Paper Title: Islamic Work Ethics as a Key Engine of Endogenous Economic Growth

Author:        Asma Raies

Publisher:    Islamic Economic Studies, 29(2), 86 – 99.

This paper attempts to show how ethical piety can lead to endogenous growth through mathematical modelling. The author argues that “God promised pious individuals who obey to His commandments, to increase their economic wellbeing. Although it is difficult to demonstrate with figures in hand this causality relationship, Muslims must believe in its existence and robustness at both the individual and collective levels, as it is argued in Qur’an and the Prophetic Narration.”

This statement and value judgement has some implications which need to be discussed. First, we need to appreciate that God’s promises transcend both worlds, life on earth and life hereafter.

Second, the worldly life is a trial as described in several verses of Qur’an. Even the most pious prophets (pbut) had been persecuted, rejected and even killed mercilessly. Therefore, outcome of actions in this world is not necessarily based on absolute justice. The material blessings or the lack of them do not determine success on merit.

Thirdly, the fate of individuals and nations is determined differently. While an individual despite good actions may not get swift or equitable reward due to the trial nature of this worldly life sometimes, the destiny of nations and collective societies follows merit. In economics terminology, when justice and social infrastructure weakens, then the nation starts its own decline. Ibn-e-Khuldun had developed his civilizational development model based on positive premises.

Lastly, piety alone is not sufficient condition for material success. Even the prophets (pbut) used to labour and encourage working. The author had emphasized this point by discussing the concept of work ethics, but the first three points discussed above need to be kept in mind while seeking a causal relationship between piety and economic well-being at both personal and collective level.

In reviewing the literature, the author gives account of how different studies have attempted to look at the effect of religion or religiosity on economic growth and well-being. Such studies have serious flaws. First of all, there are multiple reasons why some countries are behind in economic well-being than others.

Some of these factors are measurable and some are not even measurable. For instance, the role of geo-politics, conflicts, institutional slavery and colonization in eras when the national income accounting did not begin cannot be captured in empirical models taking balanced panel data from post WWII period.

Secondly, countries are not religiously identified in black and white. There is huge diversity and more so in West. Muslim population in Europe alone is around 50 million. There are Muslim majority countries which have high economic well-being in terms of per capita income, such as Qatar, Brunei, United Arab Emirates, Kuwait, Saudi Arabia, Bahrain, Oman, Malaysia, Turkey and others. 

Thirdly, the reasons for underdevelopment include many other economic and non-economic factors. For instance, countries with lack of pre-requisite conditions of development in Africa, parts of Asia and Latin America, would remain underdeveloped regardless of the religion followed in society.

The other brand of literature reviewed in the paper looks at the role of Islamic finance in economic growth. Often, annual frequency secondary data on macroeconomic aggregates does not show the true economic effect. It merely captures co-movement, but not the economic substance behind empirical relations. For instance, Islamic banking share in most developing countries is below 20% while the overall financial inclusion is also at a very low level.

In that case, it is not correct to expect and analyse impact of Islamic banking on macroeconomic aggregates when Islamic banking has a very small size in even national banking sector. Hence, this brand of literature may capture statistical significance, but not economic significance.

Now, coming to the main crux of the paper, the author uses a standard endogenous growth model and replaces human capital with Islamic piety. First, it is erroneous to replace a variable in the model on ad-hoc basis which in reduced form solution is known to have a positive association with growth. If this approach is adopted, one can replace any such variable with any construct he/she wants to show a theoretical association with no empirical verification or proof.

There is no empirical exercise shown nor can it be shown unless Islamic piety is measured. Author admits that Muslim majority countries are by and large underdeveloped due to lack of piety. 

The author writes: “In the Lucas–Uzawa model, the individual spends some time in production and some time in formal education to accumulate human capital. However, in our model, Islamic self-education activity occurs in the individual’s free time while the non-leisure time is fully devoted to production, leading thereby to a higher long-run growth rate. This result proves that Islam promotes economic growth and that Muslim populations’ underdevelopment is due to their low ethical capital (lack of piety).”

It is highly erroneous to make such utopian assumptions. We make models to understand complex reality and the relations therein. If something is not there yet as admitted by the author, there is no point of introducing that in model.  

Then, the author goes on to give this recommendation: “Consequently, our study recommends some policies such as providing formal religious education at all educational levels (elementary, secondary and higher levels) and promoting ethical values such as piety, sincerity, transparency, etc., through media and cultural institutions.”

Islamic work ethics may complement efforts to achieve economic well-being. However, simply replacing it with human capital in the model and even recommendations is not appropriate.

It is better to avoid ad-hoc juxtaposition of Islamic oriented attitudes in variables of the model which cannot be empirically measured. There can be a better case made through social infrastructure, including law and order and property rights. Indeed, Islamic teachings as explained in the paper emphasize upon justice, protection of rights, fairness, excellence in work ethics, transparency and contract enforcement. It is enough to show that Islamic teachings emphasize on these elements of social infrastructure. It is not necessary to replace them with an Islamic oriented variable label at the cost of human capital in the model.