Methodological Framework for Studying Consumption in Islamic Economics


Salman Ahmed Shaikh

There is considerable debate in Islamic economics literature on what shall be the correct response and attitude towards mainstream economics methodology. There are three varied responses among Islamic economists regarding the issue. The first response is to use the methodology of mainstream economics in Islamic economics as is. The second response is to modify it according to the needs and the context of Islamic framework. The third response is to discard it altogether and devise a new methodological framework from scratch. Haneef and Furqani (2011) raise a pertinent point that the choice of methodology shall depend on whether the purpose of the analysis is to understand, explain and predict or to persuade and transform the individuals.

Hasan (2016) emphasizes that Islamic economics is a social science; it is not theology. Addas (2008) argues that Muslim economists who favour discarding neoclassical economics methodology altogether had by and large misunderstood the purpose of economic theorizing. According to Addas (2008), the purpose of economic theorizing is to provide a framework as a foundation for understanding demand and supply behaviour in markets. Thus, the mainstream consumer theory does not attempt to define the purpose of life in its objective function, but a framework to explain response in choice variables due to changes in some relatively more important and measurable parameters. Thus, it will be inappropriate to compare the economic objective defined for the purpose of description of specific choices and outcomes in markets with the lifetime objective advocated by the Islamic worldview. Shamim A. Siddiqui (2012) explains it further by arguing that demand and supply framework has remained a useful tool in guiding different sectors of the economy and economists. According to Shamim A. Siddiqui (2012), there is no alternative apparatus that provides a better explanation of exchange values in market economies. Ahmed (2002b) argues that no substantiated alternative analytical models have been developed despite the assertion of some Muslim economists that there should be one.

The difference of opinion is also partly caused by the varied understanding on self-interest and selfishness, i.e. whether all self-interested behaviour is similar to selfish behaviour or not. Hasan (2002) thinks that the pursuit of self-interest should not be equated with selfishness. According to Hasan (2002), self-interest can be pursued along with sympathy and benevolence. Hasan (2009) contends that self-interest can be pursued within the ambit of morality, whereas selfishness would always violate it. Nejatullah Siddiqi (2012) also shares this line of thought and maintains that self-interest does not necessarily imply greediness or selfishness.

Hasan (1985) contends that a rational consumer allocates income among various uses in such a way that his satisfaction is maximized. These uses may serve materialistic or ethical desires. In another work, Hasan (2002) contends that maximization, per se, is not un-Islamic; what is maximized, how and for what purpose are the real issues to investigate. He prefers to include moral values and social considerations of Islam in the assumptions of economic theorems, rather than in the objective elements of the model. Hasan (2002) thinks that maximization as a notion is value neutral and the indiscrete condemnation of maximizing behaviour in Islamic economics is untenable. Mahdi (1984) clarifies that according to modern theory, it does not matter whether a consumer is a miser, spendthrift or a hoarder. Also, it does not matter what cultural values or religious preference he/she has. For example, according to modern theory, a Muslim consumer whose marginal utility for Hajj is far greater than his marginal utility for a new car is perfectly rational by deciding to spend his money on Hajj rather than on a new car even though all his satisfaction is spiritual. One of the pioneer Islamic economists, Kahf (1996, p. 34), writing on this theme gives following suggestion:

“There are small matters which are common to all members of the human race regardless of their faith and views. These common matters must be treated as value-neutral. Consequently, many of the minute instruments and premises of analysis fall in the latter category and should be considered value neutral for all practical analyses.”

Nejatullah Siddiqi (2012) thinks that rejection of old knowledge has no basis in Al-Quran and Sunnah. Khan (1987) also argues that Islamic economics cannot discard the valuable insights of modern economics by a simple stroke of disgust. Khan (1987) maintains that some of the findings of Western economics are based on the study of human nature, which may be the same everywhere and for all times. Nejatullah Siddiqi (2001) reveals that the Islamic tradition in economics has always been free of formalism, focusing on meaning and purpose with a flexible methodology. In this regard, Rashid (1991) recommends that an empirical approach will broaden the scope of Islamic economics and increase its interaction with others. Tag el-Din (2012) also favours flexibility and thinks that contextual interplay of positive and normative statements is indispensable for the understanding and promotion of Islamic economics. Farooq (2011) thinks that there is a role for both normative standards toward which Islam calls mankind and the understanding of human behaviour as human nature from a positivist angle. Sharing the same line of thought, Hasan (2017) thinks that it is not enough to just take a puritan approach, assuming as if an Islamic socio-economic order is already in place.

Zaman (2005) argues that consumer sovereignty represents the resolve not to judge or to attempt to change these preferences. If the mainstream economics framework disregards ethical and moral choices or preferences, then it will be going against the very concept of consumer sovereignty. From the Islamic perspective, the consumer is not sovereign and has to follow the Islamic injunctions of avoiding prohibited goods, services, trades, contracts and behaviours like conspicuous consumption, envy and wastage. Islam encourages pure altruism, moderation, self-less spending of surplus endowments and choosing only the Halāl means of earning non-labor income from Shari’ah compliant financial investments. For the test nature of this worldly life in the Islamic worldview, humans do have a temporal choice given by Allah to behave in compliance with Islamic injunctions to a full, large, small or no extent. In this regard, when a study is conducted towards understanding the actual human behaviour in consumption, the anticipation for obtaining descriptive results should also be flexible. Khan (1985) argues that it is unrealistic to think that a community of saints can be attained. If such were the case, it would be possible for example to say that hoarding and luxury consumption cannot be problems since they have been forbidden by Islam. Saud (1992) emphasizes that even when all the Islamic laws are applied in every domain of life, the individual will still commit mistakes. The impulse towards less ideal behaviour which influences choice should not be belittled or denied.

Nejatullah Siddiqi (2014) writes in his critical evaluation of Islamic economics literature thus far that there was a clear tendency to overestimate the power of good intentions and to ignore the tenacity of material interests. Nejatullah Siddiqi (2014) concludes that the end result has been unrealistic utopias. Khan (1987) thinks that the idealism of Muslim economists has also done some harm to the scope of Islamic economics. Khan (1987) laments that since the analysis is perceived in ideal Islamic conditions, most of the real world problems are simply assumed away. Shafey (1983) thinks that Islamic economics in its primary concern with ‘what ought to be’ cannot ignore ‘what is’ the actual reality in a given time and place. One of the pioneer Islamic economists and IDB Laureate, Nejatullah Siddiqi (2008) is frustrated with self-imposed alienation in academic research on Islamic economics. Nejatullah Siddiqi (2008, p. 89) writes:

“Our fixation with a particular history not only alienates us from current reality, it also isolates us from the rest of humanity. It reinforces Muslims’ sense of being different from others to undue proportions, making frank, sincere outreaching and interaction almost impossible. The normal process of learning from others’ experiences and contributions is replaced by, at the least, indifference and apathy, and often by suspicion and hostility. No wonder we get the same in response.”

Khan (2013) is another staunch critic of mainstream economics and favours discarding mainstream methodology to replace it with a biological approach of harmonious interrelationships of different parts of the whole. His approach is another way to explain the ideation rather than the real world behaviour where one cannot ignore the encounter with frictions, disequilibrium, traps and transition paths. Khan (2013) argues that the mainstream economics tools are valid for analysing animalistic desires and degrade humans to lower order animals. Yousri (2013) in his response to Khan (2013) asks why or how satisfaction (or even maximization of human beings supposedly in a Halāl manner (within Shari’ah boundaries) would downgrade humans to lower order animals?

Other Muslim economists like Khan (1987) suggest that Islamic economics should not set aside the western economic thought which accumulated over centuries. Instead, with a modesty of a learner, one should cast a critical look on this pool of knowledge and should try to identify and isolate those components of thought which do not conflict either with the hard core of Islamic economics or with the rational and empirical criteria. He thinks that it would be the arrogance of the first order if Muslim economists and scholars dismiss the entire economic thought as un-Islamic.

One of the early writers in the Islamic economics literature, Kahf (2003) thinks that Islamic economists may have to redefine a few fundamental concepts of economic theory, but they do not need to negate its inductive methodology and tools of analysis on any ideological ground. Kahf (1980) sees a strong need for empirical studies which analyse the actual data to further contribute to research on economic potential and inter-linkages of Islamic institutions. Kahf (1992) argues that critical literature in Islamic economics on mainstream consumption behaviour is directed at the consumer values rather than at the tools of analysis. He reasons that tools can be used with alternate ideological basis.

Zarqa (2003) also explains that Islamic economics has a function distinguishable from that of Fiqh. It has a function to describe and diagnose real events, discover the relationships that link the various economic phenomena and to seek the economic rationale of Shari’ah rules. Zarqa (2003) does not hesitate to hold in error those who define Islamic economics in such a manner as to strip it from its descriptive content and make it synonymous to the jurisprudence of transactions. Saleem (2010) explains that the methodologies of Fiqh and Islamic economics also differ as the former focuses on prescriptions. It prescribes what an individual should do or avoid. In contrast, Islamic economics is more concerned with describing economic phenomena. Islamic economics in its search for finding the truth should rely on a methodology that suits its social and descriptive nature. Islamic economics can adopt methods of reasoning and analysis developed by conventional economics. Khan (2014) in his recent work suggests that Islamic economics should not feel shy of adopting and using tools of analysis used by conventional economics or other contemporary social sciences. These tools are available in the present form after centuries of thinking and experimentation and are a common heritage of the humanity.

Various Muslim economists recommend descriptive studies in the transitory stage of transformation rather than sitting content with only repeating the idealistic vision of Islamic teachings. Furqani (2015) argues that both microeconomics and macroeconomics become neglected and not properly explored as more resources, thinking and funding, have been mainly put in the sector of Islamic banking and finance.

Arif (1985) suggests that the human behaviour should be duly recognized as the basis of the micro foundations of Islamic economic system. Nejatullah Siddiqi (2008) thinks it will do no harm to know the current state of affairs thoroughly. That needs to be done with regards to individual behaviour in all aspects relevant to economics. Addas (2008) also sees no reason why Islamic economics should concentrate on normative goals to the exclusion of how the economy is in fact working. Addas (2008) contends that the failure to understand this has often led Islamic economists into rhetoric and a self-righteous mode. Azid (2010) thinks that Islamic economics system is not centrally planned and hence, it is very strongly affected by the behaviour of its individual economic units. Hassan (2017) argues that micro analyses of consumption provide the necessary foundation for dealing with the phenomenon at the macro level. Nejatullah Siddiqi (2014) holds it valuable if Islamic economists could explore the extent to which Muslims in various regions of the world are able to realize the Islamic economic goals. He thinks that even the instances of poor performance would have lessons to learn from. Jafari et al. (2011) agree that due attention shall be given to Muslims’ daily life practices in academic research. Finally, Hasan (2002) too wishes that an exploration of the life-cycle hypothesis or permanent income hypothesis for consumer behaviour from an Islamic viewpoint may prove to be rewarding. Hasan (2017) emphasizes that understanding consumption is of greater importance since production theory is more related to the use of technology and organization of factors of production.

What can be concluded from the above discussion? As argued by Haneef and Furqani (2011), the objective of the analysis is vital to know and determine beforehand. Table below discusses whether both the frameworks have any compatibility if the objective of the analysis is to understand the consumption behaviour.

Points of Compatibility in Intertemporal Consumption Framework

Mainstream Economic Framework

Islamic Framework

Desirability for consumption smoothing. Encouragement for Wasatiyyah (moderation), which in one sense is also consistent with smooth intertemporal consumption.
People plan and save for contingencies, post-retirement life and to leave bequests. Neutral towards the end-objective of saving. Can plan, save and leave bequests. Can also save for some religious acts like Hajj, Umrah, animal sacrifice and liquid savings to pay Zakāt by avoiding asset drawdown.
Desirability for variety and balanced consumption bundle. The desire for aesthetic tastes, variety and spending on comforts recognized.
Substitution effect of increased returns on financial investments increases savings. The instinct of substitution effect recognized. The total effect may still be altered by income effect.
Usually, a positive discount factor. The instinct of desiring immediacy recognized in intertemporal choice and exchange.
Preservation of wealth through profitable investments. Preservation of wealth recognized after payment of Zakah and by using Shari’ah compliant investment options.
Consumption on needs and beyond needs. Besides essential needs, consumption of Halāl comforts and convenience goods is recognized.

 

Distinctions Required for Integrative Framework

The discussion so far suggests that the mainstream economics framework can incorporate some of the distinctive characteristics of Islamic framework if the objective is to be able to understand and describe economic choices and outcomes. The concept of ordinal utility is a device to rank choices. The binary moral filter can help in deriving a restricted consumer choice set in which the ordinal preferences can be formed based on individual preferences. However, it shall be recognized that expenditure can be on self-consumption as well as on consumption of others including one’s dependents, family, neighbours, social circle and society in general. If the individual recognizes the ethical externalities, then it will reflect in preferences and captured in their choices. Chapra (1996) argues that if belief in God and the Hereafter can motivate consumers and producers to internalize moral values and moderate their pursuit of self-interest and thus facilitate the realization of the maqasid, then economists should take this factor into account. Mannan (1983) also argues that when moral preferences are revealed in choices, the descriptive theory and empirical studies shall accommodate such preferences and choices.

Table below looks at the difference in some of the values between Muslims and non-Muslims by taking data from World Values Survey 2014. Again, it could be conservatively said that value differences between Muslims and non-Muslims are somewhat significant with regards to some religious values, but not with regards to some other socio-economic values.

Therefore, in studying the behaviour of Muslim consumers, it is important to accommodate ethically charged behaviour whereby certain consumption goods are disregarded from the choice set and the budget is allocated on private goods for self-consumption as well as on spending for others. At the same time, it is important not to over-impose idealistic values and vision in a study of the actual economic behaviour of Muslim consumers.

 Socio-economic Values in Muslims and non-Muslims

Values

Response

Important in Life: Family 94.09% Muslims regard it ‘very important’ as compared to 89.94% non-Muslims.
Important in Life: Religion 70.61% Muslims regard it ‘very important’ as compared to 43.29% non-Muslims.
Thinking about Meaning and Purpose of Life 46.34% Muslims stated ‘often’ as compared to 39.05% non-Muslims.
Happiness and Income 39.24% high-income scale individuals stated ‘very happy’ as compared to 28.25% individuals otherwise.
Happiness and Religion 31.07% Muslims stated ‘very happy’ as compared to 32.69% non-Muslims.
Satisfaction and Income 85.59% high-income scale individuals stated ‘highly satisfied’ as compared to 65.22% otherwise.
Satisfaction and Religion 67.21% Muslims stated ‘highly satisfied’ as compared to 74.29% non-Muslims.
Important Child Qualities: Unselfishness 30.30% Muslims mentioned it as compared to 31.77% non-Muslims.
Important Child Qualities: Thrift Saving Money/Things 35.12% Muslims mentioned it as compared to 40.06% non-Muslims.
Membership: Humanitarian/ Charitable Organization 3.98% Muslims stated they are ‘active members’ as compared to 6.83% non-Muslims.
Membership: Self-Help/Mutual Aid 3.30% Muslims stated they are ‘active members’ as compared to 5.68% non-Muslims.
Richness and Money 12.87% Muslims stated ‘very much’ likeness to a person who strives for it than 7.73% non-Muslims.
Wealth Accumulation: Zero Sum Game 43.60% Muslims ‘agreed’ as compared to 40.30% non-Muslims.
Feeling Important to Do Good for Society 27.26% Muslims stated ‘very much’ likeness to a person who strives for it than 21.78% non-Muslims.
Feeling Important to Help Neighbours 16.39% Muslims stated ‘very much’ likeness to a person who strives for it than 15.35% non-Muslims.

Source: Calculations Based on World Values Survey Sixth Wave 2010-14

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About Salman Ahmed Shaikh

PhD Economics, National University of Malaysia. Assistant Professor of Economics and Finance. Author, Researcher, Teacher and Consultant. He can be contacted at: salman@siswa.ukm.edu.my
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