Articles on Islamic Economics

Importance of Worldview in Shaping Economic Choices

Salman Ahmed Shaikh

Famine, death from hunger and debt enslavement is the fact of life for the half of the people on earth not because that overall, the societies have scarce resources, but because the distribution of resources is inequitable as empirically proven by Nobel Laureate Amartya Sen and noted by Thomas Piketty in his recent book ‘Capital in the Twenty First Century’.

It is ironic that expenditure on reducing fat is more than expenditure on reducing hunger. Some sport stars and musicians earn equivalent sum as compared to some of the population of entire countries, but yet, what they provide in the market system is adjudged efficient allocation of resources as long as the other rich people can put up dollar votes for buying them at offered market prices.

Amartya Sen in his paper ‘Rational Fools’ asks what can or should make people more responsible? Can risk averse nature of humans in a ‘Rawlsian veil of ignorance’ framework be a sufficient mechanism in all cases to ensure equity? In a Rawlsian framework, since people do not know in which generation they will come in this world, they would try to adopt conservation of resources (if a pre-birth social agreement can be reached) so that they are not left with limited resources if they come in later generations. But, when people start making choices in this world, they are already in this world and will overuse resources which have rivalry, especially if there is no afterlife. Feature of rivalry means that what I obtain is not available for the others to obtain.

If all rational human beings must believe that this world is the only place where life will exist for a short period in this world alone for no other purpose than to satisfy as much of wants as possible, then it is all too rational to believe that altruism is nonsense.

That is why; it is not irrational to observe that capitalists in their “self-interest” will not reinvest profits in the same mode of production, but rather in labor saving technologies as in Lewis model.

It is not irrational for wealthy capitalists who in their “self interest” do not let the resources trickle down to masses if they can control legislation in capitalistic democracies.

It was not irrational that investment banks in their “self interest” did not use the bailout funds to open fresh credit lines to real sector in the recent financial crisis.

It is not irrational for investment banks to look at fee based income as incentive to keep on promoting and making market for standardized securities for sub-prime loans in their “self-interest” even if that increases systematic risk in financial markets.

Finally, it is not irrational for academics and Nobel Laureates to ignore these issues in their “self-interest” and go with the mainstream wind whatever that is in any period of time irrespective of its direction, implication and effectiveness for the society and the social problems of present and future.

Gregory Mankiw writes ‘People react to incentives, rest is commentary’ in his principles level book on economics. That commentary whether explained in a two-dimensional graph, calculus or real analysis, does not add any additional insight than the statement that ‘people react to incentives, are selfish, are greedy and the best one can do is to let them be and just believe that’.

This fundamental principle of economics is a trivial statement about humans where they are relegated to the state of mere animals, slaves of their base desires and incapacitated by their conscience and failed by even the call of teachers, preachers, prophets and scriptures to overcome the base instincts. Isn’t that mockery of all that we know as human?

We need a worldview that expands the responsibility of humans to society, future generations, and other living species on planet with accountability for every intentional act done by every human being. We need a worldview that regards humans as trustees for whatever material resources and mental faculties they come to possess in this world. We need a worldview or economic system that regards market as an instrument rather than give it the role of allocating every resource every way rich people with most dollar votes desire. That requires balance between socialism and unfettered market principles. Economists not only need to search for right policies, but also look at which institutions and worldviews can compliment them.

Islamic worldview based on Tawheed and belief in afterlife accountability deeply influences preferences, behavior and choices. It not only asks for change in some choices and giving religion a place in time and resource allocation, rather it presents a worldview where a human being is freed from following anyone except Allah and where a human being is equipped with spiritual rationality to act in ethical ways as an end in itself.

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