Penguin Books Ltd
Jeffrey Sachs
On Economic Growth of countries
In the past 200 years, he notes that the key to growth was consistency. The fact that US maintained an income growth of 1.7% pa consistently.
Why there are different rates of growth in different regions?
He disputes the zero-sum view that the rich countries became that way by transfer of income form the poor countries through force or otherwise, because of the evidence of a overall growth in the world income, at a different rate in different regions.
His program for migrating an unstabilised economy to a market economy – 5 pillars:-
1. Stabilization – ending high inflation and establishing a stable convertible currency (even thru the setting up of a world supported fund to back the currency)
2. Liberalization – allowing markets to function by legalizing private economic activity, ending price controls and establishing where necessary commercial law
3. Privatization - identifying private owners for assets currently held by states – can be done entire enterprises or piecemeal.
4. Social safety net – pensions, health care and or benefits for the elderly, poor to help cushion the transition
5. Institutional harmonization – gradual adoption of economic laws, procedures and institutions of western Europe?
But most importantly, must establish a broad-based goal or purpose or guiding principle for the economic transformation. Eg for Bolivia it was establishing democracy, ending hyperinflation and reinvention of the country. For Poland, it was a return to Europe.
Each country will be different – he calls it clinical economics – differential diagnosis.
He says that for a country that needs help –
Poor countries need a leg up because they don’t have enough even for subsistence, what more growth and investment and the only way to provide this is by official development assistance by donors. The idea is to increase the income per capita for the country (as opposed to increasing GDP)
• Public sector should concentrate on 5 kinds of investments-
o Human capital
o Infrastructure
o Natural capital
o Public institutions
o Parts of knowledge capital involving r&d for health , energy, climate
• Private sector (funded by private savings ), would be responsible for investments in-
o Businesses (agriculture, industry or services
o Knowledge capital
o As well as for household contributions to health, education and nutrition
5 reasons why he says government should finance the public sector investments –
1. Many infrastructure characterized by increasing returns to scale. If done privately, it can only be afforded by monopolies which would overcharge, and then result in too little utilization by public
2. Nonrival goods – goods when used by 1 person is not diminished by others eg scientific discovery of DNA
3. They exhibit strong spillovers or externalities to their effects. Ie I want you to be healthy so you don’t transmit disease to me.
4. As a matter of right and justice, everybody should have an adequate level of access to key goods and services eg health care, education , safe drinking water
5. To help poorest of the poor to get them started in productive activities
He talks abut the poverty reduction strategies of poor countries, and compare them to the Millenium Development Goals. He says, the problem is that there are missing practical lingkages between the PRS and the MDG – usually, underfunded too.
He says that a true MDG-based poverty reduction strategy should have 5 parts-
• Differential diagnosis
• Investment plan – shows the size, timing and costs of required investments
• Financial plan – how to fund it , and calculate funding gap that need donors
• Donor plan – get a multilayer donor commitment to fill the MDG gap
• Public management plan – outlines the mechanism and governance and public administration needed to implement the expanded public investment strategy
He says that cash transfers alone are not an attractive way to deliver ODA, because they only tend to fill the consumption gap. To end poverty trap he says the ODA must be used for investments in infrastructure and human capital and thereby empowering the poor to be more productive on their own account, and putting the poor countries on the path to self sustaining growth.
(he made a reference to Hernando de Soto’s book The Mystery of Capital, which analysed a single factor – ie the lack of property rights ie titles and deeds – for the poor’s single handed failure in development) Sachs says, there are more than just 1 factor.”
At pg 327-
“Despite the fact that much of the free-market economic theory has championed this vision, economists from Adam Smith onward have recognized that competition and struggle are but one side of economic life, and that trust, cooperation, and collective action in the provision of public goods are the obverse side. Just as the communist attempt to banish competition from the economic via state ownership failed miserably, so too would an attempt to manage a modern economy on the basis of market forces alone. All successful economies are mixed economies, relying on both the public sector and the private sector for economic development.”
“The linkage to democracy has a strong economic dimension, however, because research has shown repeatedly that the probability of a country’s being democratic rises significantly with its per capital income level.” (p 333)
Thursday, December 10, 2009
Thursday, November 19, 2009
Developing the Theoretical Foundations of Economics in Islam
Abbas Mirakhor
From New Issues in Islamic Economics & Finance
• 2 approaches to the systematic development of Islamic economic theory
o to start with Western approach to consumer theory and the theory of the firm and then proceed with the analysis by imposing a series of Islamic constraints on the solution
o to ignore Western assumptions regarding consumer and firm behaviour and assume behaviour that would be compatible with Islamic doctrines, not accepting man as he is but as he should be
• efforts to formulate a coherent foundation for Islamic economics have been disputed by 2 grps of thinkers:
o the group that expresses dissatisfaction with the pace and direction of progress made thus far in Islamic economics and disagrees with the concept, methodology and objective of the discipline
o the group that expresses a strident New Weberian critique of islam, in general, and Islamic economis, in particular, and views Islamic institutions and thought as contrary to the growth and development of Muslim societies (he refers to Kuran a lot)
• a problem is for all Muslim economists to reach a consensus-
o with respect to vocabulary
• so far the only 2 fundamental propositions agreed on are
• interest is riba
• risk-sharing and profit-sharing is the Islamic alternative
• also agreement on 2 fundamental issues
• “Justice and Equity” as the focus of the prophetic message
• the Quran, hadith and fiqh as the sources of Islamic law
o with respect to naming the emerging discipline
o with how to define it
• “means-end” characterization satisfactory?
• The unacceptability of the notion of “scarcity” in the Quran
o New institutional economics
• To do more research on Islamic economic institutions and their operation at present in Muslim societies.
• To create an incentive structure for the establishment of new institutions compatble with Islamic objectives
• He suggests that along with an Islamic economic vocabulary, 2 other sources are useful in order to develop a common language-
o History of thought-
• That its ok to borrow the results of investigation from others, That ideas developed belong to all humanity
• “…,moral philosophy gave birth to political economy, out of which grew the present discipline of economics. And moral philosophy from the Middle Ages to the time of Adam Smith was influence by the scholarship of Muslims. While the historians of economic thought generally ignore Muslim contributions, they emplhasize the Aristotelian thought fo the Middle Ages. However, the latter arrived in Europe already influenced by Muslim intermediation and was as Aristotelian as present day neoclassical economics is classical.” (p 224)
• on Hicks model of mercantile behaviour (1986) , Adam Smith and Theory of Moral Sentiment
o Economic hermeneutics – which as used by Abbas Mirakhor does not mean tafseer but rather the process of extracting economic meaning from the first order of interpretation done by fuqaha (see Ali Khan and Chapra in The Future of Economics)
o Relating Hermeneutics to the Islamic Economic History – see Hasanuz Zaman in The economic Funcitons of the Early Islamic State (International Islamic Publishers, Karachi 1981)
From New Issues in Islamic Economics & Finance
• 2 approaches to the systematic development of Islamic economic theory
o to start with Western approach to consumer theory and the theory of the firm and then proceed with the analysis by imposing a series of Islamic constraints on the solution
o to ignore Western assumptions regarding consumer and firm behaviour and assume behaviour that would be compatible with Islamic doctrines, not accepting man as he is but as he should be
• efforts to formulate a coherent foundation for Islamic economics have been disputed by 2 grps of thinkers:
o the group that expresses dissatisfaction with the pace and direction of progress made thus far in Islamic economics and disagrees with the concept, methodology and objective of the discipline
o the group that expresses a strident New Weberian critique of islam, in general, and Islamic economis, in particular, and views Islamic institutions and thought as contrary to the growth and development of Muslim societies (he refers to Kuran a lot)
• a problem is for all Muslim economists to reach a consensus-
o with respect to vocabulary
• so far the only 2 fundamental propositions agreed on are
• interest is riba
• risk-sharing and profit-sharing is the Islamic alternative
• also agreement on 2 fundamental issues
• “Justice and Equity” as the focus of the prophetic message
• the Quran, hadith and fiqh as the sources of Islamic law
o with respect to naming the emerging discipline
o with how to define it
• “means-end” characterization satisfactory?
• The unacceptability of the notion of “scarcity” in the Quran
o New institutional economics
• To do more research on Islamic economic institutions and their operation at present in Muslim societies.
• To create an incentive structure for the establishment of new institutions compatble with Islamic objectives
• He suggests that along with an Islamic economic vocabulary, 2 other sources are useful in order to develop a common language-
o History of thought-
• That its ok to borrow the results of investigation from others, That ideas developed belong to all humanity
• “…,moral philosophy gave birth to political economy, out of which grew the present discipline of economics. And moral philosophy from the Middle Ages to the time of Adam Smith was influence by the scholarship of Muslims. While the historians of economic thought generally ignore Muslim contributions, they emplhasize the Aristotelian thought fo the Middle Ages. However, the latter arrived in Europe already influenced by Muslim intermediation and was as Aristotelian as present day neoclassical economics is classical.” (p 224)
• on Hicks model of mercantile behaviour (1986) , Adam Smith and Theory of Moral Sentiment
o Economic hermeneutics – which as used by Abbas Mirakhor does not mean tafseer but rather the process of extracting economic meaning from the first order of interpretation done by fuqaha (see Ali Khan and Chapra in The Future of Economics)
o Relating Hermeneutics to the Islamic Economic History – see Hasanuz Zaman in The economic Funcitons of the Early Islamic State (International Islamic Publishers, Karachi 1981)
Tuesday, November 10, 2009
Strengthening the Islamic Financial System: Lessons from the Crisis
Public Lecture
Dr Abbas Mirakhor
29 September 2009
Securities Commission Malaysia
1997 Asian crisis gave rise to policy recommendations by IMF which included-
• avoid debt dependence
• rely mostly on equity investments
• if must have debt, shld not be more than 25% GDP
• countries’ obligations should not be geared to short term
• must have enough strength in economy
• shld ensure sovereign bonds include certain clauses to ensure risks are shared equally between creditors and debtors
• transparent balance sheet, marked to market financing, not heavily leverage
• domestic institution must be regulated
• shld establish orderly bankruptcy procedures and restructuring mechanism for workouts
• periodic audits of the soundness and stability of the economy, “financial sector assessment report”
Majority of IMF members accepted this, but major economies incl the US did not implement them eg they refused to have financial sector assessment
The recent subprime crisis occurred and 2 possible explanations:-
Conventional and non conventional
Conventional explanation-
1. policy failure
a. to undertake strengthening regulations, lax monetary policies and fiscal policies
b. refusal to deal with asset and actual incentives of policy makers towards highly risky and complex instruments.
c. These are premised on the interllectural idea o the policy maker which drives his policies.
i. In Greenspan’s idea, he believes in “perfect markets”. If this is true, the risks in the economy will be distributed efficiently. 2 issues affect any economy- (a) what is the total aggregate risk in the economy (b) how do you distribute this risk among the participants of the economy. If you believe in perfect markets, you will want as many instruments to spread the risks efficiently;
ii. The idea that the value of the firm relates to its marginal profitability. So it does not matter how it is financed, ie whether debt or equity. MM model. If you believe in this idea, instruments can be derived based on payoff which is interest rate;
iii. EMH- were the prices of the security includes all the information that a decision maker requires. So if the price increases, it means demand increases and later with over demand supply increases which leads to prices falling again. Thus, Asset Bubbles will never occur
d. The conclusion is that Greenspan will never interfere in policy and regulate markets as you don’t believe that either monetary policy or regulatory measure will affect asset bubbles.
e. But in Dec 2008 Greenspan concluded that he was following a flawed model.
2. regulatory failure – hands off policy, segmentation of economy
3. governance failure – internal and external idea that profit seeking did not create a systemic risk – too complex, too big instruments and institutions resulted
4. globalization failure- increase the vulnerability of the world system, becos there was no institution to overlook the global system. An excess in sovereign funds of some countires , invested in the debt instruments of the US – treasury bills – created a huge inflow into the US – no regulation – debt imbalance
Non conventional explanation
• crisis cannot be avoided in a financial capitalist society where it is based on interest and debt contracts
• 2 components to this-
o capitalism is vulnerable and fragile due to the Fractional Reserve banking system (refe Morris Alais or Holbern) – the fragility sets in because once the banks can create credit, they can also create “shadow banking” ie leverages without taking deposits
o this is the money multiplier of the conventional banks and the leverage of the shadow banks. The fragility is due to the ease in contraction and expansion
• so the “Chicago Plan” during the Depression years came about, but was not adopted as the banking lobby was so strong – the suggestion of that school being that the banking system that operates on 100% reserve
• also mismatching – banks borrow short and lend long. If this does not occur, there won’t be ny need for banking deposit insurance. James Token proposed this system which would anchor the market economy
• Keynes says that capitalism and market economies are inherently fragile because the system interferes with surplus / shortfall of supply of funds. Even in a market economy, there can be no perfect balance, cos savers and investors have different motivations. So consumption in 1 period cannot validated investment in a previous period. So you also cannot guarantee full employment situation.There is also rentier class (interest rate system). If you don’t have this class, saving will find its way into a project and the payoff will be the profit. With interest, it creates a wedge in the economy that make the system fragile. So he says get rid of interest and the rentier class.
• Minsky, a student of Keynes – repeated Keynes ideas and he says financing must be done based on equity financing – “Financial Stability Hypothesis” – during prosperity, firms see investment opportunities, use equity to finance it with little debt. When prosperity picks up momentum, the businessman decides that he want to take advantage by undertaking debt in order to grow. Then begins interest payments, asset bubbles leading to financial distress – “rolling bubbles”
• Soros – “super bubble” which takes magnitude fromt eh bursting of smaller bubbles within it.
• So there must be equity financing and risk sharing to stabilize an economy
What are the lessons for Islamic Finance?
Since they exist side by side with conventional system
-how do you cushion the system from price shocks, so that they can adjust very rapidly in such events
-islamic mathematical models of finance before this assumed that they were bank based, but this cannot be relied on to create stability
also regulatory frameworks is important. The major lesson from the crisis is reulation. We are not assured, because there is no quality control. So a stong enough regulation must be in place acceptable in all jurisdiction and an authority with enough mandate to implement. Otherwise the system can be destroyed. – reputationa damage of sukuk failures
with 100% reserve system, there is no money created. Only the State will create money.
Dr Abbas Mirakhor
29 September 2009
Securities Commission Malaysia
1997 Asian crisis gave rise to policy recommendations by IMF which included-
• avoid debt dependence
• rely mostly on equity investments
• if must have debt, shld not be more than 25% GDP
• countries’ obligations should not be geared to short term
• must have enough strength in economy
• shld ensure sovereign bonds include certain clauses to ensure risks are shared equally between creditors and debtors
• transparent balance sheet, marked to market financing, not heavily leverage
• domestic institution must be regulated
• shld establish orderly bankruptcy procedures and restructuring mechanism for workouts
• periodic audits of the soundness and stability of the economy, “financial sector assessment report”
Majority of IMF members accepted this, but major economies incl the US did not implement them eg they refused to have financial sector assessment
The recent subprime crisis occurred and 2 possible explanations:-
Conventional and non conventional
Conventional explanation-
1. policy failure
a. to undertake strengthening regulations, lax monetary policies and fiscal policies
b. refusal to deal with asset and actual incentives of policy makers towards highly risky and complex instruments.
c. These are premised on the interllectural idea o the policy maker which drives his policies.
i. In Greenspan’s idea, he believes in “perfect markets”. If this is true, the risks in the economy will be distributed efficiently. 2 issues affect any economy- (a) what is the total aggregate risk in the economy (b) how do you distribute this risk among the participants of the economy. If you believe in perfect markets, you will want as many instruments to spread the risks efficiently;
ii. The idea that the value of the firm relates to its marginal profitability. So it does not matter how it is financed, ie whether debt or equity. MM model. If you believe in this idea, instruments can be derived based on payoff which is interest rate;
iii. EMH- were the prices of the security includes all the information that a decision maker requires. So if the price increases, it means demand increases and later with over demand supply increases which leads to prices falling again. Thus, Asset Bubbles will never occur
d. The conclusion is that Greenspan will never interfere in policy and regulate markets as you don’t believe that either monetary policy or regulatory measure will affect asset bubbles.
e. But in Dec 2008 Greenspan concluded that he was following a flawed model.
2. regulatory failure – hands off policy, segmentation of economy
3. governance failure – internal and external idea that profit seeking did not create a systemic risk – too complex, too big instruments and institutions resulted
4. globalization failure- increase the vulnerability of the world system, becos there was no institution to overlook the global system. An excess in sovereign funds of some countires , invested in the debt instruments of the US – treasury bills – created a huge inflow into the US – no regulation – debt imbalance
Non conventional explanation
• crisis cannot be avoided in a financial capitalist society where it is based on interest and debt contracts
• 2 components to this-
o capitalism is vulnerable and fragile due to the Fractional Reserve banking system (refe Morris Alais or Holbern) – the fragility sets in because once the banks can create credit, they can also create “shadow banking” ie leverages without taking deposits
o this is the money multiplier of the conventional banks and the leverage of the shadow banks. The fragility is due to the ease in contraction and expansion
• so the “Chicago Plan” during the Depression years came about, but was not adopted as the banking lobby was so strong – the suggestion of that school being that the banking system that operates on 100% reserve
• also mismatching – banks borrow short and lend long. If this does not occur, there won’t be ny need for banking deposit insurance. James Token proposed this system which would anchor the market economy
• Keynes says that capitalism and market economies are inherently fragile because the system interferes with surplus / shortfall of supply of funds. Even in a market economy, there can be no perfect balance, cos savers and investors have different motivations. So consumption in 1 period cannot validated investment in a previous period. So you also cannot guarantee full employment situation.There is also rentier class (interest rate system). If you don’t have this class, saving will find its way into a project and the payoff will be the profit. With interest, it creates a wedge in the economy that make the system fragile. So he says get rid of interest and the rentier class.
• Minsky, a student of Keynes – repeated Keynes ideas and he says financing must be done based on equity financing – “Financial Stability Hypothesis” – during prosperity, firms see investment opportunities, use equity to finance it with little debt. When prosperity picks up momentum, the businessman decides that he want to take advantage by undertaking debt in order to grow. Then begins interest payments, asset bubbles leading to financial distress – “rolling bubbles”
• Soros – “super bubble” which takes magnitude fromt eh bursting of smaller bubbles within it.
• So there must be equity financing and risk sharing to stabilize an economy
What are the lessons for Islamic Finance?
Since they exist side by side with conventional system
-how do you cushion the system from price shocks, so that they can adjust very rapidly in such events
-islamic mathematical models of finance before this assumed that they were bank based, but this cannot be relied on to create stability
also regulatory frameworks is important. The major lesson from the crisis is reulation. We are not assured, because there is no quality control. So a stong enough regulation must be in place acceptable in all jurisdiction and an authority with enough mandate to implement. Otherwise the system can be destroyed. – reputationa damage of sukuk failures
with 100% reserve system, there is no money created. Only the State will create money.
A Short Outline of the Foundations of Islamic Economics
Usama Uthman
2nd Harvard University Forum on Islamic Finance 1998
He defines Islamic economic system as one that constitutes 3 aspects:-
moral values
economic policy
economic theory
2nd Harvard University Forum on Islamic Finance 1998
He defines Islamic economic system as one that constitutes 3 aspects:-
moral values
economic policy
economic theory
The Challenge of Poverty and the Poverty of Islamic Economics
by Mohammad Omar Farooq
SSRN eLibrary 2008
Islamic economics is suffering from "poverty of substance" . As a discipline it is just a "context of post colonial Islamic resurgence." He finds that Islamic economics is focussed on the alleviation of poverty (why? because poverty leads to kufr) rather than achieving affluence. He calls this "economics of poverty".
This is achieved through a "caring society" and via a reliance on the zakat mechanism to alleviate poverty. He cites the situation of roaming zakat payers that cannot find any zakat beneficiaries during the rule of Hadrat Umar and Umar Ibn Abdul Aziz (2nd khalifa). However he questions the extent of effectiveness of zakat, and speculates that the affluence of the times came from redistribution of wealth obtained through conquests and not thru zakat.
Farooq observes that "Islamic economics" is torn between those that want to "Islamize" the current body of conventional economic thought and those that reject conventional economics outright. But neither focuses on poverty. Even Choudhury (of hte Tawhidi economics) does not tackle poverty head-on. Farooq opines that poverty is not caused by shortage, but by failure in distribution/ redistribution.
SSRN eLibrary 2008
Islamic economics is suffering from "poverty of substance" . As a discipline it is just a "context of post colonial Islamic resurgence." He finds that Islamic economics is focussed on the alleviation of poverty (why? because poverty leads to kufr) rather than achieving affluence. He calls this "economics of poverty".
This is achieved through a "caring society" and via a reliance on the zakat mechanism to alleviate poverty. He cites the situation of roaming zakat payers that cannot find any zakat beneficiaries during the rule of Hadrat Umar and Umar Ibn Abdul Aziz (2nd khalifa). However he questions the extent of effectiveness of zakat, and speculates that the affluence of the times came from redistribution of wealth obtained through conquests and not thru zakat.
Farooq observes that "Islamic economics" is torn between those that want to "Islamize" the current body of conventional economic thought and those that reject conventional economics outright. But neither focuses on poverty. Even Choudhury (of hte Tawhidi economics) does not tackle poverty head-on. Farooq opines that poverty is not caused by shortage, but by failure in distribution/ redistribution.
Islamic Economics and Finance - a Fiasco
by Masudul Alam Choudhury
Middle East Business and Economic Review Vol 20 Issue 1 page 38
Islamic economics as based on a Tawhidi epistemology. Takes it on a completely different paradigm, based on Principle of Pervasive Complementaries. Based on this principle, assumption of scarcity cannot exist in Islamic resource allocation plan as resources flow occurs over three time dimensions, as oppose to linear. Therefore, there would be no such thing as production possibility curve, opportunity cost, marginal substitution, competition.
Middle East Business and Economic Review Vol 20 Issue 1 page 38
Islamic economics as based on a Tawhidi epistemology. Takes it on a completely different paradigm, based on Principle of Pervasive Complementaries. Based on this principle, assumption of scarcity cannot exist in Islamic resource allocation plan as resources flow occurs over three time dimensions, as oppose to linear. Therefore, there would be no such thing as production possibility curve, opportunity cost, marginal substitution, competition.
Monday, November 9, 2009
A THEORY OF SOCIAL INTERACTIONS
NBER WORKING PAPER SERIES
Gary S. Becker*
Working Paper No. 42
CENTER FOR ECONOMIC ANALYSIS OF HUMAN BEHAVIOR AND SOCIAL INSTITUTIONS
National Bureau of Economic Research. Inc.
261 Madison Avenue, New York, N.Y. 10016
June1974
Therefore, charity is a form of self—insurance that is a substitute
for market insurance and government transfers. Presumably, the rapid
growth of these latter during the last 100 years discouraged the growth of
charity.
Gary S. Becker*
Working Paper No. 42
CENTER FOR ECONOMIC ANALYSIS OF HUMAN BEHAVIOR AND SOCIAL INSTITUTIONS
National Bureau of Economic Research. Inc.
261 Madison Avenue, New York, N.Y. 10016
June1974
Therefore, charity is a form of self—insurance that is a substitute
for market insurance and government transfers. Presumably, the rapid
growth of these latter during the last 100 years discouraged the growth of
charity.
CIVIL SOCIETY, SOCIAL ENTREPRENEURSHIP, AND ECONOMIC CALCULATION: TOWARD A POLITICAL ECONOMY OF THE PHILANTHROPIC ENTERPRISE
Peter J. Boettke and Anne Rathbone∗
The Philanthropic Enterprise Working Paper 8
2002
State and Civil Society
But, the view that conceives of civil society as the foundation for the effective operation of the state is flawed on several grounds in our opinion. We do not deny that a vibrant democratic society is grounded in a healthy civil society and institutions of self-governance. This is so mainly because it limits government from expanding its scope of activities. Such a limiting constraint on the scope of government is necessary to ensure that government is restricted to those because of the important distinction between finance through voluntary means and finance through the coercive means of taxation.
State- activities it can do well and avoids those tasks, which in fact it lacks the knowledge and incentives to accomplish effectively. The attempt to conceptualize the market as contrasted with civil society also commits two errors of commission and one error of omission. First, it underestimates the coercive nature of state action. The state, as Max Weber emphasized, is a geographic monopoly on coercion. The state is a powerful instrument through which some parties can gain by exploiting others. Second, it underestimates the role of civil society as an opposition force of self-governance against the coercive power of the state. It was this aspect of 19th century America that so captured the imagination of Alex de Tocqueville. Tocqueville saw America=s propensity for selfgovernance as opposed to reliance on the formal structures of state action as a defining characterization of that society. Self-governance was seen as alternative to the state, not as a prerequisite for a working state sector. Third, the contemporary juxtaposition omits a discussion of the importance of the self-enforcing norms and bonds of trust, which are evident in everyday economic life. Formal contracts and various less formal alternative institutional facilitators of voluntary cooperation are at work in the day-to-day operation of a market society. Benson (1990) suggests that in the United States, seventy five percent of commercial disputes are settled privately through arbitration and mediation. Rubin (1997) points out that in developed economies businesses have learned methods of doing substantial amounts of business without relying on contracts and the threat of legal enforcement makes private arrangements easier.
Civil Society – Market and non Market
In short, market activity is embedded within a larger context of rule-governed behavior. We suggest instead of the distinction that sees the profit motive as contrasted with civil society, that the more appropriate contrast would be the traditional state versus civil society dichotomy, where civil society is divided into non-market and market activity.
Market
In short, what spurs entrepreneurship is the lure of profit, and what disciplines entrepreneurs is the penalty of loss. The property rights structure provides the incentives and establishes the issue of the residual claimant, and the price system provides economic actors with the information to act on the bases of those incentives to utilize resources effectively.
State
But can we say anything in alternative contexts? First, lets consider the state sector and in particular because it is considered responsive let us consider the effectiveness of democracy in assuring that agents act in the interest of the principals. In this example the agents are elected officials, and the principals are the voting public. Is the vote mechanism as effective in disciplining the behavior of the agents in relation to the demands of the principals, as what we argued was the case in the market setting?
The voting mechanism is governed by the logic of concentrated benefits and dispersed costs. The interaction in democratic politics is one characterized by rationally ignorant voters, specially interested votes, and vote seeking politicians. The bias of this interaction is for the politician to concentrate benefits on the well-organized and well-informed special interest voters and to disperse the costs on the unorganized and ill-informed mass of voters.
Non profits
Does the non-profit sector avoid the pitfalls of the state sector? The non-market component of civil society certainly avoids the pitfall of coercion, but it does not have recourse to the institutions of property, prices and profit and loss to the same extent as the market component does. Instead, the non-market sector relies on face-to-face interaction and the disciplinary devices most appropriate for that sort of interaction, namely reputation.
Social Entrepreneurship
Our concern goes to the disciplining of the conjectures of social entrepreneurs. How does the social entrepreneur know if they are doing the right thing in their choice of project A, or project B? How does he calculate the use of scare time and financial resources? We contend that he can do this only by limiting those initiatives to those, which can be directly monitored and disciplined on the basis of face-to-face mechanisms of self-governance. The social entrepreneur does not have recourse the anonymous mechanisms of self-governance that exist in a market economy.
The problem faced by these entrepreneurs was twofold. The social entrepreneurs have to acquire capital from private organizations and must convince the donors that the money is necessary and will be directed to the goal of putting the neediest students through college. What makes this problem especially difficult is that United Student Aids Fund, Inc. was attempting to privately provide a service that the government was already in the business of providing. This makes the problem of convincing private donors to donate money all the more difficult. Thus the notion of reputational collateral is the method by which the social entrepreneur must attain capital. The social entrepreneur must convince the private donors that the government provided service has failed to meet the needs of low-income students to attain loans and additionally that the money donated to the United Student Aid Fund, Inc.would better enable the needy students to attain student loans and that the students would complete their education. Yet, the nature of any nonprofit is that it operates under the structure of a bureaucracy and as such is subject to “soft budget constraints” (Kornai, 1980). The private donors must be convinced that their money is necessary even though the government already provides such a service but also must be convinced that the money will not be misused in the traditional bureaucratic fashion but that it is making society better off or is reaching the neediest students in a manner that was previously
lacking.
The second problem is giving the money to the students who not only need the money the most but that desire the assistance thus the social entrepreneur must engage in not only establishing his own reputational collateral in an effort to acquire capital from private donors but must identify and acquire reputational collateral from the students who are receiving the assistance. This all occurs in the philanthropic arena under which there is no price mechanism because the market has been unable to facilitate exchange in the face of government provision of such services and thus assessing willingness to pay through the price mechanism is not possible. Market prices convey information among buyers and sellers. Without the price mechanism there are proxies for the exchange of information and the determination of willingness to pay. It then becomes the task of United Student Aids Fund, Inc. to assess which students want to go to college and which among them are most likely to finish. This is the only way to ensure future private donations. The government program need not prove the value added in the final product
The Philanthropic Enterprise Working Paper 8
2002
State and Civil Society
But, the view that conceives of civil society as the foundation for the effective operation of the state is flawed on several grounds in our opinion. We do not deny that a vibrant democratic society is grounded in a healthy civil society and institutions of self-governance. This is so mainly because it limits government from expanding its scope of activities. Such a limiting constraint on the scope of government is necessary to ensure that government is restricted to those because of the important distinction between finance through voluntary means and finance through the coercive means of taxation.
State- activities it can do well and avoids those tasks, which in fact it lacks the knowledge and incentives to accomplish effectively. The attempt to conceptualize the market as contrasted with civil society also commits two errors of commission and one error of omission. First, it underestimates the coercive nature of state action. The state, as Max Weber emphasized, is a geographic monopoly on coercion. The state is a powerful instrument through which some parties can gain by exploiting others. Second, it underestimates the role of civil society as an opposition force of self-governance against the coercive power of the state. It was this aspect of 19th century America that so captured the imagination of Alex de Tocqueville. Tocqueville saw America=s propensity for selfgovernance as opposed to reliance on the formal structures of state action as a defining characterization of that society. Self-governance was seen as alternative to the state, not as a prerequisite for a working state sector. Third, the contemporary juxtaposition omits a discussion of the importance of the self-enforcing norms and bonds of trust, which are evident in everyday economic life. Formal contracts and various less formal alternative institutional facilitators of voluntary cooperation are at work in the day-to-day operation of a market society. Benson (1990) suggests that in the United States, seventy five percent of commercial disputes are settled privately through arbitration and mediation. Rubin (1997) points out that in developed economies businesses have learned methods of doing substantial amounts of business without relying on contracts and the threat of legal enforcement makes private arrangements easier.
Civil Society – Market and non Market
In short, market activity is embedded within a larger context of rule-governed behavior. We suggest instead of the distinction that sees the profit motive as contrasted with civil society, that the more appropriate contrast would be the traditional state versus civil society dichotomy, where civil society is divided into non-market and market activity.
Market
In short, what spurs entrepreneurship is the lure of profit, and what disciplines entrepreneurs is the penalty of loss. The property rights structure provides the incentives and establishes the issue of the residual claimant, and the price system provides economic actors with the information to act on the bases of those incentives to utilize resources effectively.
State
But can we say anything in alternative contexts? First, lets consider the state sector and in particular because it is considered responsive let us consider the effectiveness of democracy in assuring that agents act in the interest of the principals. In this example the agents are elected officials, and the principals are the voting public. Is the vote mechanism as effective in disciplining the behavior of the agents in relation to the demands of the principals, as what we argued was the case in the market setting?
The voting mechanism is governed by the logic of concentrated benefits and dispersed costs. The interaction in democratic politics is one characterized by rationally ignorant voters, specially interested votes, and vote seeking politicians. The bias of this interaction is for the politician to concentrate benefits on the well-organized and well-informed special interest voters and to disperse the costs on the unorganized and ill-informed mass of voters.
Non profits
Does the non-profit sector avoid the pitfalls of the state sector? The non-market component of civil society certainly avoids the pitfall of coercion, but it does not have recourse to the institutions of property, prices and profit and loss to the same extent as the market component does. Instead, the non-market sector relies on face-to-face interaction and the disciplinary devices most appropriate for that sort of interaction, namely reputation.
Social Entrepreneurship
Our concern goes to the disciplining of the conjectures of social entrepreneurs. How does the social entrepreneur know if they are doing the right thing in their choice of project A, or project B? How does he calculate the use of scare time and financial resources? We contend that he can do this only by limiting those initiatives to those, which can be directly monitored and disciplined on the basis of face-to-face mechanisms of self-governance. The social entrepreneur does not have recourse the anonymous mechanisms of self-governance that exist in a market economy.
The problem faced by these entrepreneurs was twofold. The social entrepreneurs have to acquire capital from private organizations and must convince the donors that the money is necessary and will be directed to the goal of putting the neediest students through college. What makes this problem especially difficult is that United Student Aids Fund, Inc. was attempting to privately provide a service that the government was already in the business of providing. This makes the problem of convincing private donors to donate money all the more difficult. Thus the notion of reputational collateral is the method by which the social entrepreneur must attain capital. The social entrepreneur must convince the private donors that the government provided service has failed to meet the needs of low-income students to attain loans and additionally that the money donated to the United Student Aid Fund, Inc.would better enable the needy students to attain student loans and that the students would complete their education. Yet, the nature of any nonprofit is that it operates under the structure of a bureaucracy and as such is subject to “soft budget constraints” (Kornai, 1980). The private donors must be convinced that their money is necessary even though the government already provides such a service but also must be convinced that the money will not be misused in the traditional bureaucratic fashion but that it is making society better off or is reaching the neediest students in a manner that was previously
lacking.
The second problem is giving the money to the students who not only need the money the most but that desire the assistance thus the social entrepreneur must engage in not only establishing his own reputational collateral in an effort to acquire capital from private donors but must identify and acquire reputational collateral from the students who are receiving the assistance. This all occurs in the philanthropic arena under which there is no price mechanism because the market has been unable to facilitate exchange in the face of government provision of such services and thus assessing willingness to pay through the price mechanism is not possible. Market prices convey information among buyers and sellers. Without the price mechanism there are proxies for the exchange of information and the determination of willingness to pay. It then becomes the task of United Student Aids Fund, Inc. to assess which students want to go to college and which among them are most likely to finish. This is the only way to ensure future private donations. The government program need not prove the value added in the final product
The Kalamazoo Promise: A study of philanthropy’s increasing role in the American economy and education
Shelley Strickland
WORKING PAPER FOR ASHE 2008 CONFERENCE
Philanthropy is an indirect catalyst for economic development,particularly to improve the greater Kalamazoo community.
Use the logic model developed by public affairs and philanthropy scholar Peter Frumpkin (2006). He contends that while external factors and broader economic and political forces are also considerations, three primary interrelated elements factor into the logic model (see Figure 1).
First, the theory of leverage considers the tactics a donor might employ. These tactics take two forms. One is the type of grant-making technique (project grants, short-term, grants, matching grants, loans, large grants to a few select recipients, issuing requests for proposals, high-engagement levels, funding overseas, joint ventures, and capacity-building grants). The second tactic is the programmatic technique (funding in communities, not program areas; new initiatives and pilot programs; support for nonprofit collaboration, not isolated work; private funding for public programs; funding of commercial ventures within nonprofits; funding for organizations created by grantmakers; and funding for independent evaluations). The combination of tactics informs the theory of leverage, which determines the philanthropic inputs.
The theory of change can be considered the core of the logic model. Frumkin contends that five possible change theories exist in philanthropy. Donors attempt to train individuals for leadership in a field, build stronger organization, create new networks, influence political channels, and generate new ideas and programs “with the goal of shaping the underlying paradigm and conversation.” The theory of change affects the activity, outputs and outcomes of a gift. Scholarly and media attention on the Promise has primarily focused on these elements.
Finally, the theory of scale determines the broad public impact. This can be measured in terms of financial strength, program expansion, comprehensiveness, multisite replication and the acceptance of a new doctrine within a field.
Current scholars, then, are not discounting pioneering concepts; they instead claim that economic concepts on philanthropy are incomplete, inconclusive or incorrectly prioritized.
Rather than either a public goods explanation of philanthropy or a focus on private consumption, Duncan (2004) advances a third model: “impact philanthropy.” He claims this model will predict philanthropic behavior because it captures the ways philanthropy interrelates with other aspects of giving, such as the relationship of a charitable organization to its donors or fundraising activities. His model accounts for negative gift externalities in ways previous research does not. For example, an “impact philanthropist” who seeks pleasure from seeing the measurable result his or her own personal giving alone makes on a charitable organization could actually have that charitable fulfillment decreased by others’ gifts. Duncan’s previously noted concept of “impact
philanthropy,” a new alternative to economic theories, helps account for explanations of why donors such as those to the Promise did not provide operating support. An impact philanthropist, as opposed to a public goods or private consumption philanthropist, perceives a greater impact by targeting a specific part of the production process that can be measured (Duncan, 2004).
Tax deductions do not fully explain motivations for the ultra rich. “The mega giver takes every advantage of the tax laws. But tax savings isn’t the primary force behind giving. And for many, tax isn’t a factor at all” (Panas, 2005, p. 162). With an estimated $250 million endowment established (Lydersen, 2006) for the Promise in particular, the donors were not likely motivated by taxation implications.
The remarkable resources of such donors, exemplifying the concentration of wealth in a select few, present the opportunity to alter our society and our marketplace, especially as they bring creative approaches to philanthropy
WORKING PAPER FOR ASHE 2008 CONFERENCE
Philanthropy is an indirect catalyst for economic development,particularly to improve the greater Kalamazoo community.
Use the logic model developed by public affairs and philanthropy scholar Peter Frumpkin (2006). He contends that while external factors and broader economic and political forces are also considerations, three primary interrelated elements factor into the logic model (see Figure 1).
First, the theory of leverage considers the tactics a donor might employ. These tactics take two forms. One is the type of grant-making technique (project grants, short-term, grants, matching grants, loans, large grants to a few select recipients, issuing requests for proposals, high-engagement levels, funding overseas, joint ventures, and capacity-building grants). The second tactic is the programmatic technique (funding in communities, not program areas; new initiatives and pilot programs; support for nonprofit collaboration, not isolated work; private funding for public programs; funding of commercial ventures within nonprofits; funding for organizations created by grantmakers; and funding for independent evaluations). The combination of tactics informs the theory of leverage, which determines the philanthropic inputs.
The theory of change can be considered the core of the logic model. Frumkin contends that five possible change theories exist in philanthropy. Donors attempt to train individuals for leadership in a field, build stronger organization, create new networks, influence political channels, and generate new ideas and programs “with the goal of shaping the underlying paradigm and conversation.” The theory of change affects the activity, outputs and outcomes of a gift. Scholarly and media attention on the Promise has primarily focused on these elements.
Finally, the theory of scale determines the broad public impact. This can be measured in terms of financial strength, program expansion, comprehensiveness, multisite replication and the acceptance of a new doctrine within a field.
Current scholars, then, are not discounting pioneering concepts; they instead claim that economic concepts on philanthropy are incomplete, inconclusive or incorrectly prioritized.
Rather than either a public goods explanation of philanthropy or a focus on private consumption, Duncan (2004) advances a third model: “impact philanthropy.” He claims this model will predict philanthropic behavior because it captures the ways philanthropy interrelates with other aspects of giving, such as the relationship of a charitable organization to its donors or fundraising activities. His model accounts for negative gift externalities in ways previous research does not. For example, an “impact philanthropist” who seeks pleasure from seeing the measurable result his or her own personal giving alone makes on a charitable organization could actually have that charitable fulfillment decreased by others’ gifts. Duncan’s previously noted concept of “impact
philanthropy,” a new alternative to economic theories, helps account for explanations of why donors such as those to the Promise did not provide operating support. An impact philanthropist, as opposed to a public goods or private consumption philanthropist, perceives a greater impact by targeting a specific part of the production process that can be measured (Duncan, 2004).
Tax deductions do not fully explain motivations for the ultra rich. “The mega giver takes every advantage of the tax laws. But tax savings isn’t the primary force behind giving. And for many, tax isn’t a factor at all” (Panas, 2005, p. 162). With an estimated $250 million endowment established (Lydersen, 2006) for the Promise in particular, the donors were not likely motivated by taxation implications.
The remarkable resources of such donors, exemplifying the concentration of wealth in a select few, present the opportunity to alter our society and our marketplace, especially as they bring creative approaches to philanthropy
RELIGION, CULTURE, AND ECONOMIC PERFORMANCE
Marcus Noland
Institute for International Economics
“Whatever the sins of Western imperialists, Islam was developing more slowly than the
West during a period of Islamic conquest and geographical expansion into Europe. “
3 possible reasons offered-
Intellectual roots – “closing of the doors of ijtihad” (just follow , no need to inquire attitude) prevented a critiques of current practices “a la Protestant Christianity”
Sociological roots – earlier – warrior tribe with plunder method for amassing wealth, later coalescing into socially dominant town tribes with slave owning economic structure – with sedentary bureaucratic – does not lead to “development through intensive means”
Institutionally – eg inheritance laws with concentration on redistribution prevented long term corporate institutions that can amass wealth
However, the writer found that there is no evidence that Islam inhibits economic growth.
Institute for International Economics
“Whatever the sins of Western imperialists, Islam was developing more slowly than the
West during a period of Islamic conquest and geographical expansion into Europe. “
3 possible reasons offered-
Intellectual roots – “closing of the doors of ijtihad” (just follow , no need to inquire attitude) prevented a critiques of current practices “a la Protestant Christianity”
Sociological roots – earlier – warrior tribe with plunder method for amassing wealth, later coalescing into socially dominant town tribes with slave owning economic structure – with sedentary bureaucratic – does not lead to “development through intensive means”
Institutionally – eg inheritance laws with concentration on redistribution prevented long term corporate institutions that can amass wealth
However, the writer found that there is no evidence that Islam inhibits economic growth.
Economics of Philanthropy
Entry in the Encyclopeadia of the Social and Behavioral Sciences
2001 Elsevier Science Ltd
ISBN 0080430767
Individuals are sensitive to the tax deductions allowed by the US tax system. Tax deductions increase the giving by private sector. There is crowding out effect of government grants on private charitable giving.
2001 Elsevier Science Ltd
ISBN 0080430767
Individuals are sensitive to the tax deductions allowed by the US tax system. Tax deductions increase the giving by private sector. There is crowding out effect of government grants on private charitable giving.
Sunday, October 25, 2009
Review on the book "Economic Concepts of Ibn Taimiyah" by Abdul Azim Islahi
Mohammed Hamid Abdallah in Journal of King Abdual Aziz University
The author brought in historical background and also made comparison to earlier thinking on economic matters from the Greeks,etc
Main ideas of Ibn Taimiyyah-
Market Mechanism-
"Just price" - price of an equivalent good taking into account the subjective value to buyer and the seller
"market mechanism" - determined by supply and demand
"Price regulation" - policy of price control by government - just and unjust price regulation.
just - done at times of emergency such as famine or war and also at times of market imperfections
unjust - creation of a price thru manipulative means to increase or decrease supply or demand
Property Rights - all property belongs to Allah but all (individual, society or govt) can claim property rights and shld use it on behalf of Allah. Ibn Taimiyah not in favour of poverty as it would lead to a distraction from religious duties.
Money and Interest - money should not be traded as a commodity
State- its role in economic life, al hisbah, etc
Public Finance - from zakah, ghainimah, fai, kharaj and gizyah. there should also be financial obligations on the individual other than zakah
Taxation - shld not be heavy expecially if spent on luxuries by rulers rather than as benefit for the poor.
The author brought in historical background and also made comparison to earlier thinking on economic matters from the Greeks,etc
Main ideas of Ibn Taimiyyah-
Market Mechanism-
"Just price" - price of an equivalent good taking into account the subjective value to buyer and the seller
"market mechanism" - determined by supply and demand
"Price regulation" - policy of price control by government - just and unjust price regulation.
just - done at times of emergency such as famine or war and also at times of market imperfections
unjust - creation of a price thru manipulative means to increase or decrease supply or demand
Property Rights - all property belongs to Allah but all (individual, society or govt) can claim property rights and shld use it on behalf of Allah. Ibn Taimiyah not in favour of poverty as it would lead to a distraction from religious duties.
Money and Interest - money should not be traded as a commodity
State- its role in economic life, al hisbah, etc
Public Finance - from zakah, ghainimah, fai, kharaj and gizyah. there should also be financial obligations on the individual other than zakah
Taxation - shld not be heavy expecially if spent on luxuries by rulers rather than as benefit for the poor.
Wednesday, October 21, 2009
Economic Thoughts of Redistribution of Income and Wealth: A Comparative Analysis
By Azizi Che Seman and Nor Aini Ali
Comparison between conventional and Islamic views on redistribution of wealth.
Distribution
Conventional – there are 2 types of people who have a right to acquire wealth and property and to dispose
• Those with primary rights – ie those that participate in the process of production (ie those that have any of the 2 factors of production – labour, land, entrepreneurship or capital)
• Those with secondary rights –
Islam – enjoins upon those in the primary group to share with the secondary group
Redistribution
Redistribution of wealth is important when the market system is imperfect.
Conventional:-
Arguments against redistribution
1. labour and capital are paid in accordance with the value they produce. Land and capital owners receive profit or interest because the land or capital they own is productive
2. freedom of contract
3. taxation and transfer programs interfere with the basic incentives
Arguments for redistribution
1. utlilitarian justice – ie a dollar in the hands of a rich man is worth less to him than a dollar in the hands of a poor man
2. or if someone has more than another, a utility gain will result from transferring income from those with more to those with less – utility function
3. simple fellow feeling
4. social contract theory – Rawlsian justice – inequality would only be tolerated in a society as long as some of the benefits went to those at the bottom
5. Marx – he places all value on labour and none on capital, so that profits are an expropriation by the capitalist of the fruits of labour’s effort
6. Income distribution as a “public goods”
Islamic
1. Redistribution is aimed to maintain justice and equity in society
2. Ibn Taymiyyah – eradication of poverty is an obligation of the state
• It is duty of state to help people better themselves financially
• Redistribution of income is duty of the state
• There are other obligations on Muslims apart from zakah = on the basis of need of the society
• Do this by right taxation, in addition to zakah
• Waqf for the use of the rich is considered invalid because wealth should not circulate among the rich only
3. “Ibn Hazm (994-1064) who says that it is the duty of the rich of every country to support the poor, and that the ruler has a right to force them to do so, if zakah and other public revenue is not sufficient.”
• Basic standard of living is food, shelter, clothes and water
• State must provide for the basics
• But the function of eradicating property is not just left to the state but also to the rich
• Taxes can be imposed if zakah is not sufficient
Comparison between conventional and Islamic views on redistribution of wealth.
Distribution
Conventional – there are 2 types of people who have a right to acquire wealth and property and to dispose
• Those with primary rights – ie those that participate in the process of production (ie those that have any of the 2 factors of production – labour, land, entrepreneurship or capital)
• Those with secondary rights –
Islam – enjoins upon those in the primary group to share with the secondary group
Redistribution
Redistribution of wealth is important when the market system is imperfect.
Conventional:-
Arguments against redistribution
1. labour and capital are paid in accordance with the value they produce. Land and capital owners receive profit or interest because the land or capital they own is productive
2. freedom of contract
3. taxation and transfer programs interfere with the basic incentives
Arguments for redistribution
1. utlilitarian justice – ie a dollar in the hands of a rich man is worth less to him than a dollar in the hands of a poor man
2. or if someone has more than another, a utility gain will result from transferring income from those with more to those with less – utility function
3. simple fellow feeling
4. social contract theory – Rawlsian justice – inequality would only be tolerated in a society as long as some of the benefits went to those at the bottom
5. Marx – he places all value on labour and none on capital, so that profits are an expropriation by the capitalist of the fruits of labour’s effort
6. Income distribution as a “public goods”
Islamic
1. Redistribution is aimed to maintain justice and equity in society
2. Ibn Taymiyyah – eradication of poverty is an obligation of the state
• It is duty of state to help people better themselves financially
• Redistribution of income is duty of the state
• There are other obligations on Muslims apart from zakah = on the basis of need of the society
• Do this by right taxation, in addition to zakah
• Waqf for the use of the rich is considered invalid because wealth should not circulate among the rich only
3. “Ibn Hazm (994-1064) who says that it is the duty of the rich of every country to support the poor, and that the ruler has a right to force them to do so, if zakah and other public revenue is not sufficient.”
• Basic standard of living is food, shelter, clothes and water
• State must provide for the basics
• But the function of eradicating property is not just left to the state but also to the rich
• Taxes can be imposed if zakah is not sufficient
Sunday, October 11, 2009
Philanthropy and Social Justice in Islam: Principles, Prospects and Practices
Samiul Hasan
University of Technology Sydney
This book analyses concepts pertaining to social (distributive) justice in Islam
Resource mobilisation options
Practices and issues in different Muslim polities
Giving in terms of cash and volunteering time
Islam emphasises philosophy not rituals
But charity straddles both worship and practice
Chapter 2 – he studies different Muslim nations
Table (pg 37) on Muslim nations and the State of the Nation
He finds that “around 50% of World Muslims live in countries with a British colonial past” subject to common law
A lot of inequality between the countries, and within them of socio economic background-
Measured by 2 yardticks of development (used by international bodies such as UNDP-
• Infant mortality rate
• Level of adult literacy
(see table pg 41)
Many Muslim nations only in existence for the past 50 years. His findings (see table pg 44)
• Generally, there is a direct correlation between low income inequality and human development potential (ie low infant mortality rate and level of adult literacy) although this is not applicable to all the countries
• 11 of them are OPEC members . Of these where the countries are dependent on petroleum export earnings for the largest percentage of the GDP All except for Indonesia (soon to be non OPEC), have monarchy or civil/military authoritarian system of govt. This applies to non-OPEC member petroleum exporting countries such as Egypt, Oman, Sudan and Syria. There is a direct relationship between a petroleum based economy and the citizen’s ability to control the policy regime
• Disparities in economic status are lower where philanthropic activities are high.
Chapter 3 – he studies the concept of social justice in Islam
Social justice – 3 types within the philosophy of Islam-
• Relational – ummah (brotherhood), asabiyah (social solidarity), kindness, non judment, do good deeds, respectful
• Retributive – qisas, hadd, repentance and mercy, adherence to the law
• Distributive – lawful activites such as trade, compassion to others, use of property in lawful, correct , responsible manner, trustee of all property belonging to God, non hoarding, charity, takaful (here he cites Kamali: Freedom, Equality and Justice in Islam 1999)
All within framework of fairness and equity
He says that Islam does not provide the principles, but the guidelines.
Chapter 5 – studies Property: accumulation and distribution
Eg by trade
Other economic activity
Chapter 6 – Philanthropy in Islam : basic principles and doctrine
Cites Gladstone 1979 (?) (not in the biblio) “the feeling which mkes men who are materially comfortable, mentally uncomfortable so long as their neighbours are materially uncomfortable”
Cites Payton (Robert L Payton 1988: Philanthropy: voluntary Action for the Public Good (NY: American Council on Education : Macmillan) – 3 facts to philanthropy –
• Voluntary giving
• Voluntary service
• Voluntary organization
He takes these 3 dimensions and studies the different aspects of philanthropy in Islam.
Charity vs Philanthropy – although he seems to suggest a difference, but he does not show any difference, although he says “ “In that sense we can truly say that philanthropy is more an Islamic concept than charity.” ???
Fundamental principles of philanthropy
1. seeking God’s pleasure
2. self purification
3. self contentment
4. timeliness
5. charity to begin at home
6. high standard of intentions and quality of charity
7. moderation
8. proactive in philanthropy
9. purposive philanthropy
10. inclusiveness
11. altruism
12. secrecy
Significance of philanthropy
1. charity as a form of prayer
2. charity as an investment (in the hereafter)
3. material rewards?
4. Heavenly rewards
Chapter 7 – Philanthropy in Islam: forms and facets
Islam promotes Obligatory and non obligatory
Obligatory-
• Zakat ul mal
• Ushr on agriculture produce
• Zakatul fitr
Non obligatory-
• Festival of sacrifice charity – eid adha
• Alms
• Sadaqa – in many forms, eg a glass of water, a smile , kind word
He also suggests that volunteering is accepted and encouraged – “do good deeds”
He cites SayyidQutb who “maintains that zakat is superior to the Western concept of charitable alms and has nothing to do with charity which is a non-islamic concept (see Carre 1984:151 (???) and Mitchell 1969:253 (???) (both no citation in bibliography)
Chapter 8 – talks about management of zakat
Chapter 9 - Islamic Charitable Foundations
He talks about the waqf
History
Conditions for waqf creation
Perpetuity
Purposes and motives for waqf formation
Purpose “a good work” or “an approach to God”
Motives-
• piety
• status
• politics
• protect property from confiscation (stimulated family waqfs)
• protect women’s rights ie property from predatory relaives
Chapter 10 – waqfs in different societies
Waqf management –
Over the years it has been by govt agencies, by private independent administrator and by community or group
Nation states – led to control of waqf by state – negative stand towards waqf – adding fees to the waqf fund – abolishment of family waqf in some countires (eqypt, libya, Syria, Tunisia and UAE). In Kuwait, they are restricted to 2 generations, in Lebanon they face compulsory termination of it become uneconomic, inflict irreparable damage or become extensively fragmented (see Rashid: see Awqf Experiences in South Asia (new Delhi: Institute of Objective Research)
New form of waqf – cash waqf
Social development : purposes and issues-
Mainly mosques, poor houses, shelters, -
urbans services, education , health and hygiene.
Used to provide urban services. Only when municipalities start to deliver urban services did these wane
Health and hygiene – hammams
Education
Mismanagement and misappropriation of waqfs
Q of perpetuity being challenged – see Egypt, Syria and Lebanon. In Morocco, a perpetual waqf is on that survives for more than a century
Other issues – selling of waqf properties, undertaking phohibited economic activities within the properties, management of the properties, mutawallie’s abilities, legislation
Chapter 11 – management of philanthropy in a poor muslim polity
Zakat management
Waqf management-
• Bangladesh situation
Chapter 12 – discussion, conclusion , recommendation
Places onus on governments
See table pg 287 on what govt can do to promote the waqf-
1. contributing to and leading the duty of Islamic scholars and advocates by organizing awareness and mobilization campaigns and serving the scientific dimension of waqf
2. adopting measures: transparency in management of waqf funds, involve scholars and honest people
3. using control, accounting and inspection
4. simplify laws regulations to waqf formation and amnagement
5. allow waf creators to choose waqf managemnt process
University of Technology Sydney
This book analyses concepts pertaining to social (distributive) justice in Islam
Resource mobilisation options
Practices and issues in different Muslim polities
Giving in terms of cash and volunteering time
Islam emphasises philosophy not rituals
But charity straddles both worship and practice
Chapter 2 – he studies different Muslim nations
Table (pg 37) on Muslim nations and the State of the Nation
He finds that “around 50% of World Muslims live in countries with a British colonial past” subject to common law
A lot of inequality between the countries, and within them of socio economic background-
Measured by 2 yardticks of development (used by international bodies such as UNDP-
• Infant mortality rate
• Level of adult literacy
(see table pg 41)
Many Muslim nations only in existence for the past 50 years. His findings (see table pg 44)
• Generally, there is a direct correlation between low income inequality and human development potential (ie low infant mortality rate and level of adult literacy) although this is not applicable to all the countries
• 11 of them are OPEC members . Of these where the countries are dependent on petroleum export earnings for the largest percentage of the GDP All except for Indonesia (soon to be non OPEC), have monarchy or civil/military authoritarian system of govt. This applies to non-OPEC member petroleum exporting countries such as Egypt, Oman, Sudan and Syria. There is a direct relationship between a petroleum based economy and the citizen’s ability to control the policy regime
• Disparities in economic status are lower where philanthropic activities are high.
Chapter 3 – he studies the concept of social justice in Islam
Social justice – 3 types within the philosophy of Islam-
• Relational – ummah (brotherhood), asabiyah (social solidarity), kindness, non judment, do good deeds, respectful
• Retributive – qisas, hadd, repentance and mercy, adherence to the law
• Distributive – lawful activites such as trade, compassion to others, use of property in lawful, correct , responsible manner, trustee of all property belonging to God, non hoarding, charity, takaful (here he cites Kamali: Freedom, Equality and Justice in Islam 1999)
All within framework of fairness and equity
He says that Islam does not provide the principles, but the guidelines.
Chapter 5 – studies Property: accumulation and distribution
Eg by trade
Other economic activity
Chapter 6 – Philanthropy in Islam : basic principles and doctrine
Cites Gladstone 1979 (?) (not in the biblio) “the feeling which mkes men who are materially comfortable, mentally uncomfortable so long as their neighbours are materially uncomfortable”
Cites Payton (Robert L Payton 1988: Philanthropy: voluntary Action for the Public Good (NY: American Council on Education : Macmillan) – 3 facts to philanthropy –
• Voluntary giving
• Voluntary service
• Voluntary organization
He takes these 3 dimensions and studies the different aspects of philanthropy in Islam.
Charity vs Philanthropy – although he seems to suggest a difference, but he does not show any difference, although he says “ “In that sense we can truly say that philanthropy is more an Islamic concept than charity.” ???
Fundamental principles of philanthropy
1. seeking God’s pleasure
2. self purification
3. self contentment
4. timeliness
5. charity to begin at home
6. high standard of intentions and quality of charity
7. moderation
8. proactive in philanthropy
9. purposive philanthropy
10. inclusiveness
11. altruism
12. secrecy
Significance of philanthropy
1. charity as a form of prayer
2. charity as an investment (in the hereafter)
3. material rewards?
4. Heavenly rewards
Chapter 7 – Philanthropy in Islam: forms and facets
Islam promotes Obligatory and non obligatory
Obligatory-
• Zakat ul mal
• Ushr on agriculture produce
• Zakatul fitr
Non obligatory-
• Festival of sacrifice charity – eid adha
• Alms
• Sadaqa – in many forms, eg a glass of water, a smile , kind word
He also suggests that volunteering is accepted and encouraged – “do good deeds”
He cites SayyidQutb who “maintains that zakat is superior to the Western concept of charitable alms and has nothing to do with charity which is a non-islamic concept (see Carre 1984:151 (???) and Mitchell 1969:253 (???) (both no citation in bibliography)
Chapter 8 – talks about management of zakat
Chapter 9 - Islamic Charitable Foundations
He talks about the waqf
History
Conditions for waqf creation
Perpetuity
Purposes and motives for waqf formation
Purpose “a good work” or “an approach to God”
Motives-
• piety
• status
• politics
• protect property from confiscation (stimulated family waqfs)
• protect women’s rights ie property from predatory relaives
Chapter 10 – waqfs in different societies
Waqf management –
Over the years it has been by govt agencies, by private independent administrator and by community or group
Nation states – led to control of waqf by state – negative stand towards waqf – adding fees to the waqf fund – abolishment of family waqf in some countires (eqypt, libya, Syria, Tunisia and UAE). In Kuwait, they are restricted to 2 generations, in Lebanon they face compulsory termination of it become uneconomic, inflict irreparable damage or become extensively fragmented (see Rashid: see Awqf Experiences in South Asia (new Delhi: Institute of Objective Research)
New form of waqf – cash waqf
Social development : purposes and issues-
Mainly mosques, poor houses, shelters, -
urbans services, education , health and hygiene.
Used to provide urban services. Only when municipalities start to deliver urban services did these wane
Health and hygiene – hammams
Education
Mismanagement and misappropriation of waqfs
Q of perpetuity being challenged – see Egypt, Syria and Lebanon. In Morocco, a perpetual waqf is on that survives for more than a century
Other issues – selling of waqf properties, undertaking phohibited economic activities within the properties, management of the properties, mutawallie’s abilities, legislation
Chapter 11 – management of philanthropy in a poor muslim polity
Zakat management
Waqf management-
• Bangladesh situation
Chapter 12 – discussion, conclusion , recommendation
Places onus on governments
See table pg 287 on what govt can do to promote the waqf-
1. contributing to and leading the duty of Islamic scholars and advocates by organizing awareness and mobilization campaigns and serving the scientific dimension of waqf
2. adopting measures: transparency in management of waqf funds, involve scholars and honest people
3. using control, accounting and inspection
4. simplify laws regulations to waqf formation and amnagement
5. allow waf creators to choose waqf managemnt process
Monday, August 24, 2009
Waqf, perpetual charity and poverty alleviation
AbulHasan M Sadeq
International Journal of Social Economics 29,1/2
http://www.emeraldinsight.com/0306-8293.htm
International Journal of Social Economics 29,1/2
http://www.emeraldinsight.com/0306-8293.htm
2 issues in waqf-
- Creation of endowment
- Administration
A waqf body can raise cash waqf to finance development activities on landed waqf properties such as commercial buildings to generate further income.
This income is used to further the primary purpose of the waqf.
Waqf institution to provide educational, medical facilities and infrastructure
Waqf as poverty alleviation tool
Waqf Management in Malaysia
Syed Othman al-Habshi
Administration of waqf lands in Malaysia-
- Administrative set up of the relevant dept within each State’s Relgious Council requires drastic review in terms of size structure and personnel
- No complete listing of waqf properties made
Observations
- All Muslim cemeteries considered as waqf lands as then exempt from quit rent
- Mosques, suraus and religious schools usually arise from specific wakaf – under Shafie cannot change the purpose of the lands
- Waqf for specific purposes form the largest proportion of waqf lands, particularly for cemeteries
- Concludes that therefore only 10% is available for income generating purposes
- But not all wakaf land has been traced and transferred to the religious departments. Some still in original trustees hands eg mosque committees
- Many of these rented out long term and below market rental
- Many are under Rent Control
- Most are in towns, a few in the rural areas
- Lands transferred subject to quit rent except for cemeteries or if transferred to the President State Religious Dept thereby making it government property – therefore no incentive to transfer the lands – costs money for the religious dept to upkeep the wakaf lands
Development of wakaf properties
- Not well developed. Mostly just rented out
- Melaka and Penang have made some progress at developing wakaf lands. Also Perak and Terengganu
- Many lands are uneconomical in size and shape and sporadically situated
Waqf-Based Microfinance: Realizing the Social Role of Islamic Finance
Habib Ahmad
2007
Islamic Research and Training Institute.
Paper written for the Internations Seminar on Intergrating Awqaf in the Islamic Finacial Sector in Singapore March 6-7, 2007
2007
Islamic Research and Training Institute.
Paper written for the Internations Seminar on Intergrating Awqaf in the Islamic Finacial Sector in Singapore March 6-7, 2007
Waqf based poverty focused microfinance institution
Sustainability and Operational issues of a waqf-based MFI-
- Mitigating Credit Risk
- Resolving Moral Hazard Problem
- Economic viability
- Operational and Risk Management issues
Financing of activities
- From waqf funds (these can be used for qard)
- From deposits (these can be used for qard and loans??)
Asses, Liability and Risk Management issues
- Different reserves – takaful, profit equalization, capital reserves
- Depositors and withdrawal risks
Sustaining the Means of Sustainability: The Need for Accepting Wakaf (Waqf) Assets in Malaysian Property Market
Mohammad Tahir Sabit
Universiti Teknologi Malaysia
2007/2008
Present legal framework excludes wakaf lands from the land markets and access to credit market
· Land registration
· Title security
· Trading
· Marketability
· Equal market value
· Collateralization
Solutions for legal framework - a uniform and comprehensive code of wakaf law and amendments to the various state legistations, NLC, Land Acquisition Act-
· Wakaf as a body corporate capable of holding land
· Classification of wakaf land as prime, secondary
· Registration of wakaf lands as wakaf titles
· Transferability of secondary wakaf lands
· Leasing of prime wakaf lands
· Wakaf lands cf leasehold titles – perpetuity?
· Enforcement of long term leases of wakaf lands – wakaf leases
· Suitability for collateralization
· Recognition of these wakaf leases in terms of their value, transferability and collateralization
Valuation of various types of wakaf lands
Joint Venture Modes in the Development of Waqf Properties
Mohammad Tahir Sabit
2007/2008
Universiti Teknologi Malaysia
Financing of waqf lands development
· Joint ventures – mudarabah or musharakah mutanaqisah
· Issues of ownership of waqf land post development, as opposed to ownership of building
Legal impediments
· Malaysia – non transferability of waqf lands under the respective State Islamic Administration Enactments
· NLC – Torrens system – buildings on land recognized as part of land
Solutions
· Setting up of a Waqf Holdings Corporation as a body corporate to carry out the transactions
Licence of land coupled with equity in building
Latest Development in the Western NonPRofit sector and the implications for Islamic waqf
by Murat Cizakca
2002
2002
How awqaf became undermined – politics, State, colonization and Western influence
· Suggestions: Legal -
· Incorporation, limited liability, mutawalli as mudarib
· Public benefit criterion
· Conditions for recognition
· Capital
· Registration
· Tax treatment
· Business activities
Looking into the current developments in the West and the growth of the non-profit sector
Saturday, August 22, 2009
The Non-profit Sector in a Changing Economy
Publication by the Organization for Economic Co-operation and Development
2003
Synthesis
NP sector -
39.5 million people in full time employment in NP sector (excluding traditional coops) in 35 countries accrding to Johns Hopkins Comparative Non-profit Sector Project,
it employs 3.6% of working age population, representing 7.3% of non-agricultural employment and 46% of public sector employment.
As a separate economy, it would be the 6th largest economy in the world after US, Japan, china, Germany and France (Salamon,2002).
Since sustainability is dependent on funding, many NPs have become more entrepreneurial, less dependent on public funding and experimenting in innovative ways to raise funds.
Most NPs operate at local level. They contribute to local development by-
-defining new goods and services related to the specific needs of the local territory
-generating integration and creating jobs
-improving the atmospher and the attractiveness of the territory
-consolidating partnership and empowering local actors
-emphasising "the long run" and therefore consolidating sustainable projects (ECOTEC,2001)
There has been "competition" between NPs and the for profits.
"All the chapters in this book contend that the non-profit sector is now a recognised and legitimised component of the advanced economies of the OECD." (p14)
Part 1 of the book - key trends, and also mix of revenues have changed over the years (primarily gifts & grants, governmental funding and earned income) the latter has become chief source of NP revenue overall
Part 2 - - how to finance the NP sector-
philanthropic investors - trust, risk and uncertainty - the idea that lies behind venture philanthropy is that enlightened investors will accept a lower financial return if the receiving organisation demonstrates that it can generate important social benefits.
Barriers to access to finance - provision of financial instruments to individuals who normally would not qualify - thru microcredit, comunity based financial institutions such as credit unions, cooperative banks
Part 3 - evaluation of the NP sector
2003
Synthesis
NP sector -
39.5 million people in full time employment in NP sector (excluding traditional coops) in 35 countries accrding to Johns Hopkins Comparative Non-profit Sector Project,
it employs 3.6% of working age population, representing 7.3% of non-agricultural employment and 46% of public sector employment.
As a separate economy, it would be the 6th largest economy in the world after US, Japan, china, Germany and France (Salamon,2002).
Since sustainability is dependent on funding, many NPs have become more entrepreneurial, less dependent on public funding and experimenting in innovative ways to raise funds.
Most NPs operate at local level. They contribute to local development by-
-defining new goods and services related to the specific needs of the local territory
-generating integration and creating jobs
-improving the atmospher and the attractiveness of the territory
-consolidating partnership and empowering local actors
-emphasising "the long run" and therefore consolidating sustainable projects (ECOTEC,2001)
There has been "competition" between NPs and the for profits.
"All the chapters in this book contend that the non-profit sector is now a recognised and legitimised component of the advanced economies of the OECD." (p14)
Part 1 of the book - key trends, and also mix of revenues have changed over the years (primarily gifts & grants, governmental funding and earned income) the latter has become chief source of NP revenue overall
Part 2 - - how to finance the NP sector-
philanthropic investors - trust, risk and uncertainty - the idea that lies behind venture philanthropy is that enlightened investors will accept a lower financial return if the receiving organisation demonstrates that it can generate important social benefits.
Barriers to access to finance - provision of financial instruments to individuals who normally would not qualify - thru microcredit, comunity based financial institutions such as credit unions, cooperative banks
Part 3 - evaluation of the NP sector
Management lessons from Ottoman Leadership
Lecture by Professor Mustafa Ozel
4th July 2009 10.30am
Seri Pacific Hotel, Kuala Lumpur
Johor Corporation's Business JIhad Lecture Series
Western superiority comes out of organizational differences. These organizational factors are superior to the Muslims’. How did this come about?
Longetivity of an institution is rare, so that very few states or organizations can endure for more than 200 years. Historians have looked at civilizations. All in all, in the last 7000 years, only 40 of those survived more than 200 years. It is not lasting to be a lasting organization.
As for the present capitalist system, there are about 100 million companies in the world. In the US alone there are 7 million companies. In Paris, there is an association or a club called the “Hennokians” whose memberships is restricte to companies existing more than 200 years old, and there are only 40 companies that qualify.
What is the main principle of creating such considerable longetivity?
Ibn Khaldun studied this. Also Tsu Ma Chien, a Chinese historian. He says all organizations arise out of a basic principle. Each will have its own basic priciple. For example in the Sung dynasty, the principle was “justice”, but after awhile this principle became corrupt. All dynasties rise when the principle is pure and genuine and fell when it became corrupt. Tsu Ma Chien said that short term changes occurred every 30 years, medium changes every 100 years and long term changes every 300 years.
All historians will talk about degeneration of principles, so that when it is lost, the organization transforms and decays.
The question is, what was the guiding principle fot he Ottoman polity?
The Ottoman principle was set 200 years before the Ottoman empire even appeared on the world stages. It began with Ald Aslan (Brave Heart Lion) who forwarded this idea. He wanted to combine the Arab and Persian ideals and named his son Malik Shah. His priciple is that you can conquer a land on horseback but you cannot rule a land on horseback. He believed in assimilating both Arabic and Persian knowledge in order to rule. This was the basic principle of the Ottomans.
Compare this to the Japanese Tokugawa dynasty. After the final battle of Sakgehara which marked 300 years of peace for Japan, the shogun never got back on a horse.
There is also the japanese company Kongogumi established in 578AD. It was started by a Korean temple builder, and today all major Buddhist temples in Japan are built by this company. Their longetivity was not secured by gloodline, but thru principles. In his will, Kongogumi declared that after him, if there is a son that can carry out the principle, then let him carry on. But if not, to give him a salary, but offer the best manager his family name, and if he accepts, he is to be given the company. This company has lasted 1400 year.
The idea is to take good people and let them administer. In the Ottoman empire, no Turks had ruled. It was the non-Turks that ruled the empire.
Prof Ozel developed a 4 stage model based on the historical evidence. He believes that most organizations go thru these stages. All stages are associated with a crisis. It was always thought that the strong is the one that survives, but actually it is the one that is most adaptable that will survive. Since all entities will face crisis, so long as it can adapt, it will survive.
Stage 1 crisis – “leadership”
This does not mean the CEO ro the boss, but it is an attitude or a way of thinking or acting and becoming a role model for the rest. There are 3 substages-
a. Transformational Thinking – this is often done by an individual. It indicates
a. Knowing the world (eg in todays terms, knowing capitalism) – concept of capitalism today does not equate to free markets. Every capitalist is a lover of monopoly. It is concentrated political power against the masses and it is free capital looking for the highest profits supported by state power
b. Knowing your world (so in Islam, it means the Muslim world) – the Islamic economy concentrates on the Medina model. In order to understand it, must study the Jahiliyah economy. They were very sophisticated traders. Hashim the grandfather of the prophet had created the mudarabha concept (see verse al-Quraish) there were joint stock companies which invested into caravans. The Prophet when he migrated to Medina found 4 main communites there (Pagans, Jeews, Christians and Islamic). He asked them all to bring 100 articles of values from each community, and found 52 commonalities. This later became the constitution of Medina. He also visited the markets of medina and decided they cannot be the markets for the Muslims. So he established a separate market for Muslim in an area he rented from a Jewish family, which flourished. After a while the Jewish leader was unhappy, so the Prophet decided to move to a piece of flat land . He established 3 main principles for the market ie a Muslim economy.
i. That is should be built on flat place – in modern terms, there should be no informational asymmetry, and must be transparent
ii. Not capturing any particular place in the market and say it is your property. So no monopolistic tendencies. Governemnt authority should not allow “rentier” approach to the economy. It should not give any advantages to any particular group. This is also achieved by the waqaf institution. Every city is a market. The community depends on each other. In order to enter the market, there are 2 institutions, the hammam (public bath) and the big mosque (jamid kabir). So the idea is that you must be physically and spiritually purified to enter the market. Your should trade within the market only;
iii. Price formation – can only be set by Allah. So no party or power can know the just price. Only Allah knows
In this circumstances when there is minimal price fixing or information asymmetries and no captured market, it is an Islamic market whether is is run by Eskimoes or Russians.
b. Organizational Thinking – you cannot expect 1 person to keep on doing the thinking. So the innovativeness must become an organizational quality. Only 1 thing prevents this from happening – the ego of the leader. Most times when you have an innovative leader, you tend not to listen or seek counsel from others. But in the sacred texts there are many examples where the prophets sought counsel eg Moses and David. In this way you can make individual transformational thinking into organizational thinking.
c. Strategic Thinking – in the face of competition, 2/3rds of organizations fail. They cannot transform because they prefer their comfort zone. But for those who manage to transform so far, they will need a long term sustainable advantage. You would make plans with your rivals in mind.
Stage 2 crisis – “autonomy”
There are many talented people in an organization. But often the organization will go astray and become pyramidic where all the power is concentrated in the top. So the different people at the bottom feel they cannot prove their talents and become dissatisfies. They either leave and they compete with you, or they remain within and continue their opposition to you. Either way it is not in your favour. In a nutshell, power must be shared, if this is done successfully you will grow and also go thru the next crisis.
Stage 3 crisis – “control”
The nature of man is that with success comes dissapointment. People must be trained with rational empowerment. There must be a rational hierarchy empowerment
Stage 4 cirisi – “renewal”
In the last 200 years in Turkety they are experiencing a crisis of renewal. The rational bureaucracy turns into irrational bureaucracy. It becomes a self seeking entity instead of putting the interests of the organization first. In this stage, they do not allow the right questions to be asked. The wrong question is usually “how can we make the organization stronger” . the right question is “how can we make the people stronger”?
*********************************************************************
4th July 2009 10.30am
Seri Pacific Hotel, Kuala Lumpur
Johor Corporation's Business JIhad Lecture Series
Western superiority comes out of organizational differences. These organizational factors are superior to the Muslims’. How did this come about?
Longetivity of an institution is rare, so that very few states or organizations can endure for more than 200 years. Historians have looked at civilizations. All in all, in the last 7000 years, only 40 of those survived more than 200 years. It is not lasting to be a lasting organization.
As for the present capitalist system, there are about 100 million companies in the world. In the US alone there are 7 million companies. In Paris, there is an association or a club called the “Hennokians” whose memberships is restricte to companies existing more than 200 years old, and there are only 40 companies that qualify.
What is the main principle of creating such considerable longetivity?
Ibn Khaldun studied this. Also Tsu Ma Chien, a Chinese historian. He says all organizations arise out of a basic principle. Each will have its own basic priciple. For example in the Sung dynasty, the principle was “justice”, but after awhile this principle became corrupt. All dynasties rise when the principle is pure and genuine and fell when it became corrupt. Tsu Ma Chien said that short term changes occurred every 30 years, medium changes every 100 years and long term changes every 300 years.
All historians will talk about degeneration of principles, so that when it is lost, the organization transforms and decays.
The question is, what was the guiding principle fot he Ottoman polity?
The Ottoman principle was set 200 years before the Ottoman empire even appeared on the world stages. It began with Ald Aslan (Brave Heart Lion) who forwarded this idea. He wanted to combine the Arab and Persian ideals and named his son Malik Shah. His priciple is that you can conquer a land on horseback but you cannot rule a land on horseback. He believed in assimilating both Arabic and Persian knowledge in order to rule. This was the basic principle of the Ottomans.
Compare this to the Japanese Tokugawa dynasty. After the final battle of Sakgehara which marked 300 years of peace for Japan, the shogun never got back on a horse.
There is also the japanese company Kongogumi established in 578AD. It was started by a Korean temple builder, and today all major Buddhist temples in Japan are built by this company. Their longetivity was not secured by gloodline, but thru principles. In his will, Kongogumi declared that after him, if there is a son that can carry out the principle, then let him carry on. But if not, to give him a salary, but offer the best manager his family name, and if he accepts, he is to be given the company. This company has lasted 1400 year.
The idea is to take good people and let them administer. In the Ottoman empire, no Turks had ruled. It was the non-Turks that ruled the empire.
Prof Ozel developed a 4 stage model based on the historical evidence. He believes that most organizations go thru these stages. All stages are associated with a crisis. It was always thought that the strong is the one that survives, but actually it is the one that is most adaptable that will survive. Since all entities will face crisis, so long as it can adapt, it will survive.
Stage 1 crisis – “leadership”
This does not mean the CEO ro the boss, but it is an attitude or a way of thinking or acting and becoming a role model for the rest. There are 3 substages-
a. Transformational Thinking – this is often done by an individual. It indicates
a. Knowing the world (eg in todays terms, knowing capitalism) – concept of capitalism today does not equate to free markets. Every capitalist is a lover of monopoly. It is concentrated political power against the masses and it is free capital looking for the highest profits supported by state power
b. Knowing your world (so in Islam, it means the Muslim world) – the Islamic economy concentrates on the Medina model. In order to understand it, must study the Jahiliyah economy. They were very sophisticated traders. Hashim the grandfather of the prophet had created the mudarabha concept (see verse al-Quraish) there were joint stock companies which invested into caravans. The Prophet when he migrated to Medina found 4 main communites there (Pagans, Jeews, Christians and Islamic). He asked them all to bring 100 articles of values from each community, and found 52 commonalities. This later became the constitution of Medina. He also visited the markets of medina and decided they cannot be the markets for the Muslims. So he established a separate market for Muslim in an area he rented from a Jewish family, which flourished. After a while the Jewish leader was unhappy, so the Prophet decided to move to a piece of flat land . He established 3 main principles for the market ie a Muslim economy.
i. That is should be built on flat place – in modern terms, there should be no informational asymmetry, and must be transparent
ii. Not capturing any particular place in the market and say it is your property. So no monopolistic tendencies. Governemnt authority should not allow “rentier” approach to the economy. It should not give any advantages to any particular group. This is also achieved by the waqaf institution. Every city is a market. The community depends on each other. In order to enter the market, there are 2 institutions, the hammam (public bath) and the big mosque (jamid kabir). So the idea is that you must be physically and spiritually purified to enter the market. Your should trade within the market only;
iii. Price formation – can only be set by Allah. So no party or power can know the just price. Only Allah knows
In this circumstances when there is minimal price fixing or information asymmetries and no captured market, it is an Islamic market whether is is run by Eskimoes or Russians.
b. Organizational Thinking – you cannot expect 1 person to keep on doing the thinking. So the innovativeness must become an organizational quality. Only 1 thing prevents this from happening – the ego of the leader. Most times when you have an innovative leader, you tend not to listen or seek counsel from others. But in the sacred texts there are many examples where the prophets sought counsel eg Moses and David. In this way you can make individual transformational thinking into organizational thinking.
c. Strategic Thinking – in the face of competition, 2/3rds of organizations fail. They cannot transform because they prefer their comfort zone. But for those who manage to transform so far, they will need a long term sustainable advantage. You would make plans with your rivals in mind.
Stage 2 crisis – “autonomy”
There are many talented people in an organization. But often the organization will go astray and become pyramidic where all the power is concentrated in the top. So the different people at the bottom feel they cannot prove their talents and become dissatisfies. They either leave and they compete with you, or they remain within and continue their opposition to you. Either way it is not in your favour. In a nutshell, power must be shared, if this is done successfully you will grow and also go thru the next crisis.
Stage 3 crisis – “control”
The nature of man is that with success comes dissapointment. People must be trained with rational empowerment. There must be a rational hierarchy empowerment
Stage 4 cirisi – “renewal”
In the last 200 years in Turkety they are experiencing a crisis of renewal. The rational bureaucracy turns into irrational bureaucracy. It becomes a self seeking entity instead of putting the interests of the organization first. In this stage, they do not allow the right questions to be asked. The wrong question is usually “how can we make the organization stronger” . the right question is “how can we make the people stronger”?
*********************************************************************
Tuesday, August 4, 2009
The Non Profit Economy
by Burton A. Weisbrod
Chap 1- 4 themes of the book - (1) informational inequalities (2)diverse demands (3)sources of revenue and the nature of its outputs (4) the nonprofit sector of the economy is interdependent with the goernmental and for-profit sectors.
Issues in the role of nonprofits in the mixed economy - 2 categories - (1)what kinds of activities should nonprofits engage in? (2) how should nonprofits be financed.
Activities - potential justification for nonprofits - due to failure of private markets (due to external effects or informational assymetries) or of government, or because of great diversity of consumer demands for collective action.
Financing - should they be permitted to engage in profitable activities to subsideze their unprofitable, collective type activities? if so, what limits should be imposed, in recognition of the effects of their profit seeking on the private economy?
if not, are we willing to accept a reduced level of activity in the non profit activity?
shoudl nonprofits be restricted to the activities for which they have been tax-exempt status, and restricted even further to financing only tru donations?
Different types of nonprofits - clubs (benefit members only), trust type, collective type nonprofits, for-profit in disguise (not true nonprofit)
3 key characterstics of nonprofits - (1)no one owns the right to share in any profit or surplus of a nonprofit (2) nonprofits are exempt from taxes on corporate income (3) some nonprofits reeive a variety of other subsidies - donations to them are tax deductible and they are exempt from many other forms of taxation in addition to the tax on corporate profits.
Chap 2 – Options among Institutional Forms.
3 major forms of institutions available to any society – proprietary, governmental and nonprofit.
Proprietary – efficiency in meeting consumer demands at minimum costs is main strength. Respond to wants and needs only if accompanies by money demand. Market failures caused by informational asymmetry, or when there is demand for collective-type goods affecting parties other then the seller and the buyer eg defense
Governmental – more incentive to respond to the demands of the political process. Finance through taxes. Effective in meeting collective demand.
Nonprofit sector- attractive in meeting heterogenous demands from minorities who are willing to pay for high levels of services. Their rationale has 2 components - (1)provision of collective goods (2) when consumer demands are heterogenous ie diverse. Nonprofits have better access to diverse, localized information, thereby overcoming some of the problems of over- and underutilization. Ie they can meet collective demands in situation of governmental “failures”.
Meeting diverse collective demands - findings that greater homogeneity in society leads to a larger role for government, greater satisfaction of collective demand and smaller role for non profit eg in Japan. Conversely in the US, a country of diversity, the nonprofit sector is sizable.
In US tax deductibility is used to encourage donations. In the UK, there is no tax deductability for charitable donations.
Which form to choose? This depends on (1) which is more efficient? This depends on the type of output. For well informed consumers, the proprietary institution is more efficient. For limited consumer information, the nonprofit or governmental is better. And also depends on (2) considerations of equity (3)cost per unit output – different forms is more cost efficient in a different quality range. Note that costs increase with quality output (4) quality of output required
The advantages and disadvantages of every form of institution are crucially related to informational problems.
So the Big Question is – how to reward behavior that contributes to public good?
Chap 3 – Incentives and Performance
Information is critical. Without it we cannot reward people or organizations that do what society wants or punish those who do the opposite.
Quote, pg43-44-
‘In short, the success or failure of any type of institution lies in its ability to obtain information on product quality and consumer demand and in its incentive to convey to consumers information on the extent to which its product meets that demand – that is, to use the information in socially desirable ways. For-profit, governmental, and nonprofit institutions differ both in their ability to obtain information on social wants and demands and in their incentives to act on it. As a result, each has a distinct niche to fill in an economic system. Institutional pluralism is vital.’
When society is using a particular form of institution to provide output, it is implicitly rewarding certain types of behavior.
Chapter 4 – Anatomy of the Voluntary Nonprofit Sector
3 principle categories – 1 private and 2 public types. These are
1.Proprietary / commercial eg trade association, clubs, associations
2. collective – external benefits to those that do not help finance the nonprofit eg museum
3.trust – combination of private goods and consumer protection eg nursing homes.
Taxes – (1)tax exempt and (2)donations which are tax deductible
Also, in the US the tax laws determine which organizations are classified as nonprofits and therefore tax exempt:-
a. Definition under US tax laws as organizations that are “organized for charitable or mutual benefit purposes”.
b. There are more than 2 dozen major classes of organizations included. See sect 501(c) for all the classes.
Why are some allowed tax-deductible status? – the tax deductibility amounts to a subsidy – these are given on the assumption that public encouragement is needed because otherwise there would be too little of these type of services provided – so they fit into categories, presumably, or providers of collective services or trust services. They help to meet the demands of persons who are unsatisfied by the level or quality of governmental provision of such services. – so public subsidies ought to reflect public benefits
The Collectiveness Index – a spectrum from purely private to purely public. An organization that provides purely collective goods, ie virtually all of the benefits from which accrued to persons who did not pay for them – should receive the highest measure of collectiveness. – these most justify public subsidies since they would receive little or no revenues either from sales or membership dues; if they received any revenue at all it would be in the form of contributions, gifts or grants (CGG).
So the collectiveness index is an indicator of the extent to which the organization provides external social benefits.
Thus, all nonprofits should not be lumped into one Nonprofit sector when their collectiveness index range between 1 – 97%
Chapter 5 – Charitable Donations
Policy choices on how to finance the nonprofit sector are not independent from decisions about the level and kinds of activities to be undertaken.
Source of financing is primarily from donations.
Table from page 90
Type of Organization Outputs Source of financing
For profit Private goods Sales revenue
Governmental Collective goods Taxes
Nonprofit Collective/trust goods Donations
Ability to solicit donations are dependent on several factors:-
1. Govt decision to give subsidies and the form of the subsidies
2. Limits on amount of its funds used for fundraising
3. Regulations and other policy measures
Also, donations are affected by
1 . tax rates
2. deductability of donations
4. fraction of organization’s revenues used for fundraising or administration
5. the organization’s age – seems to be a proxy for its trustworthiness
What drives the nonprofit organization in terms of fundraising?
They are not seeking to maximize profits, but one theory proposed and widely accepted is that they wwant to generate as large a total budget as possible. “This hypothesis is consistent with our evidence that each of the seven classes of nonprofits spent on fund raising up to the point at which the marginal contribution to gross organizational revenue is zero.” (p 101)
Chapter 6 – Revenue from Sales
p11
“Jerald Schiff and I hypothesized that nonprofits pursue the goal of maximizing their output of a “charitable” service, subject to the necessity of at least breaking even financially. We see the nonprofit organization as a potential provider of two kinds of goods or services – charitable and “private”; the organization’s managers and directors prefer t produce the charitable good, which is financed by private donations and by governmental support, but they may resort to selling private output to “cross-subsidize” their charitable activities. This model of behavior, to the extent it is correct, implies that private businesses do,indeed, have reason to fear that reductions in governmental support prompt nonprofits to extend their activities into markets for private goods.”
Q- whether nonprofits should be restricted, taxed , or even prohibited from competing with the proprietary sector – this question is becoming a policy issue.
So taxation policies and questions –
a. nonprofits are granted exempt status for broad purposes such as education or community development
b. how should the organization’s costs be allocated between it exempt and non exempt activities?
Society’s unwritten but de facto policy seems to point to the fact that public-type goods are produced by organizations funded by donations, private-type goods by those funded by sales.
Is it unfair to the proprietaries to allow nonprofits to enter business?
Must look at 2 arenas-
Arena 1 – competition in the specific industry for which the nonprofit has been given exempt status – this should not be controversial. The legislative process indicated that the govt determines that the nonprofit form is socially preferred on grounds either of efficiency or of equity, but non profits would not exist to an appropriate degree without subsidization – ie govt is deemed to have knowledge that leads to maximization of “social welfare”.
Arena 2 – competition in the market for unrelated outputs – questions of costs and revenues
Chapter 7 – Volunteer Labour
Value of donated time is tremendous. See p 132 for figures.
Chapter 8 - Are nonprofits really different?
If nonprofit is to perform a useful role,they must provide outputs that cannot be provided profitably by private enterprise.
Consumers who are well informed should be indifferent about the institutional form of a seller. All that should count is how satisfied the consumer would be with a particular seller’s output and its price. When consumers are underinformed relative to producers, however, they may turn to nonprofit organizations.
Chapter 9 – Recommendations for Public Policy
Nonprofit is - a component of a mixed economy AND It is consists of a vast array of institutional hybrids (many forms of institutions that combine elements of private enterprise and government).
IRS under present law is the principal regulatory body for nonprofits – thru tax-exempt and nonprofit status and also classified as tax deductible. But IRS has no power to limit entry into the sector.
So public policy should be directed towards 3 issues-
Kinds of outputs that they should/should not produce
Methods used to generate funds
Administrative mechanism or institutions
Goal for the proposals- (1)) to insulate nonprofits from pressures to deviate from their social role they can and should play in a modern and mixed economy and (2) to help move the economy to a better balance of institutional responsibilities among private enterprises, governments and nonprofits.
Proposals-
1.Nonprofits should be encouraged to provide collective goods, and not otherwise.
2.Non profits should be far more restricted from engaging in “unrelated business activities” that lie outside the range of their tax-exempt activities, and the scope of exempt purposes should be defined in more limited ways.
3. Interlocking control of nonprofits and proprietary firms should be abolished.
4. Tax deductibility should be dropped as the primary public encouragement for contributions – there are disadvantages .
5.To offset the effects of eliminating deductibility, tax credits should be adopted for contributions to approved nonprofits.
6. Special postal subsidies for nonprofits should be abolished and replaced by broader, less restrictive subsidies.
7. The IRS should be replaced as the principal regulator of the nonprofit sector – establishement of a new agency?
8. A comprehensive statistical program should be developed to provide data about the nonprofit sector – its size, composition, outputs, fund-raising activities, and interactions with the private market economy.
Chap 1- 4 themes of the book - (1) informational inequalities (2)diverse demands (3)sources of revenue and the nature of its outputs (4) the nonprofit sector of the economy is interdependent with the goernmental and for-profit sectors.
Issues in the role of nonprofits in the mixed economy - 2 categories - (1)what kinds of activities should nonprofits engage in? (2) how should nonprofits be financed.
Activities - potential justification for nonprofits - due to failure of private markets (due to external effects or informational assymetries) or of government, or because of great diversity of consumer demands for collective action.
Financing - should they be permitted to engage in profitable activities to subsideze their unprofitable, collective type activities? if so, what limits should be imposed, in recognition of the effects of their profit seeking on the private economy?
if not, are we willing to accept a reduced level of activity in the non profit activity?
shoudl nonprofits be restricted to the activities for which they have been tax-exempt status, and restricted even further to financing only tru donations?
Different types of nonprofits - clubs (benefit members only), trust type, collective type nonprofits, for-profit in disguise (not true nonprofit)
3 key characterstics of nonprofits - (1)no one owns the right to share in any profit or surplus of a nonprofit (2) nonprofits are exempt from taxes on corporate income (3) some nonprofits reeive a variety of other subsidies - donations to them are tax deductible and they are exempt from many other forms of taxation in addition to the tax on corporate profits.
Chap 2 – Options among Institutional Forms.
3 major forms of institutions available to any society – proprietary, governmental and nonprofit.
Proprietary – efficiency in meeting consumer demands at minimum costs is main strength. Respond to wants and needs only if accompanies by money demand. Market failures caused by informational asymmetry, or when there is demand for collective-type goods affecting parties other then the seller and the buyer eg defense
Governmental – more incentive to respond to the demands of the political process. Finance through taxes. Effective in meeting collective demand.
Nonprofit sector- attractive in meeting heterogenous demands from minorities who are willing to pay for high levels of services. Their rationale has 2 components - (1)provision of collective goods (2) when consumer demands are heterogenous ie diverse. Nonprofits have better access to diverse, localized information, thereby overcoming some of the problems of over- and underutilization. Ie they can meet collective demands in situation of governmental “failures”.
Meeting diverse collective demands - findings that greater homogeneity in society leads to a larger role for government, greater satisfaction of collective demand and smaller role for non profit eg in Japan. Conversely in the US, a country of diversity, the nonprofit sector is sizable.
In US tax deductibility is used to encourage donations. In the UK, there is no tax deductability for charitable donations.
Which form to choose? This depends on (1) which is more efficient? This depends on the type of output. For well informed consumers, the proprietary institution is more efficient. For limited consumer information, the nonprofit or governmental is better. And also depends on (2) considerations of equity (3)cost per unit output – different forms is more cost efficient in a different quality range. Note that costs increase with quality output (4) quality of output required
The advantages and disadvantages of every form of institution are crucially related to informational problems.
So the Big Question is – how to reward behavior that contributes to public good?
Chap 3 – Incentives and Performance
Information is critical. Without it we cannot reward people or organizations that do what society wants or punish those who do the opposite.
Quote, pg43-44-
‘In short, the success or failure of any type of institution lies in its ability to obtain information on product quality and consumer demand and in its incentive to convey to consumers information on the extent to which its product meets that demand – that is, to use the information in socially desirable ways. For-profit, governmental, and nonprofit institutions differ both in their ability to obtain information on social wants and demands and in their incentives to act on it. As a result, each has a distinct niche to fill in an economic system. Institutional pluralism is vital.’
When society is using a particular form of institution to provide output, it is implicitly rewarding certain types of behavior.
Chapter 4 – Anatomy of the Voluntary Nonprofit Sector
3 principle categories – 1 private and 2 public types. These are
1.Proprietary / commercial eg trade association, clubs, associations
2. collective – external benefits to those that do not help finance the nonprofit eg museum
3.trust – combination of private goods and consumer protection eg nursing homes.
Taxes – (1)tax exempt and (2)donations which are tax deductible
Also, in the US the tax laws determine which organizations are classified as nonprofits and therefore tax exempt:-
a. Definition under US tax laws as organizations that are “organized for charitable or mutual benefit purposes”.
b. There are more than 2 dozen major classes of organizations included. See sect 501(c) for all the classes.
Why are some allowed tax-deductible status? – the tax deductibility amounts to a subsidy – these are given on the assumption that public encouragement is needed because otherwise there would be too little of these type of services provided – so they fit into categories, presumably, or providers of collective services or trust services. They help to meet the demands of persons who are unsatisfied by the level or quality of governmental provision of such services. – so public subsidies ought to reflect public benefits
The Collectiveness Index – a spectrum from purely private to purely public. An organization that provides purely collective goods, ie virtually all of the benefits from which accrued to persons who did not pay for them – should receive the highest measure of collectiveness. – these most justify public subsidies since they would receive little or no revenues either from sales or membership dues; if they received any revenue at all it would be in the form of contributions, gifts or grants (CGG).
So the collectiveness index is an indicator of the extent to which the organization provides external social benefits.
Thus, all nonprofits should not be lumped into one Nonprofit sector when their collectiveness index range between 1 – 97%
Chapter 5 – Charitable Donations
Policy choices on how to finance the nonprofit sector are not independent from decisions about the level and kinds of activities to be undertaken.
Source of financing is primarily from donations.
Table from page 90
Type of Organization Outputs Source of financing
For profit Private goods Sales revenue
Governmental Collective goods Taxes
Nonprofit Collective/trust goods Donations
Ability to solicit donations are dependent on several factors:-
1. Govt decision to give subsidies and the form of the subsidies
2. Limits on amount of its funds used for fundraising
3. Regulations and other policy measures
Also, donations are affected by
1 . tax rates
2. deductability of donations
4. fraction of organization’s revenues used for fundraising or administration
5. the organization’s age – seems to be a proxy for its trustworthiness
What drives the nonprofit organization in terms of fundraising?
They are not seeking to maximize profits, but one theory proposed and widely accepted is that they wwant to generate as large a total budget as possible. “This hypothesis is consistent with our evidence that each of the seven classes of nonprofits spent on fund raising up to the point at which the marginal contribution to gross organizational revenue is zero.” (p 101)
Chapter 6 – Revenue from Sales
p11
“Jerald Schiff and I hypothesized that nonprofits pursue the goal of maximizing their output of a “charitable” service, subject to the necessity of at least breaking even financially. We see the nonprofit organization as a potential provider of two kinds of goods or services – charitable and “private”; the organization’s managers and directors prefer t produce the charitable good, which is financed by private donations and by governmental support, but they may resort to selling private output to “cross-subsidize” their charitable activities. This model of behavior, to the extent it is correct, implies that private businesses do,indeed, have reason to fear that reductions in governmental support prompt nonprofits to extend their activities into markets for private goods.”
Q- whether nonprofits should be restricted, taxed , or even prohibited from competing with the proprietary sector – this question is becoming a policy issue.
So taxation policies and questions –
a. nonprofits are granted exempt status for broad purposes such as education or community development
b. how should the organization’s costs be allocated between it exempt and non exempt activities?
Society’s unwritten but de facto policy seems to point to the fact that public-type goods are produced by organizations funded by donations, private-type goods by those funded by sales.
Is it unfair to the proprietaries to allow nonprofits to enter business?
Must look at 2 arenas-
Arena 1 – competition in the specific industry for which the nonprofit has been given exempt status – this should not be controversial. The legislative process indicated that the govt determines that the nonprofit form is socially preferred on grounds either of efficiency or of equity, but non profits would not exist to an appropriate degree without subsidization – ie govt is deemed to have knowledge that leads to maximization of “social welfare”.
Arena 2 – competition in the market for unrelated outputs – questions of costs and revenues
Chapter 7 – Volunteer Labour
Value of donated time is tremendous. See p 132 for figures.
Chapter 8 - Are nonprofits really different?
If nonprofit is to perform a useful role,they must provide outputs that cannot be provided profitably by private enterprise.
Consumers who are well informed should be indifferent about the institutional form of a seller. All that should count is how satisfied the consumer would be with a particular seller’s output and its price. When consumers are underinformed relative to producers, however, they may turn to nonprofit organizations.
Chapter 9 – Recommendations for Public Policy
Nonprofit is - a component of a mixed economy AND It is consists of a vast array of institutional hybrids (many forms of institutions that combine elements of private enterprise and government).
IRS under present law is the principal regulatory body for nonprofits – thru tax-exempt and nonprofit status and also classified as tax deductible. But IRS has no power to limit entry into the sector.
So public policy should be directed towards 3 issues-
Kinds of outputs that they should/should not produce
Methods used to generate funds
Administrative mechanism or institutions
Goal for the proposals- (1)) to insulate nonprofits from pressures to deviate from their social role they can and should play in a modern and mixed economy and (2) to help move the economy to a better balance of institutional responsibilities among private enterprises, governments and nonprofits.
Proposals-
1.Nonprofits should be encouraged to provide collective goods, and not otherwise.
2.Non profits should be far more restricted from engaging in “unrelated business activities” that lie outside the range of their tax-exempt activities, and the scope of exempt purposes should be defined in more limited ways.
3. Interlocking control of nonprofits and proprietary firms should be abolished.
4. Tax deductibility should be dropped as the primary public encouragement for contributions – there are disadvantages .
5.To offset the effects of eliminating deductibility, tax credits should be adopted for contributions to approved nonprofits.
6. Special postal subsidies for nonprofits should be abolished and replaced by broader, less restrictive subsidies.
7. The IRS should be replaced as the principal regulator of the nonprofit sector – establishement of a new agency?
8. A comprehensive statistical program should be developed to provide data about the nonprofit sector – its size, composition, outputs, fund-raising activities, and interactions with the private market economy.
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