An Inquiry Into The Causes And Costs Of Economic Growth: What Policy Makers Of Today Can Learn From The Muqaddimah Of Ibn Khaldun

•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

INAUGURAL PROFESSORIAL LECTURE

AN INQUIRY INTO THE

CAUSES AND COSTS OF

• 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

•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

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

• The 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)

BENEFIT S OF ECONOMIC GROWTH IN WESTERN LITERATURE

THE COSTS OF ECONOMIC GROWTH IN WESTERN

LITERATURE

THE COSTS OF ECONOMIC GROWTH IN WESTERN LITERATURE

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

• 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 511.8 billion yuan (US$64 billion) in economic losses that year, or 3.05 percent

of 2004’s total economic output

INITIATIVES RESULTED FROM THE NEGATIVE EFFECTS OF ECONOMIC GROWTH

QUICK SURVEY

 How many of you have

heard OR read about Ibn Khaldun?

• Born in 1332 in Tunis, North Africa and died in

1406 in Egypt

• An outstanding 14th 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?

POLITICAL CONDITIONS

 The Islamic empire was in the stage of

senility

 Internal threats due the political

upheavals and fragmentation within the Islamic empire

 Several rival dynasties emerged on the

North African coast.

 External threats due to the encroachment

of the Mongols and the Christians

ISLAM AND TRADE IN NORTH

AFRICE

 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 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.

 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

 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

 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

From Hadramaut, Yemen

To Egypt

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

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

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)

• 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 )

• 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)

• 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)

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.

KUALA LUMPUR IN THE 1880s- A SWAMPY AREA

KUALA LUMPUR 120 YEARS LATER

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

THE KHALDUNIAN MIND

 What Shapes it

 His View of the World

 Theory of Man and Society

WHAT SHAPES THE KHALDUNIAN MIND

 His dual education in religious sciences

and philosophical sciences

 His experiences as a public administrator and teacher

 The trials and tribulations

 The political, economic and social realities

of his time.

 The Muqaddimah is a reflection of these events and his experiences.

PRINCIPLE OF CAUSALITY

 Ibn Khaldun believes there are

nexus between events.

 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.

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.

Is More Better Than Less?

 There There is is a a

fundamental notion in

economics that more

is better than less

 Ibn Khaldun disagrees

with this

 At one point more of

anything will cause

detrimental effects on

man, society and

environment

His View of Man

 He began his analysis of economic growth

by looking at the 4 qualities of man

 Ability to think.

 Natural need for leadership

 Economic ways of living

 Natural need for society, cities and

civilizations

MAN AND HABITS

 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.

 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.

 He differentiates the rural and urban societies

 Society behaves like an organism and introduce the life-cycle theory of society, leadership and civilization.

IBN KHALDUN’S CONTRIBUTION TO THE

THEORY OF ECONOMIC GROWTH

LIFE CYCLE THEORY AND

cellular economic theory

• Business behaves according to the nature of living things that goes through the cycle of birth, growth and death

 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

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

INDUSTRY LIFE CYCLE

Gort and Klepper (1982) defined five life cycle stages:

PRODUCT LIFE CYCLE

individual products develop over time

The classic product life cycle has

growth; maturity and decline.

Product Life Cycle Theory

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

BUSINESS CYCLES

•Economic activity

fluctuates in business

cycles in every society

with contractions and

expansions representing short-term changes

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.

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.

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

Why Great Companies Have Disappeared - Consider

Firestone

http://www.articlesbase.com/management-arti cles/why-great-companies-have-disappeared-c onsider-firestone-1259809.html

Companies that will

disappear in 2009

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

LABOR AND ECONOMIC GROWTH

 He considers labor as a source of

economic growth.

 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.

POPULATION AND 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.

 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.

 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)

 This model states that an increase in total

population would lead to increase in technology and innovation and yield a greater per-capita

income

NATIONS WITH HIGH POPULATION AND ECONOMIC GROWTH IN THE MUQADDIMAH

DOES RELIGION RESULTS IN

ECONOMIC DECLINE?

economic growth.

HOW RELIGION SPURS GROWTH?

 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),

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.

GOVERNMENT SPENDING, TAXES

ECONOMIC GROWTH

 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

 Religious government establishes justice and

safeguard public interest creating incentive for

business and entrepreneurial activities compared

to rational politics

 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 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

• The Heritage Foundation and the W all 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) and Canada's Fraser Institute

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.