3(f) Distribution

It is on the issue of distribution of national income that the widest controversy has been and is still going on between different sections of the people of democratic society. Since the economic welfare of the masses depends vitally upon the manner in which the total national income is distributed among the people, common sense suggests that the theory of distribution should deal with the problem of distribution of national income among different classes of people. In particular, it should be in a position to explain the phenomenon that a few are very rich, while the great many are poor. But the tradition among modern economists is to treat the distribution problem not as a problem of personal distribution but as a problem of functional distribution. “The modern economic theory of distribution is a theory of pricing of productive service. It seeks to find out the value of the service of different factors of production. In this respect, the distribution theory is but an extension of the general theory of pricing. The problem of personal distribution can, perhaps, best be solved as soon as we investigate into the problem of ownership of factors of production. The theory of factorial or functional distribution helps us to determine the prices of the services rendered by the different factors of production, such as land, labor, capital and organization”. But under a market economy a person may get rent. As a laborer, he may get wages. As a capitalist, he may earn interest. As an entrepreneur, he may also be the recipient of profit. In Islamic economics, we are concerned with both personal distribution as well as functional distribution.

On Functional Distribution

As regards functional distribution, Islam recognizes rent (i.e., earning of land), wages, (i.e., earning of labor), profit (i.e., earning of capital and entrepreneur). In the first instance, the payment of rent which generally refers to the conception of “surplus” earned by a particular unit of a factor of production in excess of the minimum amount necessary to keep that factor in its present occupation, does not seem to be inconsistent with the spirit of Islam. Secondly, wage differences resulting from differences in talents and capacities have been recognized by Islam. The fundamental conditions are that employers shall not exploit their laborers and must pay their “dues” and the workers shall not exploit their employers through trade unions and must do their job faithfully, sincerely and honestly. While there is a general consensus regarding the need to pay the workers’ “dues”, opinion differs as to whether this “dues” is to be determined according to his “marginal product”. Thirdly, the Islamic theory of capital does recognize the share of capital in national wealth only to the extent of its contribution, to be determined as a variable percentage of profits rather than the fixed percentage of capital itself which is interest. It is prohibited in an Islamic economy, because interest is responsible for the growth of Capitalism with all its attendant evils in society: it creates the problem of unemployment; it retards the process of recovery of depression; it aggravates the debt-servicing problem of the underdeveloped countries; finally, it uproots the basic principles of co-operation and mutual help and creates in man selfishness. The so-called allocative function claimed to be performed by interest rate in a market economy can be done by expected rate of return (i.e., derived from opportunity cost concept) in an Islamic economy. Fourthly, Islam has allowed normal profit – not monopoly profit or profit arising out of speculation which is not generally permissible in Islam.

On Personal Distribution

the Shari’ah provides a comprehensive framework for ensuring distributive justice including the impact of the prohibition of interest not only on productive loans but also on consumption loan. The main objectives of distributive measures are:
(a) to make provisioning for minimum level of living through fulfillment of basic needs, thereby reducing inequality;
(b) to foster social cohesion and co-operative spirit;
(c) to increase efficiency and producing positive climate for mutual help and involved participation.
It follows that in an Islamic economy, a given distribution of income and wealth will be acceptable only when the society is in a position of provide a guarantee of a minimum level of living to its each member as defined in accordance with the Shari’ah and socio-economic realities as well as there is a sustained effort to defuse the concentration of ownership of the means of production and wealth, thereby reducing both relative and absolute disparities of income and wealth.

Distributive Measures

A number of operational policy packages having far-reaching implications to reduce disparities of income and wealth may be evolved through the implementation of the Islamically justified obligatory and voluntary distributive measures which include:

1. payment of Zakah and Ushr;

2. prohibition of Riba on both consumption and productive loans;

3. entitlement of pure economic rent (i.e., income earned without any special effort by anyone) to all members of the community or to the state;

4. implementation of laws of inheritance to ensure equitable inter-generational transfer of property;

5. encouragement to give benevolent loan free of interest (i.e., Qared-Hasan) ;

6. discouragement to deplete exhaustible resources by the present generation to the disadvantage of all future generations;

7. encouragement to pay Sadaqah (charity) to the poor by those who have “surplus” funds beyond their needs);

8. encouragement to organise co-operative insurance;

9. encouragement to set up philanthropic trusts (i. e., Awqaf) in providing social goods, as well as private goods to deserving

10. encouragement to lend the productive asset without charge to those who are in need of it, the recipients are expected to return it to its original owners; after accomplishing the objective for which it was taken (i.e., Maa’un);

11. legal measures against the public treasury to enforce the guaranteed minimum level of living, once defined by an Islamic state in accordance with the Shari’ah as well as socio-economic realities;

12. provisioning of additional “taxes” beyond Zakah and Ushr (one tenth of the agricultural produce) by an Islamic state to ensure distributive justice.