Bahá'í Faith and Economics, The by Bryan Graham:
published in Bahá'í Studies Review
London: Association for Baha'i Studies English-Speaking Europe, 1999
"The Bahá’í Faith and Economics"
Author: Bryan Graham
Publisher: Bahá’í Studies Review 7 (1997), pages 15-38
Commentary by: Geeta Gandhi Kingdon
Bryan Graham has written an insightful and thought-provoking paper, reflecting a good deal of independent intellectual activity. The paper critically – but constructively – reviews nine articles written by Bahá'í economists, focusing particularly on the themes that are common to all the articles, namely the spiritual and ethical dimensions of work, distributive justice, industrial relations, and issues of cooperation and competition. Graham's main critique of the extant Bahá'í scholarship in economics is that much of it fails to utilise existing social science literature and that none of the articles reviewed make anything but passing use of the mainstream economics literature. Moreover, he is rightly disquieted by the tendency in existing Bahá'í scholarship to adopt a triumphalist world view and to be dismissive of the economics literature, perhaps in the belief that everything is in the writings. Without wishing to "suppress the magnitude of the world view articulated by Bahá'u'lláh" and recognising that there are some serious problems with modern day economics, Graham nevertheless suggests that the relationship between Bahá'ís and the economics discipline should be one of dialogue and that Bahá'ís have just as much to learn from other (non-Bahá'í) sources of knowledge as they have to give. These suggestions seem reasonable and constructive, especially in the light of the statement of Shoghi Effendi that Bahá'u'lláh did not bring a complete system of economics to the world but that Bahá'ís have at their disposal the spiritual framework that should inform any economic system.
Graham advances several ideas correlating Bahá'í teachings with tenets of economics, correlations which have not, to my knowledge, been made previously. For instance, he points out that the sanction, in the Bahá'í system, that "wages should be unequal ... and (people) should receive wages that correspond to their varying capacities and resources," maintains the wage-productivity link which is considered economically efficient in a well-functioning labour market. He cites the well known principle of welfare economics that taxation reduces efficiency because of dead-weight welfare losses, and then notes that the Bahá'í emphasis on voluntary giving does not entail such welfare losses. He notes that a complementarity exists between the notion of equity/distributive justice – promoted by the Faith – and other social and economic goals, citing recent empirical evidence from cross-country studies showing that countries with a higher degree of equality are more likely to develop stable democracies and to experience higher economic growth. Most interesting and useful to me is Graham's discourse on economic competition, the market system, capitalism, and the Bahá'í teachings in this area. He is critical of the existing analysis of this area by Bahá'í scholars which unanimously berates competition, and he calls for a more qualified and nuanced analysis, one which recognises the usefulness of constructive competition and the disadvantages of certain types of cooperative collusion, such as those in Organisation of Petroleum Exporting Countries and the Common Agricultural Policy of the European Community. Graham draws a distinction between capitalism (which, strictly speaking, is merely the use of the market system as the allocative mechanism in the economy) and what he calls consumerism. He argues that while capitalism has historically had a tendency to give rise to consumerism, this is not the inevitable outcome of capitalism. These thoughts should certainly advance the dialogue among Bahá'í economists about the place of the market system and capitalism in an ideal Bahá'í economy.
The paper goes on to suggest areas of research for Bahá'í economists, identifying two as particularly important – the economics of gender and the economics of crime, morality, and peace. While Graham's suggested list of topics for future research by Bahá'í economists was probably not intended to be exhaustive, it is, nevertheless, limited. The objective of this commentary is partly to add to the list of research areas that will be fruitful for Bahá'í economists to pursue, and to suggest a framework for such research.
A suggested list of topics for research by Bahá'í economists
Our understanding of the Bahá'í teachings on economics is at a rudimentary level. While the Guardian's view 50 years ago that it was premature to formulate a Bahá'í theory of economics remains true today, it is clear that serious scholarship is needed to advance our understanding of and articulate better the nature of the spiritual solutions to the economic problems enshrined in the Bahá'í teachings.
One direction in which research could be pursued is as follows: Bahá'í teachings lay profound emphasis on a range of personal qualities and attributes (based on spiritual principles) that individuals and society should endeavour to imbibe, such as education – particularly women's education, equality of the races and nations, honesty, removal of prejudices, and well-being and prosperity (both spiritual and material). They also emphasise the desirability of diversity, and the need for a world government, inter alia. One strand of the Bahá'í economics research agenda could usefully pose the question: to what extent is there an economic case for these prescriptions?
The two canonical yardsticks used in welfare economics to judge the merit of proposed policies or prescriptions have been those of economic efficiency and equity. In the parlance of welfare economics then, can the above advocacies (for the removal of racial prejudice, education of women, honesty and lack of corruption, diversity, equality and lack of discrimination, a world government, etc.) be justified on the criteria of economic efficiency or equity?
While there is no intention of "weighing the book of God by the standards current among men," it is of interest to collate and examine existing research by economists that has a bearing on the ethical exhortations in Bahá'í teachings. For example, do corruption and bribery in societal institutions or racial discrimination in the labour market have negative efficiency effects, i.e. do they lower productivity and aggregate output, or have adverse welfare effects? If economic well-being – in terms of efficiency and equity, economic growth and welfare – is better when individuals/institutions behave in accordance with these ethical principles, then this suggests at least one reason why there is a "spiritual solution to the economic problem" and why Bahá'u'lláh enunciated these spiritual principles. The research topics listed below are tentative and non-exhaustive suggestions for a research agenda for Bahá'í economists.
- Corruption and bribery in business – its impact on productivity and national output/income. Here a rent-seeking approach is likely to be appropriate, drawing on the seminal theoretical contributions of Krueger, Bhagwati, and Schleifer and Vishny. Rent-seeking and corruption divert productive resources towards unproductive use and thereby shift the production possibility curve inwards. It would be fruitful to collate the findings of the existing applied studies that examine this issue and estimate the growth and welfare costs of corruption. Other aspects of this topic are to do with transparency and accountability in government; here a principal-agent framework and a political economy framework both would be relevant.
- Labour market discrimination: The impact of racial (or gender, ethnicity, or language based) discrimination on productivity, firm profits, and national output. Discrimination can arise from several possible sources, such as inferior access to productivity-augmenting opportunities such as schooling; less access to favourable jobs; or, given equal schooling and employment in a particular job, receiving lower wages than members of the advantaged group. A taste for discrimination among employers can result in higher wages for members of advantaged groups and higher prices for services rendered by the advantaged group. If employers have a taste for discrimination, this results in an opportunity cost in terms of forgone productive efficiency. One 1980 US study concludes that if racial discrimination were eliminated, the level of gross national product would have been 4.4% higher in the US in 1970. Research would review the literature on the welfare costs of discrimination and relate it to Bahá'í teachings on equality of opportunity and removal of all forms of prejudices.
- International government: Just as the existence of market failures – such as externalities, economies of scale, missing markets, and public goods (which have non-excludability and non-rivalness characteristics) – justifies the existence of a national government, so the existence of global market failures justifies the existence of an international government. International market failures occur due to the existence of shared global public goods (such as the need for clean air/water, international policing of drug-trafficking, prevention of the international spread of disease etc.), the existence of global externalities (such as pollution produced by one country imposing health-costs in another country), or due to missing international markets. The research would aim to identify global market failures and build an economic case for a world government. While in Adam Smith's day, common examples of public goods were defence, law and order, lighthouses etc., nowadays, public goods include income redistribution, economic stabilisation, safer streets, peace, and the standardisation of weights and measures to reduce transactions costs. Clearly international peace, global standardisation of weights and measures, and international income redistribution are some examples of global public goods, inter alia. There are now many relevant papers in this area. International economic policy coordination would be a useful area for study, and much work exists
on the European Union but less about other regional groupings. Research might also include pan African solutions to war, abuse of human rights etc.
- Sustainable consumption: To be sustainable, consumption patterns must be such as to permit present and future generations to meet their material needs without irreversible damage to the environment. This goal can only be realised if values change, placing stewardship, fairness, and justice at the heart of the agenda for development. The research would draw upon sources such as the United Nations Development Programme's 1998 Human Development Report that focuses on the consumption patterns of the rich and it would aim to build a coherent picture of the interactions among the economic, technological, cultural, media-related, and institutional mechanisms that shape consumption. An inter-disciplinary approach is likely to be more fruitful than a purely economic one.
- Market system: Do the Bahá'í teachings broadly endorse a free market system with a social safety-net? It seems at present that there is no consensus among Bahá'í economists about this issue. Graham states that "there is an anti-economics and anti-capitalism attitude" in all the articles on economics by Bahá'í authors that he reviewed and he calls these attitudes unconstructive. As mentioned earlier, he appeals for a distinction to be made between capitalism and consumerism (the latter being incompatible with Bahá'í teachings), and asks for recognition of the achievements of capitalism, such as massive poverty reduction over time in countries that espoused capitalism. This view appears to be in tension with, for example, what The Prosperity of Humankind document states – namely that "the classical economic models of impersonal markets in which human being act as autonomous makers of self-regarding choices will not serve the needs of a world motivated by ideals of unity and justice." Research could usefully focus on the question: is there something fundamentally incompatible between Bahá'í teachings and the market mechanism? Or, should we believe, as Graham argues, that there is nothing wrong with the market as an allocating mechanism if there is a moral backbone in society to constructively guide it and set its parameters. The view that markets need not be eschewed but need to be guided would appear to be supported by Shoghi Effendi's statement that in an ideal world society, "markets will be coordinated and developed." It is also important to recognise that the early tendency, among neo-classical economists, to preach the free-market gospel – which simplistically favoured unhindered operation of markets and decried government intervention – has been replaced by more recent consensus that market failures are pervasive and that the government has a constructive role in providing/creating missing markets and guiding market behaviour by creating responsible regulations and laws to compensate for the effects of market failure. This whole area is an important (if potentially contentious) subject to address in developing a deeper understanding of the Bahá'í approach to economics.
- Intellectual property rights: the ethics of patenting the genetic codes of foodstuffs etc. by multinational companies. What are the implications of knowledge-related patents for technology transfer between countries and for economic growth?
- Economic growth: A good number of recent empirical studies on economic growth find that ethnic diversity is inimical to economic growth. The recent crop of Barro-style cross-country growth regressions shows this. This finding suggests that there is no economic basis for valuing racial and ethnic diversity and indeed that diversity is significantly harmful to growth. More generally it is often heard that Africa's disastrous development record is due in substantial part to conflict caused by ethnic divisions. These findings appear incompatible with the Bahá'í view (which celebrates diversity) and they suggest the need for further research, more careful examination of the evidence, and for testing whether the currently fashionable interpretation might be spurious.
- Other topics: (a) the welfare implications of regional and international migration and relating these to the Bahá'í advocacy that in a united world, there must be free movement of people (in economic jargon, a globally integrated labour market rather than a segmented one); (b) trust and social capital are new and exciting fields of research in economics and emerging empirical research shows that social capital (which is a community property involving mutual trust among people, civic engagement, membership of associations, and high reliability and reciprocity in social networks etc.) is advantageous to business enterprises and beneficial for economic growth. This resonates well with Bahá'í emphasis on trustworthiness and supports the notion that there is a good economic case for the prescription of this virtue; (c) the development of indices of well-being that recognise that human well-being does not depend on income and wealth alone or even only on somewhat wider achievements in education and health, but also on spiritual well-being. This is likely to be a challenging task and is part of a longer-term Bahá'í economic research agenda.
These suggestions for future research aside, Graham has provided much food for thought in his persuasive and cogent paper and his contribution will advance constructive dialogue among Bahá'í economists.
- Shoghi Effendi, as cited on page 157 in S. Mohtadi, "Economic Justice in a New World Order", in Towards the Most Great Justice: Elements of Justice in the New World Order (ed., C. Lerche) (London: Bahá'í Publishing Trust, 1996).
- While Graham is cautious to point out that this empirical literature is crude, it would have been more informative to state that one of the major problems with the cross-country empirical growth literature is the possibility of joint determination or reverse causality, i.e. the possibility that democracy/higher growth cause (or permit) more equitable income distributions, rather than the other way round. Another important problem is lack of robustness of the findings to the inclusion of other factors that might explain growth.
- A. Krueger, "The Political Economy of the Rent-Seeking Society", American Economic Review 64/3 (1974): 291-303; J. Bhagwati, "Directly Unproductive, Profit-seeking (DUP) Activities", Journal of Political Economy 90/5 (1982): 988-1002; A. Schleifer and R. Vishny, "Corruption", Quarterly Journal of Economics 108/3 (1993): 599-617.
- An empirical paper by P. Mauro, "Corruption and Growth", Quarterly Journal of Economics 110/3 (1995): 681-712, finds that corruption lowers investment and thereby significantly lowers economic growth. Krueger provides estimates the extent of India's GDP that is made up of rents.
- A (negative) externality occurs when an action by one agent imposes costs on another agent without compensating the latter. For example, a factory dumping effluent upstream imposes costs on farmers who use river water downstream, since farmers have to incur costs in treating the water before using it for irrigation. Without regulations (such as taxing the polluting factory to pay for cleaning the water) the farmers have no way of extracting compensation from the factory. Government clearly has a role in discouraging activities that produce negative externalities. An example of a beneficial externality is education of women which has well-known social benefits, i.e. benefits that accrue to society and not just to the educated woman. Another example of a beneficial externality is where R&D undertaken by one firm benefits all the firms in that industry but the innovating firm is unable to charge the other firms for the benefits they derive from the knowledge created by it. Where beneficial externalities exist, there is typically underinvestment in the activity if it is left to the market. Government intervention has a useful role in subsidising and facilitating activities which produce positive externalities.
- The non-excludability characteristic of a good means that it is not possible to provide the good only to those who pay for it or to exclude non-payers from deriving benefit from the good. Non-rivalness of a good means that consumption of that good by some people does not reduce the amount available for others to consume. National defence force, street-lighting, and laws and regulations are good examples of non-excludable and non-rival goods. Provision of such goods gives rise to free-rider problems, implying that the private sector would be unable to supply such goods.
- Harvard economist Jeffrey Sachs provides a useful example of an international public good (The Economist, August 1999) when he refers to externalities in research and development (R&D) and missing global market in malaria as important international market failures. The development of an effective malaria vaccine is a global public good, given that no individual developing country has the means or the incentive to produce it: means because it costs hundreds of millions of dollars to produce it, and incentive because of the externalities involved – knowledge spillovers mean that no private company or individual country investing in R&D for such a vaccine would ever be able to recoup the cost of the investment because of copycats/hijackers who would ignore the niceties of intellectual property rights or patents and plausibly argue that the poor deserve to have the vaccine at low prices.
- A few examples are: J. Stiglitz, "International Financial Institutions and the Provision of International Public Goods", EIB-Papers 3/2 (1998): 117-32; I. Kaul, I. Grunberg, and M. Stern (eds) Global Public Goods: International Cooperation in the Twenty First Century (Oxford: Oxford University Press for the UNDP, 1999); P. Streeten, "Global institutions for an Interdependent World", World Development 17/9 (1989): 1349-59; C. Kindleberger, "International Public Goods without International Government", chapter 9 in International Economic Order: Essays on Financial Crisis and International Public Goods (London: Harvester Wheatsheaf, 1988).
- (New York: Bahá'í International Community, 1995) section V, 16.
- Shoghi Effendi, World Order of Bahá'u'lláh 202-203.
- See, for example, the World Development Report of 1997 by the World Bank which focuses on the role of the state. Also see the keynote address, at the 1997 Annual Conference on Development Economics at the World Bank, by Joseph Stiglitz, then chief economist at the World Bank.
- Relevant to this area is research work on regulating markets (in a transparent way – for instance through open auctions rather than through quotas which are subject to rent-seeking activities) and work on introducing competition and market-like mechanisms in public agencies and in privatised public utilities such as telecoms, electricity, rail, and power.
- When measures of ethnic fractionalization are included as explanatory variables in growth regressions, they appear with significant negative signs, suggesting that greater ethnic diversity is likely to depress economic growth over time. For example in Easterly and Levine's (1997) study, ethnic diversity was detrimental to the achievement of growth and also of other desirable traits such as high education, political stability, low fiscal deficits and sufficient infrastructure, all factors which are associated with economic growth (W. Easterly and R. Levine, "Africa's Growth Tragedy: Policies and Ethnic Divisions", Quarterly Journal of Economics 112 : 1203-50).
- For example, see J. Temple and P. Johnson, Quarterly Journal of Economics 113/3 (1998): 965-90 who find that indexes of social development constructed in the early 1960s have considerable predictive power in explaining growth. The authors conclude that their results indicate the importance of "social capability" for economic growth.