Download Session 1 (9/03/2015): Overview and main themes

PRELIMINARY—READINGS AND SESSIONS WILL BE SOMEWHAT
DIFFERENT, and GRADING MAY BE SLIGHTLY MODIFIED
COURSE NUMBER:
Honors 2048 (11)
SEMESTER: Fall 2015
COURSE TITLE:
Islamic Economics, Finance and Development: Theory Versus Reality
ROOM:
OM 208A
CLASS DAY AND TIMES:
Thursdays 12:45-3:15 p.m.
COURSE DESCRIPTION:
Economic doctrines and systems evolve, and in 2014, the mixed capitalist
market system of the Western World may appear pre-eminent but it has
received s number of shocks at its very foundation. Because of market
failures and social considerations, truly pure market economies do not
exist today but market or capitalist economies are ‘mixed’ systems, with
the word mixed referring to government participation and intervention.
The questions become how much government intervention and where?
Islam is a rules-based system with a prescribed method for humans and
society to achieve material and non-material progress and development
grounded in rule-compliance and effective institutions. The foundations
of the Islamic economic system were laid down centuries ago in the
Quran and practiced by the Prophet Mohammad in Medina. The
institutional scaffolding of the Islamic system is thus formed by the rules
of behavior defined by the Quran and practiced By the Prophet
Mohammad. As a result, the content and blueprint of the Islamic
economics, finance and development is derived by: (1) extracting these
rules and their implications from the Quran and the Sunnah that define an
Ideal Islamic system; (2) studying these institutions in the contemporary
economy and determining the degree and extent of deviation between its
institutional scaffolding and that of the Ideal Islamic economy, financial
system and development; and (3) prescribing policy recommendations to
bridge the gap between the two.
The Islamic economic system is a market-based system; where markets
are seen as the best and most efficient mechanism for resource allocation,
not as an ideology whereby unfettered markets are seen as philosophy or
the basis of the economic system. To be efficient, markets must have
rules (such as information disclosure) to protect market participants
(workers, producers, investors and consumers) and must be supervised
with strict rule enforcement. Private property that is legally acquired is
held sacred in Islam and property rights are fully protected. But Allah is
the Creator of all things on this earth and His creation has been given to
humans of all generations in trust. Thus land and other natural resources
must be developed in ways that benefit all humans of all generations
equitably. It is imperative that the rights of the disabled and those of
future generations are fully honored.
A major feature of the rules, conveyed in the Quran and practiced by the
Prophet, is justice. Thus the Islamic institutional scaffolding and the Ideal
Islamic Economy must exude justice and as a result the promotion of
social and human development on this plane of existence is founded on
rules that promote justice. As a result, the Prophet understood the
essential objective of the message to encourage and insert justice in
human societies as emphasized in the Quran. Justice is essential in all
endeavors as the pursuit of justice leads to spiritual fulfillment and brings
humans closer to their Creator.
In Islam GDP per capita and GDP growth are not society’s only economic
goals. There are spiritual, moral and human dimensions to all economic
endeavors. Humans must work on these facets of their personal
development. The goal of progress and development is the overall
wellbeing of humans and society. While this has been the goal in Islam,
it began to be also recognized through the work of Mahbub ul-Haq and
Amartya Sen in conventional economics only in the late 1970s.
Moreover, in Islam institutions have been seen as an essential element
and the foundation of achieving human and economic development,
something that became only popular in conventional economics about
thirty or so years ago but had been almost forgotten from the writings of
Adam Smith with the emergence of neoclassical economics.
The primary role of a financial system is to create incentives and
mechanisms for an efficient allocation of financial and real resources for
competing aims and objectives across time and space. A well-functioning
financial system promotes investment by identifying and funding the best
business opportunities, mobilizes savings, monitors the performance of
managers, enables the trading, hedging and diversification of risks, and
facilitates the exchange of goods and services. Within a financial system,
financial markets and banks perform the vital functions of capital
formation, monitoring, information gathering, and facilitation of risk
sharing. These functions ultimately lead to the efficient allocation of
resources, rapid accumulation of physical and human capital and faster
technological progress, which, in turn, stimulate economic growth.
An interest-based financial system invariably creates a phenomenon
known as “financialization” that results in a divergence between the real
sector and the financial sector of the economy. The conventional
fractional banking system allows multiple amounts of money to be
created out of a given amount of deposits received, enhancing the process
of creating debt. The functions of the Islamic financial system in the
economy are similar to that of the conventional system. However,
because of the prohibition of interest and debt in Islam, the Islamic
system is based on risk sharing as contrasted with risk shifting, which is
the case with debt. As such Islamic finance relies heavily on equity
finance. In turn, this calls for well-developed stock markets and other
secondary capital markets for equity finance to motivate savers to provide
financing and to supply entrepreneurs with sufficient resources for their
projects. The building blocks of the Islamic financial system are readily
identified and require important government regulations and supervision
to be effective and efficient.
Although the literature on economic development has a rich history
spanning more than three centuries, the early discussions were narrowly
focused on the development of the market-oriented economies of the
West. In the early post-WWII period, economists defined economic
development as a combination of rapid economic growth and structural
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transformation. It was not until the late 1970s and early 1980s that
economists began to question the popular definition of economic
development and the path for its achievement. For the first time, human
development, including education, healthcare, poverty eradication, a more
even income distribution, environmental quality, and freedom, was seen
as an integral component of the economic development process. While
economic growth is still a necessary condition for economic
development, it is no longer deemed sufficient—although man needs
bread to live, he does not live by bread alone! While the definition of
economic development and the policies for its achievement have gone
through a metamorphosis in the West, the concepts of economic and
human development in Islam are not time dependent. In Islam,
development is composed of three interrelated and interdependent
dimensions: individual human self-development, the physical-material
development of the earth, and the development of human society as a
whole.
In this seminar, we survey the essence (theory) of Islamic economics,
finance and development. We examine the implications for Muslims and
for Muslim countries. We look into human, economic, financial and
political developments in the Persian Gulf, considering the impact of
religion, dependence on oil, institutional structures, internal instability,
regional conflict, economic and social policies, and intervention by
external powers. We hope to throw some light on the state of these
Muslim societies. As we will see, there is a deep chasm between theory
and reality.
PROFESSOR: Hossein Askari:
Office Hours:
Funger Hall 405), 994-0847, [email protected]
Tuesdays 11:00-12:30 and by appointment
REQUIRED READINGS:
Most of the assigned readings will be posted on Blackboard. I realize
books are expensive, so I will post electronic copies of my some books
but these are not be shared with anyone, reproduced or otherwise
disseminated. The items that are not posted are denoted by *.
LEARNING OBJECTIVES:
The objective in this seminar is to familiarize the participants to Islamic
thinking on economics, banking, finance and development, and to
expose them to the diverse reasons why the Muslim countries of the
Middle East, especially the major oil-exporters, have not achieved
commendable human, political and economic development. By the end
of the semester, it is hoped that the participants will have formed their
own views about what the region needs for a positive turnaround and a
better future.
METHOD OF INSTRUCTION:
Class lectures and discussion (students should have read assigned class
readings before the session)
GRADING:
Grades will be based on one in-class test (40%), in-class presentation
(20%), a paper version of the in-class presentation (20%) and class
participation (20%). Attendance is required. Students must come to class
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on time and actively participate in class discussions, demonstrating an
ability to engage with the readings. Absence from class and the reason
should be communicated to the professor by email before class.
DISABILITY SERVICES:
ACADEMIC INTEGRITY:
Any student who feels she/he may need an accommodation based on the
impact of disability should contact the Professor privately to discuss
specific needs. Please contact the Disability Support Services office at
202.994.8250 in the Marvin Center, Suite 242, to establish eligibility and
to coordinate reasonable accommodation, For additional information
please refer to: http://gwired.gwu.edu/dss/.
Conduct and all work in this course—examinations, papers, and other
work must be completed in accordance with the George Washington
University Code of Academic Integrity
(http://www.gwu.edu/~ntegrity/code.html).
ELECTRONIC TECHNOLOGY IN
THE CLASSROOM:
Students may not use any electronic technology in the classroom,
including cellphones, tape recorders, and laptops, unless the technology
is required because of a documented disability or is used to take class
notes or to access assigned readings.
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SCHEDULE OF TOPICS AND READINGS:
Session 1 (9/03/2015): Overview and main themes (Islamic economics and finance; human, economic and
political development; justice; institutions and the rule of law; natural resource-based economies; oil and
natural gas; military expenditures, wars and conflicts; the blessing and the curse of oil)
Session 2 (9/10/2015): Overview of Islamic Economics
Readings:
1. Chapter 4: The Islamic Economic System, and Chapter (11) re-numbered 9: Role of the State and Public
Policy (from An Introduction to Islamic Economics: Theory and Application by Askari, Iqbal, and
Mirakhor, John Wiley & Sons, October 2014)
2. The Middle East Oil Exporters: What Happened to Economic Development? by Askari, Edward Elgar
Publishing, 2007, Foreword and chapter 3.
Session 3 (9/17/2015): The Special Case of Natural Resource-Based Economies and Policies
Readings:
3. The Middle East Oil Exporters: What Happened to Economic Development? Askari, Edward Elgar
Publishing, 2007, chapters 2 and 13.
4. “An Economic Manifesto for the Oil Exporting Countries of the Persian Gulf,” Askari, Abbas, Jabbour and
Kwon, BNL Quarterly Review, December 2006.
5. BP Statistical Review of World Energy 2013, available on the web*. Glance through the oil and natural gas
data (to get an idea of whose who in reserves, production and consumption).
Session 4 (9/24/2015): Evolution of Western Thinking on Development
Readings:
6. “Economic Development in Islam,” Chapter 5, Askari, in a World Bank book, Economic Development and
Islamic Finance, edited by Iqbal and Mirakhor, pp. 151-158.
7. “Institutions and Economic Growth: a Historical Introduction,” Douglass North, World Development,
Volume 17, No. 9, 1989.
8. Excerpts from The Wealth of Nations, Adam Smith.
9. Why Nations Fail, Acemoglu and Robinson, Crown Publishers, 2012 (Glance at the chapters that cover the
historical episodes that interest you over the holidays. The book is not expensive and you may want to buy
it but also I am happy to lend you my copy.)*
Session 5 (10/01/2015): Human and Economic Development in Islam
Readings:
10. “Economic Development in Islam,” in World Bank book, Economic Development and Islamic Finance,
edited by Iqbal and Mirakhor; also somewhat repetitive of this is: “Islam and Development”
11. The Theory of Moral Sentiments, Adam Smith, 1759, (You can buy this for about $10 or the e-book edition
for $0.99 on Kindle; please read it during the semester or even after the seminar is over (as parts of it are
tough going), focus especially on Part II, Section II, Chapter I, Chapter II, Chapter III; Part III, Chapter II,
Chapter IV, Chapter V, Chapter VI; Part VI, Section II, Chapter II, Conclusion of the Sixth Part.)*
12. “Why justice matters, Utilitarianism, Rawls and justice in Islam,” some notes to serve as an
introduction.
Session 6 (10/08/2015): Overview of Islamic Finance and Banking
Readings:
13. “Financial Systems”—chapter 9 from new book.
14. “Islamic Finance, Risk Sharing and International Financial Stability,” Askari, Yale Journal of International
Affairs, March 2012.
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15. Risk Sharing in Finance: The Islamic Finance Alternative, Askari, Iqbal, Krichene and Mirakhor, John
Wiley and Sons, 2011, I have uploaded the entire book; this is for you and not to duplicate or distribute
(thank you). Please read chapters 3, 5, 6 and 12 (others if you wish).
Session 7 (10/15/2015): Islamic Finance Continued (Special Guest Speaker, Dr. Zamir Iqbal, Head of World
Bank Global Center for Islamic Finance Development, Istanbul, Turkey)
Readings:
16. http://siteresources.worldbank.org/EXTDEVDIALOGUE/Resources/Risk_Analysis.pdf chapters 1 and 2*.
Session 8 (10/22/2015): Economic Reality in Muslim Countries and the Reasons
Readings:
17. Chapter 11, “Survey of the Economic Development of OIC Countries,” in World Bank book, Economic
Development and Islamic Finance, edited by Iqbal and Mirakhor.
Session 9 (10/29/2015): In-Class TEST
Session 10 (11/05/2015): Test Discussion and In-Class Presentations (Iran, Iraq)
Session 11 (11/12/2015): In-Class Presentations (Saudi Arabia, Kuwait)
Session 12 (11/19/2015): In-Class Presentations (Qatar, UAE)
Session 13 (12/03/2015): In-Class Presentations (Egypt, Syria)
Session 14 (12/08/2015): Wrap-up, Survey of Political, Economic and Human Progress in the Persian Gulf
and the Broader Middle East, Predictions and Your Views
Readings:
18. The Middle East Oil Exporters: What Happened to Economic Development? Askari, Edward Elgar
Publishing, 2007, Chapter 14.
19. “Natural Resources, Volatility, and Inclusive Growth: Perspectives from the Middle East and North
Africa,” Arezki and Nabli, IMF Working Paper, April 2012.
20. “Oil exporters’ performance”
21. “Why the bad performance—political and institutional corruption”
22. “Why the bad performance—failed policies”
23. “Why the bad performance—military expenditures, conflicts and wars”
24. “America Can’t Escape the Middle East”
* Readings not posted on Blackboard
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