The health of a large organisation depends to an extraordinary extent on its ability to do justice to the Principle of Motivation.
The philosopher EF Schumacher is best known for being an early exponent of a heterodox economics that centres environmentalism, human need and other generally progressive values.
The author of the wildly popular Small is Beautiful: A Study of Economics As If People Mattered remains a significant intellectual figurehead for many engaged in the environmental movement, and those who desire a spiritual foundation to social or economic policy. Institutions including the Schumacher Institute, Schumacher College and the Schumacher Society each continue to promote his social and economic theories today.
The SMALL IS THE FUTURE event is taking place on Saturday, 17 June 2023 at the Paintworks, Bristol. Speakers include Dr Ann Pettifor, Charlie Hertzog Young, Satish Kumar, Professor Herbert Girardet and Gareth Dale. Buy tickets here. If you want to attend the event but cannot afford a ticket email firstname.lastname@example.org.
But what remains less well recognised is the fact that EF Schumacher’s philosophy has a distinctively Hegelian structure; and even less well known is the fact the chief economic advisor to the National Coal Board in Britain, at the time one of the largest corporations globally, advocated for an organisational science explicitly determined by the dialectic of order and freedom.
Georg Wilhelm Friedrich Hegel authored the Science of Logic, the Philosophy of Nature and the Philosophy of Mind in which he defined a unified theory where “what is reasonable [logical] is real; that which is real is reasonable.”. A novel and distinctive characteristic of Hegel’s formal logic is the claim that there was a “unity in opposites” or that contradiction is the moving principle of actuality. Hegel suggested that complex reality was the imprint of “spirit”, and that spirit itself was unfolding from fixity through to freedom. The human mind, philosophy, or “absolute spirit” is the culmination of his system.
These philosophical claims are echoed by Schumacher in his essay “Towards a Theory of Large-Scale Organisation” which was first published in Management Decision: Quarterly Review of Management Technology in Autumn 1967 and later included in the Small is Beautiful anthology. Schumacher was, earlier in his life, influenced by Karl Marx who in turn had developed his political economy through a reading of Hegel. Schumacher later moved through Buddhism and, at the end of his life, towards Catholicism. He would have appreciated Hegel’s spirituality all the more.
Schumacher deploys formal reason, as did many during his time. Moreover, he explicitly uses a form of formal reason that includes contradiction in its understanding of reality, as does Hegel, rather than attempting to exclude or resolve contradictions, which would place him more firmly in an Aristotelian or Kantian philosophical tradition.
The health of a large organisation depends to an extraordinary extent on its ability to do justice to the Principle of Motivation.
He states: “Whenever one encounters such opposites, each of them with persuasive arguments in its favour, it is worth looking into the depth of the problem for something more than compromise, more than a half-and-half solution. Maybe what we really need is not either-or but the-one-and-the-other-at-the-same-time.”
The principle of the unity of opposites is, here, abstract and universal. But Schumacer also offers specific and concrete examples of its practical deployment. Central to his organisational prescriptions is the antinomy between “order and freedom”. He states: “We can associate many further pairs of opposites with this basic pair of order and freedom.” In doing so, he practises the Hegelian impulse to see a dialectic at all phases of existence, including the modes of hierarchy and autonomy within human acts of collaboration.
“All real human problems arise from the antinomy of order and freedom. Antinomy means a contradiction between two laws; a conflict of authority; opposition between laws or principles that appear to be founded equally in reason. Excellent! This is real life, full of antinomies and bigger than logic.”
The discussion of contradiction between two extremes, and the attempt to find a sublation of those opposites, or at least an accommodation, is central to Schumacher’s intellectual practice, including his prescriptions of how to run an organisation. He claims this unity of opposites informed his practical leadership of the National Coal Board, which at the time had 800,000 employees.
Schumacher posits that both “extremes” of the order-freedom dialectic are necessary in organisational practice. “In any organisation, large or small, there must be a certain clarity and orderliness; if things fall into disorder, nothing can be accomplished. Yet orderliness, as such, is static and lifeless; so there must also be plenty of elbow-room and scope for breaking through the established order, to do the thing never done before, never anticipated by the guardians of orderliness, the new, unpredicted and unpredictable outcome of a man's creative idea.”
This determines the contradiction of “centralising and decentralising”. He adds: “Centralisation is mainly an idea of order; decentralisation, one of freedom. The man of order is typically the accountant and, generally, the administrator: while the man of creative freedom is the entrepreneur. Order requires intelligence and is conducive to efficiency; while freedom calls for, and opens the door to, intuition and leads to innovation.”
Schumacher complains that most organisations fail to recognise such dialectical oppositions, and fail to manage them. This results in endless and unproductive “swings of a pendulum” or unmediated order taking over until “the organisation becomes moribund and a desert of frustration.”
The philosopher does not simply observe contradiction, but offers a clear programme to manage and even leverage such apparent paradoxes in order to bring about creative satisfaction for the workforce, without sacrificing results for the owner or manager. Schumacher, typically, does not step outside of the capitalist paradigm and his solutions are designed to secure profitability, while dissolving the alienation of labour.
“The fundamental task is to achieve smallness within large organisations,” he argues, fittingly. He also advances four key principles: the Principle of Subsidiary Function; the Principle of Vindication; the Principle of Motivation and finally the Principle of the Middle Axiom. I believe each of these principles are worth retaining, and can be deployed in profit-making organisations and also impact-centred organisations such as we find in the public and charitable sectors.
The organisational structure advocated by Schumacher based on his small is beautiful principle can best be described as a practice of allowing for the greatest autonomy possible, while allowing for hierarchy only where necessary. This means decisions must be taken at the coal face, literally in his case, whenever possible. Managers should set and monitor strategy, and provide clear goals and guidance. But they should only then intervene in daily decisions under extreme circumstances, such as when mission critical goals have not been met.
This prescription of worker autonomy is directly set out in his Principle of Subsidiary Function. This principle states: “It is an injustice and at the same time a grave evil and disturbance of right order to assign to a greater and higher association what lesser and subordinate organisations can do. For every social activity ought of its very nature to furnish help to the members of the body social and never destroy and absorb them.”
Andrew Simms, the climate campaigner and co-author of the Green New Deal in the UK, speaks to the centrality of this principle: “If EF Schumacher's great work on rethinking economics had been called the Principle of Subsidiary Function its audience, I suspect, might not have reached the millions that were touched by Small is Beautiful. Yet the former is a more accurate description of the concept at the heart of his work…”
The principle needs to be actively defended in the workplace, or organisation. Indeed, Schumacher is adamant that the manager who wishes to intervene in the activity of the frontline worker must justify such actions. This is the perfect defence against economic autocracy, and against micromanagement.
Schumacher could not be clearer. “The Principle of Subsidiary Function implies that the burden of proof lies always on those who want to deprive a lower level of its function, and thereby of its freedom and responsibility in that respect; they have to prove that the lower level is incapable of fulfilling this function satisfactorily and that the higher level can actually do much better.”
This helps resolve the contradiction between the “opposites of centralising and decentralising”, he claims. “The Principle of Subsidiary Function teaches us that the centre will gain in authority and effectiveness if the freedom and responsibility of the lower formations are carefully preserved, with the result that the organisation as a whole will be 'happier and more prosperous'.”
The fact that the manager can no longer centralise and control all activity will be the cause of some discomfort. It might also result in some “waste” in terms of replication, best practice not being immediately generalised, and workers performing the same functions in different ways. Nonetheless, the gains in terms of the engagement of the workforce, their feeling of freedom and their ability to work creatively more than make up for such concerns.
In Schumacher’s terms: “From the administrator's point of view, i.e. from the point of view of orderliness, it will look untidy, comparing most unfavourably with the clear cut logic of a monolith. The large organisation will consist of many semi-autonomous units, which we may call quasi-firms. Each of them will have a large amount of freedom, to give the greatest possible chance to creativity and entrepreneurship.”
There are further complications. Schumacher recognises that some teams within a large organisation will not be involved with immediate profit making. For example, the HR department of a supermarket will not make any sales but will provide a service to colleagues that will ensure the organisation can in fact function. He therefore sets out what can be understood as an internal market within the organisation. In his terms, one department may pay “rent” to an, or receive a “subsidy” from a department that uses its services. This, again, allows for a high level of autonomy at the front line. It situates managers not as central control, but instead as service providers to front line colleagues.
This approach may seem extremely radical. Moreover, it might appear idealistic rather than pragmatic, and practical. But this is the power of Schumacher’s work. It is based on the real life practice of being directly involved in the running of the National Coal Board in Britain, which he described as “one of the largest commercial organisations in Europe.”
This case study demonstrates beyond reasonable doubt that it is possible "to set up quasi-firms under various names for its opencast mining, its brickworks, and its coal products.” He further adds: “But the process did not end there. Special, relatively self-contained organisational forms have been evolved for its road transport activities, estates, and retail business, not to mention various enterprises falling under the heading of diversification.”
The remaining principles of Schumacher’s organisational science protect and secure the first principle of Subsidiary Function. The Principle of Vindication makes explicit that the management must limit its interference with the frontline workforce to developing and deploying high level strategy, in communicating targets, and then having clear measures - call them key performance indicators - to ensure that the strategy is being delivered by the organisation.
Indeed, the managers must actively defend the autonomy of those who report to them. He states: “To vindicate means: to defend against reproach or accusation: to prove to be true and valid; to justify; to uphold; so this principle describes very well one of the most important duties of the central authority towards the lower formations." He concludes: "Except for exceptional cases, the subsidiary unit must be defended against reproach and upheld.”
Schumacher is discussing how to run organisations in a capitalist society, where profitability is the only real measure of success. This might not seem applicable for charitable and activist work that sits outside of the flow of commodity production and sales. Nonetheless, the key point that Schumacher wants to make here is valid. The management of any organisation should limit their interference to the absolute minimum, and in a capitalist company that minimum should be the generation of profit.
The radical aspects of this that all other matters - how the day to day activity should be conducted and managed - must remain with the front line staff. In a charity, a manager may focus entirely on developing strategy and monitoring impact. If the frontline staff want to implement a four day week, and the manager cannot demonstrate a decrease in impact, then that decision should be taken by those frontline staff, and not the manager.
This is stated explicitly and clearly in Schumacher’s essay. “In its ideal application, the Principle of Vindication would permit only one criterion for accountability in a commercial organisation, namely profitability." The argument continues: "The centre will have two opportunities for intervening exceptionally. The first occurs when the centre and the subsidiary unit cannot come to a free agreement on the rent or subsidy, as the case may be, which is to be applied."
He adds: “The second opportunity arises when the unit fails to earn a profit, after allowing for rent or subsidy. The management of the unit is then in a precarious position: if the centre's efficiency audit produces highly unfavourable evidence, the management may have to be changed.”
Schumacher then introduces the Principle of Identification. Again, this rule is designed to protect the first principle of Subsidiary Function. The proposal is that each project, each programme, and each department within a large organisation should have its own balance sheet. In modern parlance, this would be an operational budget. The point is that the team delivering on the project, or running the department, should be given full autonomy as long as the balance sheet demonstrates that they are making a profit, in a commercial organisation, or delivering impact within budget, as would be the case in a non-commercial setting.
He explains his adherence to the profit motive: “Business operates with a certain economic substance, and this substance diminishes as a result of losses, and grows as a result of profit.” Given this assumption, the principle of identification states that: “Each subsidiary unit or quasi-firm must have both a profit and loss account and a balance sheet.”
The aim, again, is greater autonomy. “A unit's success should lead to greater freedom and financial scope for the unit, while failure - in the form of losses - should lead to restriction and disability. One wants to reinforce success and discriminate against failure.”
The management does hold colleagues accountable. But unless managers can show a team is failing (making a loss, or using resources without delivering impact) they cannot micromanage or interfere in base level decision making. This aspect of Schumacher’s prescription can sound overly technical. Nonetheless, in terms of autonomy in the workforce he is direct and certain. “This is a matter of great psychological importance.”
Now Schumacher arrives at The Principle of Motivation. The Principle of Subsidiary Function ensures worker autonomy. The primary benefit of this system is that workers remain motivated. They can work creatively, they can learn, they can see the outcomes of the decisions they have made. They are rewarded by the success of their work. Nonetheless, motivation is so important within an organisation that Schumacher deems that it requires its own principle in his organisational system.
He states: “It is a trite and obvious truism that people act in accordance with their motives. All the same, for a large organisation, with its bureaucracies, its remote and impersonal controls, its many abstract rules and regulations, and above all the relative incomprehensibility that stems from its very size, motivation is the central problem.”
He adds: “Managements assume that people work simply for money. for the pay-packet at the end of the week.” This is simply wrong-headed. And, the philosopher states, “[i]ntellectual confusion exacts its price.”
Autocratic management comes at a considerable cost. The attitude that the managers make all the decisions and the staff are there simply as a secretariat to mindlessly enact those decisions is expensive, prohibitively so for cash strapped charities. When workers are given orders and directives they simply lose motivation, while others will resist and rebel. Managers then spend valuable time trying to reassert control.
The loss of autonomy for staff has immediate consequences. “Many have no desire to be in it, because their work does not interest them, providing them with neither challenge nor satisfaction, and has no other merit in their eyes than that it leads to a pay-packet at the end of the week.”
And the consequences for the organisation as a whole can be terminal. “[T]he health of a large organisation depends to an extraordinary extent on its ability to do justice to the Principle of Motivation. Any organisational structure that is conceived without regard to this fundamental truth is unlikely to succeed.”
The fourth and final Schumacher principle for running an organisation is again concerned with protecting the first rule of Subsidiary Function, of ensuring the highest possible degree of autonomy for frontline staff. Schumacher calls this The Principle of the Middle Axiom. This highly technical term simply restates the suggestion that managers ensure that colleagues understand the strategy, and are given clear intermediate goals and parameters for their work.
Schumacher recognises that “[t]op management in a large organisation inevitably occupies a very difficult position. It carries responsibility for everything that happens, or fails to happen, throughout the organisation, although it is far removed from the actual scene of events.”
There are real pressures and a temptation towards central, hierarchical control over complex, unpredictable situations. “How, then, can top management at the centre work for progress and innovation?”
The Principle of the Middle Axiom is necessary as a bulwark against managers using control. He states that “being remote from the actual scene of operations, the central management incur the valid criticism that 'it attempts to run the industry from Headquarters', sacrificing the need for freedom to the need for order and losing the creative participation of the people at the lower formations - the very people who are most closely in touch with the actual job.”
In the simplest terms, the Principle of the Middle Axiom just means that managers need to set out the aims, objectives, methods and rules (the strategy) of the organisation clearly. An axiom is a statement of first principle that does not need to be, or indeed cannot be, proven through evidence or argument.
The aim of the organisation is such an axiom. If you want to change the actual aim of your company or team, then you are probably in the wrong workplace. However, while managers can be seen as the guardians of the strategy of the organisation they absolutely must not get involved in day to day decisions. They must not move beyond the middle axiom of setting the aim and scope of a department, programme or project.
Small is Beautiful is best known as a manifesto for a new generation of thinkers, especially economists, who rallied against the sheer scale of the industrial society, the development of global monopolistic companies, and the use of massive machines to extract value from the natural environment, turning it into a lifeless wasteland.
Schumacher is clear that his interest was in appropriateness of scale. The society in which he found himself idolised the large, the economies of scale, and he wanted to celebrate the small as an intellectual counter.
Interestingly, this philosophical approach found specific expression in Schumacher’s organisational science. The method was to make the big organisation an aggregation of small organisations. The aim was to ensure freedom for all employees. This had the practical benefit of supporting high levels of creativity, innovation and motivation across even large organisations.
But there was also for Schumacher also a deep principle at stake. Human freedom is an immediate good. The economic advisor to the British National Coal Board knew instinctively that everyone of its 800,000 employees had a right to have the most control possible over their own work, to be fully human rather than mere tools. While his organisational philosophy was no utopia, it had the potential to be a bulwark against autocracy and micromanagement.
Brendan Montague is editor of The Ecologist. The SMALL IS THE FUTURE event is taking place on Saturday, 17 June 2023 at the Paintworks, Bristol. Speakers include Dr Ann Pettifor, Charlie Hertzog Young, Satish Kumar, Professor Herbert Girardet and Gareth Dale. Buy tickets here. If you want to attend the event but cannot afford a ticket email email@example.com.