SMALL IS BEAUTIFUL: The study of Economics as if People mattered.

E.F. SCHUMACHER

Prof. Prabha Panth,Osmania University

12 Apr 2023 Prabha Panth 2

Causes of present environmental crisis

According to Schumacher:

1. Modern technology: inhuman, excessive mechanisation, kills creativity.

2. Impact on environment: Producers and consumers do not care about the environment.

3. Depletion of Non-renewable resources: Natural resources are finite, so economic growth cannot be infinite.

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Criticism of Economics

Normative and Ethical aspects are neglected. Economics gives importance to:1.Profits: Large scale production. Higher profits, with lower AC of production. But large scale production leads to Giantism – with massive NR depletion and more pollution.

2.Economic growth is important, but it does not matter how the economy grows,

3.Dominance of large scale monopolies and oligopolies, not perfect competition.

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4. All items are considered to be homogeneous: Rs.5 of iron (non-renewable resource) = Rs.5 of wheat (renewable resources) = Rs.5 of spoons (produced resource) = Rs.5 doctor’s fees (service).

• Whichever gives higher profit, Investment goes into that sector.

• But all 4 items are heterogeneous. • Spoons cannot be produced without iron, • Production cannot shift from wheat to doctor

if medical field is more profitable.

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5. Economies of scale: To reduce costs, large scale production is taken up. Efficiency is where LRAC is at minimum. But large scale production large scale natural resources depletion large scale pollution.

6. Inhuman Technology: modern technology is inhuman and destructive. Destroys the environment, and creativity of labour. Labour also becomes mechanical and dull.

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Economies of scale

Rs

0Q

PAR=MR

LRAC

LMAC

a

c1

q1

c2

q2

Increase in scale of production lowers LRAC

But large scale requires large inputs of natural resources, and creates large amount of pollution.Good economically, but not for the environment.

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Solution by Schumacher

1. Small scale production: Large scale production is the cause of all environmental and social problems. Small scale is manageable and human. Therefore “Small is Beautiful”.

2. Ethical: and Normative. Use of ethical principles in production and consumption. “The study of Economics as if People Mattered.”

4. Human approach: Technology should be non-violent and creative. “Technology with a Human Face.”

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5. Environmental responsibility: All stake holders should show responsibility towards environmental protection.

6. Intermediate Technology: based on renewable resources technology, labour intensive, and creative.

Schumacher says: Man is small, and so should produce on a small scale. “Small is Beautiful”.

Gandhi said, “the poor of the world can be helped not by mass production, but by production by the masses.”

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Intermediate technology provides:• Local employment,• Lower capital requirements,• More creative,• Cheaper,• Based on local resources, not imported

resources, • No foreign dependence.• Local people are interested in protecting their

own environment.