[Islam-Online- Economy]

Allocate resources to fulfill needs:
The Islamic government is responsible for the flow of resources into the production process and then for the distribution of those goods and services in order to fulfill needs. Needs refer to the three categories-daruriyat, hajiyat, or tahsiniyat-that were discussed above. The government should discourage the production, importation and distribution of goods and services that do not relate to the fulfillment of needs. In addition, the government should adjust its tax structure so that the lowest taxes are levied on daruriyat goods, higher taxes are levied on hajiyat goods, and the highest taxes are levied on tahsiniyat goods. It will be necessary to liberalize the resources tied up in the production of luxury and status goods. Of course, this cannot be done by mere legal action. The government will need to strengthen the moral and spiritual dimension of its people. The government will need to launch a campaign that encourages simple living and demonstrates, through the lives of its leaders, its willingness to live according to the social and cultural values of Islam.
Financial Restructuring
Islam prohibits interest on all types of loans. Once interest is banned, Islamic government has to undertake a complete restructuring of the financial sector. Here is not the place to discuss the alternative basis for the banking industry; however, suffice it to say that the Islamic government needs to take the following steps in this direction:

Create a mechanism that enables those households that can use capital productively to get it on an interest-free basis. This will save lost household productivity. Presently, no economy is measuring this loss.
Promulgate the suitable legal framework for the prohibition of interest on all financial transactions.
Provide the legal basis for the creation of an alternative system of banking and credit.
Ensure the prohibition of interest through appropriate legal and institutional treasures.
Demonstrate its will to abolish interest by organizing its own transactions, internal as well as external, on an interest-free basis.
Convert all existing debts into appropriate interest-free debts.
Create the framework that will facilitate the conversion of all outstanding debts in the private sector into interest-free debts.
Empower the courts and the department of hisba, or any alternative department with similar functions, to intervene in any transactions in which interest is suspected.
Create a standing commission with suitable authority, composed of economists, ulamaµ, and financiers, that interprets and postulates standards for the interest-free financial system.
Provide support and assistance to other economies in creating an interest-free system in their respective economies.
Launch a campaign to popularize Islamic modes of finance and educate the people about the disadvantages of interest-based finance.
Invite all of its worldwide trading partners to deal with it on an interest-free basis. Creating a Share in the National Wealth

Creating a Share in the National Wealth
The Islamic government should try to create a share in the national wealth of the country. For those countries that can afford to levy taxes and create a surplus budget, it is simple. For others, it is possible through the sale of minerals, the leasing of arable public land, or the sale of some fixed assets. The funds thus created should be invested through the stock exchange in the private sector on the basis of any permissible mode of finance. The government should try to generate income through dividends, rents, or the sale of minerals. This income can then be used to even out existing income inequalities by making transfer payments in favor of the poor and the weak. The distinct feature of this proposal is that the government does not manage its own wealth. It only intermingles its resources with the savings and wealth of the private sector. Since the private sector has a stake, it strives hard to generate more wealth. The government takes a share in the profit or loss. This idea is based on the policy of Caliph 'Umar, who allowed the conquered lands to remain with the existing tillers of the land but made them share the output with the government. It is inverted nationalization. In nationalization, the government promises to pay compensation to the owners; thus, it creates a liability for itself and also undertakes to manage the nationalized units. In this case, the government creates an asset, receives a share in the output and productivity, and is not responsible for asset management. Thus, it can overcome all the criticism leveled at nationalization.
What If the Government Fails?
So far we have been talking only about market failure. The government should intervene if the market fails, but what if the government fails to keep the maslahah of the society in view? There is a possibility that though the government intervenes in the economy, it acts suboptimally so that the maslahah of the general public is not served. Thus, we acknowledge the possibility that the regulators may need regulation.
Need for an Ethically Motivated Civil Service
The Islamic government must create an ethically motivated civil service. A change in recruitment procedures and civil servant selection criteria is required. Training of civil servants at all levels should include a high content of ethics based on the precepts of the shari'ah. Civil servants should be paid well so that they are able to lead honorable lives. This will help reduce corruption and the misuse of public resources by civil servants. It will also cut down the cost of monitoring their conduct. Even from a purely materialistic standpoint, it is desirable to have a culture of honesty. Islamic society's primary concern is to create an environment in which public servants are motivated by their desire to serve people for the sake of God. In such a society the relevant question is not, What is the role of ethical norms in the economy? but rather, What are the roles of market and government in a society that is based on ethics, trust, and cooperation?
Transparency and Accountability
Transparency is a key concept of public administration. The government has a moral and sometimes a legal responsibility to publicly disclose its performance. For this purpose government business should be transparent. Although the concept of transparency in public administration has become popular only recently, we find its roots in early Islamic history. The most prominent example is Caliph 'Umar's insistence that all provincial governors and other senior civil servants lead an open life in which their decisions are made available for public scrutiny. He took severe action against those who were found guilty of misconduct. The early caliphs of Islam led transparent lives. They offered themselves for open scrutiny. They also held their officers accountable. In this age, to safeguard the public against the deception and arbitrary decisions of government officials, the following policy suggestions are relevant:

The wealth and assets of government officials holding key positions should be made transparent.
The decision-making process carried out by important government functionaries should be made transparent, thus leading to a reduction in the domain of the secrecy laws.
Public servants should not be allowed to acquire public property when a conflict of interest may be involved. For example, government servants responsible for the privatization of public enterprises should not be allowed to purchase the assets of those corporations in their own name or in the names of their family members.
Discretionary powers of the bureaucracy will have to be reduced to a minimum.
The public should have the right to complain against the behavior of government servants and also the right to receive a reply to their complaints. Therefore, every government department should have a complaint-handling mechanism in place.
Government accountability must be institutionalized. The supreme audit institutions of the country should be made more independent and strengthened.
In the final analysis, nothing can restrain the bureaucracy from misusing and abusing public resources except a civil society that acts as a moral conscience and a countervailing force.

Regulating Rent Seeking
In an Islamic society, government policies that create privileged groups are undesirable. This is obvious from the following example. The Prophet took back land from his companion Abyad b. Hammal when he came to know that it contained a salt mine and its private ownership might cause hardship to the general public. Similarly, we find that the Prophet donated land to some of his companions with the hope that they would develop it. Later, when it was learned that the donee did not develop the land, it was taken back from him. From these examples, we can derive some general principles. First, the Islamic concept of rights accompanies obligations. There are no rights that do not entail obligations. Therefore, the government should not create any right that does not specify the obligations of the beneficiaries. Second, to protect the interest of the general public, government donations should not be for the purpose of creating monopolies. Third, donations should not allow some individuals to reap vast profits without the investment of labor or capital. In the example above, the salt mine on the land given to Abyad b. Hammal was on the surface and would not have required any development effort to extract salt from it. Fourth, in an Islamic society, the discretion to donate property to individuals does not lie with any person even though he is the head of state. It is to be decided by the society collectively on the principle of shura (consultation).18 The rights of the government and its leaders, including the president or prime minister, are the same as an ordinary citizen. As part of the government, government officials are only trustees of public resources.19 Fifth, the state may create some rents where the creation of these rents is an incentive for a higher social objective like industrialization or technology development. Rent seeking becomes objectionable when the vast profits generated in this process are not deployed productively.20 Sixth, despite the above-mentioned training, people will still tend to seek benefits from the government. The government must enforce a code of conduct on public servants, politicians, and businessmen, restraining them from seeking to influence the government for any such benefits.
Should we say there will be no special interest groups in today's Islamic society? It would be overly simplistic to make such a presumption. There will remain special interest groups in society. However, it is not necessary that these groups act against social interests in each case. In some cases, they may play a positive role by providing information on specific problems. In the absence of these groups, perhaps, the onus on the government is too large. It will need to know everything about everyone before taking a decision. This is obviously too much to expect from the government of fallible human beings. These interest groups could play a positive role. The government should accommodate them on the basis of the general principle of maslahah. Of course, some groups will be able to obtain certain benefits, while others will lag behind. In an imperfect world there is no possibility of arriving at ideal solutions. The point is that the government should explicitly take maslahah into account and should not be merely guided by special interest groups. To what extent this general direction of public policy will be different from a capitalist society depends to a large extent on the conscience of the society, responsiveness of the government to the maslahah, the competence of the government to take proper decisions, and the quality of information on which decisions are made.