FAROUK A ALWYNI discusses the relevance of an Islamic political economy in the development of Islamic finance, especially in Muslim countries.
There have been discussions about Islamic economics for over three decades. The Islamic Research & Training Institute (IRTI), a research arm of the Islamic Development Bank Group, is a research center focusing on the study of Islamic banking, finance and economics. The application of Islamic economics at the moment is still limited to Islamic banking and finance. The growth of Islamic financial institutions to some extent could be attributed to the study on Islamic banking and finance.
In all of the relevant studies, Shariah has been the central feature.
Within the above context, it is very important to expand the study of Islamic economics into an Islamic political economy. This is because the application of Islamic economics, finance and banking cannot be confined only to the financial sector as the present situation shows that the financial sector is only a sub-sector of a country’s economy. To achieve success in the financial sector and to develop solid economic progress, one must also deal with the non-financial and/or economic factors affecting the economy.
These factors are, among others, the functioning of good governance in the government, the establishment of the rule of law, streamlined and not overlapping regulation, service-oriented bureaucracy, a social safety net, universal health care and a good education system. These are the areas which are basically beyond economics. Thus, to deal with the issues of development and progress in the Muslim world, one should go beyond economics.
Islamic political economy
Political economy most commonly refers to inter-disciplinary studies drawing upon economics, law and political science in explaining how political institutions, the political environment and the economic system influence each other. Each major ideology such as capitalism, communism, socialism and mixed system will have its own political economic system. Islam, as a belief system which does not only deal with ritual matters but also worldly matters, also has its own worldview and rulings related to political economy of a nation and the Ummah.
Similar to Islamic economics, banking and finance the concept of Islamic political economy will also be based on Shariah. In general, an Islamic political economy will oblige the state to play its role in establishing justice based on the rule of law; protecting faith, life, honor, posterity, and wealth of all people under its rule.
In addition, the state is also obliged to serve the people on matters related to the public service that include creating a service-oriented bureaucracy, ensuring the freedom of doing business for all members of society, facilitating all business efforts of its citizens (especially the micro, small and medium-sized enterprises), ensuring tidiness and cleanliness of the public places and protecting the environment. The state will also need to ensure the universal access of the education and health services. The availability of a proper housing system with good standards of hygiene and sanitation for all its population will also be part of its responsibility. And last but not least, there has to be a proper social safety net in place to help the weaker segments of the society.
One of the leading 20th century Muslim thinkers discussing the Islamic political economy was Ayatullah Muhammad Baqr al-Sadr, who was also a political activist. He envisioned the establishment of an Islamic political system that would replace some of the systems in the Muslim world which are still considered corrupt.
Ayatullah Muhammad believed in the need to create a program that would establish a new social and economic order to replace the capitalist and socialist order dominant in the Muslim world. He believed that the Islamic Economic System (IES) was more than capable of solving the contradiction within the capitalist system, and therefore would be able to serve human needs betters. More importantly, the IES would also have the capacity to develop and progress in line with human potential.
Ayatullah Muhammad’s economic view is part of the general political theory meant to establish a comprehensive Islamic social system. The application of the IES would be judged after the creation of an Islamic state.
Ayatullah Muhammad also discussed in more detail the relationships and the economic structure of an Islamic state: including human economic relations, the Islamic theory of distribution, the distribution of natural resources, the distribution of production, the channeling of human basic nature, economic development and the role of the state.
Objectives of an Islamic political economy
The Islamic political economy is expected to be able to create a more ethical social order rather than a materialistic one; a more caring society with a long-term vision and care for the sustainable development. All of these factors are expected to go hand in hand with the productivity of the people.
The relevance of an Islamic political economy
One of the strategic objectives of an Islamic political economy is successful development in the Muslim world. There are many ‘non-economic’ factors affecting the economy such as corruption, the rule of law and bureaucracy. Pervasive corruption undermines the strength of the executive, the legislative and the judiciary system. The problems with the rule of law and the weaknesses of the justice system are that they include the police, attorney general office, and the courts; which creates legal uncertainty in society and in turn affects the investment climate in the country.
These factors alone are critical for the real progress of any economy. Any under-developed country must have issues with these factors. On the other hand, any developed country, for instance OECD countries, is likely to have better systems in terms of those factors. In addition, these factors can undermine economic development and create a high-cost economy. Hence, the political economy approach is very relevant in discussing the future development of the Muslim world.
An Islamic political economy within the framework of economic development is very important to address these non-economic factors. The Islamic political economy will not differentiate the issues of economic progress and the need for the strengthening of state institutions and for the creation of an enabling political environment.
Islam stresses the welfare of the society based on justice, mercy, well-being and wisdom; which are important political doctrines. The creation of functioning state institutions is critical from an Islamic political economy perspective since the state is expected to be able to protect human basic aspects such as faith, life, knowledge, wealth and posterity.
The Islamic political economy will emphasize more equal economic opportunities that will not just benefit members of society but also promote the need for investment-driven growth, a safety net to protect the weaker segments of the society, a good health system, universal access to education, an effective and clean judiciary system, a service-oriented bureaucracy and simplified regulation especially for business.
The socio-political change in the Arab world today, bringing down many old authoritarian regimes, to a large extent shows that there has been accumulated discontentment among the Arab people on how their state and the economy has been run. This happened previously in Indonesia with the downfall of General Suharto in 1998. The emergence of Islamic-led governments, which started in Iran and Turkey, and has continued in the aftermath of the Arab spring in Tunisia, Morocco, Egypt and Libya, will make discussion on Islamic political economics more relevant.
Farouk A Alwyni is the CEO of Alwyni International Capital. He can be contacted at
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