Comparison of Capitalism with the Islamic Economic System - Essay Example

Comparison of Capitalism with the Islamic Economic System An economic system comprises of many institutions started by society to cater for resources allocation, goods and services production, and finally income and wealth distribution. In Capitalism, an economic system is a system based on principles of competition in the market, private ownership of property and profit pursuance (Jain & Khanna 23). This system encourages private ownership of production. It is possible to find people who have control over natural resources and have ownership of industries for production of goods and selling of goods. This paper will give a detailed comparison of capitalism with the Islamic Economic System Shareholders of a corporation own a certain share of the wealth of the corporation depending on how many shares one has in the corporation. The owners benefit from the revenue generated in terms of profits. When the sale of a product exceeds the cost of the product’s creation, profit is made. Cheap labour is one aspect of the capitalism economic system because the employee of a corporation gets a payment that is les than the value of production. However, the employees are the ones involved in production and creation of profit but they do not enjoy the profits made. This economic system is more materialistic in nature and aims at satisfying the people’s material type of wants. Islamic economic system consists of many institutions started by Allah or the lawgiver to cater for resources allocation, good and services production and finally income and wealth distribution (Taylor & Anderson 480). Islamic economic system is bound to critics because it limits economic freedom and people tend to invest less. Providing basic needs to the community makes the people relax and this hinders them working hard and utilizing their skills to the fullest so as to improve the economy. This type of economic system can work best for a small population, which has many natural economic resources. For a state that does not have any economic resources, this system can lead to high degree poverty. There is low utilization of labour and this leads to low level of production and output. People are not able to maximize their individual ability and skills. Therefore, this type of economic system prevents people from competing economically because there is no recognition of the most economically achieved persons. It does not set good grounds fro people to realize their ability. This system causes an economy of a state to remain the same because the government provides basic needs to its people instead of constructing proper infrastructure using the money. It is not the best to use for a growing and developing economy. It requires a stable type of economy or a developed country (Eisler 2). Islamic economic system evolution started in the years 1980 to 1990 when Muslim banks and religious made a development of strategies on how to make integration of the religions law with modern types of concepts of ethical type of investing and into the money use. This worked well in reducing debt related slavery and solved global related debts. The desire of reflection of Islamic beliefs and religion identity in the systems of banks led to the current modern economic system of the Islam (Azhar 51). This economic system relies on the Islamic religion and it has led to great concern of the people as compared to the growth of an economy. This evolution helped in achieving good humanity and stopped exploitation among the people. However, the system has not contributed any positive effect towards growth of an economy. Islamic economic system has several principles that govern it. According to this economic system, Allah, who is the lawgiver, is said to be the sustainer because he makes a provision of livelihood to all he created in the universe. He also provides subsistence basics to the creatures. He created all natural resources and means of production that a man can get livelihood. He commits Himself to feed his creatures, nourish them, and sustain them. Human beings are part of Allah’s creation and they benefit from Allah’s sustainability but they should do their level best in order to earn the livelihood provided (Azhar 57). Another principle of the Islamic economic system is that God owns everything and man is merely a trustee. The basis of this arguement is that God owns everything in heaven and in the earth. Therefore, all that exists in the universe belongs to Him. However, man has the rights from Allah to use some things, which he requires to exist on the earth. Man has limited rights over what God has created and his duty is benefiting from the natural resources and act as a trustee. Therefore, man should not own any natural resource but should use the resource to help him run day-to-day life effectively. A man should not treat the wealth he has as his own and prevent others from using it. Therefore, for the surplus wealth that an individual has should be distributed to those people in need. In this type of economic system, any natural resource use should be for the betterment of everyone, and the public has the right to benefit from any natural resource (Iqba & Mirrakhor 4). Islamic economic system prohibits interest. If a person borrows money from a person or a bank, the lender should not charge any interest to the borrower because it is a major type of sin and usurers are said to have a notice from God about a war. What happens when one borrows money is that both the borrower and the lender share profits and losses. No one should lend money to others in order to earn an amount of interest (EL-Gamal 37). Policy of moderation in the Islamic economic system involves avoidance of extremes. There are two extremes both poor and rich. According to this system, it is wrong for one to be either extremely rich or poor. The economic system tends to moderate the situation in such a way that every person should be in the middle level between poverty and riches (Taylor & Anderson 481). Therefore, people should be moderate in terms of expenditure because it contributes to half of ones livelihood. Therefore, an individual should not spend much money in leisure before helping others. The system has a principle of equity and not equality. This principle applies in the fair and just production of wealth and its distribution. It also applies in livelihood ownership means and makes an establishment of equity. It is clear in that people can never be equal in terms of wealth possession. Therefore, no one has the right to do conversion of what Allah created to gain more wealth than others did. One should use his abilities either physical or mental. Therefore, those who have more wealth should show their gratitude by helping those have limited means of their sustenance. In this economic system, wealth differences between the rich and the poor should not at any time exceed any natural and reasonable limit that can not be controlled because it can bring a disturbance of peace in the society. Equity results from the fair equity distribution of resources, state wealth and income in that no one lacks basic needs (Allen 24). Comparing Islam and capitalism economic systems, right to ownership is very different. In capitalism, an individual or a few individuals who discover a certain natural resource have the right to own the resource and come up with production and manufacturing institutions for they own benefit. Individuals have full rights to own property without any restrictions. An individual has the right to acquire property and own it. This system encourages private ownership of production resources and gain profits. In the Islamic economic system, an individual has no right to own a natural resource. All the property belongs to God and man is the acting trustee of the property and has very few rights over the property. All means or resources of production ownership belong to the public. All persons for their own sustenance use the resource. A person who owns private property should not prevent other people from using it but should show gratitude to God by sharing some of the private property or wealth to people in need. Wealth derived from a natural resource, should be evenly distributed to all people in a state (EL-Gamal, 5). In capitalism, everyone has unrestricted form of economic freedom in that one can acquire more and more wealth in many ways. This freedom does not limit one from having unreasonable amount of wealth since one has the chance to earn income from establishing business enterprises, trading, and profession. This leads to gambling and means of acquiring wealth and prostitution. In Islamic economic system, economic freedom is allowed to those people who are at liberty to earn wealth, own the wealth and spend it at discrete. One should not have unreasonable wealth that exceeds nature. There is a limit of what wealth one should have. Economic freedom allowance depends on whether the means of acquiring wealth are lawful but those that are unlawful, economic freedom are not grant. One has no right to choose how to consume wealth. One should not consume wealth in an extravagant manner and in unlawful activities. This promotes good moral values in a society (Jain & Khanna 179). Monopoly in capitalism occurs through competition. Competition encourages monopoly in that small businesses merge with major business and establish a monopoly type of businesses. This hinders free competition and causes unemployment due to price inflation. In this situation, there is exploitation of labour and consumers when the prices go up unexpectedly. Islamic economic system doe not permit any form of unhealthy competition and all ways that lead to this bad competition are subject to banning. Monopoly establishment disallowed. Any person who tries to form a monopoly regarded to as a Sinner. Maintenance of essential commodities required by all people is under joint ownership by people in the community. By doing this, there is protection for both consumers’ interests and employees, there is a balance in production, and there is no disturbance of the consumption (Taylor & Anderson 485). In capitalism, institutions of interest are many since individuals require huge amounts of capital for big projects, businesses, and economic types of ventures (Allen 22). Islamic economic system regards interest as a form of exploiting humanity. There are no institutions of interest in the economic system. Any form of interest is a sin. Therefore, Islamic economy runs in an interest free environment and instead, there is promotion of profit and partnership as a good way of saving and investing. Capitalism encourages exploitation of employees and consumers by unrestricting the economic freedom and uncontrolled private rights of ownership. The weak people economically face exploitation from strong people economically. The employers exploit their employees, the rich exploit the poor, and rulers exploit the people. Islamic economic system eliminates any form of exploitation. The system ensures that there is abolishment and prohibition of all means of exploitation. All people are protected from exploitation by the legislature of the Islam. Distribution of wealth in capitalism is unfair and unjust (Allen 24). Economic freedom rights and private form of ownership rights have led to concentration of wealth amongst a few people who keep the wealth for themselves. The bridge that divides the rich and poor seems to have no end. In this situation, some people end up without basic needs. Islamic economic system ensures that all people have basic needs. Distribution of wealth is fair and just amongst all people. Economic resources distribution is fair to all people. The gap between the rich and the poor is small because there is good governance through prohibition of some activities, which can earn one wealth illegally. Islamic economic system evolvement regressed to the early ideas and philosophies where people’s welfare is more important than the growth. This system does not encourage high production output. Instead, the government has a burden to meet basic needs of the people. It discourages economic growth and that is the reason as to why many Islamic countries are developing countries. A developing country requires a capitalism economic system to grow economically. Islamic economic system is the best to come up with a morally upright community. Work cited Allen, Larry. The Global Economic System since 1945. London: Reaktion Books, 2004. Print. Anderson, L. Margaret & Taylor, F. Howard. Sociology: Understanding a Diverse Society. Belmont: Cengage Learning. 2007. Print. Azhar, A. Rauf. Economics of an Islamic Economy. Leiden: Koninklijke Brill NV. 2009. Print. Eisler, Riane. Roadmap to a New Economics: beyond Capitalism and Socialism. Web 4 Nov. 2012. EL-Gamal, A. Mahmoud. Islamic Finance: Law, Economics and Practice. New York: Cambridge University Press. 2006. Print. Iqbal, Z. & Mirrakhor, A. An introduction to Islamic Finance: Theory and Practice. New Jersey: John Wiley and Sons, Inc. 2011. Print. Jain, R. T & Khanna, P. O. Economic Concepts and methods. New Delhi: V.K. India Enterprises. 2007. Print. Read More