Islam & Economic Growth

The concept of a welfare state was further expanded by Dr. Chapra to include growth and development. However, the welfare function is usually focused on the distribution aspect. Mannan describes the welfare state established by the Prophet (peace be upon him) as following “a broad policy of expenditure for balanced distribution of wealth among the various sections of the community.”

The Islamic state’s role in development and growth is discussed by many writers. Khurshid Ahmad emphasizes that “Islam’s main concern is in encouraging economic development with social justice.” The state, as the politico-economic leadership of the Islamic society, has the responsibility of carrying out the task of implementing a balanced strategy toward the realization of the objectives of development and has to ensure that the means exist to achieve these objectives.  Raquibuz-Zaman adds that taking an “active part in resource allocation” is a must for the Islamic state inasmuch as it is its duty to collect and to distribute Zakah.

While Chapra, Khurshid Ahmad and Raquibuz-Zaman establish their economic development concept on a welfare concept, Abd al-Muniem al-Ghoosi considers economic development as a necessity for attaining might and power for the Islamic state. He further asserts that not only economic development is a must, but that planning is also a necessity since planning is the indispensable means of development.” It should also be noted that the Muslim writers’ approach to development is com prehensive and humanistic. Thus development in Islam includes all aspects of the Muslims life, be it moral, spiritual, or material.

Four sources of revenue are proposed by the Muslim writers to finance the state developmental activities: taxes, borrowing, revenues of government enterprises, and partnership shares sold to the public. Mannan believes that taxation is a basic means of financing economic development after the private sector’s saving since “raising revenue by taxation is justified in Islam”. While internal borrowing is advocated by a few writers, Abu Sulayman sees in international borrowing a means of obtaining capital with a “price” be it interest or rent. The basic source of revenue for government enterprises comes from the extraction of natural resources whose ownership is assigned to the Islamic state by most of the Muslim writers. The fourth source of revenue, partnership shares, is similar to internal borrowing in that it draws on the private sector’s savings. The only difference between them is that income is given to the holders of the partnership shares, while coercion or zeal and patriotism are reverted to, in the case of borrowing.

Keeping in mind that the principle of justice is invoked in the distribution of the tax burden and of the development’s fruits; very little is usually said about the validity of the use of taxation to finance economic development that brings prosperity to later generations. Abd al-Muniem al-Ghoosi’s concept of development for might and strength differs from most of the others who see in economic development increase in welfare for future generations in the society. The question, however, arises in both cases whether it is just and lawful to charge the present generation for projects whose benefits will be harvested by future generations. Depending on the answer to this question, a preference should be established between taxes and borrowing.

Source: Fiscal Policy and Resource Allocation in Islam, Ziauddin Ahmed, Munawar Iqbal and M. Fahim Khan. Republished with permission.