Public Policy in the Islamic Economic System

All public policies shape economic developments in a community. The direct policies needed to support development in the Islamic economic system are those that are targeted to achieving the Islamic vision, which consists of these areas:

• Freedom for all members of society to pursue their economic interests
• Economic justice for humans of all generations while preserving the interests of all living creatures
• Equal opportunity (education, healthcare, and equality before the law) to succeed
• Provision of good jobs for all who can and want to work
• Personal property rights and sanctity of contracts
• Equitable distribution of income and wealth
• Poverty eradication
• Basic need fulfillment of food, shelter, and clothing when private alms giving is insufficient
• Management of natural and depletable resources to benefit all members of current and future generations
• Abolition of corrupt practices
• Supportive financial system that excludes debt and interest
• Minimum level of public debt (of course, not tied to interest)

Given the Islamic preoccupation with individual rights as well as obligations, the role of the state (Chapter 9) should be minimal in an Allah (swt)-conscious and law-abiding community. Humans aware of the rules set out in Islam would abide by them and do all that they can to ensure that all members of society are rule compliant because they realize that life on this plane of existence is merely a test for the Judgment Day that all must face. If a community follows the set rules, it will thrive. State policies and intervention are thus only needed as collective action because individual action is not possible—in areas such as construction of infrastructure, safeguarding the interests of future generations, establishing and implementing a just legal system, and providing for national defense—or when individual humans have not complied with the set rules and society needs state intervention to get back on the right path.

It is almost impossible to measure and assess the adherence of Muslim countries to all these Islamic teachings on economic governance and management. However, we can get an indirect insight into some of these areas, including those listed next:

• Quality of institutions
• Quality of governance
• Market freedom (for goods, labor, and financial markets)
• Economic freedom
• Corruption elimination
• Progress in poverty eradication
• Overall income distribution
• Prevalence of wealth hoarding
• Quality and availability of education
• Employment opportunities
• Equity of benefits derived from natural resource depletion
• Independence, effectiveness, and fairness of the legal system
• Level of private and public debt

The brief discussion that follows assesses the broad performance of members of the Organisation of Islamic Cooperation (OIC) countries in some of these objectives that are important elements stressed in the Islamic system—education, gender, health, income (wealth), inequality, poverty, and environment/sustainability—relative to other country groupings.

Dimensions of Economic and Social Achievements in Muslim Countries

In Figure 14.1, we show a 30-year trend of overall human development for the OIC countries in comparison to other regional and country groupings.¹ We use the United Nation's Human Development Index (HDI), which is a composite of three indexes: the Education Index, the Health (Life Expectancy) Index, and the Income (Wealth) Index.² It is clear that over a long period of time, the OIC countries have consistently underperformed relative to the world average in broad-based economic and social development. What stands out in the figure is that the OIC countries as a group have consistently underperformed many other country groupings. However, a subset of the OIC, the six countries of the Gulf Cooperation Council (GCC)—Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates—have performed above the world average (although still below the countries from the Organisation for Economic Co-operation and Development [OECD]) over this same 30-year period.

In Figure 14.2, we display the 30-year educational progress of the OIC countries as measured by the UN Education Index.³ Education is generally accepted as a major input into economic growth and development. Moreover, “education” (including its attributes, such as “knowledge”) is the second most often repeated word in the Quran and was also repeatedly stressed by the Prophet (sawa) during His lifetime. Over the last 30 years, it would appear that OIC performance has been consistently well below the world average. It should again be noted that a subset—the GCC countries—has performed above the world average but has still remained well below the OECD average.

The empowerment of women and gender equality are key to achieving a healthy and sustainable economic and social development. They not only promote economic efficiency but, as the World Bank notes, aid in enhancing other types of development by “removing barriers that prevent women from having the same access as men to human resource endowments, rights, and economic opportunities. Giving women access to equal opportunities allows them to emerge as social and economic actors, influencing and shaping more inclusive policies. Improving women's status also leads to more investment in their children's education, health, and overall wellbeing.”⁴ In Figure 14.3, we measure how active women are in the labor force.⁵ When it comes to women’s participation in the workforce and in the economy, the OIC countries have fared much better than the Arab region of the OIC—particularly the GCC countries. The gender performance of OIC countries, excluding the Arab countries, has been almost consistently above the world average and that of the OECD countries, but the performance of the Arab countries in fostering gender equality is disturbing, namely, it lags well behind the world average and all regions.

To assess progress in addressing health issues over time, we use the UN Health Index, measuring life expectancy at birth. Human health conditions in the OIC countries are far below world standards (see Figure 14.4).⁶ In this indicator, the Arab countries have consistently performed better than the non-Arab OIC countries.

To assess the income or wealth of a region, we use the Income (or Wealth) Index of the United Nations.⁷ The Income Index measures the living standards of countries in terms of gross national income (GNI) per capita in terms of purchasing power parity in U.S. dollars (PPP$). The results can be seen in Figure 14.5. Overall OIC living standards are well below those of the developing Arab countries, as the per capita income of the GCC countries is on par with the highly developed countries of the world and the OECD. To get a more comprehensive picture of the wealth of various regional and country groupings, we also examine income and wealth distribution. Again, as we have said many times before, economic and social justice is at the heart of the Islamic system—equity and the eradication of poverty are absolutely central. In Figure 14.6, we present the Gini coefficient of the regional and country groupings. The information concerning the Gini coefficient is mixed because of missing data and, as a result, may be somewhat misleading. Although this should not negate the fact that income disparity in the OECD countries has risen and is now on par with that of the developing and emerging world, it should be underscored that income disparity in the OIC group, and in the Arab region, has remained constant over the last 30 years. To gain further insight into the overall income-wealth picture of various regional and country groupings, it may be helpful to look into prevailing poverty levels.⁸ In Figure 14.7, we display the poverty levels, as measured by the percentage of the population that lives on US$1.25 (PPP) or less per day, in various regions and county groupings.

Because of data limitations, we were not able to assess environmental management over time. We can only examine the latest available data for the Environmental Performance Index (EPI) for 2010 (see Figure 14.8). The “overall EPI rankings provide an indicative sense of which countries are doing best against the array of environmental pressures that every nation faces.”⁹ It represents both the environmental health and the ecosystem vitality of countries. The OIC countries trail the world when it comes to environmental responsibilities.

As we have emphasized a number of times, there is little evidence to attribute the subpar economic performance of Muslim countries to Islamic teachings. Just because countries that profess Islam have had subpar economic performance does not mean that Islamic teachings are the basis for their failure. To the contrary, as discussed, Islamic teachings are fully supportive of sustained growth and prosperity and hold as central tenets efficient and sound institutions, free markets, market supervision, sound governance, equal opportunity, sanctity of honestly earned income and wealth, rule enforcement, transparency in all business dealings, the importance of education and good health, poverty eradication, financial stability (by embracing equity as opposed to debt financing), admonitions against corruption and hoarding, and so on.¹⁰ In fact, it can be argued that Islamic teachings on economic development and growth are similar to the foundational elements of capitalism, as espoused by Adam Smith, which are the evolving recommendations of modern economic development theories—but with a strong dose of justice.

Summary

The Islamic goal for society is to develop and grow on the basis of Allah's (swt) Divine rules and the guidance provided by the Prophet (sawa). If humans follow His rules, development and growth would be balanced—political freedom, freedom of choice, trustworthy society, equal opportunities for all with the preservation of all rights of the disabled, equality of religion, race and gender, no extremes of wealth or poverty, good jobs for all those who can work, provision of a dignified life for the disadvantaged and the disabled, and preservation of the rights of all humans of every generation in the environment and the natural resources bestowed by Allah (swt). If humans follow His rules, they would develop and grow beyond their wildest dreams, be spiritually fulfilled, be materially satisfied, share with other humans and remove stumbling blocks to their development and fulfillment, be exhilarated by life in a just society, and experience the embrace of Allah's (swt) unity of creation. Allah's (swt) prescription from about 1,400 years ago of rules, rule compliance, and effective institutions is valid for all time. Conventional economic thinking, since the writings of Adam Smith, has arrived at a similar point but unfortunately without the scaffolding of sharing, ethical behavior, and justice.

In the West, the issue of justice has taken on increasing importance in the last 40 or so years as a result of John Rawls's seminal contributions (A Theory of Justice, 1971) to advancing the conception of justice and to a vast body of empirical economic analysis showing the shameful and growing disparity of wealth and income between the haves and the have-nots. While Rawls's theory has not been operationalized into rules that could be implemented, let alone practiced anywhere, the rules laid down in Islam about 1,400 years ago were designed to develop a system that had justice at its foundation. If these rules are followed, justice would be established with “everything in its right place” and everyone “receiving their just due.”

Key Terms

1. Human development
2. Economic development
3. Equality
4. Gender equality
5. Growth
6. Education
7. Poverty
8. Wealth
9. Environment
10. Justice
11. Rules
12. Institutions