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
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
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
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
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.
QUICK SURVEY
How
many of you have
heard OR read about Ibn
Khaldun?
WHO WAS 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.
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 8th to 9th 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

To Egypt
From Hadramaut, Yemen
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.
The
MUQADDIMAH
First Volume
Al-Taarif bi Ibn
Khaldun
• KITAB ALIBAR
• SEVEN
VOLUMES
• HIS LIFE AND
EXPERIENCES
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
GENERAL
CONTRIBUTIONS
FATHER OF
SOCIOLOGY
HISTORY
AS A
SCIENCE
POLITICAL
ECONOMY
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 neoPlatonist, 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.
CHANGING
SOCIAL,
ECONOMIC AND
POLITICAL
CIRCUMSTANCES
RAISON
D`ETRE
INTERNAL
MEANING OF
HISTORY
ERRORS
MADE BY
PAST
HISTORIANS
KUALA LUMPUR IN THE 1880sA 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
is
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

SPIRITUAL
BEING
ECONOMIC
BEING
INTELLIGENT
BEING
MAN
SOCIAL
BEING
PHYSICAL
BEING
POLITICAL
BEING
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.

SOCIETY
Man needs society to obtain his basic
needs and wants
 Society needs leadership and the spirit of
solidarity to achieve prosperity and
growth.
 He differentiates the rural and urban
societies.


Society behaves like an organism and
introduce the life-cycle theory of society,
leadership and civilization.
Birth of
New
Society
Dissolution
Decline
Growth
Peak
IBN KHALDUN’S CONTRIBUTION TO THE
THEORY OF ECONOMIC GROWTH
CREATE
DISAPPEAR
DECLINE
GROWTH
PEAK
POPULATION
RELIGION
JUSTICE
AND
ECONOMIC
FREEDOM
GOVERNMENT
ECONOMIC
GROWTH
PRIVATE
SPENDING
IDEAS AND
TECHNOLOGY
HUMAN
CAPITAL
TRADE
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.
 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.)
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)
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.
Product Life Cycle Theory
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
Startup
Growth
Maturity
Size
Time
Renewal
or Decline
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/managementarticles/why-great-companies-havedisappeared-consider-firestone-1259809.html
Companies that will
disappear in 2009
http://247wallst.com/2008/12/19/companiesthat/
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.

POPULATION
ECONOMIC
GROWTH
POPULATION
GROWTH
SOCIAL
COSTS
LIMIT TO
ECONOMIC
GROWTH
NATIONS WITH HIGH POPULATION AND
ECONOMIC GROWTH IN THE
MUQADDIMAH
DOES RELIGION RESULTS IN
ECONOMIC DECLINE?
 Ibn Khaldun says Definitely No!
 In fact religion stimulates
economic growth.
 Africa became the world’s largest
trading centre in the 14th century
after the advent of Islam.
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

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.
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 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) 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.
 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)
 Moderate taxes and public spending
for optimal economic growth.
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
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.
• 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)
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
AMERICAN ECONOMIST JAMES GWARTNEY
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 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).
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.
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.
The “Rahn Curve” relationship is similar to
the “Laffer Curve” relationship between tax
rates and tax revenue.
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.
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.
• 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.
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.
IDEAS AND 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.
 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.

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
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
COSTS OF ECONOMIC
GROWTH
•
•
•
•
•
•
•
•
•
CONGESTION
POLLUTION
EPIDEMIC
INFLATION
UNEMPLOYMENT
POVERTY
CORRUPTION
CRIME
MIGRATION
COSTS OF ECONOMIC GROWTH
POLLUTION
MORAL
DECLINE,
CRIME AND
CORRUPTION
EPIDEMIC
LACK OF SOLIDARITY,
POLITICAL INSTABILITY
DECREASE IN REVENUES
POPULATION GROWTH,
HIGH PRICES
UNEMPLOYMENT
AND MIGRATION
POVERTY
INFLATIO
N
CONGESTION
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
GROWTH
Dennis Meadows, MIT Professor.
What caused the environmental degradation
and global warming affecting us today ?
HABITS.
http://www.youtube.com/watch?v=4iHr9mzLE
ZU
GOOD GOVERNMENT AND PUBLIC POLICY
BUSINESS AND JOB OPPORTUNITIES
POPULATION GROWTH
ECONOMIC GROWTH
EXCESSIVE SPENDING AND INFLATION
DECLINE IN PRIVATE SPENDING
ECONOMIC CONTRACTION, UNEMPLOYMENT AND MIGRATION
RURAL
necessities
morality
solidarity
URBAN
comfort and
luxuries
LUXURY HABITS,
EXCESSIVE
SPENDING,
GREED AND LOVE
OF POWER
COSTS OF
ECONOMIC
GROWTH
• 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
• 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
DIVISION OF LABOUR AND
SPECIALIZATION
HUMAN NATURE, ECONOMIC GROWTH AND
BEHAVIOUR
• 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.
… 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).
huma nature and ability to
think
human society and
organization and
leadership
division of labor
population growth
wealth creation and
economic growth
exchange
higher demand and supply
of products and inputs
inequalities of income,
poverty, corruption,
unemployment, migration
and lower economic
growth
Higher Wages
higher prices for goods
and inputs
Luxury habits and
conspicuous consumption
necessities to comforts to
luxuries
higher quality of products
and inputs through
improved methods and
technology
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
• 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.
• 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
• 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.
• 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
 Higher taxes may lead
to social costs
to lower economic
 Excessive spending
growth and tax
and luxury habits may
revenue(Laffer Curve)
cause unethical and
 Higher government
immoral behavior,
spending may reduce
inflation,
private business
unemployment,
activities, economic
poverty and
growth and
environmental
revenue(Rahn Curve)
degradation.
