Basically, incentive is anything that provides a motive for a particular course of action to be taken e.g. What drives people to work?
Incentives can be divided into three broad classes:
o Material/remunerative incentive – This exists when one can expect some form of material rewards in exchange for acting in a certain particular way.
o Moral incentive – This exists when a particular choice of action is regarded as the right thing to do, or admirable, or the failure to act in a certain way is condemned as indecent. A person acting on a moral incentive can expect a sense of self-esteem, and approval or admiration from the community. A person who acts against moral incentives can expect a sense of guilt, condemnation or even ostracism from the community.
o Coercive incentive exists when a person can expect failure to act in certain course of conducts will result in physical force being used against him/her e.g. imprisonment, confiscating property etc.
As far as capitalism is concerned, the economic system rewards people on the basis of their contributions in the economic activities (functional distribution). Here, material well-being is the motivating factor for people to work. Furthermore, the enormous freedom that bias towards private ownership in the system stimulates higher desire for material gains and consumerism which then, drive people to work hard to achieve those objectives..
While in socialism, state ownership of all factors of production and equality in the distribution of wealth and income requires proper moral incentive towards desirable behavior by appealing to the people’s responsibility to the society. Many times in the histories of socialism, coercive incentive was used for the communist party to fulfill its agenda.
In Islam, the incentive mechanism among others are driven by these motives:
o Pleasing Allah for the sake of getting His blessings. A person who achieves this level of iman would do anything even if he or she has to scarify his or her life.
o Heaven and hell are the ultimate place of getting rewards and punishments. We are given the freedom of choice to conduct our actions in this world but we must bear the consequences in the hereafter. All of our actions will be evaluated and judged by Allah in the hereafter.
o The people of the paradise are the successful servants of Allah. This manifests the ultimate meaning of falah.
o Good Muslim will always realize that any promising reward in the hereafter by Allah for any good deed is far more greater than any possible material reward in this world
o All good deeds in this world are considered as a form of worshipping if they are done correctly with sincere intention for Allah.
o There are a lot of verses and hadith that encourage Muslim to strive for excellence (al-Mulk:2, Ali-‘Imran:110)
o We must strive for excellence in this life because as Muslims, we are the role model to other mankind.
o Islam never prohibits material pursuit (al-Qasas:77)
o Apart from the material incentives, Muslim will be rewarded accordingly because:
- to give halal supplements (rizk) to one family is wajib as a nafaqah
- Muslim also must work to fulfill the obligations which require health financial position such as performing hajj and paying zakat
- 28:77
"But seek, with the (wealth) which Allah has bestowed on thee, the Home of the Hereafter, nor forget thy portion in this World: but do thou good, as Allah has been good to thee, and seek not (occasions for) mischief in the land: for Allah loves not those who do mischief."
- Abu Musa, may Allah be pleased with him, reported: The Messenger of Allah (may peace be upon him) said: Giving charity is obligatory upon each Muslim. It was asked: What do you say of him who does not find (the means) to do so? He said: Let him do manual work, thus doing benefit to himself and give charity. It was asked: What about one who does not have (the means) to do so? He said: Then let him assist the needy, the aggrieved. It was asked: What do you say of one who cannot even do this? He said: Then he should enjoin what is reputable or what is good. He asked: What if he cannot do that? He (the Holy Prophet) said: He should then abstain from evil, for verily that is charity on his behalf. (Sahih Muslim)
Thursday, August 11, 2005
Wednesday, August 10, 2005
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.
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.
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