Small is beautiful – the market structure best suited to produce development at “human scale”: empirical evidence

Abstract

Our study, using statistical methods, provides empirical evidence to support the hypothesis that in order to get as close as possible to “human scale development”, as proposed by Max-Neef and colleagues in 1986 (English version 1991), we need to get as close as possible to the microeconomic ideal of so-called perfect competition, a situation in which many small and medium-sized enterprises compete with each other, while the GDP growth rate does not seem to be directly related to development. The ideal of “perfect competition” is part of the repertoire of classical economic theory. Few adherents of classical economic theory manage to build a bridge between economic theory and wellbeing when wellbeing is defined in terms of fundamental human needs, as Max-Neef & colleagues have done in their Human Scale Development approach. On the other hand, the adherents of Max Neef’s theory would, at first sight, usually not agree with the assumption, proven in our paper, that competitive markets are a way to get closer to human scale development, i.e. development where people can best satisfy fundamental human needs. Our paper tries to help bring both positions together.

Keywords

• Human Scale Development Herfindahl-Hirschman-Index
• Cross correlation function
• Augmented Dickey-Fuller Test
• market concentration
• perfect competition
• partial ACF