The myth of “Islamic socialism,” or the Islamic “economic system”
Writing by abuhatem on Friday, 26 of October , 2007 at 7:22 pm
I don’t usually write about religion, but I just wanted to give this point after seeing more and more hogwash about the so-called “system,” of economics said to be an integral of Islam and oft-repeated to be “neither capitalist nor socialist.” Nancy Davis and Robert Robinson, two professors of sociology, released a paper at the 2004 Association of American Sociologists called “Islam and Economic Justice: A ‘Third Way’ Between Capitalism and Socialism?â€
Throughout the internet, and in real life, there are ideological movements of people calling for a so-called “Islamic system,” of economics which they say is an economic system revealed by God that is a so-called “third way,” between Capitalism and Socialism. Such intellectually lazy comments show an extreme ignorance of economic concepts and theories. Many of such people lean to the socialist persuasion of economic theory.
Websites such as this one which state that Islamic economics promotes the idea of an extreme welfare state which offers welfare, food, shelter, and health care to every citizen. It also states that prices are not a “method of distribution of goods,” (whatever that means?) and that in an Islamic state people do “what makes them happy, not what makes the most money,” and so in the end “everyone is productive,” and “there is no sin on high earnings.”
Hodgepodges such as these try to state that Islam has its own economic “system,” instead of the better word - laws, and that this is a cross between socialism and capitalism, as if the social-welfare state under a free-market has never existed before. Muslims should pick up a few books of Ludwig von Mises, Adam Smith, and Robert Shumpeter before making such brash generalizations about economics.
In stating all of this, the author is not totally off the mark. Islam does use zakat funds to provide life necessities to the poor and destitute - such as food, clothing, and shelter. However, the statement that these are a “right,” is unsupported, and the fact of the matter is that there exists the possibility in which zakat funds are insufficient in paying for the necessities of every single poor person. What then? Does the Islamic government violate the right to property of those who have money to increase taxes?
Yet, this entire discussion is folly. For, the author of this website is confusing some major concepts. Such a state, yes, in all of its descriptions, would be a capitalist economy. This is because of the existence of a free-market which the author implies. The existence of a welfare state, that which the author is attempting to justify, is commonly misunderstood to be “socialism,” or a system which is incompatible with capitalism - and so the author states that this economy would be “not capitalist.” Although the welfare state, “leans socialist,” we cannot exactly call it socialism - as I will explain.
Socialism often has much appeal and many adherents - however many really do not know what socialism is. I know many Muslims who have ideas close to socialism. They do not enjoy the fact that there is inequality in the economic order and seek a more egalitarian society. Firstly, one must note, that socialism is not the establishment of an egalitarian society - although this is one of its ends. Socialism is defined as “government control of the means of production,” or command economy instead of demand economy.
Capitalism, a system often criticized by many Muslims as economic oppression of the poor, in its purest definition is “private control of some or all of the means of production.” It is a market economy in which “the market is dictated by supply and demand.” While as Muslims we obviously reject the “or all,” the fact of the matter is that capitalism, in some form or another, has been in existence throughout Muslim history even up to the beginning of Islam. Islam speaks highly of trade, the Prophet Muhammad (may God bless him and give him peace) said “The most pure of money is through trade,” (athar al-mal al-tijara). Islam also affirms the right of private property, and thus the legality of free-enterprise.
The first stock market existed in Egypt during Islamic rule, before Europe even thought of the concept. It is also a historical fact that the first “market economies,” which led to the formation of capitalism, were MUSLIM! Ibn Khaldun speaks of low taxes and free markets in his Muqaddimah as far back as the 1400s! Something many Muslims will be shocked of is Ibn Khaldun, the great sociological, political, economic, and historical thinker - also a religious scholar of fiqh and judge - was one of U.S. President Ronald Regan’s favorite economic thinkers! Regan even mentioned him in a speech. In fact Regan’s policy of tax cuts to stimulate the economy was direct spoken of by Ibn Khaldun in the Muqaddimah.
Capitalism, my dear friends, is defined as private ownership of most of, or all, of the means of production. Islamic law, while not providing an economic system, allows private ownership of most of the means of production - with few exceptions (such as water). Socialism is a centrally planned economy by the state. Islam, obviously, is not compatible with socialism. And calling Islam a so-called “third way,” is rubbish, because there already is a “third way,” which is the varying degrees of a mixed economy or the social market economy which is actually the economy of a great portion of the world - including the United States, the United Kingdom, and Germany.
 Islamic law acknowledges the right and freedom of setting prices and buying and selling goods, as long as these goods are lawful under Islamic law. While the money lending industry was inexistent (well, actually it still existed - see Capitalism in the Medieval Muslim World by S. Labib) there remained a free market economy in place. Read the works of Ibn Khaldun and you will find policies which even inspired Ronald Regan.
In fact, the bartering system in such a free market was actually sound money of the Islamic dinar. The State did impose taxes, yet the main taxes imposed by Islamic law are the mandatory zakat - which is 2.5% on a minimum income which goes mostly to the poor, destitute, and highly indebted. There is no mandatory medicare or social security revealed in Islamic revelation, nor is there a 50% estate tax, nor a sales tax.
The state did not control and command the economy.  Instead, the market ruled the economy - Muslims generally had a free market, at least in the beginning, while some later despots would make this far from the case.
It was in fact the Islamic free market system, led by such multinational corporations as “the Karimi family,“ which led to the very free-market economic system which the West has today. So instead of “socializing,” Islam - we should deal with the facts, Islam is compatible with free-markets (or in other nomenclature - capitalism or “mixed economies”), although Islamic law does affirm certain business laws which lead to the inexistence of certain industries - such as the money-lending banking industry - there is no use to sit around and philosophize while justifying that Islam is a “system” of economics.
If you don’t believe that Islamic society, even since the time of the earliest Caliphs, was “capitalist,†or “free market,†then please read Subhi Y. Labib (1969), Capitalism in Medieval Islam.
Islam does establish zakat and kharj taxes, obliging the payment of some charity to the poor, as well as strongly encouraging private charity to the poor, but this is no justification that Islam is socialist. What Islam condemns is certain industries of a capitalist economy - such as the money-lending banking industry which through usury leads to the economic slavery and oppression of the poor, or the alcohol and cigarette industries, or other industries which create products that harm human beings, but not industry and business as a whole. An interesting perspective on the matter can be found here.
None can say that Islam advocates government dictation of the economy, the failed “socialist-state.” This does not mean that pure unfettered free-market capitalism is a successful system either. Pure capitalism does not truly exist anywhere, at least in a nation-state, in the world; there is always some government regulation of the economy.
What exists, and are successful, in the United States, Europe, South East Asia and other developed successful countries is mixed economies. Now the degree of mixing has led to two separate mixed economy models both of which work and are successful for the most part:
First: Is the more free market leaning state like the U.S. The U.S. government has imposed very moderate regulations of the economy. A moderate corporate taxes on large businesses, a low income tax, and many other moderate and low taxes fund a relative few amount of government programs including free public schools to High School, an extremely limited welfare program of about two years called TANF (Temporary Assistance for Needy Families), social security provided for state-funded retirement, and Medicare providing health care for the lowest income Americans. Low taxes means greater consumption leading to economic growth. Healthcare is not free in the United States, nor college education.
However, one must note, that the standard of living in the U.S. is one of the best in the world. 12% of the U.S. population is underneath the poverty line, however these 12% often live with more money than the average income in some European nations. Another fact is that many of the 12% of Americans that are underneath the poverty line have a much higher quality of life than people in many developing countries. And lastly, the 12% of Americans underneath the poverty compared to the historical poor of the past three centuries are living much higher qualities of life.
In the American system although there is a lower class which exists the vast majority of Americans live in the middle class to upper class and enjoy a quality of life unprecedented economic affluence and prominence. Although money can’t buy happiness, as Economist and former Secretary of Labor Robert Reich states in his great work The Future of Success, it can buy comfort, healthcare, housing, education, food, and leisure and luxuries which can lead to happiness and pleasurable experiences.
It is also an important aspect of the American economic system that there is social mobility. The fact that a poor lower class member can move up the social ladder, even politically (as famous Thomas Dye even notes in his elitist theory of American democracy described in The Irony of Democracy) is perhaps the most striking feature of American society. Rags-to-riches stories abound, a poor American can become a richer one (although with much less advantages along the way than a rich one has) through, if the person is blessed with a decent intellect, working hard in school and eventually graduating from a college or graduate school with a reasonable degree and then getting a job. Although the cost of college and graduate school may be very expensive for the poor man to afford - Americans counter this by stating the poor person could be granted government or private scholarships and also take out loans which he would pay back after success. In the same token, a richer person can become poor by messing up, not working, losing in risky enterprise, etc. So there is class mobility in the U.S. system.
Second: The second system that works is the “social market,” economy. A “social market economy,” is a European twist on the free-market and involves the extensive welfare state. It is a more socialistic (not socialist) form of capitalism. While free market and industry are available for wealth to be made (or lost), there also exists extensive taxes which redistribute wealth creating much less inequality. While a higher and lower class do exist in these countries, for the most part there is an enormously large middle class with differences in equality. The differences in income between the various occupations do exist, but they are much less than in the United States. For example U.S. doctors on average earn five times more than doctors in the U.K.
The social-market economy model has also worked. Although it has many problems, just as the American system does, it is for the most part a “lesser evil,” than the failed economic systems of socialism and communism - and the only true alternative economic system which works. Sweeden is an example of the extensive welfare state. It provides free government run healthcare, schooling up to Ph.D. level, welfare for the poor, pensions, and social security for all of its citizens (or expensive healthcare to a certain extent since it is payed for by up to 60% taxes on its citizens!)
There are immense problems with the Sweedish model however, although it is generally a working model. Firstly the limitation of free-enterprise leads to lower quality healthcare, lower quality products, and a stagnant economy. The Sweedish economy is in trouble. While nationalization of industry can often keep prices low or even eliminate them through raising taxes (an example of lower prices through nationalization is Democratic progressive Dennis Kucinich’s nationalization of the municipal electricity system to eliminate corporate monopoly), competition is also an impetus for innovation and lower prices and a central factor for the immense success of the American system.
Anyways, both types of market economies are the only successful economic system possible in the world today. It has been widely apparent that these two types of economies work. There will always be schools against this fact, for example the Ludwig von Mises “Austrian school,†claims that social market “Third Way,†economies will eventually become socialist and that they have inherent problems. At the same time, capitalist free-market economies have different underlying economic philosophies including the Keynesian school, the Chicago school, and the Austrian school. This is too big of an issue to talk about on a blog. While there are many problems in the aforementioned economies, many are fixable through economic policy (such as for example proposals to create an affordable U.S. healthcare system, for instance) and those that are not - those that are inherent flaws in the economic system - are lesser evils than the evils humanity has seen in socialism and communism in the past century.
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