Do Human beings have a way out of Current Economic problems?

GDP:

When we open the first page of our economics book the first problem it says is that, needs and wants are unlimited and resources are limited, resources are scarce. So what's the solution? The West gives a solution of increasing resources to meet these unlimited needs as much as it can fulfill which can never be fulfilled. It only focuses on increasing GDP growth, GNP growth, and per capita income. Their economists say that if you can maintain 7-9% GDP growth for two decades you'll see that slowly 30-40% of the population will come out of poverty. Even after doing all this, the problem of poverty will still be there. Okay, so the solution they give is GDP growth and that's the only solution they have. They accept that because needs and wants are unlimited there will always be poverty, there will always be unemployment and our job is to reduce it as much as possible. They say that the population is growing at 2%-3% so if GDP grows by 7%-9% we can solve the problem of poverty. The first big chunk will go to the elites and then when they'll spend it'll slowly trickle down to the middle class and lower class in 8-10 years. China has removed 50-60% of the population out of poverty by maintaining 7-9% of GDP growth for two decades. China has done it. So does this method work? But you'll see only one or two countries out of two hundred that have maintained this growth and are this stable so that they can maintain this growth for two decades. So, what about the other 199 countries? Some countries have 1% growth,2% growth, and some are even in minus. The GDP growth rate of the US for 2023 was 2.5%. How can we achieve a 7-9% growth rate for two decades? And why achieve it? They say 7-9% growth because the first 4% goes into the pockets of the upper class and the rest 2-3% gets divided into everybody else. If the economy grows by 3-4% the state will never get out of poverty because that percentage goes into the pockets of riches, anything above that will be distributed among everyone else according to capitalism. Today, the richest 10% in India controls 80% of the nation's wealth, according to a 2017 report published by Oxfam. The top 1% owns 58% of India's wealth. (By comparison, the richest 1% in the United States owns 37% of the wealth)¹. Another way to look at it: In India, the wealth of 16 people is equal to the wealth of 600 million people. This system concentrates wealth. Islam says you can overcome this problem with just 3% growth which is the basic natural growth of humans which is survival instinct. This world cannot afford 7-9% growth nor can we accomplish it by burning coal, oil, or fuels. Sustainability is lost, and temperature is rising by 1% every year. What are you doing? Ruining generations with this flop theory that we can’t overcome poverty if the 7-9% growth is not maintained.

Islam has a different view because it says needs and wants are not unlimited. It divides it into two parts: basic needs and luxurious needs. The basic needs can absolutely be fulfilled because there are enough resources, but it requires fair distribution. More than enough food is produced to feed all of the 8 billion people currently alive on the planet.² If Allah has made the promise of Rizq he will make it suffice. Islam implements the rules that distribute wealth fairly. Distribution not in a socialist way of stealing from one and giving to another. To conclude, we can manage the world with 3% or 4% growth and get people out of poverty. We don't need a 7-9% GDP growth rate for two decades, the capitalist solution!

Ownership

What you can own and what you cannot own.
Western capitalism gives you freedom of ownership, which means if you have the money you can own anything like you can own mines, you can own railways, airlines, the telecom sector, the energy sector, the agricultural sector, etc. but on the other side, socialists say you cannot own anything. You can own a car but not its factory, you can own a shirt but not textile factories. They say that it results in the concentration of wealth.

An Oxfam’s 2020 report shows that eight men own the same wealth as half of the world(roughly 3.6 billion people).³ A more recent report published in 2023 says that The richest 1 percent grabbed nearly two-thirds of all new wealth worth $42 trillion created since 2020, almost twice as much money as the bottom 99 percent of the world’s population.⁴ Both the socialist and capitalist models are extreme cases. Islam has a divine wisdom in this matter prophet Muhammad ṣallallāhu 'alaihi wa sallam said Muslims are allied in three things: water, grass, and fire.(Sunan Abī Dāwud, 3/278: 3477).This hadith states that Muslims (humans) are united in water, pasture, and fire(energy resources). They cannot be owned by individuals. The scholars agree that the water of rivers, lakes, seas, and meadows is a common property and should not be owned/controlled by someone. Thus, the association of humans in the three matters in the hadith above is not because of the substance, but because of its nature as something that is needed by the people (community), and if it is not there then they will have disagreements or have problems in finding it. The state is also just a representative; the motive of taking these ownerships is not to generate profits but for the welfare of people; the real ownership is still of people. Oil, gas, coal, mining, infrastructure, railways, and infrastructure of all these sectors should come under state ownership. If the revenues from these sectors go to the state. The state will not impose such heavy taxes as of now because they are already getting huge revenues from these sectors and the problem of GDP growth will also be solved because now that 2-3% is going to the state instead of individuals and companies. So by taking ownership of all these sectors, you've already shifted the 2% GDP that was going to high net-worth individuals to the common public. Here Islam is not stopping you from getting rich and setting up factories and companies, you can be in textiles, furniture, automobiles, and many more. It is not stopping you from getting rich but it will not allow the whole nation's wealth to go only to some individuals.

Indeed, absolute ownership of everything in this universe belongs to the Creator alone.

Taxation

As per Indian Union Budget estimates for the financial year 2023, indirect taxes accounted for 48.5 percent of the total central tax collection in India.⁵ The share of Indirect taxes, which had been falling steadily since the 1980s, has increased from 2010-11 onwards. The increasing share of indirect taxes implies a heavier burden on lower-income individuals. On the other hand, the share of Direct taxes, which had been increasing till 2010-11, has consistently recorded a downturn in recent years. Thus, the increased tax burden on poorer citizens and those in the middle-class category is a result of the growing proportion of personal income tax and indirect taxes within the overall. This is regressive taxation (the rich and poor pay the same tax in purchasing everyday products and services). Everything is taxed from the food we eat to the house we live in, have you seen who can pay the tax or who cannot? A man who has a family of five to feed pays the same amount of GST as a bachelor who’s living alone. The original concept from the West was “No taxation without representation”; it meant people shouldn't be taxed if they don't have a say in how the government works. Islam has a completely different perspective on taxation, as the Islamic basis is different from that of capitalism. The Islamic taxation system does not tax income, but taxes wealth. This means that the average person will be left with more disposable income and will be liable for tax on whatever wealth is left at the end of the year. In Islam, although simplified, the wealth tax falls at 2.5% (Zakat). Zakat, the alms is a wealth tax liable on 2.5% of people's wealth held for a year. This tax is taken from the rich and re-distributed to the poor and the needy. Zakat beautifully distributes wealth from the rich to the poor and needy. There is one more type of tax in an Islamic system called “jizya”. The jizya tax is applied to all mature, male dhimmi (non-Muslim citizens) who have the means to pay it. Women and children are exempt as are the poor who have no livelihood. The jizya is applied according to the prosperity of the dhimmi. By paying jizya the non-muslims get benefits such as protection of life and property and the right to practice their religion. If Muslim authorities militarily were unable to defend the dhimmīs in the event of an attack by an external aggressor, the former was required to return the jizya to the latter. This is the justice of Islam.

In the current system, you pay indirect taxes in the form of GST, duties, customs, and VAT on an already taxed income. Whereas, in the Islamic system, your income isn't taxed, the tax is on the wealth that remains after all the spending. And there are no indirect taxes in an Islamic system.

Let us put figures from the Indian economy. The average salary of a taxpayer in India is 9.5 lakhs per annum.⁶ He will pay 55,000 tax on it according to the new tax regime. Suppose he saves 20% of his income which comes out to 16000 rs per month then he saved 1.92 lakhs in one year and his spending for the whole year comes out to 7 lakh on which he pays indirect tax on every expenditure he carries out. Then 20-30% of his income has gone to the government in the form of indirect taxes. Taking the 20% figure here then another 1.5L of his income is gone to the government.

To conclude, on an income of 9.5L, he is paying 2L in taxes. How will a common man who has a family to feed be able to pay such heavy taxes? and these taxes get worse as income increases.

Now let us see how he will be living in an Islamic system; the basic needs like education and healthcare are free in an Islamic system. And to tax a person in an Islamic system the state will first look at its expenditure. Again there is no tax on income but on wealth. He’s earning 9.5L, spending 7L, saving 2.5L. He only has to pay 2.5% of Zakat on the remaining amount that he has saved. If we look from another angle he is getting around 16k extra to spend every month in an Islamic system just by not paying taxes. Imagine how much money inflow will increase in the economy.

Patent and Copyright laws:

There is no patent or copyright in Islam. If you do everything for the sake of money that should be done for the sake of humanity then don't do it. Chrome and Firefox are not patented. These are open-source codes. Are they not earning money? Okay if we talk about patents then how the West has achieved all the technological advancements that it has today. Have they made everything from scratch? Al-khawarizmi; Father of Algebra, Hasan ibn al Haytham; Father of modern optics, Muhammad ibn al Hasan al Tusi; Father of trigonometry. I can quote numerous Muslim scholars who have given the foundation of every major technology that is standing today. How much did they pay us? Where was this patent when you were copying knowledge from our scholars? After gaining all the knowledge now they understood that oh intellectual property should be protected and not copied. If one has a concern then the researchers and authors will not earn or get rewarded so there are numerous methods for that. The Caliphate used to give numerous rewards like gold, silver, awards, and honorable positions to the authors who wrote books. What is this crooked mentality that everything I do I'll do it for money. People work for causes and the West has destroyed every cause in this world and replaced it with monetary value. If there is a monetary value then well and good companies will do research and if the monetary value is removed then they will not. The state will give them a reasonable monetary value for that but there will be no patent and copyright.

Aisha, the mother of the Believers, intended to buy a slave girl in order to manumit (free) her. The slave girl's master said, "We are ready to sell her to you on the condition that her Wala (loyalty) should be for us." Aisha mentioned that to Allah's Messenger (ﷺ) who said, "This (condition) should not prevent you from buying her, for the Wala is for the one who manumits (the slave)."(Sahih al-Bukhari 6757)

"In the evening the Prophet (ﷺ) got up and glorified Allah as He deserved and then said, "Why do some people impose conditions which are not present in Allah's Book (Laws)? Whoever imposes such a condition as is not in Allah's Laws, then that condition is invalid even if he imposes one hundred conditions, for Allah's conditions are more binding and reliable."(Sahih al-Bukhari 2155)

From the above mentioned hadith, we understand that you cannot sell something and retain the rights. Some people would find this point a bit strange that patents and copyrights are not allowed in an Islamic system but the thing is that today's corrupt system that we live in has normalized the things that are not good for society so much that when you present them the right thing and the solution they deny that.

Import and Export duties

Narrated Uqbah ibn Amir: I heard the Messenger of Allah (ﷺ) as saying: One who wrongfully takes an extra tax (sahib maks) will not enter Paradise.(Sunan Abi Dawud 2937)

Maks was money taken from sellers in the market in pre-Islamic times

There is zero import duty on local traders of an Islamic system. Import is free, and export is regulated. And for foreign traders, if they impose any taxes we will impose too and if they don't impose anything it will be free for them too.

Self-sufficiency:

We simply cannot depend on others; we cannot apply the comparative advantage theory of Adam Smith (father of modern economics) in an Islamic system. The theory says that if you are good in the agricultural sector well, specialize in that and if another country is good in manufacturing they’ll specialize in that and both countries trade the best of their products to each other. Okay, so what's wrong with that? We cannot accept dependency in critical areas, an Islamic authority always stays in a perpetual state of war. The state is a dawah carrier and it will take Islam to the whole world. So we cannot have dependency on other superpowers in any critical area. Even if the state is not specialized in the automobile sector, it will have to make cars even if it's not that good. Eventually, we will develop the technologies and will make the most powerful cars by simply not depending on others. Self-sufficiency is the policy of the state. Throughout history an Islamic authority never accepted dependency. The state used to send its people to other areas to learn technology and then they used to implement that in the state “We were weak at times but not dependent”. The Islamic system is not an export-based model like China. China maintained 7-9% GDP growth and became one of the top superpowers of the world but what's the use of that? What happened at the time of 2008’s financial crisis? where China literally could have pinned down America but it was too dependent on America. China had $1851.4 billion of foreign reserves⁷ and if America would’ve collapsed China would have collapsed too. China’s central bank, the People’s Bank of China (PBOC), purchased around $600 billion worth of US T-bills in 2008.⁸ China bought T-bills to create demand and kickstart America’s economy so that the consumer economy of America would consume China’s products. This is the weakness of the export-based economy. Export is good for the state but we cannot run on an export-based model.

Current problems:

Remember the first point I made was that it is not our responsibility to solve the problems of the current system. Our job is to give a system that does not have these problems. The problems I discussed in this whole article would not even exist in an Islamic authority.

Inflation:

What are the causes of Inflation? There are three major causes of Inflation. Demand-pull Inflation where price rises because of increased demand for goods and services, Cost-push Inflation where production cost increases and the last is Monetary Inflation where the money supply increases. As the money supply grows, each unit of money decreases in value. Now we'll look at how Islam deals with them.


Demand-pull inflation would also not happen in an Islamic system because, in an Islamic economy, the price of goods and services would be subject to natural market conditions, being driven by supply and demand in their purest sense. supplies should not be deliberately withheld from the market with the purpose of artificially boosting prices. An Islamic government would require that no trader could hoard his goods, and if any trader were found to be doing so, the government would be entitled to force liquidation of his inventory at appropriate market prices. One will not be able to create an artificial demand for any goods and services in an Islamic system.

Current Account deficit:

A current account deficit occurs when a country’s imports exceed its exports of goods and services, resulting in a net outflow of funds from the country. If you have imports more than exports then gold will go out of the state, it will cause deflation in the state. Now the state is cheaper for others so they'll naturally buy from a state that is cheaper for them. There is one condition here: the currency should be gold or gold-backed. There will be a natural balance and this problem wouldn't exist if the standard returns to gold.

Poverty:

What is poverty? Poverty is the condition of lacking sufficient financial resources to meet basic needs such as food, shelter, and healthcare. The responsibility for one’s basic needs such as food, shelter, and clothing is on the state, the responsibility of those people who are unable to fulfill these needs by themselves.