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Creating a Russian Economy That Cares

As Russia forges new economic paths, it's important to remember that "small is beautiful". Also, don't forget about the people!

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In his latest annual “Direct line” session, Vladimir Putin had a somewhat curious exchange with Alexei Kudrin, the former finance minister (2000 – 2011). To me, it was a climax of the whole event, the point at which there clashed two opposing mentalities. Kudrin “was asking his question” for quite a time, making it an announcement that, in recent years, the country’s rate of economic growth has been inexorably going down and this bodes no good for the future. He did not elaborate on any prescriptions, but his own technocratic proclivities not being a top secret in the country, the innuendo effect was pretty apparent – that the government should pursue a much more austere strategy, and this should be a bona fide strategy, not just mere adjustments.

Putin replied: “To shape economic policy competently, a brain is definitely needed. But if we want people to trust us, we need a heart, too. And feel how ordinary people live and how this affects them… If we act while disregarding the people, then we will quickly roll back to the early 1990s…”

And this is where I thought about Ernst Friedrich Schumacher and his book “Small is beautiful. Economics as if people mattered”. Just a fleeting association, you know, nothing more. For Putin’s remark, evidently, stood in no connection with that book or with the very specific message of its author. Or did it, to a degree? Yes, if only to a degree, that’s the word.

But what about making a step further? It’s worth it. “One of the 100 most influential books published since World War II”, that’s how Schumacher’s “Small is beautiful” was ranked in 1999. Today the “economics as if people mattered” is not only a vibrant intellectual tradition but also a world-wide movement producing quite tangible economic results, especially in the developing world. Let’s go then. Here it is.


There is a marvelous historical observation in the book. Speaking of past civilizations that declined and perished, Schumacher remarks that in most instances new civilizations arose exactly on the same ground where the old ones had nested – a sheer impossibility, if it had been simply the material resources that had given out before. The civilization may be gone long ago, but suddenly, on the lands it occupied, there’s an outburst of human activity and daring, with no one being able to say where it all came from. “All history – as well as all current experience – points out to the fact that it is man, not nature, who provides the primary resource: that the key factor of all economic development comes out of the mind of man.”

For Schumacher, this is the crux of the matter, the cornerstone of his philosophy. But if that is so and the “mind of man” is a primary resource of civilization, then economics, as it’s generally practiced today, should finally drop its “absurd ideal” of becoming a precise science in the manner of physics or chemistry, to which it has always strived, “as if there were no qualitative difference between mindless atom and men.” Economics has only become scientific, remarks Schumacher, by becoming statistical, but beneath the statistical surface, well out of sight, are so many human needs, aspirations, and motivations, all of them impacting economy and being impacted by it, that the conventional statistics alone tells us not awfully much about how people live and feel in a given economy. (Think how many indices, be it the Human Development Index or the World Happiness Report, have been created of late to assess the development of a country). Interestingly, all of the founding fathers of political economy (that’s when it was political and took into account a broad social context) clearly saw the limits and limitations of their discipline, economics being looked upon “not as a thing in itself, but as fragment of a greater whole; a branch of social philosophy … subject to interference and counteraction from causes not directly within its scope.” (John Stuart Mill). And even Keynes thought it prudent not to “overestimate the importance of the economic problem, or sacrifice to its supposed necessities other matters of greater and more permanent significance.”

This is all history now. Economics has moved into the very centre of public concern, writes Schumacher, “and economic performance, economic growth, economic expansion, and so forth have become the abiding interest, if not an obsession, of all modern societies… Call a thing immoral or ugly, soul-destroying or a degradation of man, a peril to the peace of the world or to the well-being of future generations; as long as you have not shown it to be “uneconomic” you have not really question its right to exist, grow and prosper.” 

And here we have it, the apparent paradox of simultaneous “importance” and “impotence” of our economic policies. With all its vast abstractions like GDP, the rates of growth, capital accumulation, input-output analysis and the like, has the conventional economics seriously addressed, let alone alleviate, the human realities of poverty, crime, illegal or legal migration, alienation, frustration, escapism, congestion, stress, etc.? Nay, at times one’s even tempted to say that it has created all of those. For how does it normally construe its concept of what man is? Generally it’s a sort of “human material” or “rational beings” who has nothing loftier to do in life than get and spend, spend and get. It’s only logical that, in the end, the policies stemming from such preconceptions work in practice and people, at least some of them, become exactly the type that’s been postulated.

Finally: “What is the meaning of democracy, freedom, human dignity, standard of living, self-realization, fulfillment? Is it a matter of goods or of people? Of course it is a matter of people. But people can be themselves only in small comprehensible groups…” And that’s where the idea of how “small is beautiful” comes into play.

The typical condition of the world’s poor in rural areas and small towns, states Schumacher, is that their work opportunities are so restricted that they just can’t work their way out of misery. This drives people to cities, where rural unemployment becomes urban unemployment or only partial employment, generating loads of problems. The rural areas “poison” the cities, while the cities, absorbing migrants and thereby further undermining rural production, “poison” the rest of the country, this “mutual poisoning” going on and on in cycles. To break the vicious circle, it’s necessary that at least some part of development resources should go directly to the rural and small-town areas. The primary need is workplaces, lots of them, millions. Predictably, those jobs would be primitive and unproductive, but “coverage must come before perfection”, for the first need of the unemployed is to start work of any kind, even if the reward is meager.

The provision of such work opportunities should be a special objective of economic planning, which, according to Schumacher, ought to follow four basic principles:

First, workplaces are to be created in the areas where people are living now, i.e. in the villages and small towns, and not in the metropolitan areas into which they are forced to migrate.

Second, these workplaces must not be capital-intensive so that they can be created in large numbers.

Third, the production methods must be simple enough, with demands for skills minimized not only in production proper but also in matters of organization, financing, marketing, etc.

Fourth, production should use mainly local materials and be mainly for local use.

What’s also essential in economic planning is a question of size. We were all brought up on the theory of “economies of scale” – that there’s an irresistible trend, dictated by modern technology, for units to become ever bigger. That may be correct in certain cases, but let’s ask what’s generally needed in the affairs of man. Looking closely, we’ll come to a conclusion that needed two things simultaneously, which, on the face of it, seem to exclude one another – freedom and order. When it comes to action, it would seem that people need freedom, the freedom of lots and lots of small and autonomous units. At the same time, we need the orderliness of large-scale, at times even global, organizations, especially when it comes to the world of ideas and principles, to ecology and the indivisibility of peace. In other words, all these things should be cleverly sorted out. For every human activity there’s a certain appropriate scale, and the more active the unit, the smaller the number of participating people, the greater is the number of such units that should be set up. (That’s what was never properly understood in the USSR, the economic consequences being disastrous). Today, however, we observe an almost universal idolatry of giantism, whose natural tendency is to favour order at the expense of creative freedom. It’s therefore necessary to insist on the virtues of smallness. And look how the moment a corporation has grown too big, there’s often an attempt to evolve in the opposite direction, the giant structure often becoming, in fact, a federation of fairly reasonably sized units.

The four requirements stated above can only be met if there’s a conscious effort to develop a suitable technology. This is where Schumacher introduces his now famous idea of “intermediate technology” (later discarded in favor of appropriate or adequate technology). Just look, he explains, how the modern equipment installed in the rural or small-town areas in developing countries often stands idle because there’s a lack of expertise, organization, transport, marketing opportunities, and the like. (Interestingly, in the “Direct line” to Putin, a group of village workers lamented just the same, talking about their huge sales difficulties).

This is, again, a question of an appropriate scale. When the old (indigenous) technologies are too primitive and often in decay, while the sophisticated modern machinery is too capital-intensive and well beyond the reach in the given environment, what’s needed is, evidently, something “intermediate”, i.e. fairly simple, not too expensive, easy to maintain and repair on the spot. Thus, this is all about technology which is way more effective than traditional methods, but still an order of magnitude less expensive than what we see in the modern production systems.

Schumacher never elaborated on any technical solutions or specific projects, confining himself to a principle that, varying between fields, the intermediate technology should encompass applications that are small-scale, decentralized, labor-intensive, energy-efficient, environmentally sound and locally controlled. Starting in the late 1970s, however, there came a most powerful boom in groups and organizations focusing on developing and applying intermediate technology to the problems of both developing and developed countries. By 1980, the number of organizations involved in this field had grown to more than 1,000, with even governmental departments and international agencies taking part in the movement. Today appropriate technology addresses issues in almost all spheres of life, the range and nuances of applications being practically limitless. Well-known examples include: solar cookers and the so called hot plates; pot-in-pot refrigerators; bike- and hand-powered water pumps; a range of other self-powered equipment; solar lamps and streetlights; mudbrick architecture and other forms of natural building; various food-production systems such as urban gardening, hydroponics, forest gardening, and no-till farming; sanitation techniques; recycling of waste; even information and communications technologies with low cost computers, special mobile phone networks and applications for farmers, satellite internet access to remote locations… but, nay, the list is too long. What’s more, appropriate technology has now become an umbrella concept for so many other types, definitions, and directions of technological change, along with related social movements, that the picture, again, is too panoramic to deal with in an article.

Here’s another angle. There are at least two countries that were pioneers and early practitioners of appropriate technology - India and China, both great powers today. In India, the tradition goes back to Gandhi’s economic program in a post-liberation period, his scheme being to start with the villages, even if this slowed the pace of urban and industrial growth. The villages were to become almost autonomous units relying mostly on labor-intensive manufacture and handicrafts. For some, this sounded like a prescription for starvation. It was not. “The poor of the world cannot be helped by mass production”, Gandhi famously kept repeating, “but only production by the masses”. Or: “Any concern with goods requires mass production, but concern with people necessitates production by the masses.”

In China, they turned to appropriate technology for rural development after Mao Tse-tung broke up with the USSR in 1960. In the succeeding years, the country’s economic policies centered on the catchphrase “walking on two legs”, meaning the simultaneous development both of large- and small-scale technologies, with the strongest focus on small-scale industries in the rural areas. The picture being very similar to that of India’s, this direction vigorously emphasized decentralization and the pursuit of self-sufficiency. Creating lots of jobs in rural areas, this effectively secured the country from the worst consequences of urban-rural polarization common to so many developing countries.

India, China… It may be that the guidance we need for our work, observes Schumacher, can only be found in the traditional wisdom of mankind. 

Yury Nickulichev is a professor at the Russian Academy for National Economy and Civil Service

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