Topic-5 (Isl Eco as Market)

7/30/2019 Topic-5 (Isl Eco as Market)

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Wrong answer to the wrong question

Topic 5: Islamic Economics as Plea for Liberal Capitalism

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Introduction

• Islamic economics is a Saudi project dates back to early

1970‘s – key proponents being

• Nejatullah Siddiqui—from Saudi Arabia, also regardedas pioneer

• Umar Chapra—another Saudi based intellectual• Khurshseed Ahmed—a liberal thinker of an orthodoxIslamic movement

• Maulana Taqi Usmani—the most influential reference

• More on Islamic banking history later, let‘s move to the coreissue



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Frontiers of Islamic Banking Debate

• Two broad point of views on Islamic Banking

1. Proponentsi. Islamic Banking = Modern Banking

• those who (mis)believe that bank-interest is not Riba

• no modifications required

ii. Islamic Banking = Islamically modified form of modernbanking

• see some basic similarities b/w Islam and West

– ‗take what is good and leave that is bad‘

• Revise, not reject , Islamic history to accommodate itfor modern phenomenon

• thus prepare ‗Islamic-parallels‘



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2. Opponents: can be divided into three lyres

i. undertaking partial analysis• criticize IB for not being consistent with Shariah-

compliant processes (i.e. )

– recent Fatwa is largely in this context—existingIB is not based on true Islamic teachings

ii. question the possibility of Islamizing modern banking

• challenge the assumption that bank is merely afinancial-intermediate; rather it is financing-firm

• money can‘t remain only a medium of exchange once

money markets emerge



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iii. Islamic Banking is a plea for ‗Islamic capitalism‘

• evaluate Islamic banking as a ‗whole‘ under theobjectives of Shariah

– this is what we discuss here

• The three sides of opponents to IB can be seen as threebarriers that proponents must successfully cross forproviding full-fledge justification to IB

– IB is consistent with Islam and not tool of capitalism

– Islamization of banking is possible

– Business practices of IB are truly Shariah-compliant

• unfortunately, IB has surpassed none of them yet!



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What it not includes?

• We are not going to:

– Give any Fatwa against Islamic Banking• will explain only its connection with Capitalism

– Give any alternative

– Seeking alternative requires:

• epistemological rejection of ‗freedom and growth‘ asends & the world-order based on them

• appreciation of an earlier existed different, butsuperior, life-world

• meaning of Islamic-revival

• understanding the nature of required revival work

• identification of groups involved for this revival



Epistemological foundations of Islamic economics

• So-called Islamic-economic-model is merely the carbon copy

of liberal-social democratic development model– LIBERAL ECONOMICS ADJUSTED FOR SOME ISLAM-SPECIFIC CONSTRAINTS

– Merely reflects grafting and patch works, no more agenuine or independent thinking

• Seeks its intellectual roots in revisionist ideology

– unlike modernists, reinterpret, not reject, Islamic historyand epistemology

– see core similarity b/w west and Islam

– regard capitalism as rational and historically necessaryphenomenon—outcome of some technical evolutionaryprocess




– Assumes social-sciences to be value-neutral and positive

• its analysis applicable to all people and societies• But they are specific to the behavior of HUMAN—one who

seeks freedom, equality and progress

– are tools for the justification of capitalist order

– provide policy framework for creating and sustaining thisorder

• Conventionally, three broader economic systems identified

1. Socialism or state capitalism: collectivist ideology ofcapitalism

• freedom materializes under a benevolent ‗socialplanner‘—i.e. representative of proletariat class




2. Neoclassical / market economy: individualistic ideology of

capitalism• let markets have its perfect work b/c

• freedom = market

3. Social democracy: a compromise b/w the two

• let government do what market can‘t do; e.g. – curbing market power

– reducing income inequalities and poverty

– provision of social rights (health, security etc.)

• The three comes from a single-family—i.e. enlightenmentdiscourse

– share same objectives—freedom and equality

– differ on methods to achieve them



Islamic economics—a plea for Islamic capitalism

• Islamic economics claims to provide fourth alternative

framework for realizing capitalist ends– Maulana Taqi Usmani gives its outline as follows

• Islamic economics accepts all key propositions of liberaleconomics

– Islam does not have unique economic system of its own[Usmani (1993): p. 38]

• this sets the room for the patch-works

– Satisfaction of infinite wants regarded as legitimaterational end of economic activity [p. 20-21]

• ‗Progress‘ is a natural human propensity [p. 20-21]– Profit-maximization motive endorsed for economic and

production behavior [p. 35, 39]




– ‗Natural law philosophy‘ and ‗demand and supply laws‘endorsed for solving economic problems [p. 22, 38]

– Self-interestedness and social welfare seen reinforcing [p.23]

– Perfect competition regarded as ideal system of valuation[p. 35]

– Capitalism bad not for its evil-end, but for its method• ―basic philosophy underlying capitalism is correct as

it identifies the laws of supply and demand and theprofit motive as the mechanisms for addressing the

fundamental economic problem (of scarcity), b/cthis reflects natural human propensities, but problems arise due to the free functioning of profit motive‖ [p. 35]



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– Criticize it for social-democratic reasons [p. 36]

• no moral bindings/restrictions while maximizing profits

• monopolies are created which obstruct freefunctioning of the natural laws of supply and demand

• concentration of wealth and income inequalities

– Propose social democratic reforms and marginal ‗Islamconstraints‘

• ―Islam subjects profit motive to the disciplines (e.g.prohibition of interest) that prevents the growth ofmonopolies‖ [p. 40]

• ―Profit motive should be constrained by theconsiderations of Halal and Haram‖ [p. 40]

– State intervention justified on Smithian grounds

• ―govt. has the right to restrict activity which

disturbs equilibrium in the public interest‖ [p. 41]‖



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– Try to define welfare beyond rising material needs

• ―It is also necessary to raise the spiritual content ofwell being and reduce all the symptoms of anomie, like

family disintegration, heavy interest based debt

payments, conflict and tensions, crime, alcoholism, drug

addiction, and mental illness, all indicating lack of innerhappiness and contentment in the life of individual.

Capitalism as well as Socialism have both failed to lead

mankind to such an overall well-being. It is necessary

to lay down the contours of a new system which couldhelp optimize human well-being as per the divine

guidelines.‖

– Profit-motive, prohibition of interest, enjoining of

partnerships are tools to growth stimulation [p. 48, 51]



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• If capitalism creates a natural, hence rational, world-order,institutions arising out of it also turn out natural

– the wholesale endorsement of liberal capitalism createsroom for an apology of capitalist property form includingmoney and capital market transactions

• legal fiction of corporation endorsed on the grounds of

Waqf and Bait-ul-Mal [p. 81]• share-trading allowed on the basis of the view that

share values represent the value of tangible assets.Excess of share value over face value is assumed toreflect the value of non-financial assets [p. 85-87]

• dealing in shares of companies involved in Riba is justified provided share holder protests against it inAGM, even if this protest is known to be completelyineffective [p. 87-88]



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– amount of dividend income attributable to interest income

of the company should be given as Sadqa [p. 89]– speculation is not Haram as long as it is subject to Shariahcompliance [p. 90]

– modern monetary system (with bank and fictitious money)outlined by Nejatullah and Chapra is accepted as it is

– banking justified on the grounds that it plays importantrole of financial intermediary

– calls forth an expansion of Islamic financing instruments—profit sharing, Murabaha, leasing, Murabaha, Ijarah etc.

• to facilitate as many banking services as possibleunder the realm of Shariah-compliance

• most asset and liability side transactions can berestructured on the basis of Islamic financingcontracts within an interest based system



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Poverty of Islamic Economics Paradigm

• Islamic economics/finance project suffers from serious

problems:1. Misreads modern economics

– treating it value-neutral is fallacious

2. Endorsement of natural-law philosophy is erroneous

– even history rejects this ideology—market is not3. Effectively claims that Islam is one of the ideologies ofcapitalism

– endorses all capitalist values constrained by Shariah

– paves the way for subordination of Islamic world to globalcapitalism

4. Concentrates on part and overlooks whole and objectives

– treating Shariah merely as procedure is a fallacy



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5. Confusing profit-maximization with earning-profit

– profit-maximization means ‗accumulation for the sake ofaccumulation‘—treating it as end in itself

– ‗Not Haram ‘ does not imply ‗desired‘

6. Ignoring relation b/w structure and objectives

– ‗corporation‘—fictitious property ownership form— is thestructure of continuously realizing the dominance ofaccumulation on individuals

– corporation negates private property



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• Apology: ‗Islamic banking merely a contingent strategy?‘

– The literature on Islamic economics does not support thisexcuse b/c it gives a picture of idealization

• Three phases of strategy

– Short, middle and long run of Islamic economics

– If it is merely necessity, why trying to take it to boom?• ‗permissible out of necessity‘ does not mean enjoyinglarge benefits

• when a necessity (darurah ) status is claimed, theimperative action is to change the condition not to

perpetuate it– Even if it is strategy, it does not lead to the desired end

result—the very objective of a strategy

• dominates capitalism

C l i Wh j t I l i



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Conclusion—Why reject Islamiceconomics/banking

• The Islamic economics project effectively:

– Justifies all capitalist values with the label of Islam• so ideally suits to serve imperialism‘s ideology

– Paves the way for the subordination of Islamic world toglobal capitalism

• legitimates incorporation of Muslim business inimperialistic corporate structure

• calls forth state-policies consistent with liberaleconomic framework

– ‗make muslim countries‘ suitable land for attracting

global capital by protecting, deregulating,privatizing, liberalizing markets

C l i Wh j t I l i



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Conclusion—Why reject Islamiceconomics/banking

– Obstructs the way for the abolition of capitalism

• diverted revolutionary energy into reformist politics —if capitalism is natural, why overthrow it?

• a hurdle in attempts to define both Islamic ideal typesand social processes through which overtimes theseideal types are to be approximated

• Islamic economics is booming:– not b/c of its Islamicity or its capacity to give a real

alternative to capitalism; rather b/c it:

– serves imperialist agenda, and

– calls forth only marginal policy changes by state (e.g.introduction of Zakah, prohibition of interest)

Topic-5 (Isl Eco as Market)

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