Islam In Label, But Not Content - Follies of Islamic Economics

 Islam In Label, But Not Content

M. Bakri Musa

 

Second Of Two Parts:  Follies Of Islamic Economics

 

June 27, 2023

 

Islamic economics imposes a heavy and unneeded burden on the ummah. Like its much earlier version during pre-partition India, Islamic economics is more a rallying cry for cohesion, self-respect, and differentiation. More to insulate the ummah from foreign influence, less on improving their lives. Perversely by ignoring time-tested modern economic insights, Muslims remain marginalized today, just as they were during colonial India.

 

            The Iraqi Baqir Al Sadr’s Iktisaduna (Our Economics), in tandem with Naguib’s Islamization of Knowledge (IOK) movement, reignited the fad. Al Sadr’s two-volume tome criticized both capitalism and socialism. He offered a third – Islamic – alternative. He did not live to see today’s myriad Islamic economics as he was executed by the Saddam regime. From the tone of his Iktisaduna, I am uncertain whether he would approve of the current flood of fanciful, complicated, and expensive Islamic financial products.

 

            Not having lived under socialism I cannot comment on Sadr’s take on that system. However, his exposition on capitalism was more a caricature, and of the raw exploitative version of Dicken’s era. Sadr was ignorant of modern market economy’s role in emancipating society as well as its elaborate protections, as with bankruptcy and pro-competitive laws. As for his much-quoted Islamic third path, I have yet to see any Muslim nation adopting it.

 

            Islamic economics fails to address much less untangle four key problematic areas. First, ribaa. It is simplistically translated as “interest” without analyzing and discerning its operational meaning, then and now. Second, complex Islamic inheritance laws that prevent enterprises surviving the death of their founders and the consequent fragmentation of estates, quite apart from trapping assets under prolonged probates. Third, failure to leverage zakat mal (Islamic tax on wealth). Fourth, lack of instruments like the modern corporation so enterprises could survive their owners’ demise as well as provide them liability protection.

 

            Waqaf (trusts), first used during the Prophet’s time but not mentioned in the Qur’an, could be that vital fourth instrument, as Benedikt Koehler noted in his Early Islam And The Birth Of Capitalism. Distracted by IOK however, Islamic economists have failed to develop it. It took Western capitalists to evolve that concept into today’s trusts and limited liability corporations. Waqaf is instructive on another level – the ability of ancient Muslims to be inspired but not limited by the Qur’an. They could have dismissed waqaf or bidaah (adulteration of the faith) as haram since it was not revealed.

 

            Muslim economists are trapped by terminology. Consider ribaa, with its evil connotation. Substitute “cost of capital,” which is what it is, or in Malay harga modal and not bunga, rental on money. As for the exploitative and punitive aspects of non-repayments of loans, as with indentured servitude during the Prophet’s era, I have yet to see borrowers in capitalist countries being jailed let alone enslaved for not repaying their loans.

 

            The late Ungku Aziz understood this essential difference between operational concept and mere label. He created Tabung Haji, leveraging the religious “Haji” and kampung tabung (storage device), and called the earnings faedah (dividends). With that he unleashed hitherto trapped Malay capital. The tragedy is that today’s Islamic economists have not carried the ball forward, as with making Tabung Haji the Muslim’s equivalent of Citibank as well as the biggest operator of hotels and charter aircrafts. Instead, Tabung Haji is plagued with corruption and mismanagement.

 

            As for equal sharing of risks, a stipulation of syariah, I am unconcerned with Petronas raising sukukbonds as they have their accountants and lawyers to protect their interests. Not so with Auntie Rahmah’s mortgage with the local branch of Bank Islam. It would take considerable “concept stretching” (to quote Geertz) to view that as equal sharing of risks.

 

            Mortgages in capitalist America are non-recourse loans. If the bank forecloses on you and sells your house at a loss, it cannot go after you for the balance. Not so with Islamic mortgages. Worse, they are invariably more expensive, up to 200 basis points more. Nor could you prepay your principle. Clearly unjust, and as such cannot be Islamic, label notwithstanding.

 

            Ungku Aziz, Duke’s Timur Kuran, and former Rice’s Mahmoud El-Gamal have done more than all these IOK economists to unravel the challenges of Muslim societies. Emulate them; master current “Western” economics to emancipate the ummah. Instead, Muslim scholars are busy getting rich certifying financial products and slaughtering houses as “Syariah compliant.” Pure rent-seeking activities, Islamic variants of “Approved Permits.”

 

            The ultimate test for Islamic economics – and syariah generally – is its ability to elevate the conditions of the ummah. Merely hyping Islamic economics is meaningless, and not without costs. As per Erdogan’s wisdom with respect to Islamic political movements, failures of Islamic economics would then be viewed as that of the faith itself. What a colossal tragedy that would be for Malays and Muslims. More fruitful to emulate Deng Xiaoping’s wisdom and pragmatism. If “Western” economic insights could uplift the ummah, then those by definition are Islamic and Syariah-compliant (maqasid Syariah).