Comparison and Islamic goals

Islamic economic system in comparison to socialism &

Economic role of an Islamic state

Darab Babar

Emaan Fatima

Hania Zaidi

Nadia Iqbal

Lahore School of Economics

Comparison and Islamic goals

Abstract This paper articulates the Islamic economic system in comparison to the socialist system, socialist goals being government ownership of all resources and fairness for all working people. Meanwhile Islamic goals differ in that justice and fairness is given in every economic sphere. The comparison of the two shows that Islam also includes morals and ethical values. The policies and goals of Iran and China are briefly mentioned to show a contrast between Islamic economic system and a socialist economic system. The main economic role of an Islamic country is to provide the basic necessities of life to Muslims and the role of an Islamic country has been exemplified.

Comparison and Islamic goals

An economic

system is

the

organization

of production,

allocation

of

economic

inputs, distribution of economic outputs,

and consumption of goods and services in an

economy. On the other hand, it is the set of values by which problems of economics are addressed, such as the economic problem of scarcity through allocation of finite productive resources

An economic system is composed of people and institutions, including their relationships to productive resources. Examples of modern economic systems

include capitalist systems, socialist systems, and mixed economies.

In socialist system the government, not private enterprise, controls the major means of production. Instead of an auto company being owned by an individual or stock holders, the government owns the company. Instead of a company deciding how many cars they can sell, and then producing that many, the government decides how many to manufacture, what price to charge and keeps any profit for the government. The philosophy is that everyone should share as equally as possible in the wealth of the society and no one should be extremely rich nor extremely poor. In short the means of production, distribution and exchange are owned by the state. It is a transitional stage in the development of a society from capitalism to communism, and is characterized by the distribution of income according to work rather than need.

Distinct features of socialism, briefly, include : Public or state ownership of all means of production, regulated prices, Social Security and welfare distribution and exchange and

Comparison and Islamic goals

abolition of private property; economic equality and provision of basic necessities of life for every citizen; materialism and emphasis on economic factors; authoritarian state and dictatorship of working class, etc.

Islam, on the other hand, believes in justice and fairness in the economic field. According to it, the man is Gods vicegerent and he has been given limited rights of ownership of means of production. It recognizes intervention of state in the economic activity for the purpose of ensuring welfare of its citizens. Abolition of interest, institution of Sadaqat and Zakat, concept of lawful and unlawful, equitable distribution of wealth, prohibition of hoarding and stress on circulation of wealth, concern for well being of the poor are the distinctive features of the Islamic economic system.

Socialism and Islam are compared in respect of their basic economic perceptions as under: State ownership of all property and means of production, as mentioned earlier, is the most distinctive feature of socialist economy. Private ownership of property and of all the means of production, distribution and exchange is totally abolished. Land, factories, transport, communications, mines, etc are all placed under state control. This leads to management of these means of production by the establishment. Bureaucratic running of economic machinery results into inefficiency, low production and collapse since the government do not have the initiative, they follow strict rules and are not trained to run business.

Islam does not abolish private ownership of property and does not place all the means of production, distribution and exchange in the hands of the state. Although Islam maintains

Comparison and Islamic goals

public ownership of some means of production which are the common utility to the people, but it allows the rights of private ownership of majority of the means of production and distribution. Unlike socialism, Islam gives economic freedom to an individual who can earn wealth, own it and enjoy it within certain limits provided he does not disobey the teachings of Islam in the process of earning, owning and consuming.

Socialism, especially communism is completely based on a material basis.. Marx who was a revolutionary socialist wanted to explain every event in history on economic grounds. According to his view, origin of every activity of man lies in economic factors. Marx does not believe in religion which, according to him, is an invention by the conservative and conventional to keep the middle class under their control. Engels said : Matter is the only real thing in the world. The communists believe that human cause is just a expression of matter and soul has no independent existence of its own but is a product of matter. They believe that all the different stages of human progress are determined by the interaction of conflicting economic forces alone, therefore leaving no place for Gods will. So communism is a solely materialistic philosophy which ridicules religion, concept of God and all doubting all forms of spiritualism.

Comparison and Islamic goals

Islam is the perfect and final religion revealed by Lord of the universe for the guidance of mankind. Its primary aim is to ensure falah or well-being of humanity in this world and in the Hereafter. It does not give importance to matter only at the cost of spirit as does a secular ideology like socialism rather is brings a balance between the two.. Islam believes in the material as well as moral and spiritual welfare of its followers at micro and macro level. Followers of Islam believe in one God, in all the Prophets and Holy Scriptures, in the Hereafter, in the moral code and in the universal brotherhood of mankind. In an Islamic state there are no opposed classes conflicting with each other, neither all the events in history are decided by interchange of economic forces. Although, in Islam, welfare of society does not lie in economic prosperity but moral and spiritual development is equally important, however it does not discourage the search of material success through fair means.

Communism brings up a dictatorial state in which middle class is liquidated and strong dictatorship of the working class is customary. basic rights and civil liberties are flattened and man is left purely to the status of an economic animal. For the sake of food he is deprived of freedom of conscience, freedom to think, freedom to speak and freedom to act. In order to achieve economic objectives and in order to work the huge productive machine efficiently, the state becomes all powerful and establishes complete discipline. Thus the state under communism does not become weak, as predicted by Marx, rather it turns out to be a worst type of autocratic state.

Comparison and Islamic goals

Islam, on the other side has a different viewpoint, it believes in democratic form of government as the Quran, its revealed book, instructed upon Prophet Muhammad (PBUH) to conduct public affairs in discussion with his followers. Islam gives all the primary rights and civil liberties to the people living in the Islamic state. All the citizens have freedom of person, freedom of religion and conscience, freedom of expression, right to own and alienate property, right to protection of honor, right to criticize the government, right to equality before the law, right to education, right to medical care and above all right to basic human needs such as food, clothing and shelter. An Islamic state does not create any dictatorship of any class, neither it is a authoritarian state. Due to this the Islamic state does not shrink, but it becomes irreplaceable as it releases all the functions of a traditional state and modern welfare state.

Economic equality is another claim of communism although it has never been realized. In theory at least it is claimed that the rights of the individuals in the economic area are governed by the principles of equality. Every individual is provided with the necessaries of life according to his needs.

Islam, unlike communism, recognizes that there is no equality among human beings as regarding the economic means and possession of worldly wealth. The Quran considers these inequalities and disparities in the distribution of wealth as part of Divine economic order and, therefore, does not try to eliminate them by unnatural and artificial means. The existence of these economic differences, in fact, is a test by which Allah tries to test the human beings how they behave in good and bad situations. However, Islam does not allow the differences in possession of wealth to suppose to such an extent that concentration of

Comparison and Islamic goals

wealth takes place in few hands who live in luxury while a huge majority of people live a life of hopeless poverty, misery and deprivation. Islam does not bear the existence of the gap between the rich and the poor, but unlike socialism it does not believe in equal distribution of wealth. Actually Islam believes in fair, just and equitable distribution of wealth and in social justice. For ensuring equitable distribution, Islam has taken many steps such as institutions of Zakat and Sadaqat, laws of inheritance and gift, voluntary alms and charge of compulsory contributions in the form of taxes and duties. In addition to this it has abolished interest, prohibited unfair and unlawful means of earning wealth and banned hoarding of wealth so that wealth should not concentrate in few hands.

The Islamic economic system is first and foremost a `Capitalist` system. This means that it rests on the three known economic principles: private interest and gain as a target, competition as a means, and freedom as a requirement. The Islamic economic system is not, however, based on the European or American Capitalist economic principles, which in no way observes moral or ethical conceptions. The Islamic system obeys fully and absolutely the dictates of moral and ethical doctrines. The difference between the Islamic and the Capitalist economic system is thus a cardinal and fundamental one. While one takes notice of the ethical aspect, the other disregard it completely and there is all the difference in the world between such cognizance and denial.

Islamic republic is the name given to several states in the Muslim world including the Islamic Republics of Pakistan, Iran, Afghanistan, and Mauritania. Pakistan adopted the title under the constitution of 1956. Mauritania adopted it on 28 November 1958. Iran adopted it after the 1979. Despite the similar name the countries differ greatly in their governments and laws.

Comparison and Islamic goals

The term Islamic republic has come to mean several different things, some differing to others. To those Muslim religious leaders in the Middle East and Africa who advocate it, an Islamic Republic is a state under a form of Islamic economic government. They see it as a compromise between a purely Islamic Caliphate, and material nationalism and republicanism. In their conception of the Islamic republic, the state may not be a monarchy as many Middle Eastern states are presently. In other cases, it is merely a symbol of cultural identity, as was the case when Pakistan adopted the title. In fact many argue that an Islamic Republic strikes a middle path between a completely secular and Orthodox Islamic system of government. An Islamic state is a type of government, in which the primary basis for government is Islamic religious law. From the early years of Islam, numerous governments have been founded as "Islamic", beginning most notably with the Caliphate.

In contrast to the Islamic economic system, a socialist country has the economic system in which all the Goods and services for consumption are distributed through markets, and distribution of income is based on the principle of individual merit and individual contribution. The resources are owned by the state and the state decides how to allocate them. A socialist economy is based upon the principle of welfare of the people. As opposed to capitalism, a socialist economic system is based upon the principle that economic activities should be undertaken so that people would be able to use goods produced thereof, instead of employing the production for profit. Many economic philosophers had previously refused to believe in this system as a legitimate one, but countries with socialist economic system, have proved the importance and success of the element of socialism in the governance of any economy. The dominating red flag of socialism and communism was often wrongfully associated with negative consequences. However, there are several success stories of socialism that can be told. The

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people's Republic of China is a prominent success stories of socialism. Though socialism has indeed given rise to communism, there are several aspects of socialism that have proved to be successful in the past. Chinas Five Year Plans of economic planning is one of the best socialist policies that found success not only in China but is widely used by many other nations. A comparison of a socialist country and Islamic economical country can be made, Iran was the center of a great empire of the ancient world and remained a monarchy until the Islamic revolution of 1979 and the establishment of the Islamic Republic of Iran. The goals of the country are very much the same of country which wants to prosper economically as well as morally. In March 1989, the government instituted a new 5-year plan for economic development, which loosened state control and allowed Iranians greater latitude in accessing foreign capital. economic policy, and Iran fell short of the plan's goals. Economic growth was further hindered by a decrease in oil revenues in 1991 and growing external debt.

Unemployment, a major problem even before the revolution, has continued to plague Iran. However, unemployment statistics only tell part of the story--underemployment continues to affect a large portion of Irans young, educated workforce. Although Irans poorer, rural population initially enjoyed a psychological boost from the attention given them by the new Islamic government, they are only marginally better off in economic terms. The government has made some progress on rural development, including electrification, road building, and increased access to education, but Iran still suffers from inefficiencies related to agricultural land usage that are politically difficult to reconcile. The agriculture sector still suffers from shortages of capital, raw materials, and equipment--problems that date back to the 1980-1988 Iran-Iraq war.

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Although Islam guarantees the right to private ownership, banks and some industries-including the petroleum, transportation, utilities, and mining sectors--were nationalized after the revolution. Under President Rafsanjani, Iran first began to pursue some privatization through its nascent equities markets. However, the industrial sector, plagued by low labor productivity and shortages of raw materials and spare parts, remains uncompetitive against foreign imports. In China, the market element has expanded gradually since the start of the agricultural reforms in 1979 and the introduction of Urban reforms in 1984. In 1992 China publicly stated that its goal is a socialist market economy with Chinese Characteristics. Though China has successfully expanded the scope of the market, socialist (communist) control of factors remains very important. An understanding of these elements is essential to an understanding of the economic performance of China. The paper starts by giving a stylised version of Chinas economy in terms of the mix of socialist and market elements. This leads to an explanation of the growth performance of the Chinese economy and appropriate lessons for other countries, particularly non-socialist ones. The key difference is market based allocations versus centrally planned allocations.

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A state is an institution that has powers to enforce its will. A state makes sure that the people living within it are leading safe, peaceful, pleasant and prosperous lives and are being dealt with in a just and equitable manner.

Islam is not just a list of beliefs and ideologies but its a complete code of life. This code of life is not only the key to welfare and success in this world but also in the hereafter. Islam has a plan for all fields of family living, education and training, business and economy, beliefs and worships and within it a model of human thought and character. To implement this plan, Islam uses the powers of the state. The Islamic State is very different from the ordinary state. In an Islamic State the role of the state is not just limited to law and order and it is not completely oblivious to the private affairs of its people either. Nor does the state have the right to interfere in all matters of its people, take their privacy away from them and curtail freedom. Islam has always taught the concept of moderation and hence the state takes a moderate course as well. It does not leave an individual free to go astray and neither does it put the individual under any kind of shackles. Islam establishes a harmonious relation between individual and the state where both work for each others betterment and their ideas follow a similar pattern. The state is able to create a favourable environment for the individual to work in while the individual uses this opportunity use his or her maximum potential and work towards strengthening the state. All this is done in complete accordance to the will of Allah. The rules and regulations laid down by Him act as a guiding light and guide the Islamic State to welfare and success.

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The Sovereign of the Islamic State is Allah. The state can only be run under the rules provided by him. His supreme will is the law. We humans as vicegerents of Allah are to make sure that all decisions in the state are taken according to His will. Any law that does not conform to the divine made laws cannot be enforced. The two most important sources of the will of Allah are the Quran and the Holy Prophets sunnah. Before making any important decisions, the state is to refer to these sources. The state should only be run by people who are knowledgeable and who work not only for the fulfillment of their selfish interests but for all people living within that state.

The aim of the Islamic state is make sure that an Islamic way of life is enforced where there is justice and equality for all people, where people have full access to all economic resources, where freedom of thought is encouraged and people are provided with full economic security. Such a state is strengthened by the four pillars of Islam. The state in return also needs to strengthen and to fortify these pillars. This is a basic function of the state.

Salat is a very important pillar of Islam. It establishes a bond a person and Allah. The person feels like he is communicating with Allah. Such a bond develops a person morally and spiritually as it automatically puts him or her on the path of righteousness. The does not abandon his morals in all his affairs and uses honesty, trust and truth as his guiding principles. Such a bond all diminishes the craving of power, wealth and need and hence keeps the person away from all forbidden things. His soul is completely

purified of all that is wrong. Promotion of salat in an economic state encourages capital investment in mosques and their proper maintenance. These mosques act as a place of

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assistance to all poor people, strangers and travellers. At the same time the mosques also act as a centre for imparting Islamic education development of people. and the for the spiritual and moral

Where Namaz establishes a bond between man and Allah, zakat establishes a bond between man and man. Muslims donate a proportion of their income to the poor which fosters brotherhood and magnanimity within a the society. Zakat generates economic good even if its being given and taken at an individual level. The Islamic state uses its power to collect zakat at a collective level according to the laws of shariat and distribute it to those who need it.

Zakat removes the problem the of inequality in income distribution, a problem which is faced by many countries today. Unlike taxes, it is not a temporary device people can escape from but it is permanent as it is obligatory upon every Muslim who earns a certain level of income. Its sets off the circulation of wealth and prevents hoarding in a society. With circulation of wealth the aggregate demand increases and hence production increases which generates employment opportunities for the people. It also creates employment opportunities for those people who are appointed by the government as zakat collectors. Zakat can also be given to help out countries in a time of natural disasters or for the propagation of Islam and for jihad. It increases the purchasing power of poor people and survival for them becomes much easier in times of inflation. Hence zakat acts as an automatic stabiliser and is an important institution of the Islamic state.

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For true welfare and prosperity promotion of good is necessary. It is the duty of an Islamic state to use its power for the promotion of good so that a just, prosperous and peaceful society may come into being. It is necessary for economic growth.

It is the first and foremost duty of the Islamic state to relieve its masses of poverty and hunger and to make them economically stable. Its the role of an Islamic state to make its economy prosper by ruling it according to the laws of Shariah for maximum growth.

The following responsibilities have been laid upon the state:

It is the role of an Islamic state to provide basic necessities of life regardless whether the inhabitant is Muslim or Non-Muslim. It is the duty of the state to provide every being with proper shelter, food, clothing, clean water and education to free economic burden of a society and promote growth. The state should also take on the responsibility of providing a decent and healthy environment for workers, employees or travelers.

Enterprise plays a leading role in production. The supplier of this factor is called entrepreneur or organizer. Enterprise is also called organization. The whole job of organization, planning and managing of business is called enterprise. This is necessary for economic growth, construction, development and management.

The state can also promote and accelerate the process of economic development by means of fiscal, monetary and commercial policies.

Equitable distribution of wealth is imperative for the stability of the state as it eliminates the class stereotypes of rich and poor and promotes equality which is essential for a states

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economic achievements and peace, prosperity, brotherhood and fraternity which are the fundamental rules of Islam. This can be done by enforcing the laws of Zakat and Ushr and the law of Inheritance. Instituting measures of inducement and levying taxes ensure steady distribution of wealth and prevent hoarding of money in the hands of a few.

The greatest challenge which the modern Muslim states face today is how to eliminate interest from their economies particularly from the banking sector. For the last three decades very serious efforts are being made to meet this challenge. Islamic institutions, universities, advisory bodies are making research and studies. Many commissions and committees have been setup by the government of Islamic countries to study various sectors of their economy specially finance, banking and insurance and furnish reports suggesting how to eliminate interest in order to Islamize the economy.

The term labour in Economics is used in a very wide sense. Any work whether manual or mental which is undertaken for a monetary consideration is called labour. Any work done for the sake of pleasure and pastime only having no consideration of any reward or compensation is not labour. According to Marshall, any exertion of mind and body undergone partly or wholly with a view to some good other than the pleasure derived directly from work, is called labour. Labour in this sense includes the very highest professional skill of all kinds as well as the labour of a mass of unskilled workers. Thus it includes labour of highly educated professionals like scientists, engineers, doctors, economists, professors, lawyers, judges, accountants, diplomats, administrators, as well as that of ordinary workers in factories, agricultural farms, government departments, private sector, etc. An Islamic State ensures full employment and proper wages to such labor at all times.

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It is the duty of an Islamic state to provide social security and justice as well as law and order. A civilized society is one which is raised on the basis of morals and justice, it is only then that the full potential of a society is seen. Security of life and protection of property and honour of all men, women and children are the factors which contribute towards a healthy environment where the economy can prosper peacefully. Maintenance of law and order is extremely important for the safety of our economy and can be achieved by a just judicial system and police force.

Economic system of Islam aims at material as well as moral development of the Muslim community. It achieves this objective through its system of taxation and fiscal management particularly through Zakat.

Zakat discourages hoarding of wealth and encourages its circulation. Those persons who possess hoarded wealth know that if they keep it like that, it would be consumed by Zakat. So they would not keep it lying idle, rather they would per force bring it into circulation by investing or spending it. Thus the consumption and investment would have multiplier effect on the growth of the national income. Moreover, taxes like Zakat are collected from the rich and returned to the poor and thus the purchasing power of the poor is strengthened. The poor people now having purchasing power in their hands will demand more goods. The industrialists would produce more in order to meet the increasing demand. Thus the increase in demand and supply will encourage industrialization and thereby expand the scope of employment in the country. In this way, the human and material resources of the country would be fully exploited and national income would grow rapidly. The Quran perhaps refers to this situation when it compares usury and Zakat and pronounces: That which ye give in usury in order that it may increase on (other)

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peoples property hath no increase with Allah; but that which ye give in charity, seeking Allahs countenance, hath increase manifold (30 : 39).

The entire Economic system in an Islamic State is based on morality which relies more on education, counseling means of moral instruction and training and the public opinion of righteous people rather than a legal force.

Islam has strictly prohibited all vices that man is often tempted to commit. All unlawful acts of evil are prohibited that bring about corruption and disgrace to an economy rather than a boost in its welfare.

An example of an Islamic state is Iraq. Its constitution is build around Islamic principles. With Iraq, people of every race and religion have full freedom to practice their religion freely. The worship places of all these people are protected. The Revolutionary command council is the supreme institution in the stare, which assumed the responsibility to the realise the public will of the people, by removing the authority from the reactionary, individual, and corruptive regime, and returning it to the people. The National Council is composed of the Peoples representatives from various political, economic and social sectors. Its formation, membership, work procedures, and its jurisdiction are determined by a special law, called the National Council Law. The constitution of Iraq acknowledges the national rights of legitimate rights of all minorities within the Iraqi unity. the Kurdish people and the

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The charging of interest in all state banks of Iran is prohibited. Iran also takes part in distribution of charity in form of zakat or other institutions among the poor. Despite these measures, Iran still hasnt stayed away from corruption which led to great inequality in income distribution and has greatly adversely affected its economy.

A state run by the rules and regulations of Allah will always be a place of justice, equality and prosperity. There will be equal treatment not only between the rich and the poor but also between the majorities and minorities. However any sort of corruption in the system, any defiance of the rules of Allah will lead to a downfall of the economy as has been seen in the example of Iraq.

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References

Abdul, H & Mohammad, M. (1989) Economic role of an Islamic state, Islamic economy.

Abdullah, M., (1990). Islamic Economics. Retrieved from: www.islamandeconomy.org

Chaudhry,M. (1999). Fundamentals of Islamic Economic System. Lahore: Burhan Education and Welfare Trust.

Mahmud, Q. (2001) Irans economic system. Retrieved from : www.scribd.com