Monday, August 29, 2005

Islamic Economic Policies Should be Tested

In an article in the predicament of the differences between and unreconstructed Islamist and a scientific approach to economics is outlined

“Islamic, secular ideals at war: Creators of constitution must grasp economics” by Timur Kuran, a professor of economics and law and King Faisal professor of Islamic thought and culture at the University of Southern California, explains Islamic economics clearly. He is also the author of "Islam and Mammon: The Economic Predicaments of Islamism."

His article does not make comfortable reading. The gap between the Islamic position it explains and western economics is so wide that there is little room for negotiating a compromise. I have quoted some extracts from Kuran’s article:

“To understand the constitutional battles, observers must grasp not only the principles of Islamic law, or Sharia, but also Islamic economics -- an esoteric modern doctrine that would befuddle Karl Marx, Adam Smith and even the Muslim jurists who, a millennium ago, developed the principles on which it claims to be based.

Sadr's economic vision is developed in "Our Economics," his masterwork published in 1961.
The purpose of "Our Economics" is to discredit both capitalism and socialism as flawed and alien systems, offer Islamic economics as a vastly superior alternative and demonstrate that Islam harbors solutions to a panoply of vexing economic problems. In both capitalism and socialism he finds virtues. Islamic economics, he says, embodies all of these virtues while escaping their numerous vices.

Take poverty elimination, which a socialist society pursues through mandatory wealth transfers. Islam exhorts its adherents to assist the disadvantaged, and it teaches those of means to participate in a decentralized transfer system called "zakat."

Like practically every other modern Islamist, Sadr considers interest illegal, in the belief that the Koran bans it categorically, regardless of form, purpose or magnitude. At the same time, he repeatedly praises the market mechanism, arguing that the pressures of supply and demand should be respected, not resisted.

"Our Economics" seeks to overcome the contradiction through moral training aimed at removing wants liable to produce un-Islamic outcomes. If Islamic education makes people equate interest with unearned income, demand for interest income will disappear; hence, there will be no interest-based lending.

Accordingly, secularist anxiety about Dawa goes well beyond the substance of its current policy positions. In the rough-and-tumble of Arab politics, Islamist parties will enjoy an advantage in any national debate by virtue of their ability to frame their own position, whatever its content, as uniquely Islamic and rival positions as evil.”

One of the many problems in the above is seen in the last paragraph quoted. If a proposition for practical change cannot be tested and is decided by 'faith' whatever the outcome, it is not scientific.

For example, the best way to test an economic policy is to apply it in, say, one country and observe its performance against alternative policies elsewhere. If what the Dawa proposes in its economic policies works better, or even as good as elsewhere, then we should consider it seriously; if it doesn’t then we shouldn’t. That is how science has developed since the first millennium of the common era.

On this test, socialism and communism failed. All migration in the world is into the capitalist countries and not the few remaining communist countries. So far, the article reports that Pakistan and Iran have imposed the economic policies advocated by the Dawa to no visible effect on the problems of capitalism (relative poverty of minority and its non-relief by the voluntary Zakat). Economists will recognise the ‘free riding’ problem. Renaming ‘interest’ as ‘administrative charges’ does not a moral example make: faking results is as dishonest as you can be.

It is doubtful if these economic issues would ‘befuddle’ Adam Smith. A Karl Marx might be impressed with the credulity shown by those who present their ideas this way, but the rest of us are likely to be sceptical of the damage it would cause to the economies lumbered with these policies and would regret the likely disappointment of the poorest people left to wallow in their unrelieved misery.


Blogger Unknown said...

Christian conservatives of the nineteenth century in the west also wanted economic transactions to be judged by their moral impact on society and the public interest. They were bypassed by classical economic theory because it dispensed with moral limits to supply and demand and supported considerations of social welfare. There is an echo of this today in our legislation of a minimum wage. By the way, Pope Francis embodies this in his views, as presented by the Papal Encyclical of Rerum Novarum in the later nineteenth century.

5:56 pm  

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