Articles on Islamic Economics

Distribution of Resources in Islamic Economic Framework

Salman Ahmed Shaikh

Scarcity of resources is the basic premise on which the theories of classical and neoclassical economics are based upon. It implies that resources are scarce relatively as compared to the wants that are unlimited. But, this premise uses the word ‘wants’ in a general sense which includes both necessities and luxuries that people desire to have.

Nobel laureate economist, Amartya Sen, showed empirically that it is not true that resources are scarce when it comes to wants that belong to the category of necessities. Fiat money based monetary system with fractional reserve banking at its core requires consumerism for credit expansion. Bandwagon effect, snob effect, easy credit and celebrity endorsements all work to create fads, promote materialism and help engender societies where people live while forgetful of death and life’s purpose.

It may very well be that problem is not with scarcity of resources, it is with unlimited wants that are excessively beyond necessities. The problem is also with distribution of resources as Nobel laureate, Amartya Sen empirically found. Some of the famines he studied were caused not because of lack of resources, but because of ill-distribution of resources in the affected regions. Comparing per capita food availability with per capita food requirement does not exhibit any shortage of resources.

Humans are much more than utility maximizing machines. They are rational, they reason, they think, they believe and they differentiate between right and wrong behavior. Religion provides the necessary spiritual conditioning and the authentic promise of reward in life hereafter for choosing the right actions in this world even if those choices do not bring deterministic reward and punishment in this world. This understanding becomes more important while making intertemporal decisions and choices related to environment. It is also vital when crisis hit economies and compassionate behavior is needed. What can motivate it? What can make it last? What can make us avoid such situations? That is where; the role of religion is of paramount significance.

Coming to solving the problem of distribution of resources through economic policy measures, it requires eliminating concentration of wealth. Islam solves this problem through Zakat (compulsory spending on welfare), Infaq (voluntary spending on welfare) and inheritance distribution in each successive generation. Zakat on wealth directly encourages investment so as to avoid depreciation of wealth. Investment in non-interest ways brings productive use of resources and through market mechanism, it can also improve competitiveness, quality, efficiency and commercial and ethical responsibility. By prohibiting interest on loans, Islam closes the door for one important means of concentration of wealth.

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