Islam & the Economic Question
15-05-2008
In order to address the economic system in Islam, we first
of all need to clarify the position of Islam in relation to the quest for
material well being. This is because the word dunya, which is associated with
material wealth or worldly matters has become a dirty word for many Muslims.
The separation of deen from dunya (secularism) is a Western-Christian concept
that has recently become widely internalised amongst Muslims. Consequently,
seeking to increase in economic or worldly matters is frowned upon, - while
continuous engagement in prayer and other personal ibadat is regarded as
meritorious. As such, many people get confused and conduct a double life. On the
one hand, money talks, it gives status and makes life comfortable, so they seek
it vigorously. On the other, they feel guilty, thinking that their effort should
be spent on 'religious' duties.
This is due to a misunderstanding of the position of the
economic question in Islam. There is no doubt that Islam is opposed to
monasticism and views the economic activities of man as quite lawful and
sometimes even obligatory and necessary. We find many injunctions in Islam that
allude to this. For example, Allah (SWT) says in the Qur'an: 'Disperse through
the land and seek the bounty of Allah' (TMQ-62:10), He also says, 'Allah has
permitted trade'(TMQ-2:275), And even more directly, Allah (SWT) says: 'Seek the
other world by means of that which Allah has bestowed upon you, and do not be
negligent about your share in this world.' (TMQ-28:77) These are all in
reference to economic activity.
In the sunnah, we find that one of the most commonly said du'as that the Prophet
(SAW) taught us is: 'our lord give us the good in this life and the good in the
hereafter'.
But despite this, we find expressions in the Qur'an which state: 'The life of
this world is but a delusion' -3:185 ; 'The mutual rivalry for piling up the
good things of this world diverts you from the more serious things. - 102:1; and
many others, stating that man has lust and greed for wealth(89:20) and that he
is violent at this greed (100:8) and that he becomes boastful and proud (11:10)
and so on.
This apparently sounds like a contradiction in terms. But
actually, what we are taught by Islam is that the real objective of our
existence is to worship Allah (SWT) through righteous conducts by living as
humans in this world. So all those things that are necessary for this life
become essential for man. It is one thing to say that material well being is
important and even compulsory but it is quite another to say that it is the
ultimate goal and centre of thought and action in life. This is where the
confusion arises about the Islamic economic question. The fundamental difference
between Islamic economics and all materialist ones is precisely this. The
materialists view that economic well being is the ultimate end of human life,
while Islam says that these things may be necessary and indispensable, but
cannot be the true purpose of life. Economic endeavours only become an
allurement or delusion if man loses sight of his real purpose in their pursuit.
The right path to follow therefore is to fully engage into worldly economic life
in the manner prescribed by Allah (SWT) and His Prophet (SAW), both at societal
and individual level. The prophet said: 'Work for your worldly life as you were
going to live forever, but work for the life to come as if you were going to die
tomorrow.'
The economic problem in Islam.
Unlike the current world view as pushed by the capitalist west, Islam considers
that the main economic problem that mankind will ever have is that of
distribution of wealth and not of production. In the eyes of the capitalist
West, there is relative scarcity of resources available in the world, and
peoples demands for these resources are endless. Hence each nation and in fact
the world should concentrate on more and more production. The higher the amount
of wealth produced, the higher the number of people that will satisfy their
demands through the process of economic activity.
Islam distinguishes between basic needs which include food, clothing and
shelter, and luxurious wants which includes all those things that are not
necessities in life. It views that there are enough resources to satisfy the
basic needs of all people all the time and to satisfy some of the luxurious
wants of people and that economic problem is that of distribution and not
production. There are enough resources to feed, clothe and house everybody in
the world fully as can be seen by the food mountains of Europe and the excesses
of the few rich in each country, including the 3rd world countries. In
accordance with their capitalist philosophy of maximising profit, we find
governments paying farmers to produce less as in the EC countries, or to destroy
what has already been produced as happened in poor Latin America where a huge
amount of coffee was burnt. Far more wealth leaves the poor countries of Africa
for the rich West than vice versa due to unjust economic deals. Even at the
height of the Ethiopian famine crises in the late eighties, the country was
exporting millions of dollars worth of resources to the West.
Allah (SWT) says in the Quran, 'It is Allah who created the heavens and the
earth, and sent down from heaven water wherewith He brought forth fruits to be
your sustenance. And He subjected to you the sea at His commandment; and He
subjected to you the rivers and He subjected to you the sun and the moon
constant upon their courses, and He subjected to you the night and the day, and
gave you of all that you asked Him. If you count Allah's blessing, you will
never number it; surely man is sinful, unthankful. (4:32-34). In another verse
He says: 'Verily, thy lord doth provide sustenance in abundance for whom He
pleases and He straiten it, for He doth know and regard all his creatures.'
(17:30). These verses among many others show that Allah (SWT) has pooled in this
universe all the needs and beneficial things for man, and has provided
sufficient resources to satisfy material need of man.
In Islam, a distinction is made between economic science, which is to do with
the means of production and economic system is concerned with the problem of
distribution of wealth, namely the rules by which wealth can be acquired, used
and disposed of. It is through the economic system that is specific to Islam
that wealth is distributed equitably, while economic science is not particularly
specific to Islam as such but can be acquired from any other people or developed
as seen fit.
Objectives of the Islamic economic system
The objectives of the Islamic economic system can be classified as follows:
1) To satisfy the basic needs of each and every individual in the Islamic state
completely
2) To provide the citizens of the Islamic state with the means to satisfy their
luxurious needs
3) To achieve 1) and 2) through a naturally workable system with due incentives
for economic activity and an equitable system of distribution.
Principles and policies to achieve the objectives
1) Ownership.
Ownership constitutes one of the important incentives for engaging into economic
activity as the owner of wealth has the right to use or dispose of it. The means
of acquiring such rights is one of the fundamental principles through which the
objectives of the Islamic economic system are achieved.
In the Islamic economic system, it is understood that the real owner(Creator) of
all wealth is Allah(SWT). We only 'own' wealth by proxy as guardians. Some of us
acquire wealth by engaging in the production process and hence have a direct
access to wealth. These include the factors of production as defined by Islam.
Others have an indirect access to wealth simply because Allah(SWT) as the real
owner of wealth has stipulated that those with direct access to wealth through
engagement in the production process must pass some of it on to them as He made
clear in the Qur'an: 'Give to them from the property of Allah(SWT) which He has
bestowed upon you.' 24:33. This usually takes the form of Zakat, kaffarat,
sadaqat-ul-fitr, inheritance, etc. which are given to the poor, the needy and
later generations. It is the duty of the government to ensure that such wealth
is duly transferred by law.
Notwithstanding this, Islam does not impose a limit on the
amount of wealth that one can own. Rather, it controls the means of ownership
such that people acquire the right to wealth in a just manner. This excludes
speculation, forward transactions, lottery, and dealing with interest among
other things.
Additionally, Islam also stipulates in accordance to the ahadith of the
prophet(SAW) that certain properties are to be collectively owned for the use of
all citizens. These include sources of energy, pastures and natural resources
including water. Through these ownership principles, Islam ensures that everyone
gets what is rightfully due to him from his creator, unlike the capitalist
system where only those who take part in the production process have the right
to wealth. At the same time, it gives full incentives to individuals to fully
participate in the economy by not imposing a limit on how much they can own.
2) Economic enterprises and the prohibition of interest and hoarding
Interest rates form the backbone of the capitalist system
in many ways. It is used as a tool to regulate economic growth and monetary
supply by acting as an 'incentive' for those who have surplus money to
save/hoard. In Islam both interest and hoarding are prohibited. Allah(SWT) says
in the Qur'an: 'And those who hoard up gold and silver and do not spend in the
way of Allah, announce to them a painful chastisement. (9:34). He also says:
'Allah has permitted trade and forbidden interest.' (2:275). Owners of capital
therefore have to invest it either in the form of private business or
partnership.
The most fundamental criteria that must be met by all companies of partnership
are that there must be offer and acceptance between two or more parties, and
that once they become partners they have equal say in the running of the
company. In addition to these criteria, the manner of sharing profit and loss is
dependent on the type of company. In the Company of Equals (Anan) where
partnership is formed by the wealth of two or more parties, any loss suffered by
the company would be shared among the partners in proportion to the capital they
put. In the Company of Persons (Abdan) where partnership is based on services
provided by the partners, loss is shared according to the salaries/wages of the
partners. In the company of Mudharaba where partnership is based on capital from
one party and labour from another, loss is incurred by the owner of capital
while the provider of labour loses their wage/salary. From these elementary
rules and structures, many other forms of companies can be formed. In all cases,
profit is shared according to mutual agreement independent of the amount of
capital or service/labour provided. Through this arrangement, continuous
business investment keeps employment level high and both the rich and the poor
get richer.
The role of the state
The government plays an important role in the economic system of Islam. Islam
makes it the responsibility of the state to provide food, clothing, shelter,
education, health and security to every individual. It is also the
responsibility of the state to enable citizens with the means of getting
luxurious needs in addition to these basic needs by themselves. The state
achieves this through the management of public property , through the use of
income from other sources and through provision of good economic environment so
that people satisfy their needs due to their involvement in economic activity.
Sources of revenue for the state
1) Taxation
Fai - Property captured from the enemy without fighting
Ghanima - Booty
Ushr - Land Tax on unconquered land
Kharaj - Land Tax on conquered land
Jizya - Head-tax on non-Muslims
2) Others
- Revenues from natural resources
- Fines levied
3) Facilitating luxurious needs
It is also the responsibility of the state to provide adequate infrastructure
for the supply of such commodities to the people.
The most fundamental aims of the economy of any nation is to provide adequate
supply of goods and services for its citizens and to enable each citizen to
acquire and use them to raise their standard of living. This requires that
wealth be created in the form of usable goods and services and that people get
the means of owning and/or using these goods or services.
The degree to which these aims and objectives are met and the efficiency with
which the citizens of the state participate depends on the specific rules of
engagement, namely the economic system which the nation implements. Apart from
the general ideological framework upon which the economic system is based, the
key ingredients for the economic success of any nation include:
1) Confidence in and stability of the system
2) Workability of the system by providing appropriate economic incentives for
wealth creation and distribution
3) A just method of distribution.
Although only the capitalist economic system is practised
in the world today, the Islamic economic system gives the best rules of
engagement in economic activity and would be the most successful towards raising
the standard of living of any nation.
a) On confidence and stability
Economic activity by its very nature is risky as those who
partake in it directly can gain or lose wealth. Hence in all economic systems,
there is always an understanding by those who participate that they may lose
their capital or effort . However, there other phenomena that adversely affect
the economic life of a nation by artificially creating an atmosphere of
insecurity, and thereby reduce the level of economic activity. These arise
because of the specific economic system implemented and include the followings:
i) Booms and Busts: In the capitalist system, periods of good and bad
trade have become evident from the records. Although opinions differ widely
among economists on the conditions responsible for trade fluctuations, a common
feature is that root cause of these conditions stems from the foundations of the
capitalist economic system.
ii) Runaway inflation: The fact that money continually loses its value has become an intrinsic part of capitalist economies. Here again there are quite a few opinions from economists as to what causes runaway inflation. But the recipe for runaway inflation lies at the heart of established financial controls in the capitalist system.
iii) Money market crashes: These occur irregularly
in the form of sudden exaggerated changes in foreign exchange rates and sudden
fall in share prices.
The most fundamental characteristics of the capitalist economic system which
form the root of these phenomena are speculation and false representation. These
are manifested in:
The artificial creation of money: There is nothing to prevent governments from
literally creating money at will. Excessive creation of paper money which cannot
be represented by real wealth is the root cause of inflation.
In addition, high street banks can lend money that is not existent by crediting
peoples accounts on paper. This is false representation that is meant to keep
the system going actually creates more artificial money.
In conclusion, the above points clearly outline certain fundamental differences
between the capitalist economic system and the Islamic economic system. The
inherent failing of capitalist economies can be seen today throughout the world,
even in the Muslim countries, where it has been forcibly applied by corrupt
rulers. The details of Islamic economics should fill us with confidence that
Islam provides solutions to the ‘economic’ problem’, which the world around us
currently faces.
Submitted by a Mujahid