Quest for prosperity: culture and economy

Published: January 13, 2018
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The writer is vice-chancellor of the Pakistan Institute of Development Economics. He holds a PhD in economics from Stanford University and blogs at http://bit.do/az786

The writer is vice-chancellor of the Pakistan Institute of Development Economics. He holds a PhD in economics from Stanford University and blogs at http://bit.do/az786

Our quest for prosperity has failed to deliver the sought-after goals because we have misunderstood the meaning of prosperity, and looked for it where it cannot be found. We base our economic policies on modern economic theory, which is based on the amazing assumption that human beings act to maximise lifetime consumption, since this is the sole source of human welfare. Recent Nobel winner Richard Thaler has spent several decades to show the dramatic differences between actual human behaviour and the assumptions of economic theory.

Human beings are far more generous and cooperative than the assumptions of economic theory allow for. Even more important is Richard Easterlin’s discovery that enormously increased levels of consumption do not bring about corresponding increases in happiness. Consumption only brings short-run happiness; long run happiness has no correlation with consumption, and is far better correlated with character traits like generosity and gratitude. Mindless pursuit of wealth, implemented by policies to maximise growth, has led to increasing misery, instead of prosperity. Growth-oriented policies have destroyed family lives, engaging all members in production of wealth, and they have damaged our environment, destroying the future of our species for short-run gains.

Can this damage be reversed? Can we improve human lives and welfare, and also stave off the impending environmental crisis? At the core of the crisis we face is the prioritisation of wealth over human beings. A market economy cheapens human beings because it is based on the idea that human lives are commodities for sale in the labour market. Reversing these priorities requires the recognition that all human lives are infinitely precious, with amazing potentials and capabilities for growth in dimensions unknown. Taking this principle seriously would require re-writing all economics textbooks, and radically re-organising our economic, political and social institutions. Taking collective responsibility to ensure that all members of a society get the chance to develop their capabilities would be a new definition of prosperity, different from GNP per capita, which is the current focus of policymakers across the globe.

Modern economic theory makes accumulation of wealth the goal of economic activity, and values human lives only to the extent that they contribute to production. How can we reverse these priorities, putting the enrichment and empowerment of human lives at the centre, and valuing wealth only to the extent that it is helpful in achieving this goal? The first requirement is to win the battle of ideas, creating consensus on the prioritisation of human beings over material wealth. To do this, we need to recognise modern economic theory for what it is, instead of what it claims to be. To accomplish this goal, it is useful to label modern economic theory as Economic Theory of the Top 1% — or ET1% — and explain how all aspects of this theory are designed to portray increasing wealth of the top 1% as the goal of society, and also to show that this serves to benefit the entire society. For example, use of GNP per capita as a yardstick of social welfare exactly fits this description, since gains to the top 1% are first divided over the entire population and then measured, thus appearing to be generally beneficial, when in fact they are not. Overcoming this deception will involve replacing ET1% by ET90% — a new economic theory for the bottom 90%.

Karl Marx clearly recognised the deceptive nature of economic theory and stated that functioning of capitalism requires convincing the workers of the necessity and fairness of their own exploitation. ET1% does this by arguing that growth is the best policy to pursue of all, since benefits which obviously accrue to the rich will eventually trickle down to the poor. In contrast, Marx offered ET90% by asking for a shift from each according to his abilities to “each according to his needs”, thereby prioritising the needs of the poor over growth to provide more wealth to the already wealthy.

As a prescription for change, Marx urged the workers of the bottom 90% to unite, and throw off their chains. Experience shows that we can successfully unite workers to revolt against the capitalists, but after the revolution, control necessarily remains in the hand of a small minority. The nature of power is such that this small minority will be corrupted by it, and will use it for personal gains, and to oppress the majority. Just like democracy has failed to give ‘power to the people’, alternative systems of government also failed.

The Islamic solution works along different dimensions. It seeks to co-opt the rich and powerful, instead of killing them off, and replacing them by another set of rich and powerful. This is done by creating social norms of generosity and social responsibility. Fourteen centuries ago, the revolutionary teachings of Islam-led backward and ignorant Arabs to world leadership. These teachings include the ideas that the best leader is the servant of the people, that power is given to us in order to protect the weak, and wealth is meant to be given to the needy. Widespread acceptance of these ideas created a society which provided basic needs, healthcare and education to all members using the institutions of Waqf, and the norms of collective social responsibility and brotherhood. Because these ideas have been forgotten, they continue to have the same revolutionary potential today, as they did 1,400 years ago. The most important first step in this revolution is sensitising our hearts to feel compassion for sufferings of all mankind. The feeling that all of the creation is the family of God, and service to humanity, and all living creatures, is the highest form of worship, is essential motivation for the Herculean efforts required to create revolutionary changes required to reverse the increasing concentration of wealth at the top and misery at the bottom.

This is a summary of Quaid-e-Azam Lecture at PIDE 33rd AGM. 

Published in The Express Tribune, January 13th, 2018.

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