ISBN-10:
0691115109
ISBN-13:
9780691115108
Pub. Date:
04/12/2004
Publisher:
Princeton University Press
Islam and Mammon: The Economic Predicaments of Islamism

Islam and Mammon: The Economic Predicaments of Islamism

by Timur Kuran

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Overview

Islam and Mammon: The Economic Predicaments of Islamism

The doctrine of "Islamic economics" entered debates over the social role of Islam in the mid-twentieth century. Since then it has pursued the goal of restructuring economies according to perceived Islamic teachings. Beyond its most visible practical achievement—the establishment of Islamic banks meant to avoid interest—it has promoted Islamic norms of economic behavior and founded redistribution systems modeled after early Islamic fiscal practices.

In this bold and timely critique, Timur Kuran argues that the doctrine of Islamic economics is simplistic, incoherent, and largely irrelevant to present economic challenges. Observing that few Muslims take it seriously, he also finds that its practical applications have had no discernible effects on efficiency, growth, or poverty reduction. Why, then, has Islamic economics enjoyed any appeal at all? Kuran's answer is that the real purpose of Islamic economics has not been economic improvement but cultivation of a distinct Islamic identity to resist cultural globalization.

The Islamic subeconomies that have sprung up across the Islamic world are commonly viewed as manifestations of Islamic economics. In reality, Kuran demonstrates, they emerged to meet the economic aspirations of socially marginalized groups. The Islamic enterprises that form these subeconomies provide advancement opportunities to the disadvantaged. By enhancing interpersonal trust, they also facilitate intragroup transactions.

These findings raise the question of whether there exist links between Islam and economic performance. Exploring these links in relation to the long-unsettled question of why the Islamic world became underdeveloped, Kuran identifies several pertinent social mechanisms, some beneficial to economic development, others harmful.

Product Details

ISBN-13: 9780691115108
Publisher: Princeton University Press
Publication date: 04/12/2004
Pages: 224
Product dimensions: 6.35(w) x 9.55(h) x 0.75(d)

About the Author

Timur Kuran is Professor of Economics and Law, and King Faisal Professor of Islamic Thought and Culture, at the University of Southern California. His books include Private Truths, Public Lies.

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Islam and Mammon

The Economic Predicaments of Islamism

Chapter One

THE ECONOMIC IMPACT OF ISLAMISM

IN 1979 PAKISTAN TOOK SOME MAJOR STEPS to give its economy an Islamic character. To satisfy the presumed Qur'anic ban on interest, banks were ordered to offer an interest-free alternative to the conventional savings account and to purge interest from all their operations within five years. Although the wider objective has not yet been met, the interest-bearing savings account is no longer an option for new depositors. Another highlight of the 1979 program was zakat, Islam's tax on wealth and income. Voluntary until then, zakat was made a legal obligation. The Pakistani government now collects zakat from several sources, notably bank deposits and farm output. Every year thousands of local committees distribute the proceeds to designated groups.1

Pakistan has not been alone in trying to restructure its economy according to ostensibly Islamic stipulations. Zakat is now compulsory for certain groups in Malaysia, Saudi Arabia, and the Sudan. In some other predominantly Muslim countries, the establishment of a state-run zakat system is under consideration. The impact of Islamization is especially widespread in banking. Banks claiming an Islamic identity are in operation in most countries of North Africa, the Middle East, and South Asia. In some of these they hold more than 10 percent of the commercial deposits.2 The leading Islamic banks have also established a presence in countries where Muslims form a small minority. New Zealand now has an "Islamic Finance Corporation," and Pasadena, California, an "Al Baraka Bankcorp."

These developments are not occurring in an intellectual vacuum. A rapidly growing literature known as "Islamic economics" seeks to guide and justify the ongoing reforms.3 The prescriptions in this literature rest partly on economic logic and partly on the Qur'an and the Sunna, the latter consisting of recollections of the words and deeds of Prophet Muhammad and his companions. Several research centers have been established to promote Islamic economics. Some of these, including the International Center for Research in Islamic Economics at King Abdulaziz University in Jeddah, the International Association for Islamic Economics in Leicester, and the Kulliyah of Economics at the International Islamic University in Kuala Lumpur, publish journals devoted to the discipline. There are also several specialized periodicals, such as the Journal of Islamic Banking and Finance, a quarterly published in Karachi.

The exponents of this discipline, who call themselves "Islamic economists," emphasize that it covers far more than zakat and interest-free banking. The discipline aims, they say, to provide a comprehensive blueprint for all economic activity. Accordingly, a list of suggested research topics published by the International Center for Research in Islamic Economics covers every major category of research recognized by the American Economic Association, including consumer behavior, market structure, central planning, industrial relations, international trade, and economic development.4 Some Islamic economists are quick to admit that in most of these realms the nascent discipline has yet to make a significant contribution. But they generally agree that the fundamental sources of Islam harbor clear and definitive solutions to every conceivable economic problem. To find these, they suggest, we must turn to the Qur'an and to the wisdom of the earliest Islamic community in seventh-century Arabia, drawing wherever necessary on modern tools and concepts.

ISLAMIC ECONOMICS AS FUNDAMENTALIST DOCTRINE

The classical sources of Islam contain numerous prescriptions that lend themselves to the construction of economic norms, and the religion's early history offers an array of lessons concerning economic behavior and institutions. But the notion of an economics discipline that is distinctly and self-consciously Islamic is very new. The great philosophers of medieval Islam wandered freely beyond the intellectual confines of the Islamic scriptures. And none of their works, not even the celebrated Prolegomena of Ibn Khaldun (1332-1406 C.E.), gave rise to an independent discipline of economics.5 The origins of Islamic economics lie in the works of Savyid Abul-Ala Mawdudi (1903-79), a Pakistani social thinker who sought to turn Islam into a "complete way of life." In his voluminous writings, Mawdudi exhorted that Islam is much more than a set of rituals. It encompasses, he argued, all domains of human existence, including education, medicine, art, law, politics, and economics. To support this assertion, he laid the foundations of several Islamic disciplines, among them Islamic economics.6 Other seminal contributions to Islamic economies were made by Sayyid Qutb (1906-66), an Egyptian, and Muhammad Baqir al-Sadr (1931-80), an Iraqi.7

The teachings of these pioneers differ in major respects. Mawdudi is sympathetic to the market process, though he insists that market behavior must be constrained by behavioral norms found in the classical sources of Islam. Generally distrustful of the market, Qutb and al-Sadr favor supplementing norm-guided self-regulation by state-enforced controls. A related difference is that the latter two thinkers are relatively less tolerant of economic inequality. These variations among the pioneers of Islamic economics are reflected in the writings of their followers, which offer a wide spectrum of views concerning government, markets, and property rights. But they have not given rise to sharply differentiated subschools. The substantive divisions within Islamic economics are more amorphous than, say, those between neoclassical economics and Marxian economics. Thus, the followers of Mawdudi tend to hold the works of Qutb and al-Sadr in high esteem. Moreover, their key positions often bear the influence of these other pioneers.

Whatever its internal divisions, Islamic economics has always presented a united front in justifying its own existence. The dominant economic systems of our time, virtually every major text asserts, are responsible for severe injustices, inefficiencies, and moral failures. In capitalism, interest promotes callousness and exploitation; in socialism, the suppression of trade breeds tyranny and monstrous disequilibria.8 The fundamental sources of Islam prohibit interest but allow trade; hence, a properly Islamic economy would possess the virtues of these two systems without their defects. Typically, this claim is supported by references to Islam's canonical Golden Age-the period 622-61, spanning the last decade of Prophet Muhammad's life and the tenure of the "rightly guided" caliphs.9 During this period, it is suggested, the Islamic code of economic behavior enjoyed widespread adherence, the prevailing spirit being one of brotherly cooperation. With everyone "subject to the same laws" and "burdened with the same obligations," injustices were minimized.10 Resources were allocated very efficiently, ensuring a rapid rise in living standards. After the Golden Age, so the belief goes, the Muslim community's attachment to Islamic precepts weakened, setting the stage for a painful and protracted decline in Islam's global economic standing.

The case for restructuring economies according to Islamic principles thus rests on two claims. First, the prevailing systems have failed us. Second, the history of early Islam proves the Islamic system's unrivaled superiority over its alternatives.

To put the latter claim in perspective, we must recognize that by modern standards the seventh-century economy of the Arabian peninsula was very primitive. It produced few commodities, using uniformly simple technologies. It was essentially free of the major physical externalities that afflict modern economies, like air and water pollution. Moreover, it featured only the most rudimentary division of labor. The specific economic injunctions found in the Islamic scriptures-mostly in the Sunna-are responses to problems that arose in this ancient setting. Some of these injunctions were perceived as eternally valid. But many others were seen as changeable. Thus, rules and regulations were altered openly and unabashedly in response to new conditions. As a case in point, the scope and rates of zakat underwent many modifications during the Golden Age.

The historical record also calls into question certain virtues attributed to the Golden Age. The notion that the early Islamic community was a paragon of brotherly unity conflicts with evidence that it was plagued by disagreements and that force played an important role in its governance. Significantly, three of the four "rightly guided" caliphs met their ends at the hands of fellow Muslims. Nor was the Golden Age free of the corrupt practices attributed to contemporary capitalism and socialism. Officials of the Islamic state, including the caliphs themselves, were often accused of nepotism and misjudgment.11 During part of this period the state did indeed enforce the collection of zakat, and a substantial portion of the proceeds must have accrued to various disadvantaged groups. We possess no reliable evidence, however, on whether this redistribution brought about a major reduction in inequality.

Still, the literature is replete with calls for the immediate Implementation of the holy laws of Islam (Shari'a) in the form they ostensibly took almost a millennium and a half ago, in one locality. In issuing such calls, Islamic economics denies that certain economic problems of the modern age had no counterparts in the past. It also denies that once-beneficial institutions might now be dysfunctional, even harmful. Some of the rhetoric of Islamic economics thus conveys the impression that it seeks to rediscover and restore the economy of a distant past.

At the same time, it draws heavily on modern concepts and methods, including many that originated outside the Islamic world. And it pursues such modern objectives as growth, employment creation, and efficiency.12 It would be wrong, therefore, to characterize the doctrine's intense preoccupation with the economy of seventh-century Arabia merely as a scholastic search for ancient solutions to ancient problems, although this representation does fit certain writings. Islamic economics applies ancient solutions to perceived problems of the present; and where such solutions are lacking, it seeks scriptural justification for its favored reforms. Accordingly, Islamic economics shows interest in only some features of the seventh-century Arabian economic order. Having identified the prohibition of interest as the sine qua non of Islamic reform, it is engrossed in Qur'anic verses concerning lending and borrowing. It devotes comparatively little effort to exploring whether the Golden Age offers useful prescriptions against environmental pollution, having chosen, if only by default, to refrain from making the environment a major issue.

So Islamic economics is as much a response to contemporary grievances as it is a nostalgic escape into the imagined simplicity, harmony, and prosperity of an ancient social order. Notwithstanding much of its rhetoric, in its applications it seeks to revive only bits and pieces of the seventh-century Arabian economy, not to restore it in toto. In practice it thus exhibits more willingness to accept economic realities than it does in theory.

Islamic economics is appropriately categorized as a "fundamentalist" doctrine, because it claims to be based on a set of immutable principles drawn from the traditional sources of Islam. By no means does its flexibility in practice negate this label's descriptive power. All doctrines labeled "fundamentalist" claim to rest on fundamentals set in stone, yet in application these prove remarkably malleable. Moreover, such doctrines assert a monopoly over knowledge and good judgment, even as they show receptivity to outside influences.13

Having billed itself as a superior alternative to all other economic traditions, Islamic economics has drawn sharp criticism from two quarters. A number of scholars, including this writer, have drawn attention to the literature's empirical and logical flaws, arguing that the proposed institutions are either unworkable or inherently inefficient.14 Other scholars, notably Seyyed Vali Reza Nasr, have observed that Islamic economics has invited all this criticism by presenting itself not as a faith or philosophy to be understood on its own terms but as a positive science that lives up to established scientific standards. In this view, Islamic economics has been drawn into the game of utilitarian social science, and it is trying to prove its worth by beating the materialistic economic traditions of the West on Western turf. The mission of Islamic economics, maintains Nasr, should be to create a worldview that brings material goals into harmony with spiritual yearnings. It should get on with this mission without apology-without offering excuses, that is, for pursuing nonutilitarian objectives. By concentrating on its own agenda, it will eventually prove its superiority, but according to its own standards as opposed to those of the non-Muslim West.15

Nasr would thus have Islamic economics withdraw into its own shell in order to avoid being sidetracked by Western priorities. The logic behind this call to self-imposed isolation parallels Mawdudi's apparent motivation for founding the discipline. What propelled Mawdudi to establish Islamic economics along with other distinctly Islamic disciplines was a desire to defend Islam "against the inroads of foreign political and intellectual domination." He wanted to bolster Islam's authority in domains where Muslims had come to rely on the West's guidance, in order to restore the Islamic community's self-confidence and enable it to face the world proudly, as in the days before the economic and military rise of the West.16 Thus, for Mawdudi Islamic economics was primarily a vehicle for reasserting the primacy of Islam and secondarily an instrument for radical economic change. Like Mawdudi, many other supporters of Islamic economics have subordinated it to wider objectives. For example, the Ayatollah Khomeini made a point of denying that Iran's Islamic Revolution was motivated by economics. It was not made, he once quipped, to make watermelons more plentiful.17 He meant that the uprising was spawned primarily by noneconomic factors-most important, the threat to Islam's role in providing cultural identity, social cohesion, and moral guidance-so it should not be judged by its economic impact. Khomeini repeatedly spoke out, of course, against poverty and exploitation, and he supported certain economic reforms, including the ostensible elimination of interest.

Continues...


Excerpted from Islam and Mammon by Timur Kuran Excerpted by permission.
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Table of Contents

Preface ix

CHAPTER ONE

The Economic Impact of Islamism 1

CHAPTER TWO

Islamic Economics and the Islamic Subeconomy 38

CHAPTER THREE

Islamism and Economics: Policy Prescriptions for a Free Society 55

CHAPTER FOUR

The Genesis of Islamic Economics: A Chapter in the Politics

of Muslim Identity 82

CHAPTER FIVE

The Notion of Economic Justice in Contemporary Islamic Thought 103

CHAPTER SIX

Islam and Underdevelopment: An Old Puzzle Revisited 121

Notes 149

References 169

Index 189

What People are Saying About This

Sohrab Behdad

In this first-rate analysis, Timur Kuran provides a rigorous analytical explanation and evaluation of the 'system of thought' that has come to be known as Islamic economics and the 'economic system' that it proposes. It is refreshing to see a work that stands apart from the mishmash of cultural relativism of Islamophiles and the ideological warfare of the Islamophobes.
Sohrab Behdad, Denison University

Iannaccone

Timur Kuran has brought serious scholarship to a subject the rest of us have lacked the skill or courage to address. Moreover, he has managed to package this major achievement in a book that is well-written, timely, and accessible to a broad audience.
Laurence R. Iannaccone, George Mason University

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