The Economics Systems

In the real world, there are three mainstream economics systems in the world namely as capitalistic, socialistic and Islamic economy. However, the socialistic economy has ended together with collapse of Soviet Union in the early of 90s. The first two are operating under the roof of secularism which is much assertion on people’s rationality without connectivity to the relationship with God. That is quite dissimilar from Islam which deep pilling to the divine Law of ALLAH SWT and the same time tagging to people’s rationality.To make it the dissimilarities clearer among the three mainstream economies which are previously mentioned, it will be focused on the production of goods and services, the production mechanisms and ownership of factors of production in the economy. In capitalistic economy, firms will only produce goods and services that are people willing and able to pay at above the firm cost of production, even not really needed by the majority of people in the society. Here, the role of government is not much appreciated and it has ‘no direct participation’ in the market.In socialistic economy, the government will ‘take over’ the roles of production from the firms for ‘the sake of people’s welfare at large rather than the people’s willingness and ability to pay at individual level. Thus, only goods which satisfy the welfare of people at most will be producing in the economy. Here, the role of private firms are not much recognized and they are ‘not free’ to decide on allocation of the economic resources. It is because ‘all’ of them under the umbrella of socialistic economy are publicly owned by the government and no recognition of ‘profit motive’ of the firms. However, Islam has more comprehensive explanation on this. The Islamic economy organizes firms to produce goods and services that are really people in needs regardless to the distribution of their income. Islam does differentiate between the needs and luxurious goods and services in the economy and the top priority is to produce all the necessities such as foods, clothing and shelters. Islam recognizes the ‘profit oriented motive’ of the firms, thus all the public goods which generate no return to them will be taken care by the government at its own cost. The capitalists firms are very much attentive on the mechanisms of productions in the economy. Their prime concern are to produce at the lowest cost and which generate highest profit, even it sometimes will only bring benefits to small numbers of people in the society. They would not care about welfare of the people at the large stage. For them Adam Smith (The Father of Modern Economics) was right when he proposed the concept of ‘self-interest’ will later establish ‘public interest’ by the role of what so-called ‘invisible hand’. So here, as far as the firms are able to operate at the very minimum cost and attain the highest profit, then they are considered ‘efficient and productive’ enough. The capitalism also is seeing to create economic growth in the economy. However, it is not well distributed and caused injustice among the people where some people left far behind.In socialistic economy, as the main objective of socialistic economy is welfare of the people, thus the government will use the mechanisms which imply the highest maximizing of people’s welfare at large, even at the expense of certain group of people in the society. Thus, under the roof socialistic economy, the government which dominates the economy as a whole would not care about the cost and profit at firms level. The firms have ‘no production power’ at all. Each and every level of productions is directly decided by the government. So, this seems no economic growth in the economy. However, the Islamic economy will practice the mechanisms which bring ‘justice’ to all of economic agents i.e. households, firms and government. Its prime target is to maximize benefit and minimize ‘zulm’ (injustice) to all people so that each individual has equal opportunity and treatment. Thus, the benchmark of production mechanisms is the justice, not the lowest cost and the highest profit motive. Further, Islam opposes the excessiveness of profit taking by the firms without much concerned to the welfare of the people.Relating to the concept of ownership, ‘capitalistic people’ are having the absolute owner of all wealth and factor of productions. They are entitled for their own ultimate ownership without emphasizing to the relationship with the ownership of God, even the collective goods can also be possessed as at individual stage.In the socialistic economy, all wealth and factors of production are publicly owned by the state. No self-ownership is recognized. People have been given no freedom to have ‘something’ on their ‘own pocket’ and also without relationship with the ownership of God. However, Islam recognizes ALLAH (SWT) as the ultimate owner of wealth and economic resources existing in the world as a whole. People are only the trustee for the usage and preservation. He mentioned in the Holy Qur’an as:“Believe in Allah and His Messenger, and spend out of the whereof He has made you heirs. For those who of you believe and spend for them is a great reward”(57:7)Thus, what we can say here that there is not absolute ownership in Islamic economy. This is because everything belongs to ALLAH SWT and He is the possessor of all power. This was mentioned by ALLAH SWT in the Holy Qur’an as:“For Allah is He who gives sustenance Lord of power steadfast”(51:58)People are only entitled the conditional ownership whether individually or collectively. Islam treated certain things as collective ownership such as fundamental natural resources as water, air and fire. The others are to be treated as individual ownership such as things as goods, buildings and livestock. Thus, not everything can be taken as individual ownership.