Capitalism, Community and the Self

Picture by Zak Whiteman

A Socially Responsible Islamic Finance: Character and the Common Good by Umar F. Moghul. Palgrave Macmillan. 321pp. March 2017.

Capitalism! Assuredly, it is a byword for corruption, avarice and plunder for every leftwing activist and couch revolutionary — and why should it not be? Capitalist depredations can be found in the narrative of every nation, due to both internal and external profiteering at the expense of a weaker party. For Muslims, capitalism is thought to be one of the cancers that has afflicted and weakened the Muslim world. Extreme poverty lattices Muslim society in Africa and Asia, to say nothing about other parts of the world, and the fault is commonly placed at the altar of capitalism.

For the Islamic ideologue, capitalism is only one part of the osmotic secularism that has festered itself in Islamic lands. It is a thread in the overall fabric of a non-Islamic ideology. Consequently, and naturally when presenting an alternative, it is difficult to positively view the long term value of capitalism. Islamic ideologues such as Mawdudi and Baqir al Sadr present a roster of ills of capitalism against a backdrop of the advantages of Islamic economic prescriptions. In doing so they create an edifice on which the subject of Islamic economics is borne. That edifice is further premised on the idea that Islam has the tools to transform human society for the better.

Such utopian thinking is hardly the exclusive offspring of Islamic political thought. Socialism and its branches have positioned itself as the better alternative to capitalism since the beginning of the 19th century. Similar to Islamic economics, socialist thinking blooms from the horrors of capitalism. The Industrial revolution had created indentured freeman out of workers with few rights and fewer securities, while forming kings of capitalist owners. For the conscientious thinker, like Robert Owen or Karl Marx, capitalism was hardly benign.

Yet many of the early thinkers on socialism and capitalism saw little conflict between the two, only challenging the extreme versions of each. John Stuart Mill, following Adam Smith, recognized that self-interest would lead to a more affluent society, but he rejected absolute individualism. Instead, he valued bounded individualism, or in other words self-interest with a communal concern. Socialism had to be mixed with capitalism to create a better society.

Islamic economics presents a similar admixture but garbs these ideas under an Islamic auspice. Critics such as Duke University’s Timur Kuran consider Islamic economics as unoriginal, derivative and rooted in a desire to promote Islam as an identity and ideology than as a purveyor of new ideas. Though such criticisms are not without value, it attenuates the positive contributions that Islamic economics has made — primarily Islamic finance. Since its origination in the late 50s, Islamic finance has grown considerably and is considered today a trillion dollar industry. It has presence in both Muslim and non-Muslim countries, and in some countries has made inroads into their legislative systems.

Nevertheless, Kuran’s criticisms haunt Islamic finance. The industry is often considered to be mere mimicry and sophistry, using Islamic law to create financial products whose outcomes are more or less the same as conventional financial products that are considered impermissible. For decades, the industry has been caught by the so–called spirit verses law debate, the key polemic being that while Islamic financial products may follow the law of Islam, it does not follow its spirit.

Umar Moghul, an American commercial lawyer and academic, seeks to address this point. He has advised on many Islamic financial products in the Gulf and the US. On account of his trade, he supports the capitalists that drive commercial practices. Yet this is not axiomatically an indicator of support for the more extreme, self-serving types of capitalism. Indeed, the title of the book, “A Socially Responsible Islamic Finance: Character and Common Good” suggests a more socio-capitalist and ethical approach to Islamic finance.

Between the lines, Moghul shows frustration with Islamic finance in its current guise for ignoring Islam’s spiritual impetus. In Western economics, spirituality is not a considered component certainly not for the wellbeing of capitalism. Indeed, the great economist, John Maynard Keynes, stated in a moment of metaphysical reflection, “Modern Capitalism is absolutely irreligious, without internal union, without public spirit….mere congeries of possessors and pursuers”. In a nutshell, Keynes manages to capture the individualistic nature of capitalism — although Keynes follows the tradition of classical economists, believing that individualism if guided can lead to positive outcomes for society.

Moghul, though not explicitly, attempts to challenge that notion. He too is following a tradition, an Islamic economic tradition, of believing that an economic system can be constructed by concentrating first on improving the motivations of the individual. For the Muslim, his first concern is building a relationship with God which means improving ones character, or purifying ones soul (tazkiyah). As an ancillary outcome, this will lead to the common good. It is an inversion of the Keynesian precept.

The pillars of purification are God consciousness (tawhid), self-vigilance (muraqabah) and self-assessment (muhasabah). Moghul regularly uses the works of the syncretic thinker, Abu Hamid al Ghazali, to propose that spiritual refinement will lead to a more an ethical way of conducting business and benefit society. He writes

“As wealth includes the Earth, its diverse inhabitants and systems, and natural resources, its preservation includes avoiding harms and affirmatively promoting its continuity and welfare. Life is protected not only by preserving wealth, but by businesses that create positive social impact. None of this is achieved…without right conduct founded on the purification of hearts and refinement of character”

There is a process of causality in Moghul’s argument. Purification of hearts will lead to ethical workers and managers who will create or comprise businesses that will create positive social impact which will preserve and protect wealth. It would not be amiss to suggest Moghul is continuing the tradition of assuming that Islamic finance has the potential to better human society, as most Islamic economists believe. The proof, however, is in the pudding, and any abstract proposition has to be met with an agenda for change, and evidence of the change.

Thankfully, Moghul attempts to provide an agenda for change. Six of the seven chapters end with recommendations, and it would be useful to compile and parse through his recommendations:

1.) Undertake spiritual purification (tazkiyah)

2.) Consider the effects of products on a broader group of stakeholders, and not singularly concentrate on shareholders.

3.) Adopt Socially Responsible Investment criteria when directing finance and consider labor, the environment, and resources sustainability.

4.) Constitute consultative groups in public and private institutions that bring together Islamic legal scholars and practitioners to discuss and adjudicate upon products.

5.) Produce certain decisions (fatwa) for public viewing so that they can understand how and why the product has been permitted.

6.) Share fatwas among experts to create a discursive and collaborative culture that contributes to the evolution of products.

7.) In a product structure, integrate contracts to reflect parties’ expectations, and not have separate contracts to suggest two different transactions and circumscribe Islamic precepts.

8.) Improve governance processes to ensure there is consistency and that products do not circumscribe or contravene Islamic law.

9.) Products should avoid opaque ownership structures and institute proper risk sharing between the parties who may gain profits or suffer losses.

10.) Stakeholders, particularly customers, should be educated about the products and can hold producers to account for contraventions in Islamic law.

11.) Be transparent to demonstrate the priority and implementation of Islamic law as a shared value

12.) Integrate and join institutionally profit maximization with social giving.

13.) Concretize Islamic ideas of waqf and zakat into the business model of Islamic finance institutions

This is not an exhaustive list; nevertheless, the recommendations can be broken down into themes. Moghul is concerned about individual behavior, corporate governance, transparency, substantive and procedural law, and connecting philanthropy with business. He addresses these issues apropos to Islam, but arguably his recommendations fit under the category of social responsibility without the religious connotation.

But, even if so, should this be considered negatively? Incorporating principles and practices from foreign customs and traditions is not uncommon in the Islamic tradition. Quixotic writers on Islam, particularly political Islamic thinkers, have a tendency to assume that Islam is unique, exclusive, holistic and qualitatively better in most if not all aspects as compared to other ideologies. Tracts on Islamic political systems or the Islamic economy are often idealistic creating utopian counterfactuals as to what society could be.

Moghul avoids this trap. Of course, he presupposes that Islam can be a tool for the common good, the definition of which is developed over the course of the book. But he goes further by providing examples of what he considers to be beneficial to society from the annals of non-Islamic society and accordant to Islamic law. SRI, corporate governance, corporate responsibility, transparency, etc. are all Western creations. He highlights the work of Ben & Jerry, Social Finance UK, B Lab and others to show the possibilities of linking profit maximization and SRI. At the same time, he depicts the positive work undertaken in Islamic finance in terms of thought and practice. Overall, the thrust is to take what is good, wherever this is found, and apply it to the Islamic financial industry.

In undertaking a syncretic approach, Moghul does not lampoon contemporary Islamic finance nor does he idealize it. He recognizes its shortcomings, but does not countenance disavowing the industry on account of its more questionable elements. Instead, the book can be considered as a contribution to the evolution of Islamic finance, which in its more normative form is a combination of capitalistic and socialistic principles. In Islamic history, the economies of various dynasties evoked this combination. There is nothing wrong with earning profit, but not at the expense of wider society or Islamic law, a point Moghul intimates.

Ultimately, evolution boils down to the individuals that make up the industry. Moghul stresses the importance of self-vigilance and self-assessment as fundamental components to improve the industry and to measure its success. However, this is an oblique recommendation as spiritual purification is practically quite vague, particularly in the contemporary period. Traditional Islamic societies could boast of schools of spiritual training interspersed throughout the towns. The guild system, particularly common in the Ottoman Empire, emphasized developing vocational skills together with one’s character, through adopting a master-apprentice pedagogy.

This has largely been lost in today’s Western hegemony with ethics and character development considered an issue of personal choice and action, and not one of training. Commercial institutions today are not concerned with purification of the soul; in fact, their deeper concern is competition and profitability, hardly concomitant to the ideas of self-vigilance and self-assessment apropos to God.

Moghul does not address this tension though he recognizes the endogeneity of systems. Individuals within a system will create a system that reproduces individuals with a similar ideology and methodology of practice. After 60 years, the industry has created a stable architecture, but the cornerstone of its framework is often criticized for not maintaining Islamic principles. Moghul is not arguing for an overhaul in the manner of a demagogue. Rather, he is attempting to guide the industry towards the fundamental principle of Islam. As the Prophet is reported to have said “I have only been sent to perfect character”. Very few would disagree with this fundamental principle, yet the industry does not regard it as a concern. Business is considered separate from spirituality. Moghul shows that amendments in corporate governance, broadening ones understanding of what a company counts as a stakeholder, adopting more transparent procedural frameworks, instituting collaborative groups and adding philanthropy as corporate goal, can redefine the industry. It can also redefine the individual.

Moghul argues his points effectively without the need to resort to pontification. He uses studies and reports to justify his vision of a system that integrates capitalistic and socialistic motivations but with an Islamic hue. It is not a new approach. Masudal Alam Chowdhury, an Islamic economist, has long proposed a movement away from the euro-centricity of the current capitalist model towards what he calls a tawhid-based epistemology that is discursively interactive and integrative. What distinguishes the two thinkers is that while Chowdhury qua economist deals in abstracts, Moghul qua lawyer deals in praxis. In the end, Moghul proposes a framework for change, or rather evolution. The real-life examples he provides shows that with imagination, there is an opportunity for the industry to meet the needs of a broader group of stakeholders. The book is therefore a worthy contribution to the literature and should be required reading for those who are preoccupied with the spirit versus law debate and cannot find resolutions.