An Intro to: The Human Civilization Project “The Muslim Case Revisited”
An Intro to:
The Human Civilization Project
“The Muslim Case Revisited”
Excerpts from
Nidal Sakr’s Thesis in Economics at San Francisco State University titled:
“The Islamic Development Bank, and Trade among Muslim Countries”
May 1992
INTRODUCTION
While development economists cannot agree on a universal definition to economic development,
there seems to be an agreement on at least one element in that definition. That is, development is the process whereby output, or more precisely, the real per capita income is increased, provided that the number of people under poverty line does not increase and that income distribution does not become more unequal[1]. Economic development theories, and economic theories for that matter, are centered on maximizing output at the lowest costs possible. The concept of economic efficiency in production is interpreted as a relation between the physical volume of production and the cost of production. In most of the western text books, economic analysis is limited to searching on the physical variables that are related to the production process. In neoclassical economics, little or no consideration is given to the continuous interaction between economics and the society that economics is projected to deal with, especially in development. Furthermore, the issue whether economics is a strictly theoretical discipline or a human and social science that deals with the factual realities of human societies, is still debated in many western text books. The terms “normative analysis” and “positive analysis” are used in some economic dictionaries to describe this ongoing debate[2].
As an economist with exposure to different ideologies and economic systems, I believe that the theoretical aspect of the economic discipline is essential to understand and model the economic behavior of individuals and groups in any given society. On the other hand, we live today in a world of irregularities and enormous unpredictable transitions, at least theoretically. That makes economics less applicable to problems that it is projected to deal with unless considerations such as the social and ideological elements of the societies are included in the analysis, more so in the area of economic development for less developed countries.
This view is expressed by Soedjtmoko; an Indonesian intellectual and a former rector of the United Nations University when he said:
“Looking back over these years, it is now clear that, in its preoccupation with growth and its stages and with provisions of capital and skills, development theorists have paid insufficient attention to institutional and structural problems and to the power of historical, cultural, and religious forces in the development process[3].”
Economic Development and integration
We mentioned earlier that economic development theories mostly deal with increasing the levels of Gross National Products. When trying to increase the levels of the GNP, most of the attention is given to large scale projects that can make a significant contribution to the increase in GNP.
On the supply side, cost efficiency serves as a function between the factors of production, and is defined by the amount of inputs needed to produce a certain volume of output. For large scale production, it is projected that higher levels of cost efficiency are reached at higher levels of production. In other words, the larger is the scale of the firm the more cost-efficient its production is expected to be.
In contrast, the smaller the size of the firm is, the less efficient is its production and, therefore, the firm is expected to be less capable of competing in the market. One of the ways to introduce a large scale firm is through integration by merging small production units into a larger production facility.
This part of the analysis is almost universal with regard to integration both between countries on the international level and between production firms on the national level.
As we will see later, economic theorists discuss many factors that are related to the economic advantages and the drives to integration in general terms. In this research about economic integration among Muslim countries, I find it necessary to make a clear reference to the Muslim economies and Muslim societies.
Muslim Integration.
Most of the western anthropologists use the term religion to describe a faith or a set of spiritual values. Because of their historical experiences, to a large extent, western societies moved to create a distinction between the ideological system of the society and other aspects of life such as politics and economics, at least in theory. The concept of religion in the contemporary western economic literature is dealt with as an exogenous factor in the analysis that has little or no relevance to economic problems. Secularism is announced to be the political ideology for many western societies and is promoted as a main reason for the industrial development of the West. Contrary to what is claimed in the West, I, myself, along with other analysts in the Muslim World believe that we live in a world were ideologies continue to play, as ever, a central role in determining the strategies of any given society or political unit. In that context, even secularism is defined as an ideology.
Understanding these facts is essential to understanding economics today especially when it comes to the relatively-traditional developing societies, where faith systems play a dominant role in determining the orientation of the society as a whole.
Economics is initially projected to deal with economic behavior of the individual and the group. While there have been universally accepted concepts and principles in the economic theory, it is always necessary to keep in mind the essential link and relevance of economics to the human and social element. Unless full attention is paid to this fact, economics will be a fiction or some set of mythical ideas that are merely hypothetical with no relevance to what economics is all about.
The concept of religion in Islam is uniquely characterized with universality. Human life in Islam is viewed as chain links between the different aspects of life. Life itself is viewed as a continuously developing phenomenon during which all aspects should be linked under an umbrella of the rules and guidelines of the creator, Allah the almighty. According to Islam, Muslims should strive to observe the rules of Allah in all aspects of their lives in totality, and any partition or distinction in that regard is considered to be “Polytheism” which is a total contradiction to the foundation of the “Monotheism-based” Islam. The universality in Islam is a concept that expands to include, among others, geographic and ethnic elements, comprehensiveness of teachings, and the changing nature of time. Islamic teachings are integrated in a way to accommodate unprecedented continuous occurrences in life.
One should understand the historical background of the Muslim societies as it pertains to the existing economic realities. Since the rise of Islam in the sixth century, Islamic rules were maintained under a state that is based, more or less, on the sovereignty of the divine guidance. The Islamic State existed as a universally-dominant state for most of the fourteen centuries-long Islamic history. Islamic rules in the different political and economic aspects of the state were generally implemented along with the Islamic mechanism of deriving the rules and answers to problems of new occurrences. Like all states, the Islamic state lived through periods of relative strength and weakness. As emphasized in the Holy Qur’an and recorded by historians, periods of strength were always combined with a closer and stricter observation by Muslims and the state to the Islamic rules and guidelines. Periods of weakness and, eventually, deterioration of the Muslim societies and state were characterized by the deviation from the Islamic way of life. The unity of Muslim territory and “Ummah”[4] under the Islamic state included the comprehensive form of what was later called integration by western scholars.
For the first time in the Islamic history, the umbrella under which Islamic rules were maintained fell by the defeat and the dismantling of the Ottoman Empire after WWI. The territory of the Ottoman Empire was subjected to an unprecedented foreign domination that aimed to establish control of western powers over resources, economies, and even cultures of the controlled territories. The unity and integrity of the Muslim Ummah were deliberately attacked by dividing Muslim territory into small political entities that were decided according to pure imperialistic plans for the area. The partition of the Muslim World occurred primarily in the San Remo conference in April 1920, and the Sykes-Picot agreement between France and Britain with the approval of the Soviet Union. The winning European parties in WWI represented by Britain, France, and Italy occupied the newly divided parts of the Muslim state to begin what is known as the “Colonial Imperialist Era”. Colonial policies wasted no time in eliminating what is left of the Islamic systems, including economics, in the new colonies that later became countries. Islam and the Muslim activists were outlawed, labeled as terrorists and criminals, and prosecuted. The cultural systems were subjected to deliberate policies of elimination while many western cultures and systems were imposed on Muslims, and the language of the Holy Qur’an was restricted, outlawed, and replaced with European languages in many colonies.[5]
The era of colonization by direct European influences continued until the end of WWII in most Muslim Countries, where the “foreignization” or westernization of the Muslim societies was centered on blaming Islam, instead of deviating from Islam, for the defeat of Muslims. Muslims were made to believe in the determinism of their “Slave-Master” relationship with the colonizer. Tribes and groups were picked to be a “political elite” and servants of the colonizer according to their levels of loyalty to the occupying colonizer. The power of influence of these new groups was mostly derived from their support by colonizers[6].
After WWII, most of the Muslim Countries were given formal political independence from direct military control of the colonizer to signal the era of “Neocolonization” under the control of the previously prepared groups. Alliance of the new “artificial” regimes with the colonizer appeared in different forms, from a declared loyalty, to a deceiving declared animosity with actual hidden loyalty.
Along with the other systems, Islamic economics was victimized by this process, almost simultaneous with the rise of interest in the theory of economic integration among western economists. Economic integration was initially projected for industrialized western countries and was later used as a foundation to form the European Economic Community. Economic integration was earlier introduced in the United States as a result of the union or confederation. The validity of the boosting effects of integration on maximizing production entered the economic dictionary as an undisputed fact.
The simple analytical origin of the theory can be derived from observing the diminishing tendency in the marginal and average costs with increasing production on the levels of both the firm and the industry supply. This can be translated in producing the maximum volume of goods and services at the lowest possible costs which leads to increases in the welfare of the society. Higher levels of production can be further expanded by joining productive economic units in the same country which represents what can be called national integration, or by a merger between firms in more than one country under integration on regional or international levels. These high levels of production will enable the new “big” producer to benefit from economies of scale at higher production levels.
In theory, producers compete in a competitive market where free flow of goods and services is allowed. The quantity demanded in the market increases with the decrease in prices. Producers who produce at higher costs will only sell, at least in the long run, at higher prices. The small quantities demanded at higher prices will result in low sales, production levels, revenues and, therefore, economic losses that will eventually drive high cost-producers out of the market. Expanding this mechanism to international markets means that only those producers with comparative advantages based on low costs will be able to compete and survive. This, in turn, results in a more efficient use of resources of the society which increases its surplus.
As we note in this paper, many economists started to come to a consensus that contemporary problems of development cannot be isolated from their historical evolution or the historical background of their societies. Similarly, a historical review of emergence of Muslim countries is essential to understand their existing problems including underdevelopment. Many Muslim economists strongly believe that any solution should have some sort of reversal process to eliminate the dividing factors and the obstacles to development that were inherited from the colonial era. Different reasons for underdevelopment can be cited in the Muslim Countries but the most common, perhaps, is the marriage between inefficient policies of mostly corrupted governments and the foreign influence. Foreign influence can take different forms among which is importing development theories or strategies that evolved in almost a total isolation from the problem.
A particular significance should be given to the relevance between Islam and Muslim societies. As we shall see later, economic development and integration is a long painful process. After determining priorities, sacrifices have to be made on the short run for expected gains on the long run. Furthermore, under integration, sacrifices might have to be made by some countries for the long term interest of the group. Returns on these sacrifices might be gained, collectively, on the group level, on the national level, or both. That is to say some countries may have to give up some of their “exaggerated welfare” to enable others to reach the sustenance level for their people. Quite frankly, economic sacrifices on the part of the rich might not be rewarded equally, and so an economic incentive alone might not be enough to create the drive for integration.
Islam, through its emphasis on the unity of the Ummah, can provide the justification behind integration that the simple cost-benefit analysis may not otherwise provide. Although discussion in this thesis will be mostly limited to pure economic analysis, I feel compelled to say that a true Muslim development will never take place unless the Islamic rules have domination over economic considerations and others.
In the first chapter of this thesis, the theory of economic integration will be presented and detailed in general terms. The driving forces behind economic integration, the theoretical evolutionary stages of integration, as well as an economic analysis to the effects of integration will be included.
The Organization of the Islamic Conference and the Islamic Development Bank will be presented in the second chapter. The OIC was projected to function as an umbrella of unity of the Muslim Ummah. The IDB operates within a framework aimed at expanding trade among members of the OIC as a step towards integration.
Trade among member countries of the OIC in goods that are subjected to most of the IDB foreign trade financing along with the impact of IDB operations on expanding intra-trade should be discussed in the third chapter.
Finally, I conclude my thesis with evaluating the IDB experience in foreign trade financing in the light of the theory of economic integration as it pertains to trade along with relevant Islamic references.
[1] Meier, G., Leading Issues in Economic Development, Fifth Edition, 1989, pp. 5-6. & p. 82.
[2] Browning E., Microeconomic Theory and Applications, Third Edition, 1989, pp. 4-6.
[3] Todaro, Michael P., Economic Development in the Third World, Fourth Edition, 1989, p. 13.
[4] Ummah is the Islamic term to describe the entire Muslim nation.
[5] I.e., Arabic was replaced with French in the western Muslim regions (Tunisia, Morocco, and Algeria). English replaced Arabic in Asian Muslim regions such as Pakistan, Malaysia, and Indonesia.
[6] Held C., Middle East Patterns, Westview Press, 1989, pp. 26-185.
