Islamic Economics: Novel Perspectives Author(s): Seyyed Vali Reza Nasr Reviewed work(s): Source: Middle Eastern Studies,

Vol. 25, No. 4 (Oct., 1989), pp. 516-530 Published by: Taylor & Francis, Ltd. Stable URL: http://www.jstor.org/stable/4283335 . Accessed: 29/11/2011 05:04
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IslamicEconomics: NovelPerspectives
SeyyedValiReza Nasr

The greatersalience of religiousvalues and motifs in social organization, political livelihood and economic change in the Muslimworld in recent yearshas usheredin a new epoch in the historyof Muslimpeople.1Changes wroughtby this cataclysmicand axial shift in the dynamicsof continuity and change in modern Islamicsocieties have, moreover, subjectedmany time-honoredtheories of the social sciences pertainingto societal change and progressionof historyto the ruthlessarbitration presentrealities. of The political manifestation of the trend towards 'Islamization'has created serious doubts concerningthe validity of assumptionsregarding of of the 'greatersecularization societiesunderchange','privatization faith in post-traditional settings', and the 'convergenceof patternsof societal countrieswith one experiencedby Europe change in late-industrializing since Renaissance'.2 The havoc which events such as the IranianRevolutionof 1978-79, the of Islamization Pakistan,the assassination EgyptianPresidentSadat, or of the ascendencyof the Shi'is in Lebanon have wreaked in policy-making and academiccirclesclearlyaccentuatesthe doubts expressedabove. The on on impactof Islamicrevivalism Muslimsocieties, andultimately Western social sciencesis, however, not entirelypoliticalin nature. The less vociferousandyet equallyimportant changesin Muslimattitudes towardsthe economicandsociallivelihoodof man are likelyto have lasting effects on Muslimsocieties, and pose seriouschallengeto Westernnotions of social organizationand economicinteractions. This essay is a criticalsurveyof the fundamental premisesof the corpus of ideas which are commonly and collectively referred to as 'Islamic economics'.The philosophical bases, intellectualfoundationsand doctrinal outlook of Islamiceconomicshave been amplydiscussed,time and again, by exponentsof Islamiceconomics,3as well as by scholarsand studentsof economicthought,4Islamicstudiesor the MiddleEast.5The objectivehere is not to reiterateor once againoutline the doctrinesof Islamiceconomics, but rather, to determine the promises and perils of the process through whichIslamiceconomicthoughthas been cultivatedat the intellectuallevel and subsequentlyimplementedinto active social institutions. Most expositions of Islamic economic begin with the elaborationand of conglomorization disparateIslamicteachingspertainingto economics, drawnfrom the injunctionsof the Quran,hadithor shariah.These studies then compare and contrast this corpus of religious norms and economic

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tenets of capitalism socialismto discern and teachingswith the fundamental an independentexistence for Islamic economics, separate from the two overriding philosophiesof social and economicorganization.6 Whilemost elaborations Islamiceconomicsare basedon an apologetic of delineation of a theory of social organization and financial transactions, they nevertheless succeed in outlining a general understanding of economics in the context of Islam. In fact, Islamic economics has little difficulty with confirmingits existence. Where this novel corpus of ideas encountersgreatest impedimentto its intellectualviability is in the of transforming assortedlegalinjunctions the shariahinto a comprehensive scientific system of economic thought, and moreover, in presenting clear operational guidelines for translatingtheoretical foundations into institutional and organizationalprocedures. Therefore, while there is little debate concerningthe fact that Islam does legislate for economic activities, there is virtuallyno consensus or knowledge as to the logic, intellectualimpetus or operationalbases of an all-encompassing Islamic body of economic thought. What is thus far explicit from exercises in of expositionof Islamiceconomicsis that formulations both the philosophy and praxis of Islamiceconomics, for the most part, reflect the mannerin whichreligiousnormsand beliefs concerningpersonalpiety are developed into a comprehensive systemof social thought. In examiningthe provenanceand development of Islamic economics, the purpose of this essay is not to test the scientific viabilityof Islamic economicsper se, nor to renderjudgementregarding moralfoundations, its but to sketchthe structure dynamicsof the thoughtprocesseswhichlie and at the foundationof Islamiceconomics. In this regard,four majorthemes can be discernedas the preponderant premisesof Islamiceconomics,which not only serve as the beacon light for the developmentof the neologism and discipline under study here, but also best elucidate the social and intellectualimplicationsof the problems confrontingIslamic economics, which were alluded to earlier. The four are: elaborationand subsequent applicationof the Islamic conception of change, critical examinationof the role of man in society, the issue of managementof an interest-free economy, and the optimal level of government interventionin market operations.
ISLAMICCONCEPTION CHANGEAND MODERN OF DEVELOPMENTAL CONCERNS

The transformation private ethical dictumsand religious norms into a of social theorybeginswith the elaborationof Islam'sgeneral comprehensive of understanding the concept of change. Expositionsof Islamiceconomic and large, distinguishchange in the Islamiccontext from the thought, by prevalentviews on the idea in the West in terms of the followingcriteria:

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first, in Islam change is subordinateto the will of God.7 This belief is not tantamountto fatalism,but rather,subjectsall social processesto the writ of the sacredtenets of the Muslimcommunity(the ummah).8 While this premise serves as the objective and intellectualdirectivefor the growthof Islamiceconomics,in practicaltermsit has been interpreted more literally,facilitatingthe general and wholescalesubjectionof socioeconomicactivitiesto the writ of religiousdogma.9 Second,Islamviewsthe conceptionof changeas cyclicalandnot linear.10 From this belief it can be extrapolatedthat Islam (with the exception of Shi'ism)1'does not view history as a continuous linear movement, but rather views history as having been periodically rejuvenated, through prophecy until the advent of Islam, and through messianic or reform movementssince the death of ProphetMuhammad.12 In developmental terms this belief finds a new meaning. Islamic as economics does not envisage 'underdevelopment' permanentor absolute, but insteadbelieves that, giventime, Islam'spositionvis a vis the West can eventuallychange. Therefore,in many ways it is futile for Muslimsto concernthemselveswitheconomicgrowthandsheermaterial they progress; would be better advisedto preserveIslamicideals againstthe tidalwave of the modernistchallengeposed to it.13 Third, the role which messianismplays in the conception of change, whether implied or directly referred to in the pertinent works, is seen in highly religious terms, and as part and parcel of Islam's overall understandingof change. Therefore, messianism in Islamic economics does not strive to attain a terrestialutopia for man, but to reinculcate and reassertideals.14 of Moreover,the conceptof utopiaas the objectiveandharbinger change and is both highlyspiritualized subordinateto the view of changeitself, in that utopia is not reflected in an omega point in the future, but in the Medinan community. Therefore, change in Islamic economics already possessesa concretevision and a clearsense of the valueswhichit seeks to inculcate.This fact, in turn, sets the trendof evolutionof Islamiceconomic thoughtto be one of Islamizationof economicsratherthan adaptationof Muslimsocial institutionsto modernpractices.15 Finally, change does not possess merely terrestialconnotations,but is a constituentelement in man's whole spiritualmission and religiousselfrealization.Therefore, changeis not to be gauged by or defined in purely to mundaneterms, but should be evaluatedin the light of its contribution This meansthat, on the one hand, Islamiceconomics humanspirituality.'6 is vested with the millenarianexpectationof the salvationof man; while on the other, its shortcomingscan be explained away in terms of the greater salience of intangiblespiritualconcerns and achievementsof the ummah.

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EQUILIBRIUM MAN, SOCIETY,AND THE QUESTIONOF ECONOMIC

In many regards, the very notion of Islamic economics begins with the nature and attributesof 'homo Islamicus', and the limitations and which characterize terrestialactivities.17 Islam, man his In responsibilities a theomorphicquality - he is kalifat-Allah,God's vice-regent possesses on earth.18The implicationof this dictum is that man acts as the nexus betweenthe spiritualand the mundane;thathe is of this earth, uponwhich his happinessand livelihooddepends, and yet he strivestowardsa spiritual realizationwhichis cosmic and other-worldly.19 In economicterms, the theomorphicqualityof 'homo Islamicus'implies that the conceptof equilibrium whichcan be seen as the harbinger social of and materialhappinesson earthis inevitablyintertwined with the harmony Islamicdoctrinesof tawhid(unity) and 'adl (equity or justice) whichguide man'sspiritualyearning.Hence economicactivity,in an Islamiccontext, is encouragedin tandemwith the spiritualprogressof the society of Muslims and its constituentindividuals. Moreover,the objectives of economicsis no longer to facilitatehuman materialhappinessin absoluteterms,but to createthe kindof socialsetting whichwouldbe conduciveto the realization tawhidand 'adl.In the works of of Sayyid Haider Naqvi and Umar Chaprathe relation between earthly equilibriumand the cosmic ascent of man has concrete connotations. Efficiencyas a criterionof judgementof economic performancebecomes predicatednot only upon the interactionof supplyand demand, but to an ever greaterextent on the existenceof socialconditionswhichwouldfoster greaterspiritualrealizationfor the society and the individual.20 In a classicexpressionof thisviewNaqviwritesthatin Islamthe consumption and productionrelations are not bound by resource or possibility therefore constraint,but ratherby ethicalrestraint.Economictransactions do not hinge on whatis possible,but on whatis allowable.Optimality no is of interest, but is ratherthat longerthe maximization utilityand individual mix of consumptionand productionwhichfacilitatesman'sspiritualascent and harmonizessociety to that end.21 From this it follows that homo economicusis not a rationalactor as the term is understoodin the West, but ratherin the fact that he is cognizant of his spiritualneeds, and in that he subordinates materialexistenceto his the primacyof that need. While Islamiceconomics is clear about the fact that its perceivedideal equilibriumis where human earthly happiness converges with human spiritualself-realization,and when the former facilitates the latter, it is not clear how this is to be accomplished how such an abstractdefinition or of equilibrium to be gauged. is Islamiceconomicshas, by and large, addressedthis problemby merely

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and criteria focusingon the terrestialcomponentof equilibrium, presenting which a society can be judged as to whetherit is conduciveto spiritual by realization or not. It is safe to conclude that this approach contains within it the assumptionthat, once a society adheres to certain ethical criteria, then ipso facto that society and the individualswho reside in it can proceed towards the higher equilibrium.22 criteriapresented by The Islamiceconomicsas the conditiosine qua non for the presenceof earthly social equilibriumare: existence of social harmony, individualfree will and collective responsibilityin the community.While differentespousals of Islamiceconomic thought rely on these criteriato varyingextents, the three are sufficientlypresentin worksacrossthe boardthat it is safe to see them as fundamental principles. The two criteriaof freedomof actionand collectiveresponsibility, while referredto again and again in the works on Islamiceconomics, continue to be merely abstractideal concepts. There is little consensusas to what they actuallyentail, and how a society can accommodatethe two ideals simultaneously. The criterion of social harmony, however, is more widely discussed and seems to constitute the primarybasis of the social ideal of Islamic economics.Socialharmonyis generallydefinedas the presenceof justicein society. Justiceis in turndefinedas the absenceof unjustifiable inequalities in social and economic interactionsand the absence of alteatorytransactions in the market.23Yet, despite theoretical lucidity, such notions as equilibrium,harmonyor justice tend to find convolutedand problematic practicalmanifestations. The most markedproblemwhich emanatesfrom the mannerin which these notionshave been definedis born of literalexplication.The ethereal and esoteric quest for spiritual realization, rather than serving as the causal linkage between the Islamicworld-viewand modern social praxis is often interpretedin immediateand even superficialterms, and directly translated socio-economicnormsandcriteria.The notionof spirituality into as embedded in a cosmic equilibrium,when elaborated, gives place to a preoccupationwith the more immediate gratificationwhich an investor may experience at the fact that his deposits receive no interest.24This mundane interpretationof the original doctrine not only obfuscatesthe idealsof Islamiceconomicdoctrinebut, by confusingphilosophyandethics with efficiency of practice, also creates a situationwherein all problems wroughtby Islamic economics can be justified in terms of the intangible 'spiritual gain' whichthis novel perspectiveon economicsentails.
ABOLITIONOF INTEREST-RATES AND MANAGEMENT AN INTEREST-FREE OF ECONOMY

Islam's disdain for unjustifiableinequalitiesin market relations, in toto,

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and into doctrinalformulations institutionalarrangements which translates would eradicate mechanismsthat perpetuate those inequalities. In this regardthe foremostconcernof Islamiceconomicsis the abolitionof riba, or usury. the While, as yet, there exists little agreementregarding variousaspects of usury, there are certain argumentswhich appear in the gamut of opinions on the subject, which serve as the outlines of the doctrine of riba (or better put, abolitionof) in Islamiceconomics. First, advocatesof Islamiceconomics generallyequate the notion of usury with the concept and mechanism of interest rates as understood in modern economics. Therefore,all spiritualor juridicalsayingspertainingto usuryare deemed to ipsofacto applyto interestrates. were renderedunlawful Second, interestrates and usurioustransactions in the Quran and hence are abhorredby Muslimsnot only because they of effortor use of skills, permitaccumulation wealthwithoutcommensurate but also because they create and perpetuatestructuralinequalitiesin the economy.Therefore,abolitionof interestratesand hence usuryis not only a matterfor the moral rectitudeof society, but also one pertainingto the bettermentof its socio-economiclivelihood. Third, Islamiceconomics,while denouncingthe usuriouscharacteristics of interest rates, recognizesthe importantfunctionsof interest rates as a mechanismessential to the managementof an economy, hence acknowledging the antinomialproclivitiesof the idea of an interest-freeeconomy and the dilemma of its management.Consequently,while compelled to extricateinterestrates from economic activities,based on the logic of the afore-mentioned arguments,Islamiceconomicshas neverthelesssoughtto sustainthe variousnon-usurious essentialfunctionsof interestrates in and the economy.25 Despite the convergenceof opinionson the task at hand in this regard, advocatesof Islamiceconomicsare not of one opinionas how to discernthe invidiousandthe beneficialaspectsof interestrates, abrogating one and the the other, nor do they espouse a clearguidelinefor managingan promoting interest-freeeconomy. In grappling with the idea of separatingthe various functions of interest rates, or managingwithout them altogether, advocates of Islamiceconomics have presentedan arrayof economic theories and operationalguidelinesfor managementof financialtransactions.The leitmotif of these ideas is the fact that Islam suggestsneither that money is 'barren'nor that capital has a shadow price of zero. In fact, advocates of Islamiceconomicsrecognizefour primaryfunctionsof positive interest ratesas necessarymechanisms economicmanagement,whichshouldbe for emulatedin an 'Islamiceconomy'. The first of these is offsettingthe effects of a positive social rate of time preferenceon savingsand investments.Positiveinterestrates are the most importantpolicy tools as well as indicatorsof performanceof savingsand

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investmentsin the economy, andtheir allocationinter-temporally. Second, in a capitalistenvironment,as the stock of savingsgrowsthe propensityof interest the population to accumulateit declines. In such circumstances rates act as regulatorsof savings, investmentsand consumption.Third, interestrates in free marketsprovidefor measuringthe physicaldepreciation of the capitalstock of the economy, and the turnoverrate requiredfor steadygrowth. Last but not least, interest rates have implicationsfor inflation in the economy. They allow for the effects of changingexpectationson the real to value of savingand investmentmechanisms functionin spite of inflation. In the absenceof interestrates inflationcould cause a Klondikesituation: a run on the money, greaterconsumptionand short-runinvestments,and finally an inflationarycycle. Interest rates compensate some of the loss in value of stationarymoney due to inflation. They absorb the shock of inflation, reducing its blow to the economy, and at times even set in motionmechanisms whichhalt inflationandthwarthyper-inflation. Higher interest rates discourageconsumptionin favor of savings, and hence, to some extent, deflate the economy. theoreticalconstructsand creatingoperationalprocedures Formulating which would duplicatethe aforementionedfunctionsof interest rates has occupied much of the attention of the advocates of Islamic economics. There now exists an array of suggestionsas how to substitutethe antifunctionof interestrateswith a systemof imperfect'indexing', inflationary andcreatea separatecapitalmarketwheredepreciation the capitalstock of couldbe determined.26 Moreover,the functionof interestratesas regulator of savingsand investmentsis usuallydelegated to the novel institutionof mudarabah wherebybanks act as investmentagents on 27(profit-sharing) behalf of depositors, and as partnerswith the borrowers.The profit rate in this institutionreplacesthe interestrate. Mudarabah at the heartof lies interest-freebankingin the Muslimworldtoday. In regulating and operationalizingmudarabahthere has emerged a number of separate approaches to and interpretationsof this institution. Thinkerssuch as Shaykh MahmudAhmad, MawlanaMawdudior MuhammadUzair have placed greater emphasis on partnershipinvestments between banks and depositors, what is tantamountto shirakah Abdul-HadiGhanameh's thesisdevelopsmudarabah (partnership).28 along differentlines, relyingmore on common-stock for arrangements long-term financingand mutualfunds for short-termfinancing.He defines a mutual fund as an investment company that buys the common stock of other industrial commercialcompanieson behalf of the depositors.29 or These thinkers begin their argumentsfrom the premise that Islamic financialinstitutionsshould be economicallyviable. Otherssee the objective of Islamic economics as merely to fulfill Islamic dicta. The question of efficiency here is of secondary importance. In fact, this group of

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thinkersbelieve that the objective of Islamiceconomics as a whole is not TawfiqShawi, or efficiencybut ethicalviability.Abu Saud, Muslehuddin, These thinkers Abdul-Rahman Wahidbelong to this school of thought.30 rely heavily on legalismto asserttheir view. Legalismat times even boils down to outrightneglect or dismissalof the question of efficiency. Abu Saud, following this line of argument, writes that in fact mudarabah cannot replace interest rates. Reorganizationof the economy around mudarabah,in his view only leads to the emergence of a 'black market' in which interest rates will reappear. Therefore, it is best to abandon the preoccupationwith mudarabahand economic efficiency and simply to enforce the anti-usury laws alreadypresentin Islamiclaw. Whateveris bornof subjectingthe economyto Islamiclaws, whetherefficientor not, is none other than Islamiceconomics,the acceptanceof which is incumbent on the society.31 Legalism in the context of Islamic economics has not, however, in all instances challenged and superseded mudarabahor the concern for efficiency. Often, Islamic law has been used and even manipulatedto financial enhancethe feasibilityof mudarabah-based operations.The works of al-Araby, Siddiqi, Sayyid MuhammadBaqir Sadr, Najjar, Gharib alGammal and al-Hamsharihave made extensive use of law to bolster theoretical argumentsfavoring mudarabahas well as to facilitate their in implementation the economy.32 laws to regulate Najjar, for instance,suggestsan arrayof shariah-based financialinstitutions,create cushionsto the operation of mudarabah-run absorb shocks to the system, and to encourage popular participationin those institutions. SayyidMuhammad BaqirSadr,on the otherhand, used law in a different mudarabah schemes, which were often more legally viable light, devising than economicallyacceptable.Moreover,with a view to operationalizing catechismin orderto arguethatIslamcan he mudarabah, has used juridical instituimplicitlysanctionthe depositingof fundsbelongingto interest-free tions in 'outside' interest-bearingaccounts. By accepting interest-based financingin order to make interest-freetransactionsviable, he was not activitieswith a view to making only compelledto acceptcertain'unlawful' Islamiceconomics operationallyefficient, but also distinguishedbetween the economyof the ummah,and that of the world at large, makingethical incumbent considerations has only on the former.Sadr'sapproach been the de facto modusoperandiand the supportfor solvencyof manymudarabah operations. The most comprehensiveremedy for the dilemma of managing an interest-freeeconomy is, however, found in the works of those thinkers who arguefor greaterstate controlof the economy, wherebygovernment replacesthe allocativeand regulatoryfunctionsof interest policy-making rates. The debate over the extent of government intervention in the

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economy, however, goes beyond the question of viabilityof interest-free institutionsand encompassesthe very natureof Islamiceconomics.33 EtatismeversusOpenMarketOperations In recent years the theory and practice of Islamic economics has been informedwith a greater extent of realism. Operationalimpediments,as well as the discipline'sinabilityto find appropriate substitutesfor interest rate-relatedeconomic mechanisms,have inducedsome Islamiceconomic thinkersto abandontheir ideal of erectinga viable open marketeconomic system with the pragmaticreliance upon the state to bolster the Islamic economy wheneverthe theoreticalbases of this novel perspectiveseem to falter.34 Consequently,thinkers, to an increasingextent, call upon the state to openly or through intermediarychannels reduce the economy's reliance upon privatesavings, and to place greateremphasisupon public savings, allocatedthroughthe aegisof the state. Whileetatisme wouldascribeto the governmentthe managementof savings,investmentsand the allocationof scarce resources,it does not imply a total break with marketoperations. Naqvi, for instance, suggests that governments, once in control of the economy, could neverthelessuse marketsmechanismsto auction capital or investmentfunds.35 In orderto oversee the Islamization the economyas well as its efficient of functioning,the state is compelled to utilize a numberof economic and financialpolicy tools. In an open economy, the centralbank has recourse to an arrayof monetaryand fiscalpolicieswhichare regulatedbased upon the prevalentrate of interest. An 'Islamiceconomy', on the other hand, cannot make use of the same sundryof policies. Withoutinterestrates to govern policy-making,central banks would be deprivedof much of their functions,and would become merelycoffersfor state fundsmanagement al-Mal.It is for this reason that manyadvocatesof Islamiceconomics Bayt have favored the complete nationalizationof the banking system, with the hope of augmentingthe state's leverage over banks and financial institutions.36 While etatismeseems to assuage much of the practicalimpedimentsof Islamic economics, remedying all questions of economic efficiency by resorting to government control, it seriously threatens the intellectual appealof Islamiceconomicswithinthe Muslimworldas well as in the West. At a time when there exists widespreaddisillusionment with centralized economicmanagement,and when countriesas diverseas China,members of the CMEA and ThirdWorldcountriesare all experimenting with open marketoperations, an economic system with centralizingpredilectionsis not likely to find many adherents. Consequently, the preoccupationwith finding viable substitutes for

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interest rates, within the frameworkof open market economics, despite its continuedtheoreticaland functionaldifficulties,continuesto act as an concernof Muslimthinkers.Effortsin this regardrevolvearound important the concept of mudarabah.While the concept itself is clearlyunderstood the as profit-sharing, mannerin whichit shouldbe operationalized,substituted for interest rates or managed, remainsopen to debate. Therefore, mudarabahhas found an arrayof different meaningsin various Muslim with mudarabahhas placed a great deal of economies. Experimentation importanceon interest-freeor, as it is more commonly known, Islamic arrangement banking,at times causingconfusionbetween this institutional and Islamiceconomicsitself.37 The theoretical and operational predicamentsof Islamic economics are not, however, the only challenges which this new discipline has to surmount.Interactionbetween political prioritiesand the formulationof new social institutions in most Islamic settings has had a pronounced impact on the development of Islamic economics in particular,and the process of social change in general. While some of the ramificationsof this development will be positive, there are those areas of politics and socio-economicactivitywhichare boundto be adverselyaffected. IslamicEconomicsand the Politicsof MuslimNation-States Islamizationof economics has, in most Muslim societies, served as the ideas of Islamic ecomechanismthroughwhich the intellectual-religious nomics, mostly pertaining to individual piety and relevant to microeconomic considerations, have been transformedinto state-sponsored macro-levelpolicies. Insofar as Islamic economics has as yet developed no overall conception of an economy, only an overall conception of economic ethics, this novel disciplinehas become more easily subject to overridingpolitical considerations.The particularpolitical consequences of this processare, no doubt, directlycorrelatedwith the way in whichthe new economicpolicies are implemented,and the extent to which the state and utilizesthem in policy-making social control. The immediateresultof the applicationof Islamto economics is bound to be an abatementof socio-economicinequalitiesand injustices.38 Islamic economicsenjoinssocialjusticeand economicequity. Even a lip-serviceto Islamiceconomicsis ipsofactoa move awayfromexcessivegrowth-oriented economic change. Such improvedisequilibria,towardssocially-conscious ments in the indices of equality are likely to influence the politics of the masses and the stabilityof the rulingregimes.By improvingthe lot of the by poor, checkingthe rateof capitalaccumulation the rich, and moderating the rate of change, Islamiceconomicsprovidesthe regimesin power with legitimacyand popularity,both of which could be used to mobilize the massesin supportof the government.By the same token, however, Islamic

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of economicscreates scapegoatsfor the shortcomings governmentpolicies as well as new means by whichthe state could controland manipulatethe economy. of of To beginwith, implementation the prescriptions Islamiceconomics tends to relieve governmentsfrom responsibilityfor the performanceof the economy. Economic and financial crises can be explained away as the necessarypains that precede the process of Islamization,the cure for of which no doubt lies in furtherIslamization the economy, or as the cost to be burdenedif the society is to adhere to the ethics of Islam. In other words, Islam rather than the government becomes responsible for the performanceof the economy. Moreover, once the governmentcommits itself to Islamiceconomics,the populartoleranceof economicdisequilibria and the resultantcrises also increases.To sum up, Islamization general in and Islamiceconomicsin particular serve as a way of gaininglegitimacyfor the governmentsas well as justifyingthe existenceof economicand social problems.At a time of greateconomiccatharsisin manyMuslimsocieties, the value of this facet of Islamiceconomicsis, no doubt, not lost upon the rulingregimes.39 in Similarly,Islamiceconomicstends to encouragestate intervention the marketplace. Often, conceptssuch as Islamicbanking,insuranceor stock marketshave served in practiceas the pretext for extensive regulationor of measlarge-scalenationalization these institutions.Suchnationalization ures in Iran, Pakistanand the Sudanuntil the fall of PresidentNumeyri, would have faced greaterpopularresistancehad they not been carriedout in the name of Islam and Islamization. Islamized institutions, and, especially interest-free banks, moreover extend governmentinfluenceinto the privatesector throughmudarabah. Sinceloaningactivitiesinvolvedirectinvestments interest-free banksand by of borrower's which stocks, the banksandhence the governments purchase director influencethem become majorcontrollersof privateenterprises. Governmenttax policies have also been strengthenedas an array of 'Islamictaxes' have been added to the alreadyexisting channelsfor the collectionof revenues. While the collectionof zakator kharajhelps mobilize greater savings and channelsthem into governmentcoffers, directly or otherwise, it does not create any additionalburdensfor tax collection mechanism.Muslimreligioustaxes are to be paid voluntarily,and to be supervisedby the ulama or the communityas a whole. While taxes such as zakat are not meant for governmentuse, their collection, in a state-run The economy, inevitablyfurthersthe position of the government.40 entire processis meanwhilesupervisedby the eager ulamaor vigilantemerchants or communityleaders, with requirement only minimaleffort on the part of of the government. The most importantimplicationof Islamiceconomicsfor the politics of the Muslim world, however, pertains to the issue of political stability.

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Emphasisplaced on Islamic economics invariablydiverts popular attention from the explosive and destabilizingissue of the Islamizationof politics. Adherence to Islamic economics in Pakistan, the United Arab Emirates, Bahrein, Kuwait, Qatar, Saudi Arabia, Jordanand the Sudan (until recently) has appeased to a good extent the opposition to the ruling regimes among moderate Islamic group, co-opting them into the Islamizedeconomic system. Revolutionaryand extremist Islamic movements in view of these measures have found their support dwindlingas the government gainedgreaterreligiouslegitimacy.Interestingly, while has Islamiceconomicshas on the whole strengthenedthe state in the Muslim world, specificpolicies used for institutingIslamiceconomicshave proved problematic.In Pakistan,for instance,Islamiceconomicshas by and large furtheredthe position of both the state, and the governmentof the late PresidentZia. Yet, the government's attemptto collect zakatled to major and even riots, especiallyamongthe Shiite communityof that opposition, Overall therefore, Islamic economics has strengthenedthe position of the state, and the governmentsreigning in them. Through the aegis of Islamiceconomicsthe state has gained a greatercontrol of the economy; and conceivablymay extend this controlto levels exceedingthose possible under the populist Pan-Arab regimes. By the same token the policies of the states enjoy greater legitimacy, and their encroachmentinto the privateaspectsof the economic and social life of the populaceare blindly welcomed by the masses. The rulinggovernments,too, have used Islamic economicsto stabilizetheir bases, at a time of greatchallengeto their rule by politicizedreligiousmovements.
NOTES I wouldlike to expressmygratitude NazliChoucri,LeilaFawazandMyronWeinerfortheir to in of assistance preparation this study. 1. For workson the issue of resurgence Islamsee John L. Esposito, Islamand Politics of Islam(New Press,1985);idem. (ed.), Voicesof Resurgent Syracuse (Syracuse: University York:OxfordUniversity Press,1983);JamesPiscatori (ed.), Islamin thePoliticalProcess (New York: Cambridge UniversityPress, 1983);and SaidAmir Arjomand(ed.), From to Nationalism Revolutionary Islam(Albany:SUNY Press, 1984). 2. Clifford Geertz, Islam Observed;Religious Developmentin Morocco and Indonesia (Chicago:Universityof Chicago Press, 1968), began the discussionof the lingering influenceof Islamon modernization; morerecently,Fredvon der Mehden,Religionand in Modernization Southeast Asia (Syracuse: SyracuseUniversityPress, 1986), discusses more directlythe resurgence religionin politicsin the context of its implications of for socialsciencetheories. 3. For a comprehensive treatmentof the argumentof the various advocatesof Islamic economicssee, Muhammad The NejatollahSiddiqi,MuslimeconomicThinking (Jeddah: Centerfor Researchin IslamicEconomics,KingAbdul Aziz University, International 1981).

country.41

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4. See for instance,Ingo Karsten,'Islamand FinancialIntermediation', IMF StaffPapers (March1987),pp.108-37. 5. See for instance,Rodney Wilson, 'Islamand EconomicDevelopment';David McEoin and Ahmadal-Shahi(eds.), Islamin the ModernWorld(New York: St. Martin's Press, Hossein Askariand MustafaAhmad, 'Islamand 1983), pp.121-3; John T. Cummings, Modem EconomicChange'.John L. Esposito (ed.), Islamand Development; Religion and SociopoliticalChange(Syracuse:SyracuseUniversityPress, 1980), pp.25-49; and TimurKuran,'The EconomicSystemin Contemporary IslamicThought:Interpretation andAssessment'.International Journal MiddleEastern Vol.XVIII(May1986), Studies, of pp.135-64. 6. In this regard see, MuhammadAbdul-Rauf,A Muslim'sReflectionson Democratic Capitalism(Washington,DC: American EnterpriseInstitute, 1984); Umar Chapra, Objectivesof Islamic Economic Order (Leicester: The Islamic Foundation, 1979); M. Mannan, IslamicEconomics: and A Theory Practice; Comparative Approach(Lahore A. Ashraf, 1970); Sayyid Nawab Haider Naqvi, Ethics and Economics:An Islamic Synthesis(Leicester:The IslamicFoundation,1981);and Seyyed MahmoodTaleqani, Islam and Ownership, trans. by AhmadJabbariand FarhangRajaee (Lexington,KY: MazdaPublishers,1983). 7. See for instance, SayyidAbul A'la Mawdudi,The EconomicProblemof Man and its IslamicSolution(Lahore:IslamicPublications, 1978). 8. Emphasizingthe distinctionbetween fatalismand adherenceto the will of God has been laboredin manybooks including: MaximeRodinson,Islamand Capitalism, trans. by Brian Pierce (Austin, TX: Universityof Texas Press, 1978), p.111, and Ibrahim VIII (1980), pp.513-21. A. Ragab,'Islamand Development',WorldDevelopment 9. On Islamization the economyin Iransee, ShaulBakhash,TheReignof theAyatollahs; of Iran and the IslamicRevolution(New York: Basic Books, 1984), pp.166-94. Also see, of Akhavi, 'Iran:Implementation An IslamicState';JohnL. Esposito(ed.), Shahrough Islamin Asia: Religion,Politics,andSociety(New York:OxfordUniversity Press,1987), in pp.43-9; andidem. 'Elite Factionalism the IslamicRepublicof Iran',TheMiddleEast economics Pakistan in Journal,Vol.XLINo.2 (Spring1987),pp.181-201.On Islamic see, IslamicGovernment Society',Esposito(ed.) Islamin Asia, and KemalFaruk,'Pakistan: Withinan IslamicContext', pp.53-78;andShahidJavedBurki,'EconomicManagement Anita M. Weiss (ed.), IslamicReassertion Paskistan (Syracuse: in SyracuseUniversity Press, 1986),pp.49-58. 10. Abu BakrSirajiddin, 'TheIslamicandChristian of of Conceptions March Time',Islamic Vol.1 (1954), pp.229-35. Quarterly, 11. For a discussionof the Shiite conceptionof change and its impacton economicssee, Homa Katouzian,'Shi'ismand IslamicEconomics:Sadrand Bani Sadr',Nikki Keddie to (ed.), Religionand Politicsin Iran:Shi'ismFrom Quietism Revolution(New Haven: Yale UniversityPress, 1983),pp.145-66. 12. See SayyidAbul A'la Mawdudi,A ShortHistoryof the Revivalist Movement Islam, in trans.by al-Ash'ari(Lahore:IslamicPublications, 1963). 13. See for instance,SayyidAbul A'la Mawdudi, Us Be Muslim,Khurram Let Murad(ed.), from Mawdudi's, views (Leicester:The IslamicFoundation,1985). Also extrapolating KhurshidAhmad has seen economic developmentin Islam as essentially an issue Ahmad, 'Islamand the Challenge pertainingto 'humandevelopment'.See, Khurshid of EconomicDevelopment',JohnL. EspositoandJohnDonohue(eds.), Islamin Transition; MuslimPerspectives (New York:OxfordUniversityPress, 1983),pp.230-37. 14. Mawdudi,TheEconomicProblemof Man;Isma'ilR. Faruqi,'Is the MuslimDefinable in Termsof His EconomicPursuits?' Khurshid Ahmad and ZafarIshaqAnsari(eds.), IslamicPerspectives (Leicester:The IslamicFoundation,1979), pp.183-93;Subahuddin Insteadof homoZain, 'The Attitude of MuslimMan in EconomicLife: Muslim-Man IslamTetkikleri economicus', Enst., Vol.VII (1978), pp.243-58.

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15. This trend is evident in such worksas Mannan,IslamicEconomics;Naqvi, Ethicsand Economics;Umar Chapra,'The EconomicSystemof Islam, A Discussionof its Goals andNature',IslamicQuarterly, Vol.XIV, 1-4 (1970),pp.3-18, 91-6, 143-56,and237-51; andMuhammad Imran,An Outline theEconomicSystem Islam(Lahore:A. Ashraf, of of of of 1978).For a criticaldiscussion thistrendsee, CharlesIssawi,'TheAdaptation Islam to Contemporary EconomicRealities'in YvonneHaddadetal. (eds.), TheIslamicImpact Syracuse UniversityPress, 1984),pp.27-45. (Syracuse: 16. See, Naqvi, Ethicsand Economics. 17. See, Faruqi,loc. cit; and Zain, 'TheAttitudeof MuslimMan', pp.243-58. 18. Seyyed Hossein Nasr, Idealsand Realitiesof Islam (London:George Allen & Unwin, Islam(London:UnwinPaperbacks, 1981),pp.72-90;andFritjofSchuon,Understanding 1976). This theme also emergesin worksof modernMuslimthinkers,for instancein, Ahmad Islam, trans.by Khurshid SayyidAbul A'la Mawdudi,TowardsUnderstanding IslamicTeachingCenter, 1977); and Abol-HasanBani Sadr, Eqtisad-i (Indianapolis: Tawhidi(UnitarianEconomics)(Tehran:n.p., n.d.), where the issue of vice-regency of of manbecomesthe cornerstone egalitarian economics. of 19. A classicexpression this dictumcan be foundin Naqvi,Ethicsand Economics; Sayyid and Abul A'la Mawdudi,'Principles Objectivesof Islam'sEconomicSystem',Criterion, Vol.IV, No.2 (March-April1969), pp.44-58; Sayyid Qutb, al-'Adalatal-ijtima'iyah fi'l-Islam(Social Justicein Islam) (Cairo:n.p., 1969); and MahmudAbu Saud, 'The EconomicOrderWithinthe GeneralConceptionof the IslamicWay of Life', Islamic Review,Vol.LV Nos.2-3 (February 1967),pp.24-6, (March1967),pp.11-14. 20. Naqvi, Ethicsand Economics;and Chapra,Objectives theIslamicEconomicOrder. of 21. Naqvi, Ethicsand Economics,pp.62-4; also see Muhammad Abdul-Rauf,The Islamic Doctrine of Economics and Contemporary Economic Thought (Washington, DC: AmericanEnterprise Institute,1979),p.12. 22. This kindof reasoning particularly is evidentin the worksof Mawdudi, instancesee, for Let Us Be Muslims. 23. For a comprehensivetreatmentof this theme see, Taleqani, Islam and Ownership, from Iqtisaduna',trans. by pp.146-50; and Sayyid MuhammadBaqir Sadr,'Extracts I.K.A. Howard,Alserat,Vol.VII, No.1 (1981), pp.3-11. 24. In this regardsee for instance,Muhammad of Mohsin,'Feasibility Commercial Banking Without Rate of Interest and Its Socio-EconomicSignificance',Islamic Quarterly, Vol.XXII, No.4 (1978), pp.149-57; and Kheder MohamedAli, 'IslamicBanking in Dual Economies:The Arab World', and MohammadAkacem, 'IslamicBanks and the WorldDebt Situation'.Both paperswere presentedat International Conferenceof IslamicBankingandFinance,25-26 September1985,Washington, D.C. of 25. For a summary the variousopinionson abolitionof interestratessee, Siddiqi,Muslim EconomicThinking. 26. For works in this regardsee, Naqvi, Ethics and Economics;idem, On Replacingthe Institutionof Interest in a Dynamic IslamicEconomy (Islamabad:PakistanInstitute of DevelopmentEconomics,1981);Mohsin, 'Feasibility Commercial BankingWithout Interest';A.I. Qureishi,Islam and the Theoryof Interest(Lahore:A. Ashraf, n.d.); M.A. Sabzevari,'Islamand Savings',IslamicOrder,Vol.IV, No.3 (1980), pp.120-33; Muhammad Without Interest The FoundaNejatollah Siddiqi,Banking (Leicester: Islamic tion, 1982); and Mohsin Khan and Abbas Mirakhor,'The Frameworkand Practice of Islamic Banking', Financeand Development,Vol.XXIII, No.3 (September1986), pp.32-8. 27. For the sundryof opinionson mudarabah Siddiqi,MuslimEconomicThinking. see, 28. See, Mawdudi, The Economic Problem of Man; MuhammadUzair, An Outline of Interestless Banking (Karachi:Raihan Publications,1955); Sheikh MahmudAhmad, 'InterestandUnemployment', IslamicStudies,Vol.VIII, No.1 (March1969),pp.9-46. 29. Abdul-Hadi 'TheInterestless Ghanameh, Economy',Contemporary Aspects Economic of

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30.

31. 32.

33. 34. 35. 36. 37. 38. 39.

40. 41.

of StudentAssociation U.S. andCanada, in andSocialThinking Islam(Gary,IN: Muslim 1973), pp.85-9. Abu Viewof Riba',IslamicReview,Vol.ILV,No.2 (February Muhammad Saud,'Islamic 'InterestFree Muslehuddin, 1957),pp.9-16; idem, 'InterestFree Banking',Muhammad is Muhammad Tawfiqal-Shawi.'al-Khasa' Bankingand the Feasibilityof Muzarabah', ta'sisuhu li'l min khilal al-nususittifaqiyah al-mumayyizah bunk al-lslami li-tanmiyah wa malawihal-nizamal-masrafiwa'l iqtisadal-Islami'(DistinctiveQualitiesof Islamic Conferenceon Islamic Banks), were all presentedas papersat the First International Wahidare quotedin JamesPiscatori, Economics,Mecca, 1976;views of Abdurrahman Islam in a Worldof Nation-States (New York: CambridgeUniversityPress, 1986), p.120. Abu Saud, 'InterestFree Banking'. Abdullah al-Araby, The Islamic Economy and Contemporary Economy (Islamabad: Third Conference of Academic Islamic Research, 1966), pp.207-366; Muhammad Nejatollah Siddiqi, 'A Model of Interest Free Banking', Criterion,Vol.VI, No.4 (July-August 1961); Sayyid MuhammadBaqir Sadr, Al-Bank al-la Rabwifi'l Islam (Interest Free Banks in Islam) (Kuwait: n.p., 1974); Ahmad al-Najjar, Bunik bila wa'l lil-tanmiyah al-iqtisadiyah ijtimaiyah duwalal-islamiyah fawa'idka-ishtiratijiyah fi'l (BanksWithoutInterestas a Strategyfor Economicand SocialDevelopmentof Muslim al-Ghammal, Countries) (Jeddah: n.p., 1972);Gharib Al-Masarifwa'la'malal-masrafiyah in (Banks and BankingTransactions IslamicLaw wa'l-qanun fi'l shari'ahal-islamiyah and in Positive Law) (Cairo: Dar al-Ittihadal-Arabili'l-Tiba'ah,1972); MustafaA. al-A'malal-masrafiyah wa'l-lslam(BankingOperationsin Islam) (n.p., al-Hamshari, n.d.). See, Naqvi, Ethicsand Economics. Wilson,'Islamand EconomicDevelopment',pp.121-7. Naqvi, Ethicsand Economics,p.120. of In Iran nationalization the bankingsystem in 1979-80precededand was viewed as the harbingerof the Islamizationof the economy. Similarly,in Pakistanwholescale Islamization economics. of of nationalization the banksaccompanied For a complete treatmentof Islamicbankingsee, ZubairIqbal and Abbas Mirakhor, DC: IMFOccasional IslamicBanking(Washington, Papers49, March1987). Withinan IslamicContext',p.55. See for instance,Burki,'EconomicManagement While in societiessuch as MalaysiaIslamiceconomicshas emergedat a time of general suchas Egyptit hastendedto crystalize arounddebatesconcerning affluence,in countries of with economicdeclineandmaterial econopauperization growing populations stagnant mies. and See for instance,Ann ElizabethMayer,'Islamization Taxation',Weiss(ed.), Islamic Reassertion Pakistan,pp.171-2. in Esposito,Islamand Politics,pp.171-2.