Umair Javed

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Comparison of Merits and Demerits of

Islamic Economic System, Capitalism and
Socialism
Introduction
Islamic economics system offers middle ground in comparison to other two extreme economic systems.
Inherent ambiguities in Capitalism and Socialism makes way for more pragmatic economic system. We
can only substantiate our thesis that Islamic economic system is viable alternative or not by analysing
merits and demerits of two extremes, thereby comparing it with Islamic Economic System.

Comparison of Merits of Tri-Systems

Elimination of Waste of Resources

Contrary to Islamic Economic System, capitalism does not any checks on stopping the waste of
resources. Resource allocation is not always efficient through mechanism of demand and supply.
Excessive freedom of economic activity makes it difficult to control the wastage of resources. Greed of
capitalists create economy of gluttony whereby excessive production fill up the inventories. Rich people
excessive amounts of supplies beyond their consumption, ultimately those useful supplies got wasted.
On the other hand, Islamic economic system dictates individuals rich or poor to use the resources with
according to their needs. Prices is not only signal to how much buy in Islamic system, but moral values
set of Allah paly important part. Communism try to solve this problem through allocation of resources
through central authority, but it is not always efficient because it is hard to determine what are
individual needs.

Provision of Necessities of Life

It is primary responsibility of state to provide necessaries of life to every citizen. Islamic Economic
System ensures that government provides the necessities of life because ruler of state is vicegerent of
Allah. Conversely, Capitalism doesn’t care much about providing the necessities of life because of their
belief of lasses-faire economy. Communism somehow ensure the availability of necessities, but it
entirely depends on human nature of ruler of communist state.

Inventions and technological Advances

Capital system has merit that it promotes technological advancements. But it creates other problems as
well. Invention of new machines render many workers jobless. Islamic Economic system does not
discourage technological advancement as well. It promotes human pursuit of knowledge gaining.
Communism has also merit to promote technological advancements but since workers are primary
driver of economy, this merit sometimes can be compromised.
Equitable Distribution of Wealth
Although communism is strict to distribute the wealth equally among the state, but past experience of
Soviet Union has shed the light to the fact that dictatorship of proletariat doesn’t ensure the equitable
distribution of wealth. Though who govern the state ultimately fill up their coffers and forget the rest of
the society. Capitalist own the land and capital and they earn the greater profit margins and get rich day
by day. So haves in the society get more rich than rest of society. In Islamic economic System, system of
Zakat and Sadaqat ensure that every individual has handsome amount of money .

Guarantee of Freedom
Capitalism offers the full economic freedom thereby giving private property right and security. However
excessive freedom cause the problems of its own sometimes. Workers are at perils of employers, so
they often exploit the working class through different means. Communism curb the freedom of
economic activity and human expression so no creativity emerges out of this system. On the hand,
Islamic economic system offer vast benefits of economic freedom and expression but not at the expense
of poor people.

Prohibition of Amassing of Wealth

Exhibition of wealth through different means is prohibited in Islamic Economic System, Quran and
Sunnah dictates to rich segments of society to restrain extravaganza instead spend money through
charities. On the flip side, Capitalism and Communism both amasses the wealth by its own way.
Aristocrats in capitalism enjoy luxurious lifestyle through buying and showing expensive products. Rich
elites of communism do the same thing.

Circulation of Wealth
Circulation of wealth ensures that wealth moves around in the society. Because of inherent mechanism
of Zakat and Sadat ensures that every man has some amount of money anytime. Rich are not allowed to
concentrate money. In capitalism, excessive profit margins create imbalance in the society. Capitalists
don’t spend money much, so they can earn excessive interest.

The right of Private Ownership

Capitalism and Islamic Economic System offers private ownership of resources as part of programme of
economic freedom. Private ownership boosts the trust and confidence of individuals, they feel that their
hard work is paid off. On the hand, communism creates collective ownership of resources which doesn’t
help those individuals work hard to gain some prospects.

Elimination of Unemployment
In capitalist system, when prices go down, factory owners lay off the workers. They are no checks and
balance by state in this system. Although everyone is employed in communism, but there is extreme
impossibility to encourage the workers to work hard. In Islamic economic system, adequate provisions
are made by states to ensure people are employed.

Comparison of Demerits of Tri-Systems

Interest
Capitalism is fraught with interest. It is fundamental in capitalist thought to pursue interest against
money. Every monetary and professional activity is functioned through interest. There is no system in
place to help the helpless with dignity. Instead, usurers take advantage of destitute people and lend
money at exorbitant interest rates. On other hand, socialism doesn’t encourage the interest-bearing
products however it doesn’t discourage at the same time. In recent failed experience of communist
states, it is quite clear that communism is quite indifferent to flourishing of interest-taking activity in
society. Islamic Economic System utters its clear-cut policy of not supporting the Interest as legitimate
human activity. It has declared interest “haram” because it distorts market outcomes in a way that
people try to earn money through inactivity.

Philosophical Errors
There are inherent contradictions among two extremes of capitalism and communism. Dual goals of
materialism and utilitarianism can never attained at same time within paradigm of laissez-faire
economy. Materialistic motives drives humans to seeks self-interest and maximizing the individual utility
thereby absolute disregard of humans. There are no check and balances of in the laissez-faire economy.
On the other hand, communism strives to achieve fundamental impossibility of classless society through
dictatorship of proletariat. Dictatorship of any sort is inherently unjust and exploitive. Materialistic
interpretation of history is inconsistent with recorded history of mankind.

Class Struggle
No doubt there would be class struggle in economy system of capitalism which is driven by exorbitant
profit motives. However, solution offered by communism is not viable. One can’t eliminate the classes
by dictatorial way. Ideological foundations of communism is weak in inculcating the values of just
society. The notion that proletariat are oppressed by employers happens only if the employers are
controlled by metaphysical morality which is lacked in communism.

Economic Crisis
Purchasing power of population recedes when wealthy class heaps large amount of wealth.
Consequently, general consumption falls leading to massive storage of production of unsold goods. This
leads to serious economic crisis. Economics crisis then becomes inevitable, leading to closure of factories
and layoffs. Communism try to address these problems through central planning however, there are
chances that it entail error of human judgement. On contrary there is always dearth of production in
communism because central planning can’t determine every component of economy.

Shadows of Poverty
Capitalism creates gulf between incomes of poor and wealth . Smaller percentage of population earn
larger percentage of wealth of country, vice versa. This leads to hunger, destitution and malnourishment
among large populace. Similarly, Communism is devoid of rationality that misallocation of resources
could happen if central planning fails leading to reduced production and mass poverty. In Islam
economic system, people are driven by personal notions of helping others. They enthusiastically help
those in need of help. It is duty of every Muslim who is capable of giving Zakat to pay small portion of his
income to those in need. Sometimes, Islamic state can collect Zakats then redistribute the money.

Ill-wills of Human Nature

In communism in practice, altruistic motive is lacking even though it proclaims that in the classless
society humans will be driven by altruism. People are sluggish when their work is not rewarded with
distinction. Such problems usually don’t arise in capitalism and Islamic economic system.