Thursday, July 21, 2005

Islamic vs Conventional Economics – Addressing Property Ownership

The issue on ownership right is always critical in any economic system. This is because wealth and well-being of the people, in term of material possession depend on how the economic system allocates the resources, rewards the factors of production and redistributes wealth created from the economic activities.

Briefly, we can say that capitalism emphasizes on private property ownership which gives freedom to economic agents to accumulate material wealth with loose intervention from the authority. Interestingly, the system has successfully created list of names of the richest men in the world and at the same time, also faces problem of severe poverty and widening income disparity.

Socialism, on the other side, confiscates the freedom of individual to own property. Basically, the state has full control in term of wealth creation, management and distribution. History has proven how Marx’s advocacy of equal distribution of wealth subtly, had been the cause and catalyst leading to the collapse of the system.

From an Islamic point of view, as far as property ownership is concerned, visions on the matter have been outlined clearly.

1. Fundamentally, absolute ownership exclusively belongs to Allah AWT (Qur’an, 1:2). This means, everything in the universe are all owned by Allah.

2. Man is given the responsibility as trustee to manage this world (Qur’an 33:72). Our possessions are relative and conditional.

3. Because of the responsibilities given, man is accountable for all possessions in this world before Allah, the Almighty in the hereafter (Qur’an 84:7-15).

4. Islam recognizes labor as a legitimate basis of ownership (Qur’an 4:32). At the same time, need also is another legitimate basis of ownership. For example, in the case of poverty.

5. Public and private property ownerships are both allowed by Islam.

Islam promotes the well-being of the people. Well-being here does not simply measured based on material possessions, but it also caters the spiritual and moral aspects. Hence, the Islamic economic system ensures freedom for mankind to progress within a guided parameter which suits the human nature (fitrah). At the same time, Islam also takes care of the welfare of the unfortunate people by many social security schemes in the religion which some are made obligatory (i.e. zakat) and some others are very recommended (i.e. sadaqah).

Tuesday, July 19, 2005

Islamic vs Conventional Economics - Why different definitions?

In the earlier part of the discussion, we have discussed briefly on the definition of Islamic economics. Apparently, from those definitions, there are some disagreements on basic elements in the definition of economics as given in the standard conventional textbooks.

Basically, economics is defined as a social science that studies how human beings use the limited resources to satisfy his unlimited wants. Disagreement exists when among the Muslim scholars; there are few opinions on the concept of scarcity (limited resources).

On one side, there are those who reject the idea of scarcity, claiming that scarcity is non-existence. They believe that Allah has created resources in abundance as mentioned in al-Qur’an in 4:100, 27:16, 108:1 – just to mention few. On the other side, there are scholars who accept the concept of scarcity and argue that economics as a discipline cannot exist without this concept.

In between of these two opinions, there are scholars who argue that scarcity only exists in term of availability but there is no scarcity in term of existence. To put it differently, there is no absolute scarcity since Allah has provided everything in abundance (existence of resourceful world for mankind to live) and with due proportion (65:3). Scarcity, according to the argument, is a relative concept where one could argue that at certain time and at a certain place, there might be a problem of scarcity of certain resources. However, Allah has equipped mankind with knowledge that would enable him to overcome the problem. Knowledge, therefore, is the key to make the resources available for our utilization.

Apart from disagreements on the concept of scarcity, the idea of unlimited wants is also being reviewed critically by Muslim economists. As a Muslim, do we admit that our wants are unlimited? Is the concept of unlimited want and insatiable desire the same?

I would argue that the two are different. As a Muslim, first, I found that it is hard to accept the idea of unlimited wants. The logic is simple - given the limitations and weaknesses that we have to face in this life, automatically our wants are constrained by many factors. For example, if you like someone and want to marry him or her, there are possibilities that the person my reject you or already married.

Second, if we grouped our wants, we could have groupings such as shelter, food, cloth, transportation, entertainment, safety, recognition, and many more. However, the list could not be that long and at certain stage, we might scratch our head to think of what else do we want. From such groupings, the degree of wants could differ and this is where I would agree that wants are actually insatiable. Desire for more is always there in human nature and this is also mentioned in the meaning of a hadith: “If man had two valleys of gold, he will seek a third” (Bukhari).

For instance, when a person is poor, he might live in a small house. But, when he is richer, he wants a bigger house. In the end, the crux is to have a shelter and due to insatiable wants, degree for a better shelter would always exist in mankind.

As we had discussed earlier, shari’ah limits our freedom. As a Muslim, we must follow the shari’ah. The worships that we perform as a Muslim trained us to curb our desire and to channel it according to the will of God.

Hence, because of these disagreements on the basic elements of economics, Muslim economists have various ways to define Islamic economics

Friday, July 15, 2005

Islamic Economics vs. Conventional Economics

To compare Islamic economics with conventional economics (capitalism and socialism), we would critically evaluate both systems based on several common criteria. These criteria are selected because both systems have their own distinctive features in providing mechanism and solutions to the real-world problems. Hence, with the common criteria of comparison, it is hoped that we could clearly see the difference between Islamic economic system and the conventional economic system.

What are the criteria which we are going to use in our attempt to evaluate the two economic systems?

We found that Islamic economics and the conventional economics are different in term of these six criteria:

1. Definition of economics.
2. Ownership of property.
3. Role of government.
4. Incentive mechanism.
5. Organization of decision making.
6. Activities – consumption, production, distribution and exchange.

Tuesday, July 12, 2005

Maqasid as-Shari'ah

In developing Islamic economics in the modern context, ijtihad in many times is required. To derive ijtihad, we need clear understanding of the primary sources. Usul al-fiqh provides us the methodology to derive rulings from the sources of shari’ah.

Sometimes, there are no Quranic texts or hadith (nass) addressing certain issues. In this situation, scholars or researchers need maqasid as-shari’ah (the objectives of shari’ah) as a guidance.

Click here for explanations on maqasid as-shari’ah.

Thursday, July 07, 2005

Shari'ah, Fiqh and Usul al-Fiqh

From the above discussion on how to build model in Islamic economics, we can see the important role of shari’ah in shaping the Islamic economic system. To understand Islamic worldview and to establish visions on Islamic economics require deep understanding of Islam and its shari’at.

What is shari’ah? Shari’ah means path to the watering place; the clear path to be followed and the path which a believer has to track in order for him to obtain guidance in this world thus giving him true success in the hereafter. Shari’ah also refers to the commands, prohibitions, guidance and principles that Allah has addressed to mankind for them to follow in their conduct in this world. Only by obeying the shari’ah, one can enter the paradise (al-Jathiya, 45:18).

Basically, shari’ah covers the concepts of taufid (oneness of God), akhlaq (ethics and moral conduct) and fiqh (the practical shari’ah laws). Shari’ah makes a believer to be cautious at all time of his conduct in this world. This is because, for all of our actions, there are clear rulings of shari’ah in the form of obligatory, permissible, reprehensible, recommended and forbidden categories of actions.

Thus, in conducting our economic activities, the Islamic economic system is strictly being governed by the shari’ah. This does not mean that the Islamic economic system is lack of flexibility. Shari’ah is imposed upon mankind in order that they would be able to dynamically conduct their activities freely based on the limits and rules of the game which are prepared by the Creator of the Universe who knows best of His creations. The analogy could be seen in a football match where there are rules and regulations to be followed and those rules and regulations are not to restrict the game in a narrow sense but rather to make the game fun, fair and harmonious to everybody.

The first element of shari’ah is the concept of tauhid. One must accept by heart, toungue and body (through actions) that there is no other god but Allah; and Prophet Muhammad SAW is Allah’s Messenger. Without this confession, there is no eternal happiness (falah) for ones. One could be a wealthy person in this world, but if one rejects tauhid, he or she would remain forever in the hell fire (3:10, 3:116-117).

The second component of shari’ah is akhlaq. Akhlaq includes all the ethics and moral behaviors in life such as sincerity, benevolence, honesty, trustworthy and many more. All these are important in our economic activities. Only when the economic agents behave properly and follow the rules of the game, then the system could function smoothly.

Lastly, the third component of the shari’ah is fiqh. Fiqh literally means understanding and technically means the knowledge of practical shari’ah laws which are derived from the supporting evidences which include the primary sources of knowledge and the secondary sources of knowle,dge. Fiqh can be subdivided into muamalat, munakahat, jinayat, and ibadat which are all interconnected and cannot be seen separately in conducting our daily activities.

To derive fiqh, there is a methodology which is known as usul al-fiqh. In a simple word, we can say that usul al-fiqh is the knowledge of the principles and methods leading to the derivation of fiqh. Usull al-fiqh deals with the methods to interpret the Qur’an and hadith as well as the methods to derive ijtihad, qiyas and so on which involve the use of reasoning to derive the fiqh rulings.