Topic 9: The role of state in economy

1. Topic 9: The role of state in economy

2. Learning outcomes At the end of the lessons, students should be able: • To explain strategy in developing Islamic welfare state. • To describe the economics functions of Islamic welfare state.

3. Islamic welfare state

4. Basic imperatives Introduction • Islamic way of life will not be achieved without a community governed with the tenets of Islam. • The Qur’an clearly condemns disorder and anarchy (Al-Baqarah:205) and the Prophet s.a.w stressed the need for organisation and authority in Muslim society. • Caliph Umaremphasised that there could be no organised society without an imam. • Hence, the state is viewed by Islam as an instrumental to attain al-falah in both spiritual and material. • Though, the authority of the state is a trust from God and must be in accordance with shari’ah principle.

5. Basic imperatives Democratic orientation • Sovereignty, according to Islam, vests in God – it is only His Will that should prevail in this world. • Man as vicegerent of God on earth can neither make nor abrogate the Divine Law. • Hence, once the sovereignty of God is recognised, the authority for its establishment is vested in the whole ummah and is to be exercised in the light of the Qur’an and sunnah through the democratic process of consultation.

6. Basic imperatives Welfare commitment • All institutions including the state should reflect the characteristics of merciful blessings to cater the welfare of the people. • As stressed by Prophet s.a.w:- “Any ruler who is responsible for the affairs of the Muslims but does not strive sincerely for the well-being will not enter Paradise with them”. • Caliph Umar r.a. wrote to his governor:- “the best of men in authority is he under whom people prosper and the worst of them is he under whom people encounter hardships”.

7. Basic imperatives Welfare commitment (ctd) • This is in line with the basic objective of shari’ah which to cater the welfare of the people and reliving them from hardships. • Need to emphasis that the concept of welfare state is agreed by a number of Islamic scholars. Amongst others are Mawardi, Ibn Khaldun, al-Ghazali, al-Qayyim and Ibn Tamiyyah.

8. Basic imperatives Strategy of welfare • The concept of welfare in Islam can be neither exclusively “other-worldly” nor purely “this-worldly”. • There should be balance between material and spiritual. • According to Islam, negligence of either two aspects of life will prevent mankind from achieving true welfare. • Hence, the welfare of individuals in an Islamic society may be realised if there is a proper environment for:- • fuller realisation of Islamic spiritual values in the individual as well as in society • adequate fulfillment of all basic needs of life

9. Basic imperatives • Spiritual uplift • Islamic welfare state must look after the spiritual health of its people. • The state should bring into reality the moral code of Islam with its own unique way-free from coercion. • Three major role of the state in uplifting spiritual aspects are:- • it should foster conducive conditions for the creation of homes which would inculcate respects and adherence of Islamic teaching. • it must cast educational system in the mould of Islam to produce societies that imbued with the ideals of Islam. • it should enforce those norms and values of Islam through legal enforcement and impose penalty on violators.

10. Basic imperatives • Material well-being • Adequate fulfillment of basic material needs is a priority and necessary in Islam. • Resources are for all mankind for eradicating poverty and fulfilling the basic material needs such as food, clothing, shelter, education, transport and etc. • Need to emphasis that it is moral responsibility of the individual to cater for his own needs through his own effort and expected to do his best on every job.

11. Basic imperatives • Material well-being (ctd) • However, the blind operation of market forces may not always reward him optimally for his socially-productive efforts. • Therefore, the state should play a positive role in guiding and regulating the economy to ensure that the objectives of the shari’ah are fulfilled.

12. Economic functions of welfare state Poverty eradication, full employment and optimum rate of growth • As a trustee of the God-given resources , it is moral obligation of the state to use these resources efficiently. • Hence, the state is expected to imply the following:- • eradicate poverty and fulfill of all basic human needs • provide full and efficient employment to attain an optimum rate of economic growth and improve the standard of living of all people • avoiding of conditions generating deficient or excess demand and leading to unemployment

13. Economic functions of welfare state Poverty eradication, full employment and optimum rate of growth (ctd) • In order to achieve the abovementioned function, the state should play positive role through:- • rational planning. • building the necessary physical and social infra-structure.

14. Economic functions of welfare state To promote stability in the real value of money • Islamic state must resort to healthy monetary, fiscal and income policies and appropriate direct control when necessary. • For instance, direct control (wage-price control) and minimize erosion in money value (managed floating in the currency exchange rate).

15. Economic functions of welfare state To maintain law and order • It is the prime determinant of growth and stability of an economy as well as bring inner happiness of individual. • Hence, it is the duty of state to safeguard the life and property of individual as the Prophet s.a.w says:- “Whatever a Muslim possess is unlawful for another Muslim his wealth, property and his life”.

16. Economic functions of welfare state To ensure social and economic justice • Islam considers mankind as one family, all members of this family are alike in the eyes of God as Prophet s.a.w says:- “Certainly God does not look at your faces or wealth, He looks at your heart and your deeds”. • Prophet s.a.w also warned of the disastrous consequences of discrimination and inequality as illustrated in the following hadith:- “By God, even if my daughter committed theft, I will certainly cut her hand”. “Beware of injustice as it will be equivalent to darkness on the Day of Judgment”.

17. Economic functions of welfare state To ensure social and economic justice (ctd) • Therefore, fixation of minimum wages, maximum working hours, creation of appropriate working conditions, enforcement of precautionary measures against industrial hazards, and adoption of technological innovations to reduce hardships would be fully in conformity with the spirit of Islamic teaching

18. Economic functions of welfare state To arrange social security and foster equitable distribution of income and wealth • Islam emphasis on distributive justice and incorporates redistribution of income and wealth to guarantee every individual a standard of living that is humane and respectable. • In doing so, Islam emphasis the following five elements:- • arrangement for training and finding gainful employment for the unemployed • enforce a just remuneration system • compulsory arrangements for insurance i.e. occupational hazard and pension/retirement scheme

19. Economic functions of welfare state To arrange social security and foster equitable distribution of income and wealth (ctd) • In doing so, Islam emphasis the following five elements:- • assistance to the disables, handicaps, orphans and abandoned old folks • collecting and distributing zakat and enforcing Islamic law of inheritance • Need to emphasis that Islam allow higher wages for those who are qualified as a reward of his skills and capabilities – the concept of equality.

20. Economic functions of welfare state International relations and ensure national defence • Islamic state should try to make contribution as it can towards spiritual and material uplift of mankind. • This is in line with the principle: to be one, to co-operate in all matters contributing to “righteousness” and “piety” and refrain from co-operating in “aggression” and “sin”. • Islam also encourage any constructive move towards peace. • Nonetheless, the Islamic state should do its utmost to strengthen its defences to protect its faith, territory, freedom and resources as illustrated in Al-Quran (8:60):- “…And prepare against them whatever force you can…”. • The military strength of the Islamic state should only be used for a “just” cause in a “just” manner against those who nurture to aggressive design as illustrated in (Al-Baqarah:190)

21. Reference • The Islamic welfare state and its role in the economy, Dr. M. UmarChapra.

22. Planning & development in Islam

23. Learning outcomes At the end of the lessons, students should be able: • To explain concept of Islamic planning and development. • To outline the philosophical foundation of planning and development in Islam. • To identify the essentials features of planning and development in Islam. • To derive goals of development in Islam.

24. Islamic Planning • The need for planning is evident from the Qur’anic verse (87:2-3). “Praise the name of the Lord the Most High, who create then dispose; Who measure then, guide” • Islamic planning must take into consideration the following aspects:- • the whole picture of development and all aspects of life • in the light of moral values • Hereafter goals • balance between material and spiritual

25. Islamic concept of development • Development refers to the process whereby people of a country utilize the resources available to bring sustained increase in production of goods and services. • Economic development is a series of economic activities causing an increase in productivity, average worker and ratio income to total population. • It is a looked upon as a dynamic process and involves structural changes in economic, political, religion, social, cultural and style of living. • Islam emphasis on the human development with the result that economic development remains an integrated and indivisible element of the moral and socio-economic development of human society.

26. Philosophical foundation

27. Philosophical foundation • The philosophic foundations of the Islamic approach to development are as follows:- • Tawhid • God’s unity and sovereignty. • It lays the rules of God-man and man-man relationship. • Rububiyyah • Divine arrangement for nourishment, sustenance and directing things towards their perfection. • God’s power to arrange all the universe.

28. Philosophical foundation • Khilafah • Man’s status, role, responsibilities as God vicegerent on earth. • Tazkiyah • Purification plus growth. • It purify man, natural environment, society and state.

29. Essential features • Comprehensive character including moral, spiritual and material • The aims is to seek welfare in the world and hereafter. • Development is devoted to the optimization of human well-being in all dimension. • Focus • The focus of development in Islam is MAN – development of man and his physical and socio-cultural environment. • Hence, it maximize participation of the people at all levels of decision-making and plan-implementation.

30. Essential features • Multi-dimensional activity • Involve cooperation between public and private sector. • Islam seeks to establish a balance between the different factors and forces. • Balance changes • It involves quantitative and qualitative changes. • Example (quantitative): the poverty rate, unemployment, inflation, rate, gross domestic product (GDP) etc. • Example (qualitative): quality of life, minimum wage, safety of the society, ethics and moral application etc.

31. Essential features • Optimum utilization of resources • Optimum utilization of resources that id has endowed to man and his physical environment. • Equitable use and distribution and promotion of all human relationships on the basis on right and justice. • Instilling the value of thankfulness to God and justice

32. Goals of development • General goals of development policy for Muslim are as follows:- • Human resource development • Inculcation of correct attitudes, aspirations, development of character and personality through education and training. • Hence, emphasis will be given on expansion and Islamisation of knowledge (IOK).

33. Goals of development • Expansion of useful production • Continuous and sustained increase in the national produce. • Production of useful goods and services in the efficient manner. • Priorities of production:- • abundant production and supply of food and basic items of necessity at reasonably cheap prices • defence requirements of the Muslim world • self-sufficiency in the production of basic capital goods

34. Goals of development • Improvement of the quality of life • Effort should be made towards improving of the standard of living and achievement of people moral, economic and social welfare. • Priority of improvement of the quality of life are as follows:- • employment creation, with all its consequent structural, technological, environmental, regional and educational adjustments • effective social security system – assuring the basic necessities of life for all those who are unable to undertake gainful employment. • equitable distribution of income and wealth.

35. Goals of development • Balanced development • Balanced and harmonious development of different regions within a country of the different sectors of society and the economy. • New technology • Focus in human development to knowledge enrichment and creation of new technologies by the local people.

36. Goals of development • Reduction of national dependency on the outside world and greater integration within the Muslim world • Dependence upon the non-Muslim world in all essentials must be changed to a state of economic independence, self-respect and gradual building-up of strength and power.

37. Reference • Economic development in an Islamic framework, Khurshid Ahmad.

38. THE INSTITUTION OF AL-HISBAH • Al Hisbah or a public regulatory body of state. • Function of al-Hisbah is to safeguard the good social economic life of the society so that each individual has equal treatments and opportunities to feed his or her life. • Economically, al-hisbah institution which is headed by al-muhtasib.

39. Roles of al-Muhtasib • To enforce proper ethical behaviour and to restrain unethical behaviour among all the economics agents in the economy i.e households, firms and government. -The institutions in Malaysia such as -JAKIM (Jabatan Kemajuan Islam Malaysia) -Majlis Mufti Kebangsaan -religious institution at the state e.g JAIS,MAINS,MAIP and others.

40. Cont… 2. To provide public goods and services which are not being produced by private firms because of no profitable return to them. -such as street lighting, schools, universities worshipping places,playground and etc.

41. Cont… 3. To act as solely market regulatory in the economy which to avoid market violence and abuse among the players. -the institution will legalize the registration and licensing of all business firms. -e.g Securities Commision

42. 4. To act as consultative and informative council to the market players in the economy. -consultations and information to the households and firms -certification procedures and legislations imposed by the state of authority such as certifications procedures of halal products,good corporate governnace in business transaction and shariah compliance.

43. THANK YOU…