ProfLecture_1

8/8/2019 ProfLecture_1

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INAUGURAL PROFESSORIAL LECTURE

AN INQUIRY INTO THE

CAUSES AND COSTS OFECONOMIC GROWTH:WHAT POLICY MAKERS OF TODAY CAN

LEARN FROM THE MUQADDIMAH OF IBN

KHALDUN

Prof. Dr. Syed Omar Syed Agil

Razak School of Government


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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 currenteconomic path is environmentally unsustainable.


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To elucidate the theory of economic growth andcosts of economic growth in the Muqaddimah To set the record straight on the contribution of

Ibn Khaldun to the theory of economic growth andcosts of economic growth To contribute to the existing literature on thetheory of economic growth and costs of economicgrowth from the perspective of Ibn Khaldun

Remember, You and I are hereto learn from each other

OBJECTIVES OF THIS LECTUREOBJECTIVES OF THIS LECTURE


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ECONOMIC GROWTHECONOMIC GROWTH

PARADIGMPARADIGM Economic growth is measured by real rate of growth in aEconomic growth is measured by real rate of growth in a

country's total output of goods and services or real GDP.country's total output of goods and services or real GDP.

The paradigm states that the pursuit of economic growthThe paradigm states that the pursuit of economic growth

is a sole measure of national successis 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)


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LITERATURE


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COS S O CO O C G O S


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THE COSTS OF ECONOMIC GROWTH IN WESTERNLITERATURE


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THE COSTS OF ECONOMIC GROWTH IN WESTERNLITERATURE


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A DIVERGENCE OF THE GPI AND GDP WOULD SUGGESTA DIVERGENCE OF THE GPI AND GDP WOULD SUGGEST

THATTHAT ECONOMIC GROWTHECONOMIC GROWTH IS COMING AT THE EXPENSE OFIS COMING AT THE EXPENSE OF

OTHER CONTRIBUTORS TO WELL-BEING, SUCH ASOTHER CONTRIBUTORS TO WELL-BEING, SUCH AS

ENVIRONMENTAL QUALITY OR LEISURE TIMEENVIRONMENTAL QUALITY OR LEISURE TIME
http://www.eoearth.org/article/Economic_growthhttp://www.eoearth.org/article/Economic_growthhttp://www.eoearth.org/article/Economic_growth


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Report published by the State

Environmental Protection Agency (SEPA

) and the National Bureau of Statistics (

NBS) re-examines Chinas 2004 GDP,

estimating that pollution cost the country

511.8 billion yuan (US$64 billion) in

economic losses that year, or 3.05 percent

of 2004s total economic output
http://english.sepa.gov.cn/http://www.stats.gov.cn/english/index.htmhttp://www.stats.gov.cn/english/index.htmhttp://english.sepa.gov.cn/


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INITIATIVES RESULTED FROM THENEGATIVE EFFECTS OF ECONOMICGROWTH


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QUICK SURVEYQUICK SURVEY

How many of youHow many of you

have heard OR readhave heard OR readabout Ibn Khaldun?about Ibn Khaldun?


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Born in 1332 in Tunis, North Africa and died in1406 in Egypt.

An outstanding 14th century scholar in various

branches of knowledge including philosophy of

history, historiography, education, politicaleconomy 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?WHO WAS IBN KHALDUN?


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POLITICAL CONDITIONSPOLITICAL CONDITIONS

The Islamic empire was in the stage ofThe Islamic empire was in the stage ofsenilitysenility

Internal threats due the politicalInternal threats due the political

upheavals and fragmentation withinupheavals and fragmentation withinthe Islamic empirethe Islamic empire

Several rival dynasties emerged on theSeveral rival dynasties emerged on the

North African coast.North African coast.

External threats due to theExternal threats due to the

encroachment of the Mongols and theencroachment of the Mongols and the

ChristiansChristians


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ISLAM AND TRADE IN NORTHISLAM AND TRADE IN NORTH

AFRICEAFRICE Islam came to North Africa when the Arabs from ArabiaIslam came to North Africa when the Arabs from Arabia

conquered Egypt and later Spain.conquered Egypt and later Spain.

From 8From 8thth to 9to 9thth century, the Spanish Muslim traderscentury, the Spanish Muslim traders

converted the North Africans to Islam.converted the North Africans to Islam.

From North Africa, the Arabs spread Islam to West AfricanFrom North Africa, the Arabs spread Islam to West Africanstates through the salt-gold trade network.states through the salt-gold trade network.

Trade in Africa flourish with the advent of Islam whichTrade in Africa flourish with the advent of Islam which

triggered the process of urbanization.triggered the process of urbanization.

Europe was a trading partner of Africa as they requiredEurope was a trading partner of Africa as they required

gold, the high quality textile and steel from Africagold, the high quality textile and steel from Africa

Tunis became a well known trading and learning centreTunis became a well known trading and learning centre


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Muslim traders from North Africa shippedMuslim traders from North Africa shipped

goods across the Sahara desert using largegoods across the Sahara desert using large

camel caravans -- on average around acamel caravans -- on average around athousand camels.thousand camels.

Caravan leaders and religious teachersCaravan leaders and religious teachers

spread political, religious, and societal valuesspread political, religious, and societal values

to the people along the trade routesto the people along the trade routesThey brought in mainly luxury goods such asThey brought in mainly luxury goods such as

textiles, silks, beads, ceramics, ornamentaltextiles, silks, beads, ceramics, ornamental

weapons, and utensils. These were tradedweapons, and utensils. These were traded

for gold, ivory, woods such as ebony, andfor gold, ivory, woods such as ebony, and

agricultural productsagricultural products


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From Hadramaut,

Yemen

To Egypt


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WHAT DID HE WRITE?

Kitab Al-Ibar-The Book of History which consists

of 7 Volumes

The Muqaddimah or also known as theProlegomena 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.


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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


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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, themost preeminent social scientistwas a Muslim

Arab scholar named Ibn Khaldun. He was a

historian, philosopher of history, and

sociologist, much of whose life was devoted topublic service and teaching (Encyclopedia

Britannica)


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It is true that Tacitus and Thucydides lay

much of the groundwork of the science ofsociety. 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)


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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 mylife 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 theworld. This singular breakthrough not only is

awesome, but practically evidence of divine

inspiration (Jude Wanniski, Supply Side

Economist)


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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 UniversalHistory 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 (ArnoldToynbee, British Historian)


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WHY DID HE WRITE THE

MUQADDMAH? THE RAISON DETRE Changing circumstances (changing

composition of the population, pandemic)

Errors made by past historians (the internaland external meaning of history)

It gave him the opportunity to write history

in a different way.


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KUALA LUMPUR IN THE 1880s- A

SWAMPY AREA


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KUALA LUMPUR 120 YEARS LATER


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THE KHALDUNIAN MINDTHE KHALDUNIAN MIND

What Shapes itWhat Shapes it

His View of the WorldHis View of the World

Theory of Man and SocietyTheory of Man and Society


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WHAT SHAPES THE KHALDUNIAN MINDWHAT SHAPES THE KHALDUNIAN MIND

His dual education in religious sciencesHis dual education in religious sciencesand philosophical sciencesand philosophical sciences

His experiences as a publicHis experiences as a public

administrator and teacheradministrator and teacher

The trials and tribulationsThe trials and tribulations

The political, economic and socialThe political, economic and social

realities of his time.realities of his time.

The Muqaddimah is a reflection of theseThe Muqaddimah is a reflection of these

events and his experiences.events and his experiences.

PRINCIPLE OFPRINCIPLE OF


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PRINCIPLE OFPRINCIPLE OF

CAUSALITYCAUSALITY Ibn Khaldun believes there areIbn Khaldun believes there are

nexus between events.nexus between events.

There are similar patterns in theThere are similar patterns in thepast, the present and the future.past, the present and the future.

Use inductive and deductiveUse inductive and deductivemethods to derive economicmethods to derive economictheories and laws which he findstheories and laws which he findsgovern economic and socialgovern economic and socialphenomena.phenomena.


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INTERRELATIONSHIPS IN THE

MULTITUDE OF FACTORS He believes in the interrelationships betweeneconomic, social, political, psychological and

religious factors.

They are inseparable and an economic problem is aresult of a economic and non economic factors.

We cannot understand economic phenomena

merely by economic factors alone.


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Is More Better Than Less?Is More Better Than Less? There is a fundamental There is a fundamental

notion in economics thatnotion in economics thatmore is better than lessmore is better than less

Ibn Khaldun disagreesIbn Khaldun disagrees

with this.with this.

At one point more ofAt one point more of

anything will causeanything will cause

detrimental effects ondetrimental effects on

man, society andman, society and

environment.environment.


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His View of ManHis View of Man

He began his analysis of economicHe began his analysis of economic

growth by looking at the 4 qualitiesgrowth by looking at the 4 qualities

of manof man

Ability to think.Ability to think.

Natural need for leadershipNatural need for leadership

Economic ways of livingEconomic ways of living

Natural need for society, cities andNatural need for society, cities and

civilizationscivilizations


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MAN AND HABITSMAN AND HABITS

A trait or quality as a result of doingA trait or quality as a result of doingthings repeatedly.things repeatedly.

Habits in knowledge and skills result inHabits in knowledge and skills result in

higher quality of human capital andhigher quality of human capital and

goods.goods.

It is bad when it comes to excessiveIt is bad when it comes to excessive

luxury or blameworthy qualitiesluxury or blameworthy qualities

It will be difficult to get rid of it evenIt will be difficult to get rid of it eventhough it has detrimental effects on thethough it has detrimental effects on the

society and the environmentsociety and the environment..


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SOCIETYSOCIETYMan needs society to obtain his basicMan needs society to obtain his basic

needs and wantsneeds and wantsSociety needs leadership and theSociety needs leadership and the

spirit of solidarity to achievespirit of solidarity to achieve

prosperity and growth.prosperity and growth.He differentiates the rural and urbanHe differentiates the rural and urban

societiessocieties..

Society behaves like an organismSociety behaves like an organismand introduce the life-cycle theory ofand introduce the life-cycle theory of

society, leadership and civilization.society, leadership and civilization.


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IBN KHALDUNS CONTRIBUTION TOIBN KHALDUNS CONTRIBUTION TO

THE THEORY OF ECONOMICTHE THEORY OF ECONOMIC

GROWTHGROWTH


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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, growthand death.


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We know intuitively and logically thatcontinuous growth can't be sustained inliving things. It's likewiseunsustainable (and undesirable) inbusiness. Cellular economic theorysuggests an alternative to linear growth:circular growth. `We are realizing allsystems are like biological systems--even

economic ones. Growth-at-all-costsbusiness is malignant (Stalnaker,Stan(2009). The Next Evolution inEconomics: Rethinking Growth, HarvardBusiness Review.)

We know intuitively and logically thatcontinuous growth can't be sustained inliving things. It's likewiseunsustainable (and undesirable) inbusiness. Cellular economic theorysuggests an alternative to linear growth:circular growth. `We are realizing allsystems are like biological systems--even

economic ones. Growth-at-all-costsbusiness is malignant (Stalnaker,Stan(2009). The Next Evolution inEconomics: Rethinking Growth, HarvardBusiness Review.)


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INDUSTRY LIFE CYCLE

Gort and Klepper (1982) defined five life cycle

stages:

Introductory stage

Growth stageMaturity stage

Shakeout stage

Decline stage

(

http://bear.warrington.ufl.edu/dickinson/Dickinson_Working_Pa

)
http://bear.warrington.ufl.edu/dickinson/Dickinson_Working_Paper.pdfhttp://bear.warrington.ufl.edu/dickinson/Dickinson_Working_Paper.pdf


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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.


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Product Life Cycle Theory

Corporate Entrepreneurship


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Time

Size

Startup Growth Maturity Renewal

or Decline

p p p

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


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BUSINESS CYCLES

Economic activityfluctuates in business

cycles in every societywith contractions and

expansions representingshort-term changes


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LIFE CYCLE HYPOTHESIS

Franco Modigliani (1954,1980)

received his Nobel price ineconomics due to his contribution in

the development of the life cycle

theory of savings.


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MEMORABLE COMPANIES THAT

VANISHED: REAL WORLD16 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.

http://money.aol.com/special/companies-that-have-vanished
http://money.aol.com/special/companies-that-have-vanishedhttp://money.aol.com/special/companies-that-have-vanished


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Why Great Companies Have

Disappeared - ConsiderFirestone

http://www.articlesbase.com/management-articles/

Companies that will

disappear in 2009

http://247wallst.com/2008/12/19/companies-that/

LABOR AND ECONOMICLABOR AND ECONOMIC
http://www.articlesbase.com/management-articles/why-great-companies-have-disappeared-consider-firestone-1259809.htmlhttp://247wallst.com/2008/12/19/companies-that/http://247wallst.com/2008/12/19/companies-that/http://www.articlesbase.com/management-articles/why-great-companies-have-disappeared-consider-firestone-1259809.html


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LABOR AND ECONOMICLABOR AND ECONOMIC

GROWTHGROWTHHe considers labor as a source ofHe considers labor as a source of

economic growth.economic growth.

Division of labor creates economicDivision of labor creates economic

surplus and wealth (does this ring asurplus and wealth (does this ring abell?)bell?)

He outlines the labor theory of valueHe outlines the labor theory of value

in which value of a product is basedin which value of a product is basedon the amount of labor embodied inon the amount of labor embodied in

it or needed to produce it.it or needed to produce it.

POPULATION AND ECONOMIC GROWTHPOPULATION AND ECONOMIC GROWTH


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POPULATION AND ECONOMIC GROWTHPOPULATION AND ECONOMIC GROWTH

Ibn Khaldun finds that population is aIbn Khaldun finds that population is a

cause and effect of economic growth.cause and effect of economic growth.The Dual Sector Model(Lewis, 1954) inThe Dual Sector Model(Lewis, 1954) in

which rural-urban migration cause anwhich rural-urban migration cause an

increase in population and economicincrease in population and economicgrowth.growth.

Ibn Khalduns findings show thatIbn Khalduns findings show that

initially higher population results ininitially higher population results in

higher economic growth but eventuallyhigher economic growth but eventually

beyond a certain level higherbeyond a certain level higher

population cause lower economicpopulation cause lower economic

growth due to the social costs.growth due to the social costs.


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Meier(1995),Meier(1995),Becker, Glaeser, andBecker, Glaeser, and

Murphy(1999), Dawson and Tiffin (1998),Murphy(1999), Dawson and Tiffin (1998),

Thornton (2001), Easterlin (1967);Thornton (2001), Easterlin (1967);

Thirlwall (1972); Simon (1992); Kelley andThirlwall (1972); Simon (1992); Kelley andSchmidt (1996); Ahlburg (1996),Schmidt (1996); Ahlburg (1996),

Fumitaka(2005), Zhang and Li(2007),Fumitaka(2005), Zhang and Li(2007),

Savas (2008), Habtu(2003)Savas (2008), Habtu(2003)

Malthus(1798), Steinmann andMalthus(1798), Steinmann andKomlos(1987), Simon-Steinmann EconomicKomlos(1987), Simon-Steinmann Economic

Growth Model(1984)Growth Model(1984)

This modelThis model states that an increase in totalstates that an increase in total

population would lead to increase in technologypopulation would lead to increase in technologyand innovation and yield a greater per-capitaand innovation and yield a greater per-capita

income.income.


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NATIONS WITH HIGH POPULATION


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NATIONS WITH HIGH POPULATIONAND ECONOMIC GROWTH IN THEMUQADDIMAH

DOES RELIGION RESULTS INDOES RELIGION RESULTS IN


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DOES RELIGION RESULTS INDOES RELIGION RESULTS IN

ECONOMIC DECLINE?ECONOMIC DECLINE?

Ibn Khaldun says Definitely No!Ibn Khaldun says Definitely No!

In fact religion stimulates economicIn fact religion stimulates economic

growth.growth.

Africa became the worlds largestAfrica became the worlds largest

trading centre in the 14trading centre in the 14thth centurycentury

after the advent of Islamafter the advent of Islam..


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GROWTH?

His findings support the thesis by Max


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His findings support the thesis by MaxWeber(1904) and the recent empirical studiesby Barro and McCleary (2003), Noland(2005),

Osoba(2008), Khan and Bashar(2008), Blumand Dudley(2001), Guiso et al. (2003),Guiso et al. (2003),Grier(1997) that there is a positive relationshipbetween religion and economic growth. In

fact Noland(2005) using multivariate analysisfinds that Islam promotes economic growth.

GOVERNMENT SPENDING, TAXESGOVERNMENT SPENDING, TAXES


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GOVERNMENT SPENDING, TAXES,

ECONOMIC GROWTHECONOMIC GROWTH

Economic growth depends on the type ofEconomic growth depends on the type of

political leadership, size of the government andpolitical leadership, size of the government and

economic freedom.economic freedom.

Leadership or government plays an importantLeadership or government plays an important

role in affecting the economic conditions of arole in affecting the economic conditions of a

city or nation.city or nation.

Religious government establishes justice andsafeguard public interest creating incentive forbusiness and entrepreneurial activitiescompared to rational politics.


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Excessive public spending is the cause of badExcessive public spending is the cause of bad

public policies.public policies.

Policy to introduce higher taxes will discouragePolicy to introduce higher taxes will discourage

commercial and entrepreneurial activities,commercial and entrepreneurial activities,

reducing the tax base and tax revenue.reducing the tax base and tax revenue.

Policy that allow governments to get involve inPolicy that allow governments to get involve in

business activities will create unfair competitionbusiness activities will create unfair competition

with private sector.with private sector.

He suggests moderate government spending,He suggests moderate government spending,

moderate taxes and other business friendlymoderate taxes and other business friendly

public policies to promote growth and increasepublic policies to promote growth and increase

government revenue.government revenue.


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TheHeritage 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.

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) andCanada's Fraser Institute
http://en.wikipedia.org/wiki/Heritage_Foundationhttp://en.wikipedia.org/wiki/Wall_Street_Journalhttp://en.wikipedia.org/wiki/Wall_Street_Journalhttp://en.wikipedia.org/wiki/Heritage_Foundation


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ADAM SMITH OR KEYNES

Although Ibn Khaldun(1377) like AdamSmith(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 andentrepreneurial activities.


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Ibn Khaldun(1377), ArthurIbn Khaldun(1377), Arthur

Laffer(1974), JudeLaffer(1974), JudeWanniski(1978) believe that theWanniski(1978) believe that the

relationship between tax raterelationship between tax rate

and tax revenue is anand tax revenue is an invertedinverted

U shape curveU shape curve


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LEADERSHIP MOTIVATION AND


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LEADERSHIP, MOTIVATION AND

ECONOMIC GROWTH

In other words Ibn Khaldun believes thereis 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.


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Recent empirical analysis suggests

that individual national leaders canhave large impacts on economic

growth(Jones, Benjamin F(2009),

Menon, Sudha (2007), Zainal AznamYusof, Deepak Bhattasali(2008),

Stimson, Stough, Salazar(2009)


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AMERICAN ECONOMIST JAMES GWARTNEY


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SHOWED THE HIGHER THE LEVEL OF TAXATION

AND SIZE OF GOVERNMENT THE LOWER THE

GROWTH RATE

Arthur Laffer himself admitted that it was Ibn Khaldun


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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 20th 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).


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A 2009 study by Harvard economists

suggest that taxes and spendingshould 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.


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RAHN CURVE

Rahn Curve is an economic theory,

developed by Richard Rahn supported by

empirical analysis which says there is a levelof government spending which maximizes

economic growth.
http://en.wikipedia.org/wiki/Economic_theoryhttp://en.wikipedia.org/wiki/Richard_Rahnhttp://en.wikipedia.org/wiki/Richard_Rahnhttp://en.wikipedia.org/wiki/Economic_theory


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The Rahn Curve relationship is similar to the Laffer CurveThe Rahn Curve relationship is similar to the Laffer Curve

relationship between tax rates and tax revenue.relationship between tax rates and tax revenue.


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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 anoptimal level of government spending

and tax rate which maximizes the rate

of economic growth.


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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 aconducive environment for business to

flourish, create employment opportunities

and migration into the cities which increasedemand and stimulate economic growth.

Y i Li Sh hili


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Younis, Lin, Sharahili,

Selvarathinam(2008) found that there is

a positive relationship between politicalstability and economic growth in Asia.

A study by Feng Yi(1997) indicates a

positive relationship between political

stability and economic growth.

INTERNATIONAL TRADE


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INTERNATIONAL TRADE

AND ECONOMIC GROWTH

During his time, North Africa was in a global

trade business.

He cited nations like China, Egypt, Syria andIndia 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 thoughit may be riskier.

IDEAS AND ECONOMICIDEAS AND ECONOMIC


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GROWTHGROWTHRole of ideas, education and learning by doingRole of ideas, education and learning by doing

in economic growthin economic growthWith his ability to think, interactions, constantWith his ability to think, interactions, constant

practice and habits, man is able to find newpractice and habits, man is able to find new

ways of doing things resulting in higherways of doing things resulting in higher

economic growth.economic growth.He traces the evolution of the various industries

and skills known to man during his time andhow these industries emerged and transformed

as new ideas and technology were graduallyintroduced.

IBN KHALDUN AND THE RELATIONSHIPBETWEEN EDUCATION, IDEAS AND


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ECONOMIC GROWTH

b h ld h i


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Ibn Khalduns theory is

consistent with thefindings ofPaul Romer withhis Economics of Ideas andRobert Lucas with hisLearning by Doing

COSTS OF ECONOMIC


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COSTS OF ECONOMIC

GROWTH CONGESTION POLLUTION

EPIDEMIC

INFLATION

UNEMPLOYMENT

POVERTY

CORRUPTION CRIME

MIGRATION

COSTS OF ECONOMIC GROWTH


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HABITS AND COSTS OF


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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

ECONOMICS AND LIMITS TO


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GROWTH

Dennis Meadows, MITProfessor.

What caused the environmentaldegradation and global warming affecting

us today ? HABITS.

http://www.youtube.com/watch?v=4iHr9mzLEZ
http://www.youtube.com/watch?v=4iHr9mzLEZUhttp://www.youtube.com/watch?v=4iHr9mzLEZU


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HUMAN NATURE, ECONOMICGROWTH AND BEHAVIOUR


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GROWTH AND BEHAVIOUR


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when people become moreprosperous, they move from

consuming necessities toconveniences to luxuries.

Eventually, they reach apoint where consuming morebrings trivial benefits

(Seigel, 2006).

when people become more

prosperous, they move fromconsuming necessities to

conveniences to luxuries.Eventually, they reach a

point where consuming morebrings trivial benefits

(Seigel, 2006).


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WHAT POLICY MAKERS CAN


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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 RahnCurve, 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

However he sees the relationship between


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However, he sees the relationship between

economic growth and costs of economic growth.

That relationship stems from the presence ofluxury habits and excessive spending by the

government and the consumers.

Excessive spending by the government causes

budget deficit and the introduction of bad policiesto finance the deficit resulting in economic

contraction.

Excessive spending by the consumers may leadto inflation and eventually lower spending and

lower economic growth.


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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 natureunleashes the elements of greed and love of

power that weakens the human soul and

solidarity and the emergence of unethicalbehavior

S lf i t t d th l k f lid it d th


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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 politicalpower 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 ofnation building, protecting public interest and

human welfare.

GDP should not be the only criteria for humanwelfare. Economic growth paradigm should be

revisited.

The economic system is a part of a larger


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y p g

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.

Ibn Khaldun finds that ideas, human capital,


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p

innovation and technology are important for

economic expansion although the limit to growth

is inevitable.

Ibn Khaldun focuses on mans ability to think as

an impetus to growth.

Therefore intellectual development has to benurtured in various ways including education,

freedom of expression, intellectual network and

discourses, and commercial exchanges and

network.

THAILAND ECONOMIC MODEL


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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) http://www.dailynews.lk/2007/03/20/fea03.asp
http://www.dailynews.lk/2007/03/20/fea03.asphttp://www.dailynews.lk/2007/03/20/fea03.asp


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FINANCIAL CRISIS

Ibn Khalduns 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 causeand the symptoms.

ROOT CAUSE OF THE


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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.

.the nation's current economic crisis was not


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the result of chance but the result of

greed..there is plenty of blame to go around,

from greedy Wall Street executives who madedangerous 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 totake 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 inFairfax, Va)

International financial crises, I mightInternational financial crises, I might

d i fi i l id ti fi i l i


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even say domestic financial crises, areeven say domestic financial crises, are

built into the human genome. When webuilt into the human genome. When we

map the whole thing, we will findmap the whole thing, we will findsomething there called greed andsomething there called greed and

something called fear and somethingsomething called fear and something

called hubris. That is all you need tocalled hubris. That is all you need to

produce international financial crises inproduce international financial crises in

the future. I have not seen anything tothe future. I have not seen anything to

raise any doubts about that. (raise any doubts about that. (PaulPaul

Volcker (1999), former Chairman ofVolcker (1999), former Chairman of

the Federal Reserve Board,the Federal Reserve Board, referringreferring

to the Asian Financial Crisis in 1998, )to the Asian Financial Crisis in 1998, )

For us urban dwellers and the so


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called modern man, Ibn Khaldun

asks Why the demand for physicians is

higher in the urban areas than ruralareas?

Abundance of food

Poor air quality Lack of exercise


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ABUNDANCE OF FOOD


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POOR AIR QUALITY


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RUBBISH AND POLLUTION


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ROTTEN FOOD AND

POLLUTION


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LACK OF EXERCISE

IBN KHALDUNS IDEAS ONIBN KHALDUNS IDEAS ON


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ECONOMIC GROWTH.ECONOMIC GROWTH.

More growth mayMore growth may

lead to social costslead to social costs

Excessive spendingExcessive spending

and luxury habitsand luxury habits

may cause unethicalmay cause unethicaland immoraland immoral

behavior, inflation,behavior, inflation,

unemployment,unemployment,

poverty andpoverty andenvironmentalenvironmental

degradation.degradation.

Higher taxes may lead toHigher taxes may lead tolower economic growthlower economic growth

and tax revenue(Lafferand tax revenue(Laffer

Curve)Curve)

Higher governmentHigher government

spending may reducespending may reduce

private businessprivate business

activities, economicactivities, economic

growth andgrowth and

revenue(Rahn Curve)revenue(Rahn Curve)

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