Topic 5: Islamic Economics as Plea for Liberal Capitalism

Wrong answer to the wrong question

Introduction
Islamic economics is a Saudi project dates back to early 1970s key proponents being Nejatullah Siddiquifrom Saudi Arabia, also regarded as pioneer Umar Chapraanother Saudi based intellectual Khurshseed Ahmeda liberal thinker of an orthodox Islamic movement Maulana Taqi Usmanithe most influential reference More on Islamic banking history later, lets move to the core issue

Frontiers of Islamic Banking Debate

Two broad point of views on Islamic Banking 1. Proponents i. Islamic Banking = Modern Banking those who (mis)believe that bank-interest is not Riba no modifications required ii. Islamic Banking = Islamically modified form of modern banking 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 it for modern phenomenon thus prepare Islamic-parallels

Frontiers of Islamic Banking Debate

2. Opponents: can be divided into three lyres i. undertaking partial analysis criticize IB for not being consistent with Shariahcompliant processes (i.e. ) recent Fatwa is largely in this contextexisting IB is not based on true Islamic teachings ii. question the possibility of Islamizing modern banking challenge the assumption that bank is merely a financial-intermediate; rather it is financing-firm money cant remain only a medium of exchange once money markets emerge

Frontiers of Islamic Banking Debate

iii. Islamic Banking is a plea for Islamic capitalism evaluate Islamic banking as a whole under the objectives of Shariah this is what we discuss here The three sides of opponents to IB can be seen as three barriers that proponents must successfully cross for providing 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!

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 as ends & the world-order based on them appreciation of an earlier existed different, but superior, 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 ISLAMSPECIFIC CONSTRAINTS Merely reflects grafting and patch works, no more a genuine or independent thinking Seeks its intellectual roots in revisionist ideology unlike modernists, reinterpret, not reject, Islamic history and epistemology see core similarity b/w west and Islam regard capitalism as rational and historically necessary phenomenonoutcome of some technical evolutionary process

Epistemological foundations of Islamic economics

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 HUMANone who seeks freedom, equality and progress are tools for the justification of capitalist order provide policy framework for creating and sustaining this order Conventionally, three broader economic systems identified 1. Socialism or state capitalism: collectivist ideology of capitalism freedom materializes under a benevolent social planneri.e. representative of proletariat class

Epistemological foundations of Islamic economics

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 cant do; e.g. curbing market power reducing income inequalities and poverty provision of social rights (health, security etc.) The three comes from a single-familyi.e. enlightenment discourse share same objectivesfreedom and equality differ on methods to achieve them

Islamic economicsa 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 liberal economics 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 legitimate rational 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]

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Islamic economicsa plea for Islamic capitalism

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 the profit motive as the mechanisms for addressing the fundamental economic problem (of scarcity), b/c this reflects natural human propensities, but

problems arise due to the free functioning of profit motive [p. 35]

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Islamic economicsa plea for Islamic capitalism

Criticize it for social-democratic reasons [p. 36] no moral bindings/restrictions while maximizing profits monopolies are created which obstruct free functioning of the natural laws of supply and demand concentration of wealth and income inequalities Propose social democratic reforms and marginal Islam constraints Islam subjects profit motive to the disciplines (e.g. prohibition of interest) that prevents the growth of monopolies [p. 40]

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Profit motive should be constrained by the considerations 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]

Islamic economicsa plea for Islamic capitalism

Try to define welfare beyond rising material needs It is also necessary to raise the spiritual content of well 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 inner happiness 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 could help 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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Islamic economicsa plea for Islamic capitalism

If capitalism creates a natural, hence rational, world-order, institutions arising out of it also turn out natural the wholesale endorsement of liberal capitalism creates room for an apology of capitalist property form including money 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 to reflect 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 in AGM, even if this protest is known to be completely ineffective [p. 87-88]

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Islamic economicsa plea for Islamic capitalism

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 Shariah compliance [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 important role 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 possible under the realm of Shariah-compliance most asset and liability side transactions can be restructured on the basis of Islamic financing contracts within an interest based system

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Poverty of Islamic Economics Paradigm

1. 2. 3. Islamic economics/finance project suffers from serious problems: Misreads modern economics treating it value-neutral is fallacious Endorsement of natural-law philosophy is erroneous even history rejects this ideologymarket is not Effectively claims that Islam is one of the ideologies of capitalism endorses all capitalist values constrained by Shariah paves the way for subordination of Islamic world to global capitalism Concentrates on part and overlooks whole and objectives treating Shariah merely as procedure is a fallacy

4.

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Poverty of Islamic Economics Paradigm

5. Confusing profit-maximization with earning-profit profit-maximization means accumulation for the sake of accumulationtreating it as end in itself Not Haram does not imply desired 6. Ignoring relation b/w structure and objectives corporationfictitious property ownership form is the structure of continuously realizing the dominance of accumulation on individuals corporation negates private property

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Poverty of Islamic Economics Paradigm

Apology: Islamic banking merely a contingent strategy?

The literature on Islamic economics does not support this excuse 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 enjoying large benefits when a necessity (darurah) status is claimed, the imperative action is to change the condition not to perpetuate it Even if it is strategy, it does not lead to the desired end resultthe very objective of a strategy dominates capitalism

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ConclusionWhy reject Islamic economics/banking

The Islamic economics project effectively: Justifies all capitalist values with the label of Islam so ideally suits to serve imperialisms ideology Paves the way for the subordination of Islamic world to global capitalism legitimates incorporation of Muslim business in imperialistic corporate structure calls forth state-policies consistent with liberal economic framework make muslim countries suitable land for attracting global capital by protecting, deregulating, privatizing, liberalizing markets

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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 types and social processes through which overtimes these ideal 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)

ConclusionWhy reject Islamic economics/banking

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