Wednesday, August 18, 2004

Islamist Economics

In Economics and Islam [Aug. 12 "New York Times"], Virginia Postrel discusses a new book, "Islam and Mammon: The Economic Predicaments of Islamism" (Princeton University Press), by Timur Kuran, professor of economics, law and Islamic thought and culture at USC.

"Islamic economics," it seems, was part of the cultural separatism and Muslim identity movements that emerged in what became Pakistan during the 1940s, at the time of independence. It arose along with Islamic sociology, Islamic democracy and Islamic constitutionalism.

In recent decades, Islamic economics has come to mean three things, all supposedly rooted in the "golden age" of seventh-century Arabia: a ban on interest, a wealth tax known as zakat, and honesty and altruism in commercial dealings.

Islamic banks spread with the booming oil wealth of the 1970s. Instead of charging interest, they were supposed to share profits and losses with the enterprises they finance. It rarely works out in this purist form, but the intent is there, it seems.

Kuran, by the way, echoes many moderate or reformist voices in other areas of Islam, by saying the purists not only take the Qu'ran too literally, they take it to illogical extremes. He argues that the Qu'ran's famous ban on riba -- usuary -- is not, in fact, a ban on the charging of ordinary interest.

Riba, he writes, was a practice in which a "borrower saw his debt double following a default and redouble if he defaulted again." In other words, it was an extreme case, a sort of debt-slavery (and in fact it often ended in literal enslavement of the debtor). So in banning it, Kuran says, Muhammad essentially did what modern Western bankruptcy laws did: limited the penalties for default.

Postrel writes:

Islamic banks and businesses have their merits. In rapidly growing cities, they often provide valuable social services and give newcomers a trustworthy network of commercial contacts. In theory, an "Islamic subeconomy" could serve specific religious needs, just as halal butchers (or kosher ones, in Jewish communities) do.

But then Kuran puts his finger on the difference: kosher butchers in Brooklyn don't attempt to force New York State to ban the sale of non-kosher meat.

Islamic economists not only want their own banks, Professor Kuran writes. They "desire new regulations that would force all banks to limit themselves to variable earnings and commitments."

"And they want interest-based banking outlawed."

Islamic economics, he writes, "has promoted the spread of antimodern, and in some respects deliberately anti-Western, currents of thought all across the Islamic world."

Kuran, in this article, makes another observation worth noting. Like puritans in many doctrines, the Islamists, in connecting the present directly with the moment of origin (in their case, the mid-7th century) completely erase the intervening history of their faith, and thus deny themselves many creative examples of advanced, yet Muslim, societies. In the process, they insult their own civilization.

"One need only think about the high periods of the Abbasid Caliphate, Muslim Spain, Safavid Iran, the Ottoman Empire, and Mughal India," Professor Kuran writes. He began researching Islamic economic history after realizing that Islamist accounts omit so much of it.

"I felt that they did not understand the immense strengths of that civilization," he says, "and they were in no position to understand what went wrong."