Perspectives on Morality and Human Well-Being: A Contribution to Islamic Economics

Preface

This book marks the culmination of a theme which I have been revisiting, like the ghost of Hamlet’s father, since 1978 – namely, the ethical foundations of Islamic economics. The theme is foundational because it explicitly recognises that individual economic well-being has a deep moral basis, which itself is rooted in religious beliefs. However, none of these statements is 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 contrived to reach pre-arranged conclusions, which are invariably nuggets of antediluvian wisdom. Consequently, such exercises, notwithstanding the scientific pretence, do not create new knowledge, any more than hanging autumnal leaves back on top of the trees may herald a new spring. What is urgently needed in the Muslim world are bold ventures in the realm of knowledge, beyond empty rhetoric and sterile formalisms.

All this must change to make our discipline relevant to reality. In particular, the deeply ingrained habits of enunciating infallible verities that defy obsolescence must be given up by the students of this difficult but rewarding discipline. The hard fact is that what is intellectually obsolete must be quietly discarded. Rather than staking out a claim about the self-sufficiency of traditional wisdom, the proper attitude should be one of humility – because here, as elsewhere, what we already know is only a small proportion of what we do not know yet. In a milieu of incessant change, a deterministic mindset extinguishes optimism about humankind’s capacity to change its condition for the better. The all-enveloping revolution in the realm of ethics and economics must, therefore, be reflected in Islamic economics as well. Its continued vitality and fertility demands a flow of new ideas. For want of them, Islamic economics may soon come to resemble truths, in Aldous Huxley’s words which begin as heresies and end as superstitions.

Fortunately, all is not yet lost. The present work foresees a flourishing future for Islamic economics, if it is delivered from the deadweight of conservatism and if it is allowed to flower in an environment where intellectual freedom is not considered as criminal abuse of the God-given gift of human reason. The key to success lies in the ability to see, in different times and places, the contrast between the extant economic reality and the prevailing religious ethical mores of society, and to design a flexible economic and ethical response to this contrast. This is hard work, but nothing solid can be achieved without it. To this end, I have sought to give a vivid sense of the Islamic moral vision in a logically rigorous manner, and I compare it with self-contained analyses of the secular, Christian, and Jewish moral visions. The aim is to determine the influence of morality in general, and of Islamic morality in particular, on the principal determinants of human well-being, especially those which relate to economic growth, distributive justice, and poverty alleviation; and to recognise that the constraints set by free-riding and assurance problems severely limit what (private) morality alone can do to enhance human happiness. However, recognising the latter possibility is not a recommendation for launching a vain search for nature-defeating moral perfectibility. It rather opens up a vast fertile territory that an egalitarian public policy can productively furrow – to correct the inequities of the existing system of rewards and incentives, and to provide redress to those adversely affected by it. In this context, the need for explicit moral guidance is highlighted in cases (e.g., economic growth) where Islamic ethical values are implicit or vague, or where these have fallen prey to gross misinterpretation (e.g., population dynamics, equality between sexes). It is emphasised that what is done in the name of Islamic morality should be seen by the people as fair and just – i.e., the procedures used to arrive at the principles of justice must be fair and the principles of justice themselves should be just.

To give it an easily recognisable face, and to highlight its originality, the Islamic moral vision is translated into an ethical system, which is then factored into four irreducible elements – namely, unity (tawḥīd), equilibrium (al-‘adl wa al-iḥsān), free will (ikhtiyār) and responsibility (farḍ). These elements (or axioms), in effect, state that all human activities are vertically integrated and horizontally equilibrated to produce moral, social, political and economic harmony and justice; and that these activities are carried out by a free human agency endowed with the powers to make a choice between alternatives as well as being saddled with the responsibility for the consequences of its actions. In this broader informational context, bringing ethical values, based on religion, into economic analysis in no way fetters the spirit of scientific inquiry. Instead, doing the former enhances the salience and reach of the latter. It becomes transparent that, as opposed to the limited reach of self-interestedness, a morally charged economic system can accomplish many an objective in one go: promote a high rate of economic development to ensure the equality of social and economic conditions (not just the equality of opportunity) for all in terms of their capability to translate material plenitude into the metric of individual happiness; safeguard the freedom to achieve social cohesion and political and social stability; and guarantee effective protection to the poor and the weak against the tyranny of the rich and the powerful.

The aim of this book is not to prove the absolute superiority of one ethical system over competing systems; nor is it to show that one or the other system enjoys some kind of an uncontested monopoly over knowledge and wisdom. It is rather to demonstrate that, within the parameters of their inner logic and societal compulsions, all ethical systems stand to gain from what others recommend to maximize human well-being. In other words, the universal messages of apparently self-sufficient ethical systems can be enriched by building bridges of understanding between them and learning from each other. With this overarching theme, it is intended to comment on the ‘secular’ advances in ethical philosophy and delve deep into the diverse historical experiences of Islamic, Christian, and Judaic religions to come up with the many ways in which moral ideals have been (and can be) reconciled with the ‘hard’ social and economic reality. It this context, worthy of note by Muslim thinkers (and, in particular, the ‘ulamā’) are the intellectual efforts made by the Calvinists and Levellers in Europe, and the Social Gospellers in the United States, to strengthen the processes of industrialisation and economic growth. Their success in abandoning the morally enervating doctrines of predestination, innate human depravity, original sin, and in freeing the mind and the soul from the weight of excessive dogmatism, greatly helped scientific and technological fluorescence in Western societies. The reasons why this has not happened in the Muslim world are many, and some beyond its control; but what has contributed most to perpetuate discontent in these societies is that, long ago, they gave up rational thought, ignominiously surrendered before the un-Islamic principle of predestination, and forsook the revolutionary concepts of human freedom and individual responsibility. Worse still, with sullen obstinacy, they have clung to statis and inaction when circumstances demand standing up to the difficult social, economic, political, and moral challenges of a fast-changing world. The net result has been to imprison human reason, underrate the power of scientific advance, and undermine economic progress and human development. The tragic reality is that the fabric of Muslim societies is falling apart around a conservative centre that can no longer hold the forces of change.

In a rather optimistic vein, it is argued that, for all their social and economic infirmities, Muslim societies still have it in them to do it better if they mobilise the full force of their moral ideals and translate them into a just and dynamic public policy. This is especially true of the luminous Islamic teachings on distributive justice and poverty reduction. Islam has stated these moral values much more explicitly and emphatically than has been done by Western secular and religious thought. The equality of mankind before Allah and towards each other and the poor having a prior right in the wealth of the rich are the two regnant Islamic moral principles which have survived the vicissitudes of Muslim history and wilful misinterpretations to tame the awesome waves of Islamic egalitarianism. By contrast, the tendency in the West to overemphasise unbridled individualism and to substitute public responsibility for individual responsibility has prevented it from satisfactorily resolving the fundamental conflict between the pursuit of self-interest and the commitment to work for collective good, notwithstanding its splendid success in vastly increasing the national wealth. Their dilemma is that collective goals, even when universally accepted, cannot be achieved through purely individualistic behaviour, which has a tendency to drift into an incapacitating isolation. In particular, the dominant libertarian secular philosophy – that insensitively denies the poor man’s right to aid, accepts the rich man’s (unlimited) claim to private property, and condescendingly advises the poor to help themselves – is deeply rooted in Western religious ethics. Thus, for instance, Christian thinkers (including religious scholars) have tended to reverence the attainment of riches as the supreme facility and regard the poor as damned in the next world [Tawney (1937); p. 265]. True, there have been some commendable efforts made in the West to escape from the stranglehold of its traditional religious positions on distributive justice and poverty reduction; but the differences between the old and the new still lie more in the mesmerising appeal of the chosen words and less in substance. Thus, distributive justice is still equated by Christianity and Judaism with the inegalitarian Aristoetlian concept of commutative justice – i.e., that which seeks equality in bilateral personal and economic relations – and the right of poor peoples and nations in the wealth of the rich is quietly ignored in intellectual debate as well as in policy-making.¹ The superiority of Islamic ethics in this respect comes out clearly in the recent relative economic performance of Muslim and non-Muslim societies. There is evidence that the (poorer) Muslim countries, on average, have done significantly better than the (much richer) non-Muslim countries on account of distributive justice. This result, which is decidedly related to their respective ethical heritage, is the more remarkable for all the impediments to distributive justice (e.g., feudalism) which Muslim societies themselves erected – and, unfortunately, sometimes justified in the name of religion. Yet, the manifest originality of the Islamic message in this respect notwithstanding, it is still unwise for Muslim thinkers to become excessively complacent and tradition-bound. ‘Secular’ moral philosophy would definitely help in articulating the Islamic thinking on the subject more explicitly and cogently as a guide to practical policy. Thus, for instance, the former makes transparent that Muslim countries have come out badly with respect to attempts at poverty reduction, despite the clarity of their moral message, because the unattended moral hazard and assurance problems would not permit private morality alone to address this issue comprehensively. The success in poverty reduction hinges on a proactive public policy that helps sustain high rates of economic growth and human development for decades at a stretch.

The Plan of Work

This work consists of six self-contained, yet logically and thematically connected, chapters. These chapters are developed as follows.

i) Chapter 1 presents an overview of the main theses presented in this study. Chapter 2 argues that an integration of ethics and economics offers a richer view of human motivation and conduct than that provided by value-neutral positivism. The basic premise is that such integration should yield a more accurate explanation of economic and human development strategies to convert material affluence into human happiness. Also, the analysis presented here prominently displays those moral values which quicken the pace of economic progress, help distinguish the better from the worse economic institutions, and emphasise restructuring the latter with a view to producing efficient and equitable solutions of economic and social problems. There is a growing body of literature now – known as public-choice theory – which insists that economists cannot sensibly avoid making moral judgements; and that economics would be the more effective for paying explicit attention to ethical concerns.²

ii) Chapter 3 demonstrates that the current practice of excluding religion as a source of universally accepted norms of economic behaviour, i.e., truth, honesty, impartiality, individual liberty, justice, equality, rights, fulfilling contracts, etc., has not at all been helpful, even in Western societies. Elaborate nonbinding general frameworks of ethical rules and norms are no substitutes for clearly articulated and voluntarily-held ethical mores which flow from the religious beliefs that are accepted voluntarily by believers as binding. True, the former embellish intellectual discourse; but they seldom spill over into concrete action. In sharp contrast, the latter get ‘internalised’ in individual consciousness. They act as effective sanctions against unethical practices – e.g., ‘free-riding’, ‘moral hazard’, ‘principal-agency syndrome’, ‘fraud’, etc., – which undermine the efficient working of market-based social and economic institutions. The internalisation of moral values has the entirely wholesome effect of reconciling private interests with collective welfare, at significantly lower ‘policing’ and regulatory costs than secular economic and social systems normally incur. Indeed, in the latter case, such costs are not adequately incurred because they tend to be prohibitively high; but this neglect loosens the moral bindings of the socio-economic fabric. Religious ethical values are now accepted as central to the functioning of an individualist, contractual economy [Hirsch (1977); p. 141]; yet this remains a minority opinion in the heavily secularised climate of Western thought.

iii) Chapter 4 asserts that Islamic moral values link the individual to collectivity, by balancing individual freedom with social responsibility; and gives a fairly detailed account of the basics of Islamic morality, especially with reference to central economic issues. Like all religions, Islam can accomplish its social objectives because it does not make excessive demands on the stock of scarce altruistic resources. Performing a morally edifying economic act itself enhances the supply of altruism; and, since it recognises a legitimate role for self-interested objectives (though not self-interested behaviour) in the running of a market economy, the demand for altruism remains manageable. An added attraction here is that, contrary to Western (secular) thought where religion is seen mainly, if at all, as an instrument to achieving better economic results, Islam regards religion to be constitutive of a fuller human life in which material and spiritual urges of humankind coalesce. It then goes on to investigate what that means for a smooth functioning of a market economy.

iv) Chapter 5 gives a thorough analysis of the Islamic ethical system, and its ‘inner’ logical structure. It shows that the system can be effectively used to spell out and implement Islam’s moral vision, and to broaden it by drawing selectively on ‘alien’ philosophies. Chapter 6 attempts to test the implicit hypothesis of the preceding chapter, namely that an ethics-based economic system need not become altogether dysfunctional and that it may even energise economic agents to work for the betterment of society. The supporting empirical evidence, which is presented here for the first time, gives both the strong and the not-so-strong aspects of Muslim practices, and to some extent, of Islamic ethics. The general points that come out are: (a) morality makes a significant impact on an individual’s economic and social behaviour; but that the microscopic power of religious morality makes it even more effective than secular morality in achieving social goals. (b) Religious moral values guide only if these are explicitly and emphatically stated. (c) They misguide if not properly interpreted and if they do not creatively respond to the needs of society. And, finally, (d) a proactive public policy must supplement private morality to maximise collective good.

These are only a few glimpses of the (admittedly modest) effort to make, as Frank Ramsey put it, a lot of things clearer (though nothing absolutely clear) as regards the large number of moral, social, and economic problems that human societies in general, and the Muslim society in particular must face and respond to. To this end, it draws on apparently diverse fields of knowledge (economics, ethics, mathematical logic, and doctrinal history) to weave together a logically valid, Islamically authentic, historically correct – and yet a readable – account of the many ways in which humankind has endeavoured to crown its incessant quest for achieving greater material prosperity – and to have an ‘inner’ peace – with success. The present work rejects the intentionally vicious doctrine of the clash of civilisations, which has already consigned the world to the flames of a deep moral crisis, fanned by mutual hatred and total anarchy in international, political and economic relations; and which, above all, has benumbed the individual’s sense of compassion and morality. Instead, it seeks to cultivate mutual understanding and trust between peoples, nations, and civilisations. Within the confines of its subject-matter, it proposes an intellectual platform where a minimum inter-religious and inter-cultural consensus can be reached about the relationship between morality and human wellbeing, while leaving plenty of room for discussion, debate, and dissent. This platform can even become the basis for launching a bigger political agenda to forge unity in diversity, restore harmony to a world in a state of moral disarray, and help bring some cheer to the hearts of the peoples and nations left behind in the race to economic prosperity – all to fulfil the Divine Purpose: "O Men, We created you from a male and female, and