Islam, Society and Economic Policy

The paper starts with the premise that the basic requirement of an Islamic economic system is that decisions pass through an Islamic filter. It is shown that the requirement of a moral filter is not unique to Islamic economic systems. The objective of the paper is to examine whether, given a system of values that enter explicitly into the economic policy framework, it is possible for society to implement such a constrained program and be able to compete in a highly competitive world environment with accelerating technological change, while maintaining the viability of such an econo-ethical system. The Islamic ethical axioms developed by Naqvi are used as a point of departure for the analysis. In this framework, it is possible to differentiate between the development of the ethical system as axioms, and the derivation of policies. The systems of zakat and Islamic banking, for example, are viewed as tools in the context of the higher level of the ethical axioms. The role of government and governance and the related Islamic concept of Umma are shown to be basic for system viability but vary depending on context. After discussing the ethical foundation of an Islamic economic system, three case studies are examined: Iran, Kuwait and Singapore. Singapore provides an example of a non-Islamic society that is faced with the same dilemma. The paper concludes that an economy with an imposed ethical filter is an economy experiencing an enduring or political disequilibrium that is more or less permanent and that can only be maintained by direct controls. In such an economy, decisions whether economic or non-economic, will continue to pass through the ethical filter at minimum cost to politics and welfare, as long as the economic system is able to compete favorably with other systems, providing net economic gains to society, and the distribution of these gains are perceived as equitable by the government and the governed.