Wealth Creation or Wealth Circulation?

There has been substantial amounts of books and literatures produced to elaborate on the subject of the Islamic economic system, often such works are presented with the aim of highlighting the distinguishing features from the alternative Capitalist and Communist types of economic system (remember there is no Christian, Buddhist, Hindu economic systems).

Communist ideology in its entirety began to gradually decline, reflecting its demise from the world status, no doubt the process accelerated after the major communist countries started to abandon it in favour of Capitalism. In Russia the process was known as Glasnost and Perestroika, and in China the economic ''reformation'' of Deng Xioping in the 80s, led to the phrase of 'one country and two systems'. Thus naturally from the Islamic viewpoint, the focus of comparison has now turned entirely towards the Capitalist model, which is undoubtedly the dominant system in the world at present.

Considerable amounts of these current Islamic literature and books often draw similar conclusions by emphasizing on the rules of Zakat (Tax), Riba (Interest), and Inheritance as being the primary constituents of the Islamic economic system and its distinguishing features. In reality these rules are significant but they do not constitute the primary constituents nor are they the fundamental demarcation from the capitalist free market paradigm. In order to evaluate the differences between the above, one needs to address the primary question, which is what constitutes the economic system in the first place.

Economic system is essentially composed of certain general principals, coupled with a set of derived rules. System provides the framework for addressing the diverse economic issues found within the society, which can vary in terms of scope, as it can be very specific to certain individuals and groups or very general such that it affects the entire society. So the framework provides these solutions for the general and detailed issues relating to all spheres of economic activity, such as buying, selling, investing, loans, currency, work, company structures, import, export and contract laws. Such activities coupled with application of these principals and the detailed rules naturally lead to the formation of the economic skeleton. Thus in order to comprehend the distinguishing features of the system, the focus must be on the general principals, rather than its detailed rules (like Zakat, Riba and Inheritance.) Merit of such principals is determined by the manner in which it resolves the basic economic problems faced by the society as a whole. Indeed it would be fair to state that all societies confront the same general economic problems, as these problems are a clear manifestation of the basic desire to secure the innate human needs, such as food, clothing, shelter, education, and health.

Wealth, through its various manifestation is the means by which we satisfy much of our basic human economic needs. The significance of the wealth is shaped to an extent by the values within the society amongst many other factors, as an example alcohol or the porn industry may be prized economic goods in one society but detested in another. However, overall the magnitude of the distinction regarding the notion of wealth is not too drastic, as the dominant factors in determining this largely revolves round the satisfaction of basic human needs and desires, which are universal. In addition the rise of global trade and ever-increasing enhancement of the electronic communication technology (mobile phone, Internet, fax etc), and the efficient transport means has helped to eliminate the cultural and geographical barriers and further integrate the notion of wealth, in its various forms. Hence the societal comprehension of this notion has paramount importance with regards to the system in place, which determines the manner of this wealth creation, circulation and its consumption. The question can now be posed, in what manner does the principles within Islamic and Capitalist system addresses the issues of wealth creation and circulation?

Capitalism

The current flavour of capitalism has evolved from the era of Thatcher-Reagan politics, when the laissez-faire approach was adopted in favour of the old Keynesian school. Subsequently other European and industrialized nations followed suit. This ''new'' school of thinking was essentially the resurrection of the classic economic school of the Victorian era established by Adam Smith and later expounded by David Ricardo. It primarily asserted that forces of free-markets is the key for allocating all economic resources and the cure for all the illness, hence the ''invisible hand of the market'' was coined. The role of the state was to enforce contracts, to control the supply of money and to ensure that markets were not distorted and essentially to provide the best climate for businesses to flourish. Essentially the underlying argument advocated is that the undistorted market forces should provide the impetus to create the wealth that is needed for society, which is deemed as a clear prerequisite for wealth circulation. To put it simply one has to create the wealth in the first place before we can engage to address the issue of wealth circulation.

An additional factor was the pessimistic view of the capitalist embedded in the fundamental economic notion of ''scarcity'', which asserts the limited existence of economic resources to satisfy the infinite human desires, thus creating the maximum drive to create wealth. Manifestation of this kind of thinking led to policies of tax reduction to provide business incentives, minimization of government spending, and deregulation of the markets and privatisation of large public owned industries. Most certainly enormous amounts of wealth have been created since the rise of this laissez-faire economic paradigm. Now what then is the means for circulation or distribution of this wealth? This is explained away by the ''trickle down'' theory, made famous by the speeches of Margaret Thatcher and the writings of the advocates of the free market paradigm. The theory purports that those who are the most skilled entrepreneurs should be allowed to function with full incentive and hence reduction in their tax levels, so that they generate the wealth that is needed by the nation. Once this is created, it will trickle down to other members within the society. No real explanation was provided with the exception of the fact that this was an inevitable process.

In reality some wealth will inevitably trickle down, but does this lead to the desired effect of creating a satisfactory level of the distribution of wealth within the society? It would more accurate to conclude from the reality that wealth does not trickle down but remains hoarded in the hands of the few at the expense of many. Resulting in a climate where the poor gets poorer and the rich gets richer. Homelessness, poverty, and iniquity have not been resolved in a capitalist society. The figures clearly indicate the opposite, widening of the income and wealth gap between the rich and poor within the country despite the significant growth of the GDP. Indeed even the Labour party with its traditional socialist line on matters such as public welfare and wealth distribution has abandoned these in favour of free market orientated capitalism. Tony Blair has openly advocated the policies of the conservative era under Margaret Thatcher, and in 1999 trade secretary Stephen Byers of Labour party declared, ''Wealth creation is now more important than wealth distribution''.

This new drive to create unlimited amounts of wealth has also severely impacted the quality of life resulting in social discord. Stress-related illness, obesity, diabetes, heart attacks are ever increasing. Parents spend less and less time with their children. Husbands and wives are more in contact with their bosses at work then with each other. Naturally this has resulted in the breakdown of the traditional family structure, soaring divorce rates, a rise in crime levels and juvenile delinquency amongst abandoned uncared children. Not coincidently Japan and Sweden have the highest level of suicide in the world, the majority of the cases being work related.

Similarly the international market is also operating along the free market basis and displaying similar symptoms. Rich industrialized nations are getting richer at the expense of the poorer nations by using various multinational companies and international institutions like IMF and the World Bank. The multinationals are operating under the same philosophy of wealth creation and thus are now larger then many nations.

It seems as though free markets have created its own monsters, which have started to destroy the very system it was suppose to serve. A system where the consumer is supposed to be king where through the mechanism of demand and supply the market should function most efficiently and serve the needs of the consumer. Which of course makes the assumption that the market will have many suppliers and no one single or group of companies will be able to dominate the market and harm the consumers. In reality the exact opposite has happened with the rise of large multinationals and corporations. We observe the market dominance of Microsoft, IBM, General Motors, Coca-Cola, Pepsi, and Wall Mart etc who continue to grow bigger but the wealth remains within the handful of minority and as yet to trickle down with any real significance. These companies do not respond to consumer demand but rather they create the consumer demand by manipulating the market and the media. Hence the consumer is more like a slave then a master in the market, working like slaves for the creation of wealth and then waiting for it to trickle down.

Islam

In sharp contrast the Islamic approach to the problem of wealth has been from the point of wealth circulation rather then wealth generation. It regards the subject of wealth creation as a technical matter that is to be left to the society, as the impetus to create wealth is part and parcel of human nature. Human beings have a natural tendency to own wealth to satisfy the basic human needs and thus a natural instinctive drive exist to produce wealth. The system functions to provide and protect the economic climate, enabling the citizens to produce and sell the wealth for a profit. In addition Islam rejects the capitalist notion of scarcity. Wealth is scarce, otherwise it would not posses an economic value, but it is not scarce from the viewpoint of unlimited human needs and desires. Human beings have minimum basic needs which is essential for survival, such as food, clothing and shelter, which can be satisfied many times over with the wealth that currently exists but it is the optional luxury needs that require the undefined extra wealth. Capitalists fail to make this important distinction in their approach to resolving the issue. As for the notion of limited wealth, wealth is limited but it exists in enough quantities to sustain human life. The Islamic view of life is that Allah (SWT) as the creator of this world has designed the world for mans usage and consumption. Hence it is absurd to think that the natural system is somehow deficient and will simply be exhausted with all the wealth and collapse. It is the disbelief in the creator that has resulted in the Malthusian type of apocalyptic views, with which we are brainwashed on a daily basis.

Islam recognizes the fundamental economic problem lies in the disparity of differing capabilities of human beings within the society. Society is not homogenous and nor does it function in the simplistic capitalist models that have been invented over the years. People with differing capabilities must have access to the wealth that is generated within the society, thus protecting the weak and the vulnerable in society, and thereby prevent the free market dogma, which is about the exploitation of the poor by the rich. Hence maximum attention is given to issue of wealth circulation. This is the fundamental principal regarding wealth in Islam, it must circulate so that everyone has the opportunity to have a slice. There is no point in baking a bigger cake if only the few can obtain its slice. Likewise the GDP continues to grow every year but its share continues to dwindle every year. Islam implements the notion of a wealth circulation policy by the various rules and principals that it implements within the society. A brief description of how this is achieved is given below:

a) Rules of ownership & investment

The various rules of ownership facilitate the ease of circulation of wealth. Certain resources such as water, fuel (gas, oil, uranium coal), exist by their very nature in the form of monopolies and thus are prohibited for individuals to own and use. Such properties belong to the Ummah and are administered by the government on their behalf as public properties. If this were in the hand of private individuals a large concentration of wealth would be their hands.

Individuals likewise have legal restriction in the way they can acquire and accumulate wealth, which prevents certain individuals gaining dominance over others, thus ensuring that the system is fair from the onset. The Sharia has detailed many rules of ownership and accumulation of wealth by the individuals. As an example one is allowed to acquire barren land by cultivation but if it is not used for three continuous years it is taken from the individual and given to someone else by the state. The state also plays a significant role towards implementing this policy by addressing the natural economic imbalance found within the society. She acts as catalyst for the process of wealth circulation by giving lands (Iqtaa) and funds, to the poor and needy citizens and monitoring the activity of the individuals and companies in the market. In addition to legal rules that are general commandments and advice for individual Muslims to give wealth to the poor and the needy in the form of gifts, loans, Zakat and Sadaqat. Hence the combined action of the state and the individuals helps to achieve circulation of wealth in the society.

Individuals and companies are also prevented in certain practices, which contribute towards economic imbalance. Activities such as usurious lending (riba), hoarding of goods to raise prices, price fixing (via forming agreement amongst companies), monopoly formation, patenting technology, aggressive marketing and advertising have often lead to the domination of a small group of elite in the form of large multinationals and corporations. Such activities have inevitably led to the domination of certain businesses by driving others out of business as well as creating many of the social problems through long working hours to achieve high levels of profit, which has devastating impacts on the quality of individual and family life. Whereas Islam builds the mentality of the individuals and companies, so that they do not aim and function to maximize profit at any expense and in the process drive other companies out of business.

Yet another example is the issue of inheritance, whereby in capitalist societies wealth remains concentrated in the hands of the few through wealth transfer within the same family from generations to generations. Thus it is not unusual to find a family of landowners stretching back over hundreds of years. In Islam the rules of Inheritance prevent a particular individual being assigned all of the inheriting wealth, thus allowing the wealth to be distributed amongst the various inheritors including the state itself in some cases, which in turn distributes to other citizens of the state.

b) Policy of Distribution within the State

''Lest it circulates solely among the wealthy from amongst you'' [Surah Al-Hashr (59): Ayah 7]

The above verse relates to the circulation of wealth; this was revealed in relation to that of the booty, which by right should be granted to the poor, as happened many times with the Prophet (SAW). So in a situation where there is large disparity of wealth, then it is the duty of the state to resolve this by the redistribution of wealth as the Prophet illustrated through his own examples.
The primary means of acquiring, and exchanging wealth is in the form of currency. Islam clearly forbids the hoarding of currency to ensure circulation, as the verse clearly states:

''And let those who hoard(not spend) gold and silver and do not spend in the way of Allah know that a severe and painful punishment is awaiting them'' [Surah At Tauba (9): Ayah 34]

Hoarding has a sever impact on the economy activity as the effect of hoarding is to withdraw wealth from circulation. This results in unemployment, and pushes the poorer sections of the society into poverty. Which is often clearly seen in the capitalist societies, where the Banks and Financial institutions are primarily responsible for hoarding large quantities of wealth and thus creating the economic crisis and cycles of booms and busts. As they say wealth generates wealth. Wealth spent ensures the livelihood of someone else and so on. Hence the fact that certain powerful individuals and institution have large amounts of money that would have a devastating impact if this money were withdrawn from the economy and hoarded lets say in a foreign bank. Islam remedies this situation by preventing the emergence of exceptionally wealth individuals and institutions; in addition the practice of hoarding is clearly illegal within the state, thus ensuring the wealth is circulated amongst the many and not the few.

[Artical written by Yamin Zakaria]