Schumacher spends a whole chapter on the notion of predictability. What one believes about the nature of predictability in our universe is an important metaphysical question with profound practical implications. For example, in the ancient Chinese book I Ching, the metaphysical assumption is that everything changes all the time except change itself; if one understands change then one can glean benefit from the ever-changing rhythms of the universe like a sailor taking advantage of the tide. In contrast the modern person goes to a computer to determine the future. The metaphysical assumption of the modern world is that the future is already here in embryonic form and given the proper data from the present a computer can forecast the future. The question is just getting the data, the technique, and algorithm right.
However, Schumacher suggests that before making a prediction one should give a solid argument for why one thinks the subject of the prediction is predictable. This would save the world a great deal of non-sensical report production. Plans for example are predictable; “a plan is the result of and exercise in the freedom of choice: the choice has been made; all alternatives have been eliminated. If people stick to their plans, their behaviour is predictable simply because they have chosen to surrender their freedom to act otherwise than prescribed in the plan.” In principle only some things that have no human agency can be considered fully predictable such as the orbit of the planets. Human involved things that are mostly predictable are so only to the degree of the known plans involved for example transit timetables. Humans are marginally predictable when they follow their plans or their routine. But in principle humans are unpredictable. It is therefore a mistake for all sciences to try to emulate physics. Economics deals with people who sometimes make plans therefore forecasts in physics and forecasts in economics are of very different value. “[T]he distinction between forecasts on the one hand and ‘exploratory calculations’ or ‘feasibility studies’ on the other. In the one case I assert that this or that will be the position in, say, twenty years’ time. In the other case I merely explore the long-term effects of certain assumed tendencies. It is unfortunately true that in macro-economics feasibility studies are very rarely carried beyond the most rudimentary beginnings. People are content to rely on general forecasts which are rarely worth the paper they are written on….It is surely a sign of statistical illiteracy to confuse the two. A long-term forecast, as I said, is presumptuous; but a long-term feasibility study is a piece of humble and unpretentious work which we shall neglect at our peril.”
Economics is not an exact science because it deals with humans. Attempts to make it more exact or to remove the human aspect are delusional and attacks on human dignity – a good economics should be “a branch of wisdom.”
Small is beautiful is a notion that should be applied to large-scale organizations. It is a fact that some organizations need to be big and in such cases “The fundamental task is to achieve smallness within large organisation….we always have to face the simultaneous requirement for order and freedom.” The problem is most acute in large organizations which seem to always lean heavily in the direction of order to the detriment of creative freedom. Schumacher then begins a theory of large-scale organizations with five principles: 1) the principle of subsidiarity: a task should be handled by the smallest organization that can accomplish it. Consequently, the burden of proof must be on those who would take a task away from a successful small organization. To apply this principle “the task is to look at the organisation’s activities one by one and set up as many quasi-firms as may seem possible and reasonable.” 2) The principle of vindication: the subsidiary unit must have some criterion for accountability. In most business it is profit but profit does not need to be the only criterion. 3) The principle of identification: a unit’s success should lead to more freedom and scope; a unit’s failure should lead to greater scrutiny and possibly reorganization. In other words, the unit must have both a profit and loss account in whatever value is required for the sake of order and a balance sheet for the sake of freedom of entrepreneurship. 4) The principle of Motivation: money is a poor motivator (unless people are desperate). Often at the top of an organization the motivation is sweetened with money but the lower you go in an organization the greater the motivation money provides, especially in desperation. Every unit in an organization needs the freedom of creativity to find the non-monetary motivation for their people. A failure to find non-monetary motivation is a failure of the organization and has injected a slow poison to the organization. Finally, 5) the principle of the middle axiom. “An axiom is a self-evident truth which is assented to as soon as enunciated.” A problem of organization is that the governance at the top who might have a vision does not get the same sense and information that the smaller front-line unit does and therefore cannot know if a directive it gives is feasible. Additionally because the governance level does not know the front-line’s experience it may be the wrong or impossible direction. This failure of communication is overcome by the principle of the middle axiom. Today, in my experience, we have solved the issue by having governance give direction but by not directing what to do or how to get to the direction. In other words, direction from the top is assumed to be true but it is crafted in such a way that the lower units have the freedom to determine how to achieve that direction.
Schumacher holds out little hope for either capitalism or communism becoming focused on people and their betterment because both sides seem to be “devotees of the religion of economics.” The problem with both systems in his day is that both have flattened the world into a single guiding principle which, if you take all the flowery language away, is profit in the west, production in the east. More precisely, both amount to the reduction of quality into quantity. The problem is that a seducing false clarity emerges when you reduce the thousands of quality aspects of life into a material quantitative one. Suddenly one question emerges: “is it profitable?” questions such as is it good, true, or beautiful become irrelevant. “The point is that the real strength of the theory of private enterprise lies in this ruthless simplification, which fits so admirably also into the mental patterns created by the phenomenal successes of science. The strength of science, too, derives from a ‘reduction’ of reality to one or the other of its many aspects, primarily the reduction of quality to quantity.” While this might sometimes be a virtue in science it never is in real life because real life “constantly requires the living reconciliation of opposites which, in strict logic, are irreconcilable….There is no ‘final solutions’ to this kind of [life] problem. There is only a living solution achieved day by day on a basis of a clear recognition that both opposites are valid.” Thus, the economics of both the capitalist and the communist worlds are like religion in that they have created a fictional and flattened world and pretend that we are getting closer to heaven on earth with a little more profit or production.
Popular debate issues such as private ownership versus public ownership and central planning versus free market are all besides the point given that both systems have reduced all of life to a single value. If one’s society has reduced all value to one then private and public property serve one value as does the free or controlled market – and that is the problem with both systems. Both systems could be reformed but Schumacher does hold out a little more hope for the communist system because they acknowledge other values and pay lip service to them suggesting that the communist world has a unused potential framework in place for non-economic growth.
“What is at stake is not economics but culture; not the standard of living but the equality of life. Economics and the standard of living can just as well be looked after by a capitalist system, moderated by a bit of planning and redistributive taxation. But culture and, generally, the quality of life can now only be debased by such a system.
“Socialists should insist on using the nationalised industries not simply to out-capitalise the capitalists – but to evolve a more democratic and dignified system of industrial administration, a more humane employment of machinery, and a more intelligent utilization of the fruits of human ingenuity and effort. If they can do that they have the future in their hands, if they cannot, they have nothing to offer that is worthy of the sweat of free-born men.”