Unveiling the Moral Economy Paradigm

Mehmet ASUTAY (2007), in the current article, claimed that existing research has ignored to understand the Islamic economics, which is the foundational base of Islamic finance. The current essay is an attempt to explore whether or not Islamic economics, claimed to be a moral economy is a better option than the capitalist economy that is claimed to have failed the economic development and environmental issues in the developing countries. In that regard, the main focus of the article is on the foundational basis of Islamic economics to prove or disprove the claim of a moral economy or that it is merely an alternative mode of capitalist production. For students who are seeking insights into this particular topic, seeking economics dissertation help could provide the most valuable guidance.

In support of the ‘moral economy’ claimed, Mehmet states that Islamic economics fully integrate the Islamic ethical norms. There is no scope of voluntary actions and thus, it demands mandatory compliance. Mehmet cites works of Choudhary and Malik (1992) and Naqvi (1994) to support this observation. Mehmet also cites Kahf (1989) to state that Islamic economics comprise ethical principles derived from Islamic order and thus, the components of its economic system is based within the Islamic economic understanding.

Mehmet defines Islamic economics as a systemic political economy based on Quran and different from capitalist or socialist system due to its principles, concepts and theories that cannot be changed as they are derived from Quran. By doing so and citing works such as those of Nomani and Rahnema (1994); Bornstein (1979); Haneef (2005); Ahmad (2003); and Naqvi (1994), Mehmet demonstrates that Islamic economic system is also influenced by religion as does by social and cultural factors. Accordingly, Islamic economics is a system involving the interpreting and solving of economic problems employing the values and principles of Islam.

Mehmet reflects that God is the one and supreme authority that shapes and guides the economic system. He cites the axioms, Tawhid and risalah to that effect. Further on, he states that the Islamic economic system is bound by the notion of socio-economic justice based on equality enabling individuals to attain high levels of good life, derived from the axiom, Al-’adl wa’l-ihsan and hayat al-tayyebah. In a way, the Islamic principles sets the guidance of how an economy system and entities in it should function. For example, he cites Ikhtiyar, which represents that the individuals have free will within specific societal contexts and subject to changing times. At the same time, they are bound by their social duties towards public good, based on the axiom, Fard. He cites zakah as an economic and social institution to meet the needs of people to that effect.

While performing economic activities, the economic system and individuals must be concerned about the sustainable economic growth respecting social and environment factors. Further on, they must be concerned about self-development in harmony with the economic activities. This is based on Tazkiyah, which focuses on purification of attitudes and relationships. In support is the example that the earning and production must not be abused but be in a balance (Ul-Haq 1995); or the emergence of the homo- Islamicus, shaped by Islamic values, to motivate individual to work towards the goal of greater well-being. The principles distinguish between lawful (halal) and unlawful (haram). Henceforth, humans must be accountable to God, as per Khilafah, promoting good and avoiding wrongs, which is istikhlaf. All these principles/axioms are given a legal backing with the observance and integration of Shariah, which is the Islamic way of life and code of conduct with the overall goal of attaining a well-being.

Mehmet, in that regard, states that the divine source and guidance based on Islam forms the framework of Islamic economic, which is not found in either capitalist or socialists structure. The main question would be whether or not the issues found in these two structure, for example as Mehmet explained that Islamic economists blamed the flaws in the capitalist economy on the failure of economic development in the post-independent states of Asia and Africa in 1960s and 1970s.

Based on the views expressed by Mehmet, it is gathered that the Islamic economic system provides functional norms of economic activity. For instance, Mehmet states that filtered market mechanism ensures serving social priorities are served. This does not mean that it does not serve individual goals, which are their utility and profit maximising motives. This aspect is elaborated by citing works of Chapra (2000) and Ahmad (2003). This means that the market system is filtered focussed on co-operation and competition. Mehmet states that the regulatory mechanism is set up to that effect to enable social and economic efficiency. Individuals motives and utility are within the limits of market co-operation and competition. This prohibits conflicts between self-interests and social interest with the latter overriding the first. However, Islamic economic theory may have certain limitations may not be co-exist with the market economy thought (Nienhaus, 2010). For example, in a command economy, the state controls the market (production, supply, prices, services), which means there is no free markets. However, Islamic economic system presents a dual-purposes production that of use and exchange, combining traditional and market economy (Hameed, 1995, p. 23). This may restrict imperatives of command economy and market mechanisms and (Hameed, 1995). A command economy imposes too many restrictions on individuals in regard to their access to means and production. This cannot sit with the Islamic economic theory.

Mehmet presents the Islamic economy as an ethical system. This is supported by the existence of voluntary instruments including charity and legal obligations, such zakah to address failures and issues out of the mechanisms. This serves the social justice goals, where the needy are provided. This finds support in Zayas (2003), who cites the example of the UK, a social market economy, where the state assumes a social security function. This is similar with the concept of zakah, which represents the claims of the poor and needy person of shares upon the social wealth (Nienhaus, 2010, p. 84). To reiterate, the values and principles of Islam form the guiding force of Islamic economy. To that effect, Mehmet, citing Ahmad 2003, provides that Islamic economy has the elaborate code of business ethics, which govern honest, transparent, and equitable business and financial dealings. This is a feature of a filtered market mechanism in order to attain sustainable development. The objective of sustainable development is, thus, placed well with social market economy. In that regard, Nienhaus (2010) stated that fitting the Islamic economic theory with other theories is not difficult. For example, the rule of law is important Islamic economic theory. This theory gives legitimacy and protection to private property and the means of production and provides a positive assessment of entrepreneurial achievement. Justice is prominent as is reflected in the fairness of price or in protection of competition. Islamic theory also provides for open market with certain restrictions such as prohibition of interest (Alexakis & Tsikouras, 2009).

The Islamic economy, as Mehmet describes, is a system of equilibrium that provides individual freedom and promote their self-interest and simultaneously enables the well-being of the society through the filters. This is Shariah’s objectives, which is social justice that drives development and wealth creation. An institution is, thus, bound by the same. Mehmet cites Chapra (2000) in that regard to elaborate the responsibility of such institution. To starkly differentiate between the conventional economic system and the Islamic economic system, Mehmet states that the former uses a one-dimensional utility method that prioritises an economic individual in the market system. The latter is social-justice oriented individual, who are God-conscious and follows Islamic values and boundaries by maximising their utility to maximise social welfare. Thus, the latter adopts a two-dimensional utility function.

Mehmet through his article has demonstrated the distinguishing features of Islamic economy. They include the functional roles of the Islamic values and principles that guide the economy. They also provide for institutions that are bounded to such value and principles, such as zakah; Hisbah, a regulatory institution that manages the failures and flaws in the market; sadaqah (charity to meet immediate needs); awqaf (a social justice oriented distribution of health care, food, education etc.). Besides this social interest mechanism, Islamic economy provides prohibitive measures such as riba that prohibits pre-determined interest or unlawful gains or Takaful, which is insurance without interest. This is also supported by Pollard and Samers (2007), who state that Islamic finance avoids profitability and give prominence to ethical considerations prescribed in the Shari’a. Such consideration is followed by Islamic banks that reward depositors with a variable rate of return subject to the gain or loss from the use of funds applying the profit and loss sharing (PLS) principle (Arab & Elmelki, 2008). Thus, Mehment demonstrates that the economy in its entirely serves the purpose of maqasid enhancing the human well-being. The use of conventional principles such as PLS also indicates that Islamic economics combine the secular economic theories or neoclassical models with Islamic philosophies and law (Nienhaus, 2010).

Despite the value-based functional aspect of Islamic economy, Mehmet did not fail to give recognition to the challenges in implementing the Islamic economic strategy. While he established that the Islamic economic system is value based; principles/axioms bound; a functional mechanism; and follows a distinctive methodology, Mehmet states that it has not been able to establish a political and economic order in terms of its economic strategy. Mehmet cites the lack of necessary global power, which is supported by Chapra (1992) who identifies political factor to be the main reason for failure of implementing Islamic strategy. Because of these reasons, there is a gap between the conventional theory and current practice, as Hasan (2006) pointed out. For example, Islamic economics have not benefitted the lives of that individuals as it should have despite the expanded operations of Islamic finance. Another example is that despite the prohibition on interest, certain financial products allow non-exploitative charges in investments. Such charge is allowed as prohibition of riba is aimed at preventing exploitation. Thus, riba applies to unjust transaction (Gemmell, 2006). This is supported by Qur’ān and Sharí’a principles that prevents exploitative profiting (Agha, 2009).

Given the gap in the Islamic economics and the practice, Mehmet states that Islamic finance can be the second best option as it has not been able to attain the objectives as required by an Islamic economic system. While this may be find credibility, Chapra (2000) claims that Islamic economic may be superior in overall performance. It also recognises private ownership, profit motive and market forces (Iqbal & Mirakhor, 1999).

To conclude, the Islamic economics may be appear superior to conventional economic system as it is based on the supreme authority of God. However, this may not be compatible with the conventional market system based on profit and individual motives. At the same time, both the Islamic economic and conventional economic strategies have commonalities in private interest, social distribution system, and regulatory codes. The key difference is that the former is based upon and driven by the religious values and laws.

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