Small is also beautiful

By Frank-Jürgen Richter

Khaleej Times, October 29, 2011

We constantly find the media using ‘sound bites’ – little phrases beloved by sub-editors that fit small spaces which they hope will attract readers to their texts. Our friends and business colleagues also resort to talking in ‘sound bites’ which to the outsider may seem bizarre. But we are becoming attuned to this framework as we type abbreviated text into our mobiles when using social media sites. They don´t allow long conversations in flowing text – they demand ‘R U OK’ without even adding the grammatically correct ‘?’ to end this question. Small is beautiful it seems.

Let us take this ‘small’ argument back to the atomic family: they would be nomadic living off vegetables, cereals and meats. Of course, their bodily inputs create outputs – exhaled CO2 and other discharges – but their foods yield energy to mend and grow the body; and any excess is used to walk onwards to new sites leaving nature to recover from its abuse as lesser organisms feed on the detritus. Once we move from this atomic world we need specialists and to live in large non-nomadic groups; there is the temptation to initiate ‘economies of scale’.

We have seen over the past decades a mass movement from working the land to living in cities where we think we might make our fortune. For a few that is the case, but millions are trapped almost in slavery. There are said to be 20-30 such megacities: 14 are in Asia, each home to over 10 million people. Cities need infrastructures to survive, yet many support micro-communities within which many people are born and live out their lives, never seeing the other parts of the city, let alone the outside world. These micro-communities exist because of a natural break-down in the larger infrastructure as the city grew over the years – so the people went back to nature, as it were, living off whatever the nearby parts of the city could offer as inputs, and could receive back as trade or detritus in return. Tradable goods may be carried but rubbish can rarely be carried off hygienically, so all live in squalor. Yet, in passing through some of these ghettoes, one might be surprised at the pride the locals possess and how they aspire to live more cleanly: small might be beautiful. If only we could give them more potable water, and sewers to make the roadways clean we would be doing some good.

The obvious way would be to turn to the free-market and ask construction firms to install new infrastructure. Of course, we will not be surprised that globally respected firms will pull down parts of the old city fabric to expose solid earth within which to place their new pipe work – that this disrupts the micro-communities is regretted, they will say, but it is for the good of all. In this case small is assumed to be unbeautiful, and economies of scale win out.

At the Global Arab Business Meeting held recently in Ras al Khaimah, UAE, there was intertwined discussion of the global financial crises and how it may be affecting the Arab community. The meeting noted that almost everywhere nations depended on their Small and Medium Enterprises (SMEs) to create 95 per cent or more of their wealth, and that the managers of those firms needed to know that their local financial background was stable – so they could plan to buy resources or machines and hire the staff to create the outputs needed by their local value chain. If the financial systems were unsteady then the SME performance in general would be hampered and unduly restrained. Above all, the meeting noted, trust between parties was to be applauded. Trust is the lubricant of politics and commerce – but as Transparency International has noted, globally we trust less.

This is bad, as we need to be able to trust in the Big as well as the Small. In the latter we are close to the other people of our circle; but in the Big we have no idea who is managing our lives. And is the manager really human? In the globally connected digitally managed financial system we rely on computer software – not only for simple cash transfers, but also in micro-managing investments by the millisecond: can we really trust computers or the humans who created and tested the software? As Kurt Godel said in 1929 ‘… in any formal system of axioms there exists statements for which it is not possible to prove them true or false’. Thus we insist, we have to trust… And so we really need free-market capitalism that puts consumers and small businesses in charge. This allows them to plan their future; it encourages investment as well as spending, and it rejects debt piled on debt.

Presently, we observe both the continuation of the Arab Spring, and a growing global disgust of Big Government and the ‘too-large’ salaries of bankers even in countries that do not readily allow demonstrations – in South America, the Middle East and in Asia; and also in developed nations such as the US, the UK and across Europe. The demonstrators against ‘Big’ are an eclectic mix of students and professors, housewives and businessmen who protest at the level of taxes demanded by their governments, against the austerity inflicted on the people by their governments, or against the loss of jobs in the private and public sector. We all see the failure of investments by government on our behalf and what we are close to demanding is less, even zero, direct taxation. We would then, as individuals, assess the risk we might be willing to take in self-managing our money – we could save (and private investors might do our risk management for us), we could spend it (so enhancing growth everywhere), or we could keep it as cash (under the bed, which may not be too bad an idea sometimes). Even so, we must accept that globally we are all interconnected though Big and Small infrastructures, and we must also accept that some managers will receive large salaries. But they too must be transparent, respectful and not greedy.

We believe we cannot return absolutely to ‘Small is Beautiful’ as that won´t work for the masses in our megacities; we have to accept a mix of Big and Small infrastructures. What we need is a speedy return to low taxes and to educate all how to work in a free-market economy so individuals take on the responsibility for their own risk management. It may come as no surprise that the poor in the megacity microcosms work in a free-market economy, often by bartering their skills as they have little money to enter the real market. They have never left the ‘Small’ but it is local, and sadly for them it is not beautiful.

Frank-Jürgen Richter is founder and chairman of Horasis that hosts the annual Global Arab Business Meeting.