noncontroversial. The first part of the statement has for long been denied – or contemptuously ignored – by mainstream (i.e., neoclassical) economics, which insists on its secularity and amoral character. It is claimed that individual well-being and social and material prosperity are best looked after by rational behaviour, which simply means self-interestedness. The aim of economic activity, which is driven exclusively by selfishness and cupidity is, accordingly, to attain an “unimprovable” Pareto-optimal state in which everyone has a share but no responsibility, because there is nothing for an individual to be responsible for. This state, though distributionally neutral, is not regarded as morally reprehensible because it represents the highest feasible collective good. (How can anyone complain about a move from a Pareto-inferior to a Pareto-superior state?) It is, therefore, not rational for people to be committed to a cause or to make sacrifices if none are needed – to work for the good of others means taking a cut in one’s own welfare. Thus, a disregard of social welfare would be regarded as rational, and moral behaviour could be dismissed as irrational. The second part of the statement is even more controversial for its overt non-secularity. It remains unacknowledged even by those (now a rapidly multiplying tribe) who accept the essential morality of economic behaviour. The reason cited, though not always explicitly stated, is that what is morally correct (or incorrect) has been intuitively obvious to men/women of normal intelligence, even in times before the advent of Religion. Thus, the formation of moral intuition is independent of any particular religious beliefs. And even if religious beliefs are accepted as relevant, then these are dominated by secular morality. Therefore, they are redundant as determinants of human well-being.
But, despite the strength of the agnostic positions about its central theme, this work seeks to examine and challenge such positions about the scientific invulnerability of an amoral and a secularist economics. It argues for an economics informed by a deep sense of morality, even one leavened by religious morality. The nature of the spiritual problem hidden behind an apparently amoral economic mechanism is brought out so as to show that economic well-being is guided not by a vague, faceless moral intuition, but by one whose features are honed and chiselled by religious values that individuals hold without question. Not only that; what men/women do for their own well-being and for the collective good, is strongly coloured by the religious beliefs to which human societies subscribe. In the Islamic context, this statement means that the economic behaviour of individuals in a typical Muslim society would normally be guided by Islamic morality. No less important is the reverse causation, running from economics to ethics. One does not have to be a Marxian to believe that a ‘living’ morality must respond to social and economic challenges – i.e., to the ‘unfinished agenda’ of human existence – by making life more free, prosperous, and equitable. Indeed, an ethical system that does not do so will be overrun by systems that respond to these challenges. These statements, however, should not be construed as an attempt to ‘balkanise’ economic science into societies and religions, or to deny the universality of some of its laws. It is rather a plea to explain human motivation better and more fully. It is also to inform it with a sense of history by taking into account its physical location as well as the moral and religious mainsprings of economic activity.
The present discussion differs from my earlier work, as well as that of others, in Islamic economics in at least two respects: firstly, save a cursory mention towards the end, it omits altogether an analysis of the problems (and prospects) of the abolition of interest and the introduction of Islamic banking in Muslim societies. There are at least two reasons for this omission. (a) The topic has been dealt with at length quite recently [Jarhi and Iqbal (2001); Chapra (2000); Naqvi (2000); Iqbal, Ahmad, and Khan (1998)]; and a modicum of scholarly consensus has been built around some of its basic themes. Thus, additional inputs of intellectual effort in this area promise only sharply diminishing returns in knowledge and understanding. (b) My main concern here is with the broader issues of economic growth, distributive justice, poverty reduction, and human deprivation; indeed, with those social elements which are inimical to humane living in real-life Muslim societies. And, contrary to widely-held opinion, the contribution of interest-free banking to the resolution of these issues is tangential at best. On the contrary, it is possible to conceive of situations where an economy-wide substitution of interest for profit may worsen the situation with respect to distributive justice and poverty [Naqvi and Qadir (1986)]! This, however, is not an argument for retaining interest in an Islamic economy. Yet it warns against the facile claim that a financial system based on only a Profit-and-Loss Sharing (PLS-only) arrangement would unlock the door to economic prosperity and personal happiness. The evidence on Islamic banking so far unmistakably shows that PLS instruments have lost out in the process of natural selection, practically vanishing from the Islamic Bank’s portfolio. The main reasons are: the rate of return on them has been generally lower than before; and the higher incidence of moral hazard significantly increases the cost of bank loans [Khan and Mirakhor (1992)]. The task ahead is to go beyond procedural puritanism and produce – e.g., through financial engineering – something strikingly original which can win the acknowledgment of the people.
Secondly, also omitted from this analysis are intersystemic comparisons between Islam, capitalism, and socialism. This is because: (a) there is nothing new to add to the many competent treatments of the subject, including my own modest effort [Sayyid Quṭb (2000); Naqvi (1981; 1994); Chapra (1992); Sadr (1982); Taleghani (1982); Ahmad (1981)]. (b) It is tricky territory, where one can easily succumb to the logical error of comparing an ideal Islamic economy with the reality of capitalism and socialism. Such comparisons seek to prove the superiority of the Islamic system to competing economic systems; but, the plain fact is that, in the absence of a functional Islamic economic system, such ‘proof’ is, by and large, logically false. The superiority of an Islamic economic system can be convincingly established only on the basis of the better actual economic performance of Muslim societies vis-à-vis non-Muslim societies. But despite much horn-tooting and waving of flags in the last four decades, Muslim societies have precious little concrete evidence on this count. The Islamisation experience of Pakistan, and especially that of Iran, though most valuable, does not yet provide an adequate basis for meaningful intersystemic comparisons; while others have simply failed to grasp the nettle. We must face the unpleasant reality that, with a few honourable exceptions, Muslim countries might as well have been on the moon, for all the difference they could make to the course of economic events. Indeed, they have generally done worse than non-Muslim countries in terms of most indicators of human well-being. True, the economic failure of Muslim societies cannot possibly be blamed on Islamic ethics and economics; but the available empirical evidence also does not entitle us to make general statements about the a priori superiority of traditional Islamic solutions either. As stellar economic achievement still eludes Muslim societies, any self-congratulation would be odd.
Yet, the present discussion of the Islamic economic system is no less urgent for these omissions. There has to be a renewed emphasis on the centrality of having a healthy interaction between religion, ethics, and economics to gain human happiness. I have dealt with this topic elsewhere [Naqvi (1981; 1994)], but here I look at it from a new angle. The central message is that: (a) the Muslim world must give up the dangerous notion of a Muslim society which is challenged by changes and yet remains the same. (b) Moral principles, like the human environment to which they must relate, need to be put under the unblinking gaze of historical evolution to save them from becoming mirror images of a distant past. And they should take into account contemporary Muslim society’s demands and aspirations. (c) Expedient measures – i.e., measures which condoned departures from moral ideals to deal with social reality in the Middle Ages – should not be allowed to become permanent moral dilemmas in today’s world. Instead, a greater informational base must be built on the foundations of old and new knowledge about ethical systems, both secular and religious, to evaluate traditional prescriptions and to resolve the social and economic complexities of modern Muslim societies. (d) Reason and science must have a much greater role in Islamic economics, which is chock-full of unyielding anachronisms, not open to intellectual debate or empirical verification. Visiting it, one sometimes feels like cantering ‘down the dark defile of a bygone age’. And even when a debate of some kind is conducted, using modern analytical methods, it is simply
