INTRODUCTION

The need for development programmes after political independence and the perceived failures of both the capitalist and socialist models provided a fresh opportunity for Muslim nations to seek “indigenous solutions” to their socioeconomic problems. The main focus is on events in the last twenty-five years where actual policy documents are available and institutions established. This chapter* argues that the development of Islamic economic institutions has been due to both external and internal factors and that both Islamic legacy and modern economics have contributed to these institutions. The chapter will also argue that the developments of these institutions and related reforms in Malaysia have by and large been accommodating, flexible and relatively pluralist in nature. In this context, “Islamization” of modern economics has been the basis of the efforts in Malaysia rather than mere rejection of modern economics or attempts to impose traditional models and views that may not necessarily be relevant in the Southeast Asian context. The chapter also attempts to evaluate the impact of Islamic economic institutions on economic development in Malaysia. Financial statistics and figures may show that the impact has thus far been marginal. However, the chapter will also argue that Islam was actually mobilized by the Mahathir administration to try and provide a counter-balance to the increasing pace of economic/material development in the last two decades, especially among the Malays. Unfortunately, not much attention has been given to this important dimension in development studies in Malaysia.

THE MODERNIZATION THESIS AND ECONOMIC DEVELOPMENT IN SOUTHEAST ASIA: A ROLE FOR RELIGION?

In his 1968 article in the International Encyclopedia of Social Sciences, Lerner (1968) characterized modernization as a process in which less developed countries acquired the characteristics of developed countries. Among these characteristics was the diffusion of secular norms2 including personality transformation. The secular mind was seen as an important “attitudinal” ingredient in modernization, being rational and progressive as opposed to the irrationality of religious (and mythical/magical) predispositions.