Islam and Mammon: The Economic Predicaments of Islamism

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 Islam And Mammon
  • Book Author:
Timur Kuran
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IF ANGER, RESENTMENT, FRUSTRATION, AND ENVY were four of the factors that sowed the horrors of September 11, 2001, another is the belief that Islam offers solutions to entrenched problems of human civilization. Militants who strike in the name of Islamism, like millions of peaceful Islamists, argue, some no doubt with conviction, that Islam holds the key to a social order capable of providing social justice along with economic prosperity. Islam harbors an economic vision, Islamists contend, whose superiority has already been proven.

 Its first few decades in the seventh century, they say, and to an extent also the subsequent few centuries, amply demonstrate the merits of Islamic economic values and institutions. There exists a voluminous modern literature that purports to identify Islam’s economic wisdom and to derive implications relevant to the present.

Grounded in medieval Islamic thought, it is known as “Islamic eco- nomics.” Notwithstanding the claims of its promoters, the significance of this literature does not lie in its substance. It does not describe the advantages of Islamic economic principles in a manner that would make sense to a well-trained economist.

Nor has it produced solutions that more than a small minority of Muslims take seriously. The significance of this literature lies chiefly in the support it gives to the quest for a distinctly Islamic social order. Islamic economics has fueled the illusion that Muslims can solve a wide range of social problems simply by embracing Islam and resisting Mammon—the evils associated with immoral forms of economic gain.

It has promoted the spread of antimodern, and in some respects deliberately anti-Western, currents of thought all across the Islamic world. It has also fostered an environment conducive to Islamist militancy.

The most conspicuous assertion of Islamic economics is that interest is patently un-Islamic. Given the central role that interest plays in any mod- ern economy, this claim sanctifies opposition to global economic integration. Most Muslims, whether or not they favor a ban on interest, and regardless of how they interpret Islam, readily agree that avoiding interest is among the constraints Islam places on economic behavior, if not its most important economic requirement.

Likewise, non-Muslim observers of the Islamic world generally take it for granted that to shun interest is a basic Islamic requirement. Few people question whether the traditional sources of Islam do, in fact, prohibit all forms of interest. Nor is it common to encounter inquiries into whether the belief in a categorical ban has always enjoyed currency.

Whatever their own attitudes toward interest, most observers, regardless of faith, believe that Islam treats interest as the clearest embodiment of Mammon. Among other doubtful assertions of Islamic economics is that Islam harbors an unsurpassed institution for redistributing wealth to the poor. And another is that the Islamic heritage offers economic norms well suited to ridding a modern economy of opportunism and corruption. Like the claim that Islam prohibits all interest, these assertions are rarely challenged explicitly or directly.

Writings critical of Islamic economics, especially scholarly publications, are uncommon in any language. There are several reasons why Islamic economics has largely been spared the sort of critical analysis to which the typical economic doctrine or program is subjected routinely. The most basic is that its prescriptions are considered too unrealistic to threaten prevailing economic structures. Another is that evaluating an economic doctrine grounded in Islam requires familiarity with economic theory, Islamic history, and the contemporary Islamic world—realms of analysis that rarely intersect. Still another factor is cultural relativism.

Promoted by certain influential strands of multiculturalism, this attitude discourages challenges to cultural prod- ucts considered expressions of authenticity. Whatever the relative weights of these various factors, they all distort public discourses on the contributions that religion in general, and Islam in particular, may make to a society’s economic well-being. Inflating the apparent popularity of Islamist economic goals, they also put a veneer of antiquity on practices and institutions that are actually recent constructs.

Islamic economics itself exemplifies what has been called an “invented tradition.”1 As several of the following essays document, not until the mid-twentieth century were campaigns launched to identify self-con- sciously, if not also exclusively, Islamic patterns of economic thought and behavior.

Until that time the economic content of discourses grounded in Islam’s traditional sources lacked systematization; they hardly formed a body of thought recognizable as a coherent or self-contained doctrine. Nor did promoters of an Islamic social order have an economic agenda drawn from Islam’s intellectual heritage.

When Muslim Arabs, Turks, Slavs, Iranians, Central Asians, or Indians of the early twentieth century expressed economic demands, they usually did so without invoking exclusively Islamic concepts or using identifiably Islamic terminology. Not even pan-Islamists intent on overthrowing colonial regimes put forth an eco- nomic agenda recognizable as Islamic.

Just as the interest ban became the most salient objective of Islamic economics, its most visible practical achievement has turned out to be Islamic banking, itself an invented tradition. Even the concept of Islamic banking is a product of the twentieth century. To be sure, early Islamic civilization developed impressive financial institutions.

By the tenth century, Islamic law supported credit and investment instruments that were as advanced as their counterparts outside the Islamic world. In fact, they stimulated institutional advances elsewhere, including Western Europe.2 Yet prior to the nineteenth century, the Islamic world did not generate durable financial organizations recognizable as banks; and when such organizations finally appeared, it was through Western initiatives. It is also significant that the first mainly Muslim-owned banks emerged in the 1920s.

As for the first “Islamic” banks, they made their appearance a half century later, in the 1970s. Although massive efforts have been made to portray them as analogous to an ancient financial organization, in truth they function more like conventional commercial banks than like the ephemeral and small-scale financial enterprises of the premodern Middle East. The first two essays document that Islamic banks do not even avoid interest, except in name.

READ  A Primer on Islamic Finance pdf

But the differences do not stop there. An Islamic bank enjoys standing before the law as a juristic person, which is a con- cept alien to traditional Islamic law. It can, and is expected to, outlive its founders, shareholders, and employees, as no financial enterprise could under Islamic law except a waqf, or pious foundation. Unlike a waqf, however, an Islamic bank is authorized to make and remake its own rules and objectives. Under Islamic law, a waqf had to remain frozen, bound in perpetuity by its founder’s directives.3

If organized efforts to give economics an Islamic hue began no more than a few generations ago, and the practical results of these efforts pre- sent unmistakably modern features, are the links between Islamic his- tory and Islamic economics merely symbolic? On the contrary, Islamic economics endeavors to situate its prescriptions in Islam’s very rich legal, social, and intellectual heritage. As a case in point, it portrays Islamic banking as a reincarnation of the Islamic law of partnerships, developed a millennium ago. That law, it is said, gave humanity a timeless institutional basis for saving, investing, lending, and borrowing without using interest.

 Islamic economics is as much a return to the distant past, then, as it is an attempt to embrace modernity. It pursues contemporary economic objectives through institutions rooted in Islamic history. If an Islamic bank lived up to the theory of Islamic banking, not to mention its own charter, it would, in fact, form multitudes of partnerships every day, some with individual depositors and others with individual borrowers. Each of these partnerships would subject it to uncertainties evadable through interest.

It is not self-evident why the twentieth century spawned a movement committed to developing an Islamic variant of economics. After all, there is no distinctly Islamic way to build a ship, or defend a territory, or cure an epidemic, or forecast the weather. Nor are there constituencies for basing such tasks on Islamic teachings. Moreover, every period of Islamic history offers abundant examples of innovations with little, if any, basis in religion.

Over the centuries Muslim achievements in diverse domains— science, art, governance, commerce—have involved doctrinal flexibility, openness to outside influences, and respect for creativity. Where we now observe a commitment to narrowly Islamic principles, traditions, or even imagery, there is a need, then, for an explanation.

A major reason for the existence of Islamic economics, documented in this book’s fourth essay, lies in the objective to tighten communal bonds among Muslims, and in particular among those of the Indian subconti- nent. In the course of the political struggles that resulted in the establishment of Pakistan as a homeland for India’s Muslims, certain activists sought to strengthen Muslim communal ties by reinforcing personal identification with Islam.

This campaign led to the resurrection or invention of numerous Islamic traditions in domains considered receptive to religion. Among these domains was economics. Since that time Muslims from the Indian subcontinent have stood at the forefront of efforts to develop recognizably Islamic economic theories, practices, policies, and institutions. In certain predominantly Muslim countries, including Pakistan, these efforts have enjoyed at least the tacit support of politicians and intellectuals fearful of being stigmatized as insufficiently Islamic.

The consequent reticence has muted questions concerning the viability and desirability of the Islamist economic agenda. Making people privately opposed to Islamic economics pay lip service to a vague ideal of economic Islamization, it has even emboldened Islamists. Ceding Islamists a monopoly over the interpretation of Islam’s economic requirements, it has enabled them to determine which economic behaviors and approaches are properly Islamic and which are to be resisted as dangerously un-Islamic.

The resulting expressive imbalance is particularly striking in view of the limited support that economic Islamization enjoys in markets of the Islamic world.

As the first two essays show, in heavily Muslim countries where ostensibly interest-free Islamic banks coexist with conventional banks, the market shares of the former have remained very low. It ap- pears, therefore, that the constituency for economic Islamization is modest.

 This inference is consistent with the reluctance that Islamic banks have shown in purging interest from their operations. Significantly, the courts have done little to enforce anti-interest legislation. Under pressure from the business community, they have evaded that responsibility, first, by granting banks transition periods during which they could continue dealing in interest with impunity and, second, in the face of imminent deadlines, by revoking previous decisions to allow more time for reflection and consensus building.

Most recently, in 2002, the Supreme Court of Pakistan rescinded a 1999 judgment of the Federal Sharia Court, under which all interest-based banking was to be strictly illegal as of mid-2002.4

The economic Islamization campaign had received a second wind dur- ing the Arab oil boom of the 1970s, when Saudi Arabia and other wealthy monarchies of the Arabian peninsula felt compelled to demonstrate a commitment to Islamic causes.

 The oil revenues of these states had grown tenfold in inflation-adjusted terms between 1970 and 1974. The consequent enrichment of Arab oil exporters reinforced already potent images of decadent sheiks squandering Arab and Muslim resources. It also drew attention to huge inequalities within the Islamic world, within the Arab world, and even within the oil-rich monarchies themselves.

These mon- archies felt threatened by diverse groups, including antiroyalists, foreign workers living in shantytowns, and religious conservatives appalled by moral laxity.5 To pacify these groups, they took to enlarging their already substantial aid programs to various Arab and Muslim constituencies.

They also established, or began supporting, organizations that served Arab or Islamic causes.6 Among the beneficiaries of this drive for global legitimacy were schools and research organizations dedicated to the bourgeoning doctrine of Islamic economics.

READ  Critical Issues and Challenges in Islamic Economics pdf

At the time that Islamic economics got reenergized by oil wealth, it stood on the fringes of global economic discourse. Notwithstanding its rejection of capitalism and socialism, it contributed minimally to major policy debates of the era. This is consistent, of course, with its emergence as a tool for identity preservation as opposed to economic improvement.

Little changed on this count after Saudi Arabia assumed a leading role in its development. Islamic economics hardly participated in the headline- grabbing economic debates of the 1970s and 1980s: trade liberalization, privatization, and environmental regulation.

Most remarkably, it did not even take a stand on the recycling of oil revenues—widely championed as an instrument for alleviating the massive trade deficits that oil importers, including ones with largely Muslim populations, were enduring because of skyrocketing oil prices.

The founding of the Islamic Development Bank in the mid-1970s might have provided an occasion for developing distinctly Islamic policy positions on the recycling of petrodollars. Though modeled after the World Bank, the Islamic Development Bank enjoyed immediate identification with Islamic economics because, at least on paper, it committed itself to interest-free financial methods.

However, Islamic economics refrained from critiquing the Islamic Development Bank’s operations or priorities. One reason, no doubt, lay in the enormous support that Islamic econom- ics was receiving from Saudi Arabia, the bank’s host country. The Saudi regime was, and remains, notoriously sensitive to feedback liable to prompt questions about its Islamic correctness.

This sensitivity has helped to limit the substantive range of Islamic eco- nomics. The consequent narrowness is evident in the scope of the essays that follow. If my critiques focus mainly on just three matters—the interest ban,  wealth  redistribution  through  the  zakat  system,  and  Islamic norms of economic behavior—the reason is that these constitute the central topics of Islamic economics itself.

 The limitations of Islamic econom- ics become obvious when one thinks of what the literature generally ig- nores.  A  list  of  omitted  topics  might  include  the  economic  effects  of gender discrimination, the productivity implications of replacing secular schools by Islamic schools, the role of Islamic law in the emerging global economy, and the institutional determinants of scientific creativity. Broad- ening  the  scope of  Islamic  economics  to  include  such topics  might  have undermined  the  Saudi  quest  for  political  legitimacy.

 For  one  thing,  by encouraging intellectual creativity it might have diluted the traditionalist character of the enterprise. For another, it might have spawned criticism of Saudi policies, the Arab social order, even Islam itself. The narrowness of Islamic economics, not to mention the infeasibility of its prescriptions, must have suited the Saudi Arabian government, which was pursuing an ambitious economic modernization program behind a protective fac¸ade of Islamic traditionalism.

To one degree or another, most of today’s fifty-six predominantly Muslim countries are economically underdeveloped. Therefore, it is natural to wonder about how Islam has affected economic evolution. Unlike many secular schools of thought, Islamic economics does not deny the existence of links between religion and economic performance.

 In highlighting early Islamic policies and institutions that helped the Middle East register im- pressive economic advances, it asserts that the links were mainly favor- able. Thus, it offers the zakat system of seventh-century Arabia as evidence of Islam’s capacity for poverty alleviation, and the Islamic law of partnerships as an example of the support early Muslim authorities gave to commerce. Yet, institutions initially favorable to one economic objective or another might eventually have become dysfunctional, even counterproductive.7

 Islamic economics avoids such possibilities by claiming that whatever may have slowed the economic development of Muslim-governed states, or prevented them from keeping pace with global economic modernization, must have had foreign origins. But what made the economic systems of the Islamic world vulnerable to harmful external influences?

The last essay of the volume explores the possibilities. Drawing attention to a variety of social mechanisms through which Islamic institutions, practices, beliefs, and attitudes may have helped or hindered economic development, it also identifies a series of unresolved historical puzzles.

The essays make clear that there is no simple answer to the question— asked with increasing frequency in the wake of September 11—of whether Islam has been, or turned into, an obstacle to economic progress. As we shall see, the claim that “Islam is hostile to commerce” is refuted as easily as the opposite assertion.

Like any great religion with a long history, Islam has stood for many things, and its effects have varied according to time and place. Identifying why the members of the Organization of Islamic States do not top the World Bank’s current per capita income roster re- quires fine-combed, patient, and dispassionate analysis.

To observe that Islamic economics has received support from parties with one political agenda or another does not imply that its individual practitioners and followers are themselves political operatives. The motives of an expositor of Islamic banking need not match those of his financial supporters. Nor must a saver who opens an account at an Islamic bank have a political goal.

By the same token, the effects of Islamic eco- nomics may transcend those pursued by its principal financial supporters. Among the themes of this book is that Islamic economics fosters an intellectual climate unconducive to open-ended discourse on policies and practices that have achieved identification with Islam.

Among the by-products of the resulting expressive reticence is the pau- city and shallowness of debates on the sources of underdevelopment high- lighted by the first Arab Human Development Report, prepared entirely by Arabs and issued in 2002.

 If this report received enormous attention in the global media, one reason is that it articulates diagnoses and proposals that Arabs rarely defend publicly. Observing that the Arab world suffers from “capability and opportunity poverty,” the Report draws attention to three deficits responsible for economic backwardness—none noted by Islamic economics.

READ  The Islamic Banking and Finance Workbook pdf

The first is a “freedom deficit” caused by limits on political participation, the second a “women’s empowerment deficit” rooted in laws and norms that allow, if not require, gender discrimination, and the third a shocking “knowledge deficit” that stems chiefly from inadequate schooling.8

 In view of these undeniable deficits, the significance of Islamic economics may lie less in what it preaches than in topics it avoids. However peaceful and well intentioned the Islamic economists them- selves, their works may also contribute to global economic instability.

In hindering institutional reforms necessary for healthy economic develop- ment, they contribute to social despair. As important, they allow Islamic militants to rationalize crimes as serving a sacred cause.

The complexities and silences of Islamic economics have contributed to its many contradictions and inconsistencies, which are discussed in several of the essays, most directly the fifth. To be sure, any movement serving as a conduit for diverse agendas may suffer from incoherence.

Think of the antiglobalization movement that has made headlines since the late 1990s. Mass protests organized in the name of antiglobalization unite people with agendas as diverse as wildlife preservation, sustainable development, economic protectionism, AIDS research, marijuana legalization, and gay rights. Such agendas are not necessarily mutually compatible; there may exist trade-offs, for instance, between assisting endangered species and promoting industrialization.

Islamic economics, which is scrutinized in each of the first five essays, is easily confused with the economic activities of organizations that claim an Islamic identity. Such organizations include retail outlets as well as giant corporations, charities as well as profit-seeking banks.

 A subset of them—most conspicuously, Islamic banks—assert a commitment to the global struggle for economic Islamization. But others show no desire to restructure the world economy.

 There are Islamic charities that have a religious identity not because they follow distinctly Islamic fundraising principles but because they draw resources from Muslim congregations. Likewise, there are clinics, schools, and relief organizations that are considered Islamic simply because they are run by devout Muslims expressly for the benefit of Muslims.

Some of these organizations are highly effective—measurably more successful, in fact, than their counterparts operated by governments or secular private establishments. Whatever their successes, in various places they collectively form Islamic subeconomies. The composition and operation of Islamic subeconomies are discussed in the second and third essays.

The entire volume bears on Samuel Huntington’s controversial claim that we are in the throes of a “clash of civilizations.”9 The leading luminaries of Islamic economics could have stressed the resemblances of, and mutual influences among, the world’s great religions.

They could have emphasized the Judaic and Christian roots of Islamic social thought, the high esteem that ancient Hellenic philosophy enjoyed among early Muslim writers, and the commonalities of the partnership forms once in use along the Mediterranean coastline.

 Instead, and as we shall see, they have treated economics as a vehicle for accentuating the uniqueness of Islamic civilization and its incompatibility with other civilizations, even the emerging global civilization. To this day, Islamic economics insists that living as a good Muslim requires adherence to distinctly Islamic norms. Consequently, it requires practicing Muslims to limit, if not shun, eco- nomic relations with non-Muslims, even with nonconformist Muslims.

Huntington’s clash-of-civilizations thesis falters, however, when one turns from ideology to practice. The cultural separatism preached by Islamic economists has had little practical impact. More than a half century after the birth of Islamic economics, nowhere has interest been purged from economic transactions, and nowhere does economic Islamization enjoy mass support.

Although there exist Muslims who consider Islamic civilization at war with other civilizations, the economic manifestations of their divisive measures remain exceptional and superficial.

Looking back at the essays grouped in this book, I am struck by how well they have stood the test of time. None of my assessments of Islamic economics has required substantive revision in the face of later developments. My claims as to the infeasibility of Islamic banking and the inadequacy of Islam’s traditional redistribution instrument carry as much truth today as they did when first articulated. Editing has been limited to stylistic standardization and minor cuts to avoid repetition.

I am indebted to the publishers of the original essays for granting per- mission to reproduce them here. In order of appearance in this volume, the six essays and their publishers are: “The Economic Impact of Islamic Fundamentalism,”  in  Fundamentalisms  and  the  State:  Remaking  Polities, Economies, and Militance, edited by Martin E. Marty and R. Scott Appleby (Chicago: University of Chicago Press, 1993), pp. 302–41; “Islamic  Economics  and  the  Islamic  Subeconomy,”  Journal  of  Economic Perspectives 9 (Fall 1995): 155–73 ( American Economic Association); “Islamism and Economics: Policy  Prescriptions  for  a  Free Society,”  In- ternational  Review  of  Comparative  Public  Policy  9  (1997):  71–102 ( Elsevier Science);

 “The Genesis of Islamic Economics: A Chapter in the  Politics  of  Muslim  Identity,”  Social  Research  64  (Summer  1997): 301–38; “On the Notion of Economic Justice in Contemporary Islamic Thought,” International Journal of Middle East Studies 21 (May 1989): 171–91 ( Cambridge University Press); and “Islam and Underdevelopment,” Journal of Institutional and Theoretical Economics 153 (March 1997): 41–71 ( J.C.B. Mohr [Paul Siebeck] Tu¨ bingen).

In conducting the early research on which this book rests, I had the support of the Faculty Research and Innovation Fund of my university, the University of Southern California, and from 1993 onward, of its King Faisal Chair in Islamic Thought and Culture. During the academic year 2002–3, while this book was in preparation, I was a fellow of the Center for Interdisciplinary Research, University of Southern California……

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