MANAGING ECONOMIC DEVELOPMENT: AN ISLAMIC PERSPECTIVE

By Professor Khurshid Ahmad

(Concluding Address)

INTRODUCTION:

Brother Chairman, Brother Dr. Syukri Salleh, distinguished participants, brothers and sisters in Islam, ladies and gentlemen. I deem it an honor and privilege to deliver this keynote address, on the occasion of the First International Conference on Islamic Development Management, on Managing Economic Development in Islamic Perspective. It’s a challenging and a timely subject because we are addressing ourselves to a subject which is very relevant and a subject that demands for a careful examination by all concerned all over the world.

A TIMELY AND CHALLENGING ISSUE:

In my view at least four dimensions deserved to be kept in view. We have about 200 years of capitalist forced industrial revolution experience in economic development; a particular model has matured, reached a particular stage, and it is time, in the context of that experience to review what are the problems involved in the managing economic development.

We also have 80 years of socialist experience, .and despite the collapse, of socialism in the Soviet Union and Eastern Europe, socialist model remains important and significant as a point of reference. China still continues. North Korea still continues on the same line, and even in contemporary Europe, the mergers of some kind of a third approach are being raised. So that is also important.

Third dimension is 45 to 50 years of developmental effort in the Third World countries. And L .will show, by and large, a failed experience, where economic development has not been able to take off. Why?

And finally, in the context of the East Asian situation, whereas in the last 20 years there had been remarkable expansion, these new industrialized countries were being present as tigers on the verge of gaining a position to compete the developed countries, and all of a sudden within a year we find them in the throw of a crisis. So I think in view of this four dimensions, it is very important to examine, the issue of, not merely economic development, but managing economic development, to which this conference is addressing itself.

Current global crisis, in my view, is not confined to mere financial or foreign issues. It is basically an economic crisis, social crisis, and a civilization crisis. And I would submit, as Muslims when we are examining the whole novel of economic development, we should try to bring to bear this wider perspective than merely confining to the financial equations and exchange rate collapse.

Globalization, in my view, is not an unmixed blessing. Global contact international trades, movement of money, goods, capital, human beings, are important and can make a positive contribution. Yet globalization, in the context in which it is taking place today, has the con tools of a new colonialism. It is hot mere movement of goods and money. It is something more than that. And that has to be seen in view. And my point of reference would be, Muslim Ummah urged to carve out a place of dignity and honor for itself and the purpose is to have “collective self-reliance.

Let me define what I mean by self-reliance. Self-reliance does not mean autarky. Self-reliance does not mean isolationism. Self-reliance does not mean self-sufficiency. Self reliance .means capacity of a people, country, region, ummatic, and on the whole, to decide their economic, social political priorities, according to their own objective values and principles, tot being subject to receiving an agenda from outside. So, actually self-reliance means to be free from dependency upon others, not economic contact, not economic trade, not movement of goods and capital. So, collective self- reliance means that position of Islamic Ummah, where we can decide our future, we can plan our own economy or society according to our priorities, and not on the basis of an agenda given by others. That is my-definition of self-reliance. Self-reliance is a dynamic concept, not a static concept.

ECONOMIC DEVELOPMENT:

Now, very quickly let us also be clear as to what do we mean by economic development. I am giving three definitions, two laudable text book definitions Benjamin Higgins says:

“…a discernible rise in total and per capita income, widely diffused throughout occupational and income groups, continuing for at least two generations and becoming cumulative.”                                                                                                (Benjamin Higgins)

Baner and Yamy says:

“…the widening of the range of alternatives open to people as consumers and producers.”                                                                   (Baner and Yamy)

The above definition emphasizes two different dimensions of growth and expansions. Now a third dimension is being recognized not in the mainstream development economics but at least at very strong peripheries.

The third definition says:

“Economic development means a self-sustaining increase in real per capita income accompanied by a more equitable distribution of income within society.”

Prof. J. F. Torres

Wisconsin University

(Directions for Development in Third World Countries)

Initially, the distributive aspect was ignored, and the thesis was that development would naturally trickle down, and as a result welfare would reach the people. But distributive justice was not an integral part of developmental paradigm. Now the shift is taking place but only at the peripheries.

I want to emphasize five dimensions. First wealth creations because unless there is an increase in production, national income and per capita income because of population pressure, development would not take place. Development has to be in the form of creation of wealth. Secondly, it should be sustained. It is not just short period or cyclical. It should last for a longer time horizon, continuity and cumulative. Third, it should be based upon, not mere financial changes, but real key variables, which go to’ j make up the composition of production, trade, factor use; it is that process which ensures continuity in economic development. Fourth, it is not a movement within the production curve, the production possibility curve. Normally we try to reach it. Development really means the expansion of that curve towards the potential; so unless that is there, it is not development. In other words, it should mean increase in quantity of available factors of production. It should mean improvement in the quality of the factors that already exist; it should mean technical progress, so that new technology, productivity, and exogenous factors also come in. And finally, it should have its effects on the quality of life and society.

CONCEPT AND EXPERIENCE:

Now in view of the issue of managing economic development, I want to clarify that in my view, development as a concept involves three major dimensions. One is structural change within the economy. These structural changes are bound to lead to a disorderly process, disequilibria ting in the structural sense. The old equation is bound to be changed. This has to disorderly process, which would even involve what we call “creative destruction” – search for a new order. It is here that I want to emphasize that, if economic development I submit means changes in the structural sense, initially involving disorder, destabilizing equilibrium and then movement towards a different equilibrium, it is something, which calls for management. It is from here that derive the concept of need for managing economic development, something that have been ignored, by most of the writers of development economics under the capitalist aegis. Why was this so? .It is because of their theoretical problems. Most of the capitalist analysts have thought that market mechanism is enough, not only to bring about production to meet current needs but also developmental needs. It is the invisible hand which would automatically, ultimately, bring about this equilibrium. The price signals, the scarcities as are reflected through the price signals would be enough to motivate people to produce more, to shift from what is not wanted to what is wanted, and that is how through a self sustaining equilibrating process, development will take place.

In my view, this is very unrealistic, flawed understanding of the whole developmental process. Yes market is important. Market economy plays a very important role but as I will show there are very strong reasons why managing economic development is required at all levels; level of individual, level of infrastructure development, level of state or government, level of global economy. All these four levels of management are needed. For that I have suggested that wealth creation and wealth distribution do not necessarily go together. They may go together for a while to some extent, but there are built-in obstacles and bottlenecks, because of which this new. Order does not take place. So there are what we call distributive desexualizing phenomena worsening the distribution of income and immiseration of people. And not only personal distribution but also the dimension of regional dislocations, division of labor, and wealth movements. So because of that, the situation comes into existence that cannot take care of itself. It has to be taken care of. And there is the issue of management.

EIGHTEENTH CENTURY – GLOBAL EQUATION:

Now, quickly let us see what the experience has been. As we will see from the data I have given, it is a very intriguing situation that if you look upon the world economy in the eighteenth century, particularly of the last fifty years, we find that 73 percent of the world GDP, was generated in the third world. In Europe it-was only 23.2 percent, which was roughly equal to the GDP as it was only in the end part subcontinent that is 24.5 percent of world GDP. Over the years what has happened is impoverishment of the third world countries and enrichment of the now industrialized world that is Europe, America and Japan.

If you look at the 1900, you will find how the table has been turned from 23.2 percent for Europe it has risen to 62 percent. America from 0.1 percent has come to 23.6 of the world GDP. But for the third world countries it has come down from 73 percent to 11 percent. And for India and Pakistan their figures have gone down from 24.5 to only 1.7 percent of the world GDP.

Similarly, per capita and labor utilization reflects the same position. I have taken this data from the Rise and Fall of Great Powers by Paul Kennedy. Thus whereas the per capita levels of industrialization in Europe and third world may have been not too far apart from each other in 1750 the latter’s was only one eighteenth of the former’s that is 2 percent to 35 percent for Europe and only one fiftieth of the United Kingdom that is 2 percent of 100 percent.

Another fact that has to be kept in view quickly is that this has been the period of European colonial dominance. Interestingly enough, this city (Georgetown) was the first city where British landed in this part of the world. We find that Europe occupied or control 35 percent of the land surface of the world in 1800, which rose to 67 percent in 1798, and at the advent of World War I, it was 84 percent. Now we are in the post colonial phase where technically speaking, most of the colonial powers have withdrawn, somewhere around 88 independent countries are there in United Nations, 54 Muslim countries are there on the political map of the world. It is still the system remains west .dominated. It is still disparities and controlled, directly and more so, indirectly through economic financial manipulations is taking place. Just a quick look on what it is.

PRESENT SCENARIO:

22 rich countries of the world, which go to make up one sixth of the world populations, their share in the world GPD, according to the latest 1997 report, global economic prospect is 86 percent. In 1992 it was 84 percent. That means they control 85 percent of world, trade, 86 percent domestic investment, 94 percent of research and development. Five hundred multinationals all situated in the western countries control 50 percent of the total world trade. UN development reports reveal 1.3 billion poor people in the world live on less than US$1 per day. There are one billion illiterates, 840 million people hungry. The share of the poorest 20 percent of the world in global GNP in 1960 was 2.3 percent. In 1990 it has gone down to 1.3 percent. I am focusing on this because this is the period of so-called development in the third world countries.

Global trade has decreased from 1.3% in 1960 to 0.9%. Global domestic investment has gone down from 3.5 percent to 1.1 percent. Global domestic saving has gone down from 3.5 to 0.9 percent, and global commercial credit from 0.3 to 0.2. While the share of the richest 20 percent in 1960 was 30 times that of the poorest 20 percent, in 1991 it was 61 times and 1997 it was 78’times more.

The terms of trade, between 1980 and 1992 the index on non-fuel commodity prices fell from 171 to 115, while that of manufacturing rose from 116 to 164. The terms of trade commodities versus manufacturing fell from 147 .to 71, that is 52 % in twelve years. Third world countries are losing over US$500 billion a year in income, due to terms of trade, protectionist policies and restrictive barriers, transfer pricing, interest rate pressures and structural inequities. As a result, third world debt in 1980 it was USS600 billion, now it is US$2,200 billion. And despite debt repayment of over USS300 billion to north banks and financial institutions and governments between 1980 and 1998, that is five times the figure in 1980, yet indebtedness is to the tune of over USS2,200 billion. Annual debt payment between USS17200 billion as against foreign aid of US$50 billion a year. Since 1987, for every pound sterling one worth loan, sub-Sahara African countries are paying US$1.6 to rich countries in debt repayment and in ten years that debt has increased four times to US$32 million. Aid to debt repayment ratio, now is only is one to eleven. Everyday third world countries are paying to rich countries, US$717 million in debt service. Every baby born in the third world owes US$500 to the western world.

Now liberalization and free movement of capital, investment, foreign exchanges; this, also is a very important phenomenon, which deserves to understood. Formerly, we had a real asset economy where development was directed towards increase in production and creation of assets. During the 200 years of capitalism, along with physical asset oriented development, money creation and deposit creation became a very important instrument, and consequently banks, instead being mere financial intermediaries, became financial agents. The old equation was money as a mean of exchange. So the classical definition of role of money was commodity converted via money into commodities, or CMC. Under’ capitalism the equation changed, and money began to be used as a commodity as a measure of value, and over and above the physical economy, a monetary economy was created, so that the equation changed from CMC to MCM, money used for commodities and then used for money. And that is how the balance of power went towards the capitalists, bankers, insurance companies, pension funds; the new rulers of the world. But now in the 20^th century, a new phenomenon has been added. Along with the global movement of money, of capital, derivatives have come into existence, and derivatives are not representing assets, as had been earlier documents. Derivatives mean claim on claim on assets. So money papers were claim on assets. And that is how a very close relationship registered between money expansion and physical expansion and money was used to produce goods, to produce services so that well being can be achieved. But now derivatives are used not to produce goods, commodities and services but only claims on goods and commodities. So a third tier has been added, a totally fiduciary tier. And there, the players are big bankers, finance houses, the sorrows of our times, and without adding anything to value added in the economy. Through game in derivatives, they are becoming rich, and billions and billions of dollars are being rolled. Two examples are foreign exchange financial deals everyday are US$1.3 trillion. That is 32 times more than the daily physical international trade. The derivatives now 70 percent in America, US$67 trillion annually is the trade in derivatives, which is two and a half times the whole global GDP of all the related deeds of the world.

So now what has happened? What has happened is that a totally unreal fiduciary financial World has been created which is setting the fate of the nations, without adding to real value added in the society! This globalization has marginalized and circumscribed nations of renters. This has made the Bretton-Woods financial institutions irrelevant. They are; now unable to play the role for which they were created. And because of that there is need for a new financial architecture.

Now just summing this part of my presentation, I am giving you three quotations. One is from Paul Kennedy’s very important book, Preparing for the Twenty First Century, where he says that:

“The gap between rich and poor will steadily widen as we enter the twenty first century, leading not only to social unrest within the developed countries, but also to growing North-South tension, mass migration, an environmental damage from which even the ‘winners’ might not emerge unscathed.”                                                                               

   Paul Kennedy:

Preparing for the Twenty First Century,         Random House, New York, 1993, p. 334;

That is the challenge of the twentieth and twenty-first century.

Second, the diversity of cultures, civilizations, regions; this globalization not only ignores that but tries to bulldoze that. I am quoting from another very important work by False Dawn, The Delusions of Global Capitalism, which has just appeared a couple of months back. John Gray, a professor at Oxford University says:

“The free market cannot last in an age in which economic security for the majority of people is being reduced by the world economy. A reform of the world economy is needed that accepts a diversity of cultures, regions and market economies as a Permanent reality. A global field belongs to a world in which western hegemony seemed assured. Like all other varieties, of the Enlightenment Utopia of universal civilization, it pre-supposes western supremacy. It does not square with a pluralistic world in which there is no power that can hope to exercise hegemony that Britain, the United States and the western institutions possessed in the past. It does not meet the needs of a time in which western institutions and values are no longer universally authoritative. It does not allow the world’s manifold cultures to achieve modernization that are adapted to their histories, circumstances, and distinctive needs.”

John Gray

Professor of Oxford University, Fellow of Jesus College, Oxford.

(False Dawn: The Delusions of Global Capitalism, Grante Books, London 1998, P.20)

And finally from the well-known Jewish banker who has rocked the financial world a number of times, George Soros. He himself admits that:

“On an international scale we need some global regulatory institutions, in the Bretton Woods spirit. If we do not create institutions, aimed at preserving stability of international markets as well, then we will go towards a crash.”

“The global capitalist system is based on the belief, on the false assumption that if all these activities of private capital were left alone the whole system would tend towards stability. As the Asian crisis demonstrates this is simply false. It ‘is not unstable because of some external shock. It is intrinsically unstable… hence the need for the idea, for the global central bank with control function to ensure stability.”

George Soros,(Interview, Italian Magazine “LIBERAL”, March 12, 1998)