Sharing and CaringIslamic Ideas for Fair Economic Management Today
Islamic economic thought has, since time immemorial, contained numerous elements that can still offer solutions to current economic problems. According to Islamic teaching, the pursuit of profit can be reconciled with being socially considerate. Read More
The current prevailing understanding of the free market as characterised by neo-liberalism allows persons of either an individual or a legal nature to gain possession of almost all resources and commodities, thereby excluding the rights of others to control them.
The consequences of this understanding are very apparent if you consider natural resources such as oil. A handful of families and companies control these natural resources, and are thus authorised and empowered by law to exclude others – in this case, the rest of society – from the revenue they generate and the profits they secure.
The richest 1% of the world’s population have accumulated more wealth than the remaining 99%.
This concept has had a dramatic impact on our world. According to an Oxfam study of the worldwide distribution of wealth, projections for 2016 show that the richest 1% of the world’s population have accumulated more wealth than the remaining 99%. In addition, riches are increasing faster than ever before. Private wealth adds up to more than 160 billion US dollars. Also, food production worldwide is enough to supply the entire world population with sufficient food – yet according to the UN Development Programme (UNDP), in 2014 more than 1.5 billion people were living in multi-dimensional poverty, meaning that they lacked food, healthcare, education, and an adequate standard of living. Redistribution, then, is taking place not so much from rich to poor, but from poor to rich.
Humanity as a body
We must therefore ask ourselves the fundamental question of whether we humans want to see ourselves holistically, as a body that is, for the most part, developing healthily, or whether each of us should individualistically accept the disadvantages caused by others and structure his life according to his own self-interest?
Here’s a thought experiment to illustrate the problem. Imagine that our organs and limbs – i.e. every part of our body – were free to determine for themselves what they wanted to do and behave however they liked. Imagine that the left leg decides to walk to the left, but the right decides to walk to the right. The question of which direction the whole body will move in is easily answered: nowhere. Or let’s assume that, as the result of an injury, the brain needs blood and oxygen, but the organs responsible – the heart and the lungs – refuse to help, or will offer to do so only if the brain, which is entirely without means, reciprocates, which at the moment it cannot do. One wonders how long such a body will survive.
People all over the world are fleeing crisis regions and war zones, in their hundreds, thousands, soon in the millions, hoping for a better life. This is a problem that affects the whole of Europe, irrespective of the questions of whether Europe should take in more or fewer refugees or whether it should take them in at all, or of how the people of Europe are reacting. Some are protesting against it; others are mobilising in order to donate, to give, to help. The helpers are not necessarily well-off, or people who can easily afford it, as recent events on the Greek island of Kos showed. Even needy people, who have little themselves, are helping those who, in comparison, have even less. The characteristic of wanting to give, and being able to give, seems to be a natural predisposition that people are born with. It is referred to in Islam as fitra – instinct – and is an essential element in the Islamic concept of an ethical and socially sustainable understanding of economics. This natural predisposition to give, ‘to do good’, arises from a spontaneous inner willingness.
Donation, exchange, cooperation
Donation is one of three (economic) intersubjective relationships. In this first relationship, the beneficiary is a person in need, who is dependent on the giver. As long as the giver does not give, the beneficiary remains in need. He cannot haul himself out of his neediness (dependency) on his own. What constitutes neediness is both a societal and an individual question that has to be clarified in relation to the other participants in society. A prime example of this relationship are infants and children. They cannot provide for themselves on their own, and need the support and love of their parents in order not only to meet their material needs, such as hunger and thirst, but also, above all, because of their emotional neediness for love and security so that they are able to develop their trust in themselves and muster the strength to develop their personality and, later, to be able to act positively within society.
Donating to needy adults can consist of merely giving an amount of money. Or it can consist of an empowering, empathetically-charged gesture of encouragement.
Donating to needy adults can consist of merely giving an amount of money without emotion or sympathy. Or it can consist of an empowering, empathetically-charged gesture of encouragement, hopefully with the result that it gives the needy person hope and thereby also strength. In Islam the concept of zakat (donation) takes care of the monetary support of this societal group who, depending on need, either receive an amount of money equivalent to an average annual income, or are given money for a period of time required by the recipient for them to be able to work again.
The second form of economic relationship is characterised by a corresponding, equivalent exchange – insofar as it is possible, with today’s money, to speak of equivalence with the goods that are exchanged for it. In a free market, those participating in the exchange are not dependent on each other; they can find other partners with whom to exchange (independence). This kind of relationship is geared towards profit. The players follow their own interests and are not in a dependent relationship with each other, because they can satisfy their needs through the resources available to them, or use their financial means to this end.
The third relationship is characterised by cooperation and represents, so to speak, the highest level in terms of innovation and human collaboration. This level can be motivated by the pursuit of profit, but this is not absolutely necessary. It can be seen as a mixture of the two dimensions already referred to. The cooperative, reciprocal element is characteristic. In this area, there are in Islamic law a whole array of types of contract that enable people with capital and impecunious businessmen and -women to set up either profit-making or not-for-profit businesses together – the so-called Mudarabah, a kind of silent partnership, the Musharakah, comparable with a joint venture, or the Sharikat al-Wujuh, an ‘association of good reputation’, to name but a few.
The third relationship is characterised by cooperation and represents, so to speak, the highest level in terms of innovation and human collaboration.
In each of these three relationships within our prevailing economic system, money-lending against interest is practised in order to satisfy various needs. If, then, we were to follow the prevailing understanding of economic management, which is characterised by utility maximisation, this would have to mean that we should constantly strive, on all three relationship levels, to maximise our utility that can be measured in material and monetary terms, with a minimum of financial expenditure. The provision of money against interest inevitably comes under consideration. In addition, the credit must be secured with assets. This does not address the question of how people from the third and, especially, the first sphere of relationship, who do not possess anything as security, are to come by capital.
Because people are not always in a position to help themselves, or to look after themselves. In these cases it is appropriate that we make haste to help them, to remove their burdens. And we must not fail to realise that this kind of help should be given as a matter of course. This is the view of Islam, which is why it compares society to a body that can only develop and evolve if all its constituent parts serve the body as a whole and support one another. If one body part despises or is ignorant of the others, it contradicts the understanding of healthy growth and sustainable evolution.
Ban on interest
The best-known characteristic of Islamic finance is the ban on money-lending with the accrual of interest. It is therefore not permitted to lend money against interest payments. Only commerce is allowed. In this way the performance principle is prioritised, and is seen as legitimising the profit. By contrast, with money-lending against interest, it is precisely this principle that is undermined. The money owner is tempted to let his money work for itself, i.e. to collect interest from the borrower without having taken any notable risks, compared with the trader – the businessman, that is – whose business risk is rewarded with a margin that is ultimately linked to the commodity sold.
Along with the topic of interest, the question also arises of the nature and function of money. In his work The Revival of the Religious Sciences, the Islamic scholar al-Ghazali asks, in relation to the exchange of different goods, how one can compare two things that have no qualities in common, and comes to the conclusion that this is only possible if both things are compared with a third thing that has no qualities. For Ghazali, this thing without qualities is money. This is the only reason why it is in a position to serve as a universal unit of measurement for all other goods. If, however, this unit of measurement is commodified, meaning: if it becomes a commodity like every other, this leads to the distortion of money and, eventually, the price of goods. The commodification of money means, in the final analysis, the commercialisation of debt, which itself now becomes a commodity and can be sold. In the end, interest-bearing money-lending decouples itself from the real economy and starts its own economy: financial management. With the aforementioned commercialisation of debt, and based on the system of interest and compound interest, this can now grow exponentially, independent of the real economy. Crises resulting from this, which can or even must inevitably occur, have devastating effects on the real economy and thus on many people’s financial situation, as the recent international financial and economic crisis has taught us. In the current economic situation, it is practically impossible to get credit, without supplying appropriate securities intended to minimise as much as possible the risks to the creditor in the event of a default. This carries two negative implications: firstly, it perpetuates the notion that, as soon as they are released from the security obligations, debtors do not pay their debts on time. This reinforces the image of the debtor as an immoral person who does not fulfil their obligations. Secondly, in this way access to capital is denied to those who have no securities to offer, with the result that they are excluded from participating in shaping the economy and liberating themselves from financial dependency – on the state, for example.
Sharing and caring
The basic premise of the swiftly-expanding sharing economy, which no longer categorises people as consumers or producers but turns them into so-called ‘prosumers’, is reflected in the source texts, in both the Koran and the hadith (Prophetic sayings). Here, however, this idea serves as the basis for a caring society, in which not only does the state take care of those in need, or certain businesses offer to meet the needs of the many, but everyone does so who can demonstrate the qualifications and competence to do so. Right in the second sura of the second verse of the Koran, the faithful are described as, among other things, those who give of what is bestowed upon them (‘who spend out of what We have provided for them’). This establishes an opposing concept to our understanding of property, the corollary of which is that commodities a person possesses are not, strictly speaking, his property, but that of God.
This has far-reaching implications for the understanding and further development of the sharing economy. Perhaps it becomes clearer what is meant when it is viewed in conjunction with an utterance from the hadith, which explains that one person’s meal is (also, essentially) enough for two, and a meal for two is (also) enough for four, etc. – i.e. that things (here with a focus on consumable things) that are a person’s property serve, in the first instance, to satisfy their needs. What is left over, above and beyond this, is still that person’s property, but others who possess nothing, or very little, with which to fulfil their needs would in fact be entitled to it. Food and catering businesses are a good example: when these shops close, foodstuffs left over that cannot be offered for sale the following day find their way that evening not into the stomachs of those in need, but into the rubbish. This method of dealing with foodstuffs also makes the standards of value very clear. These actions are not measured by how social and sustainable they are, but how cost-effective. In a case like this, efficiency not only leads to but enforces socially undesirable and ethically almost indefensible behaviour.
Focus on people, not profit
The Islamic approach does also follow the principle of economic profitability, which consists of obtaining the greatest possible benefit for minimal expenditure. However, this principle reaches its limits at the point where it starts to result in social disadvantage. When there is a social cost, economic costs are not the priority. The principle of low expenditure with the greatest possible benefit therefore has no validity if it leads to the socio-economic disadvantage of third parties. Thus, from the Islamic perspective, it is people who are the primary focus of the economy, not profit.
The market and the attitude of its players play a key role in addressing this problem. When Mohammed emigrated to Medina, he did not proclaim a state and did not declare himself a statesman; instead, he set up two institutions that were responsible for the economic prosperity of the community at that time: the mosque and the market. The mosque – comprehended as a place with a connection to the transcendental – was assigned the role of the spiritualisation of Muslims. This meant also the creation of an attitude corresponding to Islamic moral values that would create space for a fairer, more humane form of economic management – whereby Islamic moral values are understood to be universal, because Islam sees itself as the religion that accommodates human nature in every way.
In place of the purely material-monetary view of the market, the nature of the market player (i.e. the person) should be taken into account, to the same if not to an even higher degree, so that the market becomes simultaneously a place of both the pursuit of profit and of the common good. In this the mosque is assigned a role as an education and training centre for fair economic management. There, ethical foundations are established and individual norms regarding questions related to the economy are passed on. Economics is preceded by a spiritual education that conveys the ethical foundations and moral requirements for economic management. This is why, from the perspective of Islam, an economy is not based on the laws of economics alone but, to the same degree, on spiritual elements, which constitute an integral component in everyday economic practice. Alongside market policy interventions, which carry out a steering function, a certain degee of spirituality in the individual is also deemed important. This is intended to ensure that the religious background to trade is inherent in economic transactions.
This background is kept alive through certain forms of ritual prayer and meditation that take place several times a day. In this way the view of what belongs to the individual is extended by a larger view that encompasses society and the ecosystem.
From the Islamic perspective, it is people who are the primary focus of the economy, not profit.
The aim is for this to foster people’s ability to put themselves in someone else’s place, or swap roles with them, so that ultimately they are able to negotiate as if they were both parties at once.
It is notoriously difficult to speak of justice as a finite entity, let alone actually allowing it to prevail. And so, with the help of a spiritual education that takes place on a daily basis and in certain windows throughout the course of the year, the individual is trained to do good. This abstract commandment assumes a crucial role with regard to economic life. For it is essentially none other than an interpersonal relationship, consisting of a cry for help on one side and, on the other, the corresponding wealth with which to supply the remedy. As a rule, the remedy will take the form of financial compensation. If we comprehend our economic life as a forum of solidarity and mutual support (goods in exchange for financial compensation), in which every market player identifies with the others, the relationships between the different interests harmonise, and exploitation and the abuse of asymmetric information relations decrease, without the need to renounce the individual pursuit of profit.