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Asked: Mar 30th, 2016

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11|2010 KAS INTERNATIONAL REPORTS 75

Fundamentals oF an IslamIc

economIc system compared to

the socIal market economy a systematIc overvIew

Volker Nienhaus

Underlying the scholarly interest in comparing economic systems is often a tacit suspicion that, in view of the arrested development of many Islamic countries, this religious worldview is seemingly incompatible with a market economy that promotes development. However, if we consider the attitude of the founders of the religions, Jesus and Mohammed, towards the economy and the teachings and practices during the early phase of the Christianity and Islam, it is actually quite surprising that Christians raise doubts about the compatibility of Islamic teaching with the market economy – from an historical perspective, the reverse would have seemed more appro- priate. On the other hand, we must remember that the social market economy is a concept that was created for highly developed and structurally differentiated economies only in the twentieth century in the Western world, where it has proved itself. In Islamic countries, most of which only gained their independence in the middle of the twentieth century, this concept was rather unknown.

In the light of the lasting development problems of many countries of the Muslim world – stretching from North Africa, across the Middle East to Southeast Asia – these states have by no means ruled out the search for economic concepts that promote development. Not least as a result of disappointment with the results of the capitalist and socialist economic systems, since the mid-1970s people have been progressively formulating ideas about an Islamic economic system, propagating them as an alternative to the unsatisfactory status quo. Against this backdrop,

Prof. Dr. Volker Nien- haus was President of the University of Marburg. He is now a visiting professor at the ICMA Centre, Henley Business School, University of Reading (United Kingdom).

KAS INTERNATIONAL REPORTS 11|2010

the earliest publications on Islamic economics did not originate from scho- lars at leading Islamic universities in the arabic core of the Islamic world, but rather from academics in asia.

Even the academic discipline of Islamic economics, which seeks to combine secular economic theories or (neoclassical) models with teachings from Islamic philosophy and law, is a relatively new phenomenon. The

therefore, it is worth investigating the general principles of the social market economy and their compatibility with such economic systems in order to share the experiences of our own economic system as part of the dialog surrounding development policy.

IslamIc economIcs and the General prIncIples oF an IslamIc economIc system

The task requires to compare an intellectual construct (an Islamic economic system) with a concept that exists in reality in different forms (the social market economy). By contrast, no modern state in the Muslim world has practi- cally implemented an Islamic economic system, perhaps with the exception of Sudan and Iran. The economic systems that exist today are more or less systematic advancements of systems installed as a secular sign after gaining independence in continuance of, or in a (revolu- tionary) triumph over colonial era systems.

earliest publications in this field did not originate from scholars at leading Islamic universities in the Arabic core of the Islamic world, but rather from academics in Asia. The efforts of Indian Muslims, beginning in the 1930s, to create a Muslim state on the former territory of British India following Britain’s withdrawal gave rise to intense debates about an Islamic economic system – or rather, debates about an economic system for an Islamic State. Although the new state of Pakistan was created in 1947 as a type of “Muslim nation state” in parts of former British India, it still had a very secular character and many questions on the appropriate economic system had still not fully been answered. The constitution of 1958 turned the state into the “Islamic Republic of Pakistan,” but this did not bring an end to discussions about economic policies that had been going on since the 1940s. Instead, it intensified them. People were looking for their own path, a path between Capitalism and Communism, which would also drive forward economic development. Most of the early treatises

11|2010 KAS INTERNATIONAL REPORTS 77

on Islamic economics (right up until the 1960s), which have been reprinted and are still cited today, were written against this backdrop.1 Similar discussions also took place in the Arab world in connection with the withdrawal of European colonial and mandatory powers from the middle of the 1950s onwards – without the context of founding an “Islamic” state.

During this early phase, many models had socialist traits: the models of “Islamic Socialism” were based on a redis- tributive state, which heavily controlled the economy. Thus, they contrasted starkly from laissez-faire

capitalism. However, for the most part they
did not question private ownership of the
means of production – a significant difference
compared with “godless” Communism. These
models could be described as variations of
Market Socialism. References to Islamic
teachings and, in particular, to the commercial law aspects of Shariah were often only cursory or cosmetic and served more to legitimize and mobilize than provide a conceptual foundation. With the continued “academification” of liter- ature, the increasing involvement of experts in Islamic law and more intense international discussions about Islamic economics, it has become clear that dominant control of the economy does not agree with private property and a market-based system, and that prevailing attitudes are increasingly moving towards a competitive economy with a state that primarily seeks to ensure monetary stability, proper competition, and a basic infrastructure (transport, education, healthcare, legal system). Such a state should pay particular attention to ensuring that income and wealth do not become too concentrated, especially in poorer countries, and initiate programs to fight poverty.

Over the past decade, public duties (both of society and the state) have broadened to include safeguarding sustainable economic activity and protecting the environment. Finally, the state should create favorable framework conditions for a private economy consistent with the requirements of Islam, something which can have particular implications

1 | For an overview of early literature, see Muhammad Akram Khan, Islamic Economics: Annotated Sources in English and Urdu (Leicester: Islamic Foundation, 1983).

references to Islamic teachings and, in particular, to commercial law aspects of shariah were often only cursory or cosmetic and served more to legitimize and mobilize than provide a conceptual foundation.

78 KAS INTERNATIONAL REPORTS 11|2010 Religion(en) Systeme der umfassenden Weltdeutung

Ideologien

for bank supervision and central bank policy in an interest- free financial systeRmec,htfor example.

Fig. 1

Moral Handlungsmuster

Tradition/Kultur MarktwirtschaftIslamic concepts of a market economy between economics and law

Secular Economics

Principles

Systems Design

Rules

Fiqh (Jurisprudence)

Islamic Economics

Quran

Sunnah

Shariah (Islamic Law)

Concept of Market Economy

Contemporary application of/ addition to Shariah

The preScviaenlecent doctrine ofIIdseloalomgyic economics tRoedligaiyoncan be summarized as follows:2

Prescriptiveness Mobilization

Islamic Economic System

▪ Islam conveys a positive outlook on this life in general and provides a supportive value system for economic

Functionality Open and Competitive Markets, Legitimacy Competition Policy

activities in particular.

Financial and Monetary Economy

▪ Islamic economic ethics exhibits considerable overlap

▪ Prohibition of ribawith Western▪-SCthabrilsetmiaonneyp(egroclde,p1t0i0o%ns, ...?i)n the field of

Individual and Social Security

individual ethics. Great importance is ascribed to personal achievement. ▪ zakat (social security contributions)

▪ takaful (mutual insurance) ▪IndividualsareSteaxtepaencdtethdetPoubelaicrSnectthoeriErcloinvoinmgythroughtheir

▪ Legal frameworkown work. A person’s own achievement (physical and

▪ Infrastructure, environmentintellectual wo▪rPku)blicsgtohoeds,mcorsretctimionpsoorftant basis for legiti-

Perspektive

market failure

mately obtaining material goods and wealth.

System-/Entwicklungs- kommerzielle Perspektive

2 | Cf. Khurshid Ahmad (ed.), Studies in Islamic Economics▪ überlegene Stabilität in der 2010 ▪ Expansion und Ausdifferenzierung

(Leicester: Islamic Foundation, 1980); Aidit Ghazali and Syed

Finanzkrise des islamischen Finanzsektors,

Omar (eds.), Readings in the Concept and Methodology of ▪ islamische Mikrofinanz und aktive Beteiligung westlicher

Islamic Economics – Translating Islamic Principles into Socio-

finanzielle Inklusion 2000 Banken, wachsendes Interesse

Economic Realities (Petaling Jaya: Pelanduk Publishers, 1989); nicht-islamischer Länder

Ausaf Ahmad and Kazim Raza Awan (eds.), Lectures on1990 ▪Malaysia:vonderPro-Bumiputra-

Islamic Economics (Jeddah: IslaPmolitcikRzeusmeadrucahleannFdinTarnazisneinktgor ▪ IslaImnistiietrutneg, v1o9n92Fi)n;aMnz.- Umer Chap(rBaa,nTkheen,FKuatpuitraelmoaf rEkct,oTnaokmafiucls,:

systemen: Pakistan, Sudan, Regulierung etc.)

An Islamic Perspective (Leicester: Islamic Foundation, 2000); Iran ▪ Finanzdienstleistungen für

Richard C. Foltz, Frederic1k98M0. Denny and Azizan Baharuddin

(eds.), Islam and Ecology: A Bestowed Trust (Cambridge,

▪ abstrakte Modelle einerMass.: Harvard University Press, 2003).

Erfolgsbeteiligungswirtschaft 1970 ▪Petrodolla