With the collapse of communism, free enterprise remains the only viable economic system. It is successful because it brings the greatest prosperity to the largest number of people. Yet there are those who believe that capitalism implies greed, the antithesis of our core religious values.
Nothing can be further from the truth. This misguided notion led many to adopt communism, with its promised egalitarianism. The results, as we can now see, are disastrous. Communism's only equality is its poverty. Free market is deeply rooted in Islam. Our prophet (peace be upon him) was an accomplished trader, and Mecca a major trading centre during his time.
The area around the Ka'aba was a sanctuary where no conflict or hostility was allowed so trade could proceed unhampered. This ancient wisdom implicitly recognises that for trade to thrive there must be peace, and that trading in turn enhances peace.
Our Koran explicitly encourages free market, "Oh Ye who believe! Eat not your property amongst yourself in vanities: But let there be amongst you traffic and trade by mutual goodwill." (4:29).
The 14th century historian Ibn Khaldun wrote in his Muqadimmah (Introduction [to the Study of History]), "Commerce means the attempt to make a profit by increasing capital, through buying goods at a lower price and selling them at a higher price This may be realised by storing goods and holding them until the market has fluctuated from low to high price ... or by transporting goods to another country where they are more in demand."
Islam commands us to venture into the market and earn our livelihood. In Surah Al-Jumu'a (62:10), "When the prayer is finished, then disperse ye through the land and seek the bounty of Allah." Earning a lawful livelihood is a duty second only in importance to that of prayer, preached our prophet (PBUH).
In Islam it is better to give than to receive a wage; that is, better to be an employer than employee. A businessperson enjoys an exalted position in Islam. Contemplate this hadith (saying attributed to the prophet): "In the Day of Judgment, the honest, truthful Muslim merchant will rank with the martyrs of the faith; the trustworthy merchant will sit in the shadow of the throne of God on Judgment Day."
Yet today profit is regarded as sinful. In Iran they execute citizens for "profiteering", as if those in authority know exactly the 'right' amount of profit. This from bureaucrats who have never done any trading!
In a free market, trading is voluntary. If the buyer feels that he is being gouged, he can simply deny the seller that profit by not entering into the transaction. Those who feel that there is a 'right' price and 'appropriate' amount of profit are clearly mistaken if not arrogant. The market value is what we mortals (seller and buyer) have agreed upon. Only Allah knows the real value of everything.
Let me illustrate with an oversimplified example. I buy carpets in Afghanistan for US$10,000 and then sell them in America for US$20,000. Assume (to use a favourite term of the economist) that my trip costs US$4,000. My profit would be a straightforward US$6,000. Straightforward? Not quite.
First, who is to say that that amount of profit is excessive, modest, or adequate? What is the price tag of the risk I took in going to Afghanistan? The Taliban could have killed me for being a capitalist.
Then there is the value of my time away from my family. And if Americans, in their dislike for the Taliban, refuse to buy my carpets, who will compensate me for my loss? Thus the real costs cannot begin to be fully quantified if we consider all the factors.
Second, ponder the benefits of my work. An American family gets to enjoy plush Afghan carpets. More significantly, the weaver now has a lucrative market for his product. I am in fact providing a living for him. No wonder Islam looks kindly on traders.
Inequality of wealth
A frequent criticism of capitalism is the resultant inequality of wealth and income. In contrast, with communism and socialism, everyone is equal. This canard is just that. The communists may be all equal but some are definitely 'more equal'.
Islam recognises that in a free economy there will inevitably be differences in the wealth of people. The Quran admonishes us against envy, and to respect wealth. Surah An-Nisa'a (4:32), "In no way covet those things in which God has bestowed His gifts more freely on some of you than on others; to men is allotted what they earn, and to women, too. Ask Allah for His bounty, for God has full knowledge of all things."
Islam demands justice, not equality. Indeed equality may be unjust, for there is no greater inequality than the equal treatment of unequals.
Central to free enterprise are two related concepts: property rights and contract rights. These, too, are spelt out in the Quran and hadith . In Surah Al-Baqarah (2:188), "Do not devour one another's property by unjust means, nor bribe judges in order that you may wrongfully and knowingly usurp the possessions of others."
Another, "Enter not houses other than your own; until you have asked permission and greeted those in them... If you find no one in the house, enter not until permission is given." (24:27). A clear affirmation of property rights.
The sanctity of contracts is stated thus, "Keep faith with God when you make a pledge. You shall not break your oaths after you have sworn to them." (16:91-92) Elsewhere, "As for those with whom you have entered into agreements, let them too have their due. God bears witness to all things." (4:33)
Hernando De Soto, in his book The Mystery of Capital , observes that capitalism fails in the Third World precisely because there is no respect for these rights, especially by those in power. The poor in these countries may have homes and enterprises, but without the sanctity of property and contract rights, they cannot convert their assets into capital.
Parity of power
The legitimate role of the state is to ensure that trading is not interfered with and that free trade is indeed free, that is, there is parity of power between buyer and seller. Hence antitrust and other laws to prevent business collusion, price fixing, and other anti-competitive practices. Additionally, the state must provide an environment where property and contract rights are enshrined and respected.
While governments are quick to intervene in what they consider to be market failures, alas there is no one to curb the excesses of government. I fear the latter more; look at Iraq and Afghanistan. Then there are the conceited who feel they can control markets. Malaysia squandered billions in futile attempts to 'fix' the value of the ringgit, corner the tin market, and most recently, manipulate stock prices. They never learn.
Nor should governments be directly involved in commerce. "Commercial activity on the part of the ruler," observed Ibn Khaldun, "is harmful to his subjects and ruinous to the tax revenue." Substitute ruling party for ruler and we have the mess that is Malaysia. The losses incurred by our various state-sponsored enterprises are enough to eradicate poverty, and plenty left over to improve our schools and universities.
We have a saying, Kemiskinan mendakati kefukuran (Poverty begets impiety). Anyone who doubts this simple village insight needs only visit any Third World country. The surest way out of poverty (and thus impiety) is through free markets. Islam began around free markets; it is time we return to our roots.
Portions of this essay are excerpts from the columnist's forthcoming book. Malaysia in the Era of Globalization.