Book: Islam and Economic Policy: An Introduction

This book explores whether public policy in Muslim majority countries has been influenced by Islamic economic discourse.

Islamist political parties have enjoyed unprecedented election victories in recent times. The Islamic Revolution in Iran, the election of the Justice and Development Party in Turkey and the coming to power of Islamists, albeit briefly, after the Arab Spring, has changed the political landscape in the Middle East and has ramifications for the entire Muslim World. Yet the continuing success of these parties depends on their record on economic development and employment creation. Are their economic policies different from those of their autocratic predecessors? Have they been influenced by the writings of academic Islamist economists? This book looks at the impact of Islamic teaching on public economic policy and asks how Islamic economics differs from mainstream micro and macroeconomics. It looks at how Islamic values can influence choices made by businesses and governments. It asks whether Shari’ah teaching affects taxation and social welfare policies.It assesses the potential of Islamic economics to provide an alternative to a capitalist economic system and looks at the implications for international economic relations. It’s individual chapters evaluate the economic successes and failures of OIC member states (Bangladesh, Egypt, Indonesia, Iran, Malaysia, Pakistan, Tunisia and Turkey) and their changing status in the global economic order.

Part One Ideas, themes and measures

PART ONE: Introduction

There is a growing literature on conceptual and theoretical issues in Islamic economics, but there has been no attempt to examine how far this might have relevance for economic policy in the Organisation of Islamic Cooperation (OIC) member states. This was partly because Islamist political parties were suppressed and excluded from government policy debates. The parties were more concerned about how they could attain power than how it would be used if they were ever able to participate in government. The Islamic revolution in Iran, the election of the Justice and Development Party in Turkey, and the coming to power…

CHAPTER 1: Economic philosophy from a Shari’ah perspective

The study of fiqh, or Islamic jurisprudence, involves the interpretation of the Quran and the hadith and its application to the issues that arise in everyday life, including economic policy. The fuqaha are the scholars, or jurists, who study fiqh to determine how it should be applied to contemporary issues, such as those that arise in the field of public policy. Their opinions, or rulings, are referred to as fatwa. The rulings of reputable scholars are usually respected, but they are not regarded as infallible, as the fuqaha may have different, and often conflicting, opinions reflecting their own particular interpretations…

CHAPTER 2: Micro-economic morality: a theory of the firm enlightened by Islamic values

The choice of models of business organisation depends partly on the nature of the activity, the markets in which the businesses compete and their access to finance. Religion does not at first sight seem to have much relevance for business organisation, although in the case of Islam the favoured financing methods may have some influence. Business activity has, of course, to behalal, which precludes a wide range of industry from riba-based banking to alcohol and pork production and distribution, but this will not affect the scale of individual businesses or their corporate structures. The markets of the time of…

CHAPTER 3: Fiscal policy choices to promote social justice

Fiscal policy concerns include the extent of public sector involvement in an economy; the level and sources of taxation; and the amount of government spending and how it should be prioritised. These issues can be highly divisive and subject to contentious political discourse between socialist parties, which generally favour more government spending and higher taxes, and conservative or populist parties, which urge less government involvement in an economy with lower spending and taxes. Although the outcomes of the discourse have profound implications for income and wealth distribution and the living standards of the poor, the political debate usually takes place…

CHAPTER 4: Development policy

In secular societies morality can be socially determined, with what is right and what is wrong being assessed with regard to what is socially acceptable or, indeed, what is politically correct. This inevitably changes over time as society evolves, with what is morally unacceptable during one historical period perhaps becoming acceptable at a later stage. For example, in the financial sphere paying and receiving interest has become widely accepted, although not by advocates of Islamic finance who equate interest with riba. Nevertheless, even those who do not accept the arguments for prohibiting interest voice much criticism of credit card providers…

CHAPTER 5: International economic engagement

To what extent does having a common religion facilitate trade and investment between countries, or is belief irrelevant for commerce? Was trade a prerequisite for the spread of religion, or was the causality the reverse with the work of missionaries in encouraging religious conversion preceding trade and financial exchanges? Shared religious beliefs and values potentially increase trust between traders and investors, reducing transactions costs. Less monitoring and guarantees may be required if those involved are expected to honour their commitments to their fellow believers.¹ Even where there are religious differences, if those involved in transactions understand and respect the beliefs…

CHAPTER 6: Banking regulation, monetary policy and Islamic finance

Progress in implementing an Islamic finance agenda has advanced much more in the last half century than have debates about how an ideal Islamic economy might function and the practical measures required to achieve this. There is no economy that can be described as Islamic, whereas Islamic banking and finance are flourishing with assets in excess of US$ 1.5 trillion worldwide by 2014. However, providing a legal and regulatory framework for the existing Islamic banks and takaful operators, and the issuance and trading in Shari’ah-compliant financial instruments is itself a challenge for policy-makers. It is these issues that are addressed…

Part Two Country experiences

[PART TWO Introduction]

The economic diversity of the Islamic world is a result of four major factors: resource endowments, demography, economic history and politics. Attributing differences to religion or culture is much more problematic, and there is no economy that can be identified as Islamic. Indeed, it is not clear what the term ‘Islamic economy’ means in practice, and the utopian literature on Islamic economics is of little use for policy-makers. Dismissing religious and cultural factors as irrelevant to economic decision-making, however, misses the deeper point. For the faithful life can have no meaning apart from through belief and simply striving for material…

CHAPTER 7: Islam and economic modernisation in Turkey

Although Christianity and Judaism were practised widely in the lands that were to be included in the Ottoman Empire, Islam was from the start its official religion. Its role became more important following the conquest of Constantinople, hitherto the centre for Orthodox Christianity, and the conquest of Arab regions of the Middle East, which were predominately Muslim. After the defeat of the Mamluks in Egypt, the Ottoman sultan took on the title of caliph, the title of an undisputed Muslim leader. Although this enhanced the status of Islam in the Ottoman Empire, it brought the clergy under the control of…

CHAPTER 8: The Islamic Republic of Iran’s nationalist economic model

Given the designation of Iran as an Islamic republic since the 1979 revolution, it would appear, at least superficially, to be the country best placed to have distinctive economic policies based on Shari’ah teaching. However, although the country is sometimes described as a theocracy, given the supposed power of the clergy, in the realm of economics at least this is far from being the case. The economic challenges from the Pahlavi era remained, notably how to diversify the economy away from oil and create a more sustainable development model.

The structures for governing the economy and determining policy continued as…

CHAPTER 9: The influence of the Muslim Brotherhood on Egypt’s economy

The Muslim Brotherhood has a long history in Egypt, having being founded by Hassan al-Banna in March 1928 in Ismailia, which was the location of the Egyptian headquarters of the Suez Canal Company.¹ There were many foreigners living in the town who were working for the company, and al-Banna disapproved in particular of the spread of British culture, which he viewed as being incompatible with Islamic values. Al-Banna was a schoolteacher and served as preacher at a local mosque. The Brotherhood was founded when he was asked to lead a group of Muslim workers dissatisfied with their employment and hostile…

CHAPTER 10: Piety, inclusion and materialism in Saudi Arabia 

Although Mecca and Medina were successful centres of trade at the time of the Prophet, much of what was to become the Kingdom of Saudi Arabia was until the 1950s a relative economic backwater. Prior to its unification as a state in 1933, the Arabian Peninsula comprised often warring tribal groups with an economy based on animal rearing, apart from the major area of settled agriculture in Azir in the southwest bordering Yemen. The tribesmen lived from day to day at a subsistence level with no investment that might have aided economic development. The discovery of oil in 1938 in…

CHAPTER 11: Faith and political economy in Pakistan and Bangladesh

Pakistan and Bangladesh emerged as a single country after the partition of India following independence in 1947. Partition was an attempt to split the subcontinent along religious lines, with East and West Pakistan predominantly Muslim and India predominantly Hindu. Given that religion was the rationale for the creation of these states, Islam might have been expected to play a major role in politics and economic policy, but in reality the influences on policy making were more complex. Religion may have shaped the identity of Pakistan and Bangladesh and determined the territorial boundaries, but neither country today could be classified as an…

CHAPTER 12: Asian versus Muslim identities in Malaysia and Indonesia

Islam spread to southeast Asia in the twelve and thirteenth centuries, the first notable conversion being by the ruler of Kedah, the northwestern Malaysian state, who abandoned the traditional Hindu faith. Other rulers on either side of the Straits of Malacca soon converted largely as a result of the increasing presence of Muslim traders both from south Asia and further afield in the Gulf. Like most states of the time, the social order was hierarchical, hence when the rulers converted, their subjects followed. By the time the Portuguese explorer Marco Polo arrived in 1292 Islam was well established. Arab traders…

Postscript

There are fifty-six member states in the Organisation of Islamic Cooperation, and this study could cover only a small proportion otherwise it would have become unwieldy. Nevertheless, most of the major states are included, the notable omission being the Maghreb economies where Islam plays a minimal role in public policy-making, even allowing for the influence of Islamists in post-Arab Spring Tunisia. States such as Syria and Iraq were not included as the situation was too chaotic in both countries to draw any conclusions about the impact of Islam on economic policy. These countries, together with Yemen, Somalia and perhaps Libya…

About the Author:

Professor Rodney Wilson was the founder of the Islamic finance programme at Durham University in the United Kingdom where he continues to be an Emeritus Professor. He was a Visiting Professor at the Qatar Faculty of Islamic Studies in from 2009 untill 2012 and since 2013 has been an Emeritus Professor at the International Centre of Education in Islamic Finance (INCEIF), Kuala Lumpur. Professor Wilson was awarded the IDB prize in Islamic banking in 2014 in recognition of his academic work on the subject.

Bibliographic Information

Title: Islam and Economic Policy: An Introduction

Author: Rodney Wilson

Publisher: Edinburgh University Press

Language: English

Length: 224 pages

ISBN: 9780748683888

Pub. Date: May 30, 2015