Since each of these responses is plausible, regression analysis was used to test the relationship between changes in the ratio of self-employment to the civilian labor force as a function of changes in the aggregate unemployment rate (a proxy for the level of economic activity). Time was also included as an independent variable, since trend is believed to be prominent in both the dependent and independent variables. Such a correction for trend allows a more accurate measure of cyclical effects.

The self-employed dependent variable was disaggregated into farm and nonfarm sectors, and tests were run using quarterly data, the data being led and lagged by 1 and 2 quarters, as well as tested coincidentally. The results were inconclusive, neither the farm nor nonfarm sectors displaying any sensitivity to changes in the aggregate unemployment rate.

The regression equations were re-run using annual data. In the nonagricultural equation, the coefficient of determination of 0.24 in conjunction with the marginally significant coefficient of the unemployment variable of +.09 offer some support to a countercyclical relationship (table A-1). The equation for agricultural self-employed showed a positive but insignificant relationship with the business cycle. The R' of 0.30 was largely attributable to the time or trend variable. Since the results do not support conclusively either hypothesis, additional data were prepared that compared quarterly movements in the rate of change of the self-employed as a percent of the civilian labor force during business expansions and contractions as defined by the National Bureau of Economic Research. The results support the regression equations as to the insensitivity of agricultural self-employment to cyclical changes, the average rate of change per quarter being similar at .058 and -.045 during both expansions and contractions (table A-2). For the non-agricultural work force, however, the average decline of 0.026 percent during expansions and the average increase of 0.02 percent during contractions. While trend predominates among non-tractions tended to support a countercyclical rela-agricultural self-employed similar to the response of the agricultural selfemployed, economic changes do appear to have some countercyclical effect on the nonfarm self-employed work force.


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1 Peak and trough quarters are common to both the expansionary and contractionary periods.


Wise Economics

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as, say, Peter Drucker, yet equally in
touch with the down-to-earth realities
of a simple Indian village. His book is a
most unusual economic treatise, enor-
mously broad in scope, pithily weaving
together threads from Galbraith and
Gandhi, capitalism and Buddhism, scl
ence and psychology. The reader is left
wishing that somehow an economist of
Schumacher's vision could be scooped
from his subterranean hideaway and
ushered into the White House dis-
guised as Arthur Burns.

Schumacher's point is that the fore-
most concern of economics should be
people, not goods. People do need
goods, of course, but they need much

more to utilize and develop their facili-
ties through meaningful work. If this
sounds like a simple—indeed almost
simplistic-premise, its implications

min pen.

The introduction by Theodore Roszak identifies Schumacher as a former Rhodes scholar, an economic adviser to the British Control Commission in postwar Germany, a director of the Scott Bader Company (about which more later), and, for 20 years prior to 1971, the top economist and head of planning for Britain's nationalized coal industrymost reputable vits indeed. But that is not the end of it. Schumacher is also, according to Roszak, a member of "that subterranean tradition of organic and decentralised economics... we might call anarchism, if we mean by that much abused word a libertarian political economy that distinguishes itself from orthodox socialism and capitalism by Insisting that the scale of organization must be treated as an independent and primary problem." And Roszak goes on: "It would be no exaggeration to call him (Schumacher] the Keynes of postind @strial society."

Roszak's build-up both intrigued me and put me off. I tend to be leery both of anarchists and of anyone placed on a pedestal as high as Keynes'. I needn't have worried. Schumacher turns out to be an eminently practical, sensible and eloquent chap, as versant in the subtleties of large-scale business management

are nonetheless far-reaching. An econ

omy that makes work meaningless, stul-
tifying and nerve-wracking is not doing
people very much good, even if it raises
their level of consumption. The same
is true for an economy that constantly
replaces workers with machines.

The Gross National Product may rise
rapidly, as measured by statisticians
but not as experienced by actual peo-
ple, who find themselves oppressed
by increasing frustration, alienation,
insecurity, and so forth. After a while,
even the Gross National Product re-
fuses to rise any further, not because
of scientific or technological failure,
but because of a creeping paralysis of
non-cooperation, as expressed in vari-
ous types of escapism on the part, not
only of the oppressed and exploited,
but even of highly privileged groups.

Another of Schumacher's primary
themes is that Western economics some
time ago abandoned wisdom, by which
he means a sense of man's place in the
universe. Most economists proudly ac-
cept the notion that the problem of
production has been solved. But has it?

We are, at an ever-accelerating rate, squandering at least three kinds of replaceable assets-treating them, in economic terms, as income when they should be considered as capital: fuels, the tolerance margins of nature, and the psychological stability of man. Thus if the rich nations continue stripping the world of its nonrenewable energy re sources at approximately their present rate, and if the poor nations only slightly increase their current rate of com sumption, we will be 1) out of fossil fuels in a relatively short time, and 2) awash in pollution the likes of which have never been seen. In addition the scramble for diminishing resources will

become a major source of international conflict, if it hasn't already.

How does wisdom, or the lack of it,

figure into this?

From an economic point of view the central concept of wisdom is permanence. Nothing makes economic sense unless its continuance for a long time can be projected without running into absurdities.

Yet what is economics currently counseling?

Far from being interested in studying the possibilities of alternative methods of production and patterns of living-so as to get off the collision course on which we are moving with ever-increasing speed - we happily talk of unlimited progress along the beaten track, of "education for leisure” in the rich countries, and of “the transfer of technology" to the poor countries.

In much the same vein Schumacher contends that economics has become a science of measurement, but has forgotten what really ought to be measured. Economic decisions, both macro and micro, are made by quantifying goods at some ephemeral market value, with little or no consideration given to qualitative differences. A dollar's worth of hotel accommodations is presumed to be economically equal to a dollar's worth of petroleum, even though the latter is a nonrenewable primary resource, the depletion of which has vast consequences. Some "goods" that never appear on the market are left entirely out of economic calculations — clean air, for example, or a person's satisfaction with his work. And the calculations on which economic decisions are based are always short-range and narrow:

decision-maker asks what will be that proprietary rights should accomnomentarily profitable for him, not pany actual involvement in an enterwhat will be beneficial for a larger comprise wherever possible, and where y over the long run.

e two philosophic premises this. One is that only an increasing production of goods ill lead to human tranquility. The othis that such ever-increasing production can only be achieved through glori fication of the cardinal sins. Thus Keynes was moved to write in 1930:

For at least another hundred years we

pretend in ourselves and to me that fair is foul and foul is or foul is useful and fair is not.

and usury and precaution be our gods for a little longer L. For only they can lead us out of tunnel of economic necessity into daylight.

Schumacher this is dangerous nonsense, possibly valid in the 1930s but certainly no longer so. Avarice will not lead to daylight; only restraint can. Fair is useful and foul is not Greed builds up a never-ending spiral of wants that must inevitably exceed the earth's ability to provide. What we need are not bold Nixonian promises of energy self-sufficiency by 1980 but a return to wisdom, a reorientation toward an economics of permanence.

What would such a reorientation consist of? A deemphasis on quantitative growth, but for Schumacher that is only one of several ingredients. The basic ground rule of a "wise" economics would be that work, technology and ownership patterns should be on a human scale. Jobs would be designed so that people could productively, creatively use their hands and brains. ("Even children would be allowed to make themselves useful, even old peopie.") Science and technology would stress the development of first-class tools rather than labor-displacing machinery.

Economic enterprises would be scaled and structured in such a way as to reconcile the convenience, humanity and manageability of small production units with the need for planning and coordination. Ownership would be tailored to the nature of the enterprise. For small-scale enterprises individual or family ownership would be appropriate. For medium-size enterprises cooperative ownership by workers makes sense. For large-scale enterprises some form of social ownership would be proper. The guiding principle would be

this is impractical they should inhere in a broad community whose prime interest is not the reaping of unearned gains.

worker within the company would receive no more than seven times the pay of the lowest. Of the profits taken out by the Commonwealth, half would go for bonuses to workers within the company and the other half for charitable purposes outside the company. Finally none of the products of the company would be sold to customers known to use them for war-related purposes.

When Bader and his colleagues introduced these changes it was freely predicted that the firm would soon collapse. In fact says Schumacher the company "went from strength to strength, although difficulties, even crises and setbacks, were by no means absent. In the highly competitive set

The reader is probably thinking: all this sounds splendid, but it's a starryeyed dream, a vision of some armchair anarchist who has never met a payroll. Perhaps. But Schumacher is persuasive precisely because his theories are grounded in long experience. At the British Coal Board the problem was to convert an enormous governmentowned monopoly into a confederation of human-scale units. Self-contained “quasi-firms” were set up for 17 sepeting within which the firm is operating, rate mining regions. Additional “quasifirms" were established for transport, brickworks and other diverse activities. "The monolith was transformed into a well-coordinated assembly of lively, semi-autonomous units, each with its own drive and sense of achievement," Schumacher writes. If all is not bliss at the Coal Board-the recent miners' strike would indicate that it is not --the fault, Schumacher would presumably argue, lies with national leaders and their policies rather than with the decentralized structure of the enterprise. The Scott Bader Company began in 1920 as a family-owned plastics business; by 1950 it was a prosperous medium-size firm employing 161 persona. Ernest Bader decided to introduce "revolutionary changes” in ownership and organization. He set up the Scott Bader Commonwealth, in which he vested ownership of the company. Over the next few years the members of the Commonwealth, which is to say the workers of the company, drew up a constitution setting forth several basic rules. The directors of the company would be appointed by and fully ac countable to the Commonwealth. The company would be limited to approxmately 350 persons; if there was a demand for growth beyond that point, it would be met by setting up new firms organized along Bader lines. Since members of the Commonwealth would be partners, not hired hands, they could not be dismissed by their copartners for any reason other than gross personal misconduct. The highest paid

it has, between 1951 and 1971, "increased its sales and profits enormously; large bonuses 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." If his is anarchism it seems functional enough. The trick, as with any vision of a better society, is getting from here to there. Schumacher's blueprint for medium-size firms is Baderization; this presupposes, of course, the existence or creation of entrepreneurs as enlightened as Mr. Bader. For large-scale industries Schumacher proposes that the public convert its present right, embodied in the tax laws, to 48 percent of corporate profits, to half ownership without a corporate income tax. He warns, however, in some strong criticism of doctrinnaire British socialists, that public ownership, or public halfownership, is not an end in itself but merely a means to the end of a humanized economy. In addition Schumacher urges a much higher degree of indica tive planning, so that economic decisions are not made entirely on the basis of what is best for each individual enterprise, but incorporate elements of a broader wisdom.

It would be easy to nitpick at many of the details and ramifications of Schumacher's tour d'horizon. I choose instead to nominate him for a prize of some stature. And why not? The most recent economists to win the Nobel prize have been measurers, tinkerers, growth addicts. It's time to turn the spotlight around, to start digging out some subterranean wisdom before we are all buried under a billowing cloud of madness and sludge.

Peter Barnes



Corporate Power and Economic Apologetics:
A Public Policy Perspective

Walter Adams*

I take as my text for today a chapter from both ecclesiastical and profane history. The date is 1610. Galileo Galilei, armed with his telescope, has scanned the heavens and discovered the Jupiter satellites. But a learned professor, articulating the orthodoxy and wisdom of his time, rejects what Galileo has seen:

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We know he said that there are seven planets and only seven, because there are seven openings in the human head to let in the light and air: two eyes, two ears, two nostrils, and a mouth. And the seven metals and various other examples also show that there have to be seven. Besides, the stars are invisible to the naked eye; therefore they do not influence human events; therefore they are useless; therefore they do not exist. (Quod erat demonstrandum.)1

Not unlike that Padua professor, economists today also profess a conventional orthodoxy. Be they neoclassicists or Keynesians, they theorize on the assumptions that (1) the consumer is king in the marketplace, and (2) the citizenry controls its government. They generally conclude that, except for

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Distinguished University Professor and Professor of Economics, Michigan State University. For further biographical information, see Appendix D.

1. Quoted in Frank H. Knight, Intelligence and Democratic Action (Harvard Univ. Press 1960), p. 57.

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