INAUGURAL PROFESSORIAL LECTURE AN INQUIRY INTO THE CAUSES AND COSTS OF ECONOMIC GROWTH: W HA T POLICY MA KERS OF TODA Y CA N LEA RN FROM THE MUQA DDIMA H OF IBN KHA LDUN Prof Dr Syed Omar Syed Agil Razak School of Government 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 OBJECTIVES OF THIS LECTURE •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” 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 published by the State • Report 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 • 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 • 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 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 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 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 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)  “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, ) 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 ABUNDANCE OF FOOD POOR AIR QUALITY RUBBISH AND POLLUTION ROTTEN FOOD AND POLLUTION LACK OF EXERCISE   IBN KHALDUN’S IDEAS ON ECONOMIC GROWTH More growth may lead to social costs 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 government spending may reduce private business activities, economic growth and revenue(Rahn Curve)