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TOPIC 3 - ISLAMIC ECONOMIC SYSTEM (4.DISTINCT CHARACTERISTICS OF ES…
TOPIC 3 - ISLAMIC ECONOMIC SYSTEM
1.ECONOMIC SYSTEM
System: a set/group of things connected/interdependent, forming a complex unity
Components of a system:
i)entities that are working together
ii)mode of interaction
iii)goal/common objective
Social System: society organizes itself according to its values, culture, worldview and its source of authority
Economic System:
-a set of principles that constitutes the framework of the organization of the economic activity
-combination of entities interact with one another according to a particular plan
-Goal: to fulfill economic objectives of a society
Approaches to categorize ES
Theoretical approach: based on theories that explain the micro-foundation of economic agent's activity of consumption, production, exchange
Sectoral approach: based on type of real activities undertaken
Ex: agriculture, manufacturing, services
Comparative/Traditional approach: based on different philosophical foundation
Ex: capitalist, socialist, mixed economy
2.PHILOSOPHICAL FOUNDATIONS IN ES
1.Concept of scarcity: nature is niggardly & human wants unlimited
2.Self-interest: priority to individual goal
3.Absolute freedom: survival of the fittest
4.Materialism & utilitarianism
5.Positivism vs Norms
Derived from theories by western scholars
1.Adam Smith: invisible hand
2.Joseph Schumpeter: creative destruction (Evolutionary vs Radical Innovation)
3.Jeremy Bentham: max pleasure, min pain
4.Max Weber: protestant ethics in capitalism
-Pursuit of one's own utility
-Pursuit of wealth is not deviant
3.ISLAMIC ECONOMIC SYSTEM
Philosophical Foundations
1.Tawhid: accepting Allah as the only sovereign power
2.Ibadah: any act must be within shariah boundaries to seek Allah's pleasure
3.Khilafah: man recognizes his duty as servant of God
4.Tazkiyyah: process of economic activity must be seen as a process that purifies soul
Operational Principles
1.Adl(giving what is due)/Ihsan(giving more than what is due)
2.Takaful/Taawun: cooperation
3.Responsibility/Accountability: individual is responsible to society but ultimately to Allah
4.Moderation: in consumption, production, distribution
Goals
Maqasid Al-Shariah
1.Promoting virtues & preventing haram
2.Achieve public welfare
3.Socio-economic justice
4.Economic development
4.DISTINCT CHARACTERISTICS OF ES
Property Ownership: a system of rules of access to and control of resources
Components
1.Object: anything that can be owned
(corporeal/incorporeal)
2.Subject: owner(individual/society/state)
3.Content: rights to own & obligations/duties
In Quran
Mal/amwal: refers to wealth, property, possession
Milkiyyah: to possess, control
Islamic Principles
absolute owner of property is Allah
Man as khalifa & abd
man is responsible to society & accountable to God for his property
private & public are legitimate in Islam
Private Property
Complete/Incomplete ownership rights
rights to own, utilize, income, dispose
permissibility, proper & constant utilization, meet all obligations (zakat)
Public Property
should not be privately owned
access & control refer to public interest
State-owned: has complete rights & can decide use for public interest (ex: privatisation of previously public property)
Common: equally accessible to society
2.Incentives/Motivation
Market economy=material/cash
Planned economy=moral/medal
Es-i=moral & material
3.Organization of Decision Making
ES: Decentralized vs Centralized
How decisions are made
Principles
How they are implemented
solve economics problems of what, how & for whom
ES-i
Shura: mutual consultation between higher & lower level
people voice their views
decision within the limits of Shariah
no bias towards extreme
4.Coordination Mechanism
Islam support market system
Market in Islam: reflects the norms, values in consumers & producer behavior
Al-Hisbah: ensure the smooth functioning of market
Coordination & regulatory rules of al-Hisbah
right weights & measure
checking business frauds
hoarding
unfair monopolies
essential goods supply & price
5.Role of State/Government
ES: emphasizes on the relative size of government's involvement in economy
ES-i
concerned about the nature & suitability of government's involvement
neither strictly a guarding state nor totalitarian
justice for all (ensure adl & ihsan)
create a conducive environment for Islamic man
introduce hisbah & ensure its proper functioning
government as regulator/supervisor