The Islamic Economic System as an alternative
04-11-2008
The following is the transcript of the speech delivered by a brother…
Allah (swt) says:
كُنْتُمْ خَيْرَ أُمَّةٍ أُخْرِجَتْ لِلنَّاسِ تَأْمُرُونَ بِالْمَعْرُوفِ
وَتَنْهَوْنَ عَنِ الْمُنْكَرِ وَتُؤْمِنُونَ بِاللَّهِ
"You are the best of the nation raised up for mankind
because you enjoin what is right and forbid the wrong and believe in Allah”
[Ali-Imran 3:110]
Allah (swt) has blessed us as being the best nation raised up from humanity
because we enjoin the good and forbid the evil – we need to realise our
responsibility of speaking our against the evil and injustice that we see
globally today. One of these great evils we see around us is the economic
injustice and oppression caused the world over by the current capitalist world
order.
The current financial crisis has seriously eroded confidence in the Western
world and has exposed the free market. However the Western world when looking at
alternatives only see remnants of Socialism or some state intervention in
economy as feasible and workable systems. It is also this reason that allows
free market ideologues to continue citing more regulation, transparency i.e.
more capitalism with some tinkering as solutions. I recall a discussion with my
previous economic Professor where I put forward the ills of Capitalism, after
debating the points exhaustively he said, ‘Capitalism is the best of the worst’.
I then went on to explain the Islamic economic system as an alternative, it
became obvious that he had never considered Islam as having any alternative nor
had studied it.
This crisis represents an opportunity for all Muslims to present the Islamic
economic system as an alternative. We have to realise to consider that when Marx
wrote his theories of Communism in the 1800’s whilst sitting in Britain, his
ideas although many people disagreed with them were seen as a viable
alternative, this is why Lenin later took up these ideas, formed a party based
upon them and they were eventually embodied in a state. This occurred even
though these were new theories that had no history of implementation. We have to
then consider that unlike Marx who denied the existence of Allah and whose ideas
were disproved by the clear reality of the failure of Communism, we have the
truth from Allah (swt) and also have a history of the implementation of Islam.
Therefore today it is vital for us to present Islam as an alternative. It is
important to show Islamic economics as much more then Islamic finance and
Banking. What is known as Islamic banking and Islamic finance is about
individuals or groups attempting to generate profits in the current system
without breaking the shariah rules such as the prohibition of Riba. However
today I’m going to focus on the Islamic economic system as a whole which is much
wider than this and is the true alternative to the Capitalist system
Although no Islamic state exists today, we have the economic system of Islam
derived from the Quran and the Sunnah and over a thousand years of history of
its implementation. Based upon this we must initiate thinking amongst the ‘left’
and the right’ and to demonstrate to them how Islam is not just a religion like
the others but is a comprehensive ideology able to deal with the current
crisis’s that humanity is faced with.
The Islamic economic system
Of course in a short talk such as this it is not possible to go through the
entire Islamic economic system in detail, I aim to cover its key aspects
especially in relation to how an Islamic system holds the key to solving the
current financial crisis.
As any economic student would learn in their first economics lesson, we have to
start with the definition of the economic problem which is the fundamental view
of the economy. In Capitalism they believe that there is unlimited wants and
limited resources therefore the focus of the economy should be production, so
they believe in producing more and more for people to consume. This has also
come be known as ‘trickle down economics’ where the focus is on increasing the
size of the cake, believing that it will somehow trickle down into the bellies
of the hungry.
This is why they have so much emphasis on the GDP (Gross Domestic Product) or
GNP (Gross National Product). This is why we saw the BJP talking about ‘India
shining’ when the GNP had increased, even if that increase was in the bank
accounts of the corporate’s and not reaching the common man
1. Islam focuses on the distribution of wealth not just the production.
Islam views the economic problem in a radically different way than Capitalism
and Socialism. Islam focuses on the distribution of wealth not just the
production. The problem of poverty will not be solved by producing more and more
for the rich to consume rather it will be solved by ensuring that basic needs of
every individual are satisfied completely. There are enough resources in the
world to satisfy the basic needs of everyone
Islam looks at every individual by himself rather than the total of individuals
who live in the country. It looks at him as a human being first, who needs to
satisfy all of his basic needs completely. Then it looks to him in his capacity
as a particular individual, to enable him to satisfy his luxuries as much as
possible.
2. All basic needs guaranteed
The Ahkam Shari’ah have secured the satisfaction of all of the basic needs
(food, clothing and housing) completely, for every citizen of the Islamic State
(Khilafah).
The Prophet (saw) said, “The Son of Adam has no better right than that he would
have a house wherein he may live, a piece of clothing whereby he may hide his
nakedness and a piece of bread and some water” [Tirmidhi]
The Islamic state has a duty to provide for those who cannot provide for
themselves or whose families cannot provide for them
Umar ibn Abdul-Aziz, the famous Khalifah, wrote to his agent in Basra, Iraq,
‘Search for the people of the covenant in your area who may have grown old, and
are unable to earn, and provide them with regular stipends from the treasury to
take care of their needs.’ [Abu Ubayd, al-Amwaal, p. 805]
The Islamic state used to have public baths, Musafir Khana’s where travellers
could stay for free and even open kitchens – e.g. in Bosnia during the Ottoman
Khilafah period there were open kitchens where the poor could go and eat for
free
The first organised hospital was built under Islamic rule in Cairo in 872CE. The
Ahmad ibn Tûlûn Hospital treated and gave free medicine to all patients. It
provided separate bath houses for men and women, a rich library and a section
for the insane. Patients deposited their street clothes with the hospital
authorities for safe keeping, before donning special ward clothes and being
assigned to their beds. Each patient would also have his or her own medical
record.
3. Circulation of wealth is a duty
Allah (swt) emphasizes that the wealth should not circulate amongst the few, He
(swt) says referring to wealth:
كَيْ لَا يَكُونَ دُولَةً بَيْنَ الْأَغْنِيَاءِ مِنْكُمْ
“That it does not become a commodity between the rich among you.” [TMQ
Al-Hashr: 7]
Islam has made the circulation of wealth between all citizens an obligation, and
it has forbidden the restriction of such circulation to a certain group of
people to the exclusion of others.
Hoarding/monopolizing goods is forbidden. Producers or retailers cannot hoard or
monopolize goods in order to cause the price to rise. This is based on the
ahadith: “The Messenger of Allah (saw) forbade that a foodstuff be monopolized.”
[Athram] and “Whoever monopolized is a wrongdoer.” [Muslim].
4. Prohibition of Riba – encouragement of investment
The abolition of all interest based contracts, to be replaced by contracts which
share returns and risks.
Allah (swt) says:
وَأَحَلَّ اللَّهُ الْبَيْعَ وَحَرَّمَ الرِّبَا
“Allah has permitted trade and forbidden (all) interest.”
[TMQ Al-Baqarah: 275]
The prohibition of Riba (usury/interest) encourages people not to just save
their money in a bank waiting for the interest – rather if there will be 2.5%
Zakah charged on their unused wealth – this encourages people to spend and
invest which generates economic activity and is healthy for the economy. The
more spending and investment, the more jobs are created and more wealth is
circulated.
I want to touch briefly here about the concept of loans and Riba – people don’t
realise the exploitative nature of Riba. In Islam loans are given for ethical
reasons with the intention of achieving a reward from Allah. The Prophet (saw)
said: “Every loan is a sadaqah”. In capitalism the one who gives the loan,
shares the profit but not the loss, this is very unfair and unjust. In Islam if
you want to share the profit then you must share the loss also – this is the
model of Partnerships or company structures in Islam. Like Mudharabah - where
someone invests and the other person works and they share the profit and loss.
Islam has an equity based system when both sides share the risk and the reward
is fair unlike the oppressive Riba based system
Today interest based debts are crippling people and entire nations. Ali (ra),
the cousin of Allah’s messenger, pointed out regarding the pre-Islamic age: “We
withstood the weight of the Iron, the Stone and the Lash, but we could not
endure the weight of debt.”
5. The Islamic economy is real and Islam prohibits the current form of
financial markets
The Islamic economy is based upon wealth generation where participants partake
in investment, employment and trade in the real economy. Islam does not have a
dual economy where the real economy operates alongside a financial sector. The
Islamic economy focuses all participants on the real economy, through
employment, company profits, utilisation of land (agriculture) and
manufacturing, wealth is generated in only one sector. This brings the huge
benefit of wealth only circulating in one sector - the real economy, where all
can participate.
The Islamic system does not recognise the financial markets in their current
form. One is able to purchase shares and transfer them without actually
partaking in the running of the underlying company that the shares are meant to
represent. In Islam ownership is a direct role in a company and not just a share
certificate which in effect the stock market allows to be traded and re-traded.
It is this ability to not have a direct role in a company that allows excessive
speculation. The financial markets are different to the real economy of goods
and services. As the first speaker pointed out this is in fact one of the root
problems of Capitalism, the size of the world’s stock markets are estimated at
$51 trillion, the world derivative markets are valued at $480 trillion, 30 times
the size of the US economy and 12 times the size of the world economy!
There are many reasons as to why Public Limited Companies (PLC’s) stock markets
are haram in Islam. One of the key reasons being the issue of liability. The
public limited company system gives the public company a distinct quality of
limited liability, aimed at protecting major capitalists and businessmen in case
the company fails and incurs losses, in which case, those who have claims
against it would not be able to demand from its investors any compensation no
matter how large the personal assets of the investors are. The financial claims
are only confined to what is left in the company in terms of assets. This system
is contradictory to Shari’ah in every aspect. The Shari’ah rule obliges all to
repay debts in full to the rightful owners, and it is forbidden to cut anything
from them.
Al-Bukhari reported on the authority of Abu Hurayrah that the Messenger of Allah
(saw) said: “He who takes money from people with the intention of paying it back
Allah will pay on his behalf, and he who takes it with the intention to waste it
Allah will waste him.”
Ahmed also reported on the authority of Abu Hurayrah who said: The Messenger of
Allah (saw) said: “You shall return the rights to their rightful owners on the
Day of Judgement, even the ewe with no horns will get even with the ewe with
horns by butting it back.”
Hence, the Messenger of Allah (saw) has confirmed the obligation of fulfiling
one’s rights in full in temporal life, and if one does not he will do so on the
Day of Judgement. This serves as a warning for those who devour people’s rights.
Islam has its own company structures, there are 5 types which are all related to
real partnerships between body and capital. These are Al-’Inan (equal), Al-Abdan
(bodies), Al-Mudharaba (two or more), Al-Wujooh (faces) and Al-Mufawadha
(negotiation)
Ad-Daraqutni narrated from Abu Hurairah that the Prophet (SAW) said: “The
Supreme said I am the third of the two partners as long as one of them does not
betray his companion. If he betrayed, I would withdraw from them.”
Islam is against monopolies and encourages competition
PLC stock market companies are able to amass huge amounts of wealth today, to
the extent that some companies have more wealth than some countries. In an
Islamic system this could not happen due to the prohibition of PLC’s who are
able to generate this wealth by issuing shares to the public. This has a
positive impact on the economy, as huge companies are able to become monopolies,
duopolies or oligopolies which are able to dominate the market place such as
Microsoft, Coca-Cola and Pepsi. Even Capitalist agree that monopolies are
negative externalities and Adam Smith, the founding father of Capitalism dreamed
of an economy with perfect competition an ideal which they can never achieve due
to the free market itself. However the Islamic economic system leads to this as
by applying its rules it would lead to small to medium companies competing with
each other in every market which is healthy for the economy as competition
decreases the price and increases quality.
E.g. Why should 3 companies dominate the entire soft drinks market in the world
as is today? They completely dominate the market, have enough wealth to buy out
any competitors like Coke did with ‘Thumbs Up’ in India. Monopolies have the
power to sell lower grade goods to the market without us having any choice, we
all remember the Pesticide scandal that took place here.
6. It is prohibited to sell what you don’t have
Unlike today where we see short selling or forward selling, where people sell
what they don’t yet own
Islam makes it a requirement for traders to own currencies, instruments and
commodities before selling them. It is narrated from Hakeem bin Hazam (ra) who
said: “I said: O Messenger of Allah, there comes to me a man asking me to sell
what I do not have to sell then I buy if from the market. He said: Do not sell
what you do not have” [Ahmad]
7. Islam neither believes in a free market nor a command economy
The Islamic economic system is neither Capitalist where the market is left free
to lead to the disasters that we are seeing nor Communist where everything is
owned and controlled by the state. Islam distinguishes between public property,
state property and private property. Islam forbids the private ownership of the
large resources such as the Oil and Gas that we see the Western companies
fighting over in the Muslim world.
The Prophet (saw) said:
«الناس شركاء في ثلاث الماء والكلأ والنار»
“People share in three
things, fire, water and the green pastures” reported by Abu Dawud. Anas reported
from Ibn Abbas adding “and its price is forbidden”.
In addition to this the Prophet (saw) used to take back lands from people if he
found they contained vast resources such as a salt mine.
The huge revenue generated by public resources such as Oil and Gas in an Islamic
state be utilised for the benefit of the public and not for the personal
interests of the rulers who siphon off the money into their swiss bank accounts
and spend it for their own pleasure as we see the rulers of the Gulf doing
today. The Prophet (saw) said:
«…الإمام راع وهو مسؤول عن رعيته »
“The Imam is a shepard
and he is responsible.” [Bukhari, Ahmad, Bayhaqi]
8. The Gold & Silver standard for currency
As the brother has explained in the first talk, today’s currency is fiat
currency backed by no real assets, only backed by confidence. This is the reason
we have increasing inflation the world over. Islam solves this problem as the
basis of the currency in Islam is Gold & Silver, the currency is backed by and
is interchangeable with it.
The Prophet (saw) established the basis of the Islamic currency, the Dirham and
the Dinar upon these tangible things which hold real value and retain value. The
Islamic rules have been set in the Quran and Sunnah in terms of Gold and Silver
such as the Nisab of Zakah.
It is allowed to have paper notes as long as they are backed by Gold and Silver.
So in the Islamic state you can go to the Bayt al-Mal and exchange the paper
notes. Therefore inflation is eliminated as the value of gold and silver are
stable. The Islamic state cannot just simply print money as they do today
without any asset backing, or create money out of thin air! In fact due to the
current inflation and financial crisis we can see people are turning to buying
gold instead of putting their money in stocks as they know it has a real value.
Conclusion
As you would have realised the key aspects of the economic system I highlighted
are much more than the current Islamic banking or Islamic finance and it should
be clear that this system cannot be implemented without a true Islamic state
which rules by the Shariah and unlike the Muslim world today is a truly
independent state and not an agent of the West.
Instead of turning to billions of dollars of bailouts where the US and UK are
spending tax payers money in order to save their collapsing financial system,
people should realise that Islam offers the world a practical alternative. The
next speaker will elaborate on the importance of taking the Islamic system as a
whole and not separating the economic system of Islam from the other systems
such as ruling or punishment.
Even many non-Muslim thinkers have recognised the progress and development that
was achieved under Islamic rule in history in all fields of science and
technology.
Phillip Hitti in ‘Short History of the Arabs’ says, “During all the first part
of the Middle Ages, no other people made as important a contribution to human
progress as did the Arabs, if we take this term to mean all those whose
mother-tongue was Arabic, and not merely those living in the Arabian peninsula.
For centuries, Arabic was the language of learning, culture and intellectual
progress for the whole of the civilized world with the exception of the Far
East. From the 9th to the 12th century there were more philosophical, medical,
historical, religious, astronomical and geographical works written in Arabic
than in any other human tongue.”
The Islamic system has come for the whole of humanity
وَمَا أَرْسَلْنَاكَ إِلَّا رَحْمَةً لِلْعَالَمِينَ
“And We have sent you (O Muhammad SAW) not but as a mercy for the ‘Alamîn.”
[TMQ 21:107]
It is a system not thought up by the minds of men, rather it is from the creator
of humankind Allah (swt) and it is the perfect system for humanity. Let us all
work to re-establish this system once again.
Hasan al Basri narrated that Allah’s Messenger (saw) said: “He whom death
overtakes while he is engaged in acquiring knowledge with a view to reviving
Islam with the help of it, there will be one degree between him and the Prophets
in Paradise.” [Al-Tirmidhi]
Submitted by a Mujahid