What is the Islamic Economic Blueprint of Pakistan?

In a Nutshell: Pakistan has always been in a near perpetual state of crisis. The cause for this is systemic, institutional and ideological. Until these are addressed and dramatically transformed, it is impossible to emerge from its current impoverished state. A potential economic blueprint a Caliphate state would bring about include policies to release hoarded resources into economic projects, wealth circulation to guarantee the needs of all, a fairer asset-based taxation system and an independent war-based industrialised economy. One should bear in mind the ideological and socio-political reforms and policies that would also be implemented including those to remover colonially imposed borders dividing the Muslim world and her resources. The Need for an Economic System Our world is dependent and limited with those living in it having needs and desires that require satisfaction through production and management of resources in an effective manner. For that reason, economic systems are created. Some systems like Socialism and Communism have failed whilst the prevalent capitalist system, is described by Raymond Bakers' book "Capitalism's Achilles Heel" as having 'fundamental flaws and the accompanying risks are beginning to be evident to wealthy and impoverished alike'. Economic Myths The economic system should not be about a small wealthy elite competing to hoard the most resources. On the contrary, it is about 'us' and how we live together in societies and interact, our existence, our sustenance, our duties and obligations, our rights and responsibilities, our goals, our destination and the impact of this system on the rest of humanity. This aspect of the discussion has been missing from public discourse for far too long. There are several theories propounded by advocates of Capitalism as established facts, however, these are devices deliberately propagated to assist the Capitalist. One such theory is the trickle-down economy which focuses on production rather than the distribution, promoting the idea that the greater the production the greater the amount that will trickle down to the poor (debunked by Arndt in his journal 'The Trickle Down Myth'). This theory ignores wealth accumulation that hinders wealth circulation. It is based on 'supply -side' theory, that money placed in the hands of the billionaires, with tax cuts, is likely to be spent, ignoring the fact it gets stacked in offshore accounts. A 2012 study by the Tax Justice Network says, 'All these players have become, as it were, citizens of a brave new virtual country-one that lacks physical boundaries but can still offer escape routes from many of the taxes, financial regulations, human rights standards and moral restraints the rest of us take for granted: the responsibilities of society. One set of rules for a tiny minority of rich and powerful people; another set for everyone else.' Another myth is the idea that Gross Domestic Production (GDP) is the scale that measures the progress of a country. However, GDP shows only the materialistic side of overall progress, ignoring both the spiritual and moral aspects and whether all individuals share in that progress. GDP would ignore charity, motherhood or voluntary work as part of economic growth, but it would consider destroying buildings and re-constructing them, progress, as resources are used, and jobs are created. Pakistan's Economic System In Pakistan, divergent economic systems have been applied, from Socialist economics under Bhutto to State Capitalism under Ayub Khan, Public relations convey democracy and a consensus government to the general public but in reality it is an elitist conglomerate shaped by a Capitalist philosophy with an influx of Western businesses and financial institutions, promoting exploitation of cheap labour incentivized by lax labour laws, wealth accumulation and expatriation of profits, draining the nation's resources. Regardless of what the State called itself, it is best categorised as a Crony capitalism exhibiting basic features of corruption, crime and commercialism, giving birth to further disparities including declining government revenues through taxes, cutting back health and education expenditure, reducing economic growth, monopolization of departments, anaemic creation of new enterprises, kickbacks in all transactions and increasing debt burden on the poor. Islamic Economy Islam envisages a state (dawlah) where there is prosperity, universal property ownership; basic needs are met for all. The rule of law prevails, and the state is a global power, confident, flourishing and expanding. Such a state existed from the prophetic era, through the Khulafah Rashida era through to Ottoman rule lasting until 1924. Islam does not favour one class over the other, nor creates class gaps or concentrations due to the unequal distribution of wealth; rather it obliges mechanisms not only for the production of wealth, but its fair distribution too: "What Allah gave as booty to His Messenger from the people of the townships - it is for Allah, His Messenger, the kindred, the orphans, the poor, and the wayfarer, that it may not become a fortune used by the rich among you..." (Quran 59:7) The Islamic economic system gives detailed rulings about production, consumption, income, wealth, property, taxation, land ownership, trade and manufacturing, monetary policy and treasury, assigning responsibility to the individuals at a micro level to the State responsibility at the macro level, with additional characteristics of morality, justice, equity and fair-play. It regulates the market by setting laws that are binding upon Muslims to follow whether by laying down labour laws as"Give the worker his wages before his sweat dries." (Ibn Majah 2443) or preventing hoarding and monopoly with commands such as 'No one withholds goods till their price rises but a sinner." (Abu Dawud 3447) Pakistan's Economic Potential under Islam The first Islamic State established in the Arabian Peninsula covered an area of over 2 million square kilometres. With Romans and Persians as neighbours both sought Arab tribes as proxies. Presently, Pakistan is in a similar position with China to the North, Iran to the South West, India to the East, global powers US and Russia vying for the control of Pakistan through soft power and economic means. With such a strategic location, Pakistan can be the heart of trade, agriculture and industry that can shift geopolitics if it discards the current system. Agricultural Policy Pakistan is primarily an agricultural country, output depending upon irrigation with its primary source of water the Indus and Kabul. The Indus emerges from Kashmir, a disputed region between India and Pakistan. India uses the glacial waters to produce electricity and Pakistan irrigation. If Pakistan wins Kashmir, it would grow green gold, fulfilling its food requirements and exports generating revenue. The current policies fail to fulfil this potential. Land reforms of Zulfiqar Ali Bhutto failed as land was granted to elites and feudal lords, rendering productivity to naught, cultivable land remaining uncultivated because elites neither had incentive nor the will to contribute to the common good. An Islamic view comprising, 'Whoever cultivated a land that is not owned by anybody, he deserves it more' (Bukhari:2335) would increase productive use and provide a means of sustenance to the general public, turning idle labour into producers rather than consumers, and with training and support increase innovations with more minds taking responsibility for projects. Other Islamic policies include financing, those who can use their skills on agricultural land, buying agricultural products from them and distributing it to those areas which are not agricultural in nature, facilitating in transportation and lifting trade barriers, introducing modern farming methods and expanding irrigation network. To ensure agricultural land is cultivated, Islam imposes a kharaj tax on cultivable land, whether the owner cultivates or not, this policy promotes use of land or its sale rather than leaving it idle, thereby increasing economic activity. If the land is uncultivated for 3 consecutive years, it is confiscated. Industrialisation Without initiating an Industrial scheme alongside the agricultural, economic resources cannot be sensibly utilised and the state remains dependent on imports and susceptible to sanctions. Pakistan can build industries to convert the raw cotton to garments and its oil and seed can be used to make soap, cosmetics, emulsifiers, rubber, plastic and for pharmaceutical purposes. Currently cotton products contribute to 10% of the economy and 55% of the foreign exchange earnings. Pakistan exports around 8% of the world's total rice. Basmati rice is world famous but without an industrial plant for proper packaging it is sold cheaply as a commodity and branded by others. Construction of agriculture-based industries will increase agricultural productivity and create innovations and work. Power Generation and Manufacturing Pakistan is currently facing energy short falls resolvable by hydroelectric potential of natural flowing waters with minimum cost in its production. By expanding the current power generation, the state can shift from being an importer of power energy to an exporter. According to official estimates, Pakistan has a potential of generating 60,000 MW of low-cost hydel electricity out of which 7,115 MW has been developed, whereas the total installed generation capacity is 28,172 MW (as of 2017). The Economic Survey of Pakistan 2018-19 conceded that 'the diminishing share of hydro represents the short-sightedness of policy as well as the inability of successive governments to undertake large capital-intensive projects in a timely manner.' The current potential generation capacity can be increased with the proper utilization of resources and construction of new dams and reservoirs. Pakistan has 10 billion tonnes in salt reserves and despite having the second largest global deposits, it contributes only 1% of the world's salt production because of poor trade policies- India has no such deposits, contributing about 9%. The world salt consumption is 335 million tons, valued at $14.1 billion. In between 1% to 9% contribution, Pakistan can earn $141 million to $1.2 billion revenue approximately. Pakistan has 185 billion tons of coal reserves, comprising 175 billion tones sufficient to meet the country's fuel requirements for centuries. Pakistan imports approximately 11,000 tons of coal at $9 million. This unnecessary expenditure can be eliminated and over $37 million generated by exporting the same amount. Gwadar is a deep seaport, connecting the continent with the rest of the world. Both the US and China have an interest in NATO and CPEC routes. Iran's Strait of Hormuz needs Pakistan's port to export its oil as well. Pakistan can tap the potential of Gwadar to become a hub of international trade. In the past three years Gwadar generated revenue of $3.5 million, 91% share of the profit goes to China as it is helping to develop Gwadar. This revenue can be increased many folds if the State adopts the policy of creating industries at this vital trade route, by processing the state's raw material, rather than exporting it as cheap commodities, making the region a centre of economic activity. Pakistan's Defence and Military Industries Islam obliges Muslims to create a globally feared military that is able to undertake offensive and defensive jihad. It is mandatory for a state to have the supporting heavy and light industries and infrastructure for producing the latest military innovations and technologies which can be commercialised and utilised by civilians. Pakistan's two main assets are its Army and its weapons Industry. Army Pakistan's active personnel army ranked 6th is 653,800 and reserve personnel is 550,000. By utilising the army's potential, it can not only be used to expand the State but also provide security to the State, which in turn will give rise to economic stability. Pakistan's military has its own economy which makes it independent and a separate entity, a state within a state, this has led to serious problems such as military's influence on politics and diversion from its real goal of state protection and development of arms. Pakistan currently spends a major portion of its budget on the military and its maintenance, this cost could be reduced and reallocated by applying the Quranic verse: 'March forth, whether you are light or heavy, strive hard with your wealth and your lives in the Cause of Allah. This is better for you, if you but knew.' (Quran 9:41] This obligation spreads the responsibility of military capability upon every responsible individual creating a formidable fighting force. Weapons Industry Islam adopts the policy of maximum deterrence as opposed to the minimum deterrence policy adopted by the current government. "And make ready against them all you can of power, including steeds of war (tanks, planes, missiles, artillery, etc.) to terrify the enemy of Allah and your enemy, and others besides whom, you may not know but whom Allah does know." (Quran 8:60) Pakistan has the skeletal infrastructure which can be built and expanded. This includes institutes established to develop physio-metallurgical aspects of the clandestine atomic bomb projects, evaluation of science and technology for use by the military production of conventional arms and ammunition to international standards, commercial explosives and extensive facilities for the manufacture of brass, copper and aluminium ingots. In order to enhance its defence capability, Pakistan should launch a space programme, using satellites to develop Intercontinental Ballistic Missiles which will promote technological advancement and carving software and hardware industries. Fiscal Policy Fiscal policy aims at achieving efficient allocation of tax collections and borrowings to yield maximum benefit. Presently Pakistan has a high fiscal deficit (state expenditure outstripping tax revenues) with rising interest-based debt liabilities which take a sizeable portion of the budget for its servicing, due to low growth of revenue and unproductive and unplanned expenditures. Revenue was 15.1% of GDP in FY2018 whereas expenditure was 21.6%, a deficit of 5.5%. It is imperative for Pakistan now to find a long-term solution for its source of revenue. The interest based economic system and stock exchange speculation market is sinking the current economy. Total public debt stood at $177.85 billion at end of March 2019, recording an increase of $22.72 billion during the first nine months of current fiscal year. Currently direct taxes include taxes on salaries, Interest on securities, income from property/business/professions, capital gains and so on. Islam focuses on welfare preventing the state from taking property via taxes, except in cases of famine and jihad, the Prophet (saw) famously saying 'One who wrongfully takes an extra tax will not enter Paradise'; prohibits riba (usury) and its usage in transactions.' (Sunan Abi Dawud 2937) and the Quran says, "Those who devour (take) interest (riba) cannot stand except as the one whom the Satan, by (his) touch, drives him to madness." [Quran 2:275] Islam provides a system that generates revenue without burdening society, causing friction in economic transactions and being unjust, through the levying of Zakah and Jizyah. Based on the injunction 'The alms are only for the poor and the needy' [At-Tauba: 60]. Zakah is 2.5% of the residual saving, while jizyah is levied on non-Muslim citizens of the State who are not expected to participate in the military. The current monetary system seeks to remove money with intrinsic value from the money-system of the world, and to replace it with money that had no intrinsic value. Such paper (fiat) currencies can be devalued by printing money without backing of reserves which leads to inflation because of the greater supply of cash while the amount of goods remains the same. Devaluation of any currency against international currencies can increase the value of external public debt portfolio when converted into local currency for reporting purposes. The devalued currency would not only result in an unjust legalised theft of the wealth of those who used the devalued currency but additionally, it would become more and more expensive for such countries to repay loans which were taken on interest. Eventually these countries would be trapped with debts they could never repay and would thus be at the mercy of those whose suspiciously large loans to them were meant to deliver precisely such control over them. Fiat currency has allowed the hegemony of the US over all the countries, which makes it easier to reject it and adopt the system of Islamic Currency which is based on Gold and silver, metals that have their own intrinsic value, or back its paper currency and coins with gold and silver, Pakistan has enough resources for this purpose. To free Pakistan from debt and make it self-sufficient, Pakistan can utilise its gold and silver reserves. The largest copper reserve in Pakistan has reserves of 5.9 billion tonnes of ore grading 0.41% copper, gold reserves amounting to approximately 41.5 million oz and $63 billion. Another reserve has the capacity to produce 15,800 ton of blister copper annually, containing approximately 1.5 ton of gold and 2.8 ton of silver, approximately $74 million per annum. These estimates are based on current explorations of reserves by international surveys. The potential can be much more. Conclusion Pakistan despite its current situation has all the ingredients of greater prosperity if it turns to an Islamic Economic System, away from foreign dictates and western ideas. References Ayesha Siddiqa, Military Inc. Inside Pakistan Military Economy Raymond Bakers, Capitalism's Achilles Heel Taqiudin Nabhani, The Economic System in Islam Imran Nazar Hossein, The Gold Dinar and Silver Dirham Trickle Down Myth-Arndt Tax Justice Network Economic Survey of Pakistan 2018-19 https://www.hydropower.org/statusreport