ISLAMIC ECONOMICS BASED ON HUMAN VALUES
KHURSHID AHMED
The universality of the Islamic tradition as well as the technological revolution of our times has made almost the entire world as one small city. But although the distances have been reduced between places, the distances between human beings have increased. Lack of understanding of different cultures, civilizations, traditions and life-styles is one of the problems with which we are beset. There is a lack of real contact and communication between people belonging to different traditions. Indeed, so far, the contact between the western world and the Muslim world has been in the nature of a relationship of independence.
Now there are developments which suggest that the nature of this relationship is going to change. We are moving towards cooperation and interdependence and in this new phase, the need for dialogue increases manifold. It is in this spirit that I make some submissions on Islamic economics. As a rather difficult task, I will make the humble effort of summing up contemporary Muslim thinking and outlining the major values and principles which inspire contemporary Muslim economists, economic planners and bankers to build a new world, one based on values drawn from the Islamic tradition. Economic theory is presently in the throes of a crisis. We are passing through a very critical period. The crisis is as great as, if not greater than, the one we witnessed in the 1920s and 30s, the period which led to fascism and the success of socialism in Europe.
A careful scanning of the contemporary economic situation convinces one that there is a fundamental economic problem with which we are confronted today. The economic framework which has been developed during the last three or four decades is unable to tackle this problem. There is mass poverty and increasing disparity between nations and regions; and the irrational use of non-renewable resources is posing a threat to civilisation. There is incongruity between technology and developmental requirements. The production and consumption processes are unsuitable vis-a-vis the environmental needs of society. There is exploitation of the poor and affliction by the rich and powerful. There is inflation; there is stagnation; we are faced with the phenomena of rising prices and high interest rates and high rates of unemployment. There are structural deformities in the relationships between the developed countries and the less developed countries.
All these problems the post-war framework is incapable of solving. There are no signs “that we are converging towards a philosopher’s stone that will cause all the pieces to fall neatly into place”; on the contrary, we are always one inflation too late in specifying the exact form of the price for a costing equation. A number of economists are now suggesting that their design, which has been built and has been used to explain economic phenomena, has failed.
A recent study has been made by Kurt Dopfer and six other leading economists. The title of the book is Significant Economics in the Future: Towards a New Paradigm, and the authors make the significant observation that what is needed today is not some new interpretation of this or that economic theory, but an entirely new paradigm; not just changes within the paradigm, but a change of the paradigm itself. This is a very quick review of economic theory and the crisis in which we find ourselves. And every period of crisis is also a period of creativity, of change and opportunity, and, being an optimist, I feel that although we are passing through a critical phase, the promise of a new paradigm is also very much there.
The other aspect, which is also to be kept in view, is that there is a resurgence in the non-western world. This resurgence is political, economic, moral, ideological and cultural. It’s a multi-dimensional phenomenon. The fortythree independent Muslim states engaged in a search for a new future represent about 15% of the world population and about 22% of the total land area of the world. As an important component of the Third World, the Muslim world makes up about 39.4 of its land area and 31.7% of its population. This Muslim world is searching for a new life, and this search is not merely for bringing about economic development. The real urge is to reconstruct their societies and economies by drawing upon the values of their faith and religion and historical tradition. There are problems, there are tensions, there are irritants, but nonetheless, the real moving spirit behind Islamic resurgence is Islam. Muslims are thinking and striving to rebuild their society and economy by drawing upon a religious and ideological tradition, a set of values which is different from the values on which western civilisation has developed.
The Muslim economists, on the one hand, impressed by the crisis in economic theory, and on the other, by this resilience in the non-western world, are engaged in an effort to develop a new approach, a new discipline which might be described as Islamic economics. It is a discipline still in the process of emergence, something in the making. Nonetheless, some of its contours are very clear.
Now Islamic economics – what is it all about? Let me try a definition. I will suggest that Islamic economics is a systematic attempt to study the economic problem and man’s behaviour in relation to it from an Islamic perspective. It is also an effort to develop a framework for theoretical understanding, as well as to design appropriate institutions and policies, pertaining to the processes of production, distribution and consumption, that will enable optimal satisfaction of human needs, enabling man to serve higher ideals in life. Now this tentative definition makes it very clear that Islamic economics is a study of economic problems and the institutions to cope with them. It has its theological roots, but Islamic economics is not an exercise in theology. Islamic economics has very close relationships with jurisprudence and law: that aspect of law which deals with human relationships. But I will again submit that Islamic economics is not an aspect of theology. It is also not an aspect of law, although it draws upon both of these. Islamic economics is simply economics. Its primary concern is with the nature of economic problems and economic institutions and, as such, it has to be looked upon as an academic discipline.
What distinguishes Islamic economics from economics in general or from the traditions of economics with which we are familiar, namely western economics, whether the capitalistic branch or the socialist type, is that first of all, Islamic economics makes it very clear that the western position, that economics is neutral towards values, is unacceptable. This means that Islamic economics is not value-neutral. It has its own set of values, its own framework of values within which it operates.
And, in fact, I would go to the extent of asking whether western economics is really value-neutral. There is a big question mark. And the deeper we reflect, the more we find that even the positive economic theory of the west is rooted in a certain set of values, sometimes explicit, but mostly implicit. And to me it is unscientific to keep your values implicit, to hide them, and to pose as if you are objective and value-neutral. It is much more scientific to spell out your values and then to say that from this value framework these are the conclusions we draw; these are the differences which follow. Here the consistency of the values can be judged. Even values can be examined. Otherwise, they are not fair, and a number of modern economists are becoming conscious of this.
A distinctive feature of Islamic economics is that we do not hide our values; we make it very clear that we have certain value premises from which we begin and from which we operate. Secondly, Islamic economics also makes it very clear that economics is not to be studied in isolation from other aspects of social life. Economics is certainly a part of the social system and for this reason, a much more comprehensive approach, a much more integrated approach, has to be adopted. Economic phenomena and economic behaviour are to be studied in the context of the totality of human life.
That is why Islamic economic reform can take place only in the context of a total Islamisation of society and not in isolation. Technical relationships would be studied, but only on their merit and in the context of a value framework. So Islamic economics deals not only with how human beings behave, but also how they should behave. And for this reason, points of policy intervention are there to help human behaviour to lean in the direction of value realisation and value fulfilment. This makes the scope of Islamic economics wider, more comprehensive, because it deals with motives as well as behaviour, institutions and policies. It studies behaviour as it takes place and it also has a vision of the future with which it wants human behaviour to conform and towards which it wants to move. This approach is a distinctive feature of Islamic economics. Islam has given us, first, a set of objectives and values in economic life; second, a psychological attitude; third, a spectrum of motives and incentives; fourth, a socio-political infrastructure for economic institutions; and finally, principles of economic relationships. These are the five types of guidance that we get from our religious tradition. And economics becomes a sub-section of the ideological and ethical system of Islam. As a sub-section, it has its distinct existence, but only as a sub-section of the total system.
In view of this, at least six distinct branches of Islamic economics are visualised. First, Islamic economic philosophy, which deals with the values and the philosophic approach which Islam gives. Second, Muslim economic history, that is, how we have tried translate this in space and time. Third, the methodology of Islamic economics. This methodology is by definition somewhat different from that of contemporary economics. Fourth, Islamic economic analysis. Fifth, applied economics, which means policy analysis from the Islamic perspective. And the sixth is comparative economic systems.
Now, the methodology that Islamic economics uses is, to use a contemporary mathematical term, an axiological approach, where the values and the principles that Islam gives go to make up a set of axioms. Once we have been able to formulate this set of axioms, the rest of economics has to follow from this by true, deductive logic. And in this respect, a Muslim economist or a non-Muslim economist can both play a role, because once the axioms are there, then it should be possible even for a non-Muslim economist to make contributions in the field of Islamic economics.
The value premises, which Islam has given, have been spelled out in literature that is now available. I will not go into details of them, but would just emphasise that the primary value for Islamic economics as for the entire Islamic faith and religion is Tawhid, or unity of thought. We do not look upon God as not relevant to the human situation. We do not look upon God as a being who might have historically created the universe, but now, like the British monarch, has nothing to do with the fate of the world. Our understanding of God is that He is the Creator, the Lord, the Sovereign, the Sustainer, the Giver. He sustains everything. His intervention is a reality, and so we have a close and direct relationship with the Law and with the Creator. And in regard to pursuing the guidelines He has given, this divine Revelation is as necessary and as modern as tomorrow morning, not something of the past or obsolete.
So, this approach, Tawhid, gives us our unique concept of human society; human society based upon validity of law, validity of life, validity of mankind and unity of the law. All these are natural corollaries of our faith. The idea is that God is Rab (Lord), who nurtures and nourishes and sustains and develops and leads us towards perfection. This is the divine model in the universe. We believe that human effort takes place in the context of this divine model and, even though I may be making a living because of my effort, it alone is not contributing towards that. There are a number of divine inputs into this effort, and as such the result of this effort also has to be shared in the context of the Divine Guidance.
The second basic value premise is the vicegerency of man. These spells out man’s position in the world. Man is not just the product of an accident. He has been created for a certain mission with a definite position and that position is that of God’s deputy. This gives us the concept that man must worship; he is responsible; he has freedom, his faculties or intellect make him accountable for his relations and moral existence. The individual has a moral personality of his own; he is not just a cog in a machine as the collectivists’ system would have us believe. His moral accountability, his being responsible, these are integral elements in this concept. It also means a very positive approach to life and its problems. That is, man is here with a responsible mission to serve, to change, to recreate, to rebuild and to reconstruct. This is a very positive concept, a revolutionary concept. It also means that man is not the master. He is only a trustee. He has been entrusted with whatever he has and whatever is there in the world, in the universe. But he has to operate as a trustee, so that he cannot misbehave and misuse these resources. This means that not to use available sources becomes a crime. The attribute of shukr is to be cultivated, thankful that God means us to avail ourselves of what He has given. No extravagance, no waste, but positive utilisation as a trustee.
Trusteeship brings the idea of accountability – accountability in this world before humans, before the people and before God in the life hereafter. And that is how the consequences of an action, for oneself, for society and in the life to come, become elements of Islamic rationality, in order that the Islamic community co-operates and understands and deals with the rest of the world as an entity.
After these two basic values, the third important value, which is the objective for all human effort, is justice, ‘adl. This is a term which appears in the Qur’an frequently, and this is the objective to which individual effort, social effort and intellectual effort is to be directed. And that means social justice, political justice and justice between human beings, between individuals and institutions and between nations. The Islamic economic approach is one that is directed towards the achievement and actualisation of justice in human relations. The process for this is tazkiah. This is purification, at the individual level as well as the social level. And the result of this effort is falah, success or salvation, in this world and the one hereafter. Roughly, this is the order in which the economic objectives which have to be kept in mind for all economic policy-making and economic thinking, to put it precisely, are: first, human dignity, freedom and brotherhood; second, efforts to make the best possible use of human resources and material resources, that is, productive effort for the achievement of optimal growth. Third, achievement of social and economic justice, so that poverty is eliminated, inequalities are reduced and human relations are built on justice.
With these objectives in mind, Islamic economics, first of all, starts with a set of values known as halal and haram, what is permitted and what is forbidden. And within these two extremes there is a vast area of permissibility. This is to be experimented with; man is free to make experiments. Secondly, this approach is man-centred, as western economics is wealth-centred. Wealth is definitely one of our concerns. Wealth is needed for well being. But the centre of the study is man. As against the economic rationality of the West, Islamic economic rationality consists of decision, making with a view to achieving falah, and ‘adl for oneself and for other human beings. It has three major dimensions. First, one’s own interest – Islam does not deny this but incorporates it into its ethics and supplements it by the interests of other members of society; second, the social and temporal consequences; and third, the consequences in akhirah, that is, in the life to come. So, all these three are integrated into Islamic economic rationality. Fourth, the interests of the individual and of society have not been looked upon by Islam as antipathetic, as they have been by the western tradition. There, capitalism went towards the extreme of individualism, while socialism and communism went towards collectivism to the neglect of the individual. In Islam, the interests of the two are harmonised. And this harmonisation of the individual with society has taken place through this set of regulations, values and laws.
In the Islamic model, on the one hand, we have an individual with private enterprise, with initiative and incentives, and on the other, the public sector which is an innovation of the Islamic system, where a number of society’s needs have been provided for on a non-commercial, non-profit-making basis, through mobilisation of the resources of society by voluntary means. Waqf is one of the key institutions throughout Islamic history; there was universal education and there was universal medical care and provision for travellers; all of these have been catered for through this third sector, which is an altruistic sector, which is an integral and essential element of the Islamic world. In Islamic sources one finds these efforts to harmonise social interest with individual interest, and wherever there is a divergence between the two, to bring them into one, into harmony with each other.
Next is the Islamic idea that although production has to be enhanced and developed, it has to be useful production. The concept of usefulness is an integral part of the Islamic scheme, which means that our emphasis is not merely on physical expansion, but expansion within the framework of certain moral and social priorities, so that this production leads to human well-being and welfare, at the individual as well as social levels. Next is the principle of equalisation of opportunities, which means that conditions of unequal opportunity have to be removed and the social infrastructure has to be so developed that there is equalisation of opportunity in society. There is also a principle of decentralisation and regional equity and finally the points of intervention. And the instruments of policy are moral training and purification of the motives and incentives of the individual, so that a change from within takes place supplemented by social forces and instruments.
Private property and private enterprise are basic institutions in Muslim society. But it is not unlimited property; it is private property with the concept of trusteeship, so that it does not degenerate into an instrument of exploitation at any stage. Elimination of riba means that loan capital is not regarded as productive of interest in the Islamic framework. Instead of that, our concept is that it is equity capital which is productive in a real sense and the social and economic relationships which have to be built are not based on debt relationships, but upon equity and participation. Now this is a very different concept of society from that of the contemporary capitalist society, which is a society where human beings groan under the burden of debt, and the individual is seen as a consumer. Mobilisation, resource mobilisation, all of that takes place through institutions which create a debt-ridden economy. Islam says it has to be a participating, a profit-sharing society, based on a different model, and in this model, freedom can be ensured because every individual feels he is a participant in the drama of production and not in any way subject to a debt situation. So morally and economically it is a very different vision. And if some genuine situations for debt arise, they are to be met with through social institutions. That is why for individual needs, for different situations, if genuine situations for debt arise, Islam has provided for them through voluntary institutions and private resource mobilisation. Zakat is a system of transfer of resources from the rich to the poor to ensure that obstacles, initial or generated, to opportunity are eliminated. And all human beings in a society are at least provided with their basic necessities of life. And then they have this opportunity to compete, to strive and to achieve the heights.
Now this set of economic principles goes to make up our value framework, and you can see that from this, the economist will derive a very different set of policy conclusions. Economic concepts will change. The concept of economic rationality will change. It will be a very different concept of rationality in the Islamic framework. The concept of utility will not just be worldly fulfilment. In fact, it is submitted that the very thrust of economic analysis will move from want to the world’s needs and this will be a revolutionary change in economic thinking and economic policymaking, because want is very much related to the desires as well as the capabilities of people. On the other hand, need can have an objective assessment. Needs have to have a hierarchy: individual, social, collective and national needs. All these criteria we can have, priorities based upon values for individual effort as well as for social effort. The shape of the utility function will be different. The consumption pattern will be different. The product mix will be different. The relative priority, which will give two different components of the GNP, will be different. Even the indicators to measure the human situation will have to be changed, so that we have more composite, more social, more comprehensive indicators. That is how a revolutionary change will take place.
Similarly, with the theory of consumption, the theory of distribution and the theory of production: all of these are about to change in this framework. A firm will not work for a maximisation of profit; instead, it will have the idea of a reasonable profit plus a just wage, plus a just price, plus welfare. These will be the four major components of the objective criteria for the firm.
I would like to submit that these axioms, values and principles are going to lead us to very different concepts of economics at the levels of consumption and production, as well as in development, policy making and even accounting. We shall have to develop social accounting as against the type of accounting with which we are familiar at the moment. These concepts are not just ethical norms, but have very important economic consequences and economic implications for theoretical analysis as well as for policy formulation.
I will conclude by saying that this should at least establish the need for research and dialogue. Research – so that we can take these avenues and many more; and dialogue, because we have to share these ideas. And in this effort, both Muslim economists and western economists should be active participants. I will submit that in this new approach which we are trying to develop, we do not claim that we have all the answers or that we have been able to develop all the solutions – nothing of the kind. It is only a new approach. We are using this commitment with confidence, but also with humility, because we want to experiment. We will be learning from our experiences, the experiences of mankind; we would like to learn from other traditions and we would like to see others also adopt a more open attitude to the study of the Muslim approach to economics.
Edited By Asma Siddiqi
Institute Of Islamic Banking And Insurance London
Comments
John Doe
23/3/2019Lorem ipsum dolor sit amet, consectetur adipisicing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris nisi ut aliquip ex ea commodo consequat.
John Doe
23/3/2019Lorem ipsum dolor sit amet, consectetur adipisicing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris nisi ut aliquip ex ea commodo consequat.
John Doe
23/3/2019Lorem ipsum dolor sit amet, consectetur adipisicing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris nisi ut aliquip ex ea commodo consequat.