Economic Integration: Islamic Approach

Economic integration is absolutely necessary because it increases mutual dependence, and the greater the mutual dependence, the lesser the possibility of conflict and war. Economic dependence increases trade. This promotes development and further enhances mutual dependence. Ibn Khaldun argued that development does not depend on the stars (i.e., luck) or the existence of gold and silver mines. It depends rather on economic activity, division of labour and specialization, which in turn depend on the largeness of the market.

Globalization helps expand the market. It thereby helps boost the demand for goods and services, promotes employment and a higher rate of growth, and improves the standard of living of all people. From this, the importance of expansion of trade is evident. People become accustomed to this standard of living, and resist anything - including conflict - that hurts this standard.

The rate of growth in the European countries at the moment is low. There are a number of ways of raising the rate of growth. One of these is to expand the market through globalization. If the poor countries become richer, their demand for European or American goods and services will rise. This expansion in the size of the market will help accelerate development, raise incomes, and also provide a boost to science and education. So, expanding the market can be beneficial for all, developed as well as developing countries.

The Nature and Problems of Present-Day Globalization: There is a strong rationale in Islamic economics for promoting economic integration. This is because the greater the economic integration, as mentioned earlier, the lesser the chance of conflict. And the lesser the chance of conflict, the greater is the possibility of realizing the Islamic goal of unity of mankind and globalization. However, this is not likely to be realized through economic globalization of the kind being experienced in the world today. While the existing globalization in the world emphasizes the expansion of the market through liberalization, it does not emphasize justice. Justice is, in fact, very often forgotten.

Justice requires that while the exports of industrial countries rise, those of developing countries should also rise, preferably at a higher rate, if poverty and unemployment are to be reduced in these countries. So, globalization should not stand for the expansion of trade of just the industrial countries; it should stand for the expansion of trade of developing countries as well. The exports of developing countries cannot rise until all barriers in the way of their exports are removed and their productive capacity also expands.

Thus, the removal of the barriers that hinder their exports must take place. This is a part of trade liberalization. However, this may not help much if the productive capacity of developing countries does not expand simultaneously to enable them to export more. And the productive capacity cannot expand without the development of human resources and physical infrastructure. These are extremely important. This implies that asking developing countries to remove all their tariffs without enabling them to improve their social and physical infrastructure and their productive capacity would lead to a flood of imported goods and the destruction, or almost destruction, of their own industries and agriculture. Globalization in developing countries can thus take place only gradually. If it is imposed by force, it will lead to a number of problems, one of which is the closure of a number of their industries. It will also hurt their agriculture, increase unemployment, create social and political instability, and lead to results that are entirely against what is intended by globalization.

In other words, developing countries may be able to make progress towards globalization only if their productive capacity expands and their exports increase. This is not happening now. They need to receive help from industrial countries to increase their productive capacity through expansion of their infra-structure and development of their human resources. An arrangement needs to be made to improve the quality of their education, technology, management, and methods of production. All these improvements are very important. These may, however, be difficult to realize without an increase in technical and financial help to developing countries. In the long run, industrial countries will also get a good return. The market for their goods and services will expand in developing countries, leading to a higher rate of growth and lower unemployment in their own countries. They will be able to improve their own economic performance. Everyone will, thus, benefit.

The globalization taking place currently is not of this nature. A number of goods have been excluded from globalization. Oil is excluded, as are petrochemicals. Textiles were excluded, and have only recently been included. Agriculture remains excluded until today. The subsidies on agriculture that exist in the industrial world, in Europe as well as America and Japan, are a hindrance to the expansion of agriculture in the developing world. As a result of these subsidies, the developing countries’ agricultural goods are unable to compete in the world market. Consequently, the agricultural output of these countries suffers even though they have a comparative advantage in agriculture.

In a nutshell, the developed world is demanding removal of tariffs on goods and services in the production of which it enjoys a comparative advantage, but is unwilling to return the favor with respect to commodities in which the developing world has an advantage. The industrialization that took place in all the developed countries, and even in the earlier centuries of Islam, came about through the expansion of agriculture. Whether one looks at Japan or America, it is agriculture that expanded first. It provided the resources that helped bring about industrialization. If agriculture does not expand in the developing countries, it is going to hurt their development and ultimately also hurt the industrial countries around the world. So, agricultural expansion is extremely important for these countries and the removal of subsidies is indispensable.

This does not, however, mean that the industrial countries must remove subsidies in one stroke. This may be suicidal for the ruling political parties. They can, however, do so gradually, with a clear understanding that this is what is needed to enable the developing countries to expand their agriculture and generate the resources that are necessary for their industrial development. Integration is a slow process and that is why the industrial countries cannot be expected to remove subsidies instantaneously. However, it has to come about, even though gradually. But this is not happening. There has been a constant struggle in the industrial world to maintain the subsidies on agriculture and to procrastinate their removal. With this attitude, there can be no globalization.

The other thing that needs to be kept in mind is the different stages of development through which the developing countries are passing at present. Some of them are far more advanced than others. Therefore, they cannot all be treated in the same way. The relatively poor developing countries need to build institutions, create strong and healthy financial systems, make structural adjustments, and develop a just and dependable legal and judicial system. All of these tasks would be difficult to achieve without good governance. Nevertheless, they are all necessary tools for the progress of developing countries. Achieving these targets will be time-consuming. It is therefore highly unrealistic to expect that the developing countries will remove their tariffs all at once. Such a step would only bring more misery - not just for these countries but for the entire world. Therefore, bringing about globalization in developing countries has to be understood as a slow process. There has to be a well-thought-out program whereby their tariffs are reduced gradually in step with the creation of necessary requisites for development.

As far as oil is concerned, this has also become a big problem. Everybody is complaining about the high price of oil. The high price of oil is not necessarily due to the oil-producing countries. The high price of oil is due to two factors. The first of these is the rise in international demand for an irreplaceable depleting resource. The second is the high rate of taxation on oil in practically all industrial countries. In some countries, taxes constitute a preponderant part of the pump price of oil while only a small proportion goes to the oil- producing countries. In addition, there are high tariffs on petrochemicals. This is because a number of petrochemical industries in Europe are outmoded; their machinery is very old. In contrast with this, the petrochemical industries in the oil-producing countries have the latest machinery and are, therefore, more efficient. If petrochemicals are also included in the World Trade Organization (WTO) framework, the European countries will be forced to change their machinery to make their industries more up-to-date.

There are also some other problems. The prevailing globalization is according to negotiations and not according to certain well-established principles. The negotiating power of industrial countries like the US and other European countries is far stronger than that of developing countries. They go to the negotiating table with their lawyers, highly qualified economists, and legal advisers. When the poor countries go, they have hardly one or two persons to support them at the negotiating table. The number of experts brought by industrial countries to mind-boggling negotiating tables has been close to seven on average, while developing countries are unable to muster even half this number. Nor are these few experts of as high a standing as those from the industrial countries. So how can negotiations be expected to take place in a just and fair manner? Thus, the whole idea seems to be unjust from the very beginning. Dr. Ahmad Ali, President of the Islamic Development Bank, has rightly pointed out: “the accession of developing countries to the WTO is[as] if someone is passing through a dense jungle choked with overgrowth, winding paths, and giant docile beasts”. Globalization cannot come without justice and if justice is taken into account, a number of concessions need to be made to developing countries, not the same for all developing countries but, rather, in accordance with their stage of development.

M. Umer Chapra

Source: Essays on Muslims and the Challenges of Globalisation, Institute of Policy Studies, Islamabad. Republished with permission.