Friday, October 10, 2008

Islamic Economics : How Far Have We Gone?


Introduction

Islamic economics had been developing gradually as an interdisciplinary subject in keeping with the Islamic worldview in the writings of Qur'an commentators, jurists, histo­rians, and social, political, and moral philosophers. While some may disagree, I do believe that despite the extraordinary achievement that Islamic economic has made over the last three decades, the development process of Islamic economics as a scientific discipline has a long way to go in order to offer a complete and comprehensive economic system. Therefore, it is yet still could not be a viable alternative to conventional economics.

A large number of scholars, including Abu Yusuf (d. 798), al-Mas'udi (d. 957), al-Mawardi (d. 1058), Ibn Hazm (d. 1064), al-Sarakhsi (d.1090), al-Tusi (d. 1093), al-Ghazali (d. 1111), al-Dimashqi (d. after 1175), Ibn Rushd (d. 1198), Ibn Taymiyyah (d. 1328), Ibn al-Ukhuwwah (d. 1329), Ibn al-Qayyim (d. 1350), al-Shatibi (d. 1388), Ibn Khaldun (d. 1406), al-Maqrizi (d. 1442), al-Dawwani (d. 1501), and Shah Waliyullah (d. 1762), made valuable contributions over the centuries. These scholars were, however, not specialists in economics. Strict compartmentalization of disciplines had not developed by then. They were masters of a number of different intellectual disciplines, and their contributions are, therefore, spread over a vast literature, some of which has been lost because of the vicissitudes of time and a wave of invasions particularly by the Mongols.
[1]

In 1975, “Islamic Economics” came into light after the international conference made in Makkah on the subject. This conference and several follow-up conferences and seminars motivated several Muslim economists and even some non-Muslim economists to explore the theory of Islamic economics and economic system that teachings of Islam entail. The results show that it has made substantial progress as a scientific discipline and nowadays Islamic economics and finance are taught at several universities, not only in Muslim countries but also in the West and among the most prestigious universities.It just that after a few decades of development and growth in Islamic economics, people starts to realize there are some problems that need to be fix in order for Islamic economics to have a strong foundation.


The problems in present state of Islamic economics

Among the problem that we could see in the present state Islamic economics are some barriers that occurred in building the Islamic economics. The spiritual barriers face by Muslims nowadays also lead to the failure of development Islamic economics because as we can see nowadays there are still many Muslim that is not aware with the Islamic economics.

Moreover, we are still in need of human capital that understand Islamic economics and could strive together in developing the Islamic economics. Most Muslim nowadays is psychologically defeated when we talk about the objective and goals of an Islamic economics system. This is because we are trapped in the conventional system for centuries and to revive it is something impossible to certain people, there are also people who downgraded the effort of striving for Islamic economics.
As a result, Muslim leaders all over the world have been faced with the problem with the problem of diagnosing the cause of the ills of Muslim society and prescribing cures. An inferiority complex has led them to imitate Europeans without critical thought about those aspects of European knowledge, technology and institutions which are relevant and useful for us.
[2]

Besides that, Islamic economics nowadays is too focusing in Islamic banking and finance. When we say about Islamic economics, most of the Muslim will still start to think about Islamic banking. According to Dr. Khaled A. Hussein (2007):
A large part of those economists who have or had the ambition to develop a scientific theory of Islamic economics and development of an Islamic economic system are not very appreciative of directions in which Islamic banking system has developed itself. They do not see a direct relationship in this development and the claim that Islamic economics promises a paradigm to give a better economic future to mankind. The fundamental pillars of Islamic economics like emphasis on economic justice, endogenizing Islamic ethics into objective function and market behavior, significance of risk sharing in developing productive organizations etc. are hardly visible in the development of Islamic banking(p.57).

Even the progress of Islamic banking in the last thirty years is unprecedented, what we can see nowadays there are many issues arising and objections occurred. Most of it relates to the Shari’ah issues regards to the products promotes by the Islamic banks. While in Islamic Economics, with its concern for justice, equity, poverty, and its multidimensional conception of human development represents a paradigm shift and a radical alternative to conventional neoclassical views. Dr. Asad Zaman (2008) said:
Numerous papers introduce Islamic concepts entirely within a neoclassical framework, or else make minor adjustments to it, and therefore cannot from a basis for a paradigm shift. Another set of papers discusses the radical concepts offered by Islam in a general philosophical way, without offering any means of operationalizing these concepts (p.2).

Dr. Asad Zaman (2008) is among the scholars in Islamic economics that believe that we should have our own framework instead of imitating the Western style of economics. Among the points that he pointed out in most of his papers is that Islam urges the feeding of the poor, and condemns those who do not do this, Muslim economists have brought up the issue of poverty in their writings well before mainstream economics were paying attention to it. However we have participated only marginally in the huge literature which has since developed ­literature on basic needs, measurement of poverty. From my opinion, because of too focusing in Islamic banking makes we neglect other elements that are also important in the development of the Islamic economics as a whole.

The future role of Islamic economics

From my humble opinion, the development of Islamic economics can be taken by improving three things, which are increase the awareness of the needs of Islamic economics in education, re-establishing zakah institution, and unite the trading system among Islamic countries.

Awareness of the needs of Islamic economics in education
Nowadays, many people do not really understand what Islamic economics is. They think Islamic economics is just about the transaction that is free from riba. In fact, they also do not know what is riba really is? Hence, to understand the term Islamic economics is very important. Again, Islamic economics also did not just deal with Islamic banking alone, it covers every aspect of human life. Therefore, there should be awareness among Muslims to show the need of Islamic economics in our daily life.

In addition, from academics perspective, we have to establish our own Islamic knowledge. In simple word, the Islamic scholars should produce more books and papers regarding education. Moreover, the books and papers should be written in Islamic ways, which does not neglect the standing of Al-Qur’an and Sunnah. The observation show that the students are still dependence on the western scholar’s writing because of the small amount of books and papers regards to Islamic economics. The dependence towards western scholar’s writing may influence us. That is the reason why we are in need of the islamization of knowledge as what mentioned by Ismail Faruqi in his framework.

An important part of the future agenda should be to write systematic and uninterrupted history of economic thought in Islam. There is also need to prepare textbooks on the subject to fulfill the growing needs of the departments of Economics in the wake of introducing study papers on the history of Islamic economic thought at the under graduate and graduate levels. Through education we may increase the number people who will strive for the implementation of Islamic economics. It is the time for us to return to the glory time of Islam where people from the western and all over the world are using our Muslim scholar’s writing in studies.

Re-establishing Zakah institution
Besides that, among the measure that need to be undertaken to ensure the future development of Islamic economics is regards to the religious and historical Islamic institutions, Zakah institution. Zakah institutions are among the priorities that we should not neglect. The religious and historical Islamic institutions, Zakah are focusing on Islamic economics, rather than merely finance which will take care of it if we define proper economic objectives.

The suggestion is not both denying the importance of Islamic banking and finance, or an effort of abandon Islamic banking and finance. It is more towards improving both institutions administration without neglecting Islamic banking and finance role. The importance Islamic teachings place a lot of emphasis on spending in the path of Allah. Muslims have not made any systematic study of charity behavior of Muslims, nor have they made any comparative studies of Muslim and non-Muslim societies with regard to charity contributions.
[3]

The problems occurs in some Islamic countries nowadays are relates to the administration of the Zakah. This happened because most of the administrators are subjected to some rules and regulations, procedures and so forth. In addition, the poor administration shown by some of the Islamic countries lead to the lack of effectiveness in showing the effects of Zakah in eradicating the poverty in Muslim countries.

Due to a variety of eroding factors, the institution of zakah, which once provided an economic safety net to society, has lost its meaning. Today, it has an ad hoc and irregular function reduced to almost a ritual practiced individually by a small minority of Muslims. Many who pay zakah, unfortunately, do not even know how to accurately calculate it, let alone its potential economic impact on society.

As Zakah institution nowadays, what could we see from the administration itself where there are too many procedures that the recipients of Zakah have to go through to get their right on the Zakah. More disappointing is when the money allocated for the recipient did not really help them and only enough to survive until next year if they are lucky. As a result, the condition of the recipients of Zakah is still unchanged while the cost of living is rising from time to time. Most countries failed to establish real distribution of zakah. For instance, in Pakistan, the study by foreign expert explained that approximately 63% of the zakah collection in this country is keep idle. In the same word, most of the zakah collection in Pakistan did not reach the zakah recipients. Actually, this part of zakah distribution is the most important part in developing Muslims countries for eradicating poverty as well as establishing equitable distribution of income. Hence, when this problem rises, once again we have problem in developing Islamic economics.

That zakah is universal in its scope can be seen in the manner in which it is collected and distributed. After providing for the needs of eligible kin, the zakah fund is designed to cover the needs of those who live in the community where zakah is collected and then to those eligible recipients living in the county, state, country, and finally the world at large. Through accumulation of surplus in zakah funds during prosperous years, the institution of zakah provides necessary contingency funds during depressed economic conditions when zakah revenues may not be sufficient to meet the required needs of the society. The levy of zakah, particularly on the idle portion of an individual’s wealth, induces the zakah payer to seek a return on his wealth at a rate at least as high as the rate of zakah, so as to be able to pay zakah without reducing his/her wealth.
[4]

In this context, we may recall that in Madinah and Basra during the caliphates of Umar ibn Al-Khattab and Umar ibn Abdul Aziz (717-720 CE.), respectively, there were years when there was a surplus in the zakah fund but no eligible recipients to receive it. We may not attain this ideal condition within a projected ten-year period as suggested in this example, but we would certainly be on the road for reaching contentment. The institution of zakah when fully operational would become a fountain of economic harmony and contentment.

Gold Dinar: Unity in Trade among OIC countries
Besides improving the Zakah institution, another measure that should we take into consideration to ensure the development of Islamic economics is regarding the unity between Islamic countries itself. Trade is one of the main vehicle for da’wah activities for the spread of Islam from Andalusia in Spain to the Cape of Good Hope in Africa and to the Malay Peninsula. It is a fact that the volume of trade among Islamic countries, before the Western colonization began, was at a very healthy level. However, after the Industrial Revolution, Islamic countries has been colonized by the West and ruled with the objective of supplying raw material to satisfy the Western. Therefore, trade among Islamic countries began to deteriorate. Today trade between Muslim countries is small. It is not suggested that we reduce our trade with the non-Muslims. But we should endeavor to increase the trade between Muslim countries.
[5]

That is the reason why Malaysia's fourth Prime Minister, Tun Dr. Mahathir Mohamad is among the pioneer who proposed the use of Gold Dinar between the Organizations of the Islamic Conference (OIC) countries to bring about greater unity among the Islamic countries. The underlying basis of this greater sense of unity will be trade. The urge of using gold dinar is not only among the Muslim but also from the Non-Muslim. In addition there are many Non-Muslim economists that wanted the medium of exchange is made from the gold or silver because of their understanding of the stability and so forth. Some of them argue that the major reason why they are some people did not want to use gold and silver as medium of exchange; it is not because lack of technical expertise but it is because the gold and silver could overtake the nowadays monetary system.

Therefore we should support the effort and attempt of the Muslim economist to bring back the usage of gold and silver as the medium of exchange and units of account so that the economic could be more just. The Malaysia consul at the Organization of the Islamic Conference (OIC) to bring back the usage of the gold and silver is not to raise popularity but it is the matter a fact of responsibilities of bringing back the understanding and realization regarding the usage of dinar and dirham towards the Muslims as an exchange from nowadays monetary system.

It is for the betterment of the Ummah that should be fight for by all of us, if the Europe country could use their own currency which so called Euro,why can’t the OIC’s countries use Islamic dinar as the currency? The continued dependence of the Islamic countries on the West can be illustrated by the following:
(i) The intra OIC trade is only 12% of the total trade of the OIC countries. In other words, the trade of the OIC countries with the non-OIC countries is 8 times the size of the intra-OIC trade.
(ii) The total volume of the trade of OIC countries is only 7% of the total international trade, although 60% of the natural resources of the world are found in the OIC countries.
(iii) Lebanon and Turkey export butter to Belgium, the United Kingdom and some other European countries, while Iran, Pakistan and Syria import butter from Europe.
(iv) Egypt is a big export of textile, but Algeria, Indonesia and Iran purchase textile from Europe.
[6]

As we can see from the example given above, there is no unity in Islamic countries in terms of trading system. We could see Lebanon and Turkey rather export butter to Belgium, the United Kingdom and some other European countries rather than trade with Iran, Pakistan and Syria. In addition, Algeria, Indonesia and Iran rather purchase textile from Europe instead of purchase it straight with Egypt. If only we can start to trade among ourselves, without using the Western countries as intermediaries, we can substantially increase the volume of such trade based and bring about greater prosperity among the OIC countries. This will create a virtuous cycle.

As a result, the developing countries must come together to help each other to grow and develop, by buying and selling more from each other and minimizing the use of the currencies of the developed countries for settlement of the intra developing country trade. We should use our surpluses to finance each other. This is the ultimate objective of the Gold Dinar proposal.

Conclusion

In conclusion, in this era of development and growth in Islamic economics, while we celebrate the achievements of the Islamic economics, we should not ignore other relevant issues and objections in order to ensure that the Islamic economics has a strong foundation.

We should first try to understand the need in Islamic economics for the betterment of the ummah. Thus any actions to achieve the goals and objectives of an Islamic economic system will be rewarded by Allah Subhanallahu Ta’ala. As a true Muslims, we should strive to develop the Islamic economics. We need to focus more on the Islamic part that has been forgotten for many years. Conclusively, each and every Muslims must cooperate in this matter to materialize the true Islamic economics.

A new perspective in implementing the justice of Islamic economics in this era of globalization should be done comprehensively. The glory of Islam depends on the scholars from all aspect of life. Islamic economics has been accepted as a discipline in its own right. What we need today is to apply it on a massive scale to solve the problems of Muslim societies as well as humanity at large.

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References:
[1] M. Umer Chapra (2000).Is it necessary to have Islamic economics?. Journal of Socio-Economics. 29, 21-37.
[2] Khaled A. Hussein. Islamic Economics:Current State of Knowledge and Development of the Discipline. Retrived July 31, 2008, from http://islamiccenter.kaau.edu.sa/7iecon/English/Englisg%20Papers/%5B06%5D%20K.Hosain.pdf.
[3] Zafar Sareshwala. The Institution Of Zakat and its Economic Impact on Society. Retrived August 16, 2008, from http://www.islamicequity.co.in/admin/adminfiles/articals/zakat_economic_systemfinal.pdf.
[4] Tun Dr. Mahathir Mohamad.(2002, April 29). The Gold Dinar in Multi-Lateral Trade Seminar. Retrived October 02, 2007, from http://www.lariba.com/knowledge-center/articles/pdf/Mahathir%20%20Gold%20Dinar%20Speech%20PM.pdf
[5] Ahamed Kameel Meera. (2004). The Theft of Nations – Returning to Gold. Kuala Lumpur: Pelanduk Publications. pg. 168.
[6] Tun Dr. Mahathir Mohamad.(2002, April 29). The Gold Dinar in Multi-Lateral Trade Seminar.Retrived October 02, 2007, from http://www.lariba.com/knowledge-center/articles/pdf/Mahathir%20%20Gold%20Dinar%20Speech%20PM.pdf
· Dr. Asad Zaman. (June, 2008).An Islamic Critique of Neoclassical Economics. IRI Journal Islamic Studies.

*THIS PAPER WAS PREPARED TO FULFIL THE REQUIREMENT OF ECON 4510 ‘ISSUES IN ISLAMIC ECONOMICS’ IIUM.


Ibn Yusof
11 October 2008 / 11 Syawal 1429
1.45 a.m

3 comments:

Rausyanfikir said...

I think the down side of Islamic economic is the neglection of its philosophical framework. A solid Islamic world view must be build in the first place and being injected into the current discourse of economic. By doing that we can distinguish clearly what is 'al-haqq' in economics and what is not.

Wallahuaklam.

Ibn Yusof said...

I do agree with your opinion where i think similar with some of economic scholars when they critisized islamization efforts. This is because the islamization efforts were dominated by political expediency, and plus islamic economics literature for lacking a philosophy consistent with the Islamic world view and its economic vision.

p/s: From my reading and learning with Prof Mohamed Aslam Haneef ,he added methodology besides philosophy.

senikehidupan said...

A very good article. May I ask your permission to copy 'Zakah' column and translate it for education purpose?