ESSAYS IN ISLAMIC POLITICAL AND MORAL ECONOMY: EXPLORATIONS IN MICROECONOMIC FOUNDATIONS OF ISLAMIC ECONOMICS

Abstract

Considering that Islamic finance and banking studies have come into dominance in recent years, there are hardly any studies conducted in Islamic economics and political economy. While financial studies and practices require strong theoretical foundation, this is missing in the case of Islamic finance and banking. Due to the lack of theoretical developments, the working mechanism of Islamic finance is very much neo-classical economics despite the fact that its ontological base is ‘Islamic’. This creates tension between theoretical aspirations of Islamic economics and the realities as observed of Islamic finance. This research, therefore, is an attempt for expanding research in Islamic economics or as termed in his study in Islamic Political and Moral Economy to substantiate the theoretical underpinnings of this sub-discipline, whereby a theoretical foundation can be provided for Islamic finance and banking. This study therefore argues that ‘political and moral’ economy nature establishes the distinguishing nature of Islamic discourse in economics and finance, as the normative world of Islam aims to shape individual behaviour and economic operations by suggesting a different set of political economy which can be located within moral economy tradition.
In doing so, this research identified five important topics in economics with the objective of developing a theoretical frame for each of these within Islamic norms and their articulation in economics and finance. These topics are: re-configuring Islamic economics as Islamic Political Economy through identifying its components related to public choice as emphasised by Islamic ontology and epistemology; framing Islamic economics as Islamic Moral Economy; mapping the Islamic economics within the family of heterodox economics; reconsidering the social welfare function within Islamic political economy; conceptualisation of utility function in Islamic moral economy. By interpreting the Islamic norms through economics, moral as well as fiqhi perspectives, this study essentialises ‘Islamic substantive morality’ in developing such theoretical frames as distinguishing nature of this sub-discipline away from ‘rationalism’ of ‘economics and finance’ in general. In addition, this study strongly argues that Islamic economics should be constructed as a ‘political economy construct’, as Islamic norms determines the nature of economic and financial activity and behaviour which suggests an embeddedness and integratitiveness by necessitating an integrative analysis of individual, society, state, and environment and their articulations rather than secluding economic analysis to rational choices and individual preferences. Thus, Islamic Political Economy frame is suggested as the theoretical frame, and Islamic Moral Economy is generated to provide the necessary theoretical substance for this frame. In doing so, the sub-discipline of Islamic economics is provided an essential theoretical base beyond pragmatic and prescriptive definitions.
Finally, this research also presents an empirical paper aiming to test the socio-economic performance of Islamic finance in relation to Islamic Moral Economy, which found that against the expected Islamic moral economy attributes, Islamic finance and banking has developed a different trajectory which does not intersects with the substantial morality Islamic Political and Moral Economy essentialises. This study argues that such a ‘social failure’ or ‘transformational failure’, despite the transactional success, can partly be explained by underdeveloped theoretical frame aimed at by Islamic economics.
This research is constructed as a theoretically grounded research, which aims to contribute to the body of knowledge in relation to Islamic economics, political and moral economy, as the theoretical knowledge development in these fields remains weak.