Voodoo Economics

by Rebecca Bynum (March 2008)

The good news about Islamic economics is that it is largely cosmetic and therefore unlikely to be disruptive to the global economy. The bad news is that Islamic economics is largely cosmetic and unlikely to be disruptive to the global economy. “Islamic finance” and Islamic financial instruments are not economic but political in nature and serve as vehicles for creeping islamization in the West. They are not more stable, they are not even strictly “islamically” compliant but, rather, involve financial sleight of hand. Nonetheless, the willingness of Western banks and other financial groups to participate eagerly in constructing pseudo-Islamic financial instruments, that is to participate in what is essentially a charade, is not, because they do not result in truly “Islamic finance,” therefore a matter of benign unconcern. For the mere effort by Westerners to supply what is touted as “Islamically correct” – and hiring, up and down the line, Muslim clerics and “consultants” in Islamic law and finance to give their imprimatur, does provide another example of outward kowtowing to Islam, and also, more importantly furthers the illusion of Muslims that they can live anywhere in the world under a separate, and in their minds superior, set of economic rules; in reality, this is simply not the case. In addition, when implemented in the West, Islamic economics softens resistance to Islam by encouraging Westerners to grow used to satisfying, even eager to satisfy, Islamic norms.

Muslim economists seem to spend most of their time and energy searching for ways to put an Islamic gloss on existing Western economic structures. The economist Timur Kuran points out that few Muslims take Islamic finance seriously and yet many of our institutions of higher learning and many Western bankers are, per contra, taking it very seriously indeed.

Today, many American universities are being subsidized by Arab/Muslim funding. Harvard, for example, hosts an annual forum on Islamic finance, with almost all of the participants being themselves Muslims, essentially renting space at Harvard and thus as well the Harvard name – it becomes the “Harvard forum on Islamic Law and Finance," and usually the main speaker, and a handful of the non-Muslim academic participants, are former or present Harvard faculty members, some of them conceivably unaware of what “Islamic finance” is really all about (hint: not economics but politics), and no doubt exorbitantly paid, directly or indirectly, for their useful appearances and prestige-sharing.

Numerous banking conferences are held around the world in which Islamic finance is promoted as the Next Big Thing. Some American banks are aggressively courting Muslims by offering “Shari’a compliant” banking services. There is even a plan floated by the British government to offer sukuk bonds on government buildings, which as Mary Jackson points out are nothing more than a normal secured loan – the invocation of this sukuk aspect would presumably be provided for the sole purpose of attracting Arab money.

Thanks to what Hugh Fitzgerald routinely refers to as “an accident of geology,” Arab nations have enormous amounts of cash on hand and they tend to manage these assets more like private investment portfolios than national treasuries. Abu Dhabi’s sovereign fund, for example, is estimated to hold 650 to 700 billion dollars.  Fitzgerald estimates that the Arab Gulf states have received over 10 trillion dollars in oil revenues since 1973 (he describes it as “the largest transfer of wealth in human history”) and yet none of those states have managed to develop modern economies with a viable middle class. Rather than employ the legions of their unemployed compatriots, these states and statelets import wage slaves, now numbering in the millions, from outside the Arab lands and, most often, from outside the Muslim lands as well. These range from professional business managers and doctors from first-world countries to household maids brought in from Thailand, India, Indonesia and Malaysia and who are often treated in the traditional Islamic fashion, as household slaves and concubines.

The Gulf nations are using their well-endowed national investment funds to aggressively buy into Western companies. These include, most recently, Citigroup, the private equity giant Carlyle Group, semiconductor producer Advanced Micro Devices and European Aeronautic Defense & Space. And there are many large positions taken in Western media companies, including Murdoch’s holdings, and CNN. Long ago, Prince Abdullah of Saudi Arabia announced, to what he assumed would remain an Arab-only audience (to the Jordanian daily “Rai” in November 1979) the Saudi intention to buy up the assets of Western media companies. Moreover, American firms are increasingly engaged in partnership projects in the Arab Middle East. Dow Jones has even formed an Islamic Index which is advised by Muhammad Taqi Usmani, a radical Pakistani cleric who ran a madrassa that trained thousands of Taliban, according to the Washington-based Center for Security Policy.  Usmani is on record as saying that aggressive military jihad should be waged by Muslims “to establish the supremacy of Islam” worldwide and argued that Muslims should live peacefully in countries such as Britain, where they have the freedom to practice Islam, only until they gain enough power to engage in battle. 

Many firms are finding that the Arab world insists on a series of Islamic prohibitions when doing business with them; banking is no exception. Though these prohibitions originate in Shari’a law, “Islamic finance” is an entirely modern invention. It began to be discussed in the 1940’s, but it was a Pakistani Islamist, Sayyid Abul-Ala Mawdudi, writing in the 1960’s and 70’s, who really created the intellectual  basis of what is now referred to as Islamic economics. “Islamic economics” is not ancient, and did not originate deep inside Dar al-Islam, along with Islam.  

Most devout (and even many not-so-outwardly devout) Muslims believe not only that the Qur’an contains truth, but that ALL TRUTH is contained within the Qur’an. Every answer to every question is thought to be found there. So, no matter how tenuous, or how far the stretch of logic, if a Qur’anic justification for some behavior can be made, it will be made. The significance of Islamic economics lies not on the economic side of it, but as an assertion of Islamic dominance. As Timur Kuran writes,

Mawdudi’s aim was not to foster a radical shift in economic thought or to unleash a revolution in economic practices. His aim was to reassert Islam’s importance as a source of guidance and inspiration, and to reaffirm its relevance to modern life. From the standpoint of these objectives, the ongoing economic activities represent a remarkable accomplishment. They defy the common separation between economics and religion. They invoke Islamic authority in a domain that modern civilization has secularized. Finally, by promoting the distinctness of Islamic economic behavior, they help counter foreign social influences. (Islam and Mammon pg. 52)


There are few really explicit examples of economic recommendations to be found in the Qur’an. Even the one most often cited, the prohibition of interest, is subject to debate. Islamic doctrine prohibits riba which is an ancient and especially egregious from of usury in which debt doubled, and then doubled again and again at certain intervals. This often resulted in the enslavement of the debtor to the creditor. This was generalized into a ban on interest in toto by Mawdudi and others. According to Tariq Ramadan, however, such nuances are a fiction of non-Muslims: “The revealed word of the Koran is explicit: he who engages is speculation or loans of money for interest is at war with the Transcendent.” (Caroline Fourest, Brother Tariq pg. 209) Capital in the modern world, however, is entirely interest-based and if Muslims are encouraged to believe that “Islamic economics” must in fact exist, then finding ways around this prohibition on interest (rather than on “exorbitant interest”) becomes the most creative aspect of Islamic finance.

The second stipulation of Islamic economics and one of the ways used to avoid interest is called muraba. This requires banks share, along with those who deposit money with them, and those borrow from them, in risk and reward. Interest is transformed into “profit sharing.” In theory, the banks are supposed to go into partnership with their borrowers, but this stipulation has proven untenable even in countries where Islamic banking is mandated (Pakistan and Iran) because firms are reluctant to open their books to the banks who would then be obliged to report taxable income to the government. Muraba also introduces such a high level of instability into the system that even in Pakistan and Iran the actual level of compliance is very low. Both requirements pose numerous problems.


The prohibition of interest, deceptively straightforward in an abstract setting, poses a practical problem that is rarely even acknowledged. Under inflation, is the borrower of a consumption loan obligated to compensate the lender for changes in purchasing power? Certain writers who address the issue refrain from taking a position. And those committed to a particular view are divided, with some saying that fairness requires the indexation of loans, others that it bars indexation. (…)

Profit and loss sharing, the favored alternative to interest in the case of a business loan, presents another problem that has received little attention. Suppose an old person takes his savings to the only Islamic bank in his neighborhood. The bank proposes a profit and loss sharing contract whereby it would receive 99 percent of any profits and, correspondingly, incur 99 percent of any losses. Is this deal fair from an Islamic standpoint? If the answer is “no” or “not necessarily,” what are the lines of demarcation? (Timur Kuran, Islam and Mammon pg. 111)


Obviously, with such basic questions still unresolved, Islamic economics has made very slow progress since the 1940’s. And yet, reading the literature, one is given the impression, or even runs across the claim, that Islamic finance will solve all the world’s woes, will somehow provide for “social justice” in a way that standard Western economics cannot, if only it could be immediately and fully implemented.

Another fundamental Islamic stipulation is about Islamic alms, that is the zakat, for which sums are automatically deducted from bank deposits in Muslim countries, or Muslim banks abroad.  The impression given by the literature is that zakat provides the final answer to world poverty. The reality is very different, for the zakat is not always used to relieve the Muslim poor. Here, for example, is a discussion of how it works in Malaysia:

 Malaysia’s federal structure assigns the administration of zakat to an office at the state level. In each state, collected funds are forwarded to the zakat office for disbursement. Here is how the zakat office in Alor Setar, the capital of Kedah, allocated its proceeds in 1970, according to its own official report: of the total, 53 percent went toward “commendable measures” (which generally means religious education), 6 percent to people making pilgrimage to Mecca, 2 percent to converts, and 22 percent as commissions to the zakat collectors and central administration, leaving a mere 15 percent for the poor. (Timur Kuran, Islam and Mammon pg. 25)

Since the administration of zakat is generally handled by imams, it would be expected that the promotion of Islam would be their foremost consideration and, of course, included under the heading of promotion of Islam, also comes jihad in the classic sense, meaning combat, or from a western point of view, terrorism. For those familiar with Islamic doctrine, it is unsurprising that so many Muslim charities and banks have been tied to terrorism. But the greater danger for Western civilization, springs not from terrorism itself, but from creeping Islamization and the steady erosion of our civilizational confidence that comes with it.

The Muslim Brotherhood is very active the promotion of Islamic finance because they see it as an effective arm of jihad. According to the U.S. Treasury Department,


[T]he Al-Taqwa Bank was founded in 1988 thanks to a sizable financial contribution coming from the Muslim Brotherhood. They invested in the financing of radical groups such as the Palestinian Hamas movement, the Islamic Salvation Front and the Islamic Armed Group in Algeria as well as An-Nahda, the principle Islamist group in Tunisia, and Osama bin Laden and his Al-Qaeda organization. Each year Hamas received 60 million dollars via Al-Taqwa, even after a storm of protest in 1997, when half of the Hamas budget was siphoned off by an intermediary. (Caroline Fourest, Brother Tariq pg. 98)


The Muslim Brotherhood is not any longer confined to the Middle East, but is a world -wide movement dedicated to the steady, gradual and generally non-violent Islamization of the West. Alyssa Lappen writes:

The MB unconditionally states, in Arabic and English, its plans to Islamize the globe and impose shari’a (Islamic law) worldwide–largely through “flexibility” (muruna in Arabic). Muslim Brotherhood General Guide Mohammad Mahdi Akef calls on all MB “member organizations to serve” the global agenda to defeat the West, and on “individual members” worldwide to join the “resistance” to the U.S.—both financially and “through active participation.” Even some Arab Muslims describe the MB as one of the world’s most malevolent forces.

The present danger stems mostly from the massive Islamic assault on Western economies and markets, however—both through the global push to institutionalize so-called shari’a finance, and a barrage of Middle Eastern securities markets, corporate, strategic infrastructure, bank and other acquisitions.

Skeptics should simply compare current economic events to an MB strategic plan—“Towards a worldwide strategy for Islamic policy”—written in 1977 and 1982 and discovered in the late 2001 Swiss raid on the home of MB financier Yousef Nada. Written by MB spiritual leader Yousef Qaradawi and known as The Project, the plan instructs members to “establish the Islamic state and gradual, parallel work to control local power centers….” It also requires “special Islamic economic, social and other institutions,” and “the necessary economic institutions to provide financial support” to spread Islam.

The menace of Islamic finance lies not in the possibility of economic disruption, but in the reinforcement of Islamic identity and ideas of Islamic superiority. Many Muslims feel guilty about their non-compliance with Islam in various ways and Islamic banking is one way to assuage some of that guilt. It also reinforces what Timur Kuran calls “preference falsification,” in that Muslims continually conceal their true preferences due to peer pressure in regard to Islam and do not voice their true concerns. In this way, the “moderates” are constantly under the control and guidance of the “radicals,” due to their reluctance to make any stand against Islam; and thus, increasing Islamization, both in Muslim countries and in the West, is the result. Caroline Fourest explains the plans of the Muslim Brotherhood ideologue, Tariq Ramadan:

What Ramadan is aiming at is not national political reform, but a world cultural revolution. One thing he has understood: revolutions are no longer made by mass movements. Thanks to the development of computer networks and the media, a handful of militants who are determined and intelligent, if they occupy strategic posts throughout the planet, can change the face of the world: “Things don’t change any more because of the numbers involved, that’s over with…You don’t need a hundred per city, only ten!” (Brother Tariq pg. 211)

Those who aid and abet Islamic finance (including Dow Jones and Standard & Poor’s), as harmless as it may seem, are unwittingly undermining the foundations of Western culture and thereby assisting the goals of global Islam, the goals of the Muslim Brotherhood, the goals of Osama bin Laden. A full Congressional investigation is called for. A handful of Western banks and other financial institutions may make money out of their obsequious taking part in the let’s-pretend-this-is-all-about economics creation of new, Islamically-compliant banking rules and financial instruments. They may be making money, just as over the past several decades Western hirelings of the Saudis made money, by doing the Saudi bidding, and preventing a clear-sighted understanding of why an energy policy had to be constructed would result in diminishing the consumption of oil in the West. Those who made out like gangbusters did so by heedlessly, ignoring the national interests of the United States, and the civilizational interests of the Western world.

And it is the same, now, with “Islamic finance.” Goldman Sachs and Clifford Chance may do well with all this. But America, and the Western world, in the end can’t afford Islamic banking. For Infidels, it is a losing proposition.

 

 

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Rebecca Bynum contributes regularly to The Iconoclast, our Community Blog. Click here to see all her contributions, on which comments are welcome.


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