Islam and the Path to Human and Economic Development

Title:Islam and the Path to Human and Economic Development
Authors:Abbas Mirakhor and Hossein Askari
Publisher:Palgrave Macmillan

This short book is divided into five chapters and a conclusion. The five chapters include 1) The Evolution of the Western Concept of Development, 2) Development as Human Well-being, 3) The Foundational Elements of Development in Islam, 4) The Dimensions of Development in Islam and 5) The Institutional Structure of Development in Islam.

Authors explain that early discourse on development was centered on a concern for social order, the role of civil society, culture, and state. Then, development was confined to material well-being in post-WWII era. From early 1980s and onwards, economists, inspired by the pioneering contributions of Mahbub ul Haq and Amartya Sen, began to question the popular definition of economic development and the path for its achievement.

They argued that development was much more than an increasing level of per capita income and a simple structural transformation. For the first time, human development, including education, healthcare, poverty eradication, a more even income distribution, environmental quality, and freedom, was seen as an integral component of the economic development process.

Appreciably, the Western approach, now recognizing the wider dimensions of human development and the role of institutions and rules, has moved over time toward the vision and the path of development envisaged in Islam, emphasizing human solidarity, belonging, well-being, sharing, concern for others, basic human entitlements, and modest living. Development now is conceived as more than a quantitative change in some index, such as a higher level of per capita income; it is about being more, not having more.

However, in contrast, there is also a large cognitive deficit between the holistic vision of the Quran for human and societal development and the results achieved by Muslim societies of today. Nonetheless, it must be understood that all claims, or pretensions, to Islamicity on the part of any society must be validated by the existence and effective operations of the institutional structures (rules of behavior) mandated by the Quran and operationalized by the Prophet. A reading of this book should confirm that in today’s Muslim societies the most important core elements of an Islamic institutional structure are, by and large, notable for their absence.

Authors also contend that mainstream neoclassical economics is increasingly detached from morality. The basic building block of all economic theory ‘homo economicus’ evolves with age, and reflects the circumstances, values, and assumptions of that age. However, the models of homo economicus that have evolved to explain economic behavior tend to reflect only the increasing secularization of society, where moral decisions are no longer embedded in the sense of the sacred.

The authors explain that in the early post-WWII period, economists defined economic development as a combination of rapid economic growth and structural transformation. The policy focus was that countries that had low levels of per capita income needed to grow faster to catch up with the developed, or industrial, countries of the West. To achieve this, they would benefit from a transformation of their economies from an agrarian to an industrial base, where the level of productivity and its growth were significantly higher.

The authors argue that due to this narrow definition of economic development, most early post-WWII theories of economic development focused on how rapid growth and structural transformation could be achieved. The authors trace the evolution of the Western concept of development before exploring the path to development in Islam.

The Western approach was neutral to ethics, morality and values. It regarded humans as utility maximizing species and as merely an input in the production process. However, the Western concept of development now recognizes the wider dimensions of human development and the role of institutions and rules.

The authors think that it has moved over time towards the vision and the path of development envisaged in Islam, emphasizing human solidarity, belonging, well-being, sharing, concern for others, basic human entitlements, and modest living.

The authors explain that in Islam, development is composed of three interrelated and interdependent dimensions: individual human self-development, the physical-material development of the earth, and the development of human society as a whole. The most important of all these is the first without which the other two would not progress as envisioned.

In neoclassical growth theories, the emphasis is on increasing savings and technological progress which brings about an increase in capital per worker and eventually output per worker. Later researchers have done more sophisticated work to explore the factors which affect the technology, human capital and savings. To summarize their findings, these theories and models help to explain the differences in per capita incomes across countries.

The main conclusions are that countries with high savings, countries having people spending more time in learning new skills and countries with better social infrastructure in the form of strong private property rights are able to have more per capita income than countries which lack in these characteristics.

Islamic economic principles have the capacity to help build these elements for sustainable growth and development. Islamic economic framework provides a lenient rate of income Zakāt and withdraws any fixed pre-determined cost of capital.

The productive sector is provided with an incentive to boost production. This could itself bring about an increase in output per person in the economy and could bring stability in prices. Zakāt on cash and capital will force people to invest their money in productive uses. With the prohibition of interest, this money will only go in business either with the start of one’s own business or equity participation in Mudarabah, Sukuk and Halal stocks.

Besides this, a consistent and credible low tax rate policy with broader Zakāt base ensures minimum distortions, boosts aggregate demand and encourages investment by decreasing costs of doing business and this could also simultaneously solve microeconomic problems of imperfection in markets by increasing competition and helping to reduce market power.

If we study the classical and neo-classical literature on growth and development, the theories and policies based on them have felt short to improve income distribution. Islam economics has many non-market mechanisms to ensure income redistribution without interfering with individual freedom and market mechanism. Three such mechanisms are listed below:

Prohibition of Interest – Interest as a system of allocation of resources ensures a fixed return for one agent (lender) and variable and uncertain for another (borrower) in an intertemporal exchange of money. In contrast, Islam encourages equity financing in which the loss/profit would be shared.

This ensures better results from the perspective of redistribution and better co-operative behavior since payoffs for all parties are linked with productive sector of the economy. Consequently, markets will not have to produce speculative surplus output just to service the exorbitant amount of debt. This feature could also help in stabilizing business cycles.

Family System and Inheritance Distribution – The family system of Islam brings social capital into existence. It ensures empathy and responsibility. It brings a very lasting and durable social safety net. Islamic injunctions about how to treat orphans ensure social security for individuals with special circumstances. Furthermore, the inheritance laws ensure that the wealth of the deceased is distributed widely among the members of the family of the deceased and this permanently and systematically ensures doing away with the concentration of wealth in every generation.        

Zakāt and Infāq – Zakāt is a combination of wealth and production levy. It includes all heads of earned income and forms of wealth excluding only the means of production, items of personal use and value below Nisāb. With Zakāt on wealth, redistribution objective is directly achieved. It reduces confinement of wealth in few hands.

It ensures appropriate transfer of wealth and transfer of asset ownership to the needy. If an economy is in disequilibrium and policies fail to immediately recover and boost incomes, wealth Zakāt enables the distributive allocation that works independently of the business cycle and help stabilize the extremes of the business cycle.

In conclusion, this book outlines the Islamic vision and framework for development and contrasts it with Western concept of development. The book shows that Islamic concept of development grounded in the teachings of the Quran and the Holy Prophet (peace be upon Him) is comprehensive in terms of values and institutions to extend progress towards inclusive and sustainable development. The need is to create the right understanding of the Islamic vision of development and then to use that in policies and application.

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