The market capitalism and the economic system of Islam. Similarities and differences - Essay Example

Introduction The market capitalism and the economic system of Islam share some similarities and differences. A system isdefined as the functional components that collectively make certain sectors of the ethic- economic order work (Choudury and Malik 15). Nomani and Rahnema opine that the system understanding is also related to the structural nature of an economic worldview regardless whether theoretically recorded or articulated (41). Market capitalism is a system of governance for economic affairs. Under the market capitalism, the price mechanism remains largely functional to maintain the reins of the market capitalism. The price mechanism is used as a signalling system distributing resources between the different market participants and users. Under the market capitalism, the workers are free to enter and are free to exist and they are at their will to earn and expand their earnings as they wish to. Market capitalism largely also relies on the political authority to develop, provide and regulate the market rules and regulations so that they encompass all related societal costs and benefits. Both systems share that an individual is entitled to keep private property, the provision of social security and economic freedom. However, it is a strikingly interesting that the economic system of Islam only allows the use or control of private property and at the same time strongly discourages applying the concept of ownership. Under the economic system of Islam and Islamic finance which have gained roots in the global finance recently (Asutay 3), the right of ownership is the exclusive prerogative of Almighty Allah and humans are only allowed to establish and exercise the control o f the private property. The economic system of Islam also suggests the state or government is responsible to provide social security to the masses and develop such employment policies so that the masses can easily access to the basic human needs. The market capitalism differs with the economic system of Islam when it comes to the distribution of wealth among the masses. The market capitalism does not believe in fair and equitable distribution of wealth. An individual has unrestricted and unlimited authority to earn and amass money and at the same time claim its full ownership as well. The economic system of Islam differs on this aspect with the market capitalism and opines that the individual is not allowed to keep unlimited wealth as it creates imbalance in the society and the practices such as hoarding, profiteering, exploitation largely appears. The market capitalism also give right to an individual to keep to exercise the right of the exclusive ownership which is totally against the concept promoted and supported by the economic system of Islam. In the following parts of this paper, first the definition and framework of market capitalism is provided. In which, the basic definition and different aspects of the market capitalism are discussed. Subsequent to that, emergence of market capitalism is highlighted. In this part, the history and evolution of market capitalism is provided. After that, similarities between the economic system of Islam and the market capitalism are provided. Before the conclusion part, difference between the economic system of Islam and the market capitalism are elaborated. Market Capitalism Market capitalism is a system of governance for economic affairs emerged in different setting and continues to evolve over time (Scott 2). The Macmillan Dictionary of Modern Economics defines it as an economic system in which, property including capital assets, is owned and controlled by the private persons. Under the market capitalism, the price mechanism is utilized as a signalling system allocating resources between the different uses. The extent to which the price mechanism as its fundamental coordinating device instead of command and control, provides that capitalist systems are not similar from one another based on the limit and nature of the governmental interventions and the presence of competitiveness of their markets. However, there exists some degree or level of governmental interference in the private economic affairs of a private person and that intervention can be of direct or indirect nature. Governments may intervene directly in the capitalist markets via actions such as seizing land or nationalizing a firm; alternatively, they may need to intervene indirectly as well through the mechanism of altering the institutional or location of a market, or modifying the rights and responsibilities of numerous classes of economic actors and the rules of accounting prevalent in the market capitalism. Scott provides that the market capitalism is an indirect system of governance based on complex and uninterruptedly evolving political bargain in which the private actors are empowered by the support of political authority to not only own and but also control the possession and use of the property for the private gain subject to a set of regulations and laws (4). In the market capitalism, the workers are free to enter and free to exit from the various sectors of business. Considerably, the entire system of market capitalism is based on the pricing mechanism to develop and maintain balance between supply and demand in the markets; it relies on the profit motive as well to distribute or allocate resources and opportunities among different suppliers. Market capitalism also depend upon a political authority to provide, develop and establish the rules and regulations so that they encompass all appropriate societal benefits and costs as well. Under the market capitalism, government and its regulatory agents are held accountable to develop and provide physical security for property and person along with the provisions and mechanism of laws and regulations. Also, in the market capitalism, the capitalist development is built from investment in new set of technologies permitting increased productivity and production whereby a variety of initiatives are highlighted and determined through a Darwinian process favouring productive uses of these resources (Scott 4). Further, the market capitalism requires government to play two roles: administrative and entrepreneurial. In the administrative role, the government is required to provide and maintain institutions underpinning capitalism and the entrepreneurial role demands that the government by mobilizing its power to modernize these institutions as per the requirements. In addition, the role of government in the market capitalism does not require government to directly intervene in the affairs of the private actors and Hilton (154) provides that political conditions need closer attention. Indirectly, the government in required to create, legitimate and administer and periodically modernize the various market frameworks that spell out the regulatory conditions and regulatory environment in which the economic actors may obtain and employ labour and capital to produce, sell and distribute goods and services. Accordingly, the economic actors become eligible to obtain the right to use their discretion and power in competition with the market participants and competitors as well, subject to existing market regulations and laws as well. The market frameworks do not have uniform or similar policies rather quite different policy priorities are enforced ranging from protecting the status quo to the promotion of economic growth and development, from developing and protecting the rights of consumers to supporting producers and from safeguarding labour to protecting capital. For instance, the government are to specify the responsibilities of the numerous market participants in the above mentioned transactions in order to ensure the safety and serviceability of the goods and services. As a result, this indirect system of governance in the market capitalism is inevitably comprises of a strategy which largely remains implicit rather than explicit and it is subsequently and periodically overhauled and modified in order to satisfy the actual requirements of the market participants. Emergence of Market Capitalism The origins and strong existence of capitalism is based on the land of the United States of America. From 1917 to the year of 1989, there existed a vehement rivalry between centrally planned and capitalist solutions to the problems pertaining to the economic growth and economic development along with the stability. Till this point of this, no uniform economic system was operated at the global level. Each country was having its own distorted form of economic system suiting and serving their national interests and international motives as well. The Soviet Union largely supported and observed the economic system suggested by the Communism and the Republic of China was having its own model for the purpose of economic development in its controlled spaces. However, with the demise of the Soviet Union in the year of 1991 and the subsequent conversion of the Republic of China into a market economy, the supporters of the market capitalism celebrated victory (Hodgson, Ito and Yokokawa 2). As a result, the collapse of the economic system under the shadows of the Soviet Union was largely highlighted and interpreted as a manifestation of the stark failure of the central planning. Moreover, even Western advocates, who were supporting and admiring the usefulness of the mixtures of the market capitalism and central planning, also lost their heart. Before the collapse of the Soviet Union, there were numerous authors and writers who were supporting the mixed economy concept in which the some aspects of the market capitalism and some aspects of the planned economy could be collected together to construct and develop an economic system. These authors largely gained their moral and subjective understanding from the presence and smooth functioning of the economic system run and controlled by the Soviet Union. However, with the debacle of the Soviet Union, that economic system lost its worth and significance. Not only the communist movement but also the social democratic parties of the world were not able to maintain the validity of their views and consequently observed themselves in a doctrinal crisis. Subsequent to that, by the early 199s, the tenure of rapid growth of the Japanese economy did not remain long and had come to an end. The Japanese capitalism was no longer admired as an alternative model to the economic system suggested by the American system. Following the Japanese capitalism collapse, the East Asian economies began to slowdown and went into recession. By the end of the 19990s, the American model of capitalism was seen as the only workable economic system. Similarity between the Islamic economic system and market capitalism Distinction between ownership and control The distinction between ownership and control is largely clear. The ownership is enjoyed when a person obtains a legal proof authenticating the ownership. On the other hand, the control is something a right given someone to use for a particular period of time. Under the control situation, the user is not allowed to sell it but he is authorized to use it and ensure its safety and security as well. Recognition of private property Both economic system of Islam and the market capitalism recognise the right to keep private property. An individual is authorised to property. As far as the use and control of property is concerned, both the economic system of Islam and the market capitalism do not share difference views. However, the economic system of Islam provides that the individual cannot claim ownership as it is only prerogative of Almighty Allah. Provision of social security The economic system of Islam and the market capitalism strongly recommend the provision of social security of the masses. Under this concept, the governments are required to develop and enforce such social security policies that must ensure appropriate level of financial support to the unemployed along with the provision of the medical facilities to the masses. The economic system of Islam emphasise on the matter that the government is under legal and religious duty to generate employment resources so that the masses become able to obtain employment. In the economic system of Islam, the Holy Quran and the Sunnah have explained their position on the issue. The main objective of social security is that a state is responsible when certain people within a state are not earning or unemployed due to any reason. Economic freedom Both systems promote and support the concept of economic freedom. Labours have full right to avail the provision of economic freedom and use means to earn money for living. They can use capital, land and other means in order to enjoy the economic freedom as they feel comfortable. However, the Differences between the Islamic economic system and market capitalism Distribution of wealth Market capitalism does not provide or believe in fair and equitable distribution of wealth in comparison with the Islamic economic system‘s concept of fair and just distribution of wealth. The market capitalism promotes the concentration of wealth in a few hands and the majority of people remain deprived of the basic human needs of life. This inequitable balance of distribution of economic resources and at the same time unbridgeable gulf between haves and have-nots does not encourage healthy trends in the market capitalism society and forces people to launch a class struggle. On the other hand, the economic system of Islam talks and provides guaranteed provision of basic human needs such as food, clothing and shelter to every member of the society and at the same time it ensures the fair and equitable wealth distribution among all the masses. It has put in place a very strong system intolerant to the existence of wide spread disparities among the rich and the poor. Moreover, the economic system of Islam does not encourage the concept and practice of concentration of wealth in a few hand instead it strongly and vehemently discourages such practices. In order to discourage the practice of wealth concentration in a few hands, the economic system of Islam highlights and puts in practice the different concepts of charity (Zakat and Sadqat). The main purpose of such charitable practices is to develop an environment in which masses do not prefer wealth concentration rather than they should be more willing to provide above mentioned charities in the society. Right of Ownership The private ownership of property is the fundamental hallmark of the market capitalism. In which, unrestricted and unlimited private ownership of property can be easily maintained. And, the controller of the private property also owns the private property which is totally different from the concept and economic practice in the Islamic economic system. In the economic system of Islam, the control of private ownership is provided to the followers of the religion of Islam however, the rights of ownership are exclusively owned to Allah, Who is God for the followers of the religion of Islam. Moreover, the economic system of Islam is largely influenced by the religious structure of the religion of Islam in which the contribution and involvement of the Holy Quran and the Sunnah, the sayings of the Last Prophet Muhammad Peace be Upon Him of the religion of Islam. Moreover, the economic system of Islam defines the role of private property owner as the role of trustee. The market capitalism believes in the private ownership of property as the means of production, distribution and exchange, which are managed and controlled by a few individuals or a group of individuals working for personal or private profit. And, the unrestricted right and authority to own property and earn profits is a smooth path leading towards the concentration of wealth in a few hands. The implications of such system lead to create an imbalance in the society caused by the inequitable distribution of wealth among the masses of the society. Such system has not largely served the general or society interests and it provides ever-increasing gulf between the rich and the poor and at the same time it sows the seeds of the discord and destruction in the capitalist society. The economic system of Islam receives and uses divine guidance from the religious scriptures of Islam in order to promote the economic wellness of the masses in the society. For example, the economic system of Islam is based on the religious notion that what Allah has created for benefit of and service to humans belongs collectively to the whole humanity. This means the economic system of Islam promotes wellness of one segment of the society say for example Muslims, but the economic system of Islam ensures that the whole humanity must be receiving the benefits from the resources created by the Almighty Allah. In addition to that, legal ownership by an individual is recognised by the economic system of Islam but it is subject to the moral obligation that in all wealth, all sections of the society have the right to receive a share from it. Thus, the private ownership in the economic system of Islam is neither unlimited nor unrestricted. All means of productions have been disallowed to be kept under private ownership and only used for the personal purposes. Economic Freedom The market capitalism allows unrestricted and economic freedom and non-interference of the sate however the economic system of Islam does not allow such level of economic freedom as promoted and supported by the market capitalism. In the market capitalism, an individual has full freedom to earn as much income as he can and he can spend that income in whatever quantity and whatever manner he or she likes to; this defines the unrestricted economic freedom provided by the market capitalism. There are numerous drawbacks of this approach which are prevalent in the capitalist societies. For example, this unrestricted economic freedom considerably leads to earning of wealth through foul means such as gambling and prostitution. Even the developed societies or non-Islamic societies do not consider prostitution an admirable way of earning and the same is supported by the economic system of Islam. Moreover, such practices in the capitalist societies also encourage mal-business practices such as smuggling, profiteering, black marketing, hoarding, fraud, exploitation, speculation, forward transactions and so on. As a result, a rat race for earning wealth becomes order of the day and human values such as fraternity, mutual help, caring behaviours do not largely exists in the capitalist societies and instead mistrust, and hatred and selfishness replaces them. Honestly speaking, if we today’s societies, we normally come across a wide spread presence of hatred, selfishness and mistrust in these societies. On the other hand, the economic system of Islam does not totally allow freedom in the economic sphere. The economic system of Islam makes a clear distinction between lawful (Halal) and unlawful (Haram) in every type of economic activity encompassing vast aspects of production, consumption and exchange as well. certain means of earning wealth such as interest, bribery, gambling, embezzlement, prostitution, monopoly, singing, dancing, sale and purchase of wine, drugs and trade in unlawful activities are strictly disallowed and prohibited by the economic system of Islam. Also, consumption and expenditure on luxurious living and extravagant spending are not supported but are vehemently discouraged by the economic system of Islam. The economic system of Islam requires the followers of the religion of Islam to pay charity (Zakat) and financially support to the poor and the destitute. Monopoly and Competition Competition and monopoly are the prime features of the market capitalism but the economic system of Islam forbids unhealthy competition and strongly discourages the practices creating and supporting the practice of monopolies. The market capitalism promotes and supports every sort of competition in the market economy. In this way, unhealthy competition leads to the destruction of small firms and enterprises. Moreover, the unhealthy competition brings mergers of different organizations into larger business organizations. The major drawback of this approach is that only cartels and monopolies are encouraged and they are being established. Subsequently, the monopolies and cartels do not ensure free and fair competition in markets besides causing inflation and ultimately result in unemployment and creation of other social issues in the society. Thereby, consumer and labour are both exploited in such a situation. In addition to that, trade-cycle, over-competition, unplanned production, increasing accumulation of capital negatively affects a balance between consumption and production which sometimes leads to economic depression. On the other hand, the economic system of Islam strongly discourages and disallows the establishment of monopolies and cartels. And, there are numerous sayings of the last Prophet Muhammad about the monopolies strongly establishing that whoever monopolies is a sinner. Particularly monopolies over food items are forbidden. Moreover, the economic system of Islam provides that every day consumables must be controlled and distributed by the joint ownership of the community not by a few cartels. As a result, the interests of the consumers and labour are taken into account and protected along with creating a balance between consumption and production. Institution of Interest The institution of interest and banking is the life-blood of the market capitalism. For business, trade, industry needs are largely contributed by the institution of interest which is severely forbidden in the economic system of Islam. In market capitalism, banks have been given a central significance in order to fulfil the economic needs of large corporations. And, the entire structure of banking is based on the pillars of the interest. Subsequently, this leads to the establishment of banks who borrow capital from the depositors and investors on lower rate of interest and subsequently borrowed amount is given to the capital requiring companies, individuals and others at a very higher rate of interest. On the other hand, the economic system of Islam calls interest with an Arabic word (riba) and considers riba as the most exploitative institution for humanity and forbids everyone who is directly or indirectly involved any transaction having riba; anyone who is taking or giving riba or writes, carries and by any other means involves in riba based transaction is strongly discouraged and criticized. In the Holy Quran, it is clearly mentioned that anyone involved in an interest is equal to waging a war against God and His Apostles. The economic system of Islam develops and encourages its economy based on the interest free basis. And at the same time, the economic system of Islam promotes profit on the basis of partnership as incentive for saving and investment. Conclusion Both systems share similarities and differences as well. The similarities include the recognition of private property, provision of social security and the economic freedom as well. Both economic systems support the view that an individual has right to keep property. However, the difference is that the economic system of Islam allows the individual only to exercise the right of control and use the property but it does not allow the individual to claim the ownership of the property. On the other hand, the market capitalism gives right to the individual not only to exercise the right of control but also avail the right to ownership as well. Market capitalism allows that an individual can uncountable amount of wealth along with ownership rights. On the other hand, the economic system of Islam does not support that notion and suggests that an individual cannot own unlimited wealth. Works Cited Austay, Mehmet. “A Political Economy Approach to Islamic Economics: Systemic Understanding for an Alternative Economic System.” Kyoto Bulletin of Islamic Area Studies, 1-2 (2007), pp.3-18 Choudhury, Masudal. Alam. and Malik, Ulem A. The Foundations of Islamic Political Economy. London: Macmillan. 1992. Print Hilton, Rodney. The Transition from Feudalism to Capitalism. New Delhi: AAKAR Books. 2006. Print. Hodgson, Geoffrey M, Itoh, Makoto, and Yokokawa, Nobuharu. Ed. Capitalism in Evolution: Global Contentions-East and West. Massachusetts: Edward Elgar Publishing. 2001. Print. Nomani, Farhad. and Rehnema, Ali.. Islamic Economic Systems. London: Zed Books. 1994. Print Scott, Bruce R. The Political Economy of Capitalism. Working Paper. 2006. Print. Read More