Chapter 3: Islamic Economic Sstem and Conventional

Islamic Business School (IBS), UUM

2013

BPMS1013 Theor & Practice of Islamic Business

INTRODUCTION
Conventional economy is an economy that already been adopted and applied in an economic society

So, when it linked with the economy the conventional system can be considered as an economic system that has been widely practiced.
Does not have absolute standard but nature flexible and can change according to a conditions in a society.

Islamic economic system is based on the proceedings of AlQuran and Al- Sunnah.
The Direction of economic systems is to bring Al-Falah concept of success in this world and hereafter. Prohibition of usury , gambling and many more. 2

BPMS1013 Theor & Practice of Islamic Business

Definition and Concepts of Economics

Definition of Economics
Study of how societies use scarce resources to produce valuable commodities and distribute them among different people.

Concepts of Economics
Wants Scale of preference Opportunity cost Choice

BPMS1013 Theor & Practice of Islamic Business

Capitalism Economic System

An economic system based on a free market, open competition, profit motive and private ownership of the means of production.

Capitalism encourages private investment and business, compared to a government-controlled economy. Investors in these private companies also own the firms and are known as capitalists.

Principle of Capitalism
4 Belief in economic freedom Private property Individual decisions Competition or economic rivalry in the market place

BPMS1013 Theor & Practice of Islamic Business

Problems of Capitalism
Irrational behaviour
Inequality Monopoly behaviour Immobilities Equity Unemployment

BPMS1013 Theor & Practice of Islamic Business

The command economic system (Communism & socialism)

Meaning /definition A command economy is where economic decisions are planned out in detail by a central government authority.

Also known as planned economic.

Example: North Korea, Soviet Union , China ,Cuba

The principle of Communism & socialism Nationalization of property Economic equality Regimentation 6
BPMS1013 Theor & Practice of Islamic Business

Advantages and Disadvantages Communism & Socialism

Advantages Services and goods provided are for the benefit of community and not to make profit Profit in not the main objective, instead the government aims to provide goods and services to everybody Less inequality of wealth Low level of unemployment No duplication as the allocation of resources is centrally planned Disadvantages Lack of innovation Limited consumer choice Lack of efficiency BPMS1013 Theor & Practice of Islamic Business 7 Overstaffing

Neglect of moral education

The Mixed Economic System (Welfare state)

Meaning /definition
Mixed economic is an economy system that combine or mixture of capitalism and socialism Industries are privately owned and others are publicly owned or nationalized

Malaysia, England, Germany, Sweden

Objective Stability prices

Economic growth
Full employment Efficient use of resources to produce goods and services. 8
BPMS1013 Theor & Practice of Islamic Business

Advantages and Disadvantages Mixed Economic

Advantages Less income inequality Helping Producers and Consumers Protecting the Economy Free Enterprise Benefits of taxes for social program Disadvantages Harming Competition Bureaucratic Decisions Unsuccessful regulations may paralyze features of production Economic problem

BPMS1013 Theor & Practice of Islamic Business

Islamic Economic System

Definition and philosophy of Islamic economic system
Social Science that studies human behavior in terms of use and management of natural resources for the benefit of themselves and the communitys interest to seek the blessing of Allah s.w.t. (Hailani Muji Tahir, 1991) Philosophy of Islamic Economic System

Concept of faith
Concept of authority (Rububiyah) Concept of property rights Concept of moral purification (Tazkiyyah)

- Equality and brotherhood of man

- The Day of Judgement - Human as khalifah

Principles of Islamic Economic System

1) 3) 5) 7) Individual freedom Controlled economic inequality Social Security Wealth accumulation uncertain ban 2) The right to own property 4) Social justice and equality 6) Widespread distribution of wealth 8) The ban on the anti social institutions

9)

Individual and social welfare

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Structure and implementation (Government, Private Sector, NGO)

1) Government Implemented by the government directly Performed by individuals who seek to use the energy, ability and property in various fields Implemented by using private property, public @ baitulmal. 2) Private sector

3) NGO Implementation islamic economic system Maqasid syariah concepts and goals Three principles : 1) Tauhid

2)
3)

Khalifah
Justice

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BPMS1013 Theor & Practice of Islamic Business

Maqasid Sharia (Purposes of Sharia)

Maintain and preserve religious Keep and preserve sanit sense Care and look after their own safety and lives

Protect and safeguard the security of property

Care and maintaining dignity

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BPMS1013 Theor & Practice of Islamic Business

Conclusions
Generally both forms of business wants to generates profit but the differ between them is Islamic economy look more on human behaviour in manage natural resources for the benefit of themselves and community.
While a freedom in conventional economy will eventually create a different economic system and policy basis.

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BPMS1013 Theor & Practice of Islamic Business

Q&A Thanks
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BPMS1013 Theor & Practice of Islamic Business