The theme of my argument is the following statement: Islam, as a religion, has nothing to offer to economic or political theory. This simple idea has serious consequences. Political Islam, when it runs the country, will ultimately fail. It has no appropriate agenda that provides solutions to real political or economic challenges such as underdevelopment, unemployment, inflation, recession, poverty, just to mention a few.

(I will not touch upon the most significant political-socioeconomic issue which is income inequalities, because Islam accepts a society composed of very rich classes living side by side with very poor classes- examples can be found from history or from today’s Muslim countries like Saudi Arabia, and Iran). While some Islamists continue to claim the existence of «Islamic economics,» they have failed in producing anything close to a simple theory of economics.

I believe that the main reason for the downfall of Muslim civilisation was the inherent social crisis: a society composed of few rich surrounded by the poor masses kept going by a strong religion. Social and political revolutions took place several times during the heyday of Muslim civilisation, as happened during the Umayyad Caliphate, the Abbasid Caliphate, in Muslim Spain, and the famous Zanj Rebellion during the year 869 in Basra. But historians have ignored such revolutions. Muslim economies have failed throughout history to solve the very basic problem: the wage equation. Unskilled and skilled workers were downgraded to the lowest classes in Muslim societies, and were paid the minimum. History has showed that under Islam the wealth of the country went mainly to the Calipha, feeding his palace, army, the royal family, and to the vested interest that the Calipha has chosen himself. The tax system was mainly imposed on the agricultural sector, what was known as the produce tax (Kharaj).

«Islamic economics» is a term used today to justify the significant income inequalities in such societies and to find religiously- accepted investment opportunities for the rich.

The Wrong Foundations of Islamic Economics

Islamic economics consists of nothing more than changing terminology of the market economy. The word «interest» vanished, because it was haram (forbidden) under Islam, and was replaced by the word «profits,» which is accepted in Islam. So as you deposit your money in an Islamic bank you will be entitled to sharing the profits of that bank at the end of the year. In practice it is exactly the same as what happens to your money when it is deposited in a normal bank. The «customer» is called «contributor,» and he owns shares in the bank equal to as much as he deposits.

Islamic Economics started with the publication of few books written by a religious man called Ayatollah Mohamed Baqir Al-Sadir at the beginning of the 1960’s. The most important are Our Economy (1961), and the principle of Speculation (Mudharaba) introduced in his second book: The Non-Rabawi Bank in Islam (1969) – Reba = interest, here referring to the rate of interest of a bank. The principle of speculation in Islam is completely different from its normal meaning, and it refers to the relationship between the investor and the financer of that investment. It implies that both parties are partners sharing the profits and the losses according to an agreed percentage. This is known as Mudharaba and it is central to the role of an Islamic bank, and general commercial Islamic activities.

In practice having an Islamic Government meant nothing to the man in the street (apart from applying Sharia Law). The distribution of wealth, the economic structure and the ownership of the means of production never changed. The poor remained poor, while the rich became much richer. Income redistribution is not part of the agenda of political Islam.

But Ayatollah Mohamed Baqir Al-Sadir, the main Islamic finance reference, committed serious theoretical mistakes. The term reba does not correspond to interest, as he incorrectly assumed (and as many other assume also today). It was Prophet Mohammed who introduced this term reba, and made it haram in Islam. The reasons behind this go back to the struggle with the Jewish community during the early stages of Islam. As the Muslims achieved final victory and controlled both Medina and Mecca, Mohammed introduced what we call today economic sanctions against the entire Jewish population through making reba haram. Mohammed did not use force against the Jews but he made one of their main economic activities, lending money with interest, to be haram. It is this activity of lending money that implied reba and it is haram, and not the rate of interest that is actually the price of capital at a moment of time. Neither is it the same as the rate of interest that allocates investments over time. Islamist economists do not consider the role of the rate of interest in investment allocation over time in all their publications.

So this misunderstanding between reba and the rate of interest is the factor behind the introduction of Islamic economics and as such, it began on the wrong basis. This can be compared with the Communists during the Soviet era when they made similar mistakes by assuming that the rate of interest is part of a capitalist economy, and cannot be part of a socialist economy. By abolishing the rate of interests, the Soviets made major mistakes in investment decisions over time. Actually the rate of interest is the invisible hand that directs investments correctly over time, and it has nothing to do with reba as originally envisaged by Mohammed.

Political Islam: Walayat Al Faqieh

Having said that, we should not be surprised to find that Islamist governments miss the required tools for economic manipulation that they need in order to fulfil their promises.

Many commentators would assume that political Islam has its deep roots well-established in Muslim societies. What comes to the surface is just the top of the iceberg. I beleive the truth is the other way around. Political Islam burst on the scene in 1979 as a result of the Grand Ayatollah Khomeini’s Islamic Revolution in Iran. Grand Ayatollah Khomeini had his own political theory: Walayat Al Faqieh (The Mandate of the Imam). It came with the promise that «Islam is the solution» (which is the main political slogan of Muslim Brotherhood in Egypt today, as it was during the 1970’s in Iran. It is also the slogan of the Dawa Party in Iraq today, and of the Islamic Salvation Front in Algeria during the 1990’s). Theoretically speaking, political Islam started with the publication of Grand Ayatollah Khomeini of his theory Walayat-Al-Faqieh in 1972. This theory did not have to wait that long to find its application by the author himself in Iran at the end of the 1970’s.

Iran & Saudi Arabia

«Islam is the solution,» is a statement that you would find everywhere in 1970’s Iran. Many events played different roles simultaneously that helped Grand Ayatollah Khomeini and brought down the Shah’s regime. The Shah had a choice: either to clamp down the revolt or to step down. The streets in Tehran were boiling, as was the situation in other Muslim countries. The Islamic Revolution achieved victory. Everybody celebrated, and a new era in the history of human kind had just started. This was a summary of the expectations prevailing in Iran, and in many other Muslim countries, at that time. But no one ever asked the simple question: How can Islam be the solution?

So Grand Ayatollah Khomeini, and for the first time in history, became the acting imam of the time (as stated by Walayat-Al-Faqieh). This is a special status in Islam that nobody had enjoyed (since the death of the 4th Caliph after Prophet Mohammed in the year 661). This new status is alien to western political theory and has no counterpart.
But there is a fact that should be stated clearly. The downfall of the Shah was not just the result of the revolt of Grand Ayatollah Khomeini’s supporters. At that time many groups, especially from the Iranian left-wing, were very active in political actions. All forces played their part, including the oil workers’ strike in Abadan, in the final downfall of the Shah. But it was political Islam that succeeded in reaping the fruits of that political upheaval.

The new Islamic regime, like any other totalitarian regime, monopolised power just for itself, and excluded all the other forces that were active against the Shah for decades. A new political struggle started at the end of the 1970’s, and has not ended yet.

The Islamic regime started implementing new policies to reward the masses that showed their loyalty to Grand Ayatollah Khomeini. Trivial and marginal decisions were issued by the new Government, like free electricity to the poor quarters of Tehran. A real socialist plan to help the lower classes was never proposed by any of the regime’s policy makers. Religious leaders were simply far away from the concepts of class struggle, and the demands of the working classes. What was available to the policy makers were the few books written by Mohamed Baqir Al-Sadir. Apart from that the term «economics of Islam» is nothing but just an empty political slogan. In practice having an Islamic Government meant nothing but applying Sharia Law through execution of criminals in the open streets, and stoning of women. The economic structure and the ownership of the means of production never changed. The poor remained poor, while the rich became much richer. In Iran, as in Iraq, Muslim Shia’a leaders received their finances from the Khumus (note that wealth put into business has no Khumus, but only un-used wealth – the word Khumus means literally one fifth). This simple fact made the religious leaders linked closely to the rich, and naturally led to political alliances between them. As for the poor, they have no representative in such a religious system.

History after more than thirty years of Islamic rule in Iran showed that Islamic economics is nothing more than changing the terminology of capitalism. Actually, capitalism under Islam is similar to 19th-century capitalism: the absence of the welfare State and the rights of the working class.

Today Iran finds that the use of Islam as its official ideology fits with its external imperial ambitions. Through the ideology of Islam, Iran managed to have a strong influence in Iraq, Syria, Lebanon, and many other Muslim countries (also HAMAS in Gaza and the Western Bank). As an example we find that the Iraqi Parliament failed to pass the new oil law. Iran opposes the idea of allowing Western oil companies to have concessions in the area. In Lebanon as the case with Hezbollah and HAMAS in Gaza, the politics of Iran are prevailing.

After 30 years of the rule of Walayat-Al-Faqieh in Iran, we find that the number of the poor has increased by fourfold, and corruption has reached its peak. The government can keep the population under control through use of the oil revenue to keep prices of basic foodstuff at acceptable levels. So it is the oil revenues that keep the regime from collapsing, and not the economics of Islam. Today, everybody in Iran has discovered that «Islam is not the solution.» The green revolution of 2009 cannot be kept under control, as the regime has reached bankruptcy. Today «Islam is not the solution» became the widely accepted new political slogan in the streets of Tehran.

Turning to Saudi Arabia, we find the situation to be not that different from Iran. An authoritarian regime based upon an old religious ideology with the worse income distribution ever known in history. The influential religious leaders are State employees. Poverty is widespread, and political reform movements are strictly prohibited. One can argue, correctly, that the absence of a proper tax system can never be introduced into such a system because it would lead to the redistribution of income away from the ruling class. That is simply impossible without a political change. Actually we find that the religious establishment in both Iran and Saudi Arabia plays a central role in preventing social and political change. Any political reform will simply imply the total collapse of the prevailing political system.

Iraq & Algeria

Political Islam in Iraq was defeated even before it took power. When the Americans entered Baghdad in 2003, they found out that Saddam Hussein has wiped out all forms of political resistance. The Americans could not find any political parties to work with, just a few exiled Iraqis. The Governing Council (2003) that was introduced by the Americans composed only of religious and ethnic representatives without any political movements.

What are the political agenda and economic programme of political Islam?

Political Islam, in all different Muslim countries, whether it is Afghanistan or Morocco, has no political agenda or economic programme, but it has one clear objective: The introduction of Sharia. Political Islam believes that by introducing Sharia, and making it the constitution of the land, all political-social-economic problems will be solved. For Sharia is the law of God. It is beyond the comprehension and understanding of human beings. It works in ways and through means that are beyond our understanding. Actually the basic downfall of political Islam can be traced back to this specific issue: the non-availability of political or economic programs put forward by political Islam – only Sharia.

Let us take a real example. When the Americans established the Governing Council in Iraq in July 13, 2003, one of the first decisions of the religious parties constituting this council was the re-introduction of Sharia according to each specific religious sect. So the Shia’a will have their own courts while the Sunni will have different ones. The same applies to other religions like the Christians, the Saab’a, and Yazidiya. They actually went in abolishing the civil law, and replacing it with Sharia.

This decision caused a serious outburst of reaction and demonstrations against it. Religious leaders did not understand why there was so much resistance and negative opposition to their decision. They thought they are doing what the people wanted. But they discovered that history cannot be pushed backwards. Citizens of Iraq had enjoyed decades of living under a modern civil law where all citizens are equal before the law. This incident was the first major setback of political Islam in Iraq.

The special situation in Iraq provided the religious leaders with a unique historical situation that gave power, easily, to them. As one of their leaders commented on the results of the first general elections: «we were surprised to see that number of votes coming to us. We actually did not understand why people were voting for us. «The government that was formed out of the first general election was basically a religious one. Political Islam came to power in Iraq in 2005, but what did it achieve?

The answer to this question was the results of the second national election in 2010. People voted for non-religious parties, and for secular personalities. Political Islam failed to strengthen its position, on the contrary it retreated. The Supreme Islamic Council (Al Hakim party) that was the main religious block managed to win only 8 seats out of 325.

The reasons for this outcome coincide with the argument of this paper: Islam cannot provide solutions to present-day social and economic challenges. In a democratic set-up, political Islam cannot stay in power, it gets exposed quickly and it fails to fulfil its promises. This is why it is essential to allow political Islam to assume power, because this will lead, eventually, to its defeat. This is the main mistake that happened in Algeria in the beginnings of the 1990’s. When the Islamic Salvation Front won the elections and was prevented from assuming power by the military. By doing that the military further strengthen political Islam in Algeria.

If the Islamists had been allowed to assume power they would have failed in addressing any of Algeria’s main economic challenges. That would have been the end of them. They should be given the chance to discover that they have no magical recipe, and religion provides no guide to solving real economic crisis.


As for Turkey the situation is the other way around. The secular state (Atat?rk 1923-38) that established modern Turkey after the First World War actually opened the door for the Islamists to assume power. An Islamic society taken by the rule of law away from its basic beliefs cannot stay silent for good. But political Islam in Turkey is significantly different from that of Iran, Iraq or Saudi Arabia. Political Islam in Turkey has so far shown no contradiction with secularism and modernity. On the contrary, it improved the situation by providing a proper bridge between modernity and the culture of the country. This was made possible through keeping the Islamic reactionary forces away from the political picture. The State successfully established the necessary social and civil institutions that are the basis of a modern state. Turkey today is similar to any Western European country where the government role is distinguished from the role of the state. And because of this unique historical situation that was available to Turkey, other Muslim countries cannot benefit from it. In other Muslim countries Islam represents today the barrier before social development and progress.

Finally I would point out that political Islam has failed to provide a political model that can compete with other contemporary political models, such as the Chinese model, Western democracies, or even developing democracies such as India and the other Asian countries. That comes with no surprise, as religion, any religion, keeps itself centuries behind.

Main References:
1. Khomeini, Grand Ayatollah R.M, Walayat-Al-Faqieh, najaf, 1972.
2. Sadir, Grand Ayatollah, M.B., Our Economic, Beirut, 1961.
3. Sadir, Grand ayatollah, M.B. Non-Rabawi Bank in Islam, Beirut, 1969.

Samir Yousif is a graduate of the London School of Economics (1976) and has worked in different sectors in Iraq, Saudi Arabia, Libya, Bahrain, and in Europe. He worked as a professor in economics (1986-1994) at the University of al-Qadisiyah (Iraq), and at the University of Al-Fateh (1994-1996) in Tripoli, Libya. Mr.Yousif is a Norwegian Citizen, at the present living in the city of Stavanger, Norway.

The Downfall of political islam