Welfare Economic Framework
January 10, 2018Islam is often called the natural religion. While it promotes individual freedoms to maximize human potential, it regulates economic activities under divine principles ensure justice in the society. Where conventional economics has produced two polar views, market economy versus state control, Islam tries to find a balance between the two. It encourages capitalist style market economy to maximize returns and utilization of resources through competition. Meanwhile, it constantly reminds the market players of human fraternity, charity, growth, and a moral value system to assure that less fortunate souls in the society are not left behind to peril.
Economic activity in the Islamic system is controlled and guided by divine principles. The sources of divine guidance include, in order, Quran (revealed scripture), Hadith (traditions of the Prophet (pbuh)), Ijma (consensus of scholars), and Qiyas (logical reasoning). This divine element guarantees that profit motives of participant in the economy are balanced against the good of the community. Islam forbids or sharply curtails harmful activities such as alcohol consumption, gambling, and pornography. Though such activities could bring profit to the seller, they are harmful to the society and hence forbidden. Conventional economics is driven primarily by profit motive with no consideration for good or evil. Only controls are through government regulations which are always evolving and changing with times. The regulations are driven by the whims of the public or the rulers as to what activities are considered legal in the society. Since there is no divine guidance involved, this generates decay of moral fabric of the society.
One of the main tenet of Islamic economics is prohibition of interest or usury (riba). Money is a merely medium of exchange and cannot be used to create more money. The provider of capital cannot be guaranteed a profit without assuming the risk involved in the economic activity. The instrument of profit through interest in conventional economy encourages idle capital. If the investor is allowed to live off interest, he or she will accumulate enough capital to earn enough interest to make a living. Interest based economy also promotes inflation and declining value of money in terms of physical assets.
Another fundamental aspect of Islamic economic system is charity though Zakat (obligatory) and Sadaqah ( voluntary). Though other cultures do promote charity in some form, Islamic obligation of Zakat makes it a part and important element of the economy. Zakat is usually charged on idle assets thus discouraging hoarding of wealth as well as helping the needy so they can become active players in the economy.
The secular economy is built on shortage of resources and promotes competition for the fittest to take advantage of what is available at the expense of others. It promotes consumption as a means of stimulating the economy regardless of its effects on the consumer or the society. In contrast, Islam encompasses abundance of natural resources to meet all legitimate human needs and encourages economic activity to exploit these resources. Human needs are evaluated in light of divine guidance so material consumption is not the only means of economic activity.
