Articles on Islamic Economics

Review of Divine Economics Framework


Salman Ahmed Shaikh
The seminal contribution for Divine Economics framework was made by Prof. Dr. Syed Nisar Hussain Hamdani. Following his doctoral thesis on this topic, two seminal published contributions in Divine Economics framework came in 2002 and 2004 in one of South Asia’s most prominent academic journals in economics, i.e. Pakistan Development Review [Hamdani et al (2002) & Hamdani et al (2004)]. Two international conferences had been organized on this research area in 2013 and 2020 respectively. Quite a few follow-up studies had been undertaken in various universities in Pakistan, Iran, Turkey, UK and elsewhere.

The respected author defines Divine Economics as a “framework for the study of religion and economics in each other’s perspective.” [Hamdani (2002); Hamdani and Ahmad (2002a, 2002b); Hamdani (2003a, 2003b)]. Divine Economics framework takes religion or religious activities as an object of choice in a rational framework. The link between economics and religion is created by arguing that time is money and when time is allocated on religious activities too, these activities can also be analyzed within the framework of economics. Some engagement in religious activities involves allocation of budget, such as on religious travel, animal sacrifice and almsgiving. Thus, the author argues to mainstream economists that even from a positive economics perspective, the role of religion cannot be ignored.

The fundamental research aim of the Divine Economics framework is to provide an empirical basis of behavioral comparison between religious and non-religious agents with regards to their economic and non-economic choices. For instance, if religious people use common property resources and public goods more responsibly, then it is worthwhile to promote and create awareness about religious values. On the other hand, if religious and non-religious agents do not differ in their choices, then still it suggests that we need appropriate education and learning to create right kind of awareness about true religious values.

The noted scholar argues that Divine Economics framework establishes a link for cross communication between mainstream economists and faith-inspired economists by using a universal methodological framework, which is sufficiently scientific, objective and broadly agreeable in academics.

Divine Economics framework attempts to endogenize the religious variables. In earlier literature, religion or religious identity has been taken as a categorical variable. It is not differentiated from other demographic characteristics of an economic agent. Some indices are also available, but they do not incorporate the religiosity levels. Divine Economics provides a framework to rank the agents on their religiosity. It is true that measurement of religiosity is God’s prerogative. It is also true that true religiosity is founded in good actions as well as good intentions. So, it depends on observable and unobservable factors. However, the measurement of religiosity in Divine Economics framework is not meant to actually reward and punish people on this estimation, rather it is meant to measure religiosity by using a robust set of observable indicators as far as possible so as to be able to rank people on their religiosity levels. Thus, it targets criterion related validity for the behavioral comparison. This approach enables the comparison of choices between religious and non-religious economic agents.

However, Divine Economics framework also faces some challenges in research. Islam provides a code of life in which even the pursuit of material sustenance can be worship if the believer does it with acknowledging his true role and place in this world. This creates an overlap between religious and non-religious activities. Furthermore, the quantity of religious activity is not the appropriate indicator of religiosity level if the quality and motivation behind religious activities differ. Hence, a busy professional surgeon, a broadcaster or a steward devoting less time to religious activities, but fulfilling the professional duties with sincerity and commitment may get equal or more reward and be as much religious as a person whose professional and personal life is centered on religious activities like a teacher in Madrasa or an Imam of mosque. While the quantity can be measured, the quality, motivation and contextual differences which determine quality of religious activities are unobservable as well as beyond direct examination. Hence, relative comparisons are difficult to make and which make generalization and aggregation immensely difficult. Without the possibility of aggregation and generalizability, the policy use of empirical findings become limited.

Indeed, studies in Divine Economics framework can explain differences in social and economic choices between religious and non-religious groups, but measuring both the religiosity and its exact ceteris peribus causal effect on behavior is difficult to establish. One must take caution that this framework should not be used as a way of validation or invalidation of religious values and principles. Only the right actions can justify the effects of religious teachings and validity of beliefs. Principles cannot bring contradictory results in behavior if applied and followed correctly. Contradiction and variety in action is not due to principles, but because of human preferences and sovereignty in choices. It is the compliance to religion that makes a person religious and not his performance determining the effectiveness of religion.

Utility and profit maximization models try to explain economic behavior in markets. Mainstream economists would argue that by treating preferences as exogenous, economics remains neutral about various motivations behind the choices. Thus, while selecting the airline, hotel and transport services, one would engage in marginal analysis even in religious travel for Hajj and Umrah. Likewise, mainstream economists may argue that if a person feels obliged to do household chores, attend to family and also to engage in spiritual activities, then, such non-economic choices are lumped together in leisure. Their focus is not on determining deeper motivation, but how such choices in labour-leisure tradeoff determine and affect market wage and level of employment. Problem is that in this framework, if religiously motivated allocation of time and money is taken in objective function rather than exogenously excluded from the constraint function, then there will be a need for price of such allocation of time and money and a supply side.

In response, the noted author argues that this framework also provides a way to see how people substitute time with money to have the desired spiritual fulfillment and well-being. For instance, a religious scholar with humble monetary resources, but abundant knowledge would share knowledge and devote more time in teaching. A businessperson or busy professional having less free time and relatively more monetary resources would contribute money to causes in which he or she personally may not be able to participate directly. However, the predicament remains that such choices might economically be theorized to achieve economic efficiency with equi-marginal principle, but their acceptance and evaluation would involve analysis of quality, context and intention beyond merely quantity and following equi-marginal principle. Is religious choice an economic good? Does it have a price? Does it have a supply side and market too? Economics of religion literature thinks so. But, this framework of analysis seems limiting for Islamic economics where the purpose is to achieve need fulfillment of various economic needs at the individual and collective level within the bounds of religious teachings and norms. Thus, Islamic economics would suggest that there shall be missing markets for goods that are not allowed to be consumed. It will also suggest development of some new markets for products like Halal meat, cosmetics, medicine, insurance, banking and investments. On the other hand, mainstream economists suggest that when empirical analysis of demand and supply in such markets is required, some abstraction will be necessary to yield an empirical model. In the current scenario, demand curve is derived from the utility function and supply curve is derived from the profit function.

Some Muslim economists working in the area of Islamic economics suggest that such tools of demand and supply analysis are themselves not quite robust and complete. In some cases, there is no supply function, such as in monopoly. Not all the empirical demand estimation methods necessarily require theoretical underpinning. Hence, empirical models can also be developed using inductive research techniques. Beyond markets, the empirical analysis focusing on profitability, stability and efficiency of institutions and markets does not require much abstraction to proceed. They argue that there is a case of developing Islamic economics without resorting to abstract mathematical theorization. Divine Economics framework, economics of religion and mainstream economics in general would argue in response that unless a sound alternate theoretical framework is established first, empirical research would lack direction, consensus and be more prone to econometric misapplication.

Another potential challenge in Divine Economics framework is the weakness of stated preferences method of survey in finding motivations behind actions where the questions of ethics are involved. Behavioral economics confirms through empirical evidence that people tend to be overconfident. They have their personal biases which make people to consider themselves more righteous than they really might be in reality if they face actual trade-offs and crossroads. It is also difficult to create an exact situation of real trade-off scenario by using stated preference method of survey or even lab experiments. People responding with an agreement on the high value attached to truthfulness may act otherwise when they face the actual trade-off involving real payoffs to them in real world scenario.

As per Islamic principles, certain sins can overshadow other noble and charitable acts almost completely. Some or most religious teaching relate to social behavior, such as good speech, good manners, justice and honesty, for instance. Hence, if a person has not fulfilled his duty towards his mother and his wife, then, his statement about himself is not an exhaustive means of determining his religiosity since his shortcoming in social relations can better be gauged from the views of those related to him. To its credit, the data collection strategy in Divine Economics framework makes meticulous efforts to cross verify some details, but as can be expected, not all such personal details and accounts are objectively verifiable.

Another important thing to note is that religiosity is not an addition of positive activity alone, but a net of positive and negative activities. Positive activities may be revealed by the respondent or even exaggerated, but negative activities may be underreported or altogether hidden. Measuring religiosity is so much hard that even the researcher cannot possibly know and predict his or her own religiosity. Moreover, religiosity is also dynamic.

Divine Economics framework also strives to look at the effect of religiosity on well-being. More complications arise in this research question. From an Islamic perspective, this worldly life is a trial (Al-Qur’an: Al-Mulk: 2). Absolute justice and deterministic rewards are promised in afterlife. Hardships and struggles are meant to test steadfastness, character, devotion and purity. Even the most pious prophets (pbut) in worldly sense faced hardships and some were martyred (Al-Qur’an: Al-Mulk: 2). Some or greater part of promised well-being is to be achieved in life hereafter. There is no way to gauge that, but it does have a temporal effect on behavior in this world. Thus, here, both the independent variable of religiosity and the dependent variable of well-being are quite difficult to measure reliably and the role of extraneous variables cannot easily be captured comprehensively. An alternate strategy could be to focus on societal well-being which is less complex and has more practical significance. Islam asks to feed hungry, take care of weak, establish justice, protect and respect private property, conserve environment and avoid wastage, for instance. Such social wellbeing indicators are more reliably measurable. Policy goals at the national as well as at the global level also emphasize on improving these indicators and hence societal well-being. Research in this focused area is more doable, universally acceptable, has practical value and will avoid problems in evaluating personal judgments.

Bibliography

Hamdani, S. N. H.; Ahmad, E. & Khalid, M. (2002). “Towards Divine Economics: Some Testable Propositions”, The Pakistan Development Review, Pakistan Institute of Development Economics, 41 (4), pp. 609 – 626.

Hamdani, S. N. H. (2002). “Religious Orientation as a Factor in Time Allocation”. PhD. Proposal Defense Paper, presented in seminar, Department of Economics, Quaid-i-Azam University, Islamabad.

Hamdani, S. N. H. & Ahmad, E. (2002a). “Towards Divine Economics: Some Testable Propositions”, The Pakistan Development Review 41 (4), pp. 607 – 626.

Hamdani, S. N. H. & Ahmad, E. (2002b). “Optimizing Human Resources in Islamic Management”, Paper presented at 2nd Congress on Islamic Management, IA University Tehran, May.

Hamdani, S. N. H. (2003a). “Poverty, Charity and Religion in Perspective of Divine Economics”. University of Azad Jammu and Kashmir. Kashmir Economic Review, I.

Hamdani, S. N. H. (2003b). “A Divine Economics Framework for the Study of Time Allocation Behavior and Religiosity”, University of Azad Jammu and Kashmir. Kashmir Economic Review, II.

Hamdani, S. N. H. (2004). “Religious Orientation as a Factor in Time Allocation”, PhD. Dissertation (Final Thesis), Department of Economics, Quaid-i-Azam University, Islamabad.

Hamdani, S. N. H.; Ahmad, E. & Khalid, M. (2004). “Study of Philanthropic Behavior in Divine Economics Framework”, The Pakistan Development Review, Pakistan Institute of Development Economics, 43 (4), pp. 875 – 894.

3 replies »

  1. Thanks Dr Salman Shaikh for your valuable review and evaluation of Divine Economics. This encourages me to upload the yet unpublished works which may help bridging between conventional economics and the real economics applicable to the majority people on earth who believe in some form of religion. Some of these works do also provide tools and methods for responding to the challenges faced by Divine Economics.

    Liked by 1 person

  2. Subhanallah. Jazakumullah khayran for writing this. I hope to read some of the reading list. As salaam alaykum wa rahmatullahi wa barakatuhu.

    Like

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