Economics as if People Mattered

How quickly we forget issues.  For example, it was just back in February 2015 when the Federal Communications Commission under Chairman Tom Wheeler issued the Open Internet Order, to “ preserve and protect the Internet as a platform for innovation, expression and economic growth. An Open Internet means consumers can go where they want, when they want … consumers will demand more and better broadband  …”[i]  The FCC new series of rules were “guided by three principles: America’s broadband networks must be fast, fair and open”.[ii]  We were saved.

Then just over a year ago, the next FCC Chairman, Ajit Pai, scrapped the Order, claiming “Net Neutrality is “a solution that won’t work to a problem that doesn’t exist.”” [iii]  If the order had saved the Internet, the new Chairman killed it again with a ‘Restoring Internet Freedom’ Order.[iv]  Except?  Except, nothing much seems to have changed, and the whole horror story is forgotten.

Ignoring the issues which generate short-term hysteria in the press, others have staying power, bubbling along just below the surface to pop up regularly and push the agenda a little further.  One of these is a continuing desire to develop economies and enterprises that are sustainable, environmentally, socially and financially (of course!).  Over the years, many have written insightfully and persuasively on this topic.  Two books had an early impact: the first was Rachel Carson’s ‘Silent Spring’, published in 1962 by Houghton Mifflin.  A decade later it was Ernst Schumacher who changed my views on so many issues through his book ‘Small is Beautiful’.[v]  It might have been the subtitle that caught my attention: ‘Economics as if People Mattered’.

Born in Germany, and educated in the UK and the USA, Schumacher was appointed as the Chief Economic Adviser to the British National Coal Board, a position he held from 1950-1970.  He quickly focussed on energy needs and argued that ‘prosperity’ depended on the ever-increasing use of non-renewable resources, and especially – given his position – on fuel.  Fifty years ago, his analyses showed, inconvertibly in his mind, that the “the “rich” were in the process of stripping the world of its once-for-all endowment of relatively cheap and simple fuels. He saw their continuing economic growth producing ever more exorbitant demands, “with the result that the world’s cheap and simple fuels could easily become dear and scarce long before the poor countries had acquired the wealth, education, industrial sophistication, and power of capital accumulation needed for the application of alternative fuels on any significant scale.” [vi]

He wasn’t just a critic.  He demanded a rethink in relation to science and technology, asking practitioners to build ‘wisdom’ into their activities. He pointed to the dangers of scientific or technological developments which either poisoned the environment or reduced people to tools “no matter how brilliantly conceived or how great their superficial attraction.” He railed against monopolies and the concentration of economic power by major corporations, polluting the environment, acting with the “denial of wisdom”.  He was a persuasive and elegant writer:

Wisdom demands a new orientation of science and technology towards the organic, the gentle, the non-violent, the elegant and beautiful. Peace, as has often been said, is indivisible–how then could peace be built on a foundation of reckless science and violent technology? We must look for a revolution in technology to give us inventions and machines which reverse the destructive trends now threatening us all. What is that we really require from the scientists and technologists? I should answer: We need 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”.[vii]

For some, this turned into the promise of the Internet, which Tom Wheeler had been trying to save (albeit by taking actions that were not his to implement).  By making information free, and by providing a platform for innovation, anyone could come up with simple and effective answers to many economic problems.  That utopia, that illusion, has already crumbled, and while young enthusiasts today continue to develop clever and creative systems and applications, the ‘big three’, Apple, Google and Microsoft, gobble them up, as their massive empires grow and dominate the innovation landscape.  If he could see this, Schumacher would be horrified.[viii]

To ask people to be thoughtful, to use wisdom and a concern for an approach ‘as if people mattered’ seems idealistic today.  Others have tried a more pragmatic approach.  John Elkington  suggested we should re-examine the way in which we account for activities.  In 1998, he wrote about the need for companies to provide ‘triple bottom line’ annual reports, which detailed their performance in terms of environmental, social and financial impact. [ix]  That theme has been taken up by many others, especially the UK’s Centre for Tomorrow’s Company.  Progress has been slow but steady, and today many corporations provide a far more comprehensive report on their activities, nudged along the way by the proponents of ethical investing.

New technologies and demands for better accountability are important and have had some real impact.  However, Schumacher’s ‘small is beautiful approach’ is being addressed in other ways, too.  In several countries slow food, farmers’ markets, and local cafes baking homemade foods continue to grow and thrive. People like to find enterprises that are operating at a personal level, where they can talk to producers, and that offer space for community-based interaction. Many are revulsed by vast global economic systems that are corrupting and corrupt, churning out food stuffs and other products full of unnatural and often harmful chemicals.  It might appear these initiatives are too small and too uncertain to have much impact, often relying on the unpaid labour of enthusiastic volunteers.  However, local markets and local products thrive.

Another approach that sits alongside these activities is efforts to address the needs of those at the ‘bottom of the pyramid’, people who are poor but whose needs are great and who are often overlooked by rich world businesses.  The bottom of the pyramid, (sometimes referred to as the bottom of the income pyramid) is defined as people who live on less than $2.50 a day, currently around 3bn (of the world’s population of 7bn). [x]  The key word here is ‘less’:  many survive on a much smaller amount of money.  In fact, just over 70% of the world lives on less than $10 per day, and, to reinforce the skewed nature of income distribution, under 1% of the world’s population owns 50% of the world’s wealth.

C K Prahalad, a management academic, proposed a business approach, suggesting that those at the bottom of the pyramid could be a profitable group of consumers, and that large corporations could address those on low incomes successfully. [xi]   Among many examples, one of the most telling was an initiative by Hindustani Lever Limited, part of the Unilever group. At the end of the 20th Century, most Indians still lived in rural areas (then around 80%, and the figure is probably similar today).  Surviving on very low incomes with poor diets, health was a major challenge.  Without adequate medical facilities, even simple illnesses like diarrhea could have a devastating effect, and infant mortality was high.  One factor that made a big impact was hygiene, and the Indian Government sought ways to introduce and sustain better practice.

The government developed a Public Private Partnership (PPP), and Hindustani Lever joined with government agencies and marketing specialists to get soap to rural families. [xii]  Inability to clean hands was the dominant issue; clearly, the regular use of soap would make a significant difference.  The story has many aspects, but one part illustrates Prahalad’s approach, as well as Schumacher’s theme.  Traditionally, soap had been seen as an expensive beauty product.  Hindustani Lever took up the challenge, and reformulated their Lifebuoy brand, adding an antibacterial agent, and changing the manufacturing process to produce a cheaper, denser, smaller, and longer lasting bar.  They changed the additives to a more neutral aroma.  The result was a far more affordable soap, easy to distribute, and although the profit per bar was tiny, sold in large quantities it would cover all the manufacturing, marketing and distribution costs, and still make a small but adequate profit.

It was at this point that the PPP became important.  Promoting soap, which required selling it as a health benefit rather than a beauty product, and promoting the concept to tiny villages required a major rethink.  Marketing had to be simple and cheap, using locals to explain the benefits.  Distribution was based on how goods were traded across large areas with small numbers, and the central role women played as traders (in rice, the main product).  To Hindustani Lever’s credit, they were willing to rethink every element of the business they knew for this new context.

The results have been impressive.  Slowly health outcomes in rural India are improving.  Hygiene has been one part of this.  Other initiatives, like the adoption of improved cook stoves are proving hard to implement. [xiii]  Education is a major challenge, with western educationalists preferring initiatives with colleagues in city universities.  Much remains to be tackled.

I doubt that Schumacher would have placed a great deal of emphasis on corporate strategies, however.  His interest was in small scale, local initiatives.  Certainly not every initiative has to be driven by major companies.  While Prahalad tended to look at major companies, he also described other successful endeavours.  One of these was Jaipur Foot.

Loss of a lower limb or foot is a common and extremely disabling event affecting some 25m or more people worldwide:  for those at the bottom of the pyramid, it can mean that work is even more difficult to obtain, and managing everyday life becomes hazardous.  Prosthetic feet and lower limbs have been available for a long time, but they are expensive.  In the US, the price can range between $5,000 and $50,000; fitting is an expensive process, and on top of that, most prosthetics only last 3-5 years of normal wear and tear.  Altogether prohibitive for the poor.

Ram Chandra Sharma was a sculptor and engineer, and he could see that those Indians who did manage to get fitted with an artificial lower limb or foot faced problems.  Prosthetics were designed for use by Westerners, whose lives were very different from those of rural Indians.  What was needed was an artificial limb that responded to four distinctive needs:  squatting (rather than sitting in a chair); sitting on the ground cross legged; walking on uneven ground, both dry and wet (when working in paddy fields); and walking barefoot.

With Dr P K Sethi, an orthopedic surgeon, he set about designing replacements that would meet these criteria, and the eventual design of the Jaipur Foot used many cheap components such as PVC piping, wood, sponge rubber and vulcanized rubber (he got that last idea from looking at car tyres).  He also worked to streamline fitting, so that an amputee could have a Jaipur Foot in place and usable with just one visit to a clinic.  The cost of the raw materials was just $12.54, and the total cost, including fitting, was $30.[xiv]   Like micro-finance to help small entrepreneurial ventures in developing countries, like rethinking telecommunications in countries across Africa and Asia making mobile telephony accessible a cheap, Jaipur Foot demonstrates small can be beautiful.  Nor is this approach relevant only in developing countries: the Australian Centre for Rural Entrepreneurs is an example of the ways in which young farmers are helped to develop small agricultural startups, building new or revitalised businesses while at the same time ensuring the ongoing vitality of the rural sector.[xv]

Like the concerns which centre around ensuring the Internet remains ‘free’, the issues Schumacher raised are still on the agenda.   Above all, he was worried about economic growth as the main preoccupation of governments, and the very real constraints limited non-renewable resources imposed on economic development.  Above all, he argued that more money does not breed happiness.  Some recent research suggests he was right, in the sense that above a certain level, increased income is actually associated with declining subjective well-being [xvi].  I guess that’s not news:  Maslow’s ‘hierarchy of needs’ proposed that once basic needs are met, it is love and a sense of belonging, esteem, and self-actualisation that become important, and his 1943 research still offers a helpful perspective on what we seek.  Research about well-being today, like the study noted above, demonstrates that despite increased wealth since the 1970s, people are no happier.

Schumacher was asking we encourage and support a different way of thinking, one where we pursued economic goals as ‘if people mattered’.  Was he an idealist, arguing in the face of the extraordinary achievements that technocrats and managerialists have delivered over the past fifty years?  No, I’d prefer to see him as a voice for sanity and reason, even more relevant today in a world where such voices are hard to hear.  Small is Beautiful is outdated in many ways, but the underlying approach is critical:  we should cherish wisdom.  If you haven’t read it, please do so; if you have, please read it. again.  Keep his flame alight.

 

[i] https://www.fcc.gov/document/chrmn-wheeler-fcc-open-internet-order-separating-fact-fiction

[ii] https://www.fcc.gov/document/fcc-releases-open-internet-order/wheeler-statement

[iii] http://reason.com/reasontv/2015/02/25/fccs-ajit-pai-on-net-neutrality-a-soluti

[iv] https://transition.fcc.gov/Daily_Releases/Daily_Business/2018/db0510/DOC-350643A1.pdf

[v] Published by Harper and Row in 1973

[vi] Ibid, page 28

[vii] Ibid, pages 34-5

[viii] See: https://www.theguardian.com/commentisfree/2011/nov/10/small-is-beautiful-economic-idea

[ix] Cannibals With Forks, New Society Publications

[x] Khalid Malik, (2014), “Chapter 1: Vulnerability and human development”, Human Development Report: Sustaining Human Progress,  New York: United Nations Development Programme

[xi] C K Prahalad, The Fortune at the Bottom of the Pyramid: Wharton Pearson, 2005

[xii] For a more detailed discussion, see pages 207-235 of The Fortune at the Bottom of the Pyramid, above

[xiii] January 2017, World Development 92:13-27: Why Have Improved Cook-Stove Initiatives in India Failed? Meena Khandelwal et al

[xiv] For a fuller description see Prahalad, Op Cit, Pages 243-264.  A video showing manufacture and fitting can be found at https://www.youtube.com/watch?v=mPa4Rio1J0M

[xv] Also see  https://www.smh.com.au/business/rural-entrepreneurs-are-taking-over-20140704-zswsj.html; for ACRE, you can go to https://acre.org.au/

[xvi] https://www.nature.com/articles/s41562-017-0277-0.

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