The Failure of Secular and Liberal Economic Models
Chapter 2: Understanding and Application of Maqasid al Shariah in Strategy in Strategic Management by Dr Shaya'a Othman
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Dr SHAYA'A OTHMANSenior Academic Fellow, International Institute of Islamic Thought [IIIT],
East and South East Asia Regional Centre, Kuala Lumpur, Malaysia
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Summary
This chapter critically
examines the promises and failures of secular and liberal economic models.
Although touted as pathways to prosperity, policies of deregulation,
liberalisation, and privatisation have instead produced widening inequality,
fragile financial systems, and social discontent. From the 1997 Asian financial
crisis to the 2008 global meltdown and post-pandemic disruptions, liberal
capitalism has proven unsustainable. The double standard of protectionism by
powerful nations exposes deep hypocrisy in global economic governance. Most
crucially, secular systems lack a moral compass, reducing economic decisions to
profit-maximisation. The chapter argues that Islamic economics offers a
principled alternative rooted in justice, ethics, and divine accountability.
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2.1 From Theory to Crisis: The Broken Promises of Liberal Economics
Secular liberal economic thought, especially since the late 20th century, has been championed as the ultimate route to prosperity, modernisation, and global integration. Yet, reality shows otherwise. Deregulation, privatisation, and liberalisation have led not to equality, but to vast disparities in wealth and systemic vulnerabilities. Institutions like the World Bank and the IMF have promoted structural adjustment programs in the developing world under the banner of liberalisation, often resulting in cuts to social services, increased debt, and the dismantling of local industries (Chang, 2002; Rodrik, 2011).
The global financial crises of 1997, 2008, and the ongoing post-pandemic shocks further prove the fragility of liberal capitalism. Far from being “self-correcting,” markets driven solely by profit motives and minimal government regulation have repeatedly spiralled into speculative bubbles and crashes (Stiglitz, 2012). The assumption, according to Piketty (2014), that unregulated competition leads to optimal outcomes has been empirically disproven by :
- Increasing Monopolisation,
- Increasing Corporate lobbying and
- Decline of social mobility.
Deneen 2028) concluded that ‘Liberalism has failed—not because it fell short, but because it was true to itself. It has failed because it has succeeded. As liberalism has “become more fully itself,” as its inner logic has become more evident and its self-contradictions manifest, it has generated pathologies that are at once deformations of its claims yet realisations of liberal ideology.
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2.2 Protectionism vs. Free Market: The Hypocrisy of Secular Governance
While free market liberalism is the rhetoric, protectionism is often the reality, especially among developed nations. The United States, for example, imposes high tariffs on strategic goods and subsidises its agricultural and energy sectors while pressuring other nations to open their markets (Rodrik, 2011). This double standard reveals a key hypocrisy: secular economic systems often operate on political self-interest rather than moral universality or equity.
ASEAN and EU countries, in contrast, promote regional integration and free movement of goods and labour. However, they too face challenges: rising nationalism, unequal development within regions, and the marginalisation of ethical or religious considerations from economic decision-making.
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2.3 Absence of Moral Anchors in Secular Models
A critical flaw in secular economic models is the absence of transcendent moral anchors. Without a higher ethical framework, decisions are often reduced to cost-benefit calculations. Issues like environmental sustainability, labour rights, and poverty alleviation become secondary to shareholder profit and GDP growth (Sachs, 2005; Asutay, 2007).
In contrast, Islamic economics provides a purpose-driven paradigm where human dignity, social justice, and ethical constraints are built into the system, not as afterthoughts, but as foundational principles (Chapra, 2000). Wealth is viewed as a trust (amanah), and economic activity is regulated through divine injunctions—prohibiting interest (riba), exploitation, and hoarding.
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2.4 The Consequences: Inequality, Crisis, and Disillusionment
The failures of secular economic models have led to a growing public disillusionment. Inequality within and between nations has intensified. Climate degradation accelerates under profit-driven industrialisation. Youth unemployment and social unrest rise, especially in the Global South. A recent UN report concluded that “the economic gains of globalisation have been uneven and unsustainable” (United Nations, 2023).
The formulation of the Sustainable Development Goals (SDGs) by the United Nations General Assembly in 2015, to be achieved by 2030, does not show a positive trend in achievements. With the current Trade War, the world is facing, highly likely to contribute to the failure of achieving the SDGs.
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2.5 Conclusion
It is in this context that the search for ethical alternatives is growing. The global interest in Islamic Economics, particularly in Islamic Financial System (Islamic Banking, Islamic Insurance, Islamic Bond and Islamic Investment), Islamic Halal Industries and Islamic Tourism and Lifestyle, which are ethical investments, and value-based economics, is not accidental—it is a response to the moral and systemic bankruptcy of the current order.
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REFERENCES
Chapra, M. U. (2000). The Future of Economics: An Islamic Perspective. Islamic Foundation.
Deneen. P.J. (2018), A Why Liberalism Failed, Advanced Studies , Culture, University of Virginia.
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Iqbal, M., & Mirakhor, A. (2007). An Introduction to Islamic Finance: Theory and Practice. Wiley.
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