The author, Dr M. Umer Chapra tries to explore the underlying causes of poverty in developing countries, especially Muslim countries. This study offers a well written survey of various economic models which have been tried under the guises of capitalistic and socialistic systems. However, most of these efforts have failed to eliminate or even reduce the misery of acute poverty experienced by millions of people in these countries. Bilateral economic assistance programs like aid from the US as well as financial assistance from international agencies like IMF and the World Bank over the last few decades have failed to lift millions from a vicious circle of absolute poverty. This has certainly been true of many Muslim countries which strictly followed the Western models of economic growth and failed to respond to the needs of millions who live below the poverty line, with very little access to decent food, housing, education and medical facilities. If anything, these Western-dictated policies have increased the gap between rich and poor during the last three or four decades.

Most of the current problems experienced by these countries can be attributed to the inherent belief of Western economists and policy makers who also dominate international agencies, is that the goal of economic growth is incompatible with the idea of equity in distribution of wealth. The discussion begins with Adam Smith, founder of economics as a separate modern discipline in the West. The rationale behind the emphasis on "Self Interest" by Adam Smith was that the desire to serve self interest will induce the individuals to be most efficient. Producers use the lowest cost method and market sets the prices. Consumers vote in favor of one producer or the other by paying the market price for the product. But this system lacks equity. In order to achieve equity, the classical system used value-neutral framework of Pareto-optimality that makes sure that everybody is better off without making anybody worse off. The above analysis is based on the rigid assumptions that there is harmony between individual and social interests and individual preferences reflect social priorities while prices reflect urgency of needs etc.

The author of the book goes on to say that in early Classical days the idea of development was based on laissez- faire, but after the Great Depression Keynesian economics emerged as a preferred macro approach. Keynesian macromodels gave governments more leeway in terms of taxation and spending. Whether it was Classical, Keynesian or even Neoclassical economics, all of these view functioned in value-neutral environment. Moreover, it was asserted that the developing countries cannot prosper, unless they modernize themselves. To become modernized, rapid industrialization was required. In the 1960's and afterward, it was asserted that developing nations must undertake large-scale industrial projects. Basic needs of masses were left totally unattended. Development models like "Big-push" were very popular and international agencies were rapidly introducing these types of industrial policies in developing countrie. Since private sector in most developing countries could not finance these huge projects adequately, governments were urged to initiate these projects and then sell them to private owners.

During this time, need for equity to improve the basic life for millions of poor in developing nations was ignored. It was also suggested that the goal of rapid growth was inconsistent with the equitable distribution of wealth and therefore must be foregone to accomplish rapid economic growth. Very few steps were taken co achieve socio-economic justice. Models like Kuznets inverted U-curve justified unequal distribution of wealth during early growth process. Inequality will diminish at later stages of economic development, most Western economists asserted. My personal experience comes from Pakistan, where heavy emphasis was given to big industrial projects by policy makers like Mehboob- ul-Haq, who were heavily influenced by Western ideas, and led Pakistan to unbalanced growth for over a decade. However, by 1968 there was such a public unrest in Pakistan that most of the big push type policies had to be abandoned.

During this period of "Big Push" type economic policies for developing countries, there was a great deal of discussion about keeping a balmce between agriculture and industry as well as between urban and rural development. Moreover, the choice between export-promotion and import-substitution was widely debated. All of this reflected absence of focus on the part of Western policy advisors. Any emphasis on easing the economic plight of the poor masses in developing nations was ignored. Most of the developing countries had large rural populations. They needed projects to create jobs in rural areas, grow food and produce other goods to satisfy the needs of rurai residents. In these "Big Push" prescriptions agriculture and industry were treated as substitutes as opposed to being compliments. The need in developing countries was not only to promote import substitution, but to locate markets to sell products abroad. However, import-substitution was given a preference. There was also some support given to agriculture, but the main focus there was to develop big farms like US or other industrial nations. It was asserted that mechanization of farming will increase agricultural output. The people who would lose jobs due to this mechanization, will be absorbed in newly formed industries. However, the establishment of local industry was ignored. Unfortunately, rapid industrialization of urban areas created more problems than solved. These projects made big news for IMF and the World Bank but did nothing for large segments of the populations in respective countries.

Those developing countries which tried to specialize in export promotion did not do well either. Most of them faced strict quotas by their industrial importers. Pretty soon most countries started to face huge foreign debt burden and high rates of inflation. During this period big government bureaucracies were being criticized for having too much power and being grossly inefficient. Over-regulation by bloated government bureaucracies was being blamed for most of the economic problems of developing nations.

The decade of the 1990's is seeing the resurgence Neoclassical economics with one twist. This time there is some emphasis on equity. However, the author rejects this value-neutral system by emphasizing that it cannot solve the problems of Muslim developing countries. There are some notable characteristics which should be kept in mind.

(a) The Neoclassical models of the 1990's emphasize reducing the role of government in the economy.

(b) They allow markets to function freely without any distortion by the government.

(c) They have strong emphasis on liberalization of foreign trade.

There are some merits associated with this approach. Reducing the role of government will certainly reduce huge budget deficits mmy developing countries are running. Liberalization should also include reduced regulation and distortion of markets by government regulation. Countries will have most efficient use of resources by having a reliance on market mechanism. However, liberalization of markets outlined above does not address the issues of human capital and human basic needs. Millions of people in these countries need basic necessities like food, housing, education, health care and better job skills. In his book Head to Head, Lester Thurow (1992) emphasizes the major role played by human capital. According to Thurow, there will be head to head competition among the US, Japan, and united Europe, and the economy with the strongest human capital will eventually achieve the dominant position. Much touted liberalized policy prescriptions by various international agencies like the World Bank and IMF, concentrate on traditional Neoclassical measures like increase in domestic savings, stable exchange rites, reduced taxes and tariffs. However, they fail to recognize the core issues of human development. "Reliance merely on price mechanisms to allocate resources cannot operate against need fulfillments and equitable distribution of income and wealth", declares the author.

Numerous studies on the benefits of liberalization have used Southeast Asian as well as Pacific Rim countries like South Korea, Taiwan, Singapore and Hong Kong as case studies. Many economists have used these newly industrialized countries as examples of successes achieved by implementation of the Neoclassical economics. They believe that liberalization accelerated their development. These countries' outward orientation enlarged their export surpluses and increased employment opportunities. Their increased foreign exchange earnings have enabled them to import urgently needed capital goods. During the last couple of decades these countries have tremendously decreased their reliance on any foreign economic assistance. However, huge foreign private investment funds have flowed into these countries.

It should be kept in mind that liberalization and export orientation are not the only factors helping these countries. These countries also have the following necessary traits for rapid economic growth:

1. Political stability.

2. Government intervention in markets, ie. subsidies to reduce cost of exportable goods.

3. High propensity to save. This is a very distinct cultural trait necessary to generate huge new investable funds.

4. Several of these countries have undertaken land reforms in the recent past.

5. These countries have developed the social institutions, which are very conducive to economic growth and development. For example, Thurow's Head to Head has a lengthy discussion of Japanese corporate culture, which is very savings oriented. Moreover, Japanese do not have to spend large amounts on their defence, which frees up the resources for further research and development.

Having provided a detailed discussion of the impact of capitalistic philosophy on most developing countries, the author directs attention to alternative provided by the Islamic framework. The author begins by pointing out that Islamic system has the most plausible economic structure which can lead to greater economic efficiency and equity. "It is the collective obligation of the Muslim society to ensure proper training and optimal employment. Islamic definitions of Equity and Efficiency should raise the Islamic version of development. Hence optimum efficiency may be said to have been achieved in the allocation of resources if the maximum feasible quantity of need-satisfying goods and services is produced with a reasonable degree of economic stability and sustainable rute of growth." The author suggests five important steps which can be taken by adopting an Islamic framework to accelerate the rate of growth of the economy and improve the wellbeing of millions of human beings who have been deprived of basic necessities due to man-made systems which promote concentration of wealth in few hands. These five steps are:

1. Invigorate human factor.

2. Reduce concentration of wealth.

3. Undertake economic restructuring in many Muslim countries.

4. Restructure financial systems.

5. Adopt strategic policy planning.

Socio-economic justice is the key to motivating human beings to excel in whatever they do. Socio-economic justice can be achieved by putting high emphasis on reforms in rural areas, where most of the populations of developing (Muslim) countries live. The author's major recommendation is to start a large number of SMEs (Small Micro Enterprises) where people can find jobs and produce plenty of gooes they wish to consume. Although the approach has maerits it oversimplifies the solution to rural unemployment or underemployment. Although it may be a good way to provide capital to small rural businesses, the entire economy cannot rely on these enterprises to generate large number of jobs needed for young educated workers. Prolonged unemployment may lead to social unrest, crime and apathy with the economic system. The other part of this proposal is to inject moral sense of responsibility in all workers, so they give priority to social well-being. It is easier said than done. Often business problems which arise in day to day operations are blamed on government intervention and distortion of market as well as on corrupt government agencies. The truth is that it is a combination of government regulations as well as lack of business and technical skills which can lead to business failures. The literacy rates are very low in most Muslim developing countries, even higher among females. Higher education is either inaccessible or too expensive for an average citizen to afford. Moreover, most college educated workers lack sophisticated technical skills needed to run modern businesses. The problem of high unemployment cannot be reduced unless every member of the society has good education. Good education will also generate more awareness about health, sanitation and disease prevention. This can also lead to new job opportunities. It will also enhance the quality of life for females who play a significant role in raising future citizens of these nations. Educating females will also help to improve understanding of the potential problems associated with high rate of growth in population which is taking heavy toll in these countries in terms of utilizing limited economic resources.

Although. I personally do not endorse government intervention in the market place, in many developing countries, initial assistance from the government may be necessary to provide job training to potential workers in various business enterprises. The author also recommends ideas like profit-sharing even employee ownership of various enterprises. In a country like Pakistan, where many major industrial units and numerous commercial banks have been sold to private ownership during the last five years, employee unions are actively seeking ownerships of companies being transferred from government to private sector. The wave of nationalization which spread in many countries during 1960's and 1970's, led to widespread inefficiencies and under-production. In most Muslim, countries, government nationalized commercial enterprises to strengthen its political hold. Many jobs created by these enterprises were given to government supporters as bribes. A well thought out denationalization may help create jobs in the private sector.

Things are changing rapidly in many of these countries. I agree with the author that the process of social change requires moral transformation and moral transformation cannot be achieved without getting everybody involved. There may be a viable role ior both government and private religious organizations to work side by side. There are some additional steps recommended by the author, in terms of the economic and financial reforms:

1. Reform land ownership and tenancy system to give more ownership to workers who actually work hard to produce.

2. Introduce micro enterprises to provide more work opportunities to underemployed agricultural workers.

3. Restructure the financial system to provide loan opportunities to small enterprises.

4. Reform public finance system in a way that it can complement the market system.

5. Move away from interest-based deficit financing and adopt profit sharing system. People who lend money to the government may become active or inactive partners in its activities. However, there might be some problems associated with this recommendation. I am afraid once government is unable to borrow money, it will be seriously tempted to monetize its debt.

6. Developing your own industrial base is important. However, both industrialization and SMEs will require too much resources and better skilled workers will leave their rural habitats to work in higher paying industries located in urban centers. That is true of many industrialized nations including the US. In the US many small rural town are trying to attract high-tech industries to keep their local workers interested in local job markets. Many developing countries have experienced rural-to-urban migration during the last few decades. The urban population have risen tremendously causing major housing and transportation problems. Many of urban centers in developing countries face serious challenges in terms of cleaning the cities, providing adequate housing and reducing industrial and auto pollution.

7. Opening of equity markets to international investors can bring in the badly needed capital for economic growth. However, this has also caused problems of speculation and fluctuation in many of these emerging equity markets.

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References

1. Thurow, C. Lester, Head to Head: The Corning Economic Battle among Japan, Europe and America, New York, Morrow, 1992.

2. M. Umer Chapra, Islam and Economic Development (Islamabad, Pakistan: The International Institute of Islamic Thought and Islamic Research Institute, 1993)