Title: Islam and Economics: Markets, Morality and Justice, A Primer
Author: Dr. Ali Salman
Publisher: Aks Publications, Lahore 2021
In the words of author himself, this primer is an introductory text to rediscover ethical principles and practical rules of commerce and economics from the sources of Islam. The author states that the book also benefits from and develops critique on the contributions made by jurists and contemporary thinkers on Islamic economics.
The author argues that Islam offers three broad principles for organizing the economic life of a society: the principle of ownership by classifying between public and private properties, the principle of wealth creation by encouraging voluntary trade through mutual consent and open-market pricing, and the principle of wealth circulation by ensuring distribution and assignment of right to claimants and non-claimants.
Based on these principles, operational institutions and tenets are derived. These include: price freedom, free trade, market regulations, sound currency, riba-free banking, low and flat taxes, reliance on voluntary contributions and strict inheritance distribution.
The author contends that natural resources or gifts of nature, such as water, fire and grass, are treated as commons without any scope for absolute private ownership. However, if a person uses these gifts of nature to produce something, then this no longer remains property of commons, but the product or result of this human effort becomes private.
At another place, the author writes that land and natural resources cannot be converted into private property, but remain under public control, which can be managed by private parties against certain terms and conditions.
In the explanation of the rules of Zakat and inheritance, the author presents the views of Javed Ahmad Ghamidi. It would have been better to acknowledge it and also present the mainstream view and understanding.
It is because in many respects, the views of Javed Ahmad Ghamidi are different from the mainstream thought when it comes to the application of Ushr to non-agricultural produce, widening the scope of assets subject to wealth Zakat and extending the scope of heads of Zakat to allow broad welfare activities in the heads of Fi-Sabeel-Illah and Ibn-us-Sabeel and running government’s general administration on Zakat based allocation on Aamileen-e-Alaiha.
It would have been appropriate to give coverage of both mainstream and the views of any one particular scholar with which the author shares intellectual agreement.
The author writes that financial institutions are allowed and licensed for all services other than charging any amount of interest on cash loans. Here too, the author seems to be convinced with the understanding of Javed Ahmad Ghamidi that conventional bank loans in which an asset purchase or lease is involved, the riba-prohibition does not apply.
Javed Ahmad Ghamidi in his public lectures had given blanket sanction to taking mortgages, car finance, equipment finance, lease finance, no matter how the contract is structured, priced, marketed and accounted for in documentation. His views have been analysed in another article ‘Why giving interest is also prohibited in Islam’.
On taxation as well, the author shares the view held by Javed Ahmad Ghamidi that no taxes beyond Zakat can be levied. Prominent Islamic jurists like Ibn-e-Hazm and Imam Shatibi hold a different view. The contemporary scholars have consensus on the allowance of levies beyond Zakat if these taxes are levied by the representative government and used for public welfare.
If one looks at the modern nation states, they provide plenty of public goods. Such goods are non-excludable and non-rival in nature. It implies that the non-payers cannot be excluded from the use of these products (non-excludability) and one person’s use does not make simultaneous use by the other impossible (non-rivalry). These products cannot be provided in the marketplace by firms because of their nature of being non-excludable and non-rival. Nonetheless, the provision of these public goods and capital infrastructure is considered vital for economic growth.
The modern nation states, especially the welfare states, have high tax to GDP ratio through which extensive public goods and welfare services are provided.
If the political candidates and political parties pre-announce their tax plans and if the tax legislation is approved by parliament, which comprises elected members representing general public, then, this tax legislation for new taxes based on benefits and equity principles can be considered exceptional to the taxes levied by the despotic kings of past where the governments were not answerable to the public and were not periodically re-elected.
In the economic framework proposed by Javed Ahmad Ghamidi, the need for public goods and common property resources is felt. But, rather than allowing performance-based, service-based and accountability-driven taxes in public governance, the author leaves open the door for a wide public sector by disallowing private ownership of land and natural resources.
It is not clearly understandable that how the vision of limited state and free trade can be realized when on the other hand, state has ownership over land and natural resources with no scope of private ownership.
Furthermore, when it comes to inflation tax with government’s control over money supply and its expansion, the author did not complete the discussion on sound currency and central banking exhaustively so as to give directions on how to avoid inflation tax in fiat currency system if taxes beyond Zakat in the framework espoused by the author have no place in the economic framework of Islam.
The author mentions that Islamic economics prefers to discuss poverty instead of wealth creation, income variations rather than prices, and the role of state rather than the market.
Here, it must be noted that applied studies taking note of ground realities and finding solutions to real-world problems cannot be free of social context.
It is a fact that most Muslim majority countries face huge levels of poverty and the private sector and financial system is weak. Therefore, there is scope for government intervention in steering the economy in critical industrial sectors and social sectors to kick-start process of growth and development.
Furthermore, the establishment of Islamic financial institutions in the private sector shows that it is not true to contend that every hope is rested with the government. Private establishment of Islamic commercial banks, Islamic wealth management funds, various Sukuk instruments, Islamic microfinance institutions and even Waqf shows that markets are employed to foster progress rather than relying on government alone.
All in all, it is an insightful book, but it will have been better to expand the discussion to include different viewpoints that exist in the literature. It seems that in critical issues, mainstream views themselves are given less attention or omitted altogether.
The bibliography gives mention of 83 works. There is plenty of literature and perspectives which may be further discussed in the next editions of the book.