fournal of Economic Behavio; and CQmizadon 4 f 1983) 353-379. North-Hniland

BEHAVIORAL NORMS lt!Y THE ISLAMIC DOCTRINE 01: EC+3NOMKS

A Critique

At the heart of the cuntanporary Islamic doctrine of economics lies a set of behavioral norms derived from the fit% Islamic society in seventh century Arabia. This paper demonstrates thaat thy zww C~QSO! 5E C;X~SS& to SET-Z IS ‘& S~C&SXI 0: a dtive for mi&rn ~CCKHXD~C devclspment. For oni: thiag, the proposed norms are unlikely to enjoy widespread adherence in large SUCi&S Wh ii i i ciitlblt t9 8chieVe 8 COmInOn prceptiOn of reaIity, elicit generalized altruism aJId OYQW~J e the free rijer problem. Yeamdly, many Islamc norms are ambiguous, and some interfere with institutions designed to improve the workings of markets.

I. Iatroduction

A conviction gaining currency among costernporary so:.;al thinkers in the Muslim world if thai healthy econorric deve opment entails subordination of all production, e rchange, and consumption &&ions to the behavioral norms of Islam. The economic woes of Muslim cc,untries, many scholars conrend. are due in large measure to departures from Islamic codes uf conduct: if only the individual Muslim had n.ot abandoned the norms prescribed by his religion and succumbed to his greed for material g&n, Muslim society would be kee of the tmckwardness, poverty and inequality which characterize it today. T*e doctrine of economics put forth by these scholar:, which is at once a refloetion of public opinion and a poweM force shaping it. has considerable influence on economic behavior throlnghout the Ml sli n world. An analysis of the assumptions and arguments that underlie tk Islamic doctrine can thersfore enhance our understanding of tk cconomii ~obicms faking Muslim ccuntries,

01fT-2681/83/%3.W @ 1983, Eiscvier Science Publishers B.V. (P1!0rth-ifofl~nd)

r& in the &&are on &am&z economics. Meed, many scholars, including M_N. Siddiqi (19gI, p f)b, a widelyquoted pmpmmt of’ the i-kmic systm, cmskbr mst of the difkrences between Islamic economics and Western ec~nlinE (I ~eoclasska~ and Ma&x) to be rooted in behavioral norms. NIy concern with. the co~tcrn~r~ literattire? as opposed to the body of thought that -emzge& 31: sevnthr infiuence on current econo While in formd terms the modex~l d&$r!~e bears strong resemblar~ce to the origkal IIslamic: source!+ its act& ~‘&@a.&+ as convincingly argue4 by Asaf AA. Fyzee (1%3), Fazhx Qhman f1982) a.r@ many others, is si@fkaatly different.

Norms arc stand;&$s of e~duct M&h tidividuais follow in their activities. Like. forma1 krs and rirllq tl~~y serve to @de and restrict the individual3 choice of actions. Where thlzy differ is in the me&&m of eriforcement. Laws and ruks are enforced. by an ~utsk& au&or& - the former by the state and t&e latter by an organization or group of individuals - tihile nvnns are “for+ by the irt.ditidualk ,own ccx~xienc~ i In -t,he Islam@ do&r& the role of g&ding t&e i&&k.l’s *non& a&ions is given to f)om as; an inferior akenratke to XlonnS. laws an& r&s are imposed o&y as a last resort w&n norms fti to ‘elicit Ihe ‘desired behavior,

Why, one might wonder? is there any need to guide and rest&t the i mdividual’s economic behavio,,? The Mamic answer to this questk+n biages on the assrrmptiou that rn;au’s inn&c seifkhne.ss motivates him to take actions con&ting wit&k the ~cneral gocd of soci4zt.v. This assure ption impties, according to thz I&mic st;hoIaB, &at there can be no peace qrr harmon:! In ti community of seEseeking individuals, and therefore, that each individual is doomed to kecurity and &nha&ness unkss everybody’s selfishness is srmebw temgmfx!. The role of re&raining mati*s seh&h impuks belongs in the kkmk system to ~x~rn~s based on&e Koran and the Sunnah, the latter co- of rk+&kct~~r~s -6f wh&t’ Pk$r&t Muhatiad dkl and said during his &ink~ ~$‘he~-~loktke sy&em’ bf fsiam,‘wtit& ‘$yed I’?.& Naqvj (19gfb, pa EQ, *&joiris the “b&t” c&i&titi~n df the proo&tctio.rx ‘structure and a just bak~mce between rival c&rims Ori the consumpti6n, production rend distriiution activitie$?

Cornpak this 6ew -v&h. the pkopositioa, whkh has dominated Western economic thought at leaut since Adam Smith, that individuals who pursue thek own gairr are feli by an ‘invisible hand’ to promote the broader interest

of society. !n cmtrast to the Idamic dcstrine, the doctrine of the invisible hand ascribes no explicit role to behavioral ntorn~s.~

2%~ a~gum+~~t t&t the IsIan& norms are well-suited to improve the fun~tior~ng af $n CXX.MMB~~C S~SSXD is b&&red by e4dence from the earliest days T.$ IS&MB, ‘About MM ago’, 8tW Waqar Ahmed Husaini ( 1980,

,SVS&~ a new Irum~ spirit [t&f changed the ideas. POE&Z cmdition% and other cuIturaI phenomena in the

n&n and BmrJltine Empires, North Africa, ia, and other regions.” And on the same note

~ukmmad AbduCRauf (1979, p_ IM) writes, ‘A: (‘Pie fskmic state expanded and iworp0rate.d mcwt c;f the territories then known, Muslim leadership waf CMfkontaC: with irmlmerablt problems, which they resolved with an amazing degree c&#kkn~y.

con US has the golden age of Islam spanning the L’rophet’s lifetime and the tsaufi bet-n AD. 632 and 661 of fhe fuur ‘rig’;?tly-guided’ c:~lipk4 Thereafter, it is bel&~~I, the fabric of Mus!im society began to disintegrate a~ ‘the spirit of sakfke and generosity’ inspired by Islamic values and injunctions was ‘yrogretiwiy conquered by the poweifu:; corruptive forms of possessiveness an4 love for pea&h [Abdul-Rauf ( i9W, p. 141)]. Con- tempsrary writeis are united in the belief that the ideal crder could agaiu ‘be achieved today by arousing the potential of true human nature to establish Islamic social just&’ [Husaini (FMX p. 13\]. The norms that worked woi;&ers in seventh censury Arabia., they argue, could do the same in any of todzy’s societies.

The fti that norms piay a role in the Islamic doctrine is not at all surprising in and of itself, since all economic systems, including the advanced economies of the We& make use of behavioral norms to resolve free rtdel and ceordination problems. Free rider problems ari.se when each of thr individuals wkh P common interest ia performance of a collective kask chooms to m&e others bear the: cost; the task then fails, even though the cotltxtive benefit from its completion exceeds rhc collective cost. Such problerna are ovc~corne in actual economic systems throug.‘h Isws, rules antj norms that cause individua’ls to farsake personal gains for the Iarger benef? of s&ty. Pollution controls and the military draft are examples* of the laws individuals coilwtiveiy devise: to eliminate the free rider problem b:. ~~~st~~inj~# their own behavir!r; the ba-laws of crgakations are among the

w&s imps.& for the wrnc pqwse. A~F for caordinalion problems, they ark

356 T. Kuran, Behavioral norms in Islamic economics

in situations where there are several mutually beneficial states of the world toward which individuals can aim their actions, but where agreement on which particular state to target is unlikely to be reached in the absence of some form of guidance. Regulations that force people to drive on the right and rules that require members of an organization to abide by specific work hours (say, nine to five) are solutions to coordination problems. 5

Norms tend to be used to resolve free rider and coordination problems in some types of situations where surveillance and enforcement costs are so high that laws or rules are infeasible. The task of keeping the countryside clean is, for instance, accomplished in many societies through norms, because anti­litter laws are prohibitively expensive to enforce.6 Similarly, societies use norms to enforce codes of etiquette. Among the other collective tasks where norms play an important role are blood donation campaigns, fire control activities, and voting in national elections. Societies inculcate a diverse array of norms into their members through the family, religion, schools, peer groups, traditional literature, the media, state propaganda and various forms of folk wisdom.

Thus, the Islamic doctrine captures an element of reality when it ascribes an important role to behavioral norms in the economic system it envisages. This is commendable, particularly since mainstream neoclassical economic theory, which constitutes the backbone of policy discussions in much of the world, pays almost no attention to norms. Indeed, there is little in the neoclassical literature to indicate that behavioral norms - in the form of moral codes, religious injunctions and ideologies - are used to reduce the costs of enforcing constraints on economic behavior in actual economies.

But the principal strength of the Islamic doctrine is also its most glaring weakness. For the normative system of Islam is expected to provide perfectly well-defined and clear constraints on individual economic decisions and to be applicable with equal force to all societies in all stages of development. These factors, as we shall see, open the Islamic doctrine to criticism on at least two grounds.

The first basis is that the doctrine takes no account of the finding of modern social science that as society expands norms become less effective as a means of achieving social cooperation and coordination. The loss in effectiveness, which results from an increasing frequency of violations, causes society to discard some norms and supplement or replace others with written laws and rules. For instance, norms requiring individuals to engage in charitable activities are supplemented as society grows by mandatory taxes designed to guarantee the transfer of some resources to the poor.

'Using a game-theoretic framework, Ullmann-Margalit (1977, chs. 2 and 3) analyzes numerous types of free rider and coordination problems and provides many instructive illustrations.

6A discussion of the role of norms in overcoming the free rider problem is provided by North (1981, ch. S). See also Arrow (1974, esp. ch. 1).

:.- “1IzlWi dVtXi if it Wer~,,trUe tbt the Ishmk norms were fully effective iyj the Of’ the seventh century, ‘this in no way guarantees their

modern e~onon~y. But in-.oiny case the. GIaim that the norms e !ia. thq.gc@zxCa is:. I$kd by the J&&xi& rmrd, which

:~~~~~ j ‘gfT&k rs)@@iicsv.w~ :iacrewrrapi&y ,w the. $&&c

~~~~~~~~ &.I%%.~& i&H. !!@ne;:d tfilt?;. &hoe cm .this point will be, presented in: th& c-~~rae-&&; s@ment, even- though this paper & not intend& to be hi@o&&, ; . ..‘:. ,_ ,_’ ’

The ~~~~~~~~~ for,criticism is j that the Islamic nor~cts are ambiguous in .I?Ia$)y.,jC$:;th‘z:: ‘4 c9f.-?,3*~&~~~~to ~,.whi& dwy are. expected to apply, In these ~~t~~~; uheu;. eonstit?ite a rather pour substitute for the detailed laws and

haye *W&M: in :the course of economic develoggment in societies !3e,toda~, .(, II .~.~-:

te p-x&ding titIm ani outline and critical evafuation of Islam’s normative system, as interpreted by contexnporary Iskmk economists,’ it is important to note that the Isllamic doctrine ha.s a huge number of proponents. A bibliography compiled in 1978 lists 700 recent sources on Islamic economics tind the number is increasing rapidly.” Not surprx~hngly, the- .propnen& qf the dsPCtrine have varyilgg views about what the Islamic noranq;* -;irre - and about whkh ncprms, if any, need to be supplemented by f0nna.l -~egislation.p

At .one.end of the, spectrum are the fmdamentalists who seek liter&y to ~turn to the perceived simp%&y of the Arabian economy during Islam’s e=ly ye,axs, The.fundamenta&ts’.eEorts are directed solely at discovering the model. of that ideal. ecomxuy. FuGy convinced that nothing needs to be added,to the m&el, they are strongly resistant to the scientific spirit and to a:ross-cultural exchange of ideas and institutions. At the other end are the rgformgzrs, who see& to create a ~t$w economic system which, while being

.’ 3 am w&‘;hc &ap kmmmpoifary’ to denote the pm-1964 era Tlms, I shall not cundder

su13 @&-sindiiienti~ kd early- &d tid+&nt&th cenhtry writers as Sayyid Jamal ad-Din AfEh&ui, I&b&n&l Abduh, Mulknmad Rasliid Rida, Ali Abd ar-R&q, E&M ai-Bannrp and Ml Jmmmad~Ghazml&qacl~ (f whom baa~pMxmdly influenced cxmt~~porary k+rki~ ithinking. Tc, my- Y@owlpjl!pq @cc+ ,+mats no satisfqpry m&al study of xpzc: mmMc views of these tli&m..l?i-q an a&&~ ofTi%% politic&l vxews, see Enayat (1982) and the referem%. ‘herein.

“$%kistairi &item am’ lm&ily represrmt& iu this ~b~~~a~hy by Siddiqi (19el), whkh is ~_,fiaad to wmks its &abic;, En&& and Urdu. They also figure prominently 3~ the fmsmt paw, ,w@ich mij,s ppimarjly on ~~li~~-~~n~a~~ sources. This ~v~~~!~~~~~~i~~ is unlike:ly, however, to iotrcxiucr: a serious bias ‘into my i~t~~~retati~~ of the Hslamic doctrine, because the l~~~~.s~a~~ ~~t~~s are quite fop&~ in diverst Muslim circles, as evidmxd by the sq port they me&u! from ~~ve~~~~ts and private arganizatisna fmm wo:Id, ~~~~di~~ Sazx$ A~~1.b~ and Libya. Also, scme of !k wvks 0x1 bawd are rranslations lkcm Arabic.

9One source cjf ccmtmversy is the Sunni-Shia stism and the di~~~j witty each of Ehest: f doubt r%sore important, is the ctbnie, pli?icaf and cultu& 1’ e ~~~~~~. A ~~~~ SW f c~9~t~~~e~~~ i‘s Skittt tb

so the: ~~~~~t Zlawz

,~Mr~o~~. on this hst point, sm ~6~~~~t ~~~~~~.

he honest in iciness dealings. (m?I, p 19)* kYQlves ‘k

for a YilU EmmIre and ) mites: ‘A mly Muslim entrepremur wbs can

at cheaper rates will arever m&s.” Some scholars would

ng it mandatory to specZy in rice, ~~u~~~ly ruling out or is also required, acm~ding

* to his employees. ‘d

on s0cially waste; 31 or

360 T. Kuran, Behavioral norms in Islamic economics

individual must stop at this point.' Given that resources were created for the benefit of mankind, the individual member of Islamic society is also obliged to make sure that his wealth is not abused, destroyed, kept unutilized or 'squandered on idle pursuits'.18 Most authors are careful to point out, however, that the Islamic economic system does not require the individual to be an ascetic. It encourages him to enjoy the bounties of civilization -provided he stays within certain limits.

The remaining consumption norms are all intended to attenuate gross inequalities of income and wealth, which may emerge as a result of variations in ability or opportunity. Private property is permissible and a modest degree of inequality is viewed by the Islamic scholars as the inevitable consequence of a healthy incentive system.19 Yet, whatever the level of inequality, some income redistribution is considered necessary to guarantee a minimum standard of living to the less fortunate members of society, including widows, orphans, the aged, the handicapped, and the unemployed. Able-bodied beggars are not entitled to assistance.2o

Organized redistribution takes place through zakat, an annual wealth tax, and the inheritance tax, a complicated scheme designed to prevent the 'intergenerational snowballing of wealth,.21 But there is no consensus among Islamic scholars as to the rates of these taxes or their scope. Regarding zakat, some scholars advocate the exact system developed in the early days of Islam, which involved rates varying between 2.5 percent and 20 percent on existing forms of wealth, while others favor both modifying the traditional rates and taxing new forms of wealth, including machinery and stocks.22 This lack of consensus notwithstanding, numerous scholars regard zakat as a cure-all. For example, Azam (1978, p. 123) writes: 'Zakat transforms the whole mentality and outlook of the people - and therefore, the social system itself. People become welfare-minded by nature and temperament .... The whole pattern of consumption, production and distribution IS

transmuted .... Zakat [fights] hoarding, waste and poverty in one go.' Unorganized redistribution, more interesting from our standpoint, is

induced by a norm requiring the individual to make additional charitable donations, presumably to people of his choice. One writer, S.M. Yusuf (1971,

18Chapra (1970, p. 151); see also Mannan (1970, pp. 87-97), Afzal-ur Rahman (1980b, ch. 5), Muslehuddin (1974, ch. 9) and Abdul-Rauf (1979, p. 132). Some authors, for instance Mannan (1970, pp. 82-83), distinguish between three types of consumption goods: 'necessaries', to which everyone is entitled, 'comforts', which increase a person's efficiency but by a lower proportion than they increase expenses, and 'luxuries', which reduce a person's efficiency.

19See Nazeer (1981, p. 20) and Chapra (1970, p. 16). 20See Nauer (1981, pp. 20-23), Chapra (1970, p. 155) and Yusuf (1971, p.59). ZlNazeer (1981, p. 23); see also Abdul-Rauf (1979, pp. 137, 139) and Chapra (1970, pp. 153-

155). llAIl of the Islamic economists referenced in this paper have something to say about zakat. A

particularly detailed account is given by Afzal-ur Rahman (1976, chs. 14-18). For an outline of the controversy, see Siddiqi (1981, pp.22-26).

guirieiine: ‘capacity for contribution to social to by the amount one is able to spare after

which. ir commonly enjoyed by men of one’s orgg $nq$i@ by the: ,foNgkq~ statement of

~CS~,BVHI st?qgger qtioa: ‘A Muslim is not tcl withGut letting, him sha iti nor should he, h new toys unless he as presented his,

se norms will in practice be followed ~p~o~y~ %&at, for instan%. ensures that the individua.1 member sf &@I& kgky w# :bc. -totally hoxxst, and make the charitable donatiom rqq&$&by the &kunic doctrine? The answer of the Islamic writers hinges on @+U$ormalioq. of unrefined horn0 ecrorramicus into how i&unicus. They offer : tyo. distiact avenues for thig transformation. The farst involves mo&&xtion of preferences. Islam, they claim, alters man’s state of mind SQ t@.~,per@ve~ h&s&not as an isolated individual but as one component of the Jarpr community. This change curbs his personal wants while making him gq@x@y &erested in the welfare of society.23 With his selfis5 desires regulated by a spirit of brotherhood, man turns into a sccial being who derives pleasqre from helping. others.

The second avenue involves internal restraints on man’s actions. Ram that religiorr, cannot always succeed in transforming man’s socially undesirable pteferences, the Islamic scholars &o stress the role of Islam in preventing man from acting upon there preferences.24 The regulation of man’s actions - as opposed to his preferences - is achieved by instiling in him a concern for the aftexlife. Islam, like most religions, conveys the message that man’s actions are b&ng judged and that he will be rewarded after deaa for good deeds and putished for bad deeds. A belief in the truth of @is rnwge motivates; man to choose to society even when th$ service .pre@udes satisQing4orne of his personal v

Me*?, @fGntcrest in altruistic behavior is also conveyed through the teaching that dtsuism constitutes a social insurance me?:hanism: in a society of shariqg, individu& everyorrt, is freed from the possibi ity of hel;4essness in case of grave mnomic loss [Husaini (1980, pp. 131--134)“J. As with any

the Eslamic one must, of c x~se, face up to the overborne, ~c~or~i.~~ to the lo

age swiety cannot affect

I& will or will not

if the redivide

wasteful and therefore corn&ary to the ~s~ain~c norms. YE or similar reasons om-2 Would expect the Islamic Dorm rp-,uirilag firms to charge a ‘fair price’ to be largely ignored iltr most instances, t ‘en if all emrepreneurs knew precisely what *f&r price’ meant.

The foregoing arqmenr sho& not be taken to mean that the ~s~arn~c tlorms would be totally ineffective in zk large society. This, as I have emphasized earlier, is trot an issue her:. Indeed, one would expect an ~n~vid~~ raised according to Islamic precepts to display some form of Islamic a~tr~srn toward at least some members crf the community, probably his &mily, friends and other groups with which he can identify. Atad as

(1982, p 37) has note in a more general context, a 13ocial y, caused, say, 6:~ war or an earthquake, might so alter the

in~v~d~a~s perception of the social ~t~ity of altruism that he CRooses to abide by most of the Islamic norms u&l the emergency is ~ver.~~ What my argument does suggest is that the belief in Hslam must secure cooperation on a coraEinuous basis am0 w-so real imeraclions with +ac I

eraes on sociaI arad

This srnalg 5: ’ is csverlarc~lcs the fact that as s6Pcie: y grows, s 13,lr.i dj~fiSj~~ (If hbCW allOW individuals i0 haVC. diff~~t3lt day-to-d ny experien:;e~ and ~!ev::kq~ d~~~r~~~t conceptions of reahity.41 In a small, homogeneom? society 5B~here there is little division of labor, it is possibI.;: to inculjcate commor values in al! members because their experiences - and therefore their perceptions of reality - are similar. In kf large %,sciety, k.owever, where people WO& in many diRerent e~~~ir~r!rn~n~s, experimcing I nany differelat joys and frustrations, i~di~idwa~s differ 21~ their jud&mer?s corccrning equity and effrc:ienc:y. Thus, even if they all go through the same educltioi-ial system smne individuals heconre more receptive than otl ners *o a given set of nrxms,

Another problem with the agenda for inculcating the Islamic not-ms is that it ignores the possibility that a Muslim society comprisin~~ bu; on: sector. of an econsmicaHy interdeper:dent world will be open to \?ut iide influences. Mow in an economically ic terdependent uo::ld will indiv!dua Is br: kept free of contamination by other modes of behavior, whet;ler in regard !O consunl stion or business? In a small, homogeneous coi;lmunity. gzo- graphically isolated from the rest of the world, it may be pcssihle to keep non-Muslim influences a bay. But in lhis age of easy co_mm~.rnication, F3st transportation and fierce economic t ompetifion among countries, where success in business of:-en hinges on rapid adjustment tc changing opportunities, bw can one expect all members cf socie,l> to cornpi? voluntarily bith the multitudes o.! I:orms proposed by Islamic scholars? Closing themselves off tls foreign ideas might, if nothing else, put them a+ a disadvantage vis-&vis non-Muslim competitors in international markets.

It is reasonable, therefore, to expect that at least some cf the Mushms who come in contact with, say, proFitable Western banking m~,:tho&. would choose to adopt these methods at home, particularly if -the methods are regarded as ethical abrsad. Surely, strict enforcement of the Fslarnic norms would require net onl:yr education but ;alse scme sort of aaercion, a possibility rliscolunted by th:: Islamic scholiars. If in the Isiamic order individuals ue not barred fr;)m traveling to non-Muslim countries. frcjrn reading foreign b.3oks and newspapers, from watching. foreign mo!.ies. and perhaps mo:+ important of all. from i.eceiving ala educatiovl abrixd, it -n;+.~ nut be possible, t wept by coercion, .o keq-i rIC:V ideas and new IT,CF?:ria,- Oi‘ behzlvior frr;m r”ilt :ring in. I% arg:_s Tten?t, iin$b‘il In __L._ L nr~~ft js/zmic v+*fttiijgc;.

:.i:r:it the ~~~~~F StirC7gth which ii:;lam irlitiI!s I42 its adhm_zrr.ts consTiP:ies a SLlfC

weapon ZgZjanst ccrrugti8;tg ~xtg~*n~.l iI!iIUe"$JCg:s $llOL~li bC rXriti:iri!- cJUC:3Lit.ri?;,d

s&fys!Js”g &r:.‘;Jp~ !i the ;;,sl; ;if- ::;!21j)< .%j”Jf pp<;,+ !{I ii!<‘ ]:I_.r, f-cu t:t’y);l;:y~Ck

many Western va$oes and .In:.tita~‘iir3i;: i&i-z ;-‘“” “b&ibid .ji :c&>t 3 f*-rc:?h:?!:l ;:; :.JS cp7i

the mmf t-k%Ylean of Mus’i-xz socic.tics.

to the prevent tailor’s &qmdents’? Unless he has an explic% re he simply cannot determine whether his actions are in

arrcwd w&h t5-e norm. The problmn is quite: coimnon: f*, m-i-323, fm instance, in firing an

~~~~~t~~~ erhpluyee, in ~x~~~~~~ti~~ n land to build a highway, ant1 in WZ&.S~ ~~t~~ experimmts which Day ham humaIr sut~jects. As long

as ~z1: a&m is expcted ta be&it sme at the: expose uf others, a~ index of SG “aI w&m is meded to detemim the ‘cum& cu~rse of act&m. But the I53zfnjc scholars &me yet tu prop092 an appropriate index. This f&Inre is m&z& fur as; we sh&! SW later? it upem tfp the pussib&ty that well-meaning n# mbem uf mciety o4I be suspzzted af op~m&.

brother mme c f ambipity is that the norms do not provide clear to the ~~d~v~d~~ in amations where the social benefits sf wtions vary over time. ‘f shall consida this SOMX uf ambiguity in

i.he ~ot~text of R di@~e~. nom the otie that pohibits the inditidt.taI I~VSII ‘~bwa~~~g the ve &or& of others. Situations Often arise waere a

a&on is ex to yieid ah mtcome thar is &&able in the short run bk in the fo_rlg _rmo, M vke yiefsz As an ti~stration of the puiat,

probkm f&g two individmds, Ahmad ttnd Omar, who are big for the same job. Stqqmse first that Ahmad cmes to believe “bat

in better quaMkd for the jub and that thlmfure society would be off 8 the job were give~t ts OIltar. fa this situation the Islamic nums rqttire Ahmad to withdraw from the cumpetitiua. Sat scenarios are tHia Gmpk. So sqqu~se now that Ahmad, whiFe remgnizing that

Otrtar ,ti btptte-& qt&Sed at pesent, nonetheless believes th& he w&d be &k tu per~um &tter thm Mar after a few months of traGng on the job. In th5s GS, shm&I he qtithdraw from the cuqetition bemtse Mar is Ixtter q~%kd at present, or should te stay in beoawe he b4ieves that with scme mining L could outperform &nary The Mmie scholm have nu’~. laid dmm aziy r&es for resulting this smi of dikmnm

The ambiguous nature of sume zmms, inchtding the eomumptiun nums &at call for muderatian and sharing with the kss fortmate is explicitly r~~p.iz& by a f&v of the ldamic writers. Chapra (370, p. 152) note:% l’or imtmce, that the kvef of pmsonal eq.md.it~e :mctiuned by Idam varies ’ mmding tu the g~rma;l wealth and standard of .!iGng of society.47 But the

ion that ‘rmdemtio~ in CumtmqNim is a meatigbrss concept ipL ta, does co< by he:ff, redve the dGemna of &e individllal Mustim

sqq IQ abide by &Jj nom, for it: pXJ:lide3 little help h his struggle to ~~~~~~~~ the l.iE&rs 3f msri;&zat;on.

& &IX for tla~ shtig rer;timmt_ Consider, for example, the l@&m lo r&F& ti3m ,@ving b.& eh&&eJf new toys whthout f&E

sme that ;tis rieCQi&or’s c4Iiiibreo have swne Rm. fn most cssn~eext.s,

rtti:: ~~~~~~~~ *mtfd m&z the qtmtim of who qual%es as a neighbor. Hf

‘neighbor” is to he interpreted literally as ti .e person who Yives next door, the obligation can be fulfilled easnl;, since people’s neignbors a.re usually in the

same income caLgory as themselves - and in any case, as I have already argued, lz eople tc.:nd to derive utility from helping p:ople with whom they associate regulariy. If, on the other hand, it is to be imerpreted as fellow members of thr: Islamie community, the obligation can constitute an intolerable burdlnn. It can mean, for example, that a wealthy ,:esident of Tabriz ~mnot hay his child a new toy unless he first makes sure that children living isi the shantytowns of Cairo all have new toys too, This example shows that in failing to provide a precise definitio!l of the term neighbor: the Isli;lmic: scholars are evading an issue of fundamental practical importance.

The productio!a norms against hoarding and speculation present two Sorts of ambiguities. “ihe first problem is definitional. It is unclear whether the Islamic scholars draw any distinction between ‘hoarding’ and the rcxtine practice of carrying inventories in preparation for an upsurge in demand. Hoarding, it is sitid, violates Islamic principles because it yields ‘unearned’ profits. But the same can be said about carrymg inventories: if thf narkc: price off the good in question is rising over tL,le, then any inventory, hc wev :t small, will rest&: in holding gains. Do the Islamic writers, therefore, favor a prohibition against inventories? If so, they wish to place firms in the absurd situation of hqll&tg to sell all their output in the period in which it is produced.

The second source of ambiguity is that hoarding and specv.iation. even if undertaken in the expectation of a windfall gain, may benefit s’ociety. in ;he process of buying cheap today when Supplies are plentiful to sell dear in tomorrow’s shortage, the speculator ensure:; in at least ~0111~ common situations that supplies are less volatile over time and that tomorrow’s market price is lower than it would have been in t,he absence of his activities. So the speculator can in these situattio~ justifiably believe that he is rend&kg a service to society. Should he themfore pass blip opportunities to serve society (and himself) to SaMy tbe Islamic i:rrjunc+ion agains+ speculation, or should he violate thou’< injunction in oTder > fulfill his potentiai, as required by another Islamic norm y It’s evident that by failing to distinguish be&+veen sr&a.lly harmful an< beneficial speculation, Mamic writers are implicitly requiring the individual to violate one norm or the othzr.

Many of these am.bi,&ties stem from the fact that the nor-Ins s-uggeSred today by the f’iroponents of Islamic economics originated four?een ceatur!eS ago - if not before:. Thus, numerous p!rohibitionS c0ntinti.e to enjoy wide supper:, &cause in the eyes of many of its proponents, the IslaU?n.ic Systen1 is Static. ‘$Vl ile I&mic: writers may pay lilp Serviz to Ehe inewitsbility of SOti 1 change and th,e desirability of in.stitutio~~,&l evolution, they Gill tend to trr!at the norms as unchangeable evea thougil they themselves cannot agree ~1 which ‘nornrS ~o~~~t~~~~~ the kernel of the ‘slcamic sconorra~. bH

48For instance. Naecr il9st) s?r:r;s.es tile need h r flrtjht!.!\ i>;r; :!:c+. i‘iiY;.Plj- !. i’l!l i.:: i .‘.- ..F ” --,~-,,:sitic,p I. . . . . :..‘I ‘;. .;i, .i;; l:,!lr_.. ‘l[p;.!i<‘! ,s.

Ik.B.O. 0

Consider the case of business insurance, which emerged in response to en&xqxeneurs’ very real need fobr r~Aticing the uncertainties in,tlerent in busmess activity. Inserrance enables investors too small to assemble a mixed portfcGo of investments to engage in risky proje&s. In effkt, an insurance company ycrsls together the risky investments of small firms, and makes a profit by offsetting bad outcomes with gocd ones. Whether the pri.4: of inwrance is too high in modern economies is, of course, a matter over which ink&gent people can disagree. What is clear, though, is Ltlnt society as a whole benefits from the practice, because it stimulates investments that would not otherwise take place.

This example demonstrates, once again, the danger in evaluating economic behavior by intent rather than expected comequence. The Isimic scholars are against insurance on the grounds that insurance sellers are bn the business to make a living by the roll of &c:e. Insurance companies do indeed rely on chance to prevent the contingencies for which insurance was purchased. What the Islamic writers do not consider is that in the process of seeB$ig these ‘unearned’ profits, the insurance Alera provide a valuable service: they make the business environmetrt less risky for investors.

The argument in this section, that the Islamic norms are ambiguous, may seem paradoxical in. light of my earlier statement that norms are sometimes used successfully to solve coordination problems by focus&q, people’s choices on particular states of the world. The explanation is that the Islamic norms are not designed for these sorts of situations. Almost without exception, they are designed to overcome perceived free rider problems. But .:LS I have tried to show, these norms do not provide the Muslim genuinel!. interested in obeying the dictates of his religion with a course of action ,t!*bat necessarily contributes toward the de&d solution.

5. Coacldng remarks

The problems just discusse:d show that tPI,e behavioral norms advocated by contemporary Islamic scholars are not well suited to the t3sks for which they are intended. In today’s bvorld these norms by themselves cartnot be ,expected to serve as the spearhead of a drive for economic growth with equity. This nega:ive conclusion stems from two comsideretions. First, in a society composed of millions of per’sons and not just himndreds or thcujards, it is diff%ult to elicit generaltied ahruism, to o\‘ercome the free rider problem and to achieve a common perception of reality. These factors combine to make it unlikely that the norms will enjoy wide:spread adherence. Secondly. the norms are ~d~~~~~d with ~~~~~~~~it~? and somb” of rhem would tAimiHPatc: vit4 institutions that cop-+ fl~ore or less succes~.fully. with problems that 2riw ir:

markets evefpb~klere. so ‘:w!rI if i-d, 1 ;yJefi-)&ir; <>f r<,$+t; are <i;t”r”r tt\ .:,Flij,~ !r’J

:he lil’piRlS, the r:csanrsmg~ may perfwm inadequately in terms ‘of growrh and equity.

ifh vain to fpnd a discussion of i he criteria i\ccordlng to which the: state’s role wiU evcik4z over tirn~2.~ 1

Se~~~z~dlgr, the Islamic schoiar:; have barely outlineci hsw the market would work in a modern Islamic socic.:ty --- let al.one analyzed the market’s role in economic development. This omissicin is ::erious because many vital elements of healthy market;:; are expressly prohibited by v~~,~Hx.w Islamic norms. .,ludgiing by contemporary writings, the Islamic market is in serious need of mar?:& institutions. The one institution that ha:s received detailed consideration is the Islamic bnunk, which has been heralrled as a ‘medicine to cure innumerable diseases’ [Al-Saud (1982, p. E 3413. But voluminous as it is, tk literature on this institution tends to be imprecise and iLconsistent.52

One is also tempted to defend the 1sla;mic writings on [he grounds that lqws, the aitemative to norms, can be ambigc.ous as well. Indeed, many of the iaws of modern nations frequently lea’d to ambiguit!es, as evidenced by the ‘arge numbers of court cases that lie unresolved for years. Nonetheless, these laws are far more precise than th.e norms advocated by the Islamic scholars. And more importantly, they tend to be revised over time, partly in reqonse to the discovery of ambiguities The Islamic norms, in contrast, are by and large n:grrded as unchangea.ble and the ambiguities inherent in them receive little at tention.

Ii is fair to say, therefore, that at this stage the Islamic economic doctrine is too simplistic and lacking in too many essential respects to be considered a serious alternative to neoclassical (or even Marxist) economic theory. The only real contribution of the Islamic literature to our understanding cf economic development it,. the icsights it provides into the role pl,ayed by behavioral norms iu ensuring s80ciat cooperation. But the:;e insights are not easy to extract, for they are buried among a host of grandiose claims regarding the scope of the Mamic literature. So the naive reader can easily be misled into believing that Islamic scholarship offers a workable economic theory.

There was a time when Jslam served as an agent of progress. For man! centuries beginning with Muhammad, Islam gave major support to the advancement of science and economic development_ while the Arabs, Turks, Persians acd other Mus1im.s stood at the vanguard of progressive chang:. B;ut contrary to what contemporary fslamic scholars wouid have us kliev?, this support did gbot manifest itself as vigorous adhererw tc seventh century

Hsk~mic mm~. Rather, it was based on j;udicioua!; deveiopment of ne5- law:; and rules in r gsponse to evolving socio-economic conditions.

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