Poverty of Islamic Economics

The initiative to provide an Islamic economic justification for capitalism dates back to the early 1970s. Its leading exponents in those days were Najatullah Siddiqui at the Centre for Islamic Economics Jeddah, Khurshid Ahmad visiting professor at the King Abdul Aziz University and Umar Chapra of the Saudi Arabian Monetary Agency. The sub discipline of Islamic Economics was invented to justify Saudi polices.

In the 1980s, Prince Muhammad al Faisal led the Islamic banking movement to justify Arab integration into the imperialist financial system. The IMF and the World Bank were closely associated with the Prince’s initiative. Sami at Darvish, a Director of the World Bank became the first President of Faisal’s, Daral Maal al Islami. IMF researchers – Mohsin Khan and Abbas Merakhor – started providing apologies for Islamic finance in the professional literature. Within Pakistan, Ziauddin Ahmad and Fahim Khan played a similar role.

Islamic economics represents an attempt at legitimizing the ethics and institutions of capitalism. This becomes abundantly clear when we examine the technical writings of the Islamic economists. Invariably these scholars work within the neo classical paradigm. The “Islamic” consumer/producer/public policy maker is a welfare maximiser (like his neo classical compatriot) and the definition of his utility function is a task usually left to the faqihs (the neoclassical economists also depend upon the philosophers of utilitarianism to define individual and community welfare functions). Although the constraints within which utility maximization is sought by the Islamic economists are claimed to be uniquely Islamic this is of very little significance. For, the Islamic economists claim also that in the long run the elimination of interest, the introductions of Zakat etc. are necessary for the maximization of efficient production. The Islamic constraints thus appear in the guise of procedures which constrain short term utility maximization so that long term utility may be maximized. The Islamic economists are rule utilitarian and short term constraints turn out to be no constraints at all in the long run.

This methodological similarity necessitates that the ethics of capitalism – acquisitiveness, competition, primacy of material well being, freedom, equality – are all endorsed by Islamic economics. Islam is seen not as a distinct civilization but as a means of reforming capitalism. Capitalism is criticized not for the ends it sets itself but for failing to achieve a “balance” in the attainment of legitimately conflicting ends (acquisitiveness vs cooperation, freedom vs equality etc) Islam can achieve such a balance if we formally eliminate interest and introduce Zakat.

Now the ruling elites of the Muslim world realize that the introduction of Zakat and the introduction of Shariah compliant financial contracts replicating interest based transactions within capitalist financial markets represent no more than marginal policy changes. Often this is a small price to pay for co-opting potentially trouble some Islamic parties and for diverting revolutionary energy into reformist politics. Nimeri, Ziaul Huq and Mahathir have used this tactic with advantage and all three have found Islamic economists to be good and faithful servants. General Musharraf is probably not unsympathetic to the Islamic economists.

In most Muslim countries – Afghanistan, Algeria, Indonesia, the Indo Pak subcontinent, Iran – the resistance to imperialism during the 19th and 20th centuries was led by Islamic groups and scholars. These groups kept aloof from the reformist and apologist movements because there was an instinctive realization on their part that the difference between Islam and Western savagery was qualitative in nature. Islam was not a means for reforming capitalism but for annihilating it. The Islamic groups thus developed into popular movements with a capacity to challenge the continued dominance of the West and the Western educated elites that inherited power after independence. The social project of the Islamic movements was to develop an alternative to capitalism and to highlight the injustices that could not be redressed within this system.

Islamic economics has proved to be an important means for changing this social orientation of the Islamic parties. In Pakistan, the Arab world, Turkey, Malaysia and Indonesia many Islamic groups are now firmly allied to various factions of the politically dominant Western oriented elite. The economic platform of many Islamic parties is dominated by Islamic economic themes. Introduction of Shariah compliant financial contracts and the effective introduction of Zakat are increasingly seen as the main measures to be advocated. The reformed capitalism of Islamic economics theory is increasingly accepted as the ideal Islamic economy.

Islamic parties in Pakistan, Turkey and the Arab world have never taken the task of defining their economic problematique very seriously. Islamic economics has become a major conceptual hurdle in the attempt to define both ideal types and the social processes through which over time these ideal types are to be approximated. The Islamic ghost of neo classical economic man conjured up by Islamic economics bears hardly any resemblance to the historical reality of individual economic motivation at the time of the Prophet (Sallallaho wasallam). Utility and profit maximization was the concern neither of the individual consumer/producer nor the purpose of social organization. Islam articulated a religious ethic which firmly subordinated economic endeavour to the individual and social quest for spiritual upliftment. Economic activity was a means for achieving spiritual excellence and was strictly limited to ensure that it aided spiritual progress – the Prophet (Sallallaho wasallam) did not save, invest or bequeath property. The values of Zuhd and Faqr were strongly emphasized by Islam.

Similarly, the Islamic conceptions of property and of justice are rooted in a metaphysics that is at odds with the metaphysical conceptions underlying capitalism. Thus Rawls (the leading liberal political philosopher of modern times) builds his theory of justice on the Kantian conception of the individual as a self-determining being. Justice, within the Rawlsian system entails the creation of a social order in which individuals can pursue their autonomously defined ends and constraints in this pursuit of individual ends are justified on only two grounds.
(a) That they are necessary to preserve the similar liberty of other individuals and
(b) That they are required to compensate the most socially disadvantaged group (the so called difference principle).

It follows that in the Rawlsian system all individually valued ends are of equal social legitimacy. To give an example from Rawls himself the system of justice as fairness must treat as of equal value the conception of the good put forward by an individual who finds fulfillment solely in the counting of blades of grass ands the conception of the good put forward by an individual who finds fulfillment in fighting drug abuse. Liberal conceptions of justice whether Kantian, or Rawlsian have no coherent argument for the ordering of values. All autonomously defined ends by self determining individuals are of equal value.

Now all the higher religions and most emphatically Islam reject the metaphysical conception of the individual as a self determining being (the conception of man as God) Islam insists that human fulfillment lies in a voluntary surrender (the word Islam means surrender) of the capacity of self determination. The capacity of self-determination is not denied but the authentication of ends with reference to this capacity leads one to Kufr and to frustration since such authentication cannot conceivably provide a basis for the ordering of values. The ordering of values and the authentication of ends cannot be achieved through an exercise of man’s rational faculty. Reason can identify means for achieving given ends but it cannot provide a basis for valuing ends.

The Islamic conception of justice can assign intrinsic value only to the religious norms Iman, Islam, Taqwa and Ihsan. Islamic theorists thus face the task of conceptualizing a social and economic order in which the practice of the religious virtues (not welfare, not utility) are enhanced. Economic institutions have to be examined and their potential for inducing individuals to accord priority to the attainment of spiritual progress must be identified. The factory, the system of land tenure, the family as consuming unit, the distributive and marketing channels, the bazzar, the policy making and executing offices, saving and investment institutions all must be redesigned to facilitate the growth of virtue. This is essential to develop an economic system the purpose of which is the promotion of the religious virtues.

Islamic economics of course cannot raise such questions. It is a branch of neo classical economics and assumes the value neutrality of capitalist institutions. Adding on Zakat and introducing Shariah compliant financial contracts and other marginal adjustments such as reducing the maximum size of land holdings and guaranteeing trade union rights etc. would suffice for the achievement of Islamically sanctioned welfare maximization. Islamic economics is methodologically incapable of exploring the relationship between institutional structure, individual motivation and value change. In the Islamic economics paradigm the individual consumer, producer, policy maker is assumed to be Islamically motivated and the problem of the impact of economic activity on individual motivation is thus assumed away. Instead of addressing this vital issue Islamic economists accept capitalist values, structures and organization forms as natural.


For the summary of above article go here Summary: Islamic Economics and Capitalism