This article assumes that within the next five years or so the bulk of the Islamic world will get rid of their dictators and aims to propose a blue print of governance for the newly emerging democracies.Arab spring; Islam and democracy; Islam and economic development; rule of law; freedom of thought; secularism

Cizakca, Murat

English

Research Papers in Economics

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Arab spring and reorganization of the state 
 
 
 
 
 
 
 
 
 
 
 
 
by 
 
Prof. dr. Murat Cizakca 
Inceif 
Kuala Lumpur 
 
 
 1 
 
 
Arab spring and reorganization of the state 
 
I.  Introduction 
This paper is based upon the assumption that within the next five years or so, bulk 
of the Islamic world will get rid of their dictators and be governed by democratic 
regimes. If so, what kind of a state and what kind of an economic system will these 
countries have? Since bulk of the research during the last few decades has been 
focused on Islamic finance rather than Islamic economics, this is a timely question, 
one which must be answered urgently. The focus on finance at the expense of 
political systems and economics was such that it is as if Muslims did not even dare 
to question their political and economic systems. Dictatorships were so powerful 
and taken so much for granted that, the system was thought to be the one that the 
dictator wanted and that people would have no choice on the matter. 
But now that democracy is advancing, the future political and economic systems of 
Islamic countries will be decided by the peoples themselves. What then will be this 
system like? I will argue that itshould fulfill four conditions: 
a)  It should be compatible with the Shari`ah 
b) It should emerge from the age old traditions of Muslims  
c)  It should be desired by the people 
d) It should be able to address modern needs. 
Such a system exists. I have called it elsewhere Islamic capitalism.
1All the basic 
principles of this Islamic capitalism are enshrined in the Qur`an. TheProphet was 
the first human being to translate it into reality.
2 He did this by establishing 
institutions and teaching Muslims how to operate those institutions.His followers 
also continued this process. The result was an ethical, pre-industrial, commercial 
capitalism, in one word our capitalism, which allowed Muslims to establish and 
finance a great civilization that flourished for centuries. This Islamic capitalism 
                                                            
1 Murat Cizakca, Islamic Capitalism and Finance: Origins, Evolution and the Future (Cheltenham: Edward Elgar, 
2011).  
2Quoting Abbas Mirakhor.See, ibid. p.6; 9, fn. 11. 2 
 
preceded western capitalism by almost one thousand years. Our task now is to re-
discover, modernize and then re-introduce it. 
II. Pre-conditions for economic growth 
All economic systems, Islamic capitalism included, need certain pre-conditions in 
order to achieve economic growth. In western societies, these conditions are taken 
for granted but not in dictatorships. So, we need to remember their importance. 
1.  The Rule of Law 
In a nut shell, rule of law means that everybody is equal before the law. This 
principle found application for the first time in the early-modern West in the 
year1688, when the King and Queen of England visited the Parliament and 
declared solemnly and in humility that they shall obey the laws of the Parliament 
like everybody else. This principle is a sine qua non condition for effective 
property rights without which no economic system can function. Indeed, without 
the rule of law, a dictator can confiscate the hard earned wealth of a citizen at will 
violating his property rights. Effective property rights, hifz al-mal,on the other 
hand, is considered to be one of the five original purposes (maqsud) of the 
Shari`ah. Thus, the rule of law, a western concept, becomes a pre-condition for one 
of the purposes of the Shari`ah.  
The rule of law should also be expanded so as to grant complete equality before the 
law to all citizens with total disregard to religion, ethnicity, nationality, race or 
gender. This would be compatible with still another maqsud, hifz al-nefs, or the 
duty of the state to protect the individual. 
2.  The Democratic package 
Democracy is not just elections. It needs to operate as a package. The government 
is divided into the legislative and executive branches, the former led by the 
parliament drafting the laws and the latter applying it. A third branch is absolutely 
important. This is the independent judiciary. It is this independent judiciary, which 
fulfills the rule of law and protects the property rights. In view of its importance 
and the support that it provides to the original maqasid, I have suggested that 3 
 
democracy should be added as the sixth purpose,maqsud.Scholars such as Kamali 
and Auda are also of the same opinion.
3 
3.  Freedoms  
Freedoms, particularly the freedom of thought/expression and worship are 
absolutely important for economic development. The former ensures that the 
Islamic concept of hisbah becomes applicable and the latter ensures that sectarian 
violence is avoided, both absolute necessities for economic growth.  
“Commanding good and forbidding evil” is a cardinal principle of the Qur’an 
which lies at the root of many Islamic laws and institutions(31: 17). Known as 
hisbah, this principle constitutes the ethical core of governmental power. The 
hisbah lays down the foundation of freedom of thought/expression in Islam, 
because only thanks to this freedom can the government be informed about what 
good or evil prevails in the society. Thus, since without this freedom it would be 
inconceivable to command good or to forbid evil, freedom of thought/expression 
becomes a conditio sine qua non of hisbah.
4 Modern re-interpreters consider these 
freedoms to be embodied in maqasid al-Shari`ah. More specifically, freedom of 
thought/expression is considered to be embodied in hifz al-aqland freedom of 
worship in hifz al-din.
5 
4.  Secularism 
Avoidance of sectarian violence is so important that we need to elaborate it further. 
After fighting long wars and centuries of total bloodshed, western nations learned 
to avoid sectarian violence through secularism. The last major religious war they 
fought ended in 1648.The west has developed basically two types of secularism: 
the French and the Anglo-Saxon. The former is totally irrelevant for Muslims as it 
is basically anti- religious in nature. The latter is more neutral but still irrelevant as 
it not only separates church and the state but also declares the state without any 
religion. Both types have been condemned by Prof. Syed Naquib Al-Attas, an 
outstanding Malaysian philosopher .
6So, still another type of secularism is needed, 
one which not only effectively separates state and religion but also respects 
                                                            
3 Cizakca, Islamic Capitalism, pp. 285‐290; Kamali, Expression, p. 41; Auda, Maqasid as Philosophy, p. 174. 
4 Al-Raysuni, Al-Shatibi’s Theory, p. 139. 
5 Cizakca, Islamic Capitalism, pp. 276‐281. 
6Al‐Attas, Secularism. 4 
 
religion. Separation of state and religion is needed in the Islamic world just as 
much as it was in the west for basically two reasons: first, if such a separation does 
not exist and the state declares itself Islamic, whoever happens to be governing the 
state, can claim that he is governing in the name of Islam and places himself above 
criticism, because criticizing him would be tantamount to critisizing Islam. History 
is full of examples of absolutist tyrants governing in the name of Islam. Second, if 
the state is Islamic, this immediately invites the question of “which Islam?”. A 
Sunnite state discriminates against the Shiites and vice versa. In short, sectarian 
violence and dictatorships ruling in the name of Islam can only be avoided if the 
state distances itself from religion and at the same time respects it.  
Such a system, unknown in the west, had existed, even if imperfectly, in the 
Ottoman empire. Between 1424 and 1517 the Ottoman state re-organized itself by 
establishing the office of the Seyhulislam. This was the highest office of the 
religious institution. The Seyhulislam was not a member of the cabinet of 
ministers, which functioned as a secular body thus effectively separating state and 
religion. It was an institution for consultation – when the state needed religious 
opinion on a certain issue, the Seyhulislam was consulted.  
More importantly, the Ottoman state granted all non-Muslim groups complete 
freedom of worship and was able to govern for centuries highly diverse peoples of 
a huge empire by and large without sectarian violence. The system succeeded so 
well that throughout the 14
th, 15
th and the 16
th centuries countless Crusader armies 
aiming to dislodge the Ottomans from Europe with the help of the Christian 
Ottoman peasantry failed. The Christian peasantry neither revolted nor changed 
sides and the invading crusaders without the support of the indigenous population 
were easy prey for the Ottoman armies. A major reason for the loyalty of the 
Christian peasantry was the religious freedom they enjoyed.  
The Ottoman state failed to extend the same tolerance to the Muslims, however, 
and discriminated, occasionally even massacred, the Shiites. This was a huge 
mistake because the result was endless sectarian violence among the Muslims. 
When Iran began to support the Ottoman Shiites, the conflict quickly worsened and 
Ottoman-Iranian wars, which lasted for more than a century, started. These wars 
proved to be disastrous for the whole of the Islamic world because, while the two 
great Islamic states were thus engaged in mortal religious combat, the Europeans 5 
 
entered the Indian Ocean and conquered it with relative ease. It is for this reason I 
conclude that Muslims need secularism just as much as the westerners.  
To sum up, I would like to argue that a modernized and improved version of 
Ottoman secularism granting complete freedom of worship to ALL citizens, 
including all the Muslim groups and at the same time effectively separating state 
and religion would bring an end to sectarian violence. This is a very important pre-
condition for economic development. 
III.  Capital accumulation 
Sustained and rapid capital accumulation in the newly emerging democratic 
nations of the Islamic world will follow the fulfillment of the pre-conditions just 
stated. Let us now assume that the pre-conditions have been fulfilled and focus on 
the process of capital accumulation itself. 
First of all, trade and profits constitute the essence of capital accumulation. In 
Islam there is no upper limit imposed on profits. The only condition imposed is the 
knowledge that we shall all be asked in the Day of Judgement how we have earned 
and spent our money. Thus, the message is crystal clear; as long as profits are 
earned legitimately and they are spent on the needs of our family and for the good 
of the society, a Muslim businessman does not need to fear his wealth. One reason 
why profits are desired is that they make it possible for a Muslim to accumulate 
capital to finance his pilgrimage. Thus, capital accumulation and religious duties 
become inseparable in Islam. 
Capital accumulation in an environment of strict interest prohibition can only take 
place by transferring the capital of the principal to the agent utilizing Islamic 
business partnerships. There are a number of such partnerships all derived from the 
classical mudaraba.  These partnerships have survived for fifteen centuries. In the 
mid-twentieth century, when modern Islamic banks were established, they were 
originally envisaged as multiple- two tiermudarabas.
7Had their original structures 
been maintained, Islamic banks would have provided a substantial boost to 
entrepreneurship in the Islamic world. But, unfortunately, the banks preferred to 
transfer the deposits they collected to their clients through murabaha, a cost plus 
sale instrument, rather than a profit-loss partnership. Consequently, responding to 
                                                            
7Ibid.p. 137. 6 
 
the demands of their depositors, Islamic banks have minimized their risksand 
provided quasi-fixed returns but have failed to address the question of 
entrepreneurship.  
It is now generally agreed that the problem of entrepreneurship should be 
addressed by non-bank institutions such as venture capital, micro-finance and 
private equity firms. In view of cultural considerations, introduction of venture 
capital is considered to be the most difficult one.
8 But there is room for optimism: 
let us never forget that the classical mudarabapartnership as practiced by the 
Prophet (SAW), is considered to be the institutional origin of venture capital.
9So, 
entrepreneurship and entrepreneurial finance are at the very heart of Islamic 
culture. 
 
IV.  Capital re-distribution 
Islam redistributes the capital accumulated in the economy through basically three 
institutions: taxes, the Qur`anic law of inheritance and waqfs.  
1.  Fiscal policy 
There are only three types of taxes specifically mentioned in the Qur`an.  Based 
upon this, some Islamic economists have tried to find ways to introduce extra-
Qur`anic taxes. But these scholars have failed to see the message of the Qur`an. 
This message should be clear: assuming balanced budget, modest revenue to be 
collected by the Qur`anic taxes means modest expenditure leading to a small 
state. As it is well known, small state is the most desired form of governance 
today. Viewed from this perspective, the modernity of Qur`an is simply 
astounding. 
2.  Awqaf (philanthropic/charitable foundations) 
If, a small state is indeed the message of the Qur`an, a number of questions 
need to be answered. In our days, modern states try to fulfill a variety of 
functions, defense and a host of social services ranging from education to health 
                                                            
8Cizakca “Introducing Venture Capital”, passim. 
9Cizakca, Comparative Evolution of Business Partnerships, passim. 7 
 
being the most important. How can all these services be financed if the size of 
the state is deliberately kept small by modest tax revenues? The answer is 
simple: by allocating bulk of the state expenditure to defense and allowing the 
private capital to take care of the services. This is tantamount to establishing a 
third sector, known as the third sector or the non-profit sector. The evidence 
that Muslims have actually practiced this principle can be found in the Ottoman 
budgets of the sixteenth century when this empire was at its zenith. Ottoman 
budget studies have indicated that bulk of the state revenues were, 
indeed,channeled to the military. All the other services were financed, 
organized and maintained by private persons who established waqfs.  
Thus we can conclude: modern democratic nations of the Islamic world should 
impose minimum taxation upon the population and let the essential services be 
financed through private initiative. One warning though: much of North Africa 
has been colonized by France, the most hostile country to the waqfs. The 
starting point must therefore be a completely new waqf law which not only is in 
perfect harmony with the Shari`ah but also takes into consideration the latest 
developments in western philanthropy. The latter is relevant for us, indeed, let 
us remember in this context that some of the greatest universities in the west 
were actually established emulating the medieval Islamic waqfmadrasas.
10 
Successful institutions are borrowed across civilizations. Just as the west 
borrowed medieval Islamic waqfmadrasas, modern Muslims can and should 
borrow the latest advances achieved in western philanthropy.  
3.  Monetary policy 
     Open market operations practiced by the central banks of Islamic banks in order 
to control inflation in the economy are currently based on commodity murabahas 
and tawarruqs. These are both dubious from the Shari`ah perspective as well as 
costly. The central banks of the newly emerging democracies therefore need 
hundred percent Shari`ahcompliant and cost effective instruments yielding fixed 
returns to conduct their open market operations. Such instruments have now been 
discovered and may soon be put into operation. 
V. Conclusion: 
                                                            
10 M. Cizakca, A History of Philanthropic Foundations. 8 
 
We are now fairly well informed about the political and economic systems which 
the newly democratic nations of the Islamic world should pursue. These systems 
embody the combined wisdom and experience of the west as well as our own 
heritage. The former should be incorporated only in so far as they conform to the 
basic principles of the Shari`ah. It is to be hoped that the resulting synthesis will be 
a highly effective one and will lead to the development of modern Islamic 
capitalism which can compete with that of the west and stand tall on its own. Such 
a system would not onlybe a great achievement for Muslims and alleviate their 
poverty but would also be a gift to the whole humanity. 
 
 
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D.C: International Institute of Islamic Thought, 2008). 
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Arab spring and reorganization of the state

Arab spring and reorganization of the state

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