One of the selling points of Islamic finance promulgated by exponents has been its moral core that opposes the ills of capitalism. Countless introductory texts express the probity of Islamic finance, a system that recognizes the needs of transacting parties and ensures that society is not made worse off. Capitalism, on the other hand, is rebuked, considered exploitative with one group of people benefiting at the expense of another group.
But as the World Islamic Economic Forum that took place in the UK on October 29th -31st showed, Islamic finance has coopted capitalist paradigms. To explain, the technical definition of capitalism is the ownership of factors of production, land, labour and capital. At the WIEF, companies, as private owners of these factors, showcased their products (Coca Cola had a stall). Privately owned financial companies invoked their credentials of capitalizing on funds from individuals, most of whom presumably had earned money from working in profit making companies. The idea of profit-making is a central goal of Islamic finance organisations, and speakers at the conference gleefully boasted about the $1.3 trillion dollar, and growing, market. The language of Islamic finance resembles that of any ‘capitalist’ organization. It is not for nothing that critics would look at the event and mockingly regard it a purveyor of ‘halal capitalism’.
But before jumping on the skeptical bandwagon of rabid and aggrieved discontents that perceive Islamic finance to have distorted the Shari’a, one has to ask whether capitalism is as egregious as perceived. The operative word in defining capitalism is private, because its opposite is public – or in other words, government control. So capitalism’s alternative is centralization. Marx was hoping for socialization of gains and losses but after the massive failure of communist and fascist regimes, his theories are mostly decried.
Socialism, in theory, is attractive because it promotes equality. But as economists such as Adam Smith and Jeremy Bentham realized human nature tends towards self interest. An individual is typically looking to benefit himself. However, Smith and Bentham were not postulating that we live in selfish society geared towards aggressive competition. Far from it. For a properly functioning society, self interest has to be harnessed in such a way so as not to be oppressive upon other members of society. Bentham’s theory of utilitarianism – maximizing happiness for the greatest amount of people – can hardly be conceived of as being exploitative.
True, there are many instances of exploitation resulting from this premise of private ownership. Hence effective regulatory bodies are required. Even during the time of the Prophet, the Muhtasib walked the markets to check market practices. Human behaviour, regardless of system, can tend towards corruption in order to benefit oneself. In a centralized state, this is usually delimited to one group. In capitalistic states, there are more groups, because more people have the opportunity to benefit. But there is also concomitant regulation.
Very few people want centralization fearing this would impose on their freedom, and would welcome the opportunity to have opportunities. Even the growth of Islamic finance owes itself to the flexibility that availed itself in western nations, and now the current guise of Islamic finance, with its pursuit for the returns that are begotten from financial products, shows that capitalism is not contrary to Islamic financial paradigms.
The problem with capitalism is really not the system, but the participants within the system. More regulation and more red tape reflect corruption of human behaviour and the failure of recognizing ones position within the human space. It leads to the nanny state. Globalisation has meant that the world is more interconnected, and our actions have far greater and wider repercussions than they did 100 years ago. To have the freedom to benefit great swathes of people is only a luxury that capitalism can afford us.
So if Islamic finance wishes to pitch itself against capitalism, it cannot attack the system for being exploitative. Numerous groups and individuals, outside Islamic finance, criticise capitalism for being such but really they are criticizing the organisations and people that perpetuate exploitative practices. Systems are only as successful as the actions of the participants within. In any event, what difference is the paradigmatic mindset of the capitalist (profit maximization) with that of the Islamic finance proponent (also profit maximization but Shari’a compliant).
Social responsibility, a favourite marketing pitch of Islamic finance, is also a concern for segments of the capitalist society. It is not specific to Islamic finance. The difference between SRI and Islamic finance investment centres around food and beverages, and interest based products. But this has not attracted many beyond the Muslim community. Most non-Muslims still drink and go to banks, even though it is evident that drinking and increasing debt results in social ills. There is something much deeper in society that Islamic finance has failed to address otherwise it would seem foolish that people still procure these products. Islamic finance’s marketing cannot be reduced to mantras about social responsibility because concern about social responsibility already exists in capitalist society.
Instead, Islamic finance has to accept that it is a subset of capitalism. Its strengths need to be towards tackling the worst excesses resulting from the free markets: greed, opulence, wastage, exploitation, inequality, distributive disparity, wealth concentration, money lust, etc. This can only be achieved by the proponent thinking far wider than profit maximization. Those are not ugly words. They are only ugly when it is simply for self interest. Neither Smith nor Bentham, whose theories underpin capitalism, had that in mind and Islamic finance proponents should realize this.