Islam and Economic Development: A Discussion within the Framework of Ibn Khaldun's Philosophy of History
mohammad
Published in:The Proceedings of the Second Harvard University Forum on
Islamic Finance
Islamic Finance into the 21st Century
(Cambridge, MA: Harvard University 9-10 October 1998), pp.23-30
ABSTRACT
Islamic finance is closely related to Islam's vision of economic
development, which gives primary importance to the realization of
socioeconomic justice and the well-being (falah) of all humans.
Although one can quote at length from the Qur'an and the Sunnah to
indicate the kind of well-being that Islam envisions, it is useful to
explore why the Muslim world is unable to realize the Islamic vision
now when it could do so in earlier centuries. A helpful model to guide
analysis is Ibn Khaldun's, for it offers a dynamic and multifaceted
analysis of the rise and fall of any society. Though the Muslim world
has languished into poverty and drifted away from democracy and
accountability, the future prospects for realizing the Islamic vision
of economic development seem bright.
1. INTRODUCTION
The subject of Islam and economic development raises a number of
questions, one of which is about the relevance of the subject to a
discussion forum on Islamic finance. This question is not difficult to
answer because finance and development are very closely interrelated.
Finance is not an end in itself, it is one of the essential means to
development, which in turn leads to a rise in financial resources for
accelerating development. The juxtaposition of Islam and economic
development in the title also raises some other questions. One of these
is whether Islam is an asset or a liability for development and whether
Islam and development can coexist without hurting each other. If Islam
is capable of promoting development then the second and third questions
are about the kind of development that Islam visualizes, and the
reasons for the failure of Muslim countries to realize development of
this kind.
The first question, about Islam's being an asset or a liability for
development, acquires importance only because Western news media try to
paint an unsavoury image of Islam. Nevertheless, 1 will not try to
answer this question because most scholars of Islamic history agree
that Islam played a positive role in the development of the Arab
bedouin society and transformed it to such a remarkable extent that it
not only overcame its own handicaps but also brought about a
revolutionary change in the societies that came under its influence. 1
Consequently, the Muslim lands became the most advanced parts of the
world at that time and enjoyed supremacy in the world of science and
technology for almost four centuries, from the middle of eighth to the
middle of twelfth centuries. Even after the loss of their leadership,
they continued to make valuable contributions for at least two more
centuries.2 There is no reason to assume that Islam is not capable of
bringing about once again a revolutionary change in the Muslim world to
help its inhabitants accelerate development.
The second question about the kind of development that Islam visualizes
is very closely related to the vision of Islam. Every society has a
vision, and Islam is no exception.3 Its vision gives primary importance
to the realization of socioeconomic justice and the well-being (falah)
of all humans. Why? They are all vicegerents (khalifahs) of God and
brothers unto each other. Islam also places a balanced emphasis on both
the material and the spiritual aspects of life, in sharp contrast to
the materialist worldview that dominates conventional economic
philosophy. While economic development is indispensable, it is not
sufficient to realize human well-being. It is also necessary to have
mental peace and inner happiness of the individual, human dignity,
brotherhood and socioeconomic justice, family and social harmony, and
minimization of crime and anomie. All religious worldviews emphasize
that these can be better achieved if a spiritual dimension is injected
into human life. Any society in which wealth and consumption have been
maximized but where there is poverty amidst plenty, where people do not
have mental peace and satisfaction, where families are disintegrating
and where crime and anomie are rising, cannot be said to have attained
well-being in the true sense of the term.
II. WHY 1BN KHALDUN?
I can quote at length from the Qur'an and the Sunnah to indicate the
kind of well-being that Islam desires. However, the limited time at my
disposal does not allow me to do so. 1 will, therefore, concentrate on
answering the third question of why the Muslim world is unable to
realize the Islamic vision now when it was able to do so in earlier
centuries. Why are Muslim countries faced with excruciating poverty
alongside affluence, a state of affairs that corrodes the fabric of
brotherhood and social solidarity and serves as one of the prime causes
of crime, social unrest, and political instability? Why are they also
beset with macroeconomic imbalances and a rising debt~service burden?
Why is there as much crime and anomie in Muslim countries as in the
rest of the world? The failing on the part of Muslim countries is all
the more serious because of Islam's uncompromising emphasis on human
dignity, brotherhood, and socioeconomic justice, which will remain
empty slogans as long as all the essential elements of well-being are
not ensured for all members of society.
A number of efforts have been made by scholars to explain the rise and
fall of a society or civilization. These include those of Ibn Khaldun
(d. 1406) and Gibbon (d. 1794) in the past, and those of Spengler
(1947), Schweitzer (1949), Sorokin (1951), Toynbee (1935), North (1973
and 1990), Kennedy (1987), and several others in modern times. While
all of these scholars provide valuable insights into the rise and fall
of civilizations, 1 intend to utilize the model that 1bn Khaldun
presented in his Muqaddimah, which is the first or introductory volume
of his seven volume history called Kitab al-'Ibar, or the Book of
Lessons [of History].4 Even though 1 will modify his model to some
extent to reflect the change in historical circumstances, one may still
wonder why 1 prefer the model of a person who lived 600 years ago when
more recent models are also available.
There are a number of reasons for this preference. First, his model is
directly related to Muslim society, which was in a process of decline
during Ibn Khaldun's own lifetime. The Abbasid caliphate had ended
after the pillage, burning, and near-destruction of Baghdad and the
surrounding areas by the Mongols in 656 A.H/1258 C.E., around
three-fourths of a century before Ibn Khaldun was born in 732/ 1332.
In addition, the Circassian Marnluks (794-922 /1382-1517), during
whose reign Ibn Khaldun spent the last one-third of his life, were
corrupt and inefficient and were following policies that could not but
accelerate the decline.
Second, his model is multidisciplinary and dynamic. It is
multidisciplinary because it does not attribute the development and
decline of a society to a single cause, but rather to a number of
factors, including moral, psychological, political, social,
demographic, and historical. Together they determine the quality of the
individuals, the families, the society, the market, and the government,
and thereby influence the overall performance of a dynasty or
civilization. Even though only one of these crucial factors may serve
as the trigger mechanism, other factors tend to be affected over time.
Accordingly, it is not possible to talk of just economic decline within
the framework of this model. When a society starts decaying, it decays
in practically everything: economic decline becomes a part of the
overall deterioration. This creates the effect of circular causation.
The model is also dynamic because Ibn Khaldun takes into account three
generations stretching over a period of 120 years. However, he was
talking of a dynasty, while we are talking of a civilization and the
period involved may therefore be much longer. Over such a long period
of time, none of the variables remains constant. Every variable affects
every other, and in turn gets itself influenced by them, until it
becomes difficult to distinguish the cause from the effect.5
111. DEVELOPMENT AND DECLINE IN 1BN KHALDUN'S MODEL
The centerpiece of Ibn Khaldun's analysis is the human being himself
(N). He or she is the end and means of development. He is the end
because it is his well-being that is desired. He or she will not be
efficient or creative until well-being is ensured. Societies in which
the common man is unable to reap the fruits of his hard labour are not
likely to grow rapidly. The human being, is also the means because
nothing can work effectively until he is right. He is the input of the
market, the government the family, and the society. The market and the
government may not operate efficiently and equitably, the family may
disintegrate, and the society may be soulless and uncaring if the human
input of all these institutions and organisations does not have the
moral and mental qualities needed for their successful operation. If
the human being is not right, the market may not serve the social
interest, the government may be corrupt, ineffective, and unjust,
husbands and wives may not be able to get along with each other,
families may fall apart, children may not get the needed care and
upbringing, and the society may be unable to secrete the glue of mutual
care and cooperation necessary for social solidarity and all-round
development.
FIGURE 1. IBN KHALDUN'S MODEL OF SOCIO-ECONOMIC AND POLITICAL
DYNAMICS
(Circular Causation in the Development and Decline of Societies)
G = Political authority
S = Shari'ah (values and institutions or rules of behavior)
N = People (individuals, families, groups, and society)
W = Wealth (the economy)
J = Justice
G = Development (not just economic but overall)
This is perhaps the main reason why all the prophets of God
concentrated on the reform of human beings (N) and the institutions (S,
G, and W) that affect them. They struggled hard for their education and
socio-economic uplift. This is the reason the Qur'an says: "God does
not change the condition of a people until they change their own inner
selves" (Qur'an, 13:11; see also 8:53). If human beings are
reformed in a way that makes them willing and able to render their best
in their own interest as well as that of their society and mankind,
then the market, the government, the family, and the society may all
tend to operate effectively in a way that leads to the well-being of
all..
All the other variables in Ibn Khaldun's model (G, S, W, g, and j)
affect human beings (N) and determine their willingness and ability to
do their best for themselves and their society. The two factors that
affect them most are development (g) and justice (j). These two factors
affect the well-being of all. If there is no development (g), then
there may be paucity of the resources needed for ensuring well-being
and rendering justice to all. Moreover, a society does not generally
remain stagnant: it moves either forward or backward. That is why
1qbal, the poet-philosopher of the Indo-Pak subcontinent, says, "I
am, as long as I move. Not moving, I am not."6 This is truer of
societies than of individuals. The development (g) referred to here is
not just economic development but all-encompassing development, which
incorporates all aspects of society, including moral, institutional,
intellectual, social, economic, and political. If even one of them lags
behind, it may affect the quality of the human being (N) and thus
retard development in the future.
While development (g) is important justice (j) is indispensable. It
induces people to work hard and be conscientious, honest, and creative.
It also promotes co-operation and social solidarity, and reduces
socially harmful behaviour. Human societies cannot function effectively
and develop without justice. Absence of justice may weaken the
effective operation of incentives and deterrents, lead to discontent,
crime, anomie, social unrest, and ultimately to a decline in
development. However, when we talk of justice, we have to take it in a
broad sense. Fulfilment of promises, obligations, and contracts is as
much a part of justice as is giving everyone his or her dues. A society
in which contracts are not fulfilled and people are unable to get their
rights may accentuate uncertainties and hurt incentives for people to
do their best. Moreover, all sectors of society must receive their
rights, whether they are rich or poor, white or colored, male or
female, adults or children, powerful or ordinary.
This is perhaps why the Qur'an makes the establishment of justice the
primary reason for which God sent His prophets to mankind (Qur'an,
57:25). It also says that a society that perpetuates injustice
ultimately gets destroyed (Qur'an, 20:111). The Prophet Muhammad, may
the peace and blessings of God be on him, equated injustice with
absolute darkness because the greater the injustice in a society, the
greater may be the discontent and the lesser the development.
This stress on justice in the Qur'an and the Sunnah has been
reflected in the writings of almost all prominent scholars in Muslim
history, including Abu Yusuf (d. 182 A.H./798 C.E.), al-Mawardi (d. 450
A.H/1058 C.E.), Ibn Tayiniyyah (d. 728 A.H./1328 C.E.), and Ibn Khaldun
(d. 808 A-H./1406 CE). Ibn Tayiniyyah considers justice an essential
outcome of tawhid (belief in One God).7 To him, justice is a wide
concept. "Everything good is a component of justice and everything bad
is a component of injustice and oppression. Hence, justice toward
everything and everyone is an imperative for everyone and injustice is
prohibited to everything and everyone. Injustice is absolutely not
permissible irrespective of whether it is to a Muslim or a non-Muslim,
or even to an unjust person."8 Accordingly, he zealously upheld the
adage prevailing in his times: "God sustains a just society even if it
is not Muslim, but does not sustain an unjust society even if it is
Muslim."9
Ibn Khaldun reflects the same philosophy when he states unequivocally
that it is impossible for a country to develop without justice,10
something that has now been belatedly recognized by the pundits of
development economics after a long flirtation with injustice.11 He goes
to the extent of emphasizing that "oppression brings an end to
development"12 and that a "decline in prosperity is the necessary and
inevitable result of injustice and transgression."13 He elaborates
that "oppression does not consist merely in taking away wealth and
property from its owner without cause or compensation. It has rather a
wider connotation. Anyone who seizes the property of others, forces
them to work for him against their will, makes unjust claims on them,
or imposes on them burdens not sanctioned by the Shari'ah is an
oppressor."14 He also emphasizes that "confiscation of people's
pecuniary reward reduces the incentive for earning, and acquisition"
and that "a loss of incentive leads to abstinence from effort and
enterprise."15 These ideas permeate the thinking of practically all
classical Islamic writers.
Justice (j) is, therefore, the most important criterion for judging the
degree of Islamization of a Muslim society. Justice, however, cannot be
realized without certain rules of behavior or values and institutions
(S). Every society has these rules of behavior. In a Muslim society,
the Shari'ah serves as the basis for them. These rules of behavior in
general require people to fulfil their obligations toward each other
and abstain from harming others.
The rules of behavior (S) are, however, meaningless if they are not
enforced. Some people may act upon them on their own volition, but
others may violate them. If the violators are able to get away
unscathed, the circle of such people may gradually expand and the
violation of rules may become a part of the social mood through path
dependence and self-reinforcing mechanisms. Incentives and deterrents
are what help their enforcement. A balanced religious worldview, such
as that of Islam emphasizes the role of both material and moral
incentives to encourage the right behavior and discourage the wrong.
The moral factor is indispensable because it induces people (N) to
abide by the rules of behavior (S) on their own volition and thereby
reduces the costs of enforcement.
In Ibn Khaldun's model, it is the job of the government (G) to ensure
the enforcement of the rules of behavior and the effective operation of
incentives and deterrents. The rules or the Shari'ah must be
reflected in the laws and constitution of a country. The government
must also establish effective machinery to detect violators and
impartial judicial and police machinery to punish them promptly. If the
rules of behavior are not implemented, then the Shari'ah (S) cannot
be effective. That is why the Prophet, may the peace and blessings of
God be upon him, said, "God restrains through the sultan what He does
not restrain through the Qur'an." The Qur'an can only give the
rules: be honest, fulfil contracts, do not cheat, do not be unjust, do
not hurt others. It cannot by itself enforce them. The government (G)
has to do this, and if it does not perform this task fairly and
impartially, then it will impair the realization of both justice (j)
and development (g).
This raises the question of when a government (G) enforces the
Shari'ah (S). This happens best when it (G) is accountable before the
people (N), and they are able not only to participate in
decision-making, but also to elect and remove important functionaries
of the government. If this is not ensured, then government
functionaries may be able to get away with corruption, inefficiencies,
and inequities. This may give rise to an ineffective use of scarce
resources. This is where Muslims have lagged behind. One of the major
causes of their problems is the existence of illegitimate governments
not accountable to the people. It is impossible for the people to
question or check them.
Islam laid down a democratic structure for the government (G) in the
form of khilafah and shura. This was, however, too radical a reform for
the bedouin society of the early days of Islam. After the undoing of
the khilafah by Mu'awiyah in 41/661 and the hereditary succession of
his son, Yazid, to the caliphate in 60/679, Muslim societies moved more
and more toward greater authoritarianism and away from the political
accountability that Islam stands for. There were a number of efforts to
undo the illegitimacy and to restore the system of khilafah and
shura, but they did not succeed. As a result, most Muslim countries
today have undemocratic governments controlled by powerful landholding
families, armed forces, and bureaucracies. There is little freedom of
_expression, and the judicial system is not truly free from political
pressures. The Western world needs to be complemented for having
established effective democracy to ensure accountability of political
authority.
The absence of democracy has led to a misuse of public resources for
the private benefit of the rich and the powerful. Inadequate amounts
are hence available for moral and technical education, health,
infrastructure construction, expansion of employment opportunities, and
the general well-being of the people (N). While moral education has to
some extent continued to be provided through madrasas, mosques,
families, and reform movements, technical education, which was
supported in earlier centuries by governments, has suffered
considerably because a substantial proportion of resources are absorbed
by defense, corruption, unproductive spending, and debt servicing.
This brings us to W which stands not just for wealth but also for the
economy as a whole. The market system is one of the best ways of
effectively utilising the resources of society. Throughout Muslim
history, markets operated to a great extent within the disciplinary
framework of the Shari'ah (S). Ibn Khaldun and many other scholars
opposed the ownership and running of businesses by the government.16
Nationalization of industries and businesses, therefore, is a concept
alien to Islam- However, a number of Muslim countries, including
Algeria, Syria, Iraq, Egypt and Pakistan, resorted to it under the
influence of socialism. This policy has brought nothing but tears to
the Muslim world. Fortunately, political illegitimacy and socialism are
both losing ground among Muslims. It may be hoped that the emergence of
true democracy, along with land reforms, a free press, a strong and
independent judiciary, and the growth of effective and impartial
institutions for detecting and punishing corruption and inefficiency,
will promote the use of public resources for the development of the
economy and the well-being of the people.
IV. THE FINANCIAL SYSTEM
The financial system, which is an integral part of the economy and the
main theme of the Harvard Forum, has an important role to play in the
mobilization and efficient and equitable use of an economy's resources
for furthering development (g) with justice (j). Unfortunately, this
is not yet taking place in the Muslim world. One of the defects of the
conventional financial system is that it promotes living beyond means
by both the public and private sectors. Combined with political
corruption, loans are extended to political favorites, without proper
scrutiny of the projects or the projected cash flow, and often without
adequate collateral.
Pakistan is a clear example of this. Its government has been borrowing
excessively in domestic as well as external financial markets.
Consequently, 46% of total government spending were absorbed by debt
servicing in the 1998/99 budget. Since another 24% were allocated to
defense, only 30% remained for all other purposes.17 Given that at
least half of this balance was used to meet administrative expenses,
the remaining half is absolutely inadequate for supporting education,
health, infrastructure, and other nation-building activities. This
leads to a low-level development equilibrium, hurts the poor people,
and accentuates social and political unrest. If Pakistani governments
had been serious in their commitment to Islam, and in particular to the
prohibition of interest, they would have tried to reduce their budget
deficits by streamlining the tax system and curbing corruption and
unproductive spending. A reasonable amount of financing needed for
productive investment and other essential expenditures could also have
been raised, without significant difficulty through Islamically
permissible modes of financing. This would have helped reduce the
resort to inflationary financing as well as excessive interest-based
debt, which has now become a burden.
Moreover, reform of the banking system to remove corruption and promote
development as well as socio-economic justice does not seem to have
received significant attention. The result is a highly inequitable
financial system. In 1994, 56% of the resources that 28 million
depositors provided to the banking system were lent out to a little
over 4,000 privileged borrowers.18 This is certainly not going to help
promote an equitable distribution of income and wealth, which is an
imperative within the framework of the Shari'ah (S). The inequity
will also slow down development and worsen social unrest, particularly
if the resources provided to the rich and the powerful are not used
productively. This tends to happen in a corrupt political system in
which loans extended by nationalized banks to influential people are
often written off, meaning that there is little compulsion for their
productive use.
V. CONCLUSION
Unless all the factors incorporated in Ibn Khaldun's multidisciplinary,
circular causation model function effectively to make their potential
contribution, it may be difficult for any society to attain and sustain
economic development, let alone realize the Islamic vision. Fortunately
for the Muslim world, future prospects seem bright. All Muslim nations
have gained independence from foreign domination after having been
colonized in the 18th and 19th centuries. Progress in the
democratization of these countries is steadily gaining momentum. The
revival of Islam is taking place and people are becoming more educated
about Islamic values, thereby raising the hope that their future
behavior will conform to Islamic norms. Technical education is also
becoming more and more accessible. This should help raise the
productivity and income of the poor. Female education is spreading, and
their participation in the affairs of their societies is steadily
rising: both are in step with Islamic teachings. Fiqh, which had become
stagnant over the last several hundred years and was, therefore,
responsible for blunting the dynamism of the Shari'ah, has now
started to respond to the challenges faced by the ummah by gradually
becoming more liberal and realistic. Democracy will force political
parties to moderate their views to make themselves acceptable to
broader sectors of the population. In other words, all indicators point
toward the reversal of the cycle of circular causation, from the
negative to the positive direction. This should help ensure justice and
social harmony, and promote spiritual as well as material development
of Muslim societies in the future.