Mohammed Sharif*
University of Rhode Island
Abstract
This lecture examines the feasibility of Islamic economic system in a modern economy. Contemporary economic system is sophisticated and very complex. Islam established the foundations of its economic system fourteen hundred years ago and its principles are deemed straightforward and simple. So the question arises: How can such a straightforwardly and simple system handle the complicated problems of a modern economy? This is exactly what I intend to answer in this short presentation using the problems of poverty and inequity as an illustration.
Instead of talking about the problems in the world, however, I will talk about them in the context of the United States of America, simply because this country is the most affluent, technologically most advanced, and has all the means at its disposal to eliminate at least the blight of poverty from its economy, but chronically suffers from it. I will first show the nature of the problems in terms of poverty, hunger, homelessness, lack of medical care, and inequity in the distribution of income and wealth, in stark contradiction to the affluence of the country. Then I will demonstrate how the application of the Islamic principles can within a very short time solve these problems without at all stifling the prosperity of the society.
This conclusion, however, should not be misconstrued as if Islam cannot deal with the problems in the context of developing countries-Islamic principles worked like miracles in solving these and other problems with the least amount of resources during the early days of Islam.
1. Introduction
The theme of this conference is Muslim contributions to civilization. Contribution to economic progress made by the Islamic economic system is an important logical candidate for discussion here, as economic prosperity is one of the pre-requisites for achieving scientific development. Given the time constraint, however, I will limit my presentation to one important aspect of these contributions-economic justice and human development. This restricted presentation hopefully will help the clarity of my talk in conveying the message to you and thereby will offer you an appreciation of the Islamic economic system in general.
Before getting into the subject, however, I have to lay before you the foundational principle of overall Islamic system, as Islam is not just a religion but a complete way of life and its economic system is only an integral part of that complete system. I will, thus, make my presentation in three steps: First, I will put forth the basic Islamic principle of establishing and administering a system-social, economic, or political-and compare it with the basic tenet of contemporary systems. Second, I will explain the concept of economic progress drawing the distinction between growth and development and showing their implications for justice and human development.
The fundamental characteristics of an Islamic economic system will then be listed and their implications examined. Next, I will talk about the problems of poverty and inequity in the United States of America. Finally, I will show how easily the application of Islamic principles can solve these problems without having any adverse effects on economic progress.
2. Foundational Principle of Islamic System
The pre-conditions for the functioning of any system and, more so, for it to make any contribution to civilization are social and political stability and economic prosperity. There are two alternative ways to achieving these pre-conditions: Forcing the participation through coercion or inducing voluntary participation by winning the hearts and minds of the people.
The establishment of an elaborate and complex legal system to ensure participation and the use of strong-arm strategy for its implementation, coupled with harsh punishment for non-compliance, is the systemic way of forcing participation. In this category, capitalist and communist (socialist) are the two systems dominant in the contemporary world of ideas and practices. Islamic system provides the alternative that functions and prospers through dedicated voluntary participation of the members of the society.
The fundamental difference between these two systems is philosophical as to how they view and treat human life. The former-both capitalist and communist-consider human life consisting of a body and a mind only; the soul is completely deported from the system supposedly to individual lives of the people or its existence and role go completely unrecognized. Since the soul is of no value in the social, economic, and political arena, people generally find very little use for it in their individual lives either. The members of the society thus gear towards achieving material possession and power and their enjoyment only, having little or no moral guidance and no consideration for the needs of the soul. In the absence of any ideal higher than material possessions and power, the Darwinian principle of survival of the fittest then becomes the sole guiding principle for individuals in their competitive pursuit for material success in life. In an environment of such fierce competition, trampling of the weak by the strong and the concomitant frictions and tensions are logical outcomes. Thus, these materialistic societies find no other option but to institute an elaborate legal system with stringent punishment for violation and depend solely on this legal system to maintain stability and insure prosperity. In the absence of any moral code of behavior required for soul-uplifting (spiritual development), however, individuals generally abide by the law only when there is fear of getting caught; otherwise breaking the law for gaining material possession and power is no uncommon an occurrence in these systems.
It is no wonder that these societies achieve extraordinary material progress, but face similarly extraordinary social problems. This contention is illustrated by the high rate of economic growth achieved through state ownership and control in a communist system or through the allocation of most of the resources to a small group of people in the society to play the engine of growth in a capitalist system, on the one hand, and the enormous cost the society is forced to pay in the form of the loss of individual freedom in a communist system, the creation of extreme inequity in both the systems, and generation of chronic poverty in a capitalistic system, on the other. While the harsh competition for insatiable material progress leads to intense conflicts of interests, the inequity and poverty it generates create the dissatisfaction out of the feeling of relative and absolute deprivation-the logical outcome again is a variety of difficult problems for the society to tackle. The society thus responds enacting more laws complicating the system further and making punishments for non-compliance harsher.
How harsh and stringent the legal system becomes to maintain stability of the social-political-economic system in such a situation can be illustrated by the extent of incarceration in the USA-about seven million people are currently in incarceration, probation, and parole; that is approximately three percent of the total population. It, however, cannot claim to have reduced crime to any significant extent, although it keeps the system functioning. But it costs $70 billion a year to keep about two million individuals behind bars at the rate of $35,000 per inmate. Note that this is only a fraction of the total cost of running the criminal justice system.
In contrast, Islam maintains social and political stability and attains economic prosperity by establishing an equitable and just system through dedicated voluntary participation of members of the society. This is achieved, however, not by the threat of law, but by training the individual members of the society and helping them develop the best possible human character. In this respect, Islam treats human life, unlike the contemporary western thoughts, consisting of three components-body, mind, and soul. All these three aspects are given equal importance in Islamic philosophy and practice for successful development of a personality with the best of human qualities and therefore, for efficient functioning of the system. The importance of this balanced development of human life may be understood better by the fact that without the soul (spirit), the body is a piece of dead meat and the mind (represented by the functioning of the brain) is similarly decomposed and non-functioning. The soul, however, does not die-when an individual dies, the soul simply leaves the body, but exists as spirit somewhere in God's universe. While the body and the mind relate to the material aspects of human living, the soul provides the human spirit and thus relates to the spiritual side of human life. Both material and spiritual components make up the full and complete human life and thus, balanced development of both aspects of life is essential for successful human living.
This balanced development of human personality plays a very important role in Islamic system in establishing and maintaining social and political stability and achieving economic prosperity, in essence, laying the foundation of Islamic civilization. Islam requires its followers to believe that the life on this earth is temporary, the real life starts after death that is infinite, the individual's deeds in this life will determine the quality of his/her life in the hereafter, there is a day of judgment after death when the rewards for good deeds and punishment for evil deeds will be handed out by God. More importantly, individuals are accountable to God for his/her own deeds, God is keeping a complete and perfect record of everything we think, we say, and we do, and this record will be produced before us at the time of judgment (Just think of a surveillance camera a little better than ours, but God's surveillance camera may be million times better). This aspect of Islamic faith almost completely does away with the need for legal monitoring-members of the society are not only dedicated voluntary participants, they are self-monitored. Thus, while the spiritual uplifting of individual human life introduces self-monitoring of individuals' own behavior following the universal moral code of conduct, physical and mental development causes unimpeded material progress leading to growth of civilization.
There are two important benefits that derive from this process-first, self-monitoring eliminates, or at least, reduces the need for instituting an elaborate and complex legal system along with its very expensive monitoring system; second, it motivates every member of the society to voluntarily participate in the process of personal and community development. While the first frees huge amount of society's resources-both human and material-for utilization in developmental activities, the second leads to economic development or to be more appropriate, human development. The latter aspect eliminates the social conflicts and tensions caused by the dissatisfaction arising out of extreme inequity and poverty endemic in the contemporary systems. This again minimizes the use of resources unnecessarily needed for conflict resolution and administration of justice in the systems devoid of any role for spiritual aspect of human living, thus allowing the use of the saved resources for human development.
3. Relevance of Economic Development
The economists for a long time used the concepts of 'economic growth' and 'economic development' interchangeably. It is only in the late nineteen hundred sixties, they have started making the distinction between them (Seers, 1969), unfortunately only to go back in nineteen hundred eighties to emphasizing the importance of economic growth for prosperity and applying the policy of growth world over. The only remnant of the recognition remains in the form of human development index constructed and published annually by the United Nations Development Program (UNDP, 1991). Islam, however, recognized the importance of economic development for human development and applied the policy and achieved extraordinary results fourteen hundred years ago.
At this point, the meanings of growth and development need to be spelled out. Economic growth refers to increase in per capita income accompanied by improvement in technology and changes in the structure of the economy from primary to manufacturing and technology-based production. Contrarily, economic development means creating the environment for the realization of human personality to its maximum potential for every individual in the society. Thus, economic development implies affording the members of the society the opportunity to realize their human development to their fullest potential. In essence, development includes growth and adds human contents to it-growth measures economic progress in terms of increasing societal income (wealth) without any consideration for who is enjoying the wealth, while development takes into account the implications of rising wealth on the general population in terms of food security, nutritional standard, healthcare, longevity, education, etc.
The policy of achieving economic prosperity through the state mandate under communism and through the allocation of most of the resources to a small business class under capitalism is a policy of economic growth. It is a fast way to attain economic prosperity and technological progress. However, it takes place at a huge cost to humanity in the form of poverty, hunger, under-nutrition, homelessness, unemployment, lack of medical care, lack of education, etc. The extreme inequity it generates causes dissatisfaction and lack of respect for law resulting in incarceration of a large number of people. Not only that it costs the society in terms of both lost productivity because of dissatisfied workers and increased expenditure in administration of law, it also makes the system inherently unstable. The contributions to civilization the system makes, thus, face a constant threat of being lost. The disintegration of the erstwhile USSR illuminates the consequences of this instability.
The policy of economic development internalizes the policy of human development along with increasing the societal wealth. This simply means that every member of the society is afforded the opportunity to participate in the process of generation of wealth and to share in equitably the attained prosperity. Thus, economic development establishes a just and equitable system. The economic prosperity and technological progress the system achieves are steady and the contributions to civilization it makes are stable and under less threat of being lost as a result of inherent forces of destruction.
The Islamic policy of ensuring the dedicated voluntary participation of all through winning their hearts and minds is the policy of economic development, rather more, a policy of human development. The prosperity this system achieves is just and equitable, and hence steady and stable. Therefore, the contributions it makes to civilization are more or less permanent, unless external forces threaten to destroy them.
4. Islamic Economic System
An economic system is distinguished by its characteristics with respect to the ownership and use of property, the nature of the exchange mechanism, the method of allocation of resources and distribution of income and wealth, and the role of the society in modifying the outcomes. The contrast between the capitalist and the communist systems is clear and well known. The features of the Islamic system, however, need spelling out in details, as the system is new to the modern world and it overlaps between capitalism and communism.
The ownership of property is a critical factor determining the nature of a system and needs to be addressed first. In Islam, God has created everything in the universe and therefore, God owns everything including the humans. The humans, as vicegerents of God on earth, are given the trusteeship over everything else-the right to use and preserve everything else for their welfare. This right to use, however, comes with duties and responsibilities. Unlike both capitalism and communism, Islam grants humans the right to use, not the right to own-the substantive difference being that the right to own grants right to use anyway the owner wants to, while the right to use puts restrictions and obligations defined by the owner. God, in Islam, has imposed elaborate restrictions on the use of resources and attached important obligations thereto. Islam, thus, introduces moderation into this important institution of private property and frees the society and its members from the tyranny of ownership of resources either by the private individuals or by the state. This right to use in Islam, however, is granted to private individuals as in capitalism, not to the collective authority of the society as in communism. The society, however, is given the responsibility of ensuring that the individual members discharge their duties and fulfill their obligations in using the resources. In essence, Islam grants individual's right to freedom as to the use of resources, ensures its appropriate utilization by imposing duties and responsibilities on this right, and entrusts the society with the authority to enforce them. Islam is thus a moderate blend of individual's right to freedom and social authority to regulate, of capitalism and socialism.
Given the private right to use resources, Islamic system functions through the operation of the market. Free private enterprise is the heart of an Islamic economy-it encourages initiative and drive, facilitates innovations, and rewards productivity. God declares in the Qur'an, "He it is Who created for you all that is in the earth." (2:29). "When the prayer is ended, disperse in the land and seek of God's bounty."-the Qur'an enjoins, (62:10). These categorically suggest that the earth is for the humans to explore and utilize. The Qur'an further says, "God has made subservient to you whatever is in the heavens and whatever is in the earth and granted you his bounties both manifest and hidden." (31:20). These verses ascertain the place of material well-being in Muslim life. In fact, Islam sets no limit on how much an individual can earn and spend; it, however, sets strict restrictions on how an individual earns and spends. The permissible and forbidden methods and activities of earning and spending are clearly stated. The Qur'an declares, "Allah has glorified trade and forbidden Riba." (2:275). Riba is a pre-determined fixed return on loans irrespective of whether the borrower earns profit or incurs losses. This implies that Islam encourages productive circulation of income and wealth, but forbids unproductive accumulation of wealth and exploitative earning of incomes. Hoarding for the purpose of raising prices and gambling are examples of forbidden activities of such nature.
Islam requires self-reliance on the part of every member of the society and discourages dependence on others. Two stories from the life of Prophet Muhammad (s) can convincingly make the point. One day a man came to the Prophet (s) for help. The Prophet (s), instead of giving him any handout, asked him if he had anything at home that he could spare. When the man told him that he had a few kitchen pots that could be spared, he asked him to bring them to him. After the man brought the pots, the Prophet (s) auctioned them to his companions, gave some of the money from the sale to the man to buy food for himself and his family and gave the remaining amount to him to buy an axe for cutting wood from the forest.
On another occasion, the Prophet (s) noticed that a man was staying in the mosque praying for days and going out only for nature's calls. He also noticed that a man had been bringing him food all those days. So the Prophet (s) called on the man and asked him why he was staying in the mosque all the time, who the man was that was bringing him food, if he had a family and children, and who was taking care of them. The man replied that he wanted to worship God all the time, the man was his brother, he had family and children, and his brother was taking care of them. After hearing all these, the Prophet (s) said, 'your brother is a better worshipper than you are.
These two stories clearly suggest that dependence on others is not an acceptable way of living in Islam for people of abilities and self-reliance is admirable and therefore, encouraged. Prophet Muhammad (s) said, 'A man has not earned better income than that which is from his own labor.' (Ibn Majah). The Prophet (s) is also reported to have said, 'If God provides anyone of you with an opportunity for earning a livelihood, let him not leave it unexploited until it is exhausted or becomes disagreeable to him.' (Ibn Majah). These sayings clearly indicate the importance of economic prosperity in Muslim life. More importantly, the concept of worshipping God Islam generalizes is broad and far-reaching in guiding human behavior in this respect-living the earthly life following the commandments of God is worshipping, rather a better way of worshipping God. This ensures the participation by everyone in the process of generation of income, offers them the opportunity to explore their potential, and induces the best contribution they can make to the society.
In requiring self-reliance and participation in productive activities for every member of the society, Islam makes sure that they enjoy an equal opportunity in acquiring complementary resources to work with. The first and the most important complementary resource is human capital and Islam makes acquiring this resource (knowledge) obligatory for every Muslim man and woman (Bukhari). The importance of learning is also evident from the first injunction revealed by God to Prophet Muhammad (s): "Read in the name of your Lord Who created. Created human from a clot." (the Qur'an, 96:1-2). In addition to enjoining to learn, God is also talking about the science of creation in this very first revelation. This strongly indicates that spiritual knowledge requires a proper understanding of the functioning of the material world. That this knowledge relates to material aspects of living also is evident from the Prophet's (s) instruction, 'If necessary, seek knowledge in China.' (Bukhari). The foundation of Islamic civilization is based on this role of learning in Muslim life-Muslim contributions to civilization that are exhaustively presented to you in various sessions today testify to this fact.
In addition, Islam puts in place important economic institutions to provide material resources to everybody in the society so that no body is deprived of the opportunity to participate productively. The institution of inheritance is one such institution-unlike the western institution of primogeniture that grants sole ownership of the parent's estate to the first child only, Islam grants inheritance rights to a large number of members of the family. The members who are entitled to a share in the estate and their respective shares are clearly defined and pre-determined by Islam and nobody has any authority to change them. Even the holder of the estate, unlike the western system of granting rights to the owner to give his/her estate to anybody he/she desires, does not have the authority or even the right to deprive any member of his/her share by way of writing a will before death.
These injunctions and institutions, in addition to providing complementary resources to almost every member of the society for productive participation, eliminate the potential for concentration of income and wealth, on the one hand, and creation of poverty, on the other. The distribution of the estate among a large number of inheritors after the death of a person attacks at the root of the problem of concentration of income and wealth and reduces the potential for the creation of poverty. In addition, it reduces the chances of inefficient utilization of assets by large asset-holders who might simply rely on unearned income and increases the productive efficiency of assets by innovative inheritors. Note that the larger the number of people getting complementary resources, the greater is the probability of inventions and innovations in the system. Islam, thus, engages the largest possible number of people in the productive process and thereby encourages efficiency, induces inventions and innovations, and facilitates economic prosperity. Most of all, this prosperity is achieved in a just and equitable process through increased circulation of productive resources in the system.
Islam, however, recognizes that there would always be some less fortunate people in the society-people suffering physical and mental disabilities, victims of natural calamities, socially displaced, and demographically and economically handicapped, such as orphans, widows, elderly, unemployed, etc. Here Islam deals with the problem both at individual and social levels to make sure that "wealth does not circulate only among your rich." (the Qur'an, 59:7).
At the individual level, Islam makes it obligatory on the part of the more fortunate to take care of the less fortunate in the society. Prophet Muhammad (s) said, 'He is not a Muslim who takes his fill and his neighbor goes to bed hungry.' (Bukhari). This, however, is not prescribed as a pity to the less fortunate, it is a way of expressing gratitude to God for making them more fortunate. As vicegerents of God on earth, God has granted a minimum of human dignity to every individual including the less fortunate and the expression of gratitude to God in the form of giving charity to them must be dignified. In essence, God has granted the needy a legitimate share in the wealth of the rich. In this sense, the rich simply perform their obligation to (worshipping) God by giving a share of their wealth to the needy. Zakah, one of the five pillars of Islam, is one such obligatory duty required of a Muslim-two and one-half percent of accumulated wealth after some deductions to be paid out as poor dues at the end of the year. While as a proportion of total accumulated wealth this seems insignificant, I will show in Section 6 that this is a very potent economic instrument in eradicating poverty from the society completely with the least impact on the holder of wealth.
Islam actually makes it a social responsibility for the community to eradicate poverty. The existence of poverty in the society is considered to be an abominable sin for the community as a whole. The most serious sin in Islam is 'Kufr' that means denying the Authority of God. Prophet Muhammad (s) said, 'Poverty is a sin worse than Kufr,' (Bukhari). This implies that poverty is not tolerated in an Islamic system, or more categorically, a system that tolerates poverty denies the Authority of God, and therefore, is not an Islamic system.
In concluding this section, it can be summarized by saying that the Islamic economic system combines the beneficial characteristics of both capitalism and communism, but is free of their undesirable features. The application of free enterprise and market mechanism along with the use of egalitarian principle offers the system to be both efficient and equitable. The absence of ownership right on resources and of unrestricted authority on their use for both the individual and the state frees the society from the tyranny of ownership and use. In this sense, the Islamic system is a balanced middle path-a moderate system devised for the benefit of humanity.
5. Poverty and Distributional Inequity in the USA
To illustrate the effectiveness of these simple and straightforward principles of Islam in dealing with the problems of a complex modern economy, the problems of absolute poverty and inequity in the distribution of income and wealth in the United States of America may be used. The USA is the most affluent country in the world today and has the most technologically advanced economy. However, the country suffers a serious problem of chronic absolute poverty-hunger, homelessness, and lack of medical care, in spite of the fact that it has all the means at its disposal to eliminate the blight from the society. At the same time, it has a very high inequity in the distribution of income and wealth that is getting even worse over time.
Absolute poverty is defined as the inability of a family to afford the minimum basic needs of life and therefore, a condition of living below the standard of subsistence. In the USA, an official poverty line is constructed based on this definition and all those falling below this line are called absolute poor. This poverty line is calculated as the cost of a least expensive bundle of vegetarian diet providing the minimum nutritional needs, multiplied by a factor of three to include the cost of other basic needs of life-shelter, clothing, medical care, etc. The poverty line income used by the US government in 1999 was $8,501 for an unrelated individual, $10,869 for a family of two, $13,290 for a family of three, and $17,029 for a family of four (US Census, 2000). Based on these thresholds, the estimate shows that 32.4 million people, 11.8 percent of the total US population was in absolute poverty in 1999 (US Census, 2000).
The 1999 census figures also show that 42.6 million people, that is over 15.5 percent of the total population do not have any form of medical coverage (US Census, 2000). The Urban Institute (2000) reports over two million homeless people in 1996 that has continued to increase, and increased by 15 percent in 2000 over that of 1999, according to the Conference of Mayors (USCM, 2000). The Tufts University Center on Hunger, Poverty, and Nutrition Policy (CHPNP, 2001) estimates that 12 million people are chronically hungry, while more than 35 million suffer food insecurity (1997 figures). Note that families that are marginally above the poverty line can fall below the line at any time-hence they are also food insecure along with the poor. A US Department of Agriculture Report (USDA, 1998) shows that one in every ten US households suffers food insecurity.
This condition of poverty has serious adverse effects on human development. Lack of proper nutrition and medical care causes physical and mental debilitation, stunted growth for children, susceptibility to diseases, and ultimately premature death. These show up in the human development index constructed by the United Nations Development Program-the USA has the highest infant and maternal mortality rate and lowest longevity for both males and females in the industrial world, although it has the highest per capita GDP adjusted for purchasing power parity (UNDP, 2000).
Why does the USA have such a serious problem of poverty and hunger? A look at the minimum wage figures can provide an insight into this situation. Assume that the minimum wage is $5.65 per hour and an individual works full time that is 40 hours per week and 50 weeks a year. The weekly earning will be $226, assuming that $26 will be deducted for social security, temporary disability, etc. the weekly take-home pay is $200. This gives an annual income of $10,000, that is less than the poverty level income for a family of two. Assume again that a one-bedroom apartment costs $500 a month that will take away $6,000 from the yearly income, leaving only $4,000 for everything else. If food costs $300 a month, a total of $3,600 per year, only $400 is left for the whole year for transportation, clothing, medical care, education, electricity, gas, phone, etc.-an impossible task. Poverty is the inevitable outcome.
How the low wage perpetuates the condition of poverty is clear from the trend in minimum wage over time. The US Department of Labor compiled a list of minimum wage figures for a long period of time (BLS, 2000). This list shows that the real minimum wage in 1998 dollars, instead of going up, has actually gone down over the years. In 1968, the minimum wage was $7.49 (in 1998 $), it fell to $6.19 in 1977, $4.40 in 1989, and rose slightly to $5.23 in 1997, but still far below the 1968 figure. This is exactly the reason why hunger has been continuously increasing over time. Tufts University Center for Hunger, Poverty, and Nutrition Policy's research shows that there were 20 million hungry Americans in 1985, which increased to 30 million in 1992, and 35 million in 1997.
One important aspect of the US economy's health needs to be spelled out here. The problem of poverty and hunger just described prevailed during a period of unprecedented economic prosperity-during 1990's, the economy has been growing steadily at about four percent annually with almost no unemployment, zero inflation, and very low interest rate.
Table 1
Households' Share of Income and Wealth in the USA (1989)
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Top 20% Top 1% Top 5% Bottom 20% Bottom 80% Bottom 95%
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Income 55.5% 16.4% 29.7% 3.1% 44.5% 70.3%
Wealth 84.6% 40.9% 62.8% -1.4% 15.4% 37.2%
Financial
Wealth 93.9% 48.1% 72.2% -2.3% 6.1% 27.8%
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Source: Wolff, 1997.
Who is then enjoying the economic prosperity? The figures in Table 1 give a clear answer to this question. These figures relate to 1989, the latest analysis done by Wolff (1997). Top 20 percent of the US households enjoy 55.5 percent of the national income, a share greater than that of the bottom 80 percent of the households, while the bottom 20 percent a meager 3.1 percent. The distribution of net wealth (assets minus debts) is even worse-the richest 20 percent receiving 84.6 percent (leaving 15.4 percent for the bottom 80 percent of the households), while the bottom 95 percent only 37.2 percent. The shares of the top one and five percent are 40.9 and 62.8 percent, respectively. Worst is the distribution of financial wealth (financial assets minus financial liabilities)-93.9 percent going to the richest 20 percent and 27.8 percent to the bottom 95 percent. Here the shares of the top one and five percent of the households are respectively, 48.1 and 72.2 percent.
Studies also show that this inequity in the distribution of income and wealth has increased further during 1990's (Collins, et al.). While the real wage has been decreasing, the CEO pay has been skyrocketing-the average yearly CEO pay reached $5.6 million in 1996, raising the CEOs-workers pay ratio to 209:1 from 44:1 in 1960s. In addition, the tax burden has shifted continuously from the rich to the middle class during the 1980's and 1990s (Barlett and Steele, 1995).
6. Islamic Solution to Poverty and Inequity in the USA
The most important thrust of Islamic system is the development of human personality. Once the well-balanced human personality is developed and put in place, the rest becomes easy-the injunctions of permissible and forbidden are adhered to. The implementation of a policy thus becomes a matter of informing the community about the policy and it is carried out by a dedicated and self-monitored membership of the society.
In the absence of such a system, however, the implementation of an Islamic policy in the USA has to depend on the existing system of external monitoring. Since personal material well-being is the only consideration in this materialistic secular society, the policy has a greater chance of success if it entails a smaller personal sacrifice than that of the existing one. Thus, I will have a brief discussion on Islamic instruments that are relevant to reducing poverty and inequity, but might not be easy to implement without having a full-fledged Islamic system. I will then make a strong case for the implementation of the system of zakah to solve the problems, as it implies much smaller personal sacrifice and easy to implement.
The introduction of the Islamic law of inheritance can go a long way in reducing inequity and poverty. Similarly, the application of the laws relating to permissible and forbidden activities and methods of earning and spending can eliminate many sources of accumulation and concentration of income and wealth and concomitant generation of poverty. Gambling, production, trade, and consumption of drugs, hoarding, and speculative manipulation of the market are examples of such activities. It is the consumers' behavior that determines what the market provides and thereby provides incentive for these activities. Islam puts a great emphasis on the consumption behavior of an individual as an economic entity. Correcting the individual behavior with respect to demand for drugs, for example, can eliminate the problem of drug production and drug dealing and the USA may never have to fight drug wars in other countries spending huge amount of resources that can be easily used for fighting poverty at home.
More importantly, we will not have to spend huge amount of resources in fighting the drug war at home and in filling our adult correctional institutions with inmates. This will turn millions of our youth into productive resources-this by itself will reduce poverty significantly, as the families and children of the incarcerated individuals are basically sentenced to poverty by their incarceration.
All these, however, require Islamic education and development of Islamic personality. In their absence, the Islamic institution of charity-both voluntary and obligatory-can play an effective role in eliminating poverty completely and thereby diminishing inequity to a certain extent. The USA already has a tradition of supporting the poor using the welfare system and the people make voluntary donations significantly. The problem is that the system is designed to support the poor, not to get them out of poverty, thereby having the undesirable effect of perpetuating the problem. The introduction of zakah not only can eliminate poverty, it can turn the poor into productive members of the society. Moreover, the required payment is so small a percentage of the asset-holders' accumulations that it is not expected to have any adverse effect on the incentive to productive accumulation and utilization of assets. This coupled with the productive participation of the erstwhile poor can lead to equitable prosperity, rather than stifling growth that is blamed to happen with conventional redistribution policies.
The zakah, translated poor dues, is an obligatory wealth tax imposed and collected by the society to help the less fortunate and to turn those among them who are physically and mentally able into productive members of the society. It is only two and one-half percent of the assets accumulated at the end of the year with some deductions, such as the value of owner-occupied home and of a small amount of jewelry regularly worn by women. The early Islamic society established by Prophet Muhammad (s) practiced this instrument with great success-within a few years of its institution, it was so successful that the system could not find any body deserving of the support. It is worth mentioning that the early Islamic economy was not an affluent economy at all compared to the US economy today.
To see what can happen if the instrument of zakah is institutionalized, I will quote the figures estimated by Wilhelm (1998) and used by Ackerman and Alstott (1999) in their proposal for a wealth tax to replace the income tax. Using a household exemption of $80,000, they show that a two percent wealth tax can yield the revenue of $378 billion per year. Adjusting this figure for two and one-half percent zakah rate, total yearly zakah collection can be $472.5 billion. Now dividing this among the 32.4 million poor, the society can pay $14,583 per year to every individual, which is $43,750 for a family of three. This calculation shows that the society can eliminate poverty completely in just one year-this gives the families not just the support, but enough to invest in education, attain occupational skills, and become productive. In a few years of its implementation, this social help may fully eliminate the need for any external support for these families.
To compare this zakah figure with the welfare expenditure in the country, take the two important programs mainly geared towards the poor-Aid to Families with Children and Food Stamps. Both federal and state government spent in 1996 a little over $40 billion on these programs, which is expected to be even smaller now as a result of the workfare reform. Any way, this expenditure is only a small fraction of the total zakah money collection underlining the important role zakah can play.
This zakah program, in addition to eliminating poverty, will reduce the problem of inequity also. The importance of this inequity reduction cannot be ignored, because it will reduce inequity through a process of bottom up, rather than the conventional process of top down. It is the top down process that the wealthy in the society objects and resists; the bottom up process is welcomed and facilitated by every body in the society.
One more point needs mentioning here. The country spends $70 billion a year to keep about two million incarcerated behind bars. The elimination of poverty through the institution of zakah most probably will reduce the problem of incarceration and save the resources for productive utilization. This suggests that the zakah program can go a long way not only in solving poverty, but also other problems the society suffers.
7. Conclusions
I would like to conclude this presentation emphasizing that Islamic economic system is not only feasible in a modern economy, it is indeed the answer to their problems. Modern system has become complex and is getting more complex so as to make the issues intractable only because it denies one very important aspect of human life-the soul (spirit) and directs the whole system towards a fierce competition for gaining material possession and power as much as possible. In the Darwinian battle for survival of the fittest, more appropriately, the battle for ascension to position of wealth and power for the fittest, in the absence of any kind of moral code of behavior, the secular modern society creates many problems it is absolutely ill equipped to deal with. The only thing it does is to enact more and more laws with stringent punishment for violation, but to no avail; the allure of material possession and power is much too great to keep the aspirants for material success from violating the law.
Islamic system is simple and straightforward for every body to understand, the spiritual guidance is much persuasive to make them abide by the divine injunctions that are universally beneficial for the humanity, and the society is geared towards creating and maintaining the environment for both material and spiritual uplifting for every body in the society. If applied, this system can successfully eliminate the problems of the complex modern economy in straightforward and simple ways and can lead to economic development, rather than growth. The institution of zakah illustrates this possibility well.
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*The author is Professor of Economics at the University of Rhode. He specializes in economic development with emphasis on inequity, poverty, subsistence, labor supply, and fertility in developing countries. His research is published in World Development, Journal of Development Studies, Indian Economic Journal, Journal of Economic Development, Studies in Economics and Econometrics, International Labor Review, Kyklos, and Middle East Affairs Journal.
Sharif has earned his M.A. in Economics from Dhaka University, M.A. in Political Economy and Ph.D. in Economics from Boston University.
He is the founding president of the Southern Rhode Islamic Society and Muslim Heritage Council (a partner of the Heritage Harbor Museum in Providence, Rhode Island), coordinator of the annual University of Rhode Island Muslim Cultural Heritage Program, chief organizer of the frequently displayed Discover Islam and Muslim Culture exhibit, and member of various mainstream civic-social-interfaith organizations.
Sharif speaks on Islam frequently at various churches, synagogues, public libraries, schools, colleges, and universities. He is interviewed by various news papers and TV (ABC and NBC both local and national) stations.
He is a Bangladeshi American Muslim.