Lining up patiently together with old ladies, foul mouthed youths and people reeking of alcohol, a highly qualified engineer waits his turn in the queue to collect his ‘dole’ otherwise known as ‘job seekers allowance’. This scene is not uncommon in the Western world where graduates and professionals from all manner of fields find themselves without work and struggling to make ends meet. For some professionals the handout from the dole office every Wednesday morning is what barely keeps them afloat until the next week.
Mind numbing call centres around the country are bursting at the seams with graduates answering calls, having to log the time they spend in the toilet, earning on average £4-£6 an hour despite having been through three years or more of university education.
Although being the fifth largest economy in the world, Britain has a poverty problem one would think applicable only to the developing world. According to ‘The New Policy Institute’, an independent think tank, just under 1 in 4 people in the UK live below the poverty line. This equates to 12.5 million people or 22 per cent of the UK population. Of these, 3.8 million are children, 2.2 million are pensioners and 6.6 million are working-age adults, equivalent to 30 per cent, 23 per cent and 19 per cent of their respective populations.
People may assume that living below the poverty line in the West doesn’t mean much, as the basics are available to everybody. This is a misnomer born out of the illusory image conjured up by glitzy movies, the celebrity dominated media and a society obsessed with self gratification.
One recent survey showed that about 6.5 million adults go without essential clothing, such as a warm waterproof coat, because of the lack of money. Over 10.5 million people live in financial insecurity: they can’t afford to save, or spend even small amounts on themselves. About 9.5 million can’t afford adequate housing – heated, free from damp, and in a decent state of decoration. The crucial factor about these findings is that they are based on a survey of what the general population sees as necessities. [Poverty and Social Exclusion in Britain, Joseph Rowntree Foundation, 2000]
Foreign students, especially from the Muslim world are often amazed as they walk through cardboard city in London or when beggars hassle them for money on the tube, for isn’t this Britain – a superpower, the former ruler of the seven seas? They soon discover that the wonderland image of Britain ingrained in them whilst growing up holds as much water as believing in the integrity of British footballers.
Cause
Poverty is wrongly taken by some as a norm and a problem that will not go away. One must ask the question, how can societies that have a history of colonialism including looting the riches in Africa and India and the neo colonialism of multi-nationals, have such high levels of poverty? How can they spend billions on the mythical ‘war against terrorism’ when one in five non-working families on low or moderate incomes reported to being unable to afford some basic food items on most days?
At a first glance it seems baffling to the mind, how can this occur? However when we study the underpinnings of the Western Capitalist economy the cause for this situation becomes apparent.
The root of the capitalist economy stems from what every economics pupil is taught in their first lesson, understanding the economic problem. A particular view towards the economic problem has dominated Western economies since the time of the founding father of capitalist economics, previously a Professor at Glasgow University, Adam Smith.
In 1776 (CE) Smith published what became the bible of capitalist economics, ‘An Inquiry Into the Nature and Causes of the Wealth of Nations’, it articulated his laissez faire view towards the economic problem.
In essence capitalist economists believe that the economic problem is caused by the unlimited needs of people and the scarcity of resources, this leads to the dilemma of how to bridge the gap between the two – how do people get their needs satisfied? In answer to this question, Smith developed the ‘invisible hand theory’. It denotes that if the economy is left to run in a free manner the resources will be distributed fulfilling the needs of society almost in an automatic way.
The basis of the theory is that by focussing on production the gap between the unlimited needs and limited resources is lessened, it is assumed that people will work to achieve their own interests. By working and earning a wage they can in turn purchase the goods and services they require. 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.
However the theory is not that simplistic, in order to explain the ‘invisible hand’ the price mechanism is seen as key. It is seen as the incentive for production, the regulator of distribution, and the link between the producer and the consumer i.e. it is the means which achieves a balance between production and consumption.
The price mechanism is cited as the incentive for production because the principal motive for people to undertake any productive effort or sacrifice in view of the capitalist economists is material reward. The Capitalist economists exclude the possibility that man expends effort for a moral or spiritual motive. They consider that man expends his efforts to satisfy his materialistic needs and wishes only. This satisfaction is either through the consumption of commodities which he produces directly such as a farmer who eats from his crops, or through receiving a monetary reward that enables him to obtain the commodities and services produced by others.
In modern society people depend on satisfying most of their needs, if not all of them, on exchanging their efforts with money. Gone are the days where people would grow their own food, make their own clothes and even build their own houses. Monetary reward allows people to obtain commodities and services. Therefore it is concluded that the monetary reward, which is the price, is the motive for man to produce. Hence, the price is the means which motivates the producers to offer their efforts. Thus the price is seen as the incentive for production.
This magical ‘price’ is also in their eyes the means which regulates distribution because people like to satisfy all of their needs completely and they strive to obtain the commodities and services which satisfy these needs. According to them had every human being been left free to satisfy his needs he would not stop short of possessing and consuming whatever commodity he likes. Accordingly since every man strives for this same aim, everybody has to stop in satisfying his needs at the limit at which he can afford to exchange his efforts with others, that is at the limit of the monetary compensation which he receives for expending his effort i.e. at the limit of the price. Therefore, the price is the constraint which acts naturally to restrict man in his possession and consumption to a level which is proportional to his income. So the existence of the price makes people think, evaluate, and differentiate between their competing needs which require satisfaction, so they take what they find necessary, and leaves what they find of less importance. Thus, the price forces the individual to settle for partial satisfaction of their needs.
So, the price is the tool which regulates the distribution of needs required by individuals. It is also believed that price regulates the distribution of limited utilities to the consumers who demand them. The disparity in income of the consumers makes the consumption of each individual confined to that which his income allows. This makes some commodities confined to only those who can afford them, while the consumption of other commodities would become common amongst people who can afford the lower prices. Therefore, the price will become the regulator in distributing utilities among consumers by setting a higher price for some commodities and services and a lower price for others, and also by the suitability of the price to some consumers more than others.
The price achieves equilibrium between production and consumption, and it is the link between the producer and the consumer, because the producer who fulfils the desires of the consumers is rewarded through profits. On the other hand, the producer whose products are not accepted by the consumers, would end up with losses. The method through which the producer can detect the desires or demand of the consumers is the price. If the consumers demand any particular commodity its price will increase, and the production of that commodity will increase, in fulfilment of the consumer’s desires. If consumers turn away from buying a particular commodity, its price will drop in the market, and so production of this commodity will decrease. So, the resources assigned to production increase as price increases, and decrease as price decreases. In this way the price is the tool which achieves equilibrium between production and consumption, and it is the link between the producer and the consumer and the process occurs automatically. Therefore, the price is the basis on which the economy is established in the view of the Capitalists, and it is the cornerstone of the economy to them.
Fundamental flaws
Fundamental flaws exist in their theory:
1. Failing to differentiate between basic needs and luxurious ‘wants’.
The view of the insufficiency of commodities and services to satisfy all of man’s needs is completely erroneous. The only reason it sounds believable is due to the fact that there is no distinction made between basic needs which are required by people such as food, clothing, shelter and the luxurious ‘wants’ of people. Many may desire the latest Ferrari and a country mansion, however they are not needs that people will suffer without.
The basic needs of human beings are limited, and the resources and the efforts which they call the commodities and services existent in the world are certainly sufficient to satisfy human basic needs; it is possible to satisfy all of the basic needs of mankind completely many times over.
So, there is no problem in the basic needs, quite apart from considering it as fundamental economic problem that faces society. The economic problem is, in reality, the distribution of these resources and efforts enabling every individual to satisfy all basic needs completely, and after that helping them to strive for attaining their luxuries. Therefore increasing production alone will not solve the economic problem.
Western societies have high levels of GDP (Gross Domestic Product) yet still have high levels of poverty as was established earlier. This fact itself disproves the ‘invisible hand theory’ and the free market as the solution to the economic problem.
The production centric approach to the economy has led to the obsession amongst Western economists in increasing national income through increasing production. GDP and GNP (Gross National Product) are even used to measure the success of economies globally. These measures indicate the collective wealth of a nation but do not indicate the distribution of wealth and levels of poverty.
An increase in the level of production leads to a rise in the level of the wealth of the country and does not necessarily lead to the complete satisfaction of all the basic needs of each and every individual. A country could be rich in its natural resources, as in the case of Iraq and Saudi Arabia, but the basic needs of most of their citizens are not satisfied completely. Therefore, the increase of production by itself, does not solve the basic problem which must be treated first and foremost, which is the complete satisfaction of the basic needs of each and every individual, and following that enabling them to satisfy their luxuries. Thereupon, the poverty and deprivation required to be treated is the non-satisfaction of the basic needs of man as a human being (i.e. food, shelter and clothing), not the increasing luxuries resulting from urban progress. Hence, the problem to be treated is poverty and deprivation of individual members of the society, not the poverty and deprivation of the country measured as a whole. The poverty and deprivation from this perspective (i.e. for every individual) is not treated by increasing national production, rather it is treated by the manner in which the wealth is distributed to the individuals in society enabling complete satisfaction of all their basic needs, and then enabling the individuals to satisfy their luxuries.
2. The assumption that people will be able to find reasonable work
The Capitalist view towards the economic problem reflects the time in which it was theorised as it assumes that people will be able to work and earn a reasonable amount of money to be able to purchase goods and services to satisfy their needs. Finding work in the late 1700’s and 1800’s in Britain may not have been difficult due to the high level of demand for labouring jobs during the industrial revolution. This continued until the advent of automation and mass production which led business owners replacing workers by machines. Machines are more efficient, do not demand rights and can’t go on strike. This obviously increased unemployment decreased the demand for labouring jobs and led to the growth in the service sector.
This situation has been compounded by the information technology revolution in the last decade. The development of technologies in control systems, advanced robotics and the like have further increased mass production and decreased the reliance on human involvement. Where once factories that produced cars would employ hundreds of employees in the manufacturing process, this now is accomplished by an almost fully automated process.
Corporations in the developed have also taken advantage of the cheap labour found in the developing world. Such that the jeans we wear and the Nike and Reebok trainer’s children aspire to have, are produced by underpaid labourers in the sweatshops of Indonesia, India, Pakistan and other countries. This form of globalisation has negatively impacted domestic employment. The heavy industry which used to characterise British economy is now a thing of the past.
This change of circumstances from a situation in which heavy industry during the industrial revolution led to lower levels of unemployment to the reality today where mass production achieved by automation combined with the exploitation of cheap labour in the third world has led to a shortage of jobs.
The reality of unemployment, obviously limits peoples ability to obtain money to satisfy their needs. These changes in the economy should have led Western economists to re-evaluate the fundamentals of their economic theory. The following questions, if not so apparent in the initial conception of the theory have become so now:
What if circumstances prevent people from working? What if as is the case for hundreds of thousands of people today that they want to work but there are no jobs for them, or the jobs available do not pay enough to meet their needs?
Due to an attitude previously seen in the pre-renaissance bigotry of the Church in repressing the philosophers who questioned the unquestionable, this new clergy of economists today do not question their bible written by Adam Smith. This religious adherence blinds them from admitting the failures of their fundamental philosophy. It is this fact that has led to their failure in dealing with poverty on the streets of Britain and in the West.
Some may argue that poverty is tackled by governments in Europe through employment schemes, free health care and education, council houses and financial handouts such as the dole scheme in the UK. However these welfare schemes are ad-ons that do not conform to classical Capitalist theory, in fact history demonstrates that they emerged as a reaction to the threat of Socialism in Europe.
Welfare state - a reaction to Socialism
The first welfare legislation in Europe was introduced by the cigar loving Otto Von Bismark, the Chancellor of Germany in 1881 (CE). Bismark laid the foundations of the social welfare state in order to fend off the burgeoning Socialist Democratic Party that was gaining strength as Germany industrialised. The Socialist movement played upon the inequalities between the rich and the poor and began to gain ground in Germany despite repression against them. Bismark’s shrewd politicking enabled him to pull the rug from under their feet by introducing social welfare policies.
The law of 1881 created an obligatory insurance for employers for working accidents, followed by three laws on each of the principal risks: 1883 on obligatory sickness insurance; 1884 creating an analogous disposition for work accidents; 1889 created a pension scheme. The rest of Europe followed suite with Britain introducing similar legislation from 1906 onwards.
This continued as the threat of socialism increased and the ideas of Karl Marx became embodied in state form by the Soviet Union in 1917. Marxist Socialism challenged the ideas of Capitalism by highlighting the obvious concentration of wealth amongst the upper classes (bourgeoisie) and the disparity in wealth between them and the working class (proletariat). Despite many flaws within Marx’s economic theory his ideas became influential. The Soviet Union launched an ideological campaign against Capitalism utilising the communist party. As a result, Socialist parties and labour movements sprung up throughout Europe including in Britain.
Social welfare legislation continued to be introduced in Britain, following the Beveridge report in 1942 many reforms took place such as the 1944 Butler Act which reformed schooling, the commitment to full employment in the same year, the Family Allowance Act of 1945, the 1946 National Insurance Act and the 1948 National Health Act.
According to the laissez faire approach of Adam Smith the government should not intervene in the economy, thus leaving the forces of supply and demand free to operate hence the term, the free market. The interventionist policies of the European governments were seen as necessary to counteract the attraction of people towards Socialism. However this does not mean that the economists in Europe abandoned Smith’s ideals. On the contrary after the demise of the Soviet Union, in Britain we saw a move towards the non interventionist approach which began with the iron lady, Margaret Thatcher. This has continued through to the present Blair government, most recently seen by the controversial decision to cut government subsidies on tuition fees for university students. Similar cut backs have taken place with the NHS as well as other welfare institutions, with more proposed for the future.
Therefore it is apparent that welfare legislation and the concept of the welfare state itself were ‘ad-ons’ to the capitalist economy spurned by a pragmatic approach to stem the tide of Socialism. These policies are now being revoked slowly in a manner attempting to avoid public outcry. In contrast America never introduced comprehensive welfare legislation as it never faced the threat of socialism within upon shores. In this sense it is a purer form of the capitalist economy: a society in which people are refused treatment without having medical insurance; where millions live in ghettos reminiscent of the shanty towns in third world, Africa; the superpower of the world with 35 million people living in poverty.
Islam wages war on poverty
Although the cause for poverty in the west is the capitalist economic philosophy, Western economists fail to look at any other alternative apart from Socialism. They only see two paradigms for the economy, Capitalism or Communism. I recall a discussion with my previous economic lecturer 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.
Leftist movements, thinkers and writers are increasingly voicing their opinion against the inequalities created by Capitalism. However they too like my economics lecturer cannot see any other alternative and therefore call for the reformation of Capitalism. We need to articulate the Islamic economic system as an alternative to the mass of economic problems that face the world today.
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 under the Khilafah (Caliphate). 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.
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. There are enough resources in the world to provide the basic needs for over 60 billion people according to some statistics. 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.
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. The purpose of the economic policy in Islam is not to raise the standard of living in the country without looking to secure the rights of life for every individual completely. Nor is it just to provide the means of satisfaction in the society, leaving people free to take from such means as much as they can, without securing the livelihood right for each individual. Rather, it addresses the basic problems of everyone as human beings, then enabling each individual to raise his standard of living and achieve comfort for himself.
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]
This is achieved by obliging each capable person to work, so as to achieve the basic needs for himself and his dependants.
Allah (SWT) the Supreme said: "So walk in the paths of the earth and eat of His sustenance which He provides." [TMQ Al-Mulk 67:15].
Many Ahadith came to encourage earning. In one narration, the Prophet Muhammad (saw) shook the hand of Sa’ad ibn Muadh (ra) and found his hands to be rough. When the Prophet (saw) asked about it, Sa’ad said: “I dig with the shovel to maintain my family.” The Prophet (SAW) kissed Sa’ad’s hands and said: “(They are) two hands which The Supreme loves.” The Prophet (saw) said: “Nobody would ever eat food that is better than to eat of his own hand’s work.”
Unlike Capitalism, Islam obliges the children or the heirs to support the parents if they are not able to work, or obliges the State Treasury (Bait al-Mal) to do so, if there is nobody to support them.
Muslim narrated from Jabir that the Prophet (SAW) said, "Start with yourself and make charity for it, and if anything is left give it to your family, and if anything is left after that give it to your relatives, and if anything is left after that, do it like that, and that i.e. to that in front of you, at your right hand and at your left hand."
When the Islamic rules are inculcated into the Islamic society the rules of aiding the family will become more apparent to the people and adherence to them will increase as occurred in history under the Khilafah. The feeling of responsibility towards relatives still exists today amongst millions of Muslims worldwide in the absence of the Islamic state, many of them in the Muslim world even looking after their extended families.
Islam also gave the responsibility of the community to help people in financial difficulty.
Al-Bazzar narrated from Anas that Muhammad (saw) said from one of the sayings from his Lord (swt): "He who would not have believed in me, the one who slept with his stomach full when his neighbour on his side was hungry and he knew of it."
The Prophet (SAW) said, "In a local community, if there became amongst them a hungry person, Allah has nothing to do with them," [Ahmad]
In fact Allah (swt) described poverty one of Satan’s promises. He (swt) said:
"The devil promises you destitution (poverty)." [TMQ 2:268]
Allah (swt) ordered the caring for the poor people.
The Supreme (swt) said: "If you reveal your almsgiving, it is well, but if you hide it and give it to the poor (people) it will be better for you." [TMQ 2:27]
And He (swt) said: "And feed the wretched poor (person)." [TMQ 22:28]
If an individual has not been able to earn through employment or other means and their family and community are not able to aid them to meet his basic needs then the Islamic state will aid him to satisfy his needs. This is accomplished in a number of ways.
If the person is unable to earn due to a disability whether physical or mental, the state will give he or she the necessary funds from the Bait ul Mal.
If the person is able to work but has been unable to find work then the state could employ them within the public sector after reviewing his reality. The public sector in the Islamic state will be much larger than in Capitalist states due to prohibition in Islam of owning public utilities such as gas and oil. The Islamic state can also give the citizen a grant for a business project or the means for them to provide for themselves such as purchasing a computer for a web developer or tools for the farmer.
Alternatively the state can enter into a partnership with the individual which is a type of Mudharaba, company structure. This is where the state invests capital and the individual carries out the work and the profits are shared. However this will be done for the interest of the people as the Khilafah is not a businessman, it is a guardian and must act as such. Hand-outs are a last resort, as the aim is to enable citizens to be able to provide for themselves, if they are unable to - then the state must provide each individual a sufficient amount according to their specific needs instead of the fixed amounts such as the ‘dole’ in Britain.
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. Allah (SWT) says: "Lest it circulates solely among the wealthy from amongst you" [TMQ 59:7]. If there were a wide gap within society between individuals in terms of securing the needs, and if society needed to be rebuilt, or if this disparity was caused by neglect of or the indifference in the implementation of the Islamic rules, the State would be under obligation to redress the situation by handing out financial assistance to those in need, until these basic needs were satisfied, and until a balance in distribution was struck. The State should endeavour to provide both movable and immovable commodities, for its aim should not only be to temporarily fulfil one’s needs, but also to provide the means which would assist the individual in his quest to fulfil his own needs over the long term.
I have covered only the salient aspects of how Islam wages war on poverty and how it views the economic problem. It is important for all Muslims, especially those who are educated, to expose the failures of Capitalism and to present the Islamic economic system. This requires understanding the basis of Western economics and grasping the conceptual and legislative fundamentals of the Islamic economy. We must present an alternative to the host societies in which we live, such that they realise the truth of Islam or at least acknowledge it a viable ideological system and recognise the legitimacy of the Khilafah state when it returns.
Mind numbing call centres around the country are bursting at the seams with graduates answering calls, having to log the time they spend in the toilet, earning on average £4-£6 an hour despite having been through three years or more of university education.
Although being the fifth largest economy in the world, Britain has a poverty problem one would think applicable only to the developing world. According to ‘The New Policy Institute’, an independent think tank, just under 1 in 4 people in the UK live below the poverty line. This equates to 12.5 million people or 22 per cent of the UK population. Of these, 3.8 million are children, 2.2 million are pensioners and 6.6 million are working-age adults, equivalent to 30 per cent, 23 per cent and 19 per cent of their respective populations.
People may assume that living below the poverty line in the West doesn’t mean much, as the basics are available to everybody. This is a misnomer born out of the illusory image conjured up by glitzy movies, the celebrity dominated media and a society obsessed with self gratification.
One recent survey showed that about 6.5 million adults go without essential clothing, such as a warm waterproof coat, because of the lack of money. Over 10.5 million people live in financial insecurity: they can’t afford to save, or spend even small amounts on themselves. About 9.5 million can’t afford adequate housing – heated, free from damp, and in a decent state of decoration. The crucial factor about these findings is that they are based on a survey of what the general population sees as necessities. [Poverty and Social Exclusion in Britain, Joseph Rowntree Foundation, 2000]
Foreign students, especially from the Muslim world are often amazed as they walk through cardboard city in London or when beggars hassle them for money on the tube, for isn’t this Britain – a superpower, the former ruler of the seven seas? They soon discover that the wonderland image of Britain ingrained in them whilst growing up holds as much water as believing in the integrity of British footballers.
Cause
Poverty is wrongly taken by some as a norm and a problem that will not go away. One must ask the question, how can societies that have a history of colonialism including looting the riches in Africa and India and the neo colonialism of multi-nationals, have such high levels of poverty? How can they spend billions on the mythical ‘war against terrorism’ when one in five non-working families on low or moderate incomes reported to being unable to afford some basic food items on most days?
At a first glance it seems baffling to the mind, how can this occur? However when we study the underpinnings of the Western Capitalist economy the cause for this situation becomes apparent.
The root of the capitalist economy stems from what every economics pupil is taught in their first lesson, understanding the economic problem. A particular view towards the economic problem has dominated Western economies since the time of the founding father of capitalist economics, previously a Professor at Glasgow University, Adam Smith.
In 1776 (CE) Smith published what became the bible of capitalist economics, ‘An Inquiry Into the Nature and Causes of the Wealth of Nations’, it articulated his laissez faire view towards the economic problem.
In essence capitalist economists believe that the economic problem is caused by the unlimited needs of people and the scarcity of resources, this leads to the dilemma of how to bridge the gap between the two – how do people get their needs satisfied? In answer to this question, Smith developed the ‘invisible hand theory’. It denotes that if the economy is left to run in a free manner the resources will be distributed fulfilling the needs of society almost in an automatic way.
The basis of the theory is that by focussing on production the gap between the unlimited needs and limited resources is lessened, it is assumed that people will work to achieve their own interests. By working and earning a wage they can in turn purchase the goods and services they require. 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.
However the theory is not that simplistic, in order to explain the ‘invisible hand’ the price mechanism is seen as key. It is seen as the incentive for production, the regulator of distribution, and the link between the producer and the consumer i.e. it is the means which achieves a balance between production and consumption.
The price mechanism is cited as the incentive for production because the principal motive for people to undertake any productive effort or sacrifice in view of the capitalist economists is material reward. The Capitalist economists exclude the possibility that man expends effort for a moral or spiritual motive. They consider that man expends his efforts to satisfy his materialistic needs and wishes only. This satisfaction is either through the consumption of commodities which he produces directly such as a farmer who eats from his crops, or through receiving a monetary reward that enables him to obtain the commodities and services produced by others.
In modern society people depend on satisfying most of their needs, if not all of them, on exchanging their efforts with money. Gone are the days where people would grow their own food, make their own clothes and even build their own houses. Monetary reward allows people to obtain commodities and services. Therefore it is concluded that the monetary reward, which is the price, is the motive for man to produce. Hence, the price is the means which motivates the producers to offer their efforts. Thus the price is seen as the incentive for production.
This magical ‘price’ is also in their eyes the means which regulates distribution because people like to satisfy all of their needs completely and they strive to obtain the commodities and services which satisfy these needs. According to them had every human being been left free to satisfy his needs he would not stop short of possessing and consuming whatever commodity he likes. Accordingly since every man strives for this same aim, everybody has to stop in satisfying his needs at the limit at which he can afford to exchange his efforts with others, that is at the limit of the monetary compensation which he receives for expending his effort i.e. at the limit of the price. Therefore, the price is the constraint which acts naturally to restrict man in his possession and consumption to a level which is proportional to his income. So the existence of the price makes people think, evaluate, and differentiate between their competing needs which require satisfaction, so they take what they find necessary, and leaves what they find of less importance. Thus, the price forces the individual to settle for partial satisfaction of their needs.
So, the price is the tool which regulates the distribution of needs required by individuals. It is also believed that price regulates the distribution of limited utilities to the consumers who demand them. The disparity in income of the consumers makes the consumption of each individual confined to that which his income allows. This makes some commodities confined to only those who can afford them, while the consumption of other commodities would become common amongst people who can afford the lower prices. Therefore, the price will become the regulator in distributing utilities among consumers by setting a higher price for some commodities and services and a lower price for others, and also by the suitability of the price to some consumers more than others.
The price achieves equilibrium between production and consumption, and it is the link between the producer and the consumer, because the producer who fulfils the desires of the consumers is rewarded through profits. On the other hand, the producer whose products are not accepted by the consumers, would end up with losses. The method through which the producer can detect the desires or demand of the consumers is the price. If the consumers demand any particular commodity its price will increase, and the production of that commodity will increase, in fulfilment of the consumer’s desires. If consumers turn away from buying a particular commodity, its price will drop in the market, and so production of this commodity will decrease. So, the resources assigned to production increase as price increases, and decrease as price decreases. In this way the price is the tool which achieves equilibrium between production and consumption, and it is the link between the producer and the consumer and the process occurs automatically. Therefore, the price is the basis on which the economy is established in the view of the Capitalists, and it is the cornerstone of the economy to them.
Fundamental flaws
Fundamental flaws exist in their theory:
1. Failing to differentiate between basic needs and luxurious ‘wants’.
The view of the insufficiency of commodities and services to satisfy all of man’s needs is completely erroneous. The only reason it sounds believable is due to the fact that there is no distinction made between basic needs which are required by people such as food, clothing, shelter and the luxurious ‘wants’ of people. Many may desire the latest Ferrari and a country mansion, however they are not needs that people will suffer without.
The basic needs of human beings are limited, and the resources and the efforts which they call the commodities and services existent in the world are certainly sufficient to satisfy human basic needs; it is possible to satisfy all of the basic needs of mankind completely many times over.
So, there is no problem in the basic needs, quite apart from considering it as fundamental economic problem that faces society. The economic problem is, in reality, the distribution of these resources and efforts enabling every individual to satisfy all basic needs completely, and after that helping them to strive for attaining their luxuries. Therefore increasing production alone will not solve the economic problem.
Western societies have high levels of GDP (Gross Domestic Product) yet still have high levels of poverty as was established earlier. This fact itself disproves the ‘invisible hand theory’ and the free market as the solution to the economic problem.
The production centric approach to the economy has led to the obsession amongst Western economists in increasing national income through increasing production. GDP and GNP (Gross National Product) are even used to measure the success of economies globally. These measures indicate the collective wealth of a nation but do not indicate the distribution of wealth and levels of poverty.
An increase in the level of production leads to a rise in the level of the wealth of the country and does not necessarily lead to the complete satisfaction of all the basic needs of each and every individual. A country could be rich in its natural resources, as in the case of Iraq and Saudi Arabia, but the basic needs of most of their citizens are not satisfied completely. Therefore, the increase of production by itself, does not solve the basic problem which must be treated first and foremost, which is the complete satisfaction of the basic needs of each and every individual, and following that enabling them to satisfy their luxuries. Thereupon, the poverty and deprivation required to be treated is the non-satisfaction of the basic needs of man as a human being (i.e. food, shelter and clothing), not the increasing luxuries resulting from urban progress. Hence, the problem to be treated is poverty and deprivation of individual members of the society, not the poverty and deprivation of the country measured as a whole. The poverty and deprivation from this perspective (i.e. for every individual) is not treated by increasing national production, rather it is treated by the manner in which the wealth is distributed to the individuals in society enabling complete satisfaction of all their basic needs, and then enabling the individuals to satisfy their luxuries.
2. The assumption that people will be able to find reasonable work
The Capitalist view towards the economic problem reflects the time in which it was theorised as it assumes that people will be able to work and earn a reasonable amount of money to be able to purchase goods and services to satisfy their needs. Finding work in the late 1700’s and 1800’s in Britain may not have been difficult due to the high level of demand for labouring jobs during the industrial revolution. This continued until the advent of automation and mass production which led business owners replacing workers by machines. Machines are more efficient, do not demand rights and can’t go on strike. This obviously increased unemployment decreased the demand for labouring jobs and led to the growth in the service sector.
This situation has been compounded by the information technology revolution in the last decade. The development of technologies in control systems, advanced robotics and the like have further increased mass production and decreased the reliance on human involvement. Where once factories that produced cars would employ hundreds of employees in the manufacturing process, this now is accomplished by an almost fully automated process.
Corporations in the developed have also taken advantage of the cheap labour found in the developing world. Such that the jeans we wear and the Nike and Reebok trainer’s children aspire to have, are produced by underpaid labourers in the sweatshops of Indonesia, India, Pakistan and other countries. This form of globalisation has negatively impacted domestic employment. The heavy industry which used to characterise British economy is now a thing of the past.
This change of circumstances from a situation in which heavy industry during the industrial revolution led to lower levels of unemployment to the reality today where mass production achieved by automation combined with the exploitation of cheap labour in the third world has led to a shortage of jobs.
The reality of unemployment, obviously limits peoples ability to obtain money to satisfy their needs. These changes in the economy should have led Western economists to re-evaluate the fundamentals of their economic theory. The following questions, if not so apparent in the initial conception of the theory have become so now:
What if circumstances prevent people from working? What if as is the case for hundreds of thousands of people today that they want to work but there are no jobs for them, or the jobs available do not pay enough to meet their needs?
Due to an attitude previously seen in the pre-renaissance bigotry of the Church in repressing the philosophers who questioned the unquestionable, this new clergy of economists today do not question their bible written by Adam Smith. This religious adherence blinds them from admitting the failures of their fundamental philosophy. It is this fact that has led to their failure in dealing with poverty on the streets of Britain and in the West.
Some may argue that poverty is tackled by governments in Europe through employment schemes, free health care and education, council houses and financial handouts such as the dole scheme in the UK. However these welfare schemes are ad-ons that do not conform to classical Capitalist theory, in fact history demonstrates that they emerged as a reaction to the threat of Socialism in Europe.
Welfare state - a reaction to Socialism
The first welfare legislation in Europe was introduced by the cigar loving Otto Von Bismark, the Chancellor of Germany in 1881 (CE). Bismark laid the foundations of the social welfare state in order to fend off the burgeoning Socialist Democratic Party that was gaining strength as Germany industrialised. The Socialist movement played upon the inequalities between the rich and the poor and began to gain ground in Germany despite repression against them. Bismark’s shrewd politicking enabled him to pull the rug from under their feet by introducing social welfare policies.
The law of 1881 created an obligatory insurance for employers for working accidents, followed by three laws on each of the principal risks: 1883 on obligatory sickness insurance; 1884 creating an analogous disposition for work accidents; 1889 created a pension scheme. The rest of Europe followed suite with Britain introducing similar legislation from 1906 onwards.
This continued as the threat of socialism increased and the ideas of Karl Marx became embodied in state form by the Soviet Union in 1917. Marxist Socialism challenged the ideas of Capitalism by highlighting the obvious concentration of wealth amongst the upper classes (bourgeoisie) and the disparity in wealth between them and the working class (proletariat). Despite many flaws within Marx’s economic theory his ideas became influential. The Soviet Union launched an ideological campaign against Capitalism utilising the communist party. As a result, Socialist parties and labour movements sprung up throughout Europe including in Britain.
Social welfare legislation continued to be introduced in Britain, following the Beveridge report in 1942 many reforms took place such as the 1944 Butler Act which reformed schooling, the commitment to full employment in the same year, the Family Allowance Act of 1945, the 1946 National Insurance Act and the 1948 National Health Act.
According to the laissez faire approach of Adam Smith the government should not intervene in the economy, thus leaving the forces of supply and demand free to operate hence the term, the free market. The interventionist policies of the European governments were seen as necessary to counteract the attraction of people towards Socialism. However this does not mean that the economists in Europe abandoned Smith’s ideals. On the contrary after the demise of the Soviet Union, in Britain we saw a move towards the non interventionist approach which began with the iron lady, Margaret Thatcher. This has continued through to the present Blair government, most recently seen by the controversial decision to cut government subsidies on tuition fees for university students. Similar cut backs have taken place with the NHS as well as other welfare institutions, with more proposed for the future.
Therefore it is apparent that welfare legislation and the concept of the welfare state itself were ‘ad-ons’ to the capitalist economy spurned by a pragmatic approach to stem the tide of Socialism. These policies are now being revoked slowly in a manner attempting to avoid public outcry. In contrast America never introduced comprehensive welfare legislation as it never faced the threat of socialism within upon shores. In this sense it is a purer form of the capitalist economy: a society in which people are refused treatment without having medical insurance; where millions live in ghettos reminiscent of the shanty towns in third world, Africa; the superpower of the world with 35 million people living in poverty.
Islam wages war on poverty
Although the cause for poverty in the west is the capitalist economic philosophy, Western economists fail to look at any other alternative apart from Socialism. They only see two paradigms for the economy, Capitalism or Communism. I recall a discussion with my previous economic lecturer 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.
Leftist movements, thinkers and writers are increasingly voicing their opinion against the inequalities created by Capitalism. However they too like my economics lecturer cannot see any other alternative and therefore call for the reformation of Capitalism. We need to articulate the Islamic economic system as an alternative to the mass of economic problems that face the world today.
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 under the Khilafah (Caliphate). 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.
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. There are enough resources in the world to provide the basic needs for over 60 billion people according to some statistics. 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.
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. The purpose of the economic policy in Islam is not to raise the standard of living in the country without looking to secure the rights of life for every individual completely. Nor is it just to provide the means of satisfaction in the society, leaving people free to take from such means as much as they can, without securing the livelihood right for each individual. Rather, it addresses the basic problems of everyone as human beings, then enabling each individual to raise his standard of living and achieve comfort for himself.
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]
This is achieved by obliging each capable person to work, so as to achieve the basic needs for himself and his dependants.
Allah (SWT) the Supreme said: "So walk in the paths of the earth and eat of His sustenance which He provides." [TMQ Al-Mulk 67:15].
Many Ahadith came to encourage earning. In one narration, the Prophet Muhammad (saw) shook the hand of Sa’ad ibn Muadh (ra) and found his hands to be rough. When the Prophet (saw) asked about it, Sa’ad said: “I dig with the shovel to maintain my family.” The Prophet (SAW) kissed Sa’ad’s hands and said: “(They are) two hands which The Supreme loves.” The Prophet (saw) said: “Nobody would ever eat food that is better than to eat of his own hand’s work.”
Unlike Capitalism, Islam obliges the children or the heirs to support the parents if they are not able to work, or obliges the State Treasury (Bait al-Mal) to do so, if there is nobody to support them.
Muslim narrated from Jabir that the Prophet (SAW) said, "Start with yourself and make charity for it, and if anything is left give it to your family, and if anything is left after that give it to your relatives, and if anything is left after that, do it like that, and that i.e. to that in front of you, at your right hand and at your left hand."
When the Islamic rules are inculcated into the Islamic society the rules of aiding the family will become more apparent to the people and adherence to them will increase as occurred in history under the Khilafah. The feeling of responsibility towards relatives still exists today amongst millions of Muslims worldwide in the absence of the Islamic state, many of them in the Muslim world even looking after their extended families.
Islam also gave the responsibility of the community to help people in financial difficulty.
Al-Bazzar narrated from Anas that Muhammad (saw) said from one of the sayings from his Lord (swt): "He who would not have believed in me, the one who slept with his stomach full when his neighbour on his side was hungry and he knew of it."
The Prophet (SAW) said, "In a local community, if there became amongst them a hungry person, Allah has nothing to do with them," [Ahmad]
In fact Allah (swt) described poverty one of Satan’s promises. He (swt) said:
"The devil promises you destitution (poverty)." [TMQ 2:268]
Allah (swt) ordered the caring for the poor people.
The Supreme (swt) said: "If you reveal your almsgiving, it is well, but if you hide it and give it to the poor (people) it will be better for you." [TMQ 2:27]
And He (swt) said: "And feed the wretched poor (person)." [TMQ 22:28]
If an individual has not been able to earn through employment or other means and their family and community are not able to aid them to meet his basic needs then the Islamic state will aid him to satisfy his needs. This is accomplished in a number of ways.
If the person is unable to earn due to a disability whether physical or mental, the state will give he or she the necessary funds from the Bait ul Mal.
If the person is able to work but has been unable to find work then the state could employ them within the public sector after reviewing his reality. The public sector in the Islamic state will be much larger than in Capitalist states due to prohibition in Islam of owning public utilities such as gas and oil. The Islamic state can also give the citizen a grant for a business project or the means for them to provide for themselves such as purchasing a computer for a web developer or tools for the farmer.
Alternatively the state can enter into a partnership with the individual which is a type of Mudharaba, company structure. This is where the state invests capital and the individual carries out the work and the profits are shared. However this will be done for the interest of the people as the Khilafah is not a businessman, it is a guardian and must act as such. Hand-outs are a last resort, as the aim is to enable citizens to be able to provide for themselves, if they are unable to - then the state must provide each individual a sufficient amount according to their specific needs instead of the fixed amounts such as the ‘dole’ in Britain.
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. Allah (SWT) says: "Lest it circulates solely among the wealthy from amongst you" [TMQ 59:7]. If there were a wide gap within society between individuals in terms of securing the needs, and if society needed to be rebuilt, or if this disparity was caused by neglect of or the indifference in the implementation of the Islamic rules, the State would be under obligation to redress the situation by handing out financial assistance to those in need, until these basic needs were satisfied, and until a balance in distribution was struck. The State should endeavour to provide both movable and immovable commodities, for its aim should not only be to temporarily fulfil one’s needs, but also to provide the means which would assist the individual in his quest to fulfil his own needs over the long term.
I have covered only the salient aspects of how Islam wages war on poverty and how it views the economic problem. It is important for all Muslims, especially those who are educated, to expose the failures of Capitalism and to present the Islamic economic system. This requires understanding the basis of Western economics and grasping the conceptual and legislative fundamentals of the Islamic economy. We must present an alternative to the host societies in which we live, such that they realise the truth of Islam or at least acknowledge it a viable ideological system and recognise the legitimacy of the Khilafah state when it returns.
Comments
Secondly, what then is the newly emerging role of say, India and China vs a vs the underdeveloped and underdeveloping world?
And, thirdly, what about the emergence of criminal enterprises siphoning off capital from all sectors of he world?
1) Hoarding of wealth is prohibitted in Islam i.e. it is religiously prohibitted for Muslims to save wealth without a purpose. 2.5% of all savings which have been held for more than one year must be given in Zakah (charity), the Islamic state obliges this and collects it. This encourages people to invest their wealth, as even if they are rich and invest their money such that they don't have accumulated wealth for over one year then they are not obliged to pay zakah on it. Investment creates circulation of wealth which is good for the economy.
I will post articles on these areas in future.
2) Unfortunately the newly emerging economies like China and India are following the same trend of Capitalist economics like the rest of the world. For example in India we see an annual increase of the GDP every year yet 2 thirds of the country is still in poverty and poverty remains at the same level despite the increase in GDP.
The distribution of wealth is the key which these economies are not focussing on.
3) The economic system cannot be implemented independently of a strong political, judicial and punishment system which Islam obliges to stop criminal enterprises. As is well known Islam has very harsh punishments against criminals.
I will post articles about the Islamic judicial and punishment systems in future.
and what is the similaritybetween gambling and insurance
?
http://abuismael.blogspot.com/2007/02/prohibition-of-insurance-in-islam.html