Professional Documents
Culture Documents
B3.4 Development Economics Lessons That Remain To Be Learned
B3.4 Development Economics Lessons That Remain To Be Learned
B3.4 Development Economics Lessons That Remain To Be Learned
000–000 1
Development Economics entered its fourth stage in the 1990s after having
passed through three stages earlier. In the process it has undergone a
great deal of transformation as a result of the lessons that it has learned
through experience and intellectual insight. The subject is, hence, no
longer in the same mould in which it was in its first stage. Can we then say
that the strategy that has become crystallized so far after this
transformation is sufficient to realize its generally understood goal of
promoting real human well-being?
Real Well-being
This brings into focus the questions of what constitutes real well-being
and how it can be realized.1 Does more money lead to higher well-being?
Scholars have questioned the identification of well-being with income.2
Empirical research has also provided a negative answer to this question.
This is because, even though real income has drastically risen in several
countries since World War II, the self-reported subjective well-being of
their populations has not only failed to increase, it has in fact fallen
slightly.3 The reason is that happiness is positively associated with higher
* M. Umer Chapra is presently Research Adviser at the Islamic Research and Training
Institute of the Islamic Development Bank, Jeddah. This paper reflects the author’s
personal views and not necessarily those of the Institute where he works.
1 Real well-being is also referred to in the Economic literature as “happiness and life
satisfaction”. See, Bruno S. Frey and Alois Stutzer, “What can Economics Learn from
Happiness Research?” in Journal of Economic Literature (June, 2002), 403. The
literature on the determinants of human well-being has been growing rapidly. For a survey
of this literature, see David G. Myers, The Pursuit of Happiness: Who is Happy and Why?
(New York: Avon, 1993).
2 Daniel M. Hausman and Michael McPherson, “Taking Ethics Seriously: Economics and
Journal, 111: 473 (2001), 472; idem, “Does Economic Growth Improve the Human Lot?:
Some Empirical Evidence” in Paul David and Melwin Reder, eds., Nations and
Households in Economic Growth: Essays in Honour of Moses Abramowirz (New York:
Academic Press, 1974), 89–125; idem, “Will Raising the Income of All Increase the
Happiness of All?” in Journal of Economic Behaviour and Organization, 27: 1 (1995), 35–
48; A. J. Oswald, “Happiness and Economic Performance” in Economic Journal, Vol. 107
2 M. UMER CHAPRA
income only up to the level where all basic biological needs get fulfilled.
Beyond that it remains more or less unchanged unless some other needs
which are considered indispensable for increasing happiness are also
satisfied. Most of these other needs are not necessarily material and need
not become satisfied as a result of increase in income. Economists have
generally tended to abstain from a discussion of these needs.4 One of the
most important of these non-material needs is justice, which demands
that the fruits of development be shared equitably by all irrespective of
their race, colour, sex or nationality. Some other of the equally important
and generally-recognized requisites for well-being are mental peace,
family and social harmony, freedom, security of life and property, and
minimization of crime, tensions and anomie. This paper is an attempt to
analyze whether the lessons learnt so far by Development Economics are
adequate to promote comprehensive well-being of this nature.
(445), (1997), 1815–1831; David G. Blanchflower and Andrew J. Oswald, “Well-being over
Time in Britain and the USA” in NBER, Working Paper 7487 (2000); E. Diener and
Shigehiro Oishi, “Money and Happiness: Income and Subjective Well-Being” in E. Diener
and E. Suh, eds., Culture and Subjective Wellbeing (Cambridge, M: MIT Press, 2000),
185–218; and Charles Kenny, “Does Growth Cause Happiness, or Does Happiness Cause
Growth?” in Kyklos, 52:1 (1999), 3–26.
4 The World Bank, World Development Report 2003: Dynamic Development in a
ability to increase employment and output growth with expansionary monetary and fiscal
policies. See, in particular, Robert E. Jr. Lucas, “Some International Evidence on Output-
Inflation Trade-Offs” in American Economic Review (June, 1973), 326–34; idem,
“Econometric Policy Evaluation: A Critique” in Journal of Monetary Economics,
Supplement Series (January, 1976), 19–46.
4 M. UMER CHAPRA
10 For details as well as references, see M. Umer Chapra, Islam and Economic
Development, 39–40.
11 The World Bank, “Entering the 21st Century” in World Development Report, 1999/2000
(1996), 11–74, who has summarized the main results from 23 recent studies of the link
from inequity to growth and investment. See also, Aghion Phillippe, Eve Caroli, and Cecilia
Garcia-Penalosa, “Inequality and Economic Growth: The Perspective of the New Growth
Theories” in Journal of Economic Literature (December, 1999), 1615–1660.
14 See Michael P. Todaro, Economic Development (London: Longman, 1997) 165–66.
15 See A. Zaheer, B. Mc Evily, and V. Perrone, “Does Trust Matter? Exploring the Effects of
18‘Abd al-Ra man ibn Khald n, al-Muqaddimah (Cairo: Al-Maktabah al-Tij riyyah al-
Kubr , n.d.), 41. Ibn Khald n’s Muqaddimah has been translated into English by Franz
Rosenthal and is titled Ibn Khaldun: The Muqaddimah, An Introduction to History, 3
volumes (London: Routledge and Kegan Paul, 1st ed., 1958; 2nd ed., 1967). For selections
from it, see Charles Issawi, An Arab Philosophy of History: Selections from the
Prolegomena of Ibn Khald n of Tunis (1322–1406) (London: John Murray, 1950).
DEVELOPMENT ECONOMICS: LESSONS THAT REMAIN TO BE LEARNED
7
values that are conducive to the promotion of trust, equity, family and
social solidarity, development, and the well-being of all. Institutional
Economics, which has brought the subject of values into Economics, is
concerned primarily with the existing values which are embedded in a
society and arise from its customs and traditions.19 These need not
necessarily be in conformity with what is required to promote real well-
being. What if the existing values of a given society are not conducive to
the promotion of real well-being? Then it would be necessary to replace
them by new ones. Can this be done without making value judgements
which are an anathema to Economics?
This raises the second question: who is capable of providing values
which are of the right kind and which everyone accepts as absolute and
beyond dispute? Unless values are accepted by a vast majority of the
members of the society concerned, they may be of little help in bringing
about the desired transformation. Can human beings, motivated by their
self-interest, provide the values that would promote family and social
harmony and the well-being of all? The answer of Economics as well as
other social sciences influenced by the ‘Enlightenment’ philosophy is
perhaps yes. The answer of religious worldviews for a number of reasons,
however, is no. Firstly, rules of behaviour formulated by human beings
may tend to be influenced by the personal judgements of those who
formulate them. It may not be possible for them to remain impartial,
particularly if they are primarily committed to serving their self-interest.
If wealth and power are also not distributed equitably, it may be possible
for the rich and the powerful to tilt and interpret these rules in favour of
their own vested interest. Even the slightest doubt about impartiality may
tend to mitigate the chances of consensus. Secondly, human beings tend
to be generally short-sighted. This is because the long-run is unknown
and unpredictable. They are, therefore, inclined to take decisions that
serve their short-term self-interest. They may, consequently, hurt their
own as well as their society’s long-run interest. Thirdly, human beings
may not necessarily have all the information that is necessary to
determine what is good for everyone and to assess the effects of their
actions on others, especially those more remotely affected by them.
Therefore, they need an impartial, well-meaning, and knowledgeable
outsider who is capable of visualizing such effects and providing rules of
behaviour that can save others from the adverse effects of their actions
and to ensure their well-being.
The religions worldview considers the Divine Being to be the only one
Who has these qualities and Who is capable of commanding the
confidence of all. This is because He has created human beings and,
therefore, perfectly understands their nature as well as their needs, their
strengths as well as then limitations, and is capable of serving as their
Sole Guide and the only source of all values. This assertion may not
19 See Oliver E. Williamson, “The New Institutional Economics: Taking Stock, Looking
22 Some of these scholars are: Ab Y suf (d. 182/798), al–Mas‘ d (d. 346/957), al-
M ward (d. 450/1058), Ibn azm (d. 456/1064), al-Sarakhs (d. 483/1090), al-
s (d. 485/1093), al-Ghaz l (d. 505/111), al-Dimashq (d. after 570/1175), Ibn
Rushd (d. 595/1198), Ibn Taymiyyah (d. 728/1328), Ibn al-Ukhuwwah (d. 729/1329), Ibn
al-Qayyim (d. 751/1350), al-Sh ib (d. 790/1388). For a brief account of the
contributions of some of these, see Joseph Spengler, “Economic Thought in Islam: Ibn
Khaldun” in Comparative Studies in Society and History, (April, 1964), 268–306; Joseph
N. DeSmogyi, “Economic Theory in Classical Arabic Literature” in Studies in Islam
(Delhi), (January, 1965), 1–6; Abbas Mirakhor, “The Muslim Scholars and the History of
Economics: A Need for Consideration” in The American Journal of Islamic Social
Sciences, (December, 1987), 245–76; M. Nejatullah Siddiqi, “History of Islamic Economic
Thought”, in Ausaf Ahmad and K. R. Awan, Lectures in Islamic Economics (Jeddah:
IDB/IRTI, 1992), 69–90; A. Azim Islahi, History of Economic Thought in Islam (Aligarh,
India: Department of Economics, Aligarh Muslim University, 1996); and M. Umer Chapra,
“Islam and Economic Development: A Discussion within the Framework of Ibn Khaldun’s
Philosophy of History” in Proceedings of the Second Harvard University Forum on
Islamic Finance (Cambridge, MA: Harvard University, 1998); and idem, The Future of
Economics: An Islamic Perspective (Leicester, UK: The Islamic Foundation, 2000).
23 For some details on this index, see UNDP, Human Development Index (HDI) (Oxford:
Conclusion
We may, thus, conclude this discussion by reiterating that, if
Development Economics wishes to promote the real well-being of all
people, it must move into the fifth stage as soon as possible. This fifth
stage would stress not only economic prosperity but also overall human
well-being. While it may be possible to promote economic prosperity by
relying primarily on economic variables and serving individual self-
interest, overall human well-being may be difficult to attain fully without
bringing into play all the relevant socio-economic and political forces that
affect human well-being. It would also be necessary to ensure justice,
family and social solidarity, and freedom from being subjected to crimes,
tensions and anomie. This requires strengthening the bonds of human
brotherhood through the voluntary fulfilment by all individuals of their
obligations towards others. Since this involves the sacrifice of self-
interest, it is necessary to have some motivating mechanism that would
induce the individuals to do so. This-worldly incentives and deterrents
need to be reinforced by other-worldly incentives and deterrents, which
the concept of Hereafter incorporates, and which is, therefore,
indispensable.
12 M. UMER CHAPRA