Islamic Economic System

Islam is a religion which encompasses every sphere of activity and every aspect of human life.
Whether it is something which belongs to individual life or that belongs to collectively to
society, Islam has guidelines, principles and teachings. Truly Islam is not limited to prayers and
acts of worships only; it also covers all secular and mundane aspects of life. On one side it is
‘Deen’ and on the other side it is a code of legislation covering businesses, politics, civil and
social etiquettes. As a Deen, it has an exhaustive list of Aqaid (Principles of Faith) and very
detailed rules of how to worships. But Islam is something more, it is not limited to some
metaphysical doctrines but it has an elaborated system that guides human beings in both
individually and collectively. It guides humans how as an individual, he/she enjoys a peaceful
and prosperous life, how he can at peace with his family, what are his responsibilities and rights
as a member of family. Moreover, Islam acknowledges that by nature, man is a social-being, he
prefers and loves with other human beings and so he/she forms groups, tribes, societies and
countries. Islam admitting this feature and tendency of human beings also sets rules that guide
them in collective sphere of life.

It is very pertinent and important that at first we discuss the concept of ‘Mall’. It is equivalent to
wealth and property. Laissez faire concept of wealth which is also called capitalist system
focuses on this issue very much. The gist of this doctrine is that wealth belongs to owner. As the
owner of wealth, his ownership is not limited and restricted to anyway. He is the undisputed ruler
of his wealth and property. As this system rules out any restriction and limitations over the use
and disposal of the wealth, individual has full freedom and autonomy on its earned, received or
belonged property. The system of laissez faire in some higher degree practice in western
countries, and in oil-rich middle- east countries. In a lesser degree, this doctrine has been
practiced throughout the world. This absolute and unbound control and authority over once
wealth has very significant implications both individually and collectively.

Laissez faire concept is close to human nature. It is a dream and wish of every individual that the
fruits of his work shall solely belongs to him, he shall be undisputed owner of his destiny. He
shall have unqualified authority over the usage and spending of the income and wealth he earned
and accumulated by the passage of time by his untiring efforts and labour. This very concept has
significant implications over the attitude of people. If one is guaranteed that the fruits of ones
labour would be enjoyed solely by oneself, it encourages and motivates to work optimal. Every
one shall work for promoting his/her interest in the best possible manner. It is said that personal
interest are national interest. Therefore if every one of us works for achieving and materializing
his/her interest, it ultimately leads to overall growth and development. So, this ideology
motivates people to work more and work hard as it is close to human nature. It leads to overall
growth and production. Everyone prosperous and as everyone work optimally, no human or
physical resources goes idle, waste of time and labour shall be minimal and in ideal situation,
there shall no more a problem of have and have-not in the society. As everyone enjoying the
fruits of their labour, social conflicts would be reduced, crimes level would be decreased and
everyone shall benefit from this peaceful and competitive environment.

There are some negative effects of the doctrine of laissez faire. This concept has all the
ingredient to develop the selfish tendencies of greet, proudness and haughtiness. It makes a man
self-centered, his interests, his dreams, his enjoyment and his life becomes supreme over all
other consideration. Life sole purpose is to amass wealth for the benefit of his own without
considering the lives of others.

There is another concept of Mall, which is quite contradictory to the doctrine of laissez faire. It is
the socialist system which propounds that humans are not capable of holding and disposing of
wealth and whatever he/she produces and earns through his/her efforts goes to state. State is the
ultimate owner of wealth and all produce of people goes to state. Today, this doctrine in extreme
form is practiced in North Korea, Cuba, and Venzilla. How hard and laborious one does, all his
earning goes to state and he will get in return what the state decides.

Socialism has some very appealing features; it promises equality of chief executive of a company
and a clerk, and equal distribution of resources and wealth. It is charming and attracting concept
as it promises to solve the issue of haves and haves-not from the society. It strives to make a
classless society that is free from extravagance and acute poverty. It promises to make a society
where 5 percent people have not own and control the 90 percent resources and rest of population,
i.e., 95% have just meager 10 % resources to meet their wants. Theoretically, it envisages a
classless society where everyone gets the resources and wealth according to its needs. It is a
system that ensures that needs and essential requirements of life of every individual are fulfilled.
Socialism in practice has impacted the societies and human nature very negative. It promises to
make a classless society but in fact it makes a dual class society, all-powerful and all-inclusive
government and rest of the population. All the power, decision-making discretion, and resources
are owned and control by government and rest of population are bound to blindly obey the
government orders. This system makes incentives worthless, as there are no incentives to work
hard, there is no initiative of entrepreneurship, this system of governance and economy are
destined to fail and it failed within 50 years in the world very miserably.

There are some basic issues every economy and society confronts and no society could move
ahead without addressing these issues. These issues are so much important that interpretation and
prescription of these vary issues determine the nature of people, societies and economies. These
issues are what to produce? How to produce? For whom to produce? The methods and attitude
towards answering these questions will significantly decide the structure of the economy. In
socialism, a central government will decide the outcome of these questions. It is irrelevant what
the people desires, what is their free will in order to consume and produce, what they would like
to do that best fit for their aptitude. You many not produce those things on which you have
competitive advantage, you may not to do those economic activities which have relatively higher
returns but you have to do those things which central decision-making agency of government
decides. Individual freedom is nothing to do with collective wisdom.

In laissez faire system, the basic questions of economy depends on the very nature of this system.
This system exemplifies the unbound liberty and unrestricted freedom of individual. No ethical
or religious considerations are in the way of maximizing the profits. Consequently the
maximization of profits and income is the ultimate motive and all the means are allowed in the
way of this objective, provided these means are not in conflict with the laws of the land. There is
nothing moral or immoral, ethical or unethical in fulfilling ones objectives. It is permissible in
this system if you can produce either wheat or coffee and hundreds of thousands people died of
hunger and famine but you cultivate coffee because the profit margin in coffee is greater than
sowing wheat. Ironically, every year, hundreds of thousands of children and poor died because of
malnutrion and hunger in Africa but instead of sowing wheat which is best and vastly used food
crop throughout the world, they sow and produce coca, because coca produce in Africa has taste,
colour and taste which is unparalleled to other coca production in rest of the world. Coca is an
ingredient in coffee, ice cream and deserts, westerners love to eat. Opportunity cost of coca is
some dollar of coffee, ice cream or deserts but hundreds of thousands children who die every
year because of hunger. The ideology of Laissez faire is inherently cruel, disdainful and selfish.
It is against all the ethical and human principles and it is based on self-centered interest of one’s
profit.

It is the price which determines what to produce; if people are willing to pay more for coco,
alcohol and unethical content, then producers and firms produce the same and would not produce
the foods, medicines and other necessities which poor people direly need but have less resources
to pay. It is the price the consumer is willing to pay decides what to produce. Price creates
incentive system which make it possible to divert resources and labor to this end. Some time
back, Bang Kong, Hong Kong and in some other Asian countries, thousands of women work in
message centers because consumer pay more there for the comforts of few hours than the whole
month work of some other profession. Consequently women go this unethical profession instead
of some respected profession. How to produce question of economy is addressed by the relative
cost of factors of production. A producer adopts those techniques of production which are least
costly. On the face, it is quite rational and natural to produce the desired goods with the least cost
combination of factors of production. Unfortunately due to advancement of science and
technology, the state of the art production technology relies on automation, machines have
replaced humans. Two decades ago, the factories which hired and employed thousands of labor
for their daily operations, now require hardly some dozens employees to get same level of
production and even more production than the previous level of production. The sad part of that
story is that millions of people became unemployed. At the time, when science and technology is
on its peak, millions of people are deprived of two times respected and decent meals in a day
because of this vary development. Now every firm revolutionize itself and change its production
process from manual production to capital intensive production without thinking the outcome of
this transition. The third significant question is for whom to produce, and the answer is that firm
may produce for someone who has the power to purchase. ‘Consumer is king’ is prevalent
doctrine. There is no issue of good or bad, healthy or unhealthy, ethical or unethical, only those
goods and services are produced to which people are willing and able to pay. The need,
requirement or intensity and significance of good for human existence is irrelevant. The question
whether the goods in consideration in indeed have any benefit and dos it proper to produce or my
efforts are worth to produce the good is out of question. The decision criteria is that those goods
are produced which people are willing and able to purchase. Today billions of rupees are
invested and spent on the production of arms and cosmetics, are they worthwhile to produce
when some where hundreds of thousands people die because of scarcity of affordable and cheap
food.

Socialism and laissez faire ideologies address these questions based on human intellect and
employing the approach of pluralism. Socialism opines that central planning-body or government
more accurately to say has the wisdom to answer these important questions. Therefore it is
government that decides what to produce, how much to produce, how to produce and for whom
to produce. Whereas, laissez faire believes that human is a perfect replica of intellect and
rationalism. There is no one who ordains, directs or suggests him in deciding to make a response
the question. He is his own decides the outcome of these answer. It is also behind this philosophy
that all human actions are derived for material wellbeing, he always seeks his profit and
monetary reward supreme and all other considerations are secondary. Only the considerations
which are based on monetary and tangible rewards are decisive in making an opinion about the
outcome of these primary issues. Whereas, all other considerations, ethical or human or
transitory, trivial and short-lived.

Islamic economic system is not some type of system in isolation. It is just a part of big plan.
Allah Kareem makes a plan for humanity and that plan envisages every sector, every sphere and
every dimensions of human life. The formal name of the plan of Allah Kareem is Islam. Islam
covers both individual aspects of life as well as collective aspects. It has detailed and
comprehensive policies about politics, trade, business, and economics. It guides how to live with
your family, with your neighbor, in society for the individual and it also asserts how nations
coexist peacefully in this world. It makes rules about international relations and foreign policies
on one side and it also make rules how to trade and business with each other. Whether it is
economic system, judicial system, legislative system, governance system, or some sort of social
system, everything is interconnected. Islam is an exhaustive system which covers all system of
life.

It is very pertinent that we shall understand what Islam says about real owner of Maal.
According to Islam, owner of wealth is the Allah Almighty. He is the One who is the master of
earths and skies and what is within these. He is the One who creates all resources and He is the
Lord of the universe. Everything belongs to Him. It is undisputed proposition in Islam that all
matter, all wealth, all resources belongs to Him. Man has just the custodian of these resources
and he is the usufruct of these resources and wealth that originally belongs to Allah. Man is the
usufruct of resources in typical sense because he enjoys the use and fruits of these resources
without paying any considerations. But the contract between man as usufruct and Allah as the
owner has on implicit consideration. Man acknowledges the Lordship of Allah and promises that
he uses these resources as He ordains. Therefore, this contract stipulates that whatever man has,
he has to use it with the guidelines given by the Master of the universe.

Islam stands for peace and tranquility. It is a religion which always emphasis on equity,
brotherhood, and justice. In all sphere of life, whether individual or collective, it has a balance
approach. Basically, Islam sees this world as transitory place where everyone is judged by his
actions. Allah Almighty distributes resources and opportunities among human beings with a
purpose, some have more resources and some have less, some have very favorable environment
to earn wealth and some have hostile environment even to earn basic necessities of life. Allah
wishes to judge us if we have ample resources, how we use these resources, do we care about
less fortunate people, what methods we employ to earn this wealth and the like. Islam gives
humanity far greater freedom to earn and enjoy wealth. It even equalize earning pursuits to
‘Ibadat’. However, it forbids somethings and declare them ‘Haram’, it stops the believers not to
produce those things which are impermissible, it also allows the techniques of production choice
to people.

Islam categorically declares that what you have from permissible sources is yours, what you
earned from permissible means is yours and as an owner you have liberty to spend and enjoy
from it. However, your ownership is not unrestricted, in legal sense you are the owner, but
technically and factually, the real owner is Allah Almighty. He says that on your hard-earned
wealth from permissible sources, there is a share to needy, poor, orphans and less fortunate
people. Your clean wealth is no more clean if your neighbor sleep hungry, your pure and
permissible spending is not more save you the anger of Allah if you do not share a part of it with
the poor.
Islam economic system is based on ‘Adal’, that is justice, ‘Masawat’ , that is equity and
‘Akhwut’, that is brotherhood. It is quite different from other economic system due to its overall
ideology. On one hand it is allowed the people to use, enjoy, and dispose the wealth at will. On
the other hand, it creates certain restrictions on where to use, how to enjoy, and on what terms
the exchange and trade be made. Islam allows and endorses government role in managing and
directing and organizing the economic activities and providing a conducive environment for
businesses and investors. In contrast to socialism, Islam shall not give an unlimited and
unrestricted power and access to personal property and wealth of common people.

Islamic economic system is an all-encompassing and comprehensive system. As in traditional

economic system, in this system, government plays its role in trade, commerce and economic
activities. Government plays its role through its fiscal and monetary policies. However in
Islamic economic system, government role is not of planning and directing but of monitoring and
encouraging the businesses and to ensure that people exert their free will in business
transactions. Government should employ these policies to provide conducive business and
investment environment. Government should ensure the supply and smooth working of
infrastructure facilities and utilities. Government should ensure that everyone shall have decent
employment opportunities according to their education and skills.

In Islamic economic system, government shall not regulate the prices of goods and services but
leave the prices of goods and services to the market forces of demand and supply. Islamic
economic system, acknowledges that it is neither practical nor feasible that government should
set prices of goods and services and set a profit margin for producers and investors. In normal
circumstances, government should not interfere the prices and profits in the markets. However in
some special circumstances, as in wars and pandemics, when total market conditions are no
longer work efficiently; government has to take responsibility of the economy. It restores the
confidence of the businesses and ensures that normal business and economic environment be
restored at earliest. Government at abnormal and unusual situations, bail out businesses and
banks when it perceives that bankruptcies and failures may adversely affects the consumers’
confidence.

Islamic economic system has all the features that purge the economy from the evils of laissez fair
and socialism. It has workable solution to the unemployment, inflation, recession and stagnation,
poverty and inequality, concentration of wealth and unequal distribution of wealth. In all forms
of business and in each and every transaction, it is free from interest, uncertainty, and gambling.
It is based on assets and disown in all possible ways interest, which is devil armor to make poor
remain in the vicious circle of poverty and makes rich become richer. It is based on sharing of
profit and risk. Above all, it is based on brotherhood and participation. In Islam, business and
worship are not two distinct subjects, but two things for the sake of getting same thing, i.e., the
blessings of Allah Almighty.