The Foundations of Islamic Political Economy

THE FOUNDATIONS OF ISLAMIC POLITICAL ECONOMY – Book Sample

 ‘israf’ Economic Waste – THE FOUNDATIONS OF ISLAMIC POLITICAL ECONOMY

The Quranic meaning of the term ‘israf’ is waste due to wanton consump­tion and production. A verse in the Quran strictly prohibiting waste goes as follows:

But squander not [your wealth] in the manner of a spendthrift. Verily spendthrifts are brothers Of the Evil Ones; And the Evil one Is to his Lord [Himself] Ungrateful. ((S. XVII, vss 26, 27))

The idea of ‘israf’ in lslamic terminology is extended both to consumption as well as to production waste. in this regard, another verse of the Quran says:

O you who believe! Make not unlawful The good things which God Has made lawful for you, But commit no excess: For God loves not Those given to excess.( (S. V, vs. 90))

THE PROBLEM OF ‘iSRAF’ AS ONE OF ECONOMIC AND SOCIAL JUSTICE

The essential problem of ‘israf’ is viewed in the Quran as one of economic and social justice. Then through the problem of economic justice it is linked to the problem of economic efficiency, for the resources of production and consumption are squandered away inefficiently in the presence of ‘israf’.

Through the lslamic Principle of Distributive Equity and Social Justice the problem of ‘israf’ is linked with the simultaneous attainment of economic efficiency and distributive equity. The problem of ‘israf’ must thus be analysed in the context of social production and consumption menus, resource allocation and distribution, appropriate technology and social goods, and the formation of property entitlement at the grass roots level under the Principle of Simultaneity of Economic Efficiency and Distributive Equity. We will study these problems of ‘israf’ in this chapter.

We begin by noting the difference between the concepts of economic justice and social justice. in westem political philosophy, there is a dual treatment of the concept of justice known as the antecedentalist and consequentialist evaluation of justice (Gewirth, 1985; Sen, 1988).

The antecedentalists take the view that the rules of distribution are to be deter­mined solely by the initial conditions of effort, contributions and transfers that have gone into the production of output (Gewirth, 1985). According to this view the phenomenon of market exchange is considered as the social arbiter of justice, as it is seen to comprise all the elements of the antecedentalist approach to the distribution of goods.

Entitlement, accord­ing to Nozick, must not be based on redistributed shares since all distribu­tive shares in society are determined by earlier conditions of transfers (Hillel, 1989). Social justice in this concept is synonymous with economic justice.

The neoclassical economic system conforms closely with the antecedentalist concept of social and economic justice, as both of these are determined in the market exchange system as functions of prior efforts, contribution and transfers (Sen, 1985).

in the neoclassical view which represents the antecedentalist school economic justice is determined simply under the criterion of economic efficiency. Now the existence of a tradeoff between economic efficiency and distributive equity in the neoclassical framework means that economic justice and social justice are distinct and competing concepts. The society thus finds itself in a perpetual dilemma as to how to resolve the inequalities of the distribution of the production process.

The consequentialist concept of justice is based on the moral stand that the conflicting inequalities of the market system as found in the neoclassical system can be tolerated only if it brings maximum benefits to the most disadvantaged (Rawls, 1971 ).

This essentially is the idea of social justice as distinct from economic justice (Phelps, 1989). Yet in the consequentialist approach to the idea of justice as faimess the distinction between economic and social justice is maintained. On the one hand social justice in the westem political philosophy necessitates individual freedom (Boulding, 1972), which means free acquisition of the fruits of efforts, previous trans­fers and contributions. But this conflicts with the ideological control of the state in the post-production distribution of output.

The neoclassical essence of the efficiency–equity tradeoff is therefore still to be found in the consequentialist approach, although it is tampered by the policy framework of the state. The lack of reconciliation inevitably leads to a loss of economic efficiency in the consequentialist system.

Now we come to the general problem of economic waste in society in light of the above two ideas of economic vs social justice. in received economic theory, consumption expenditure is considered as the primary activity of the economy; all investment expenditure is nothing but an intertemporal conversion into incomes that are then spent in consumption and saving again. Consequently, neoclassical economics sees consumption as the principal factor in economic welfare, and demand prices arising from the exchange mechanism of the market represent the value of goods- services.

The idea of economic freedom in the neoclassical system is simply left to the preferences of households to consume as much of the goods as they desire and to demand the type of goods that they desire. The only constraints to determine these two elements of consumer preferences are household incomes and prices that together give the budget constraint. But the budget constraint itself is not the result of an antecedentalist approach to distribution, in which case no distributional factors are added to the resource allocation process in the production system. Hence no distribu­tional components appear in the household budget constraint.

 The presence of waste appears in this system by way of the insatiation of human wants to procure and consume goods-services of all types. There is no constraint under the precept of economic freedom unequally to demand luxury goods­services by the majority or some of the populace while the remaining ones can only desire but cannot attain such luxury goods.

The question, then, is how does the demand in the market for luxury goods give rise to waste in the total market system? Waste occurs here, first, because the desire to consume more luxury goods-services leads to a reallocation of the incomes of certain households away from basic needs and into luxury goods. Consequently, more luxury goods are produced and a proportionate decrease due to resource reallocation appears in the pro­duction of basic needs.

 The prices of basic needs have a consequent tendency to rise due to the relative scarcity of the goods caused by resources shift from the consumption and production of basic needs to luxury goods. The overall economic welfare of society made up of large number of households with low and average incomes declines, although the economic welfare of the rich increases. Material waste is seen here in terms of a consumer preference for luxury goods while income inequalities cause a decrease in the economic welfare of the poor and average consumer. Secondly, the production menu of hıxury goods tends to be capital-intensive.

Hence, a reallocation of production resources to luxury goods as a result of the proportionate increase in the demand for luxury goods under-employs labour; the excess labour so caused is a social and economic waste. The potential level of output remains low while prices remain high. This is true also for the labour market, where the wages of specific kinds of skills producing luxury goods remain high. Hence both in the product market and the in labour market the existence of high prices gives rise to economic waste.

Thirdly, there is a strong moral element in the concept of economic waste. The want for luxury goods in the midst of unsatisfied demand for basic needs leads to the formation of ostentatious groups of consumers. Kuznets (1960) shows that the consumer preferences of each lower stratum in society are determined by the one above it. The result of this is a