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INAUGURAL PROFESSORIAL LECTURE AN INQUIRY INTO THE CAUSES AND COSTS OF ECONOMIC GROWTH: WHAT POLICY MAKERS OF TODAY CAN LEARN FROM THE MUQADDIMAH OF IBN.

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Presentation on theme: "INAUGURAL PROFESSORIAL LECTURE AN INQUIRY INTO THE CAUSES AND COSTS OF ECONOMIC GROWTH: WHAT POLICY MAKERS OF TODAY CAN LEARN FROM THE MUQADDIMAH OF IBN."— Presentation transcript:

1 INAUGURAL PROFESSORIAL LECTURE AN INQUIRY INTO THE CAUSES AND COSTS OF ECONOMIC GROWTH: WHAT POLICY MAKERS OF TODAY CAN LEARN FROM THE MUQADDIMAH OF IBN KHALDUN Prof. Dr. Syed Omar Syed Agil Razak School of Government

2 INTRODUCTION Economic growth has been a subject of debate and controversy in the history of western economics. Research on economic growth has increased tremendously in the past decade. However, we are also seeing economic welfare declining globally. Governments and business find that the current economic path is environmentally unsustainable.

3 To elucidate the theory of economic growth and costs of economic growth in the Muqaddimah To set the record straight on the contribution of Ibn Khaldun to the theory of economic growth and costs of economic growth To contribute to the existing literature on the theory of economic growth and costs of economic growth from the perspective of Ibn Khaldun Remember, You and I are here “to learn from each other” OBJECTIVES OF THIS LECTURE

4 ECONOMIC GROWTH PARADIGM Economic growth is measured by real rate of growth in a country's total output of goods and services or real GDP.Economic growth is measured by real rate of growth in a country's total output of goods and services or real GDP. The paradigm states that the pursuit of economic growth is a sole measure of national successThe paradigm states that the pursuit of economic growth is a sole measure of national success The western economic growth theories evolved from Mercantilism, Physiocrates, Classical economics, Keynesians, Neoclassical to modern theories. Literature on the Benefits and costs of economic growth(environment, global warming, consumerism, inflation, inequality)

5 BENEFIT S OF ECONOMIC GROWTH IN WESTERN LITERATURE

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7 J. Mishan (1967, 1977) in his book The Costs of Economic Growth The Club of Rom in The Limits to Growth (1972) Herman Daly (1997) Uneconomic Growth Robinson (1972) Absolute Poverty E.F. Schumacher (1973), and Kenneth Boulding (1966) Environmental Degradation THE COSTS OF ECONOMIC GROWTH IN WESTERN LITERATURE

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9 A DIVERGENCE OF THE GPI AND GDP WOULD SUGGEST THAT ECONOMIC GROWTH IS COMING AT THE EXPENSE OF OTHER CONTRIBUTORS TO WELL-BEING, SUCH AS ENVIRONMENTAL QUALITY OR LEISURE TIME ECONOMIC GROWTH ECONOMIC GROWTH

10 Report published by the State Environmental Protection Agency (SEPA) and the National Bureau of Statistics (NBS) re-examines China’s 2004 GDP, estimating that pollution cost the country billion yuan (US$64 billion) in economic losses that year, or 3.05 percent of 2004’s total economic outputSEPANBS

11 INITIATIVES RESULTED FROM THE NEGATIVE EFFECTS OF ECONOMIC GROWTH The World Conservation Strategy (1980) The World Commission on Environment and Development (WCED) - (1987) The Human Development Report (HDR) (1990): The (ISEW) and (GPI) consider the impact of economic activity on the environment. Agenda 21, the Rio Declaration on Environment and Development European Commission (2001) discussed A European Strategy for Sustainable Development.

12 QUICK SURVEY QUICK SURVEY How many of you have heard OR read about Ibn Khaldun? How many of you have heard OR read about Ibn Khaldun?

13 Born in 1332 in Tunis, North Africa and died in 1406 in Egypt. An outstanding 14 th century scholar in various branches of knowledge including philosophy of history, historiography, education, political economy and sociology. He came from an aristocratic family of scholars. He studied both religious and philosophical sciences at an early age. A renowned public administrator and a Professor dedicated to teaching and research. WHO WAS IBN KHALDUN?

14 POLITICAL CONDITIONS The Islamic empire was in the stage of senility The Islamic empire was in the stage of senility Internal threats due the political upheavals and fragmentation within the Islamic empire Internal threats due the political upheavals and fragmentation within the Islamic empire Several rival dynasties emerged on the North African coast. Several rival dynasties emerged on the North African coast. External threats due to the encroachment of the Mongols and the Christians External threats due to the encroachment of the Mongols and the Christians

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16 ISLAM AND TRADE IN NORTH AFRICE Islam came to North Africa when the Arabs from Arabia conquered Egypt and later Spain. Islam came to North Africa when the Arabs from Arabia conquered Egypt and later Spain. From 8 th to 9 th century, the Spanish Muslim traders converted the North Africans to Islam. From 8 th to 9 th century, the Spanish Muslim traders converted the North Africans to Islam. From North Africa, the Arabs spread Islam to West African states through the salt-gold trade network. From North Africa, the Arabs spread Islam to West African states through the salt-gold trade network. Trade in Africa flourish with the advent of Islam which triggered the process of urbanization. Trade in Africa flourish with the advent of Islam which triggered the process of urbanization. Europe was a trading partner of Africa as they required gold, the high quality textile and steel from Africa Europe was a trading partner of Africa as they required gold, the high quality textile and steel from Africa Tunis became a well known trading and learning centre Tunis became a well known trading and learning centre

17 Muslim traders from North Africa shipped goods across the Sahara desert using large camel caravans -- on average around a thousand camels. Muslim traders from North Africa shipped goods across the Sahara desert using large camel caravans -- on average around a thousand camels. Caravan leaders and religious teachers spread political, religious, and societal values to the people along the trade routes Caravan leaders and religious teachers spread political, religious, and societal values to the people along the trade routes They brought in mainly luxury goods such as textiles, silks, beads, ceramics, ornamental weapons, and utensils. These were traded for gold, ivory, woods such as ebony, and agricultural products They brought in mainly luxury goods such as textiles, silks, beads, ceramics, ornamental weapons, and utensils. These were traded for gold, ivory, woods such as ebony, and agricultural products

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19 From Hadramaut, Yemen To Egypt

20 WHAT DID HE WRITE? Kitab Al-Ibar-The Book of History which consists of 7 Volumes The Muqaddimah or also known as the Prolegomena is the first volume and it is the introduction to Kitab Al Ibar The Prolegomena alone contains more than 1,500 pages and it was written in just 5 months He also wrote his own biography or Al-Taarif bi Ibn Khaldun.

21 KITAB AL- IBAR SEVEN VOLUMES The MUQADDIMAH First Volume HIS LIFE AND EXPERIENCES Al-Taarif bi Ibn Khaldun

22 WHAT ARE HIS GENERAL CONTRIBUTIONS? 1.A precursor and forerunner of modern historiography, economics, sociology, education and political theories. 2.He studies the rise and decline of nations based on empirical and rational nature of inquiry 3.He was the first to develop a scientific approach to the study of human behavior, society and history 4.He discovers the theory of human social development

23 GENERAL CONTRIBUTIONS FATHER OF SOCIOLOGY HISTORY AS A SCIENCE POLITICAL ECONOMY

24 WHAT THE WEST SAY ABOUT IBN KHALDUN? In more than 1,000 years between the times of the philosopher Aristotle in ancient Greece and the writer Machiavelli in Renaissance Italy, the most preeminent social scientist was a Muslim Arab scholar named Ibn Khaldun. He was a historian, philosopher of history, and sociologist, much of whose life was devoted to public service and teaching (Encyclopedia Britannica)

25 It is true that Tacitus and Thucydides lay much of the groundwork of the science of society. However, it is Ibn Khaldun who makes the headway in turning the study of society and history into a scientific endeavor. If Thucydides is the inventor of history, Ibn Khaldun introduces history as a science(Lakoste)

26 After reading through a small piece of Khaldun's work, I have to admit I am awed by the man's genius. How could I have spent so much of my life in politics without being led to him before?.....Ibn Khaldun is not an Arab neo- Platonist, as his world view subsumes theirs and is an original one not previously expressed in the world. This singular breakthrough not only is awesome, but practically evidence of divine inspiration (Jude Wanniski, Supply Side Economist )

27 In his chosen field of intellectual activity he appears to have been inspired by no predecessors, and to have found no kindred souls among his contemporaries, and to have kindled no answering spark of inspiration in any successor; and yet, in the Prolegomena (Muqaddimah) to his Universal History he has conceived and formulated a philosophy of history which is undoubtedly the greatest of its kind that has ever yet been created by any mind in any time or place (Arnold Toynbee, British Historian)

28 WHY DID HE WRITE THE MUQADDMAH? THE RAISON D‘ETRE Changing circumstances (changing composition of the population, pandemic) Errors made by past historians (the internal and external meaning of history) It gave him the opportunity to write history in a different way.

29 RAISON D`ETRE CHANGING SOCIAL, ECONOMIC AND POLITICAL CIRCUMSTANCES ERRORS MADE BY PAST HISTORIANS INTERNAL MEANING OF HISTORY

30 KUALA LUMPUR IN THE 1880s- A SWAMPY AREA

31 KUALA LUMPUR 120 YEARS LATER

32 From swampy to rapid development and growth and now the side effects of growth.

33 THE KHALDUNIAN MIND What Shapes it What Shapes it His View of the World His View of the World Theory of Man and Society Theory of Man and Society

34 WHAT SHAPES THE KHALDUNIAN MIND His dual education in religious sciences and philosophical sciences His dual education in religious sciences and philosophical sciences His experiences as a public administrator and teacher His experiences as a public administrator and teacher The trials and tribulations The trials and tribulations The political, economic and social realities of his time. The political, economic and social realities of his time. The Muqaddimah is a reflection of these events and his experiences. The Muqaddimah is a reflection of these events and his experiences.

35 PRINCIPLE OF CAUSALITY Ibn Khaldun believes there are nexus between events. Ibn Khaldun believes there are nexus between events. There are similar patterns in the past, the present and the future. There are similar patterns in the past, the present and the future. Use inductive and deductive methods to derive economic theories and laws which he finds govern economic and social phenomena. Use inductive and deductive methods to derive economic theories and laws which he finds govern economic and social phenomena.

36 INTERRELATIONSHIPS IN THE MULTITUDE OF FACTORS He believes in the interrelationships between economic, social, political, psychological and religious factors. They are inseparable and an economic problem is a result of a economic and non economic factors. We cannot understand economic phenomena merely by economic factors alone.

37 Is More Better Than Less? There is a fundamental notion in economics that more is better than less There is a fundamental notion in economics that more is better than less Ibn Khaldun disagrees with this. Ibn Khaldun disagrees with this. At one point more of anything will cause detrimental effects on man, society and environment. At one point more of anything will cause detrimental effects on man, society and environment.

38 His View of Man He began his analysis of economic growth by looking at the 4 qualities of man He began his analysis of economic growth by looking at the 4 qualities of man Ability to think. Ability to think. Natural need for leadership Natural need for leadership Economic ways of living Economic ways of living Natural need for society, cities and civilizations Natural need for society, cities and civilizations

39 MAN SPIRITUAL BEING ECONOMIC BEING PHYSICAL BEING POLITICAL BEING SOCIAL BEING INTELLIGENT BEING

40 MAN AND HABITS A trait or quality as a result of doing things repeatedly. A trait or quality as a result of doing things repeatedly. Habits in knowledge and skills result in higher quality of human capital and goods. Habits in knowledge and skills result in higher quality of human capital and goods. It is bad when it comes to excessive luxury or blameworthy qualities It is bad when it comes to excessive luxury or blameworthy qualities It will be difficult to get rid of it even though it has detrimental effects on the society and the environment. It will be difficult to get rid of it even though it has detrimental effects on the society and the environment.

41 SOCIETY Man needs society to obtain his basic needs and wants Man needs society to obtain his basic needs and wants Society needs leadership and the spirit of solidarity to achieve prosperity and growth. Society needs leadership and the spirit of solidarity to achieve prosperity and growth. He differentiates the rural and urban societies. He differentiates the rural and urban societies. Society behaves like an organism and introduce the life-cycle theory of society, leadership and civilization. Society behaves like an organism and introduce the life-cycle theory of society, leadership and civilization.

42 Birth of New Society GrowthPeakDeclineDissolution

43 IBN KHALDUN’S CONTRIBUTION TO THE THEORY OF ECONOMIC GROWTH CREATEGROWTHPEAKDECLINE DISAPPEAR

44 ECONOMIC GROWTH POPULATION GOVERNMENT IDEAS AND TECHNOLOGY HUMAN CAPITAL TRADE PRIVATE SPENDING JUSTICE AND ECONOMIC FREEDOM RELIGION

45 LIFE CYCLE THEORY AND ECONOMIC GROWTH Ibn Khaldun suggests a life cycle theory of society. Due to 2008 financial crisis, some contemporary western economists are now talking about cellular economic theory. Business behaves according to the nature of living things that goes through the cycle of birth, growth and death.

46  We know intuitively and logically that continuous growth can't be sustained in living things. It's likewise unsustainable (and undesirable) in business. Cellular economic theory suggests an alternative to linear growth: circular growth. `We are realizing all systems are like biological systems--even economic ones. Growth-at-all-costs business is malignant’ (Stalnaker, Stan(2009). The Next Evolution in Economics: Rethinking Growth, Harvard Business Review.)

47 INDUSTRY LIFE CYCLE Gort and Klepper (1982) defined five life cycle stages: Introductory stage Growth stage Maturity stage Shakeout stage Decline stage (http://bear.warrington.ufl.edu/dickinson/Dickinson_ Working_Paper.pdf)http://bear.warrington.ufl.edu/dickinson/Dickinson_ Working_Paper.pdf

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49 PRODUCT LIFE CYCLE The stages through which individual products develop over time. The classic product life cycle has four stages: introduction; growth; maturity and decline.

50 Product Life Cycle Theory

51 Time Size StartupGrowth Maturity Renewal or Decline Corporate Entrepreneurship Stages of Firm Growth (Life cycle theory) (Taken from the lecture slides conducted by Prof. Rice in the Babson College entrepreneurship workshop collaboration with UNITAR

52 BUSINESS CYCLES Economic activity fluctuates in business cycles in every society with contractions and expansions representing short-term changes

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54 LIFE CYCLE HYPOTHESIS Franco Modigliani (1954,1980) received his Nobel price in economics due to his contribution in the development of the life cycle theory of savings.

55 MEMORABLE COMPANIES THAT VANISHED: REAL WORLD 16 year old Enron, 233 year old Barings Bank, 150 year old Lehman Brothers, 85 year old financial power house Bear Stearns, 33 year old American Motors Corporation(AMC), 129 year Montgomery Ward, 64 year old Pan Am, 41 year Standard Oil, 23 year old WorldCom, 89 year old Arthur Anderson, 71 year old TWA, 20 year old Compaq.

56 Why Great Companies Have Disappeared - Consider Firestone articles/why-great-companies-have- disappeared-consider-firestone html Companies that will disappear in that/

57 LABOR AND ECONOMIC GROWTH He considers labor as a source of economic growth. He considers labor as a source of economic growth. Division of labor creates economic surplus and wealth (does this ring a bell?) Division of labor creates economic surplus and wealth (does this ring a bell?) He outlines the labor theory of value in which value of a product is based on the amount of labor embodied in it or needed to produce it. He outlines the labor theory of value in which value of a product is based on the amount of labor embodied in it or needed to produce it.

58 POPULATION AND ECONOMIC GROWTH Ibn Khaldun finds that population is a cause and effect of economic growth. Ibn Khaldun finds that population is a cause and effect of economic growth. The Dual Sector Model(Lewis, 1954) in which rural-urban migration cause an increase in population and economic growth. The Dual Sector Model(Lewis, 1954) in which rural-urban migration cause an increase in population and economic growth. Ibn Khaldun’s findings show that initially higher population results in higher economic growth but eventually beyond a certain level higher population cause lower economic growth due to the social costs. Ibn Khaldun’s findings show that initially higher population results in higher economic growth but eventually beyond a certain level higher population cause lower economic growth due to the social costs.

59 Meier(1995), Becker, Glaeser, and Murphy(1999), Dawson and Tiffin (1998), Thornton (2001), Easterlin (1967); Thirlwall (1972); Simon (1992); Kelley and Schmidt (1996); Ahlburg (1996), Fumitaka(2005), Zhang and Li(2007), Savas (2008), Habtu(2003) Meier(1995), Becker, Glaeser, and Murphy(1999), Dawson and Tiffin (1998), Thornton (2001), Easterlin (1967); Thirlwall (1972); Simon (1992); Kelley and Schmidt (1996); Ahlburg (1996), Fumitaka(2005), Zhang and Li(2007), Savas (2008), Habtu(2003) Malthus(1798), Steinmann and Komlos(1987), Simon-Steinmann Economic Growth Model(1984) Malthus(1798), Steinmann and Komlos(1987), Simon-Steinmann Economic Growth Model(1984) This model states that an increase in total population would lead to increase in technology and innovation and yield a greater per-capita income. This model states that an increase in total population would lead to increase in technology and innovation and yield a greater per-capita income.

60 POPULATION ECONOMIC GROWTH POPULATION GROWTH SOCIAL COSTS LIMIT TO ECONOMIC GROWTH

61 NATIONS WITH HIGH POPULATION AND ECONOMIC GROWTH IN THE MUQADDIMAH

62 DOES RELIGION RESULTS IN ECONOMIC DECLINE? Ibn Khaldun says Definitely No! Ibn Khaldun says Definitely No! In fact religion stimulates economic growth. In fact religion stimulates economic growth. Africa became the world’s largest trading centre in the 14 th century after the advent of Islam. Africa became the world’s largest trading centre in the 14 th century after the advent of Islam.

63 HOW RELIGION SPURS GROWTH? religion prohibits unjust policies and thus provides incentives for business activities, creates growth and increase tax revenue religion introduces public policies conducive for business activities to flourish, provides economic freedom and macroeconomic stability. religion develops good character in man, enhance solidarity to pursue a common goal for political stability and economic growth. religion can influence the cyclic process of economic growth and decline by nurturing good men and good leaders who practice good governance and protect public interest

64 Guiso et al. (2003), His findings support the thesis by Max Weber(1904) and the recent empirical studies by Barro and McCleary (2003), Noland(2005), Osoba(2008), Khan and Bashar(2008), Blum and Dudley(2001), Guiso et al. (2003),Grier (1997) that there is a positive relationship between religion and economic growth. In fact Noland(2005) using multivariate analysis finds that Islam promotes economic growth.

65 GOVERNMENT SPENDING, TAXES ECONOMIC GROWTH Economic growth depends on the type of political leadership, size of the government and economic freedom. Economic growth depends on the type of political leadership, size of the government and economic freedom. Leadership or government plays an important role in affecting the economic conditions of a city or nation. Leadership or government plays an important role in affecting the economic conditions of a city or nation. Religious government establishes justice and safeguard public interest creating incentive for business and entrepreneurial activities compared to rational politics.

66 Excessive public spending is the cause of bad public policies. Excessive public spending is the cause of bad public policies. Policy to introduce higher taxes will discourage commercial and entrepreneurial activities, reducing the tax base and tax revenue. Policy to introduce higher taxes will discourage commercial and entrepreneurial activities, reducing the tax base and tax revenue. Policy that allow governments to get involve in business activities will create unfair competition with private sector. Policy that allow governments to get involve in business activities will create unfair competition with private sector. He suggests moderate government spending, moderate taxes and other business friendly public policies to promote growth and increase government revenue. He suggests moderate government spending, moderate taxes and other business friendly public policies to promote growth and increase government revenue.

67 The Heritage Foundation and the Wall Street Journal created the Index of Economic Freedom in 1995, Hanke and Walters (1997), Goldsmith (1997Heckelman(2000), Altman(2007) find that there is a positive relationship between economic freedom and economic growth.Heritage FoundationWall Street Journal States that have lower taxes, smaller government and flexible labor markets tend to have comparatively more economic growth( 2006 annual report from the National Center for Policy Analysis (NCPA) and Canada's Fraser Institute

68 ADAM SMITH OR KEYNES Although Ibn Khaldun(1377) like Adam Smith(1776) believes that economic freedom is a necessary condition to foster business activities, like Keynes, he also believes that government spending is necessary to promote growth and macroeconomic stability. Government presence should not be too large at the expense of private businesses and entrepreneurial activities.

69 Inverted U shaped relationship between size of the government and economic growth (The Rahn Curve) Inverted U shaped relationship between size of the government and economic growth (The Rahn Curve) Inverted U shaped relationship between taxes and economic growth (The Laffer Curve) Inverted U shaped relationship between taxes and economic growth (The Laffer Curve) Moderate taxes and public spending for optimal economic growth. Moderate taxes and public spending for optimal economic growth.

70 Ibn Khaldun(1377), Arthur Laffer(1974), Jude Wanniski(1978) believe that the relationship between tax rate and tax revenue is an inverted U shape curve

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72 LEADERSHIP, MOTIVATION AND ECONOMIC GROWTH In other words Ibn Khaldun believes there is a significant relationship between political leadership, motivation and economic growth. Leadership and government should introduce polices that enhance the motivation of individuals and businesses to promote growth.

73 Recent empirical analysis suggests that individual national leaders can have large impacts on economic growth(Jones, Benjamin F(2009), Menon, Sudha (2007), Zainal Aznam Yusof, Deepak Bhattasali(2008), Stimson, Stough, Salazar(2009)

74 IST STAGE POLITICAL LEADERSHIP COMING TO POWER AND ECONOMIC IMPLICATIONS 2ND STAGE POLITICAL LEADERSHIP AND ECONOMIC IMPLICATIONS 3RD STAGE POLITICAL LEADERSHIP AND ECONOMIC IMPLICTIONS 4TH STAGE POLITICAL LEADERSHIP AND ECONOMIC IMPLICATIONS 5TH STAGE POLITICAL LEADERSHIP INDULGE IN EXCESSIVE SPENDING LEADING TO MORAL, ECONOMIC AND POLITICAL DECLINE

75 AMERICAN ECONOMIST JAMES GWARTNEY SHOWED THE HIGHER THE LEVEL OF TAXATION AND SIZE OF GOVERNMENT THE LOWER THE GROWTH RATE

76 Arthur Laffer himself admitted that it was Ibn Khaldun who first introduced this idea of the inverted U shaped relationship between tax rates and tax revenue (Laffer, 2004). Laffer attempted to proof the validity of this theory of Ibn Khaldun by citing examples in US history: During the 20 th century, the U.S. had three major period of tax-rate cuts: the Harding/ Coolidge cuts of the mid-1920s, the Kennedy cuts of the mid-1960s, and the Reagan cuts of the early 1980s. Each of these periods of tax cuts was remarkably successful in terms of virtually any public policy metric (The Laffer Curve, Thinking Economically).

77 A 2009 study by Harvard economists suggest that taxes and spending should be cut to spur economic growth and reduce deficits.(Alberto Alesina and Silvia Ardagna, 2009). They argued that fiscal stimuli based upon tax cuts are more likely to increase growth than those based upon spending increase.

78 RAHN CURVE Rahn Curve is an economic theory, developed by Richard Rahn supported by empirical analysis which says there is a level of government spending which maximizes economic growth.economic theoryRichard Rahn

79 The “Rahn Curve” relationship is similar to the “Laffer Curve” relationship between tax rates and tax revenue.

80 IBN KHALDUN, LAFFER CURVE AND RAHN CURVE Laffer Curve and the Rahn Curve are consistent with the views of Ibn Khaldun which suggests that there is an optimal level of government spending and tax rate which maximizes the rate of economic growth.

81 POLITICAL STABILITY AND ECONOMIC GROWTH Ibn Khaldun finds that one of the causes of economic downturn is political instability. He believes that political stability creates a conducive environment for business to flourish, create employment opportunities and migration into the cities which increase demand and stimulate economic growth.

82 Younis, Lin, Sharahili, Selvarathinam(2008) found that there is a positive relationship between political stability and economic growth in Asia. A study by Feng Yi(1997) indicates a positive relationship between political stability and economic growth.

83 INTERNATIONAL TRADE AND ECONOMIC GROWTH During his time, North Africa was in a global trade business. He cited nations like China, Egypt, Syria and India which were prosperous and achieve economic growth because of international trade He suggest ways to become a successful global trader including finding new markets even though it may be riskier.

84 IDEAS AND ECONOMIC GROWTH Role of ideas, education and learning by doing in economic growth Role of ideas, education and learning by doing in economic growth With his ability to think, interactions, constant practice and habits, man is able to find new ways of doing things resulting in higher economic growth. With his ability to think, interactions, constant practice and habits, man is able to find new ways of doing things resulting in higher economic growth. He traces the evolution of the various industries and skills known to man during his time and how these industries emerged and transformed as new ideas and technology were gradually introduced.

85 IBN KHALDUN AND THE RELATIONSHIP BETWEEN EDUCATION, IDEAS AND ECONOMIC GROWTH education, constant practice and learning result in expertise, new ideas and development of human capital, technology and high quality goods development and evolution of the various industries, skills and economic activities

86 Ibn Khaldun’s theory is consistent with the findings of Paul Romer with his Economics of Ideas and Robert Lucas with his Learning by Doing

87 COSTS OF ECONOMIC GROWTH CONGESTION POLLUTION EPIDEMIC INFLATION UNEMPLOYMENT POVERTY CORRUPTION CRIME MIGRATION

88 COSTS OF ECONOMIC GROWTH LACK OF SOLIDARITY, POLITICAL INSTABILITY DECREASE IN REVENUES POPULATION GROWTH, HIGH PRICES POLLUTION EPIDEMIC INFLATIO N CONGESTION POVERTY UNEMPLOYMENT AND MIGRATION MORAL DECLINE, CRIME AND CORRUPTION

89 HABITS AND COSTS OF ECONOMIC GROWTH High economic growth results in excessive spending leading to luxury habits and conspicuous consumption Difficulties to get rid of the habits Spending exceeds income Inflation, corruption, crime, poverty, unemployment, environmental degradation

90 ECONOMICS AND LIMITS TO GROWTH Dennis Meadows, MIT Professor. What caused the environmental degradation and global warming affecting us today ? HABITS. ZU

91 ECONOMIC CONTRACTION, UNEMPLOYMENT AND MIGRATION DECLINE IN PRIVATE SPENDING EXCESSIVE SPENDING AND INFLATION ECONOMIC GROWTH POPULATION GROWTH BUSINESS AND JOB OPPORTUNITIESGOOD GOVERNMENT AND PUBLIC POLICY

92 RURAL necessities morality solidarity URBAN comfort and luxuries LUXURY HABITS, EXCESSIVE SPENDING, GREED AND LOVE OF POWER COSTS OF ECONOMIC GROWTH

93 HUMAN NATURE, ECONOMIC GROWTH AND BEHAVIOUR DIVISION OF LABOUR AND SPECIALIZATION Division of labor, creates economic surplus, production of conveniences and luxuries, generates wealth and spur growth Labor as a source of profit and capital accumulation EMERGENCE OF TWO DIFFERENT SOCIETIES the hard living Bedouin society with the features of rural culture the easy and affluent living of the sedentary society having the characteristics of city dwellers THE DECLINE IN HUMAN CIVILIZATION Due to the exposure to luxury, human nature unleashes the elements of greed and love of power that weakens the human soul, solidarity and eventually leads to the decline in political and economic power of nations and cities.

94 … when people become more prosperous, they move from consuming necessities to conveniences to luxuries. Eventually, they reach a point where consuming more brings trivial benefits … (Seigel, 2006 ).

95 huma nature and ability to think human society and organization and leadership division of laborexchange wealth creation and economic growth population growth higher demand and supply of products and inputs Higher Wages necessities to comforts to luxuries higher quality of products and inputs through improved methods and technology higher prices for goods and inputs Luxury habits and conspicuous consumption inequalities of income, poverty, corruption, unemployment, migration and lower economic growth

96 WHAT POLICY MAKERS CAN LEARN FROM THE MUQADDIMAH Determinants of economic growth as propounded by Ibn Khaldun are the combination of the Classical, Neo Classical, Keynesian and New Growth Models. Ibn Khaldun’ s Growth Theory also includes the Rahn Curve, Laffer Curve and life cycle theory which are not emphasized by western economic growth models. Fiscal policy should therefore consider these findings in proposing the optimal combination of taxes and government spending as suggested by Ibn Khaldun. The role of religion, ethical leadership and good governance to stimulate growth

97 However, he sees the relationship between economic growth and costs of economic growth. That relationship stems from the presence of luxury habits and excessive spending by the government and the consumers. Excessive spending by the government causes budget deficit and the introduction of bad policies to finance the deficit resulting in economic contraction. Excessive spending by the consumers may lead to inflation and eventually lower spending and lower economic growth.

98 He suggests business friendly public policies based on economic freedom, justice, public interest and fairness to spur economic growth. Due to the exposure to excessive luxury resulting in luxury habits, human nature unleashes the elements of greed and love of power that weakens the human soul and solidarity and the emergence of unethical behavior

99 Self interest, greed, the lack of solidarity and the decay in the spirit of common good due to luxury habits can cause a decline in economic and political power of nations and cities. There is a need to address these issues through the use of religious and spiritual methods so that the members of the society share the common goals of nation building, protecting public interest and human welfare. GDP should not be the only criteria for human welfare. Economic growth paradigm should be revisited.

100 The economic system is a part of a larger ecological system and they are interdependent and interwoven. Economic system is connected to the ethical, environmental, social and political systems. Therefore policy makers also should consider the effects of an economic decision on other subsystems to reduce the costs of economic growth and slows down the limit to growth.

101 Ibn Khaldun finds that ideas, human capital, innovation and technology are important for economic expansion although the limit to growth is inevitable. Ibn Khaldun focuses on man’s ability to think as an impetus to growth. Therefore intellectual development has to be nurtured in various ways including education, freedom of expression, intellectual network and discourses, and commercial exchanges and network.

102 THAILAND ECONOMIC MODEL: SUFFICIENCY ECONOMICS Focus on sustainable profit, moderation, avoid indulging in overconsumption, ethical approach to business, role of government in alleviating poverty and guiding macroeconomic policies, careful risk management, mental and spiritual development. Raising ethical standards for economic management, getting rid of conflicts of interest and introduce transparency. This economic model was endorsed by United Nation's main development agency(UNDP)

103 FINANCIAL CRISIS Ibn Khaldun’s view: As a result of luxury habits, man is transformed from a moral individual seeking common good to a self interest economic man indulge in excessive spending causing corruption, unethical behavior, financial and economic crisis. Non economic factors affect the economy. We have to differentiate between the root cause and the symptoms.

104 ROOT CAUSE OF THE ECONOMIC CRISIS The economic and financial crisis that have affected the global community is partly due to self interest and greed which characterized the capitalist economic system. This include the 1997 Asian Financial Crisis and the recent 2008 Global Economic Meltdown.

105 ….the nation's current economic crisis was not the result of chance but the result of greed…..there is plenty of blame to go around, from greedy Wall Street executives who made dangerous decisions to lax regulators to banks that did not take into consideration whether borrowers could make good on their loans to consumers who took advantage of easy credit to take out mortgages they could not afford. "Reckless greed and risk taking … must never endanger our prosperity again," (Barack Obama in a speech at George Mason University in Fairfax, Va)

106 “International financial crises, I might even say domestic financial crises, are built into the human genome. When we map the whole thing, we will find something there called greed and something called fear and something called hubris. That is all you need to produce international financial crises in the future. I have not seen anything to raise any doubts about that.” (Paul Volcker (1999), former Chairman of the Federal Reserve Board, referring to the Asian Financial Crisis in 1998, ) “International financial crises, I might even say domestic financial crises, are built into the human genome. When we map the whole thing, we will find something there called greed and something called fear and something called hubris. That is all you need to produce international financial crises in the future. I have not seen anything to raise any doubts about that.” (Paul Volcker (1999), former Chairman of the Federal Reserve Board, referring to the Asian Financial Crisis in 1998, )

107 For us urban dwellers and the so called modern man, Ibn Khaldun asks Why the demand for physicians is higher in the urban areas than rural areas? Abundance of food Poor air quality Lack of exercise

108 ABUNDANCE OF FOOD

109 POOR AIR QUALITY

110

111 RUBBISH AND POLLUTION

112 ROTTEN FOOD AND POLLUTION

113 LACK OF EXERCISE

114 IBN KHALDUN’S IDEAS ON ECONOMIC GROWTH. More growth may lead to social costs More growth may lead to social costs Excessive spending and luxury habits may cause unethical and immoral behavior, inflation, unemployment, poverty and environmental degradation. Excessive spending and luxury habits may cause unethical and immoral behavior, inflation, unemployment, poverty and environmental degradation. Higher taxes may lead to lower economic growth and tax revenue(Laffer Curve) Higher taxes may lead to lower economic growth and tax revenue(Laffer Curve) Higher government spending may reduce private business activities, economic growth and revenue(Rahn Curve) Higher government spending may reduce private business activities, economic growth and revenue(Rahn Curve)


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