Defining Free Markets in Islam

From the same book by Ibrahim Warde cited below comes these paragraphs on "liberalization" of Islamic economies.  I have put some comments in parentheses ***  ***:

The changes leading to a New World Order were accompanied by an ideological shift. Traditional views on development had already been under sharp attack. Since 1979, the World Bank had changed its focus from financing individual projects to transforming entire economies. With the Philippines as its first guinea pig, it set out to transform economic (and hence political) ‘structures’ in exchange for aid. And since the debt crisis which spread from Mexico to much of the developing world, the International Monetary Fund (IMF) had become a sort of ‘global bankruptcy judge’, disbursing funds only on condition that countries adopt ‘structural adjustment’ policies. Both in the cases of IMF and World Bank plans, the typical package included addressing macro-economic imbalances and implementing sound fiscal and monetary policies, reforming the public sector, modernizing the supervisory and legal infrastructure, liberalizing financial markets, eliminating subsidies, promoting the free flow of capital and investment, etc. It should therefore come as no surprise that some have called such ‘structural adjustment programs’ the equivalent of ‘a foreign controlled coup in slow motion’.

***Well distilled!***

The new paradigm was strengthened by the collapse of Communism in

Eastern Europe and the implosion of the Soviet Union, which were interpreted as the victory, in the battle of ideas, of capitalism and the market economy over socialism and central planning. 

***Which in retrospect seems to be a bit of an illusion, given the capitalist democracies performance subsequently.***

Old dogmas regarding the respective roles of states and markets were turned on their head: government leaders were now seen as neither able nor willing to promote the public good; state controls could only encourage inefficiency, stifle entrepreneurship and delay reform. What came to be known as the ‘Washington consensus’ was shared by the US and other industrialized countries and by international organizations. The state, once seen as the provider of solutions, was now perceived as the major obstacle to development. 

***Sounds about right...***

 All attempts at central planning, and even milder forms of industrial policy, were doomed. State-led policies, protectionism and import-substitution had to be replaced by privatization, deregulation, and an export orientation. Foreign ‘experts’, some of whom – for example, Harvard’s Jeffrey Sachs – achieved celebrity status, advised governments, often with disastrous results, on the reform process and the transition to free-market economies.

***Correct, Sachs talked the talk, but Sachs is hardly a free-marketer.  WE are getting into trouble referring to "privatization, deregulation, and an export orientation" as the free market, inasmuch a a policy of "privatization, deregulation, and an export orientation" is no more a free market than a policy of protectionism and import-substitution is free market.***

 Most Islamic countries are heavily indebted and increasingly dependent on the outside world for financing, and the political and economic clout of bankers and other financiers is on the rise.

***Extremely important question:  How did they get to this point?  The answer is the fact that states violated Islamic finance principles.***

 In order to raise funds in the international markets, or to obtain aid from the International Monetary Fund or the World Bank, governments must adopt policies that conform to the new international orthodoxy (economic austerity, liberalization of trade and capital flows, privatization, deregulation and dismantling of the public sector). 

*** Now, to go back to the people whose society led one into dire straights in the first place is not likely a god plan.***

Even so-called ‘rogue states’such as Iran or the Sudan, lest they be financially starved, have to deal with the IMF and the World Bank and thus comply with demands related to economic policy. 

***Strikes me as a false dilemma, and given the currency issues in Iran presently, Iran may find another path after they get through this present storm.***

The tidal wave of liberalism was somewhat late in reaching the Islamic world, but it is now clearly there. The ‘alliance’ between Islamists and liberals is justified by the existence of a common target: the all-powerful (and secular) state. Two areas of convergence between the Islamist critique of statism and the Washington consensus should be emphasized. First is the Islamic commitment to private property, free enterprise and to the importance of contracts, as opposed to state-led economic policy and the arbitrary decisions that go along with a strong state bureaucracy. 

***Hang on, the contract seems to have a firmer basis in Islam than in capitalism, so upon this point elaboration is warranted, and with a prophet like Mohammed, capitalism has nothing to add to knowledge of private property and free enterprise. Any lack of liberalism is to the degree Islam has been shunned.  See the next paragraphs from this very section in Prof. Warde's book.***

In many countries, Islam has become the tool of entrepreneurs seeking to get around restrictive regulation, and an instrumental factor in privatization and deregulation – and the best excuse to disengage the state from the economy. 

***True, Islam was born in a free market, so what could be more natural?***

Insofar as financial liberalization is ‘the process of reducing government control over the allocation of credit’, Islamic bankers were bound to make common cause with economic liberals. 

***This should be unpacked: is this a long way of saying "allow usury?"***

Second is the parallel between the ‘privatization of welfare’ (through reliance on zakat and other religiously based redistribution schemes) advocated by Islamists, and the downsizing of the state that is central to the new ideological consensus. Private virtue thus meets efficiency: by helping the poor, the wealthy become better human beings; and the voluntary provision of charity reduces the need for public welfare organizations that are usually costlier to run. This is not a new phenomenon. In medieval Muslim society, the Shariah was often used as a shield for private property against arbitrary confiscation. 

***And private property is crucial to a free market.***

Today the merchant classes are using the Koranic emphasis on private property rights, and Islam’s positive view of commerce and profits, to pursue policies of privatization and deregulation. Even Islamic Republics have on occasion openly embraced neo-liberalism. Thus, in Sudan between 1992 and the end of 1993, Economics Minister Abdul Rahim Hamdi – a disciple of Milton Friedman and incidentally a former Islamic banker in London – did not hesitate to implement the harshest free market remedies dictated by the International Monetary Fund. He said he was committed to transforming the heretofore statist economy ‘according to free-market rules, because, because this is how an Islamic economy should function’.

***And now we are back to the fundamental problem, a proper definition of free market.***

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