CAN ISLAM SAVE THE ECONOMY?

Governments worldwide are struggling to manage the global financial crisis, with no end to the downturn in sight. But at least so far, one sector has been unscathed: the $1 trillion-and-growing business of Shariah-compliant banking.

That’s right, Shariah. The same combination of medieval Islamic law and modern post-colonialism that makes the terrorist clique supposedly so hateful of Western freedoms. Where finance is concerned, most muftis—Islamic religious scholars—agree that God prohibits charging any amount of interest on loans. Trading debt and risky speculation are off-limits too, as is investment in immoral enterprises like gambling, prostitution, and war profiteering. Transactions should be highly transparent and risk, as well as return, should be shared by all parties. You can’t trap people into owing more than they can pay. Basically, most everything that caused the current mess isn’t allowed. “Given their constraints, they actually don’t hold any conventional debt or conventional mortgages,” explains Samuel Hayes, emeritus professor of investment banking at Harvard. “They don’t have any of these derivatives or outright subprime loans. There’s no doubt that they have weathered this better than the conventional banks.”

From the view of Islamic law, writes Umar Chapra, a leading economist in Saudi Arabia, “while economic growth is essential, it is not sufficient for attaining real human well-being.” Rather, we depend on “spiritual health at the core of human consciousness, and justice and fair play at all levels of human interaction.” Much more than a business model for specialty banks, he and many others believe that Islamic economics offers a much wider vision. The conventional view of the homo economicus—super-rational, selfish utility maximizer—dehumanizes people, denying the divine stamp on our nature. A truly Islamic economic theory, they believe, should restructure consumer preferences, ensuring that basic necessities are plentiful and luxuries come only after everyone is provided for. People should feel motivated to work by knowing that they share equitably in the produce of their labors. Shariah guidelines for inheritance distribute wealth among families in ways that prevents too much accumulation. More than an economics in the usual “dismal science” sense, this is a comprehensive rulebook for playing well with others. It also claims its authority from God.

The theory has something in mind for governments as well. They are responsible for administering the zakat tax, one of the Five Pillars of Islam. Though often translated as “almsgiving,” it literally means “that which purifies.” These funds should be directed primarily toward redistributive purposes, to soften the market’s burden on the poor. However, they can also be used to fund religious causes, a fact which medieval regimes sometimes used to usurp zakat funds for expansionary warfare. But modern Islamic economists, by and large, discourage military spending wherever possible.