by Daniel Pipes
Jerusalem Post
September 26, 2007
http://www.danielpipes.org/article/4973
While the outside world hardly noticed, a significant and rapidly growing
amount of money is now being managed in accord with Islamic law, the
Shari'a. According to one study, "by the end of 2005, more than 300
institutions in over 65 jurisdictions were managing assets worth around
US$700 billion to US$1 trillion in a Shari'ah-compatible manner."
Islamic economics increasingly has become force to contend with due to
burgeoning portfolios of oil exporters and multiplying Islamic financial
instruments (such as interest-free mortgages and sukuk bonds). But what
does it all amount to? Can Shari'a-compliant instruments challenge the
existing international financial order? Would an Islamic economic regime,
as an enthusiast claims, really imply an end to injustice because of "the
State's provision for the well-being of all people"?
Timur Kuran, professor of economics and political science at Duke
University.
To understand this system, the ideal place to start is Islam and Mammon, a
brilliant book by Timur Kuran, written when he was (ironically, given
heavy Saudi backing for Islamic economics) King Faisal Professor of
Islamic Thought and Culture at the University of Southern California.
Now teaching at Duke University, Kuran finds that Islamic economics does
not go back to Muhammad but is an "invented tradition" that emerged in
the 1940s in India. The notion of an economics discipline "that is
distinctly and self-consciously Islamic is very new." Even the most
learned Muslims a century ago would have been dumbfounded by the "Islamic
economics."
The idea was primarily the brainchild of an Islamist intellectual,
Abul-Ala Mawdudi (1903-79), for whom Islamic economics served as a
mechanism to achieve many goals: to minimize relations with non-Muslims,
strengthen the collective sense of Muslim identity, extend Islam into a
new area of human activity, and modernize without Westernizing.
As an academic discipline, Islamic economics took off during the
mid-1960s; it acquired institutional heft during the oil boom of the
1970s, when the Saudis and other Muslim oil exporters, for the first time
possessing substantial sums of money, provided the project with "vast
assistance."
Proponents of Islamic economics make two basic claims: that the prevailing
capitalist order has failed and that Islam offers the remedy. To assess
the latter assertion, Kuran devotes intense attention to understand the
actual functioning of Islamic economics, focusing on its three main
claims: that it has abolished interest on money, achieved economic
equality, and established a superior business ethic. On all three counts,
he finds it a total failure.
1) "Nowhere has interest been purged from economic transactions, and
nowhere does economic Islamization enjoy mass support." Exotic and
complex profit-loss sharing techniques such as ijara, mudaraba, murabaha,
and musharaka all involve thinly disguised payments of interest. Banks
claiming to be Islamic in fact "look more like other modern financial
institutions than like anything in Islam's heritage." In brief, there is
almost nothing Islamic about Islamic banking – which goes far to explain
how Citibank and other Western majors host far larger Islam-compliant
deposits than do the specifically Islamic banks.
2) "Nowhere" has the goal of reducing inequality by imposition of the
zakat tax succeeded. Indeed, Kuran finds this tax "does not necessarily
transfer resources to the poor; it may transfer resources away from
them." Worse, in Malaysia, zakat taxation, supposedly intended to help
the poor, instead appears to serve as "a convenient pretext for advancing
broad Islamic objectives and for lining the pockets of religious
officials."
3) "The renewed emphasis on economic morality has had no appreciable
effect on economic behavior." That's because, in common with socialism,
"certain elements of the Islamic economic agenda conflict with human
nature."
Kuran dismisses the whole concept of Islamic economics. "[T]here is no
distinctly Islamic way to build a ship, or defend a territory, or cure an
epidemic, or forecast the weather," so why money? He concludes that the
significance of Islamic economics lies not in the economy but in identity
and religion. The scheme "has promoted the spread of antimodern … currents
of thought all across the Islamic world. It has also fostered an
environment conducive to Islamist militancy."
Indeed, Islamic economics possibly contributes to global economic
instability by "hindering institutional social reforms necessary for
healthy economic development." In particular, were Muslims truly
forbidden not to pay or charge interest, they would be relegated "to the
fringes of the international economy."
In short, Islamic economics has trivial economic import but poses a
substantial and malign political danger.
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