Islamic world needs more economic freedom – Admir Cavalic

Economic freedom in the broadest sense means the freedom of the individual to perform certain economic activities. It is a very important term which is primarily used as a method to check whether a particular economic system encourages or blocks economic initiatives and activities. In this regard, under the patronage of Milton Friedman- the Nobel Prize-winning economist- and other influential academics and organizations, numerous methodological frameworks have been developed to measure and monitor economic freedoms around the world. The most prominent of these are the Index of Economic Freedom published by the Heritage Foundation and the Wall Street Journal, as well as the Economic Freedom of the World Report by the Fraser Institute. Although there are certain methodological differences between the two, a lot of focuses are in common – government size/spending, fiscal freedom, monetary/financial freedom, legal system/private property, freedom of trade/investment, the issues of regulations and corruption. Each of these aspects directly affects the overall assessment of economic freedom especially these main elements: personal choice, voluntary exchange coordinated by markets, freedom to enter and compete in markets and protection of persons and their property from aggression by others.2

Why Freedom Matters

Through a series of research studies, it has been proven that improving mentioned partial areas or overall economic freedom leads to higher economic growth and better standards of living in the countries observed. Thus, the least economically free countries have a lower standard of living, while the more economically free countries enjoy the benefits of wealth. It is important to state that unlike political and personal freedoms, economic freedoms display clearer causality in terms of visible outcomes, mostly represented by the material well-being of the individual. This affects a number of other issues like increased trust in the government, protection of civil liberties, reductions in poverty rates and improvements in health and educational outcomes.3 In addition, there are many arguments, albeit not sufficiently demonstrable, in favor of greater economic freedoms leading to greater political and personal freedoms, and vice versa. The reason behind this is the existence of several different examples of countries with different stories in this regard – from Chile through Sweden all the way to China.

Director of Association Multi, Bosnia and Herzegovina, admir.cavalic@yahoo.com
2 Fraser Institute, (2020), Economic Freedom Basics, available at: https://www.fraserinstitute.org/economic- freedom/economic-freedom-basics
3 Fike R., (2018), Impact of Economic Freedom And Women’s Well-Being, Fraser institute, available at: https://www.fraserinstitute.org/studies/impact-of-economic-freedom-and-womens-well-being

Economic freedoms in Islamic countries

When it comes to economic freedoms in the Islamic world, numerous studies456 show that there is a significant lag behind the global average and even countries with other religions. The Islamic world, in this case, is defined as countries where Muslims represent the majority population. Data shows that there are gaps in every area of economic freedom, except for two areas – fiscal freedom and government size/spending. Islamic norms and history can easily explain these two – the first Islamic State, established by Prophet Muhammad ﷺ in Medina in 622 CE was some kind of night-watchman state advocated by minarchists, while Islamic taxes like zakat, jizya, kharaj and ushr, today, can be considered extremely revolutionary even within the realm of classical liberals. To give a comparison – taxation as a percentage of GDP among all OECD members has an average of 34.3%.7 What is important to state is that probably the normative aspect of Islam is not the cause of Islamic countries prospering in this segment of economic freedoms, but rather that a significant part of Islamic economics is oil- dependent. This makes fewer initiatives for taxation and government bureaucracy to prosper.

All other areas of economic freedom have poor scores. The worst ratings relate to the issue of private property, freedom from corruption and freedom to invest. In the normative Islamic framework, there are no arguments to explain this. The concept of private property is well established in the Qur’an, and , knowing that Marx himself wrote that entire theory of communism which can be summarized by a single sentence – abolition of private property8, it is fascinating how some 20th century leaders and scholars during made the theoretical and later political connection between Islam and socialism. What could be worrying is that the protection of private property has an exceptional impact on the level of economic freedom more than any other area. It is the very foundation of the market economy system. This can explain why the Islamic world has lower scores on other indicators (overall freedoms, material wellbeing and the like), but it also gives an interesting alternative explanation for the Arab Spring, developed by Hernando de Soto.9

Lots of consequences

Additionally, explaining corruption is very difficult under ideal Islamic norms. Islam recommends developing a firm belief in transcendent accountability and stresses character building through practicing moral virtues and shunning vices. In essence, in circumstances where the chances of detection are low, the restraint comes from within.10 In practice, corruption is a big issue in Muslim-majority nations. The 2018 Corruption Perceptions Index (CPI) clearly shows there is no Muslim country ranked in the top 20 (of being least corrupt)

4 Facchini F., (2011), Economic freedom in Muslim countries: an explanation using the theory of institutional path dependency, “Documents de travail du Centre d’Economie de la Sorbonne 11015, Université Panthéon- Sorbonne (Paris 1), Centre d’Economie de la Sorbonne.
5 Čavalić A., (2015), Economic freedoms in Islamic countries, 4th Annual Istanbul Network for Liberty Conference, May 18-20, Marrakech, Morocco
6 Pelaez R., (2009), Economic freedom: A comparative study, Journal of Economics and Finance 33: 246-258.
7 Forbes, (2016), Tax/Spending Burden, available at: https://www.forbes.com/global/2004/0524/074chart2.html
8 Marx K., (2014), The Communist Manifesto, International Publishers Co; New edition edition (February 7, 2014)
9 De Soto H., (2011), The Real Mohamed Bouazizi, FP, available at: https://foreignpolicy.com/2011/12/16/the- real-mohamed-bouazizi/
10 Iqbal Z., Lewis M., (2014), The Islamic position on corruption, Chapters, in: M. Kabir Hassan & Mervyn K. Lewis (ed.), Handbook on Islam and Economic Life, chapter 15, pages iii-iii, Edward Elgar Publishing

out of the 180 countries surveyed.11 This is quite strange if compared to historical facts that share stories about Umar ibn Abd al-Aziz who used to light his own candles instead of the state ones if someone wanted to discuss a private matter with him.12 Freedom of investment in this regard is very much related to the issue of corruption because investments naturally avoid highly corrupt areas, especially if they need to compete with the local government. This again causes a lack of economic growth and overall progress in the long run.

The absence of economic freedoms in the Islamic world consequently leads to the absence of other freedoms – political and personal. This is argued by a number of reports – Human Freedom Index, Worldwide Press Freedom Index, Freedom in the World and the like. Much of these freedoms also relate to women’s freedoms, which also have a strong relationship with economic freedoms13. In case these freedoms are there, they certainly enable women to be competitive in the labor market and prosper in the long run. Concretely, it is difficult to fight for human rights or form a political opposition if there are no domestic or non- governmental monetary units that would financially support these efforts, or if women are not allowed to have their own independent sources of wealth. In these cases, relying on international funds could only be a short-term solution that might produce some positive outcomes, but not a complete reform. Change needs to be locally driven.

Future challenges

With the decline in oil demand and value and the growing number of dissatisfied young people in a significant number of Arab countries, there will be a need for more economic freedom. These freedoms would ensure a dynamic market that can meet the needs of all. In order to increase economic freedoms, a number of economic reforms designed for each country need to be undertaken. These reforms are unfortunately painful in the short term and useful in the long run, which means that a publicnarrative need to be created in order to explain these reforms to common people. It is not necessary to look for ideals in the classical liberals of the West like Smith or Hayek14, but above all in strict Islamic teachings that emphasize the importance and sanctity of private property, state limitations, small taxes and extreme penalties for malpractice. It is also important to open domestic or foreign trade systems symbolized by caravans that have always flowed freely through the Islamic world. Finally, Prophet Muhammad ﷺ was an entrepreneur. Thus, the best way to convince Muslims about the efficiency of an entrepreneurial-run-economy instead of a governmental- run one is to tell them about their biggest role model.

 

11 Satar D.S.A., (2019), Corruption a big issue in muslim-majority nations, New Straits Times, available at: https://www.nst.com.my/opinion/columnists/2019/04/480813/corruption-big-issue-muslim-majority-nations
12 Miftaah Institute, (2018), Umar Ibn Abdul Aziz: The First Reviver of Islam, available at: https://miftaah.org/articles/umaribnabdulaziz
13 Fike R., (2018), Ibid.
14 Which the author personally encourages.