Religion and economic development

Muhamad Ali, Lecturer, The State Islamic University (UIN) Sharif Hidayatullah, Jakarta

The New York Times recently reported about two Harvard scholars who found that religion is not an impediment to economic development, after analyzing data collected in 59 countries between 1981 and 1999.

"Our central perspective is that religion affects outcomes mainly by fostering religious beliefs and individual traits such as honesty, work ethic, thrift and openness to strangers," the two researchers, Robert J. Barro and Rachel M.McCleary, said. "For example, beliefs in heaven and hell might affect those traits by creating perceived rewards and punishments that relate to 'good' and 'bad' lifetime behavior."

The data included attendance at places of worship and religious beliefs and measures of economic development, including per capita gross domestic product, educational attainment by adults, the urbanization rate and life expectancy.

The finding are not very surprising because scholars like Max Weber and Maxime Rodinson, in their books The Protestant Ethic and the Spirit of Capitalism and Islam and Capitalism, respectively, have argued for the connection between religion and economic development. But this most recent study by Barro and McCleary is based on a sophisticated analysis of a huge set of data and seems more convincing.

My own library research on Islam and economic development during the New Order era also suggests such a connection. Then president Soeharto attempted to accommodate Muslims in his development ideology through Pancasila, instead of capitalism and socialism, and interestingly Muslim intellectuals and institutions did not resist such appropriation.

Government officials used religious festivals as a forum for conveying their development messages and the Muslim society at large showed its support in speeches and publications that linked Islam and development.

Muhammadiyah and Nahdlatul Ulama (NU), the two largest Muslim organizations, for example, have long had their own economic initiatives, even if they were not very sophisticated, such as alms giving, endowments and setting up local cooperatives to prevent economic exploitation. More recently both organizations established People's Credit Banks and have supported local export-import activities.

Interestingly, religious differences have not prevented Muslims from doing business with non-Muslims such as the ethnic Chinese and foreign companies. For example, Muhammadiyah has cooperated with Bank Central Asia (BCA) and a life insurance company, while the NU has created a joint venture with other companies.

Why have Muslims encouraged themselves to do business? For Muslims, economic activities are part of human social interactions (muamalat). As the Prophet Muhammad and his wife were traders, Islamic doctrines are interpreted as motivating hard work and honesty.

Muslims also believe that God created the earth and everything on it not to be destroyed but to be managed properly for the best benefits of humankind. Yet development and modernization have carried with them environmental destruction and moral decadence, such as individualism and excessive materialism. Islam serves as a controlling and balancing power.

While agreeing on values, Muslims differ in systems and strategies. Only recently (i.e. the 1970s) did Muslims disagree on the issue of an interest-based banking system. Some interpret the Koranic riba as not merely usury but also interest. Some are establishing what they call Islamic economics, deriving from Western economic principles plus Islamic values.

Many still believe that interest is not un-Islamic because it simply represents a transaction fee and is used for productive purposes. In any case, both "Islamized" and conventional banking systems coexist and engage in healthy competition.

Do the above research findings represent a criticism of the secularization thesis -- the idea that a country becomes more secular as it becomes richer and more industrialized? This is a controversial issue and has different answers from different perspectives. What makes sense to me might be the following.

First, in any period of history, religion has never been merely a private matter, although many have attempted to push religion into such a direction.

It is hard to make a generalization about whether or not religion becomes more and more privatized or religion becomes increasingly public. It depends on the perspective. My own view is that if religion should turn to the public across religious boundaries, it is not its exclusive characteristics but its inclusive, tolerant and more universalized values such as justice and peace that come to be emphasized.

Second, religion is often if not always connected with other aspects of life. It is difficult for many to create clear boundaries between what is religious and what is not religious. It is thus quite plausible to consider what Prof. Paola Sapienza said, "are you picking up religion or something that correlates with it, like certain laws or social and economic institutions". In other words, social and cultural circumstances may have affected economic behavior the same as religious belief may have.

Third, doctrinally, religion (including Islam) and capitalism are not incompatible. However, if Islam and capitalism are not incompatible, would that logic also mean that Islam and socialism are not incompatible?

In my view, the relationship between religion and ideologies cannot be regarded in an idealist ahistorical way. The connection can only be made in relation to a particular agency in a particular time and space. Whether or not religion and economic development are actually related, there are many who wish to assert that they are in fact related, but there are also others who do not wish to assert such a connection.

Therefore, the connection that exists, or is believed to exist between religion and economic development is mediated by cultural principles. It should also be recognized that the nature of the causal process linking religion and economic development is complex, multifaceted and varies from situation to situation. It involves more general questions of ideology, political organization and the structural properties of the social system within which religion is embedded.

The last point demands particular attention as the Muhammadiyah, the NU and other religious organizations have been promoting an "anti-bad" political movement. Why can't religion prevent its adherents from bad economic practices such as corruption and collusion? This question should be primarily answered by the people themselves who claim to be religious but commit social sins. But one thing seems to be indisputable: no religion justifies activities that are harmful to others, both humankind or the environment.

The writer is a PhD candidate at the University of Hawaii at Manoa and a fellow at the East-West Center in Hawaii.