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8th IRTI DISTANCE LEARNING COURSE

PROBLEMS FACED BY MUSLIM COUNTRIES AND THE ROLE OF ISLAMIC ECONOMICS IN SOLVING THEM

By

SENATOR PROF. KHURSHID AHMADChairman, Institute of Policy Studies, Islamabad

INTERNATIONAL ISLAMIC UNIVERSITY, ISLAMBAD

25TH NOVEMBER 2008

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THE MUSLIM WORLD TODAY 57 MUSLIM COUNTRIES — MEMBERS OF THE OIC LAND AREA — APPROXIMATELY 22% OF THE WORLD POPULATION (2004) – 1.3 BILLION – 20% OF WORLD POPULATION

(Including Non-Muslims) in Muslim Countries INCREASE BY 0.5 BILLION IN 25 YEARS — 1980: 0.8 BILLION MUSLIMS REST OF THE WORLD (MINORITY POPULATION) 350 TO 400

MILLION TOTAL MUSLIM POPULATION 1.65 BILLION – 23% OF WORLD

POPULATION REGIONAL SPREAD OF POPULATION IN THE MUSLIM WORLD

SOUTH ASIA 26.1% MIDDLE EAST & NORTH AFRICA 20.5% SUB -SAHARA AFRICA 18.3% SOUTH EAST ASIA 16.3% CENTRAL ASIA 14.3% EAST ASIA 1% (The Economist-Nov.

2003)

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3 COUNTRIES (INDONESIA, PAKISTAN, BANGLADESH(0.5 BILLION : 37% OF MUSLIM POPULATION

7 COUNTRIES LESS THAN 1 MILLION EACH (Bahrain, Brunei, Cameron, Djibouti, Maldives, Qatar, Suriam)

AGE COMPOSITION : 0-14 36% 15-64 (Working Population): 57.6 % 65 + 4%

SEX DISTRIBUTION: Male 50.5% Female 49.5%

RATE OF POPULATION INCREASE: 1985-1994 2.5% P.Y. 1995-2004 2 %

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ECONOMIC SECTORS:

ECONOMIC SECTORS: AGRICULTURE 1990 17% OF GDP

2003 15% INDUSTRY 1990 34%

2003 37% MANURACTURING : 1990 14%

2003 15% SERVICES: 1990 43%

2003 45% INDUSTRIAL VALUE ADDED AS % OF TOTAL OUTPUT:

10 countries in the range of 30% or above (Malaysia, Iran, Indonesia, Saudi Arabia, Tunisia,

Egypt, Turkey)

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TOTAL GDP REAL OUTPUT: 1990 $ 0.96 TRILLION 2003 $ 1.45 TRILLION

PURCHASING POWER PARITY ADJUSTED GDP: 2007 7.740 TRILLION 8% OF WORLD GDP (65.5 TRILLION) (European Union $ 12.1 TRILLION) (Arab League $ 2.323 TRILLION)

Per Capita OIC Average PPP $ 3,381 (40% of World Average)

Range $31,97 to $600World Average : $ 8,477

(Source: Micropedia)

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INCOME PROFILE OF MUSLIM COUNTRIES

4 COUNTRIES – High Income Group

6 COUNTRIES – Upper Middle Income Group

18 COUNTRIES – Lower Middle Income Group

29 COUNTRIES – Low Income Group

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MUSLIM COUNTRIES IN GLOBAL PERSPECTIVE (1990’S)

Muslim Countries Non-Muslim Countries All (53) (109) (162)

Growth Rate of Per Capita (%) 1.87 4.84 3.87 Share of Manufacturing in GDP% 6.19 15.46 12.43 Investment – GDP Ratio (%) 8.26 19.89 16.22 Human Development Index 0.22 0.49 0.40 Share of Exp on Education as % of GDP 1.21 2.49 2.07 State exp on Health as % of GDP 0.56 1.92 1.47 Geni Co-efficient 22.64 36.07 2.39 Ratio of 10% of rich to poor 10% 7.23 13.16 11.55 Population below $1 a day 31.35 20.94 25.18 10. Population below national poverty line 39.47 33.82 36.31 11. Gender Development Index 0.23 0.51 0.41 12. Gender Empowerment Measure 0.029 0.14 0.102

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Of the 53 Muslim Countries 26 belong to low income group; 12 in middle income group and 15 in high income group. Corresponding figure for non-Muslim Countries are 16, 34 and 51

Source: Syed Nawab Haider Naqvi, Perspective on Morality and Human Wellbeing , The Islamic Foundation Leicester, U.KK, 2003 Table 1, Pp.189-190]

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IIState of the Muslim World — was it always that bad?

Region or Country/Year

1750 1800 1830 1860 1900

Europe 23.2 28.1 34.2 53.2 62.0

(Russia) (5.0) (5.6) (5.6) (7.0) (8.8)

(UK) (1.9) (4.3) (9.5) (19.9) (18.5)

USA 0.1 0.8 2.4 7.2 23.6

Third World 73.0 67.7 60.5 36.6 11.0

(India/Pakistan) (24.5)

(18.7) (17.6) (8.6) (1.7)

RELATIVE SHARE OF WORLD MANUFACTURING OUTPUT

Paul Kennedy, The Rise and Fall of Great Powers , Random House, New York, 1987, p.149

PER CAPITA INCOME 1750

• DEVELOPED COUNTRIES (i.e. USA, CANADA, AUSTRALIA, NEW ZEALAND, SOUTH AFRICA, EUROPE) - $182.00• MOST DEVELOPED COUNTRIES (i.e. USA, BRITAIN,FRANCE AND NEITHERLAND - $230.00• THIRD WORLD COUNTRIES - $188.00

[Source: POVERTY FROM THE WEALTH OF NATIONS – By M. Shahid Alam, Macmillan Press, London 2000 (Based on research done by Paul Bairoch and Kuznets – Zimmerman-Lande.)

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IIIWHAT WENT WRONG?

1. Colonial Rule, Exploitation and Development of under-developed.2. Imported/Imposed Capitalist Model and Dependence Syndrome.

1. Centre-Periphery Relations Continued after independance.2. Delinking of economics from ethics, moral values and social and egalitarian

ideals.3. Equating society with economy and economy with the market.4. Falsifications resulting from the abstraction of the development model from the

historical and cultural context of the developing countries.5. Total neglect of institutional factors.6. Exclusive concern with efficiency, to the neglect of Justice and human-well-

being. The myth of ‘ trickle-down’7. Elitist — key role for entrepreneurs, capitalists and investors to the neglect of

other actors and stake-holders in society – exclusion of the people and their participation in the production process.

8. Marginalization of the role of government and non-profit-actors.

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3. Global Exploitative System:See: a). Joseph Stiglitz, Globalization And its Discontents, London,

Allen Lane, 2002. b). William Easterly, The Elusive Quest: Economists’

Adventures and Misadventures in the Tropics, Cambridge, The MIT Press, 2002

c). John Perkins, Confessions of an Economic Hitman, San Francisco, Barret-Koahlu, 2004

4. Failure of the Domestic Governance: a) Neglect of Education.

• Literacy 68% i.e. 450 million (32% illiterate.• Primary Education Enrolment – 89%• Secondary School Enrolment - 44%• Universities: 853 (only USA 1500) –2 only from Turkey among the top 500.• Privatization of education• HDI (3 variables, GDP, per capita (PPP), Life expectancy at birth and literacy).• High 7• Medium 28• Low 18.

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b). Neglect of Research and Innovation.• No major contribution in science and technology after 1424 AD.

• Lowest No of researchers per 1000 population 19 OIC Countries.• Lowest – Research Articles, magazines, - 28 OIC Countries.• Research Articles provided by 24 OIC Countries last 20 years – flat or declining numbers.

c). Neglect of health d). Neglect of basic facilities, housing, sanitation (62%) clean water (74%)

e). Absence of Democracy — Peoples participation/Empowerment:• 13 democracies – free elections.• 31 Pseudo-democracy• 5 Absolute Monarchy• 3 Open dictatorship 5 In transition.

f). Freedom of Press:• Free Press – 4• Partly Free -14• Controlled – 39

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g) Corruption-(Abuse of public office and private gain) 159 Countries

o 6 Medium Countries - 5.1 to 6.3o 42 Below 5o 6 of the most corrupt — Muslim Countries.

(Transparency International Report 2007)

5. Lop-sided Development:- Neglect of production sectors – High Consumption Economies, lacking sustainable base.- Dependence on a few items/minerals, agriculture.- Lack of indigenous research, technological innovation and adaptation as against simple import of technology- Low value added- Weak Heavy Mechanical Industry- Dependence on outside world.- Lack of integration – Regional self-reliance.

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SIZE OF ECONOMIES — • 5 — GDP larger than +$100 Billion• 5 — $ 50 – 100 Billion• Most between $5-15 Billion.

Per Capita (real) Average — 1990 $1000 2003 $ 1100 Highest — Bahrain $ 20,000.00 Poorest — @200-300INFLATION. 4.6% IN 2002 (2000:4.7%)

BALANCE OF PAYMENTS: 18 deficit16 surplus

2003 Total surplus $56.7 BillionGROSS INTERNATIONAL RESERVES 2003 $329 Billion (1990 $83 Billion)EXTERNAL DEBT; 18 Severely indebted

1Moderately indebted1Less indebted

Total external debt 2003: $ 692 Billion

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[Most indebted — Indonesia ($132 billion) Turkey ($132 billion, Malaysia ($49 Billion), Pakistan ($34 Billion, Egypt ($ 31 Billion)

INTRA-OIC TRADE — FROM 5% in 1990 to 13.5% in 2003• Exports $ 73.5 billions• Imports $ 77.3 billions• Share of intra-OIC Trade in Total Trade of OIC countries• Exports 12%• Imports 14%

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PART IV

DEVELOPMENT : ISLAMIC CONCEPT

• Focus on human development – man-centred, development of man and his physical and socio-economic environment. Human well-being and welfare. Human participation a pivotal factor.

• More comprehensive concept – inclusion of material, moral and spiritual aspects – individual and social, motivational and institutional, public and private. This implies that developmental policy and activity are not only multi-dimensional but also inter-disciplinary. They involve quantitative as well as qualitative changes.

• Development in an Islamic framework envisages simultaneous focus on four dimensions —

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o optimal utilization and development of resources that God has endowed to man and his physical environment.

o Their judicious use and equitable distribution in a manner that ensures promotion and organization of all human relationships on the basis of justice (Adl) and beneficence (ihsan),

o Balanced, stable and sustained development avoiding waste and misuse of resources, elimination of zulm (injustice) and exploitation of other humans, achieving financial and price stability and seeking inter-personal, inter-regional, inter-sectoral and inter-temporal equity, and,

o A fair degree of self-reliance, including collective self-reliance of the Ummah, envisioning a global system based on genuine pluralism, making it possible for all nations and cultures to co-exist, compete, and cooperate in a just world order.

This represents search for a NEW PARADIGM and not merely change WITHIN the current paradigm of Economics and Development.

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VTHE QURANIC FOUNDATIONS

TAWHID (UNITY / ONENESS OF GOD)HIDAYAH (GUIDANCE)ISTIKHLAF (VICE-REGENCY/STEWARDSHIP)

Khalifa is a designation given to the Prophet Adam and by extension to all of mankind and signifies that God has made Mankind His own representative on earth with limited authority and clearly defined responsibility to fulfill the commands of God. This envisages a positive role for humans, entrusted with the mission to fulfill Divine Will on earth. This mission also puts them on trial:

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God will judge how human beings use or misuse the freedom and authority given to them.The Implications of this concept, among others, are:

oHuman stewardship – the responsibility to mobilize develop and manage all resources endowed by God, in accordance with the value-framework spelled out by Divine Guidance. Life fulfillment and not life denial being the assignment.

o Human equality and Universal brotherhood.o Resources — human and physical — to be treated as a Trust (amanah) and used in the service of humanity for the benefit of all; (al-Quran 2:29) to be used rightfully, with no authority to waste, destroy or squander them.o Human freedom and accountability.

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‘ADALAH’ (JUSTICE)• Ibn Taymiyyah has put the Islamic position categorically when he says:•‘Justice is an imperative on everyone, towards everything and everyone. Injustice is absolutely not permissible irrespective of whether it is to a Muslim or a non-Muslim or even to an unjust person.’• Ibn Khaldun, on the basis of juridical as well as historical analysis said: ‘Injustice is destructive for civilization’.• In the light of this commitment to Adalah (justice), the general Islamic imperatives in respect of development would be:

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= growth must be accompanied by distributive justiceo= there should be inter-personal, inter-sectoral, inter-regional and inter-temporal equity. o= The benefits of development must be shared by all.o=Development should not be at the cost of other human beings or the needs of posterity.

As such without justice there can be no real development, well being or peace in society.

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Other Quranic concepts that impinge on the concept of development are:

• Rububiyyah (Universal Sustenance)• Tazkiyyah (Purification plus growth)• Falah (Well Being)• Quwwah (Competitive Strength)

Economic implications of these imperatives would include:

I. Need fulfillment for all members of human society – irrespective of faith, colour and gender.

II. Opportunities for seeking respectable living for all.

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III. Just incomes policy ensuring adequate reward for effort as fard.

IV. Equitable distribution of income and wealth, i.e. asset re-distribution along with transfer payments.

V. Safety and support networks for the weaker elements of society.

VI. Stability in the value of money.VII. Principle of individual effort but also

collective responsibility (fard kifayah)VIII. Market mechanism with moral filters and

regulatory and affirmative r ole of the Government

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PART VI

MAJOR CHARACTERISTICS OF ISLAM-BASEDDEVELOPMENT STRATEGY

Development strategy based on these values would be characterized by the following:

1. An INTEGRATED approach to development: moral, spiritual and material.

2. Development targets — expansion of production through innovative and judicious effort — with a view to ensure need fulfillment and well being for all and to establish a strong, viable and growth-oriented economy.

3. Hayat-e-Taiyyeba (good life) in this world as a stepping stone to successful life in Aakhira (Life after death).

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4. Motivation — moral incentives along with material rewards and deterrents. Self interest with social and moral responsibility and accountability.

5. Moral filter along with socially agreeable filter mechanisms at all levels of consumption, production and decision-making as a supplement to the market mechanism.

6. Man-centred and well-being-centred approach.

7. Production/Consumption mix — useful, fruitful, waste-avoiding, environment friendly.

8. Maqasid as-Shariah• Protection of Din•Protection of Intellect•Protection of Body•Protection of Family/Progeny•Protection of wealth (material resources)

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9. Property as a trust — right to private ownership and profit motive with moral and social responsibility.

10. Financial restructuring ensuring riba elimination, avoidance of gharar (ambiguity and excessive uncertnity), check on mysir (speculation and gambling) and reduction in concentration of wealth

11. Distributive justice including transfer payments and inheritance.

12. Positive and goal-orientated role of government.

13. Reorganization of the entire economy, and not merely the financial sector.

14. Self-Reliance and collective self reliance of Ummah — economic cooperation and integration — to face global competition and challenges.

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VIIISLAMIC ECONOMICS ; UNIQUE ROLE

1. Failure of dominant economic paradigm — search for alternatives. Current Crisis a moral as well as an economic crisis — Lessons for the Muslim World. It has five major dimensions:

I. Moral II. Motivational III. Conceptual, IV. Institutional and V. Operational.

Islamic Economics has a direct bearing in respect of each of them.

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2. More realistic, balanced, integrated and harmoneous development.3. Sustainable Development:

a. Physical Economy and Money Economyb. Asset based — value added Approachc. Ecological dimensions.

4. Based on Peoples’ faith, values and aspirations: Gallup Survey — 91% Muslim men and women want Islam. — 50% - Shariah as the only source of Law. — 90% - Shariah as a source of Law [Source: John Esposito and Dalia Mugahed, Who Speaks for Islam? Oxford, 2007] • 8 Muslim States have made Shariah source of law• 12 have made Islam as State religion.• 17 No mention of religion; only 2 have declared secularism as state policy — Azerbijan and Turkey.

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SUGGESTED READINGSM. Umar Chapra, Muslim Civilization: The Causes of Decline and the Need for Reform, The Islamic Foundation, Leicester, U.K. 2008.

M. Umar Chapra, Islam and the Economic Challenge, The Islamic Foundation, Leicester, U.K. 1992.

Munawar Iqbal and Rodney Wilson, Islamic Perspectives on Wealth Creation, Edinborough University Press, 2005.

Joseph Stiglitz, Globalization and Its Discontents, Allen Lane, London, 2002.

Khurshid Ahmad, “The Challenge of Global Capitalism: An Islamic Perspective, in Making Globalization Good Ed.by John H. Dunning, Oxford University Press, 2002, Pp. 181-209

Khurshid Ahmad, Islamic Approach to Development: Some Policy Implication, Institute of Policy Studies, Islamabad, 1994.

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SUGGESTED READINGS (contd.)

• Khurshid Ahmad, “Islamizing Economy: The Pakistan Experience”, in Islamization of the Pakistan Economy, ed. By Robert M. Hathaway and Wilson Lee, Woodrow Wilson International Center for Scholars, Washington, 2004, pp. 37-44

Khurshid Ahmad, “Some Thoughts on a Strategy for Development under an Islamic Eagis” in Islam and the new International Economic Order; The Social Dimension, International Institute of Labour Studies, Geneva, 1980, pp. 127-143

Syed Nawab Haider Naqvi, Perspectives on Morality and Well Being, The Islamic Fundation, Leicester, U.K. 2003.

Saqib Jawaid Anwar A; Hassan, Muslim World Almanac, Makkah Printing nd Publishing Co., Kingdom of Saudi Arabia

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