Producer behavior in conventional Economics and Islamic Economics

1. Producer behavior
in conventional
Economics and
Islamic Economics

2. Explain the producer behavior in conventional
Economics and Islamic Economics. What are the major
differences in explaining the producer behavior in two
systems? What different researchers have opined on
the subject from Islamic perspective?

3. Producer Behavior
 Selamah Abdullah Yusof and Ruzita Mohammad Amin
(2007) discussed that the ultimate goal of a producer is
falah, so there is need to have structure or framework
that gives the rules for proper economic conduct. Al-
Ghazali has given three principles which he considers
are very important, namely, fair dealing, justice and
benevolence. Al Ghazali defines benevolence as “it’s an
act which benefits persons other than those from whom
the act proceeds without any
obligation”(Umaruddin,1970).In simple words, it’s an
act of helping others without expecting anything in
return.

4. Producer Behavior
 Toseef Azid, Mehmet Asutay and Umar Burki
(2007) discussed the conventional economics, the
theoretical model of the firm of conventional
economic is solely based on economic variables.
The main purpose of conventional economic firm is
to maximize profit. Morrison, (2000) said that when
the firm is making their objectives they need to add
social, cultural, moral and ethical variables, instead
of the economics one.

5. Maximization of the Profit of
Shareholders
 The main goal of management of the firm is to
maximize profit. The stakeholders and all the
consumers and employs of the firm should protect
themselves with the help of law contracts and
agreements. This approach has approval of economics
point of views, it is absolutely related to the
shareholders of the firm (Blair and Stout,2001).

6. Protecting the Interest of
Stakeholders
 The main thing which is discussed is that the firm
should think beyond the maximization of the returns
of their shareholders (Turnbull,1997;Jones,1995).
 Kakabadse (2005) discussed a new approach on the
stakeholders and expressed that corporate social
responsibility (CSR) and the stakeholders are
mainly interests are slightly related to each other.

7. Firm’s Behavior: Islamic
Economics Perspective:
 Amin (2003) talk about Islamic framework, it
is said that economic agents are guided by
Islamic values.An Islamic producer is being
accountable to Allah; he treats all the
resources in his command as a trust and the
production of goods as duty. He will always
base all kind of production or related to
production decisions on the concept of
Maslaha.

8. Firm’s Behavior: Islamic
Economics Perspective:
 Salman Ahmed Shaikh (2013) his opinion is that
producer in the Islamic market can focus on
profit if he wants but that should be governed by
the Sharia. It means that earn profit but under the
rules of Sharia
 The conventional economics the firm’s main and
only motive is to earn profit and maximize it as
much as possible. We can say that there is no
mechanism to solve problem of human’s greed.
Instead Islam purifies the heart, encourages
kindness, responsibility, and gives us the concept
of shared responsibility, and the main think is
afterlife accountability.

9. Afterlife accountability in
all economic agents:
 Salman Ahmed Shaikh (2013) said in his
paper that the Islam has given us the concept
of afterlife. This concept helps the consumers
as well as producers to modify or take care of
their actions in this world as well as for the
hereafter; because they know if they do good
they will get good in this world as well as in
afterlife. Azid (2007) suggested that the
market should transform and add the moral
element in all the economic and social
institutions.

10. Complimenting Material
with Spiritual Rationality:
 Islam does not refute the private property rights.
Islam is against of taking rights of property of
other by harming other person. Islam opposes the
selfishness, whereas, the concept of self-interest
in allowed as said by Tag El-Din (2008). “The
search of self-interest is considered as the driving
force in market exchange, well before the modern
economics, though within the ethics of decency,
good sense, and mutual consideration”

11. Operational Principles of
the Islamic Firm
 Production of haram (prohibited) goods is not
allowed
 Production of goods satisfying needs is higher
and of luxuries is lower (Islam give priority to
necessities)
 Following the Islamic principles, the profit
maximization should be moderate.

12. Conventional Market vs.
Islamic Market
 Samad (2008) noted the conventional market
is basically an exchange of goods and services
of an open ended production set. It means that
in conventional economics the producer is
allowed to make any product. But in Islamic
economy there are some restrictions. A seller
or buyer needs permission of the Sharia before
exchanging any product or goods.

13. Contracts
 In conventional economy, theories of the firm
may be roughly classified into two categories,
Incomplete contracting model and principal
agent model (Foss,2003).Different papers
given by different researches has discussed the
above categories of contract like,Coase (1937)
and Simon (1951) discussed the incomplete
contract with the relation of firm analysis.

14. Contracts
 Iqbal and Mirakhor (2004) has discuses about
contracts in Islamic perspective. Islam says
that the main part of any contract is offer and
acceptance. Whenever a contract take place in
Islamic firm it is clear that there should be two
witness available for that contract and the
contract should be written not verbal. These
things are not considered in conventional
economics and because of this lots of issues
are seen.

15. Corporate Governance
 (Iqbal and Mirakhor, 2004).
 Maximizing stakeholders interest and not only
stockholders
 All the stakeholders has proper rights to
participate in the corporate decisions
 The manager’s main responsibility is to
protect the stakeholder’s interest.

16. Corporate Governance
 Wael Moustafa Hassan Mohamed (2016)
explains that the Islamic model of corporate
governance solely depends on the stakeholder
model, and a stakeholder is defining as a
person or group that has a direct or indirect
stake in an organization. The stake which is
used in the definition is classified as rights
which might be at risk because of the
organization action. It is the duty of an
organization to protect the rights of
stakeholders.

17. Corporate Governance
 Adl: (Justice) it means to be fair in every action in life,
like, responsibilities towards others, passing any
judgments, protecting society member’s rights without
partiality, gender discrimination, and nationality.
 It’s a very comprehensive framework for the whole
society including each and every person who is living
in the society.
 Hisbah: It’s an Islamic system in which the state has
the right to inspect all the practices of the market to be
sure about the fairness and equity. It means to take care
of all the big and small crimes of society.

18. Corporate Governance
 Self-consciousness (alertness): Schieffer (2008) stated that,
Islam puts a very strong emphasis on the conscious
recognition of the interdependence between the visible and
the invisible, the invisible is regarded as the cause of visible.
Although good governance is based on the psychological
level of the individual.
 Al Tawheed: (Unity), In Islamic literature we found three
levels of unity. The first one is Unity of humanity, than,
Unity of the people of Book and the unity of Muslims. This
concept is applicable for all the people of an organization.
 Shura: Consultancy-One of the most important concept of
Islam is Shuru meaning consultancy this means that the
decision making should always been done with consultancy..

19. Identity and Importance of
the Employees
 There are main four components of an organization,
identity, social category, norm and ideal (Akerlof
and Kramtoz,2005;
Granovetter,2005;Walton,2003). The position of the
workers as insiders or outsiders has a remarkable
impact on the growth of the firm. (Akerlof and
Kramtoz, 2005; Granovetter, 2005; Walton, 2003).
In Islamic economy it is clearly said that the
producers are basically not the owners they are the
trustees, they are the brothers and sisters of the
works according to the spirit of Islam.

20. Contextuality
 Toseef Azid, Mehmet Asutay and Umar Burki
(2007) discussed the degree of contextuality
plays a major role in the performance of
business relations. It is the basic norm of any
firm that the managers use proper language in
the organization. The managers should use
simple state forward statements which always
bases on truth. Islam strictly ordered followers
whenever you say something say it is a
straight way.

21. Determination of Prices
 Toseef Azid, Mehmet Asutay and Umar Burki
(2007) explained the prices can be positive
negative or zero. There should be a proper
parameter for managing the prices so that no
seller can sell the product on higher prices that
are totally not affordable to the buyer. If the
seller is selling on higher prices so the
government can interfere and change the
prices.

22. Advertisement
 Stiglitz (2008) discussed that the
advertisement is the market response to
basically reduce the gap between the producer
and the consumer. Islam allow the
advertisement because in this way the
producer communicate with the consumer, but
the advertisement should be informative and
provide good knowledge and less expensive.