ISLAM IN OFFICE

Islam is different. The prophet Muhammad 8212; himself a trader 8212; preached merchant honour, the only regulation that the borderless Levantine market knew. In Muslim liturgy, the deals cut in the souk become a metaphor for the contract between God and the faithful. And the business model Muhammad prescribed, according to Muslim scholars and economists, is very much in the laissez-faire tradition later embraced by the West. Prices were to be set by God alone 8212; anticipating by more than a millennium Adam Smith8217;s reference to the 8220;invisible hand8221; of market-based pricing. Merchants were not to cut deals outside the souk, an attempt to thwart insider trading.

Today, with a spiritual revival sweeping much of the Muslim world and with the Bush administration keen on democratising the region, it is worth asking how an Islamist movement would manage the economy. Since 2001, Islamist parties have made strong showings or won elections in 10 Arab countries Morocco, Jordan, Lebanon, Turkey, Iraq, Iran, Bahrain, Egypt, Kuwait and Pakistan and the Palestinian Authority. And none are clashing with the West on free-market economics. In Iraq, the supply-side economic-reform plan submitted in 2003 by former US administrator Paul Bremer has survived with only minor revisions under Baghdad8217;s new Shia-dominated government.

An interesting test came in the January election in Egypt, when the Muslim Brotherhood 8212; the fountainhead of modern Islamism 8212; took a fifth of the seats in Parliament. Now the largest opposition party, much of the brotherhood8217;s appeal rests on its network of hospitals, schools and charities, which are often superior to state services. Fortunately for the reform-minded prime minister, Ahmed Nazif, the brotherhood8217;s economic agenda is largely consistent with his own, albeit with a more populist twist.

The brotherhood embraces free-trade deals, but criticises the government for failing to negotiate better terms for Egyptians. Though Islam tends to frown on tax collection, the brotherhood supports tax reform not abolition and opposes a proposed flat tax as regressive. It even endorsed the recent decision to lift budget-busting food and fuel subsidies, but wants to use Egypt8217;s natural-gas reserves to finance a less painful transition to market prices. 8220;It must be done gently,8221; says Mohammad Habib, the brotherhood8217;s first deputy chairman, 8220;with the objective of reducing the gap between rich and poor8221;.

In the 1950s, the brotherhood opposed President Nasser as much for his decision to nationalise the Egyptian economy as for his secularism. Muhammad, says Yasser Abdo, a brotherhood member and a former economist at the International Islamic Bank for Investment and Development in Cairo, 8220;believed in the private sector as the basis of productive activity,8221; with a 8220;limited8221; state role.

Today, brotherhood parliamentarians remain anti-statist and staunchly antitrust, citing a verse in the Koran: 8220;He who brings commodities to the market is good, but he who practices monopolies is evil.8221; Not that any member goes as far as questioning the OPEC cartel. As Cairo University economist Abdel Hamid Abuzaid puts it, Islam promotes 8220;competition of a cooperative8221; nature, not the 8220;cutthroat8221; Western kind.

Politically, the objective of fundamentalist Islam is to restore the caliphate, the unified Muslim kingdom of the 7th to the early 20th centuries. This rhetoric turns more practical on the subject of trade. 8220;If the ancient caliphate can revive itself,8221; says Habib, who has a US doctorate in geology, 8220;it will happen through regional commerce.8221; A brotherhood in power, says Habib, would respect Cairo8217;s free-trade agreements 8212; though the group appears to be divided over whether it would honour one with Israel.

In the days of the caliphate, Islam developed the most sophisticated monetary system the world had yet known. Today, some economists cite Islamic banking as further evidence of an intrinsic Islamic pragmatism. Though still guided by a Koranic ban on riba interest, Islamic banking has adapted to the needs of a booming oil region for liquidity.

Some 500 Islamic banks and investment firms holding 2 trillion in assets have emerged in the gulf states, with more in Islamic communities of the West. British Chancellor of the Exchequer Gordon Brown wants to make London a global centre for Islamic finance 8212; and elicits no howl of protest from fundamentalists. How Islamists might run a central bank is more problematic: scholars say they would manipulate currency reserves, not interest rates.

The Muslim Brotherhood hails 14th century philosopher Ibn Khaldun as its economic guide. Anticipating supply-side economics, Khaldun argued that cutting taxes raises production and tax revenues, and that state control should be limited to providing water, fire and free grazing land. The World Bank has called Ibn Khaldun the first advocate of privatisation.