[Islam-Online- Economy]

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

the price of the product or the seller's rate of return;
the combination of products that a seller may offer; and
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 compensation9 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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