Economic System Of Islam

COMPARATIVE ECONOMIC SYSTEMS

Economic System  An economic system is the method used by a society to produce and distribute goods and services.

What determines which type of economy a country has?  The type of economy is determined by the extent of government involvement in economic decision making. COPY ALL

Traditional Economy 1.Allocation of resources is based on rituals, habits, or customs 2.Roles are defined by family 3.People work together for the common good 4.Little individual choice

Free Market Economy 1. Private ownership of property/resources 1. Private ownership of property/resources 2.Business decisions are driven by the desire to earn a profit 3.There is a great deal of competition. 4.Consumers have many choices

Mixed Economy 1.Individuals and businesses as decision makers for the private sector 2.Government as decision maker for the public sector. 3.A greater government role than in a free market econom 4.Most common economic system today Examples: England, Germany, Russia

Command Economy 1.Central ownership of property/resource 2.Centrally planned economy 3.Lack of consumer choice 3.Lack of consumer choice Example: Cuba and Former Soviet Union

Economic Systems PureMarket Pure Command

Economic Systems PureMarket Pure Command Russia51% Germany71% United Kingdom 79%

Economic Systems PureMarket Pure Command Cuba28% Brazil57% Canada81%

Economic Systems PureMarket Pure Command Australia83%

Features Free Market Economy 1.Economic Freedom: individuals have the right to choose 2.Competition: more than one producer of good/services insures choice 3.Private Property: individuals have the right to own their own property, including business

Features of American Free Market Economy (cont) 4.Self-Interest: individuals make decisions based on what is best for them Voluntary Exchange: individuals may freely buy and sell goods Voluntary Exchange: individuals may freely buy and sell goods 5.Profit Motive: individuals are driven by a desire to profit (make money)

Features Command Economy 1.Government regulation of some business practices Wages, labor hours,Wages, labor hours, safety practice. 2.Government limits certain choices Cannot buy or produce certain goods/servicesCannot buy or produce certain goods/services 3.Government provides aid to the needy Medicare, Medicaid, welfareMedicare, Medicaid, welfare

Continuum of Economic Systems Command Economy Communism On the far left Market Economy Capitalism On the far right Socialism Left of center but right of communism

Capitalism  An economic system characterized by private ownership of businesses and marketplace competition  The government is concerned about its people and takes care of those who cannot care for themselves  The political system is a democracy with leaders elected by the people  The United States and Japan

Socialism  Increased government involvement in people’s lives and the economy  The main goal is to keep prices low for all people and to provide employment for many  The government runs key industries and makes economic decisions  More social services for all and free or low cost medical care  Canada, Germany, Sweden,

Communism  The government runs everything (Totalitarian government)  Only one political party, the Communist party, runs the government  All people able to work are assigned jobs – there is virtually no unemployment  The government assigns housing, schools, and occupations  There is little to no economic freedom  Cuba, North Korea, and China are examples

Principles of Islamic economic system

Devine Economic Plan Malik 2 وَهُوَ الَّذِي جَعَلَكُمْ خَلاَئِفَ الأَرْضِ وَرَفَعَ بَعْضَكُمْ فَوْقَ بَعْضٍ دَرَجَاتٍ لِّيَبْلُوَكُمْ فِي مَا آتَاكُمْ And Allah has made you successors in the land and raised some of you above others in different levels, to test you for what is given to you. (Araf 165) فَإِذَا مَسَّ الْإِنسَانَ ضُرٌّ دَعَانَا ثُمَّ إِذَا خَوَّلْنَاهُ نِعْمَةً مِّنَّا قَالَ إِنَّمَا أُوتِيتُهُ عَلَى عِلْمٍ بَلْ هِيَ فِتْنَةٌ وَلَكِنَّ أَكْثَرَهُمْ لَا يَعْلَمُونَ When a man gets in trouble he cries for help of Allah, and when he is granted favors, he says “I have got it due to my knowledge”. In fact wealth is a trial but most of people do not know. (Zumr 49) Not related to efforts Zumr 49 Wealth is a test Anam 165/Nahal 71 وَاللّهُ فَضَّلَ بَعْضَكُمْ عَلَى بَعْضٍ فِي الْرِّزْقِ And Allah has made some of you excel others in wealth. (Nahal 71)

Output/Resource (قوت) Outcome (مقصد) Work (كام) Mission of Islam (اسلام كا نصب العين) Human Welfare انسانيت كى فلاح Spiritual Power جانى جهاد Economic Power ما لى جهاد Piety نفس كا جهاد Unity اجتمائى جهاد Prayer صلاة Charity زكاة و انفاق Fasting روزه Hajj حج Social System معاشرتى نظام Economic System معاشى نظام Political System سياسى نظام Spiritual System روحانى نظام

Economic Principles of Islam Earning Side آمدنى State (حكومت) Distribution سدباب تكاثر Individual (فرد) Frugality & Sharing عفو Usage Side مصارف (Tauba 34-35) وَالَّذِينَ يَكْنِزُونَ الذَّهَبَ وَالْفِضَّةَ وَلاَ يُنفِقُونَهَا فِي سَبِيلِ اللّهِ فَبَشِّرْهُم بِعَذَابٍ أَلِيمٍ (34) يَوْمَ يُحْمَى عَلَيْهَا فِي نَارِ جَهَنَّمَ فَتُكْوَى بِهَا جِبَاهُهُمْ وَجُنوبُهُمْ وَظُهُورُهُمْ هَذَا مَا كَنَزْتُمْ لأَنفُسِكُمْ فَذُوقُواْ مَا كُنتُمْ تَكْنِزُونَ But if you do not stop taking usury, then be ready for war with Allah and His Messenger (Baqra 279) فَإِن لَّمْ تَفْعَلُواْ فَأْذَنُواْ بِحَرْبٍ مِّنَ اللّهِ وَرَسُولِهِ َأَحَلَّ اللّهُ الْبَيْعَ وَحَرَّمَ الرِّبَا Allah has allowed business and forbidden usury (Baqra 275) They ask you how much they should spend; Say: "What is beyond your needs." Thus Allah makes clear to you His revelations: In order that you may ponder. (Baqra 219) وَيَسْأَلُونَكَ مَاذَا يُنفِقُونَ قُلِ الْعَفْوَ كَذَلِكَ يُبيِّنُ اللّهُ لَكُمُ الآيَاتِ لَعَلَّكُمْ تَتَفَكَّرُونَ (Baqra 219) كَيْ لَا يَكُونَ دُولَةً بَيْنَ الْأَغْنِيَاء مِنكُمْ “… in order that wealth may not become confined to the rich amongst you”. (Hashar 7) Business بيع Usury ربا Falahi Nizam Istasali nizam Biological communities are highly efficient in energy capture and recycling, living exemplars of the motto, "Waste not, want not." Energy and materials are continuously recycled for use and reuse within and between cells, organisms, and species with a minimum of loss, as the wastes of one become the resources of another. Frugality and sharing are the secret of life's rich abundance, a product of its ability to capture, use, store, and share available material and energy with extraordinary efficiency As suggested by Michael Albert in “Participatory Economics” there are the 4 Maxims of wealth distribution in a just and equitable system. 1. DISTRIBUTIVE MAXIM 1. Payment according to personal contribution and the contribution of property owned. 2. DISTRIBUTIVE MAXIM 2. Payment according to personal contribution. 3. DISTRIBUTIVE MAXIM 3. Payment according to effort. 4. DISTRIBUTIVE MAXIM 4. Payment according to need.

 Primary focus of Islam is on the spiritual System (test of Taqwa/free will)  Legal system provides only safety valve for safeguarding basic human rights  Keeping excess wealth and generating income from it is allowed legally but spiritually is it detested. Dimensions of Islamic Economic System Legal System Limited Capitalism (surplus wealth for personal use) Spiritual System Spiritual Socialism (human rights on surplus wealth) Treatment system (Repair/Maintenance) Restricts luxury & wealth accumulation Immune System (Regulatory) Channels excess wealth to needy Inter-dependent & Inter-connected (Synthesis) Restricting evils/crimes Elevating ethical/ spiritual values

Principle of Islamic Economic System  Riba Free Economy  It is forbidden to gain property or wealth by fraud, deceit, theft, or other falsehoods  Hateful for a guardian to take from an orphan's property  Forbidden are earnings from gambling, lotteries  Concept of Halal and Harram (Rizq-e-Halal)  No Exploitation  Unique Marketing

Cont…   It is unlawful to hoard food and other basic necessities.   Responsible in spending money (extravagance)   No begging   encouraged to give constantly in charity   Earning and expenditure by Halal means.   Right to property and individual liberty   System of Zakah (welfare contribution)   Law of Inheritance (Mirath)

Money Labor + Capital (Entrepreneurship) Land Middlemen Machine Partnership (Labor + Capital) Status of Sources of Income Ideal Permitted Restricted Prohibited

Voluntary Charity (انفاق) Entire wealth in access of basic needs Inheritance (وراثت) Strictly in accordance with injunction of Quran Zakat (زكاة) Payable on wealth of individual Taxes (تيكس) Taxes imposed by state to provide basic needs of its citizens Compulsory واجبات Marriage payment and penalties on certain faults % of contribution Distribution Channels (عبادت)

Stock Exchange Transactions Trade* Risk capital investment at profit/loss + Work + Public benefit *Limited liability is an exclusion Public Benefits Does the activity lead to employment/resource generation or brings harm to the public interest Interest based Load taken/given at interest with security against fully insured property (margin financing) Gambling Profit/loss without efforts at the expense of someone else 1.Limited liability concept in anti-Islam 2.Primary purpose of the transaction is to make quick money rather than long term investment 3.Mostly investment is made from loan taken from banks or brokers 4.It is a gambling business (gain at the loss of someone else 5.Short term focus leads to extreme damage of public interest.

Property business (Plots) Trade* Risk capital investment at profit/loss + Work + Public benefit *Limited liability is an exclusion Public Benefits Does the activity lead to employment/resource generation or brings harm to the public interest Interest based Loan taken/given at interest with security against fully insured property (margin financing) Gambling Profit/loss without efforts at the expense of someone else As per Islamic law house is right of every Muslim. Anyone trying to grab the property for the purpose of trade/profit making is haram because it is a gamble (profit/loss at the expense of others) and it is also not a business/trade as it does not lead to any fruitful business activity which entails hardwork. As a consequence of profit making price of the property rise and takes it out of the reach of legitimate buyer for building his house

State Financial Crime: Inflation ,006 1,479 2,172 3,192 4, ,000 2,000 3,000 4,000 5, An item costing Rs 100 now costs Rs 4,690 in year inflation rate Year Value “Rs”

Limited Liability Corporation: An ingenious device for obtaining individual profit without individual responsibility. Moto: Profit, growth & Competition and amorality, dehumanization, opposition to nature. لاَ يُكَلِّفُ اللّهُ نَفْسًا إِلاَّ وُسْعَهَا لَهَا مَا كَسَبَتْ وَعَلَيْهَا مَا اكْتَسَبَتْ Allah does not impose upon anyone a duty but to the extent of his ability; He gets reward for every good deed, and suffers for every ill that he earns. (Barea 286) وَلَا تَزِرُ وَازِرَةٌ وِزْرَ أُخْرَى وَإِن تَدْعُ مُثْقَلَةٌ إِلَى حِمْلِهَا لَا يُحْمَلْ مِنْهُ شَيْءٌ وَلَوْ كَانَ ذَا قُرْبَى Nor can a bearer of burdens bear another's burdens if one heavily laden should call another to (bear) his load. Not the least portion of it can be carried (by the other). Even though he be nearly related. (Fatir 18) Resources زرائ آمدنى Credit قرض Judges جج Law قانون Politicians سياست دان Jobs ملازمت Media ابلاغ Trade كاروبار Commerce تجارت Production بيداوار Corporate Capitalist Citizen (limited liability) (1886) Islam does not permit limitation of liability. Every individual is fully responsible for his deeds

1.Banks were created for taking public deposit and lending at interest and investment 2.Interest is against natural laws. 3.Banking was conceived in iniquity (against natural law) and was born in sin (for the benefit of rich). 4.An interest rate of zero means the end of the money & banking system. Does Islam allow any Banking System? 1.( And I sincerely believe with you, that banking establishments are more dangerous than standing armies; and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale Thomas Jefferson in a letter to John Taylor 28 May 1816, Writings (1984) New York: Literary Classics of the United State

 Hallal means of living  Distribution of entire excess wealth  Hardy any situation of Zakat  Simple lifestyle Moral (Height of spiritual living)  Hallal means of living  Pays Zakat and other compulsory dues  Charity (infaq) up to the level of Taqwa  Modest lifestyle Legal (Minimum threshold of living )  No distinction of hallal/harram  Does not care to pays Zakat/other dues  Charity for image building  Extravagant and luxurious lifestyle  Stinginess/wealth piling up Illegal (State of practical kufr) Three economic modes of Muslims

Cowardice Ignorance Tensions Fear Hunger Servitude Debt Threats Tyranny Savagery Cut-throat competition Self-centeredness Criminality Robbery Theft Racism Before (Savage Society) Exploitation Deprivation Intellect Compassion Care of kin Affection Sincerity Freedom Fortitude Munificence Zeal & Endeavor Piety Courage Happiness Justice Content Satisfaction Chastity Humility After (Natural Society) Harmony Non-contributory /Contributory Social Security Plan (Surplus Pool) Mirror view before/After Implementation

Summary of natural economic System of Islam 1.Islamic view is that “real economy” controls, and the money is only a “supportive function”. Protects labour/work. 2.Stop earning money through money and compels people to work and invest money in business ventures 3.Eliminates sources of unearned income (interest/speculation) 4.No protection to capital and uses wealth in real economic activities integrated with physical laws of nature. 5.Collect Zakat (wealth tax) no tax on income or consumption. 6.It is responsibility of individuals for meeting needs of poor and social welfare of society 7.State is responsible for meeting basic needs of citizens and taking administration/legal measure for checking concentration of wealth in few hands. 8.Business in Islam is not an grabbing the opportunity but a “Ibadah” covered under the ethos of Islamic principles of life.

وَآتِ ذَا الْقُرْبَى حَقَّهُ وَالْمِسْكِينَ وَابْنَ السَّبِيلِ وَلاَ تُبَذِّرْ تَبْذِيرًا (26) إِنَّ الْمُبَذِّرِينَ كَانُواْ إِخْوَانَ الشَّيَاطِينِ وَكَانَ الشَّيْطَانُ لِرَبِّهِ كَفُورًا ***** And give to the relatives due and to the needy and the wayfarer, and do not squander wastefully. Surely the squanderers are the fellows of the devils and the satan is ever ungrateful to his Lord. (Isra 26-27) Outcome of modern economic system Explosion of Over-utilization كثرت استمال Explosion of Over-production كثرت بيداوار Explosion of Over-wastage كثرت ضياع Explosion of Over-supply كثرت ترسيل Explosion of Debt سودى كاروبار كا جال Explosion of Competition اندهى مقابله بازى

Importance of Energy How Much Human Energy Is Contained in One Barrel of Oil? *** 1 Barrel of Oil = 5,800,000 BTUs ** 1 Barrel of Oil = 23,200 Hours of Human Work Output Human work cost of 1 barrel of oil Rate per hour= US$ 8/hour Total cost= $185,600 per barrel equivalent human work Switchover is possible only when the oil cost increases $185,600/barrel Or Rupees 70,000/Litre

Greatest Threat to Life: Food Scarcity from planting, irrigation, feeding and harvesting, through to processing, distribution and packaging. In addition, fossil fuels are essential in the construction and the repair of equipment and infrastructure needed to facilitate this industry, including farm machinery, processing facilities, storage, ships, trucks and roads Pesticides (Gas)

FROM THE CAVES, TO THE MOON, TO THE CAVES Richard C. Duncan, Ph.D. Institute on Energy and Man, June 27, 1996 Even if the entire mass of the earth were petroleum, it would be exhausted in 500 years at 5% increase in rate of consumption. For addition 100 year 157 earths would be required (current production is 10 Trillion Ton/year)

1. Pre Industrial Phase [c BC to 1765]  A - Tool making (c BC)  B - Fire used (c BC)  C - Noelithic agricultural revolution (c BC)  D - Watts steam engine of 1765 Industrial Phase ( )

2. Industrial Phase [1930 to 2025, estimated ]  F - Peak energy-use  G - Present energy-use  H - Per capita energy-use 37% of peak value

3. Post Industrial Phase [c and beyond ]  J, K, and L = Recurring future attempts at industrialization fail. Other scenarios are possible.  DENYING THE UNDENIABLE  On the whole, however, it is only out of pride or gross ignorance, or cowardice, that we refuse to see in the present the lineaments of times to come. -- Marguerite Yourcenar, 1951

فَكَأَيِّن مِّن قَرْيَةٍ أَهْلَكْنَاهَا وَهِيَ ظَالِمَةٌ فَهِيَ خَاوِيَةٌ عَلَى عُرُوشِهَا وَبِئْرٍ مُّعَطَّلَةٍ وَقَصْرٍ مَّشِيدٍ X How many populations have We destroyed, which were given to wrong- doing? They tumbled down on their roofs. And how many wells are lying idle and neglected, and castles lofty and well-built? (Hajj 45) X Story of Past Rebels “Tower of Babel” Period of Namrood (let us revolt) 2500 BC

4 What should we do?

War with Allah & Rasul Interest Economic Revenge (Qasas) Killing Political 100 Lashes Adultry Social Disliking/Curse of Allah various Moral ActionCrimeLevel     Penalties on various crimes

1. Limit growth and focus on wellbeing 2. Limit Debt & encourage entrepreneurs 3. Introduce zero rated debts 4. Impose Charge on money holding 5. Make speculation a criminal offence 6. Incentivise productive work and investment; 7. Tax Unearned Gains 8. Replace labor for energy use 9. Strengthen the social fabric of family and community 10. Lease land for living/business purposes Steps for healing the money system The money system is like a cancer that consumes its host and ultimately destroys itself Healing the Money System “David C. Korten”:

Action at personal level 1. 1.Adopt simple lifestyle (Resource conservation & sharing) 2. 2.Get out of interest/speculation based investments 3. 3.Fully utilize goods before replacement 4. 4.Eliminate moody craving for extravagant gadgetry 5. 5.Get rid of fashion (a bio-economic disease of the human mind ) 6. 6.Demand durable goods to be made still more durable by being designed so as to be repairable Get closer to the nature as possible 8. 8.Join hands to fight for reform at state level

Most frequent question is: Where is modern Islamic Economic System? Surprisingly, the Quran troughs the question back to us? Create it based on the guiding principles keeping in view needs and deeds of the society. Then keep on modifying it based on the emerging needs of the Humanity