What is economy system????

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What is economy system????

  1. 1. The EconomySystemThe Global WorldPREPARE BY: M. Assad Fahim Khan (313001)SUBMITTED TO: SIR RIAZ HUSSAIN SOOMROOSEMESTER: MBA - 1
  2. 2. What is system?System (from Latin systema, in turn from Greek systēma) is a set of interacting or interdependententities, real or abstract, forming an integrated whole.A group of interdependent items that interact regularly to perform a task.ORA System is a number of INTERDEPENDENT parts functioning as a whole for some purpose.E.g., to understand the functioning of the human body, the working of its interdependent parts(ears, eyes, brain).TYPES: Closed: mostly mechanical; A clock, with its wheels, gears, etc, doing the samepredetermined work irrespective of its external environment Open: a plant. Constant interaction with the external environment is critical to itssurvival.Economic SystemAn economic system is a system that involves the production, distribution and consumption ofgoods and services between the entities in a particular society. The economic system iscomposed of people and institutions, including their relationships to productive resources, suchas through the convention of property. In a given economy, it is the systemic means by whichproblems of economics are addressed, such as the economic problem of scarcity throughallocation of finite productive resources. Examples of contemporary economic systems includecapitalist systems, socialist systems, and economic system of Islam. Economic systems are theeconomics category that includes the study of respective systems.OREach society gives the three basic questions different answers, but the economic system of aneconomy is further determined by the resource ownership(who owns the resources and howowners are paid) and the extent to which the government attempts to coordinate the economicactivities in that society.
  3. 3. Ranging from the most free to the most regimented type of economy, the market system or thefree market is at the opposite end of the spectrum while command system is at the other end.They are the most typical types nowadays, but other mixed and transitional economies alsopervade. Practically, no pure market system or pure command system exists today, all countriesare at one point of the spectrum thats neither of the extremes. However, for sake of discussion,lets pay more attention to the extreme ones.Under pure market system, resources are absolutely privately owned and the coordination ofeconomy is ultimately based on the sum total decisions of millions of individuals who pursuetheir own self-interest without any central direction or regulation. Government is left out, and themarket is the exclusive central institution in which the three basic questions are answered.Buyers and sellers of goods and services, resource owners and bidders interact in no wayaffected by other force like the government regulation. Their decisions are dependent only on theinterest of their own. Consumers dictate what is produced(or the consumer sovereignty) andproducers have to produce the goods and services people want, so is the resources allocationprocess. The distribution of output is also determined in a decentralized way. The amount thatany one household gets depends on its income and wealth. The income and wealth aredetermined by their capabilities and skills as well as the choice whether to go to work or not. In aword, in a pure market system, while non-government members of the society determine theirindividual actions, they ultimately determine the whole economy.In a pure command system, resources are directed and production is coordinated based on thecommand, or central plan, of government rather than by markets. A central authority or agencyestablishes what will be produced and when, sets production goals, makes rules for distributionand determines how much compensation workers are to receive for their labors. In theory, a purecommand system incorporates individual choices into collective ones. In practice, however, ithas flaws, most notably are:1. Since nobody in particular owns resources, people have less incentive to employ them intheir highest-valued use; so some resources are wasted.2. Central plans may reflect more the tastes and preferences of central planners than those ofsociety.3. Since the central government is responsible for all production, the diversity of products ismuch more limited than that in a competitive economy.4. Each individual has less personal freedom in making economic choices.Because of these limitations, countries have modified the pure command system to allow a rolefor markets. North Korea is perhaps the most centrally planned economy in the world today.
  4. 4. Economic System of IslamIslamic Economic System implies a mood of satisfying the economics needs of the members oforganized society in accordance with is injection of Quran and Sunnah. The mood of spendingproduction, distribution and exchange of wealth is determined by the tenor of these injections. Inthis system the economic activities of the members of the society are regulative by the certainvalues of which pity, justice, benevolence, cooperation, brotherhood and equality are especiallyimportant. The sources and origin of these values are the Holy Quran and the Sunnah of Allah‟sApostle (PBUH). They are eternal and immutable. Consumers, producers and traders are mustabide these values.At one level, the state can also use the its powers to implements and enforce these values,however, Islam mostly ensure their implementations and daily affairs of life through its systemof education and training and by creating a general climate of piety in the society.As a complete way of life, Islam has provided guidelines and rules for every sphere oflife and society. Naturally, a functioning economic system is vital for a healthy society,as the consumption of goods and services, and the facilitation of this by a commonmedium of exchange, play a major role in allowing people to realize their material andother goals in life.Islam has set some standards, based on justice and practicality, for such economicsystems to be established. These standards aim to prevent the enmity that often occursbetween different socioeconomic sections. Of course, it is true that the gathering ofmoney concerns almost every human being who participates in transactions with others.Yet, while these standards recognize money as being among the most important elementsin society, they do not lose sight of the fact that its position is secondary to the realpurpose of human existence, which is the worship of God.An Islamic economic system is not necessarily concerned with the precise amount offinancial income and expenditure, imports and exports, and other economic statistics.While such matters are no doubt important, Islam is more concerned with the spirit of theeconomic system.A society that implements Islamic laws and promotes Islamic manners will find that itbring together all the systems – social, economic, and so forth – that it deals with. Islamteaches that God has created provision for every person who He has brought to life.Therefore, the competition for natural resources that is presumed to exist among thenations of the world is an illusion. While the earth has sufficient bounty to satisfy theneeds of mankind, the challenge for humans lies in discovering, extracting, processing,and distributing these resources to those who need them.Islam consists of a set of beliefs which organizes the relationship between the individualand his Creator; between the person and other human beings; between the person and
  5. 5. universe; and even the relationship of the person to himself. In that sense, Islamregulates human behavior, and one type of human behavior is economic behavior.Economic behavior is dealt by Muslims as a means of production, distribution, andconsumption of goods and services. In Islam, human behavior -whether in the economicarea or others - is not value free; nor is it value neutral. It is connected with theideological foundation of the faith.The Sources of Islamic EconomicsThe fundamental sources of Islam - the Quran and the Sunnah of the Prophet- provideguidelines for economic behavior and a blueprint of how the economic system of asociety should be organized. Therefore, the values and objectives of all “Islamic”economic systems must necessarily conform to, and comply with, the principles derivedfrom these fundamental sources. The purpose of these articles is to outline the mostsalient characteristics of an economic system based on the fundamental sources of Islam.The focus here is on the principal features of the Islamic system.The Islamic economic system is defined by a network of rules called the Shariah. Therules which are contained in the Shariah are both constitutive and regulative, meaningthat they either lay the rules for the creation of economic entities and systems, as well therules which regulate existing one. As an integral part of the revelation, the Shariah is theguide for human action which encompasses every aspect of life – spiritual, individual,social, political, cultural, and economic. It provides a scale by which all actions, whetheron the part of the individual agents, society, and the state, are classified in regards to theirlegality. Thus there are five types of actions recognized, namely: obligatory;recommended; permissible; discouraged; and forbidden. This classification is alsoinclusive of economic behavior.The basic source of the Shariah in Islam is the Quran and the Sunnah, which include allthe necessary rules of the Shariah as guidance for mankind. The Sunnah further explainsthese rules by the practical application of Prophet Muhammad, may the mercy andblessings of God be upon him. The expansion of the regulative rules of the Shariah andtheir extensions to new situations in later times was accomplished with the aid ofconsensus of the scholars, analogical reasoning - which derived rules by discerning ananalogy between new problems and those existing in the primary sources - and finally,through textual reasoning of scholars specialized in the Shariah. These five sources - theQuran, the Sunnah, consensus of the scholars, analogical reasoning, and textual reasoning- constitute the components of the Shariah, and these components are also used as a basisfor governing economic affairs.
  6. 6. JusticeIn summary, we can say that the Islamic Economic system is based upon the notion ofjustice It is through justice that the existence of the rules governing the economicbehavior of the individual and economic institutions in Islam can be understood. Justicein Islam is a multifaceted concept, and there several words exist to define it. The mostcommon word in usage which refers to the overall concept of justice is the Arabic word“adl”. This word and its many synonyms imply the concepts of “right”, as equivalent tofairness, “putting things in their proper place”, “equality”, “equalizing”, “balance”,“temperance” and “moderation.” In practice, justice is defined as acting in accordancewith the Shariah, which, in turn, contains both substantive and procedural justice[2]covering economic issues. Substantive justice consists of those elements of justicecontained in the substance of the Shariah, while procedural justice consists of rules ofprocedure assuring the attainment of justice contained in the substance of the Law. Thenotion of economic justice, and its attendant concept of distributive justice,[3] isparticularly important as an identifying characteristic of the Islamic economic system.The rules governing permissible and forbidden economic behavior on the part ofconsumers, producers and government, as well as questions of property rights, and of theproduction and distribution of wealth, are all based on the Islamic view of justice.The following topics will be discussed in the following articles:(a) individual obligations, rights, and self-interest;(b) property rights;(c) importance of contracts;(d) work and wealth;(e) the concept of barakah;(f) economic justice;(g) prohibition of interest (riba);(h) competition and cooperation; and(i) the role of the state.
  7. 7. US ECONOMY SYSTEMThe United States of America (US or USA) is the largest and most important economy in theworld. In 2010, The US economy was responsible for 20.218 percent of the world‟s total GDP(PPP) or US$ 14.624 trillion.Yet despite leading the world‟s economy for more than a hundred years, The US economy isnow facing its greatest ever challenge since World War II. This challenge has been a result ofboth domestic and international factors.US Economic StructureEver since the 1960s, the US economy has been primarily responsible for absorbing globalsavings. Despite the challenge from emerging economies, the US remains the most heavilyinvested-into country in the world, with foreign direct investments at home worth $2.398 trillionin 2010. The US is also the largest investor in the world, investing $3.259 trillion abroad in 2010.The US is a market-oriented economy, where private individuals and business firms make mostof the decisions, and the federal and state governments purchase goods and servicespredominantly from the private marketplace.US business firms have more flexibility than their counterparts in Western Europe and Japan indecision making when it comes to expanding the capital plant, lay off surplus workers, anddevelop new products. At the same time, they face higher barriers to entry in competeingoverseas markets than foreign firms do in the US.US firms are at or near the vanguard in technological advances, especially in computers and inmedical, aerospace, and military equipment. This advantage has narrowed since the end of WorldWar II. The onrush of technology in the US can also explain the gradual development of a two-tier labor market where those at the bottom receive less training and benefits than those at thetop.Although the US strongly advocates free market principles, the government still plays a majorrole in dictating the US economy. The US still relies on the government to address matters thatthe private sector overlooks, from education to protecting the environment. From time to time,the US government has also been tasked with nurturing new industries, and also protectAmerican companies from foreign competition. This is clearly visible from the highly subsidizedagriculture industry in the USAs such, the US economy is best described as a mixed economy where the economic structure isupheld through the interactions between the private, public and international sector. As theleading economy in the world, fluctuations in the US economy have had far reaching impact onother economies throughout the globe.
  8. 8. US Export, Import and TradeUS foreign trade and global economic policies have changed drastically since the days of itsfounding fathers. Prior to the Great Depression and World War II, government and businessesmostly concentrated on developing the domestic economy irrespective of what went on abroad.Since then however, the US has generally sought to reduce trade barriers and coordinate theworld economic system.Today, the US is the world’s largest trading nation – simultaneously leading the world inimports and being among the top three exporting nations in the world. As the top exportmarket for almost 60 trading nations, the US has had a certain degree of economic and politicalleverage throughout the world, which allows it to shape global policies towards its own.One such policy is its commitment to global free trade. The US has had a major role in theformation of global trade agencies such as GATT, as well as its future incarnation as the WTO.Apart from the guidelines set by these agencies, the US also has numerous Free TradeAgreements (FTAs) with individual nations.Current FTAsUS-Israel FTA - since 1985North American FTA (NAFTA) – since 1994, including Canada and MexicoUS-Jordan FTA – since 2001Australia-US FTA – since 2004US-Chile FTA – since 2004US-Singapore FTA – since 2004Dominican Republic-Central America FTA (DR-CAFTA) – since 2005, including CostaRica, El Salvador, Guatemala, Honduras, Nicaragua and the Dominican RepublicUS-Bahrain FTA – since 2006US-Morocco FTA – since 2006US-Oman FTA – since 2006US-Peru Trade Promotion Agreement – since 2007FTAs waiting approvalPanama-US Trade Promotion AgreementColombia-US Trade Promotion AgreementRepublic of Korea-US FTAProposed FTAsFree Trade Area of the Americas (FTAA) – to include all countries in WesternHemisphere except CubaUS-Middle East Free Trade Area (USMEFTA) – to include most countries in the MiddleEastTransatlantic Free Trade Area (TAFTA) – European Union
  9. 9. US-Thailand FTAUS-New Zealand FTAUS-Ghana FTAUS-Indonesia FTAUS-Kenya FTAUS-Kuwait FTAUS-Malaysia FTAUS-Mauritius FTAUS-Mozambique FTAUS-Taiwan FTAUS-United Arab Emirates FTAUS-Southern African Customs FTA – to include South Africa, Botswana, Lesotho,Swaziland and NamibiaUS-Ecuador FTAUS-Qatar FTAUS Recovery From the Financial CrisisIn the near future, the US is likely to rely on its services industry in its recovery attempts. Sincethe 1970s, the US economy has gradually shifted from producing goods to providing services.The large majority of service-providing jobs are found in the group of trade, transportation, andutilities occupations. Other key service industries for the US include finance, tourism andinformation technology.Another instrument for the US is its natural resources. Apart from having the world’s largestproven reserves of coal, 22.6 percent of the world’s total, the US also possesses the 14thlargest proven oil reserves and the 6thlargest proven natural gas reserves. Other naturalresources include copper, lead, molybdenum, phosphates, uranium, bauxite, gold, iron, mercury,nickel, potash, silver, tungsten, zinc, and timber.However, the most important factor for the US is its population of 310.282 million. Althoughthis number pales in comparison to India‟s and China‟s billion-plus population, the US has theworld’s best labour force participation rate with 139.396 million workers.The majority (35.5 percent) of the labour force‟s occupations are managerial, professional ortechnical in nature. A further 24.8 percent hold sales or office jobs, 22.6 percent are in eithermanufacturing, extraction, transportation and crafts, 0.6 percent are in arming, forestry orfishing, and 16.5 percent have jobs in other services.The government has also recently introduced policies aimed at supporting economic growth andincreasing American consumers‟ confidence. Unfortunately, while the Congressional BudgetOffice (CBO) expects economic growth to remain moderate in 2011 and 2012, productivity andemployment are likely to stay well below the economy‟s potential for a number of years at least.
  10. 10. Economic System of PakistanIn Pakistan, we have neither of the two extreme systems but our economic system is a via mediacompromise of both the systems of capitalistic and socialistic patterns. It can safely be said that itis a mixed economy.Concept of Mixed EconomyMixed Economy is an economic system, which combines in itself the elements of socialism aswell as of capitalism. It is an economic system, which is planned and directed partly by the stateand by private enterprise. Under the “Mixed Capitalist System” or “Mixed Enterprise System”,both State and private institutions exercise economic control.Panacea of the Defects of Capitalism and SocialismA privately owned capitalist system cannot guarantee full employment and elimination ofpoverty. It may lead to unequal distribution of wealth and air and water pollution. It producestrade cycles. i.e. sometimes depression and at other times an inflationary situation. On the otherhand, a government owned business system might stifle innovation and invention. It may not bequickly responsive to public desired for products and services and may even limit the freedom ofthe people. It is so realized that economic development cannot be achieved at the desired rate ofgrowth without any active government help and guidance. That is why most of the capitalisticand socialistic economics of world have become mixed economics in order to minimize the evilsof unadulterated capitalism and socialism to accelerate economic growth.Salient Features of Economic System of Pakistan1. Co-Existence of the Public and Private SectorsIn the economy both public sector and the private sector function together. In one part are thoseindustries, the responsibility for the development of which is entrusted to the state and they areowned and managed by the state. Other industries are left under the authority and control of theprivate entrepreneurs. The private sector is free to develop them and start new enterprises in thissector.2. Role of Price System And Government DirectivesSo far as the public sector is concerned, economic decisions relating to production, prices andinvestment are made by the government or authorities appointed by the government. In industriesin the private sector, the decisions regarding investment, production, prices, etc, are made byprivate entrepreneurs with the object of making maximum profit on the basis of the price system.3. Government Regulation and Control of Private SectorIn a mixed economy, the government adopts necessary measures to regulate and influence theprivate sector, so that it may function in the interests of the nation rather than exclusively in theinterests of the private entrepreneurs.
  11. 11. 4. consumer’s Sovereignty ProtectedThe consumers are free to buy commodities of their choice and the private entrepreneurs producecommodities according to consumer‟s demand or preferences, although the government cancontrol their prices in public interest so that they can be prevented from rising unduly high.Besides, the government can also ration the commodities in short supply so that the limitedavailable quantities can be fairly distributed.5. Government Protection of LabourIn a mixed economy, Government saves labour from exploitation by the exploitation by thecapitalists. Several factory acts have been passed to regulate the working conditions of labour.The government also takes necessary steps to prevent industrial disputes.6. Reduction of Economic InequalitiesThe governments in mixed economics take necessary steps for the reduction of inequalities ofincome and wealth for promoting social justice and social stability and social welfare, increasingproduction and for providing equal opportunities for all.7. Control of MonopolyA charge against monopolies is that they reduce output and raise prices in order to get maximumprofit leading to miss-allocation of productive resources of the community, economicinequalities, and unemployment and hampering of industrial development.The government tries to control and regulate monopolies in order to remove the above evils andmake them function in public interest. Also, when the government considers it necessary inpublic interest, it takes over monopolies and operates them in public interest.8. Government Provision of Public ServicesThe government provides certain indispensable public services without which community lifewould be unthinkable and which by their nature cannot appropriately be left to privateenterprises. Examples are the maintenance of national defence, of internal law and order and theadministration of justice etc.
  12. 12. Types of Economic SystemThere are two economic systems• Capitalism• SocialismCapitalismCapitalism is the economic system in which the means of production are distributed to openlycompeting profit-seeking. Capitalism is not merely an economics system but a peculiar attitudeof mind and behavior. Basically it springs out of the notion of the capitalist that he has earned hiswealth by his own ability, skills, knowledge and wisdom.Some of the features of capitalism are written below.1. Private persons and where investments, distribution, income, production and pricing ofgoods and services are predominantly determined through the operation of a marketeconomy2. Capitalism is originally defined as a mode of production, where it is characterized by thepredominant private ownership of the means of production, distribution and exchange ina mainly market economy3. Capitalism is usually considered to involve the right of individuals and businesses totrade, incorporate, and employ workers, in goods, services (including finance), labor andland.4. In Capitalism, state action is confined to defining and enforcing the basic rules of themarket though the state may provide a few basic public goods and infrastructure.5. The most laissez-faire capitalist economies, as measured by indices of economicfreedom, include countries like Hong Kong and Canada .SocialismSocialism or communism means an economics system in which the mean of production areowned by the state. A central directorate controls the production of goods and services. Thedirectorate decides the nature, quantity, and mood of production of goods. This distribution ofgoods is also directed by the central body.Socialism refers to a broad set of economic theories of social organization advocating state orcollective ownership and administration of the means of production and distribution of goods,and the creation of an egalitarian society.Modern socialism originated in the late nineteenth-century working class political movement.Karl Marx posited that socialism would be achieved via class struggle and a proletarian
  13. 13. revolution which represents the transitional stage between capitalism and communism.Socialists mainly share the belief that capitalism unfairly concentrates power and wealth amonga small segment of society that controls capital and creates an unequal society. All socialistsadvocate the creation of an egalitarian society, in which wealth and power are distributed moreevenly, although there is considerable disagreement among socialists over how, and to whatextent this could be achievedSome features of socialism are written below1. Socialism is not a discrete philosophy of fixed doctrine and program2. its branches advocate a degree of social interventionism and economic rationalization,sometimes opposing each other.3. Another dividing feature of the socialist movement is the split on how a socialisteconomy should be established between the reformists and the revolutionaries.4. Some socialists advocate complete nationalization of the means of production,distribution, and exchange;5. While others advocate state control of capital within the framework of a market economy.Social democrats propose selective nationalization of key national industries in mixedeconomies combined with tax-funded welfare programs.6. In the 1970s and the 1980s, Yugoslavian, Hungarian, Polish and Chinese Communistsinstituted various forms of market socialism combining co-operative and State ownershipmodels with the free market exchange.7. This is unlike the earlier theoretical market socialist proposal put forth by Oscar Lange inthat it allows market forces, rather than central planners to guide production andexchange.Difference between Islamic economic System andothers (Capitalism and Socialism)Comparison of Capitalism with Islam:1. Right to ownership:The existence of right of private ownership of property is the hallmark of capitalism. The systembelieves in the private ownership of the means of production, distribution and exchange whichare managed and controlled by individuals or groups of individuals for private profit. Theunrestricted right to own property and earn profits leads to concentration of wealth in few hands.This necessarily disturbs the balance of distribution of wealth and income in society. Theeconomic disparities and the ever-increasing gulf between the rich and the poor sows the seedsof discord and destruction in the capitalist society.Islamic concept of ownership is unique one. Ownership, in reality, belongs to God while somerights only vest in man so that he may fulfill the purpose of God, that is the purpose ofcommunity by acting as a trustee for those in need. In other words, what Allah has created for
  14. 14. benefit of and service to man belongs collectively to the whole humanity. Legal ownership bythe individual is recognized in Islam but it is subject to the moral obligation that in all wealth allsections of society have the right to share. Thus private or individual ownership in Islam is notunlimited or unrestricted. All the means of production are not placed under private ownership aspublic ownership of certain things of common utility exists side by side with it in an Islamicstate. Islamic state has also the right to nationalize certain things which are under privateownership for the benefit of the community. In this way the limited right of private ownershipwith law of inheritance which distributes the estate of the deceased among fairly large number ofheirs averts concentration of wealth in few hands and thus prevents class-conflict.2. Monopoly:Competition, which is another feature of capitalism, leads to the destruction of minor enterprisesand firms. This encourages merger of smaller business organizations into major ones and thusmonopolies or cartels are established. Monopolies kill free competition, cause inflation in pricesand ultimately result into unemployment. Thus labor and consumer are both exploited in such asituation. Moreover, trade-cycles, unplanned production, over-competition, increasingaccumulation of capital upsets the balance between production and consumption whichsometimes leads to economic depressions.Islam forbids unhealthy competition and bans all the ways which lead to it. Islam also disallowsestablishment of monopolies. The Prophet of Islam is reported to have said Whoever monopoliesis a sinner. Especially monopolies over food-stuffs or articles of daily use are forbidden byIslam. Commodities and services which are of the common interest of the community are neverallowed to be monopolized.3. Institutions of Interest:The Institution of banking and interest is the life-blood of capitalistic form of economy. Forbusiness, trade and industry especially for big projects and economic ventures, huge funds arerequired which no individual or firm can arrange. This leads to establishment of banks whoborrow capital from depositors and investors on lower rate of interest and lend it to businessenterprises on higher rate of interest. Thus the institution of interest has become part and parcelof capitalism.Islam considers interest as the most exploitive institution for humanity and has abolished it rootand branch in its every form and manifestation. According to al-Quran taking of interesttantamount to war against God and His Apostle, while according to Prophet Muhammad (PBUH)interest is worse than adultery. Islam builds its economy on interest free basis and promotesprofit and partnership as incentive for saving and investment.
  15. 15. Comparison of Socialism with Islam1. Materialism:Socialism, especially scientific socialism rests on a purely materialistic basis. Dialecticmaterialism or materialistic interpretation of history is the most vital element of Marxism. Marxhas sought to explain every event in history on economic grounds. According to him, origin ofevery activity of man lies in economic factors. Marx does not believe in religion which, in hisview, is a bourgeois invention to keep the proletariat under their perpetual control. Engels said :Matter is the only real thing in the world. The communists believe that human reason is just amanifestation of matter and soul has no independent existence of its own but is a product ofmatter. They hold that all the different stages of human progress are determined by the interplayof conflicting economic forces alone, thus leaving no place for God‟s will.Islam is the perfect and final religion revealed by Lord of the universe for the guidance ofmankind. Its foremost aim is to ensure „falah‟ or well-being of humanity in this world and in theHereafter. It does not give importance to matter only at the cost of spirit as does a secularideology like socialism. Islam believes in the material as well as moral and spiritual welfare ofits followers at micro and macro level. Followers of Islam believe in one God, in all the Prophetsand Holy Scriptures, in the Hereafter, in the moral code and in the universal brotherhood ofmankind.2.Economic Equality:Economic equality is another claim of communism although it has never been realized so far. Intheory at least it is claimed that the rights of the individuals in the economic sphere are governedby the principles of equality. Every individual is provided with the necessaries of life accordingto his needs.Islam, unlike communism, recognizes that there is no equality among human beings as regardsthe economic means and possession of worldly wealth. The Quran considers these inequalitiesand disparities in the distribution of wealth as part of Divine economic order and, therefore, doesnot try to eliminate them by unnatural and artificial means. Islam does not tolerate the existenceof unbridgeable gulf between the rich and the poor, but unlike socialism it does not believe inequal distribution of wealth. Actually Islam believes in fair, just and equitable distribution ofwealth and in social justice. For ensuring equitable distribution, Islam has taken many steps suchas institution of Zakat and Sadaqat, laws of inheritance and bequest, voluntary alms and levy ofcompulsory contributions in the form of taxes and duties
  16. 16. Factors affecting world economy in 2012Global economic growth slowed sharply in 2011 partly due to the European sovereign debtcrisis. Although a global double-dip recession is unlikely, the world economy will face moreuncertainties in 2012 as the debt crisis is still spreading in developed countries.Whether the European debt crisis can be completely resolved depends on the political will forEuropean integration. The recent changes of governments in Greece and Italy as well as theEuropean Union‟s breakthrough in fiscal integration have shown their will to resolve the crisis.Only with a strong political will can the European Union completely resolve the debt crisis andeliminate the possibility of a euro area break-up.The United States has a better economic outlook than Europe. The U.S. government isreasonably confident about solving its debt problems, and the U.S. property market has shownsigns of bottoming out. In addition, the Japanese economy will grow faster this year due to post-disaster reconstruction.Emerging economies will continue to maintain relatively rapid growth and drive globaleconomic growth. However, due to the weak economic growth in developed countries, emergingeconomies face a difficult dilemma between economic growth and inflation.Since the global financial crisis, emerging economies have been leading world recovery throughmassive government intervention, and have suffered heavily from inflation and overheating. Dueto the sovereign debt crisis plaguing developed countries, emerging economies have to loosentheir economic policy again before bringing inflation under complete control. The overheateddomestic economy and sluggish external demand have put emerging economies in a dilemmabetween maintaining rapid growth and controlling inflation.International capital flows may reverse and return from emerging economies to developedcountries. In the second half of 2011, international capitals started flowing from emergingeconomies to developed countries, especially the United States. On the one hand, this backflowprobably reflects the hedging character of international capitals. On the other hand, two middleand long-term factors should be noticed.First, in order to deal with the sovereign debt crisis, financial organizations of developedcountries have adopted “deleveraging” measures, which lead to sustaining demands for capitalbackflows.Second, the risk from bubbles of emerging countries capital markets has increased significantly.Once the international capital backflow turns into a trend, emerging economies financial systemsmay face new impacts.The bulk commodity prices may continue fluctuating at a high level. Emerging economies willstimulate their economic developments and serve as engines for the global economy. It willoffset the economic slowdown of developed countries and the world. Meanwhile, quite a fewcountries are implementing new stimulus policies. Under the condition of currencies keeping
  17. 17. increasing, it is unpractical to expect that bulk commodity prices will decline significantly.In 2012, the short-term risk of the sovereign debt crisis will not be a big problem, but the middleand long-term risk of the crisis indeed needs our close attention.Impact of Terrorism On Pakistan’s EconomyTerrorism has greatly affected the foreign investment in Pakistan. Foreign investment is declineto $ 910.20 Million from $1.4 Billion in Fy 08-09. Dye to decline in investment poverty andunemployment rises. Poverty have reached to 41.4% from 37.5% in 2008-09. Due to unstoppableterrorism acts in Pakistan world bank has blocked two lending key loans of worth $820 Milliontill the conditions ameliorate to the paradigm.Similarly, Terrorism increases the expensive of the forces to meet their needs to fight againstterrorism. Pakistan has received total disbursement of $11,998 Million from US under CoalitionSupport Fund (CSF), out of this amount $3,129 Million were economic related aid and securityrelated aid amounted to $8,869 Million.In addition, risk of the investors and more troops in Afghanistan deployment by US rise the rishof investors to invest in Pakistan that cause serious downfall of deposits of banking sector thatshows deposits fell from Rs.3.77 Trillion to Rs3.17 trillion on September 2009.In 2002, Karachi stock exchange (KSE) was awarded “The best performing stock market of theworld for the year 2002”. Similarly, On December 2007, KSE closed at index of 14,127 pointswith capitalization of Rs.4.57 trillion. But after war declared by government within Pakistandropped its index to 4,675 points with a market capitalization of Rs.1.58 trillion, a loss of over65% from its capitalization in 2007.Furthermore, terrorism also promoted smuggling in Pakistan, due to porous border betweenPakistan and Afghanistan smuggling becomes the source of culprits and expedients for terroriststo wash their hands from it to meet their financial needs. According to US-Pak business councilreport (2009), Pakistan is prime victim of Afghanistan‟s instability and due to which Pakistaneconomy has so far suffered directly or indirectly huge loss of $35 Billion.It becomes necessary for the Pakistan to bottle the gene, before it becomes bigger tin size tounable to fit in it.

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