Chapter 3


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Chapter 3

  2. 2. OBJECTIVES OF THIS CHAPTER <ul><li>To identify the types of economic systems </li></ul><ul><li>To compare the types of economic systems </li></ul><ul><li>To describe the philosophy and principles of Islamic economy </li></ul>Mohd Fauzwadi Mat Ali/FPP
  3. 3. INTRODUCTION <ul><li>There are many terms that are used to describe the types of economies that exist in the world </li></ul><ul><li>In reality there are no pure capitalism economies, nor are there any pure central planning economies </li></ul><ul><li>For example, even in the United States, where free enterprise reigns, the government plays a major role in the economy. Minimum wages, social security, and regulatory policies are examples of government involvement. </li></ul>Mohd Fauzwadi Mat Ali/FPP
  4. 4. Cont’ <ul><li>In China, for example, some private ownership of businesses is allowed, however the government still maintains tight control over the factors of production and prices. </li></ul><ul><li>While we could say that both the United States and China are mixed economies because they contain both capitalism and central planning economic features, to do so would be misleading because the role that the respective governments play in the economy are quite different. </li></ul>Mohd Fauzwadi Mat Ali/FPP
  5. 5. Cont’ <ul><li>It’s can be say that a differences countries have differences of economic systems </li></ul><ul><li>The economic system of a country determines how things are produced, distributed and sold </li></ul>Mohd Fauzwadi Mat Ali/FPP
  6. 6. DEFINITION OF ECONOMICS <ul><li>Economics is the study of how people choose to use their scarce resources (land, labor, capital, entrepreneur) in an attempt to satisfy unlimited wants </li></ul>Mohd Fauzwadi Mat Ali/FPP
  7. 7. DEFINITION OF ECONOMICS SYSTEM <ul><li>An economic system is a set of mechanisms and institutions that resolve the what, how and for whom questions </li></ul><ul><li>Economic systems determine how people produce and consume goods and how wealth is distributed and evolves </li></ul>Mohd Fauzwadi Mat Ali/FPP
  8. 8. Cont’ <ul><li>An economic system is a mechanism (social institution) which deals with the production, distribution and consumption of goods and services in a particular society </li></ul>Mohd Fauzwadi Mat Ali/FPP
  9. 9. TYPES OF ECONOMIC SYSTEM <ul><li>Traditional economy </li></ul><ul><li>Capitalism economy </li></ul><ul><li>Central planning economy </li></ul><ul><li>Mixed economy </li></ul><ul><li>Islamic economy </li></ul>Mohd Fauzwadi Mat Ali/FPP
  10. 10. CAPITALISM ECONOMY <ul><li>Capitalism economy is an economic system in which individuals own and operate the factors of production </li></ul><ul><li>It’s a private ownership of resources and the use of prices to coordinate economic activity </li></ul><ul><li>It’s also known as market economy </li></ul>Mohd Fauzwadi Mat Ali/FPP
  11. 11. Cont’ <ul><li>Based on the free trade and market </li></ul><ul><li>A limited control by government </li></ul>Mohd Fauzwadi Mat Ali/FPP
  12. 12. PRINCIPLES OF CAPITALISM ECONOMY <ul><li>High competitiveness </li></ul><ul><li>Individual have a their own properties </li></ul><ul><li>Profitability incentive </li></ul><ul><li>Free trade economy </li></ul><ul><li>Consumer power </li></ul><ul><li>Limited control by government </li></ul>Mohd Fauzwadi Mat Ali/FPP
  13. 13. PROBLEMS OF CAPITALISM ECONOMY <ul><li>Rational </li></ul><ul><li>Socio-economy are not stable </li></ul><ul><li>High competitiveness </li></ul><ul><li>Monopoly </li></ul><ul><li>The prices in the marketplace reflect consumer preferences </li></ul><ul><li>The distribution of property and income could be very unequal </li></ul>Mohd Fauzwadi Mat Ali/FPP
  14. 14. CENTRAL PLANNING ECONOMY <ul><li>Central planning economy is a economic system in which the government owns and operates the factors of production </li></ul><ul><li>It’s a centralized economic planning and public ownership of resources </li></ul><ul><li>Example in practice of this system are Cuba, China & Laos </li></ul>Mohd Fauzwadi Mat Ali/FPP
  15. 15. PRINCIPLES OF CENTRAL PLANNING ECONOMY <ul><li>The government own all wealth or properties </li></ul><ul><li>The stability of socio economy </li></ul><ul><li>Controlled by government </li></ul>Mohd Fauzwadi Mat Ali/FPP
  16. 16. PROBLEMS OF CENTRAL PLANNING ECONOMY <ul><li>Rational </li></ul><ul><li>A limited of individual freedom </li></ul><ul><li>Contrast with the human character </li></ul><ul><li>Stereotype </li></ul><ul><li>Lack of moral education and religious </li></ul><ul><li>Increase a racism or group among societies </li></ul>Mohd Fauzwadi Mat Ali/FPP
  17. 17. Cont’ <ul><li>In this system, the government makes decisions about how products and services are distributed </li></ul><ul><li>It’s also same with the socialism economy and communism economy </li></ul>Mohd Fauzwadi Mat Ali/FPP
  18. 18. SOCIALISM ECONOMY <ul><li>Socialism is a political system that denies the validity of property rights. </li></ul><ul><li>It claims that all property is communally owned </li></ul><ul><li>Instead of being a variant of property rights, this is an invalidation of those rights. It destroys the concept of rights by invalidating their base in human life. </li></ul>Mohd Fauzwadi Mat Ali/FPP
  19. 19. COMMUNISM ECONOMY <ul><li>Communism is a form of government where almost all factors of production are owned by the government, which also makes all decisions. </li></ul>Mohd Fauzwadi Mat Ali/FPP
  20. 20. MIXED ECONOMY <ul><li>It’s an economic system that has features of both market and command economies </li></ul><ul><li>Almost all economies are a mixture of command & market types </li></ul><ul><li>A &quot;mixed&quot; economy is a mix between socialism and capitalism </li></ul><ul><li>Example in practice of this system are United States and China </li></ul>Mohd Fauzwadi Mat Ali/FPP
  21. 21. Cont’ <ul><li>In a mixed economy, there is a sharing of power between individuals and the government </li></ul><ul><li>Individuals own businesses but there is more government regulation in order to protect consumers and workers from unfair practices. </li></ul><ul><li>The government associated with such economies may call itself democratic or socialist, or a combination of the two </li></ul><ul><li>Example in practice of this system are United States, Great Britain, Japan etc. </li></ul>Mohd Fauzwadi Mat Ali/FPP
  22. 22. PRINCIPLES OF MIXED ECONOMY <ul><li>Private/Company have their own properties </li></ul><ul><li>Company can determine a profitability </li></ul><ul><li>Can manage the company without controlling by government </li></ul><ul><li>Rights of individual and employee </li></ul><ul><li>Government just control a main sources (e.g. oil, etc.) </li></ul>Mohd Fauzwadi Mat Ali/FPP
  23. 23. PROBLEMS OF MIX ECONOMY <ul><li>Rational </li></ul><ul><li>Controlled by government </li></ul><ul><li>High cost </li></ul><ul><li>Many people are Jobless </li></ul><ul><li>Social problem </li></ul>Mohd Fauzwadi Mat Ali/FPP
  24. 24. ISLAMIC ECONOMY <ul><li>Islamic economics is an integral part of the overall Islamic way of life </li></ul><ul><li>Islamic economics differs fundamentally from man-made laws and systems in defining economic problem. </li></ul><ul><li>It is based on principles revealed from Islamic sources as norms for human welfare that offer a strikingly alternative set of parameters for economic activity </li></ul>Mohd Fauzwadi Mat Ali/FPP
  25. 25. DEFINITIONS OF ISLAMIC ECONOMY <ul><li>There are various of definition of Islamic economy are define by Muslims scholar </li></ul><ul><li>Ahmad (1981) defines as a social discipline whose concern is to reformulate economic principles and propositions in accordance with Islamic values and ideals </li></ul><ul><li>Akram (1983) defines as aims at the study of human falah achieved by organizing the resources of earth on the basis of cooperation and participation </li></ul><ul><li>SM Hasanuz Zaman (1984) defines as the knowledge and application of injunctions and rules of the Shariah that prevent injustice in the acquisition and disposal of material resources in order to provide satisfaction to human beings and enable them to perform their obligations to Allah and the society </li></ul>Mohd Fauzwadi Mat Ali/FPP
  26. 26. Cont.. <ul><li>Mannan (1986) defines as studies of a social science in the economic problems of people to fill with the values of Islam </li></ul><ul><li>Hailani (1991) defines as all activities for using and managing the natural sources by individual or society to perform their obligations to Allah </li></ul><ul><li>Khurshid Ahmad (1992) defines as a systematic effort to try to understand the economic problem and human's behavior from an Islamic perspective </li></ul>Mohd Fauzwadi Mat Ali/FPP
  27. 27. Cont.. <ul><li>M. Nejatullah Siddiqi (1992), defines as the Muslim thinkers' response to the economic challenges of their times by reason and experience </li></ul><ul><li>SM Ghazali Wafa et al. (2002) define all human activities to use the sources with follow the law to perform their obligations to Allah </li></ul>Mohd Fauzwadi Mat Ali/FPP
  28. 28. Cont.. <ul><li>Ibn al-Qayyim recognizes private ownership and the freedom of economic activities, but within the norms and values of Islam the government may intervene in it for public interest </li></ul><ul><li>Similarly, Ibn Taimiyyah recognizes private ownership, which may be curtailed by the government, if necessary. In some circumstances, it may be allowed to intervene up to the point of suspending and abrogating ownership rights altogether </li></ul>Mohd Fauzwadi Mat Ali/FPP
  29. 29. SCOPE OF ISLAMIC ECONOMICS <ul><li>Most of the Muslim economists have proposed relatively wider scope for Islamic economics on the basis of comprehensive and integrated viewpoint of human life </li></ul><ul><li>Ahmad (1981) says that the scope of Islamic economics is wider more than secular economics because it treats cultural factors like attitudes, tastes, motives, and social customs </li></ul>Mohd Fauzwadi Mat Ali/FPP
  30. 30. Cont’ <ul><li>Akram (1983) also says a wider role of Islamic economics because it’s deals with a wide-ranging set of issues, such as: </li></ul><ul><li>property rights, </li></ul><ul><li>the incentives system, </li></ul><ul><li>allocation of resources, </li></ul><ul><li>types of economic freedom, </li></ul><ul><li>the system of economic decision-making </li></ul><ul><li>the proper role of government </li></ul>Mohd Fauzwadi Mat Ali/FPP
  31. 31. THE PHILOSOPHY OF ISLAMICS ECONOMY <ul><li>SM Ghazali Wafa et al. (2002) are determine the philosophies of Islamic economy. There are comprise: </li></ul><ul><li>Unity (Tawhid) </li></ul><ul><li>Rubiyyah </li></ul><ul><li>Tazkiyah </li></ul><ul><li>End of the day </li></ul><ul><li>Human as a khalifah (leader) </li></ul><ul><li>Brotherhood </li></ul><ul><li>Ownerships </li></ul>Mohd Fauzwadi Mat Ali/FPP
  32. 32. Cont’ <ul><li>Chaudhry (1988) emphasizes on the social aspects of Islamic economics in which individuals interact on the basis of Islamic ethics. He identifies God consciousness (taqwa) and worship (Ibadah) to be the key element influencing the micro-economic behavior of the individuals </li></ul>Mohd Fauzwadi Mat Ali/FPP
  33. 33. Cont’ <ul><li>The philosophies of Islamic economy are based on several fundamentals </li></ul><ul><li>tawhid, a comprehensive concept, implying complete submission of oneself to the one and unique being, who is the creator, sustainer, owner of everything, all-knowing, all-wise, and the most powerful. </li></ul><ul><li>risalah, an institution of prophethood, which brings the revealed guidance in all dimensions of human life from Allah in the form of the Kitab, and demonstrates its application through practice which is recorded in the form of Sunnah. </li></ul><ul><li>akhirah, the hereafter for accountability, and for getting the outcome of all deeds including economic activities </li></ul><ul><li>economic and non-economic well-being for leading a good life and discharging socio-Islamic obligations in this world and for achieving the home of hereafter. </li></ul>Mohd Fauzwadi Mat Ali/FPP
  34. 34. THE PURPOSES OF ISLAMIC ECONOMY <ul><li>The main objectives of Islamic economy are made to contribute richly to the achievement of the major socio-economic goals of Islam </li></ul><ul><li>Others objective are: </li></ul><ul><li>Broad-based economic well-being with full employment and optimum rate of economic growth </li></ul><ul><li>Stability in the value of money to enable the medium of exchange to be a reliable and a stable </li></ul><ul><li>A return is ensured on investment and development projects </li></ul>Mohd Fauzwadi Mat Ali/FPP
  35. 35. Cont’ <ul><li>Socio-economic justice and equitable distribution of income and wealth </li></ul><ul><li>to ensure circulation of wealth </li></ul><ul><li>to make sure that wealth does not concentrate in a few hands </li></ul>Mohd Fauzwadi Mat Ali/FPP
  36. 36. Cont’ <ul><li>A. Hamid (2006) describes a goals of Islamic economy to achieve: </li></ul><ul><li>Social justice </li></ul><ul><li>Distributive a justice </li></ul><ul><li>Prevention of income </li></ul><ul><li>Redistribution of wealth (charity) </li></ul><ul><li>Prohibition of wastefulness </li></ul><ul><li>Welfare </li></ul><ul><li>Literacy </li></ul><ul><li>Human development </li></ul>Mohd Fauzwadi Mat Ali/FPP
  37. 37. THE BASIC PRINCIPLES OF ISLAMIC ECONOMY <ul><li>According to Afzalur rahman, A basic principles of Islamic economy are: </li></ul><ul><li>Determine the level of individual liberty </li></ul><ul><li>Recognize the right of property </li></ul><ul><li>Control the economy inequality within natural limits </li></ul><ul><li>Maintain the equality of social </li></ul><ul><li>Increase the social security </li></ul><ul><li>Prohibition a wider circulation of wealth </li></ul><ul><li>Prohibition of anti-social institutions </li></ul><ul><li>Recognize of social and individual welfare </li></ul>Mohd Fauzwadi Mat Ali/FPP
  38. 38. Cont’ <ul><li>Abul Kalam (1991) says that the principles of Islamic business are: </li></ul><ul><li>Protect the spiritual norms of Islam </li></ul><ul><li>Produce a lawful (Halal) of supply and demand. It was related with three aspects of life: in edible things, in financial matters, and in the daily business of life </li></ul>Mohd Fauzwadi Mat Ali/FPP
  39. 39. Cont’ <ul><li>Talib Al-Anjari states a principles of Islamic economy is an economy that always puts full employment as the first priority. And, degrades and prohibits unwanted or unnecessary consumption </li></ul>Mohd Fauzwadi Mat Ali/FPP
  40. 40. PERSPECTIVES OF HUMAN BEHAVIOR IN ISLAMIC ECONOMY <ul><li>It’s consist 6 principles: </li></ul><ul><li>Rights to create, change, own something </li></ul><ul><li>Suitable with human characters </li></ul><ul><li>Ownership </li></ul><ul><li>Injustice are prohibited </li></ul><ul><li>Consider a human right among society </li></ul>Mohd Fauzwadi Mat Ali/FPP
  41. 41. BENEFITS OF ISLAMIC ECONOMY <ul><li>Human are borrow the sources by Allah </li></ul><ul><li>Recognize a human right </li></ul><ul><li>helpful </li></ul><ul><li>Use the sources with productive </li></ul><ul><li>Safety a rights of community </li></ul>Mohd Fauzwadi Mat Ali/FPP
  42. 42. STRUCTURES OF ISLAMIC ECONOMY <ul><li>According to SM Ghazali Wafa et al. (2002), structure of Islamic economy consist 3 main sectors. It’s: </li></ul><ul><li>Public – politics, administration, etc </li></ul><ul><li>Private – business, commerce, etc </li></ul><ul><li>Volunteer – foundation, social welfare, etc </li></ul>Mohd Fauzwadi Mat Ali/FPP
  43. 43. AN IMPLEMENTATIONS OF ISLAMIC ECONOMY <ul><li>According to SM Ghazali Wafa et al. (2002), an implementations of Islamic economy should be consider 3 factors: </li></ul><ul><li>Unity (Tawhid) </li></ul><ul><li>Vicegerency/Leadership (Khilafah) </li></ul><ul><li>Justice (‘Adalah) </li></ul>Mohd Fauzwadi Mat Ali/FPP
  44. 44. Cont’ <ul><li>According to Choudhury (2000), Islamic economy instruments are a systemically unified knowledge-induced general equilibrium framework. </li></ul><ul><li>The 5 major Islamic economic instruments are: </li></ul><ul><li>abolition of interest </li></ul><ul><li>profit-sharing under economic cooperation between labor and capital </li></ul><ul><li>joint ventures and equity participation </li></ul><ul><li>the institution of charity </li></ul><ul><li>avoidance of wasteful use of resources </li></ul>Mohd Fauzwadi Mat Ali/FPP
  45. 45. Mohd Fauzwadi Mat Ali/FPP