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No. 4(40), 2006 CENTRAL ASIA AND THE CAUCASUS
[ RELIGION IN SOCIETY
IRAN: EXPERIMENTING WITH THE ISLAMIC ECONOMY
Renat BEKKIN
Ph.D. (Law), lecturer at the Institute (University) of International Relations at the RF Foreign Ministry (Moscow, Russia)
There is the opinion that Iran has been engaged in applying Islamic principles to its economy or, rather, to its financial sector, more consistently than other Muslim countries.1
The facts, however, do not completely confirm the above. The people brought to power by the 1978-1979 Islamic Revolution had no clear ideas about economic reforms. The concept of so-called touhid2 economics proved ill-suited to the profound Islamic-style economic reforms, something that certain clerics insisted on. Eghtesad-Tohidi (Touhid Economics) by Abolhassan Banisadr,3 which
1 See: A. Ziauddin, “Islamic Banking: State of the Art,” Islamic Economic Studies, 1415 (1994), Rajab, Vol. 2, No. 1, p. 21; V.Ia. Belokrenitskiy, “Poslevoennaia modernizatsia v stranakh Zapadnoy Azii. Obshchie tendentsii i raskho-diashchiesia traektorii razvitia,” in: Osobennosti modernizatsii na musul’manskom Vostoke. Opyt Turtsii, Irana, Afganistana, Pakistana, Moscow, 1997, p. 40, etc.
2 From the Arab “tauhid”—monotheism. Touhid economics looks at economic relations as an inalienable part of the Islamic lifestyle.
3 Abolhassan Banisadr (b. 1933) became the first president of Iran in September 1980; he was Khomeini’s advisor; was defeated by the supporters of Ayatollah Beheshti. By his decree, Khomeini removed Banisadr from the post of Supreme Commander of the country’s armed forces; the Supreme Court initiated proceedings on excess of powers. The Majlis discussed his political incompetence and his non-conformity to the post. On 21 June, 1981, the Majlis removed him from his post, the decision being confirmed by the rahbar (Khomeini). Persecutions of his supporters forced him to go into hiding; today he lives in France.
predated the Islamic Revolution4 by several weeks, put the term into daily use. His popularity made the book well known across the country; it came to be regarded as a twin volume to Khomeini’s classical work Hokumat-e eslami (Islamic Government).5
His book described the ideal Islamic society as a model of touhid economics, in which all and everyone are owners of the means of production. Such ownership is limited to the potential of personal labor rather than capital, while high incomes produced outside personal labor are regarded as illegal. All property not based on personal labor should belong to the Islamic state.
The author described the model of Islamic society as a world of effluence which is free from state borders and in which knowledge is cherished as the highest value, and he was convinced that twelve generations could achieve the ideal. In other words, the book offered an ideal model rather than analyzed realities.
His book bears easily detected traces of the ideas of utopian socialists, Proudhon in the first place. Banisadr, a Western-educated intellectual who spent many years in the West, was very familiar with his works.
V. Tsukanov, a Russian expert in Islam, has identified the following features of the touhid model:
(1) touhid economics described the uneven distribution of wealth as one of the main problems. It, and Islamic economics as a whole, concentrates on distribution, exchange, and consumption rather than on production. Exploitation results from the wrong way surplus product and surplus value are used, not from uncompensated appropriation.
(2) It denies that there is a connection between growing private property and the commodity-money nature of production.
(3) It looks at autarchy as a means of liberating the country from its economic and political dependence on other countries. The changes carried out ignored similar processes in other countries (Pakistan, Sudan, Malaysia). Since the Islamic revolution’s victory, Iran has failed to formulate a single program of economic Islamization.6
The above suggests that the autonomous nature of the Iranian touhid model notwithstanding, its general postulates completely coincide with the postulates of the Islamic economic theory as a whole.
The term “touhid economics” is directly related to Banisadr: in 1981, upon his removal from the post of president and Imam Khomeini’s advisor, it dropped out of use, at least inside the country.
Banisadr and Peyman were not the only ones in Iran who wrote about Islamic economics. Earlier, Mahmud Talegani (1911-1979) was one of the first: his “Islam and Property” appeared in 1951. He never suggested any detailed conception of the Islamic economic order. Like many of his Islamic colleagues, Ayatollah Talegani never paid adequate attention to the problem of regulating production relations—he concentrated on the issue of wealth distribution in the Shari‘a context. He believed that property should be limited in the interests of society and according to Muslim law.
In his book Our Economy, published in 1961, Ayatollah Muhammad Bakir al-Sadr, one of the prominent contemporary Shi‘a theologians, who relied on the neo-classical methodology, wrote
4 See: A. Banisadr, Eghtesad tohidi (in Persian), available at [http://www.banisadr.com.fr/Books/EGHTESAD-TOHID I/html/EGHTESAD-TOHIDI.html].
5 In 1981, Habibullah Peyman replaced Banisadr as the main unofficial economic ideologist.
6 See: V. Tsukanov, “Kontseptsia ‘touhidnoy ekonomiki’ v IRI,” Spetsial’nyi biulleten’ IVAN SSSR, Moscow, 1981, pp. 129-131. The list can be completed with the policy of encouraging petty producers.
that Islam had no economic theory of its own. He favored the state’s more prominent role in economics and insisted that its functions were important for maintaining social balance. He wrote that the aims property serves are the main criteria of its legitimacy and placed public interests over private ones.
Another prominent Muslim thinker, Ali Shariati (1933-1977), influenced what the Iranians thought about a just economic order. He wrote that the ideal society was a classless society. This was readily supported by Mujahedin-e Khalq (Mujahids of the Iranian Nation), leftist Muslim intellectuals, etc. However, like Talegani and Sadr, Ali Shariati failed to create an accomplished conception of Islamic economics. Out of the three authors, Ali Shariati was the most original thinker: the other two were engaged in a creative revision of the economic ideas of the Muslim and European authors of the Middle Ages and Modern Times.7
This shows that with the victory of the Islamic Revolution, the country’s leaders had no clear conception of socioeconomic development in the spirit of Islam. For objective and, even more so, subjective reasons, Banisadr’s utopian ideas could not be used as a theoretical starting point for Islamic economic reforms, while the other authors failed to supply an integral conception of development according to Islam. The Iranian economists preferred to ignore the experience of other Muslim countries that tried, before them, to adjust their economies to Islam.
Property was the main post-revolutionary issue when the economic reforms were just unfolding. The 1979 IRI Constitution treated public property as a priority, therefore the state fortified its role in the economy through nationalization. The banks were no exception: between 1979 and 1983 the banking sectors was nationalized and centralized. The reforms left 5 commercial and 4 specialized banks where 36 commercial and specialized banks had been operating.
Under the Usury-Free Banking Operations Act adopted in 1983 and enforced in 1984, all banks were to transfer their deposits on a non-interest basis within twelve months; within three years, they were expected to harmonize their operations with the Shari‘a.8 The law described 14 types of operations applicable to assets and liabilities—mudaraba, murabaha, ijara, salaf, or bay’as-salam, ju’ala, etc. The banks were allowed to buy debt “instruments,” supported by real assets, for a period of up to twelve months.
Under Art 3 of the same law, the IRI banks could receive deposits for each of the following types (1) interest-free gharz-al-hassaneh, which in turn can be either current or savings accounts and (2) term investment deposits. Both current and savings accounts are guaranteed, which does not fully correspond to the ideas held by most Islamic scholars that the bank and the depositors should share the risks.
Under Art 6, “promotion methods” could be used to reward the depositors with “non-fixed bonuses in cash or in kind on interest-free deposits; exempting the depositors from, or granting discounts thereto, in payment of commissions and/or fees according to priority in the use of banking facilities.9
The owners of term investment deposits can count on additional funds, the amount of which depends on the profitability of the bank-financed projects. The basic sum remains intact and safe.
The Law envisages a special social role of the Islamic banks. Under Art 14, in conjunction with Art 43 (points 2 and 3) of the IRI Constitution,10 the banks have to allocate money for those who need
7 See: V.G. Malushkov, Filosofskie i obshchestvenno-politicheskie vzgliady Ali Shariati, Author’s Summary, Moscow, 1987; Islamskaia intellektualnaia initsiativa v XX veke, ed. by G.D. Djemal, Moscow, 2005.
8 Foreign economic activity continued to be carried out on an interest-based system.
9 In the first-post-revolutionary years, banks paid hajj for their clients as an incentive.
10 “The economy of the Islamic Republic of Iran, with its objectives of achieving the economic independence of society, uprooting poverty and deprivation, and fulfilling human needs in the process of development, while preserving
interest-free loans. It is for the Central Bank to elaborate the procedure to be endorsed by the Cabinet of Ministers. Interest-free gharz-al-hassaneh loans are granted to people with low incomes to build cheap housing, develop petty businesses in agriculture, etc.
Under the Law (Note to Art 8), however, the “banks are by no means entitled to interest in the production of luxury and non-essential consumer goods.”
In real life, the Islamization process has not been as smooth as the banking reformers wished. Like Islamic banks elsewhere, the Iranian banks did not work hard enough to decrease their involvement in trade operations, which meant their greater role in profit-and-loss-sharing investment projects. In five years, between 1985 and 1990, the mudaraba share dropped from 18.1 to 10.7 percent,11 while the murabaha share increased over the same period from 33.3 to 46.4 percent.12
The law on usury-free banking discusses the Central Bank’s regulatory role in a special chapter. The banking reforms in Iran made monetary regulation dependent on the country’s budget policy; later the interests of the state played down the role of Islamic principles in banking.
The so-called bunyads are the only functioning institution of Islamic economics in Iran: they are Islamic foundations that perform both economic and social functions; there is the opinion that they are a modified form of waqufs.13 The largest of the Islamic foundations—the Foundation of the Dispossessed —set up in March 1979 was based on the property confiscated from the shah and his supporters. It has developed into a large holding uniting numerous companies.14
As the nationalization of banks, insurance companies, and trade and industrial corporations unfolded, large sums poured into the Islamic foundations, which were also growing rich on tax and other privileges. In 2001, the Foundation of the Dispossessed with a capital of $12 billion was the country’s second largest corporation after the Iranian National Oil Company.15
There are many other bunyads in the country—the Imam Khomeini Relief Committee, the Martyrs Foundation, the Foundation for the Oppressed and War Invalids, the 15 Hordad Foundation, etc.
Not all clerics were happy with the reforms, nationalization, and property redistribution. In 1984, a group of economists headed by Muhammad Taqi Misbah Yazdi published a book called An Introduction to Islamic Economy, which criticized Ali Shariati, Banisadr, and Peyman, who wanted to limit property. The authors argued that economic development, rather than formal justice, should come first. This could hardly be harmonized with Islam’s true objectives.
human liberty, is based on the following criteria: 2) ensuring conditions and opportunities for employment for everyone, with a view to attaining full employment; placing the means of work at the disposal of anyone who is able to work but lacks the means, in the form of cooperatives, through granting interest-free loans or recourse to any other legitimate means that neither results in the concentration or circulation of wealth in the hands of a few individuals or groups, nor turns the government into a major absolute employer. These steps must be taken with due regard for the requirements governing the general economic planning of the country at each stage of its growth; 3) the plan for the national economy must be structured in such a manner that the form, content, and hours of work of every individual will allow him sufficient leisure and energy to engage, beyond his professional endeavor, in intellectual, political, and social activities leading to all-round development of his self, to take active part in managing the affairs of the country, to improve his skills, and to make full use of his creativity.”
11 See: S.A.A. Hedayati, “Some Theoretical and Philosophical Aspects of Islamic Banking: a Dimension of Islamic Economics,” Paper presented at the Third International Course in Islamic Banking, Tehran (quoted from: A. Ziauddin, op. cit.).
12 Ibidem.
13 See, for example: N.M. Mamedova, “Islamskie fondy i predprinimatel’skaia deiatel’nost’ iranskogo dukhovenst-va,” Mirovaia ekonomika i mezhdunarodnye otnosheniia, No. 7, 1997, pp. 108-112. At the same time, classical waqufs have survived in Iran and are still functioning. The largest of them, Astane Kods Razawi dating from the 16th century, includes hundreds of thousands of hectares of land.
14 By 2004, the Foundation owned over 400 companies (see: N.Iu. Ulchenko, N.M. Mamedova, Osobennosti ekonom-icheskogo razvitia sovremennykh musul’manskikh gosudarstv (na primere Turtsii i Irana), Moscow, 2006, p. 205).
15 See: The Economist, 21 July, 2001, p. 56 (quoted from: N.Iu. Ulchenko, N.M. Mamedova, op. cit., p. 137).
The initial period of economic Islamization in Iran came to an end in the mid-1980s for objective reasons: the war with Iraq (1980-1988), plummeting world oil prices and growing budget deficit, and the absence of a clear plan of economic Islamization. This explains why, starting at that time, the country gradually moved away from the earlier economic course aimed at Islamization. To win the war and address its economic problems with any degree of success, Iran had to become “open” to the world, which meant that autarchy as one of the key postulates of the touhid model was abandoned. 16
Some of the laws formulated according to the Islamic economic teaching were revised: in 1982, a legal act was adopted that established a procedure under which large mineral deposits and mines were transferred to the state. It was based on the Islamic ideas about property. It was announced that from that time on, mineral riches and deposits belonged to the Muslim community (umma) and were public property. Less than two years later, however, the act was revised to transfer some of the unused mines to private owners. The new law passed in 1985 created additional favorable conditions under which non-public mining enterprises could be set up mainly in the form of group companies.
In many economic aspects state regulation had failed, so in the late 1980s, the country began liberalizing some of the national economic spheres.
The reforms of President Rafsanjani (1989-1997) liberalized domestic, mainly agricultural, prices, currency exchange, and foreign trade; part of the public sector was privatized; bit by bit subsidies of foodstuffs were replaced with personal subsidies, etc.17 The First Five-Year Plan, in the part that envisaged foreign loans, ran contrary to the constitutional principle that banned foreign, capital included, interference in the Iranian economy.18 The First Five-Year Plan made it possible to use buy-back credits under which the country could pay foreign investors through direct supplies of products to a third country (a foreign client), which in turn assumed the obligation to pay the investor. The plan contained no references to the Islamic economic principles. This meant that liberalization moved economic reforms further away from the course toward economic Islami-zation.
Khatami’s presidency was marked by a certain amount of liberalization in the cultural and political spheres, while in the economic sphere he moved toward liberalization more cautiously than his predecessor. This was especially evident in foreign economic cooperation and privatization. Economic Islamization was no longer mentioned, even at the level of declarations. The Fourth Plan of Economic, Social, and Cultural Development of IRI for the period of 2005-2009/10 adopted by the law the Majlis passed in August 2004 did not mention the Islamic nature of the country’s economy.19
N. Mamedova, an expert in Iranian economics, has rightly pointed out that economics reflected most faithfully the evolution of the Islamic regime in Iran, which was demonstrated in particular by privatization and the attraction of foreign capital.20
On the other hand, the law on usury-free banking is still valid.21 Despite this, the interest-based system still operates in foreign economic relations and on the domestic scene.
16 At the same time, it is hard to agree with Russian Orientalist S.M. Kudaev who insisted that the wartime distributive nature of Iranian economy was, in a certain sense, more Islamic than Hashemi Rafsanjani’s liberal reforms. At no time did Islam object to the free market if it observed the basic Islamic values and principles.
17 See: V.P. Tsukanov, “Gosudarstvennoe ekonomicheskoe regulirovanie v Irane: otkhod ot islamskikh printsipov?” in: Islam i obshchestvennoe razvitie v nachale XXI veka, Moscow, 2005, p. 427.
18 The IRI constitution speaks about “prevention of foreign economic domination over the country’s economy” (Art 43.8).
19 For more detail, see: V.P. Tsukanov, “Gosudarstvennoe ekonomicheskoe regulirovanie v Irane...,” p. 430.
20 See: N.M. Mamedova, “Islam i razvitie Irana v nachale XXI veka,” in: Islam i obshchestvennoe razvitie v nach-ale XXI veka, p. 49.
21 See: N.M. Mamedova doubts that the law will be annulled any time soon.
I have already written that not everything the Islamic banks are doing in Iran corresponds to the classical Muslim ideas on usury, even if we admit that the contemporary jafarit legal doctrine is more liberal when it comes to the Shari‘a economic rules than some of the Sunni schools. Since the moment the law on usury-free banking came into force, the banks and the authorities have been virtually ignoring the ban on interest-based transactions in their relations. The government borrows from banks and pays interest on its loans. This is not regarded as a violation of the Islamic ban on usury or Art 21 of the Law, which says: “In its dealings with other banks, the CB IRI is not authorized to engage in banking operations which involve usury; nor may the banks engage in such among themselves.”22
In 1999, the Central Bank of Iran passed a decision making it possible to set up banks and insurance companies with 100 percent foreign capital without any limitations on their activities in the free commercial-industrial zones created by the 1993 law.
The situation on the securities market is far from the Islamic ideal, too. For the first time in its history, in July 2002, the IRI issued Eurobonds for 5 years totaling 500 million euros. They are absolutely identical to the Western bonds banned by the Shari‘a.23 In other words, the country has not yet elaborated a consistent policy designed to create and develop an Islamic security market, of which Malaysia is an example.
Economic Islamization left many other important sectors intact: adjustment of the taxation system to the Shari‘a was not accomplished at the state level. During the war with Iraq, the Majlis discussed a law on raising certain secular taxes. At the same time, society discussed the question of whether the rates and share of non-Islamic taxes in the country’s economy should be increased, if citizens were able to pay religious taxes.24 For example, part of the zakat could be used for jihad—in this case, for defending the country against the aggressor (the Iraqi troops). Muslim taxes, however, have never been made legally obligatory, even though the taxes in Iran were lighter than in Pakistan where the Islamic taxes (zakat and ‘ushr) are used to replenish the budget.
The Islamic taxes zakat and khums25 are paid either directly to the mosques or to an Islamic Foundation or any person (mujtahid).26
Sohrab Behdad, an American academic of Iranian extraction, has aptly pointed out: “There is no sign of Islamization of the economy other than the hejab of women workers, and a thriving market for women’s robes (manteau) and scarves.”27 This might sound like an overstatement, but there is no force in Iran that needs an Islamic economy.
22 For more detail, see: Z. Iqbal, A. Mirakhor, Islamic Banking, Washington, 1987, p. 24.
23 See: A.Iu. Zhuravlev, “Printsipy funktsionirovania islamskikh bankov,” in: Islamskie flnansy v sovremennom mire: ekonomicheskie i pravovye aspekty, ed. by R.I. Bekkin, Moscow, 2004, p. 106.
24 See: N.Iu. Ulchenko, N.M. Mamedova, “Ekonomicheskoe razvitie i ‘islamskaia ekonomika’ (opyt Turtsii i Irana),” in: Islam i obshchestvennot razvitie v nachale XXI veka, p. 32.
25 Khums (Arab.—“the fifth part,” syn. “khumus”)—originally one-fifth of the spoils of war (ganima) earmarked for the Prophet Muhammad and his relatives. It could be used for state (social) needs. There is the opinion that khums was introduced by the Prophet’s grandfather ‘Abd al-Muttalib, who discovered treasure buried at the Zamzam well. The legend says that he sacrificed one-fifth to the Almighty and appropriated four-fifths. Later, the khums conception included several taxes and dues (such as tax on extracted natural resources, dues paid by a Muslim who sold his land to a non-Muslim, etc.). According to most Shi‘a lawyers, during the “concealment” of the imam, part of the khums can be paid to the most educated and faithful mujtahids or transferred to any person of their choice.
26 Mujtahid (Pers. Mujtehid)—a theologian who on the strength of his knowledge and experience can pass decisions on important Muslim legal issues. Perfect knowledge of the Arabic is expected of him, together with knowledge of the Quran and its tafsirs (interpretations) by heart, as well as at least 3,000 hadiths with complete commentaries. The mujtahid is the highest spiritual authority in the Imamite (Shi‘a) school; it is his honorary duty to lead the community during the time of “concealment” of the imam. For this reason, they are highly respected and, thanks to their knowledge, can offer their opinions and pass judgment not only on legal issues, but also on the religious dogmas and the Shari‘a principles.
27 See: S. Behdad, The Revolutionary Surge and the Quiet Demise of Islamic Economics in Iran, available at [www.usc.edu].
In public conscience inside the country, an Islamic economy is associated either with Banisadr’s Proudhonian utopia or nationalization and state support of the mustaz’afin (the dispossessed)28 and not with an efficient mechanism of wealth redistribution.
28 According to the post-revolutionary classification, the Muslim community is divided into the dispossessed (mustaz’afin), prosperous (mustaqbarin), and devil’s servants (taghuti).
