Islamic economics, politics and prosperity

By: John L Perkins

There are many practices and teachings of Islam that inhibit economic development. The nature of Islamic education, the prohibition on interest and the efficiency of capital markets limit motivation and investment. Conflicts between secular and sharia law, lack of freedom of speech, democracy, political transparency and vulnerability to financial mal-practice limit to some degree the effectiveness of institutions in Islamic society. In addition, the time devoted to daily religious observances and annual festivals such as Ramadan detract from time available for economically productive activities to a greater extent than other religions. For all these reasons it is relevant to consider in greater detail the nature of Islamic thought and its impact on society and the economy.

Islamic economics

For Muslims, Islam is not merely a religion but a way of life in which it is necessary to know and apply the Quran. As Muslims regard the Quran is the infallible word of God, it is a determining factor in Islamic behavior and society. Its verses are not considered to be mere teachings but directives to believers. Of these, perhaps one of the most defining appears on the first line, which is "This book is not to be doubted" (1:1). References to the power of God in the Quran reinforce the need to obey His commands. Many of these commands apply to religious customs, social behavior, and other areas including those of relevance to commerce and economics.

Economics is a social science devoted to studying the production, distribution, and consumption of wealth. It is the study of the nature of factors which determine production and consumption of goods and services and the relevance of this to human welfare. In what may seem surprising to economists elsewhere, Islamic scholars have developed a whole literature of economic discussion with reference to Islam. In this school of thought known as "Islamic economics", economic issues are evaluated in relation to Quranic principles, and mainstream economics is referred to as "materialist economics". The motivation for this formulation is the belief that capitalism has failed humanity because it is inequitable.

In the Islamic economic school of thought, the distribution of wealth, rather than the production of wealth, is considered to be the primary concern. To determine this distribution, is necessary to consider divine guidance. It is said that while Islam approves of economic progress, this is only a secondary consideration. The production of wealth is considered to arise necessarily from the production of the necessities of life. Whereas materialist economics is concerned with welfare, Islamic economics is concerned with proper conduct in preparation for the afterlife. Each of the following tenets used in Islamic economics are derived from quotations from the Quran. All wealth is created by God. It is therefore his property. Property and wealth can only be used for God’s purpose. The poor and the needy are entitled to wealth by right. Wealth should be shared not concentrated. Islam prohibits the lending of money for interest. Risk should not be born by the borrower but by the lender. The borrower may enter an agreement of partnership or co-operation with the lender. The lender can share the profits. However if there is no interest the borrower may bear the risk of loss. This will have a beneficial effect on the distribution of wealth. Employers must treat employees well and employees must perform their duties.

In addition to these economic directives, there are rules of taxation and inheritance that are defined in some detail. In many cases some reason or explanation is provided in the Quran for these injunctions. It the case of the prohibition on interest, this is stated but without any clarifying explanation. The lack of any explanation is held as further evidence of God’s wisdom. The rules as decreed in the Quran are not moral codes but legal injunctions, enforced by fear of God and anxiety about the afterlife. Depending on the country, these rules may also be enshrined in legislation.

Muslims are motivated by the "call of Islam", where they believe it is their duty to bring Islam to the entire world. They see the rest of the world as sick, immoral, tired of materialism and in need of salvation. They recognize that Islam has fallen behind in education, administration, commerce, scientific knowledge, industry and social services. However they see the application of religious life, not as the cause of this problem but as the solution. This leads to the desire to adopt Islam more thoroughly. By bringing a message that Islam stands for social justice and human values, they hope to convince the world of the righteousness of this path.

While Muslims to some extent reject the objectives of economic development, they also commonly see their relative poverty as being caused by Western failure or malevolence. They see international financiers as effectively defrauding developing countries. They see the failure of development efforts and widening gaps between rich and poor as evidence of this. They also see development as an attempt to transplant Western values and to undermine Islamic values, and as a form of cultural imperialism, which is divisive and inappropriate. They seek an alternative development strategy. To the Muslim, it must seem incongruous that as God is the source and owner of all wealth, that he should apparently bestow more of it upon non-Muslims.

To the non-Islamic economist, the Islamic view is horribly misguided and its implementation a tragic betrayal of welfare. There is no alternate development path. The barriers to entry imposed on agricultural goods imposed by developed countries may constitute a form of conspiracy against poor countries, but this is not specifically directed against Islamic countries. Numerous reasons for the relative poverty of Islamic countries could be suggested, mostly associated with the directives of Islam itself.

Some of the economic effects of Islam, as conceived by conventional economic thought, may be enumerated as follows. The constraints and costs imposed on financial institutions by the nominal prohibition on interest payments may preclude a free market in financial capital, causing inefficiency, moral hazard in banking, limiting the availability of funds for investment. Islamic tax regimes may have a negative effect on resource allocation, productivity and innovation. A conflict between secular and sharia law may contribute to an ineffective rule of law, a lack of trust in judicial institutions, moral hazard in judiciary, limitation on property rights and contract law, all of which have negative economic consequences. Religious constraints on the freedom of speech may impinge on democratic rights, institutions, political freedom and the ability to expose and eradicate corruption, again with negative economic impacts. The limitation on the labor force participation of women may reduce potential production and income. Finally the role of women in Islamic society, with its focus on domestic responsibilities, may lead to a high birth rate and population growth rate, a correspondingly lower per-capita income growth rate, further contributing to relative poverty.

The interference of religion into matters of economic policy is neither appropriate, desirable nor justified. The gap between rich and poor countries is not always increasing. Some poor countries are developing and catching up. Others are not. The reasons for this vary. Sometimes it is lack of effective development policy. The distribution of income in many countries may be inequitable but this is not inevitably so. Taxation and welfare payments redistribute income. Economic growth and development does not necessarily make the distribution of income more unequal or more inequitable. Generally, it makes everyone better off. So the general view of the Islamic economist cannot be empirically justified. Islamic economists view their objective as being the identification and recommendation of policies theat implement morality as defined in the Quran. In doing so they breach the normal moral obligation of the economist, which is the identification, and recommendation of policies that are in the best interest of the community.

Islam and democracy

A continuing source of conflict in many Muslim countries is the extent to which Islamic laws, the sharia, should be enacted in legislation. In many countries, there has been a general tendency towards a more Islamic implementation. Where conflicts occur, people are often warned by religious leaders not to question the authority of the Quran. Political debates are limited by the difficulty or inability to question any Islamic doctrine, In some Islamic countries democracy has been established but in most, governments are undemocratic or there are certain limitations to democracy. Is there something in the nature of Islam that inhibits democracy?

Democracy relies on freedom of speech. In Islam, freedom of speech is possible, but the Quran cannot be questioned. So it is possible for democracy to operate, but within these limitations. All democracies operate within certain constraints, either voluntary or legal. They generally operate for example, within the bounds of religious tolerance. However Muslim countries differ to some extent because there, Islam itself is often a political issue. There may be a balance between a popular secular view of the role of government and a traditional Islamic view. This may cause a conflict between religious leaders and secular leaders, imposing some constraint on the exercise of power by secular governments. In some Islamic countries, undemocratic secular governments hold monopoly power, partly motivated by a desire to prevent undemocratic Islamic parties from gaining power.

In some cases, like Iran, Islamic theocracies hold power and disallow real democracy, by assuming divine authority. In other cases there is a political balance of power between secular and Islamic political parties. It may be a policy of the Islamic party to implement an "Islamic state". By this it is usually meant that the sharia should become the paramount law. Such an implementation may well mean the end of democracy, because the sharia does not define the role of elections, at least as is currently understood. If the election of the Islamic party may foreshadow the end of democracy, the choice between secular and Islamic parties may not offer a real long term democratic choice. For this reason some countries seek to limit the power of parties, or simply limit democracy.

Any religion that seeks to have its sacred texts form the basis of secular law is in essence undemocratic. Democracy means that the popular will is expressed in the formulation of legislation. It entails the election of legislators. Where legislation is based on an ancient text, no expression of popular will is necessary. No amendments are necessary because the ancient texts do not change. The role of government is limited to just administration. In many Islamic countries there is increasing pressure for more rigorous implementation of Islamic law, partly in response to a perceived secular political failure and to perceived Westernization. This may further inhibit the development of democracy in Islamic countries and further worsen the prospect of economic development, prosperity and welfare.

Democracy relies of a belief in individual human rights, which are limited only to the extent necessary to ensure community welfare. In Islam, individual rights are surrendered to God, as the nature of Islam requires submission. The word "Islam" means "submission". As well as a sense of individual powerlessness, this submission to God may lead to a reduced respect for the authority and role of government. For Muslims, there is no escape from this as it is not possible to renounce or change your religion (3:85). This crime of apostasy in many countries is a capital offence. It is difficult to reconcile this absence of freedom with democracy.

Democracy may not be entirely necessary to achieve economic development, as the recent achievements of China show. However there can be no doubt that a lack of democracy often leads to corruption and a usurpation of state resources by the leadership group. A lack of freedom of political expression can lead to social and economic disruption. It is likely that China will eventually find its growth limited for these reasons.

There is a more pervasive reason that strict adherence to a religious doctrine such as Islam is not conducive or even permissive of democracy. The restriction on the ability to doubt, in the way that the words of the Quran cannot be doubted, spills over into the political arena. Statements that reflect badly on Islam are not always permitted, even if they are true or based on quotations from the Quran or Hadiths. For example referring to the number of wives of Muhammad, or stating that Muhammad’s father was not a Muslim, may lead to imprisonment or worse. It is not just the speaking of the truth that may be suppressed but the ability to recognize the truth and even the ability to seek it.

In a society where one must not doubt, the education system tends to favour basic memorizing rather than investigative learning. It favors rote learning rather than learning to think and to reason. An emphasis on study of the Quran precludes to some extent the study of other subjects. A habitual reluctance to use scientific method in order to establish the truth can have implications on society’s progress, the administration of justice and the political process. In such an education system, people may become readily accustomed to simply believing what they are told. Evaluating the competing claims of political parties may seem confusing even distasteful. Such societies may be neither conducive to democracy, nor the rule of law, nor the achievement of prosperity. It has been said that a lack of freedom may be a cause of the relative poverty of Islamic countries. More realistic analysis may show that Islam may be a cause of the lack of freedom.

Islam is not the only religion in the world that causes problems and hardship. It is hard to understand the behavior of certain Christian world leaders, and their desire to impose their views and will upon the world, without resorting to some notion that they must be motivated by a religious belief that what they do is good. This is even though the consequences of their actions quite obviously are not good. Their religious sense of morality appears to result in self-deception.

If religion contributes to the order of society and a feeling of well being amongst citizens, its benefits may be considerable. When it contributes to ignorance, violence and poverty it may become a cost to society and a liability. Religion has always had this negative effect. Islam has a particularly adverse effect on economic welfare and social organization. The effect of religious illusions and delusions, combined with the danger, power and proliferation of modern weapons, has made religion not only deleterious to human welfare, but a serious threat to the safety and security of humanity.