Conventional Economics, which is the mainstream economics ‘today’, has outlived its tenure and it may not have a worthwhile ‘tomorrow’! There is a need for an alternative economics. We intend to discuss the basic features of Islamic economics, presenting it as the desired alternative. We do not intend to delve into in detail as to what is wrong with the conventional economics. A vast literature is available on the subject. However, following outcomes of the economic practices may be referred to for recollection so that a clear understanding of the alternative being presented may be appreciated.
- The gulf between Real Economy and Financial Economy has widened. The size of Financial Economy may be ten times more than that of Real Economy.
- Credit has become easy. Consequently, debt, in the finances of both corporate sectors and governments, has been rising in a faster pace than that of Equity Capital. This is leading to Institutional and Sovereign Debt Crises.
- Corporate economies are taking over national economies.
- Future economic resources are being consumed today in an uncontrolled manner that has raised serious ecological concerns about the quality of life on earth in days to come.
The primary problem with the conventional economics is that it has made itself value-neutral. This has resulted in delinking of its Positive Goals and Normative Goals. The positive goals of the conventional economics comprise “realisation of Efficiency and Equity in allocation and distribution of scarce resources that have alternative uses”. Efficiency is achievable without values but Equity as such remains a far-fetched dream in its absence. Further, none of the normative goals of Need Fulfilment, Full Employment, Economic Stability or Sustainable Rate of Growth without disturbing Ecological Balance are achievable without a worldview that gives due weightage to value judgement. The whole idea of market driven price and equilibrium based on Pareto efficiency is a utopia that looks fine in prints but loses its relevance between the lines!
When one looks at the developments of the last couple of centuries, when conventional economics acquired centre-stage in the economy of the world, it transpires that this lack of value judgement made it impossible for its peers to appreciate the ills of ill-advised practices like considering money, the medium of store and exchange, as a commodity itself, assigning interest as its price, and the development of gaming practices like commodity exchanges.
OBJECTIVES OF ISLAMIC ECONOMICS
The primary object of Islamic law may be described as under:
- To obtain or implement Maslahah (public benefit); and
- To avoid or minimise Mafsada (evil)
Izz el-Din Abdussalam (d. 660H/1260 CE) has described it as al-Adl (justice) and al-Ihsan (equity observing that justice is treating equally and with fairness, and equity is either bringing some Maslahah (benefit) or preventing some Mafsada (evil).
It is obvious from the above distinction between Adl and Ihsan that justice alone is not sufficient for a good social life and it should get the supplement of equity. Justice amounts to equivalence in transactions whereas equity is ‘urged on top of justice as it is defined as giving more than is due according to the standards of equivalence and reciprocity to ensure survival with dignity for all’.
Islamic scholars give much weightage to the last mentioned object of prevention of Mafsada (evil). They tend to stress that if evils are checked, Maslahah (benefits) will naturally follow. They have described five goals of Islamic law (Maqasid-al-Shariah). These are safeguards that a law, including that related to economy, must ensure. These five Maqasid (Goals) are preservation of:
- Deen (Faith)
- Nafs (Life)
- Aql (Intellect)
- Nasl (Lineage/Progeny/Posterity)
- Maal (Property/Wealth)
Any discussion on the history of the development of Maqasid, or a debate on the possibility of addition to the list of the above mentioned five safeguards and the desirability or otherwise of insisting on their order of importance as above, are beyond the scope of this paper. However, two aspects need to be noted:
- Maqasid are based on the concept of Falah (Well-Being) and Hayat-e-Tayyiba (Good Life).
- A natural corollary of Falah and Hayat-e-Tayyiba is that human beings should be both the ends and the means of economics. So, Islamic economics would distaste any system that degrades a human being and ignores him, increasing his miseries by giving more emphasis either on market or on state or on both.
WORLDVIEW
Every system has a worldview that shapes its contour. Islamic economics too emanates from the Islamic worldview of Tawheed (Oneness of God). Tawheed, inter alia, implies Khilafat (Vicegerency of human beings). God, the Lord and the Creator, has made man His Vicegerent on earth. So all men have equal rights of freedom and they are all linked to each other in the bond of universal brotherhood. Men are accountable to God for the use of resources at his command. God provides men with resources severally as a trust. We may sum up this discussion in bullet-form for ease of reference as under.
Tawheed
- Khilafat
- i) Equal Freedom
- ii) Universal Brotherhood
iii) Resources as Trust
- iv) Accountability
METHODOLOGY
Islam, along with addressing the method of achieving success in the life after death, provides solution to the issues of the world, too. In fact, these two are not different streams of teachings. Success in life hereafter is directly linked to the well-being of life here on this earth. A single straight path links both the ends. The solutions are basic in nature and are pertinent in all situations at all times for all people. Islam provides the basics and invites the world to apply the same and live in peace and tranquillity. The Islamic methodology of solving problems of the world, apart from providing a Worldview, which has bearing upon all walks of life, may be described as under:
- Specific teachings, particularly things that are forbidden
- Moral Filter
- Application of human intellect to address problems
SPECIFIC TEACHINGS
Islam has provided basic and universal teachings for all subjects, including economics. These teachings are specific to the subject and generally in the nature of forbidding some activities. Islam does not provide any long list of things that man should do. Instead, a small list of things that are not permitted is provided, leaving everything else in the list of permitted area. The underlying principle of Islamic law (Shari’ah) is that everything is permitted which has not been specifically debarred. Islamic scholars have identified a list of fifteen specific negative items in economics which man should keep at bay. He is then free to go ahead in all other areas.
- Interest (ribā)
- Gambling (maysir and qimār)
- Causing harm or getting harmed (dharar)
- Misleading the other party (gharar)
- Lack of material information leading to dispute (jahl mufdhī ilā al-nizā‘)
- Misrepresentation and causing wrong impression about the product (tadlīs)
- False description of goods (taghrīr)
- Excessive profiteering (ghaban)
- Impressing buyers by gestures and sales talk/ art of deceit (khilābah)
- Hoarding of food grains and essential items (ihtikār)
- Two-in-one transaction (bay‘atayn fi bay‘)
- Option of recalling deal and getting compensation for loss (Khayār): This option is available to a party who is sufferer on account of any wrong transaction
- Profit without corresponding risk/authority/possession (kharāj without dhamān).
- Dealing in non-existing goods (bay‘ma‘dūm)
- Dealing in goods in possession of other persons (milk al-ghayr)
It may be noticed that almost all the forbidden transactions as above, save interest, are agreed to by contemporary writers. Further, as regards to gambling, despite agreeing to its undesirability, the sensitivity of Islam on the issue whereby Forward Trading and Commodity Exchanges too are taboo, is not shared by contemporary thinkers on the subject. Interest (Riba) means any increase over and above the principal amount payable in any contractual transaction which is not covered by any corresponding counter value. Counter value refers to the justification for any increase over and above the principal amount. Experts have delineated such justifiable counter value as labour, expertise, risk or commodity. Hence any increase on the agreed amount payable in deal not covered by these is not permitted.
MORAL FILTER
Islamic Economics would not be contended with the filter mechanism in economic transactions in the nature of “Visible Hands” of Central Planning and the “Invisible Hands” of Market Mechanism. From Islamic point of view there is no problem in the concept of visible and invisible filter mechanism. It is true that invisible market forces play their role in bringing some element of equilibrium in the economy. It is also accepted that this invisible hand of market is not sufficient and the state is compelled to use the visible hands of law in the form of planning, trade laws, taxation and the like. Islam would add the third factor of Moral Filter. A set of moral laws of Islam specifically pertains to economics and commerce while overall Islam’s approach towards morality is that it is binding on all walks of life, be they relate to spiritual life of man or his material and worldly life. Morality in Islam is a permanent value de-linked from time and place which have divine sanctions.
APPLICATION OF HUMAN INTELLECT TO ADDRESS PROBLEMS
Islam’s approach is very basic. Despite providing general principles relevant to all cases and specific teachings relevant to the problem at hand, it has total faith in the intellect of man. Man himself has to design a system suitable for him and he has the option of revisiting his earlier decisions and go on adjusting the systems in search of the best method for his well-being in this world and peace and the eternal success hereafter. Such application of human mind without trespassing the specific teachings provided is termed, in Islamic parlance, as ijtihad (effort to find solutions to new problems) on the basis of qiyas (deductive analogy) and maqasid al-shari’ah (higher objectives of Islamic law). This is a challenging task for the human beings. And it is worth trying and rewarding, too!