I have chosen the topic to be The Constant behaviour of Generations of Men”. I got this idea after picking up a number of latest publications in Islamic Banking and Finance that I have a chance to lay my hands on the last few weeks. I thought I want to touch on something that would be most current in the literature. What I finally got was the impression that men never change in their behaviour and pursuit of life, hence the title. I believe you will agree with me at the end of this half article that I am not far from the truth.
Let me start with a brief article by Prof Abbas Mirakhor which appeared in Econ Journal Watch, (scholarly comments on academics economics) of May 2014 entitled “The Starry Heavens Above and the Moral law within : On the Flatness of Economics”. Prof Abbas quoted Shoshana Zuboff who argued in Business Week in March 2009, that the financial crisis was driven by sense of remoteness and thoughtlessness, compounded by a widespread abrogation of individual moral judgement. Ms Zuboff found Hannah Arendt’s formulation of the ‘banality of evil’ an apt characterisation of those who perpetrated the financial crimes”. Joseph Stiglitz, the Noble Laureate too raged against the “moral depravity” of those who engaged in financial practices that led to the crisis. Stiglitz asked, “Did they not have moral compunction?” (2010) The Financial Crisis Enquiry Commission identified “systemic breakdown in accountability and ethics” as one of the six causes of the crisis. (2011)
Even before the crisis, Richard Holloway (1990) asserted that the “unfettering of the market” in the two prior decades had removed traditional restraints on markets. This in turn had unleashed greedy, self-centred, and self- interested behaviour at the very core of contemporary society. Widespread “crime and unfair business practices committed at the kitchen table, on the settee and from desks and call centres, at cash points, in the supermarkets and restaurants, and in interaction with builders and trades people by people who think themselves as respectable citizens”. Erosion in morality is not limited to market anomie. It is observed also in societies where the market does not have a dominant role (see Akinbo 2009). From the above observations, it is obvious that many have expressed concern on the systemic attack on human dignity, trust, contracts and property. These four elements are the fundamental components of the institutional infrastructure of societies which bind together social solidarity. Can we then blame economics? Ever since economics has been detached from ethics to generate the “self-centred business model with its One-Dimensional” man having reigned supreme across the world and across cultures, its flatness is the least of the charges against economics. While the call for economics to include ethical considerations has been voiced for decades (A K Sen 1987) economics continues to “be practiced in an ethical and moral vacuum”
Interestingly, in 1986, in my paper “The Role of Ethics in Economics and Business” I wrote, “Quite apart from the distinct dichotomy of man’s life into the secular and spiritual, conventional economics is still plagued with undue emphasis on the positive at the expense of the normative treatment of the subject. “What is’ becomes the norm, in fact, the rule rather than ‘what ought’. The positivity of economics is one of the factors which stems from the desire to be exact, scientific or objective without any consideration for its behavioural aspects. It is as though man is a pure technocrat who has no feelings, prejudice or value judgments. It is as though of necessity that man, in his economic pursuit, must discard all values so that he can achieve his objectives independently of any other considerations. At the same time, economists accept blindly that the axiom of selfish actions inherent in man as rational behaviour. In attempting to portray economics as a science, the economists created their ‘economic man’ whose sole purpose is maximizing his objectives in every economic pursuit”.
I continued in the same article, ‘Economic theorising has excluded the consideration of the effect of ‘outside forces’, ethics in particular, on the process of economic change. This methodology has been adopted so as to make economic as objective and scientific possible. Ethical values which govern behaviour have been considered as exogenous or outside the model which hear little significance to the analysis. Our interest here is to discern the kinds of changes which would occur when ethics is interwoven with material pursuits. In particular, we would like to see what happens to economics and business when the economic man has to abide by the Tawhidic paradigm with the objective of establishing justice.”
As I have alluded above, the problem with economic theorising is that it is based on the concept of rationale man. This has been echoed today by many both inside and outside the profession that the economics model of man with its concept of utility maximisation robs the discipline of its ‘grand vision’.
How about going back to 1776 when Adam Smith wrote ‘The Theory of Moral Sentiments and Lectures on Jurisprudence which provide the moral rules, the institutional scaffolding within which the economy described by The Wealth of Nations is embedded. Most people read only The Wealth of Nations without studying the earlier two writings of Adam Smith, hence could not appreciate the rules prescribed by Smith for a balanced economy. Going further back to the early 14th century, we have the Muslim historian, Ibn Khaldun who attributed affluence as the cause for moral decadence. Again the concern for ethics was very apparent. Indeed, going further back to 11th century, we have Al-Ghazali whose concern for moral decadence of society at his time led him to write volumes of books on ethics and morality, which are being seriously studied till this day.
Indeed, we can go further back to, say 470BC, when Socrates strongly debated on ethics, followed by his disciples such as Plato and later Aristotle who condemned even the practice of riba.
We should not forget the fact that Allah the Almighty has sent down Prophets and Messengers from the first human in the person of Adam till the last of the Prophets some 1400 years ago to remind and warn their communities of the wrath of Allah if they do not follow their preaching and adhere to their advice. Most of the preaching was to make man a better human being.
The reason why Allah the Almighty sent down all these Prophets and Messengers is simply because the communities keep sliding away from adhering to the rules. Some have been completely destroyed such as the people of Nuh, ‘Ad and ‘Thamud.
This very cursory review I hope has shown that we have not changed much. Our behaviour is more or less constant. The form probably differs, but the substance remains the same, that man tends to slide to immoral and unethical behaviour over time. Each time we derail, the impact becomes greater. We do not expect that we will change for the better either. We can expect the impact of this constant behaviour to be much bigger in the future. The question is should we not look at some other alternatives? In fact, since the root cause is the wrong formulation of the economic man, why don’t we change the economic man itself, or rather we change ourselves. Indeed even if we look the foundation laid by Adam Smith in his book The Theory of Moral Sentiments and Lectures on Jurisprudence, we could have a different view of what an economic man should be.
Today, we are all but familiar with Islamic traditions through the advent of Islamic banking, finance and capital market, despite the dismal image of Islam that has been painted by those who do not know or do not intend to know about it. I firmly believe that the success of Islamic finance today is because the explicit vision of an economy embedded in prescribed rules of behaviour that the Quran has provided to mankind is the truth, the whole truth and nothing but the truth. So much so, many writers such as Abbas Mirakhor, Hussein Askari, Zamir Iqbal and others have openly stated that “compliance with these rules assures sustainable development and growth”. The Qur’an does not have a long 1ist of don’ts, neither does it provide a long list of do’s. But the little that it gives is enough to enrich economics and finance. I just share here a few of these rules of behaviour. First is the property-rights which empowers all humans to access Allah-created resources. The rules of property-rights would form the legislative basis for redistributive measures where the less able has the legal right to redeem from the income and wealth of the more able. Would it be possible to have 1.4 billion people on this planet out of 7 billion to live on USD 1.25 per day and 22,000 children die of poverty daily if the property-rights of Islam is being fairly implemented. The same rules also prohibit abuse, waste and wanton destruction of resources, giving clear implications on the environment.
Second is the principle of sharing. The prohibition of interest which incidentally is prohibited by all known religions, transforms risk shifting or transfer to risk sharing. In particular, the sharing of risks in life brings people together leading towards social solidarity and unity of mankind as a corollary of the Unity of the Creator. It is worth noting that Kenneth Arrow’s theory of risk bearing (Arrow 1971) is essentially a theory of risk sharing in that it requires that the risks of the economy are allocated among participants in accordance with their respective degree of risk tolerance. Risk sharing will also relieve human societies of the heavy burden of debt, one of the main causes of financial and economic crisis of the modern day.
Thirdly the market has an important subsidiary role of requiring the participants to internalise the rules of behaviour before entering it. This requirement has been amply emphasized by Al-Ghazali so that mistakes can he minimised. Additional rules govern the market operations, such as free entry and exit, full disclosure of information and transparency.
Rules also provide remedies for such problems as annulment of contracts in case of cheating, short changing through measures and weights and asymmetry of information. These rules, if well enforced, will produce a very fair competitive market as was the case during the early periods of Islam. Today we have not been able to emulate such practices anymore.
Price control needs to be continuously implemented. Thus we see how enriching the economy will be with ideas from religions. Whilst what I have outlined is still very generic, I like to take this opportunity to offer a solution, particularly to CEO’s of any company who essentially are responsible to the whole organisation’s operations.
My thesis is that, if any of the operations under our purview are not rule compliant, how shall we answer to the Creator when our turn comes to meet Him personally. Reflecting upon this issue is very scary indeed because we never thought this issue will be in the list of things we need to answer for.
At the moment, when we raise funds through sukuk, we feel satisfied that we are complying with the dictates of Shari’a like a fad or fashion. However, when we insure buildings or assets we do not think of takaful. When we park our extra cash we do not think of parking in Shari’a compliant money market.
When we invest, we only choose investments that give the highest yields, whether such yield is Shari’a compliant or not is not our concern. I remember when I was the President and CEO of a private university the parent company, of course run by 90% Muslims, wanted to charge me 12% interest for a loan that I needed during our early years of operation. When I told the CFO, “shall I tell Allah Almighty that you compel me to accept this offer of loan with 12% interest when I meet Him later?” In fact when I was serving a so-called Islamic organisation, were considering insuring the building that was just completed. The management was collecting quotations from insurance companies.
No one thought of insuring the building with a takaful company. I plucked up courage and voice my concern because I was not considered as part of operations staff. So it was decided that a quotation from two existing takaful companies should be obtained. In the meeting the following month, again the conventional insurance company were about to be picked up because no one was sensitive to the need to employ the takaful company
What more when the takaful company quoted slightly higher price. I objected and eventually the buildings were insured with a takaful company. Similarly when we deal with others we do not practice justice and fairness, what more benevolence and yet we feel satisfied just because we consider our operations have nothing to do with being Islamic.
I am raising this concern simply because many have not realised that by being completely rule compliant, the whole organisation will be compliant, including all its assets and net worth. It will also increase the total Shari’a compliant assets of society, which at the moment the Islamic financial institutions assets stand only at 0.8% of the total global financial assets.