Islamic vs Conventional Economics – Role of State

In any economic system, the role of state or the government is undeniable. However, the degree of state’s role in affecting the economy varies.

In capitalism, government plays very minimal roles in the economy such as maintaining law and order, defense, general health and providing public goods. Government also intervenes in the case of market imperfection or instability. In other words, the decision making process is decentralized. In fact, government intervention is seen as as a form of market distortion in many cases.

On the other hand, state plays the central role in socialism. The central planning unit decides what, how, when and for whom to produce. Here, the decision making process is very centralized

In the Islamic economic system, government is part of the integrated economic system of Islam. These are a lot of verses of Qur’an and hadith that emphasize on the importance of leader (state) in the Islamic system.
Allah says in al-Qur’an:

"O you who believe! Obey God and obey the Messenger and those from among you who are in charge of your affairs; and if you differ over any matter, refer it to God and the Messenger, if you do believe in God and the last day." (4:59)

As far as the economy is concerned, Islam prefers market as a mechanism to allocate resources and to distribute wealth. However, market alone is insufficient to achieve prosperous and fair level of well being. Therefore, the role of state is crucial to regulate, supergvise and complement the market.

Some of the essential economic functions of the Islamic state are:

o To eradicate poverty by creating conditions for full employment and a sustainable rate of growth

o To ensure stability in the real value of money (inflation controlling)

o To maintain law and order

o To ensure social and economic justice

o To ensure social security

o To foster equitable distribution of income and wealth

o To harmonize international relation

o To safeguard national sovereignty

It is also important to note that the decision makings in Islam should be based on shura (consultation). The emphasize is evident from the following verses:

o "(Believers are those) who run their affairs by consultation among themselves." (42:38)

o "And consult them (O Prophet) in matters (of public concern)." (3:159)

o "And let there among you be a group of people who invite to all that is good, who enjoin what is right and forbid what is wrong." (3:104)
Apart from shura, another important institution is known as al-hisbah which fundamentally functions as the body to enjoin good and forbid evil in the system.