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Monopolies
In
an Islamic state, one of the cornerstones of public policy is to
discourage monopolies, since the government is committed to an
equitable distribution of income and wealth. But how do we determine
the existence of a monopoly? In addition, it is not fair to
eliminate all monopolies. We should try to discriminate only against
"bad" monopolies. By this we mean those monopolies that
form barriers against market entry by their polices of pricing and
output. Several situations can exist in which a firm happens to have
a "just" and "innocent" monopoly. For example, a
firm may be a product innovator and for a period of time it could be
the only producer. Similarly, at times it may be wasteful to create
competition: A single firm may be in a position to produce a product
more economically than two or more competing firms.
However,
state regulation is often necessary to protect the consumer from the
abuses of monopoly. The economic regulation of monopoly may involve
state control of
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the price of the product or the seller's rate of return;
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the combination of products that a seller may offer; and
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the entry and exit conditions from a particular market.
The
Islamic government should not create monopolies by granting
exclusive licenses. It should encourage entry of competitors into
the market, even though it may mean some duplication or waste. The
market will generate its own efficiencies. Even within the public
sector, the Islamic government should encourage competition.
Price
Control
Normally,
the Islamic government does not interfere in the market and allows
prices to establish freely. This is based on the policy of the
Prophet himself. Once, during his lifetime, prices in the Madinah
market rose abnormally and people requested the Prophet to fix
prices. However, he refused to do so with the explanation that such
an action may be unjust for some. But some scholars, most prominent
of them being Ibn Taymiya, think that if the circumstances are
abnormal, the government must intervene to promote maslahah.
Examples of abnormal circumstances are collusion, hoarding,
artificial restriction of output, and restriction on entry of new
firms into the market. The nature of government intervention depends
upon the specific situation prevailing in the market. Some of the
intervention methods are direct, such as price fixing; others are
indirect, such as threatening to withdraw government orders,
maintaining buffer stocks, providing tax concessions to increase
output, direct government importing, forcing production by the
private sector, and controlling dumping.
Wage
Control
The
primary concern of the Islamic state is the well-being of its
people. In view of this, some scholars have proposed that to prevent
the exploitation of labor the Islamic state should enact laws for a
minimum wage. Although this proposal is humanitarian and seems like
a plausible means of preventing the exploitation of labor, it
ignores the fact that the Islamic government has an equal
responsibility to maintain the free market.
Fixing
the minimum wage ignores the questions of productivity and demand
for labor. Such laws could restrict competition and force some
producers to close their businesses, which would lead to
unemployment. Thus, to our mind, the Islamic government should not
legislate a minimum wage. Instead, it should provide income support
to the needy from other sources, such as zakah and taxes. The market
should determine the wage rates.
Nationalization
Can
an Islamic government expropriate private property? Normally, the
Islamic government does not have this authority. Private property is
inviolable. No one, including the state, can take it forcibly.
However, as an exception to this rule, the Islamic government can
nationalize private property if the maslahah of the Ummah so
requires. This can be done only after giving the owners proper
compensation (9) and carrying
out due process of Shura (consultation). But the more important
question is this: Should an Islamic government nationalize private
property, especially when nationalization has not been very fruitful
in the past? The general answer is that it depends on the maslahah
of the Ummah. The state is obligated to nationalize some types of
businesses if it is convinced that the public interest is being
injured or that it is not being protected by the private sector.(10)
Foreign
Exchange Control
The
primary sources of the Shari`ah provide no direct guidance on the
question of exchange control by the government. In the seventh
century, Makkah and Madinah were international trading centers where
currencies of various countries were exchanged freely. The Prophet
did not regulate the exchange rates. He allowed currency exchange at
the prevailing market rate of the day. From this we see that the
Prophet accepted the free exchange market. But it is not conclusive
evidence for the assertion that the Islamic government must uphold
free-floating exchange rates. This question has to be decided within
the overall context of the business law of the Shari`ah. For
example, the Shari`ah does not allow speculative transactions in
foreign exchange. Presently, the equivalent of about US$ 1 trillion
worth of foreign currencies cross borders around the world every
day, and the bulk of these transactions is speculative and not
trade-related.(11) The
Shari`ah does not allow the earning of interest on money.
Implementation of Shari`ah law will limit speculation.
In
such a scenario, it will be decided whether the Islamic government
should intervene in the foreign exchange market or not. But one
thing is obvious: The Shari`ah discourages the Islamic government
from creating privileged groups by giving them preferential
treatment in exchange quotas. Such a policy distorts the society's
income distribution and thus violates one of the primary principles
of economy given in the Qur'an itself (59:7).
Trade
Tariffs
Can
the Islamic government implement tariff and nontariff trade
barriers? Again, the primary sources of Islam give no direct
guidance except that trade used to be free till the time of the
Caliph `Umar. When he learned that Muslim traders were being
subjected to import duties in other countries, he levied a
reciprocal duty on the traders of those countries who brought their
goods into the Islamic state. This is known as 'ushur (the 10
percent tax on imports). In this age, when almost all countries are
levying various tariffs and quotas, it would be naive to suggest
that the Islamic government should open its economy to all goods and
services. The question will be decided according to the global
situation and after an analysis of the needs of the Muslim Ummah.
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