course, leave voluntarily at any time, giving due notice. Fourth, the Board of Directors of the firm, Scott Bader Co Ltd, shall be fully accountable to the Commonwealth. Under the rules laid down in the Constitution, the Commonwealth has the right and duty to confirm or withdraw the appointment of directors and also to agree their level of remuneration. Fifth, not more than forty per cent of the net profits of Scott Bader Co Ltd shall be appropriated by the Commonwealth - a minimum of sixty per cent being retained for taxation and for self-finance within Scott Bader Co Ltd - and the Commonwealth shall devote one-half of the appropriated profits to the payment of bonuses to those working within the operating company and the other half to charitable purposes outside the Scott Bader organisation. And finally, none of the products of Scott Bader Co Ltd shall be sold to customers who are known to use them for war-related purposes.

When Mr Ernest Bader and his colleagues introduced these · revolutionary changes, it was freely predicted that a firm operating on this basis of collectivised ownership and self-imposed restrictions could not possibly survive. In fact, it went from strength to strength, although difficulties, even crises and setbacks, were by no means absent. In the highly competitive setting within which the firm is operating, it has, between 1951 and 1971, increased its sales from Pounds 625,000 to Pounds 5 million; net profits have grown from Pounds 72,000 to nearly Pounds 300,000 a year; total staff has increased from 161 to 379; bonuses amounting to over Pounds 150,000 (over the twenty-year period) have been distributed to the staff, and an equal amount has been donated by the Commonwealth to charitable purposes outside; and several small new firms have been set up.

Anyone who wishes to do so can claim that the commercial success of Scott Bader Co Ltd was probably due to 'exceptional circumstances'. There are, moreover, conventional private enterprise firms which have been equally successful or even more so, But this is not the point. If Scott Bader Co Ltd had been a commercial failure after 1951, it could serve only as an awful warning: its undeniable success, as measured by conventional standards. does not prove that the Bader 'system' is necessarily superior by these standards: it merely demonstrates that it is not incompatible with them. Its merit lies precisely in the attainment of objectives which lie outside the commercial standards of human objectives which are generally assigned a second place or altogether neglected by ordinary commercial practice. In other words, the Bader 'system' overcomes the reductionism of the private ownership system and uses industrial organisation as a servant of man, instead of allowing it to use men simply as means to the enrichment of the owners of capital. To quote Ernest Bader: 'Common Ownership or Commonwealth, is a natural development from Profit Sharing, Go- Partnership or Co-Ownership, or any scheme where individuals hold sectional interests in a common enterprise. They are on the way to owning things in common, and, as we shall see, Common-Ownership has unique advantages.'

While I do not intend to go into the details of the long evolution of ideas and new styles of management and co-operation during the more than twenty years since 1951, it is useful here to crystallise out of this experience certain general principles.

The first is that the transfer of ownership from a person or a family - in this case the Bader family - to a collectivity, the Commonwealth, changes the existential character of 'ownership' in so fundamental a way that it would be better to think of such a transfer as effecting the extinction of private ownership rather than as the establishment of collective ownership. The relationship between one person, or a very small number of persons, and a certain assembly of physical assets is quite different from that between a Commonwealth, comprising a large number of persons, and these same physical assets. Not surprisingly, a drastic change in the quantity of owners produces a profound change in the quality of the meaning of ownership, and this is so particularly when, as in the case of Scott Bader. ownership is vested in a collectivity, the Commonwealth, and no individual ownership rights of individual Commonwealth members are established. At Scott Bader, it is legally correct to say that the operating company, Scott Bader Co Ltd, is owned by the Commonwealth; hut it is neither legally nor existentially true to say that the Commonwealth members, as individuals, establish any kind of ownership in the Commonwealth. In truth, ownership has been replaced by specific rights and responsibilities in the administration of assets.

Second, while no-one has acquired any property, Mr. Bader and his family have nonetheless deprived themselves of their property. They have voluntarily abandoned the chance of becoming inordinately rich. Now, one does not have to be a believer in total equality, whatever that may mean, to be able to see that the existence of inordinately rich people in any society today is a very great evil. Some inequalities of wealth and income are no doubt 'natural' and functionally justifiable, and there are few people who do not spontaneously recognise this. But here again, as in all human affairs, it is a matter of scale. Excessive wealth, like power, tends to corrupt. Even if the rich are not 'idle rich', even when they work harder than anyone else, they work differently, apply different standards, and are set apart from common humanity. They corrupt themselves by practising greed, and they corrupt the rest of society by provoking envy. Mr. Bader drew the consequences of these insights and refused to become inordinately rich and thus made it possible to build a real community.

Third, while the Scott Bader experiment demonstrates with the utmost clarity that a transformation of ownership is essential - without it everything remains make-believe - it also demonstrates that the transformation of ownership is merely, so to speak, an enabling act: it is a necessary, but not a sufficient, condition for the attainment of higher aims. The Commonwealth, accordingly, recognised that the tasks of a business organisation in society are not simply to make profits and to maximise profits and to grow and to become powerful: the Commonwealth recognised four tasks, all of equal importance:

(A) The economic task: to secure orders which can be designed, made, and serviced in such a manner as to make a profit.

(B) The technical task: to enable marketing to secure profitable orders by keeping them supplied with up-to-date product design.

(C) The social task to provide members of the company with opportunities for satisfaction and development through their participation in the working community.

(D) The political task: to encourage other men and women to change society by offering them an example by being economically healthy and socially responsible.

Fourth: it is the fulfilment of the social task which presents both the greatest challenge and the greatest difficulties. In the twenty-odd years of its existence, the Commonwealth has gone through several phases of constitution-making, and we believe that, with the new constitution of 1971, it has now evolved a set of 'organs' which enable the Commonwealth to perform a feat which looks hardly less impossible than that of squaring the circle. namely, to combine real democracy with efficient management. I refrain here from drawing diagrams of the Scott Bader organisation to show - on paper - how the various 'organs' are meant to relate to one another; for the living reality cannot be depicted on paper, nor can it be achieved by copying paper models. To quote Mr Ernest Bader himself:

'I would very much prefer to take any interested person on a tour of our forty-five-acre, ancient Manor House Estate, interspersed with chemical plants and laboratories, than to laboriously write (an) article which is bound to raise as many questions as it answers.'

The evolution of the Scott Bader organisation has been - and continues to be - a learning process, and the essential meaning of what has been happening there since 1951 is that it has enabled everyone connected with Scott I3ader to learn and practise many things which So far beyond the task of making a living, of earning a salary, of helping a business to make a profit, of acting in an economically rational manner 'so that we shall all be better off'. Within the Scott Bader organisation, everybody has the opportunity of raising himself to a higher level of humanity, not by pursuing, privately and individualistically, certain aims of self-transcendence which have nothing to do with the aims of the firm - that he is able to do in any setting. even the most degraded - but by, as it were, freely and cheerfully gearing in with the aims of the organisation itself. This has to be ]earned, and the learning process takes time. Most, but not all, of the people who joined Scott Bader have responded, and are responding, to the opportunity.

Finally, it can be said that the arrangement by which one-half of the appropriated profits must be devoted to charitable purposes outside the organisation has not only helped to further many causes which capitalist society tends to neglect - in work with the young, the old, the handicapped, and the forgotten people - it has also served to give Commonwealth members a social consciousness and awareness rarely found in any business organisation of the conventional kind. In this connection, it is also worth mentioning that provision has been made to ensure, as far as possible, that the Commonwealth should not become an organisation in which individual selfishness is transformed into group selfishness. A Board of Trustees has been set up, somewhat in the position of a constitutional monarch, in which personalities from outside the Scott Bader organisation play a decisive role. The Trustees are trustees of the constitution, without power to interfere with management. They are, however, able and entitled to arbitrate, if there should arise a serious conflict on fundamental issues between the democratic and the functional organs of the organisation.

As mentioned at the beginning of this account, Mr. Ernest Bader set out to make 'revolutionary changes' in his firm, but 'to do this by ways and means that could be generally acceptable to the private sector of industry'. His revolution has been bloodless: no-one has come to grief, not even Mr. Bader or his family; with plenty of strikes all around them, the Scott Bader people can proudly claim: 'We have no strikes'; and while no-one inside is unaware of the gap that still exists between the aims of the Commonwealth and its current achievements, no outside observer could fairly disagree, when Ernest Bader claims that:

'the experience gained during many years of effort to establish the Christian way of life in our business has been a great encouragement: it has brought us good results in our relations with one another as well as in the quality and quantity of our production.

'Now we wish to press on and consummate what we have so far achieved, making a concrete contribution towards a better society in the service of God and our fellowmen.'

And yet, although Mr. Bader's quiet revolution should be 'generally acceptable to the private sector of industry', it has, in fact, not been accepted. There are thousands of people, even in the business world who look at the trend of current affairs and ask for a 'new dispensation'. But Scott Bader - and a few others - remain as small islands of sanity in a large society ruled by greed and envy. It seems to be true that, whatever evidence of a new way of doing things may be provided, 'old dogs cannot learn new tricks'. It is also true, however, that 'new dogs' grow up all the time; and they will be well advised to take notice of what has been shown to be possible by The Scott Bader Commonwealth Ltd.

New Methods of Socialisation

There appear to be three major choices for a society in which economic affairs necessarily absorb major attention - the choice between private ownership of the means of production and. alternatively, various types of public or collectivised ownership: the choice between a market economy and various arrangements of 'planning'; and the choice between 'freedom' and 'totalitarianism'. Needless to say, with regard to each of these three pairs of opposites there will always in reality be some degree of mixture - because they are to some extent complementariness rather than opposites - but the mixture will show a preponderance on the one side or on the other.

Now, it can be observed that those with a strong bias in favour of private ownership almost invariably tend to argue that non- private ownership inevitably and necessarily entails 'planning' and 'totalitarianism', while 'freedom' is unthinkable except on the basis of private ownership and the market economy. Similarly, those in favour of various forms of collectivised ownership tend to argue, although not so dogmatically, that this necessarily demands central planning; freedom, they claim, can only be achieved by socialised ownership and planning, while the alleged freedom of private ownership and the market economy is nothing more than 'freedom to dine at the Ritz and to sleep under the bridges of the Thames'. In other words, everybody claims to achieve freedom by his own 'system' and accuses every other 'system' as inevitably entailing tyranny, totalitarianism, or anarchy leading to both.

The arguments along these lines generally generate more heat than light, as happens with all arguments which derive 'reality' from a conceptual framework, instead of deriving a conceptual framework from reality. When there are three major alternatives, there are 25 or 8 possible combinations. It is always reasonable to expect that real life implements all possibilities - at one time or other, or even simultaneously in different places. The eight possible cases, as regards the three choices I have mentioned, are as follows: (I arrange them under the aspect of freedom versus totalitarianism, because this is the major consideration from the meta- physical point of view taken in this book.)

Case 1 Freedom Market Economy Private Ownership

Case 2 Freedom Planning Private Ownership

Case 3 Freedom Market Economy Collectivised Ownership

Case 4 Freedom Planning Collectivised Ownership

Case 5 Totalitarianism Market Economy Private Ownership

Case 6 Totalitarianism Planning Private Ownership

Case 7 Totalitarianism Market Economy Collectivised Ownership

Case 8 Totalitarianism Planning Collectivised Ownership

It is absurd to assert that the only 'possible' cases are 1 and 8: these are merely the simplest cases from the point of view of concept-ridden propagandists. Reality, thank God, is more imaginative; but I shall leave-it to the reader's diligence to identify actual or historical examples for each of the eight cases indicated above, and I should recommend to the teachers of political science that they suggest this exercise to their students.

My immediate purpose, here and now, is to speculate on the possibility of devising an ownership 'system' for large-scale enterprise, which would achieve a truly 'mixed economy'; for it is 'mixture' rather than 'purity' which is most likely to suit the manifold exigencies of the future, if we are to start from the actual situation in the industrialised part of the world, rather than starting from zero, as if all options were still open.

I have already argued that private enterprise in a so-called advanced society derives very large benefits from the infrastructure - both visible and invisible - which such a society has built up through public expenditure. But the public hand, although it defrays a considerable part of the cost of private enterprise, does not directly participate in its profits; all these profits are initially privately appropriated, and the public hand then has to try to cover its own financial requirements by extracting a part of these profits from private pockets. The modern businessman never tires of claiming and complaining that, to a large extent, he 'works for the state', that the state is his partner, inasmuch as profit taxes absorb a substantial part of what he believes to be really due to him alone, or to his shareholders. This suggests that the public share of private profits - in other words, the company profits taxes - might just as well be converted into a public share of the equity of private business - in any case as far as large-scale enterprises are concerned.

For the following exposition T postulate that the public hand should receive one-half of the distributed profits of large-scale private enterprise, and that it should obtain this share not by means of profit taxes but by means of a fifty per cent ownership of the equity of such enterprises.

1. To begin with, the minimum size of enterprises to be included in the scheme must be defined. Since every business loses its private and personal character and becomes, in fact, a public enterprise once the number of its employees rises above a certain limit, minimum size is probably best defined in terms of persons employed. In special cases it may be necessary to define size in terms of capital employed or turnover.

2. All enterprises attaining this minimum size - or exceeding it already - must be joint-stock companies.

3. It would be desirable to transform all shares of these companies into no par shares after the American pattern.

4. The number of shares issued, including preference shares and any other pieces of paper which represent equity should be doubled by the issue of an equivalent number of new shares, these new shares to be held by 'the public hand' so that for every privately held old share one new share with identical rights will be held publicly.

Under a scheme along these lines, no question of 'compensation' would arise, because there would be no expropriation in the strict sense of the word, but only a conversion of the public hand's right to levy profit taxes into a direct participation in the economic assets from the use of which taxable profits are obtained. This conversion would be an explicit recognition of the undoubted fact that a major role in the creation of 'private' economic wealth is in any case played by the public hand, that is to say, by non-capitalist social forces, and that the assets created by the public contribution should be recognised as public, and not private, property. The questions that would immediately arise may be divided into three groups. First, what precisely is meant by the 'public hand'? Where are the newly issued shares to be placed and who is to be the representative of the 'public hand' in this context? Second, what rights of ownership should possession of these new shares carry? And, third, questions relating to the transition from the existing system to the new, to the treatment of international and other combines, to the raising of new capital, and so forth.

As regards the first set of questions, I should propose that the newly created shares, representing fifty per cent of the equity, should be held by a local body in the district where the enterprise in question is located. The purpose would be to maximise both the degree of decentralisation of public participation and the integration of business enterprises with the social organism within which they operate and from which they derive incalculable benefits. Thus, the half-share in the equity of a business operating within District X should be held by a local body generally representative of the population of District X. However, neither the locally elected (political) personalities nor the local civil servants are necessarily the most suitable people to be entrusted with the exercise of the rights associated with the new shares. Before we can go further into the question of personnel, we need to define these rights a little more closely.

I therefore turn to the second set of questions. In principle, the rights associated with ownership can always be divided into two groups - managerial rights and pecuniary rights.

I am convinced that, in normal circumstances, nothing would be gained and a great deal lost if a 'public hand' were to interfere with or restrict the freedom of action and the fullness of responsibility of the existing business managements. The 'private' managers of the enterprises should therefore remain fully in charge, while the managerial rights of the public half-share should remain dormant, unless and until special circumstances arise. That is to say, the publicly-held shares would normally carry no voting rights but only the right to information and observation The 'public hand' would be entitled to place an observer - or several - on the Board of Directors of an enterprise, but the observer would not normally have any powers of decision. Only if the observer felt that the public interest demanded interference with the activities of the existing management, could he apply to a special court to have the dormant voting rights activated. A prima facie case in favour of interference would have to be established in front of the court, which would then activate the publicly-held voting rights for a limited period. In this way, the managerial rights of ownership associated with the new, publicly-owned equity shares would normally remain a mere possibility in the background and could become a-reality only as a result of certain specific, formal, and public steps having been taken by the 'public hand'. And even when in exceptional cases these steps have been taken and the voting rights of the publicly-owned shares have been activated, the new situation would persist only for a short time, so that there should be no doubt as to what was to be considered a normal or an abnormal division of functions.

It is often thought that 'the public interest' can be safeguarded in the conduct of private business by delegating top or medium- grade civil servants into management. This belief, often a main plank in proposals for nationalisation, seems to me to be both naive and impractical. It is not by dividing the responsibilities of management but by ensuring public accountability and transparency that business enterprises will be most effectively induced to pay more regard to the 'public interest' than they do at present. The spheres of public administration on the one hand and of business enterprise on the other are poles apart - often even with regard to the remuneration and security offered - and only harm can result from trying to mix them.

While the managerial rights of ownership held by the 'public hand' would therefore normally remain dormant, the pecuniary rights should be effective from the start and all the time - obviously so, since they take the place of the profits taxes that would otherwise be levied on the enterprise. One-half of all distributed profits would automatically go to the 'public hand' which holds the new shares. The publicly-owned shares, however, should be, in principle, inalienable (just as the right to levy profit taxes cannot be sold as if it were a capital asset). They could not be turned into cash; whether they could be used as collateral for public borrowings may be left for later consideration.

Having thus briefly sketched the rights and duties associated with the new shares, we can now return to the question of personnel. The general aim of the scheme is to integrate large-scale business enterprises as closely as possible with their social surroundings, and this aim must govern also our solution of the personnel question. The exercise of the pecuniary and managerial rights and duties arising from industrial ownership should certainly be kept out of party political controversy. At the same time, it should not fall to civil servants, who have been appointed for quite different purposes. I suggest, therefore, that it should belong to a special body of citizens which, for the purpose of this exposition, I shall call the 'Social Council'. This body should be formed locally along broadly fixed lines without political electioneering and without the assistance of any governmental authority, as follows: one-quarter of council members to be nominated by the local trade unions; one-quarter, by local professional associations; and one-quarter to be drawn from local residents in a manner similar to that employed for the selection of persons for jury service. Members would be appointed for, say, five years, with one-fifth of the membership retiring each year.

The Social Council would have legally defined but otherwise unrestricted rights and powers of action. It would, of course, be publicly responsible and obliged to publish reports of its proceedings. As a democratic safeguard, it might be considered desirable to give the existing Local Authority certain 'reserve powers' vis-a-vis the Social Council, similar to those which the latter has vis-a-vis the managements of individual enterprises. That is to say, the Local Authority would be entitled to send its observer to the Social Council of its district and, in the event of serious conflict of dissatisfaction, to apply to an appropriate 'court' for temporary powers of intervention. Here again, it should remain perfectly clear that such interventions would be the exception rather than the rule, and that in all normal circumstances the Social Council would possess full freedom of action.

The Social Councils would have full control over the revenues flowing to them as dividends on the publicly-held shares. General guiding principles with regard to the expenditure of these funds might have to be laid down by legislation; but they should insist on a high degree of local independence and responsibility. The immediate objection that the Social Councils could scarcely be relied upon to dispose of their funds in the best possible way provokes the obvious reply that neither could there be any guarantee of this if the funds were controlled by Local Authorities or, as generally at present, by Central Government. On the contrary, it would seem safe to assume that local Social Councils, being truly representative of the local community, would be far more concerned to devote resources to vital social needs than could be expected from local or central civil servants.

To turn now to our third set of questions. The transition from the present system to the one here proposed would present no serious difficulties. As mentioned already, no questions of compensation arise, because the half-share in equity is being 'purchased' by the abolition of company profits taxes and all companies above a certain size are treated the same. The size definition can be set so that initially only a small number of very large firms is affected, so that the 'transition' becomes both gradual and experimental. If large enterprises under the scheme would pay as dividends to the 'public hand' a bit more than they would have paid as profit taxes outside the scheme, this would act as a socially desirable incentive to avoid excessive size.

It is worth emphasising that the conversion of profit tax into 'equity share' significantly alters the psychological climate within which business decisions are taken. If profit taxes are at the level of (say) fifty per cent, the businessman is always tempted to argue that 'the Exchequer will pay half' of all marginal expenditures which could possibly have been avoided. (The avoidance of such expenditure would increase profits; but half the profits would anyhow go as profit taxes.) The psychological climate is quite different when profit taxes have been abolished and a public equity share has been introduced in their place; for the knowledge that half the company's equity is publicly owned does not obscure the fact that all avoidable expenditures reduce profits by the exact amount of the expenditure.

Numerous questions would naturally arise in connection with companies which operate in many different districts, including international companies. But there can be no serious difficulties as long as two principles are firmly grasped: that profit tax is converted into 'equity share', and that the involvement of the public hand shall be local, that is, in the locality where the company employees actually work, live, travel, and make use of public services of all kinds. No doubt, in complicated cases of interlocking company structures there will be interesting work for accountants and lawyers; but there should be no real difficulties.

How could a company falling under this scheme raise additional capital? The answer, again, is very simple: for every share issued to private shareholders, whether issued against payment or issued free, a free share is issued to the public hand. At first sight this might seem to be unjust - if private investors have to pay for the share, why should the public hand get it free? The answer, of course, is that the company as a whole does not pay profit tax; the profit attributable to the new capital funds, therefore, also escapes profit tax: and the public hand receives its free shares, as it were, in lieu of the profit taxes which would otherwise have to be paid.

Finally, there may be special problems in connection with company reorganisations, takeovers, windings-up, and so forth. They are all perfectly soluble in accordance with the principles already stated. In the case of windings-up, whether in bankruptcy or otherwise, the equity holding of the public hand would, of course, receive exactly the same treatment as those in private hands.

The above proposals may be taken as nothing more than an exercise in the art of 'constitution-making'. Such a scheme would be perfectly feasible; it would restructure large-scale industrial ownership without revolution, expropriation, centralisation, or the substitution of bureaucratic ponderousness for private flexibility. It could be introduced in an experimental and evolutionary manner - by starting with the biggest enterprises and gradually working down the scale, until it was felt that the public interest had been given sufficient weight in the citadels of business enterprise. All the indications are that the present structure of large scale industrial enterprise, in spite of heavy taxation and an endless proliferation of legislation, is not conducive to the public welfare.
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Re: Small is Beautiful, by E.F. Schumacher

Postby admin » Tue Jan 05, 2016 3:32 am


In the excitement over the unfolding of his scientific and technical powers, modern man has built a system of production that ravishes nature and a type of society that mutilates man. If only there were more and more wealth, everything else, it is thought, would fall into place. Money is considered to be all-powerful; if it could not actually buy non-material values, such as justice, harmony, beauty or even health, it could circumvent the need for them or compensate for their loss. The development of production and the acquisition of wealth have thus become the highest goals of the modem world in relation to which all other goals, no matter how much lip-service may ~still be paid to them, have come to take second place. The highest goals require no justification all secondary goals have finally to justify themselves in terms of the service their attainment renders to the attainment of the highest.

This is the philosophy of materialism, and it is this philosophy - or metaphysic - which is now being challenged by events. There has never been a time, in any society in any part of the world, without its sages and teachers to challenge materialism and plead for a different order of priorities. The languages have differed, the symbols have varied, yet the message has always been the same: “seek ye first the kingdom of God, and these things (the material things which you also need) shall be added unto you.' They shall be added, we are told, here on earth where we need them, not simply in an after-life beyond our imagination. Today, however, this message reaches us not solely from the sages and saints but from the actual course of physical events. It speaks to us in the language of terrorism, genocide, breakdown, pollution, exhaustion. We live, it seems in a unique period of convergence. It is becoming apparent that there is not only a promise but also a threat in those astonishing words about the kingdom of God - the threat that 'unless you seek first the kingdom, these other things, which you also need, will cease to be available to you'. As a recent writer put it, without reference to economics and politics but nonetheless with direct reference to the condition of the modern world:

'If it can be said that man collectively shrinks back more and more from the Truth, it can also be said that on all sides the Truth is closing in more and more upon man. It might almost be said that, in order to receive a touch of It, which in the past required a lifetime of effort, all that is asked of him now is not to shrink back. And yet how difficult that is!''

We shrink back from the truth if we believe that the destructive forces of the modern world can be 'brought under control' simply by mobilising more resources - of wealth, education, and research - to fight pollution, to preserve wildlife, to discover new sources of energy, and to arrive at more effective agreements on peaceful coexistence. Needless to say, wealth, education, research, and many other things are needed for any civilisation, but what is most needed today is a revision of the ends which these means are meant to serve. And this implies, above all else, the development of a life-style which accords to material things their proper, legitimate place, which is secondary and not primary.

The 'logic of production' is neither the logic of life nor that of society. It is a small and subservient part of both, The destructive forces unleashed by it cannot be brought under control, unless the 'logic of production' itself is brought under control - so that destructive forces cease to be unleashed. It is of little use trying to suppress terrorism if the production of deadly devices continues to be deemed a legitimate employment of man's creative powers. Nor can the fight against pollution be successful if the patterns of production and consumption continue to be of a scale, a complexity, and a degree of violence which, as is becoming more and more apparent, do not fit into the laws of the universe, to which man is just as much subject as the rest of creation. Equally, the chance of mitigating the rate of resource depletion or of bringing harmony into the relationships between those in possession of wealth and power and those without is non-existent as long as there is no idea anywhere of enough being good and more-than- enough being of evil.

It is a hopeful sign that some awareness of these deeper issues is gradually - if exceedingly cautiously - finding expression even in some official and semi-official utterances A report, written by a committee at the request of the Secretary of State for the Environment, talks about buying time during which technologically developed societies have an opportunity 'to revise their values and to change their political objectives'. It is a matter of 'moral choices', says the report; 'no amount of calculation can alone provide the answers.... The fundamental questioning of conventional values By young people all over the world is a symptom of the widespread unease with which our industrial civilisation is increasingly regarded.' Pollution must be brought under control and mankind's population and consumption of resources must be steered towards a permanent and sustainable equilibrium. 'Unless this is done, sooner or later - and some believe that there is little time left - the downfall of civilisation will not be a matter of science fiction. It will be the experience of our children and grand- children.''

But how is it to be done? What are the 'moral choices'? Is h just a matter, as the report also suggests, of deciding 'how much We are willing to pay for clean surroundings?' Mankind has indeed a certain freedom of choice: it is not bound by trends, by the 'logic of production', or by any other fragmentary logic. But it is bound by truth. Only in the service of truth is perfect freedom, and even those who today ask us 'to free our imagination from bondage to the existing system's fail to point the way to the recognition of truth.

It is hardly likely that twentieth-century man is called upon to discover truth that had never been discovered before. In the Christian tradition, as in all genuine traditions of mankind, the truth has been stated in religious terms, a language which has become well-nigh incomprehensible to the majority of modern men. The language can be revised, and there are contemporary writers who have done so, while leaving the truth inviolate. Out of the whole Christian tradition, there is perhaps no body of teaching which is more relevant and appropriate to the modem predicament than the marvellously subtle and realistic doctrines of the

Four Cardinal Virtues - prudentia, juslisia, fortitudo, and temperantia

The meaning of prudentia, significantly called the 'mother' of all other virtues - prudentia dictur genitrix virtutum - is not conveyed by the word prudence, as currently used. It signifies the opposite of a small, mean, calculating attitude to life, which refuses to see and value anything that fails to promise an immediate utilitarian advantage.

'The pre-eminence of prudence means that realisation of the good presupposes knowledge of reality, He alone can do good who knows what things are like and what their situation is. The pre-eminence of prudence means that so-called 'good intentions' and so-called 'meaning well' by no means suffice. Realisation of the good presupposes that our actions are appropriate to the real situation, that is to the concrete realities which form the "environment" of a concrete human action; and that we therefore take this concrete reality seriously, with clear-eyed objectivity.'

This clear-eyed objectivity, however, cannot be achieved and prudence cannot be perfected except by an attitude of 'silent contemplation' of reality, during which the egocentric interests of man are at least temporarily silenced.

Only on the basis of this magnanimous kind of prudence can we achieve justice, fortitude and temperantia, which means knowing when enough is enough. 'Prudence implies a transformation of the knowledge of truth into decisions corresponding to reality.'' What, therefore, could be of greater importance today than the study and cultivation of prudence, which would almost inevitably lead to a real understanding of the three other cardinal virtues, all of which are indispensable for the survival of civilisation.

Justice relates to truth, fortitude to goodness, and temperantia to beauty; while prudence, in a sense, comprises all three. The type of realism which behaves as if the good, the true, and the beautiful were too vague and subjective to be adopted as the highest aims of social or individual life, or were the automatic spin-off of the successful pursuit of wealth and power, has been aptly called 'crackpot-realism'. Everywhere people ask: 'What can I actually do?' The answer is as simple as it is disconcerting: we can. each of us, work to put our own inner house in order. The guidance we need for this work cannot be found in science or technology, the value of which utterly depends on the ends they serve; but it can still be found in the traditional wisdom of mankind.
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