Consumer Behaviour, Sustainable Developmentand
Economic Principles of IslamBy
M. Fahim KhanEmail: [email protected]
ABSTRACT
The present paper argues, in a theoretical framework that“Islam is not only for development but it is also for
Sustainable Development”. The argument is based on theinstitutional framework that Islam suggests for a
society. This framework leads to a consumer behaviourthat not only eradicates Faqr but also reduces the
incidence of poverty and leads to sustainable development
of the society.The concept of Sustainable Development still remains a subject outside the mainstream of Conventional Economics.The theory has yet to identify endogenous elements in consumer decision-making process that can help maintaining consumption pattern, in line with the society’s need for Sustainable Development. Sustainable development is considered a matter of observing certain ethics in economic behaviour. An economic theory that ignores the role of ethics in consumer’s decision making is bound to leave such pressing economic problems like alleviation of poverty and sustainable development outside the mainstream of Economics.
This paper discusses the Islamic understanding of economic behaviour of human beings and suggests how to
regulate it to lead it to achieve sustainable developmentin a society.
PART I
Eradicating Hunger and Extreme Poverty
UN Approach
1.Halve, between 1990 and 2015, the proportion of people
whose income is less than $1 per day
The MDG provides an eight-point road map with measurable
targets and clear deadlines for improving the lives of
the world's poorest people.
The MDG provides an eight-point road map with measurable
targets and clear deadlines for improving the lives of
the world's poorest people.
Eradication of extreme poverty is the first of eight
points. MDG takes a comprehensive approach. Addressing 8
points at a time to make a comprehensive fight against
hunger and extreme poverty (let us call it HNEP) does not
allow UN to target immediate elimination of HNEP. UN is
aiming at sustainable development which will ultimately
increase economic status of very poor sections of the
society any where in the world and put them on the track
of their sustainable higher socio-economic status which
will be free of HNEP and make them stay on their own feet
without looking assistance from GOs or NGOs.
This is indeed a very comprehensive and ideal approach to
fight HENP. The problem with the approach is that it
allows very poor to continue to suffer HNEP until
sustainable development has reached a level where no body
needs help to feed them. No doubt this is a noble and
thoughtful strategy.
There are enough resources in the world to feed the
currently starving population. For example, if more than
1200 billionaires of the world donate annually 2.5% of
their wealth (estimated to be $4.5 trillion of World
annual income) extreme poverty and hungry can be fed1.
But, of course, this is not a rational approach2. By the
time that current number of hungry is covered, new stock
of hungry would be added to the stock of population 1 For these calculations, basic figures taken from http://spinport.com/the-worlds-billionaires/315291/
2 MDG target aims to halv the population living on one dollar per day. According to UN“However, even if these positive trends continue, in 2015, roughly 920 million people
would still be living under the international poverty line of $1.25 a day, as adjustedby the World Bank in 2008”. There are 115 thousand in the world earning one million ayear. If they donate $10 a day, the Faqr is extreme poverty and hunger is eliminated.
See http://www.globalrichlist.com/ for these calculations
because there is no systemic provision to stop the number
of hungry from increasing. This calls for the need for
sustainable development even though it may cause a
substantial proportion of hungry to continue to suffer
from starvation for considerable time.
This strategy, despite all its merits, and despite
support from international development financial
institutions and the commitment of the underdeveloped
countries to orient their development plans to eradicate
HNEP; almost none of the countries has been able to meet
MDG targets. And HNEP continues to suffer even after the
lapse of 22 years of 25 years’ target.
Eradicating Hunger and Extreme Poverty: Islamic Approach
Islamic scholars will never hesitate to say that Islam
has solution to poverty, hunger and starvation. When
asked where is the Islamic solution to remedy the
situation, the Islamic institutions of Zakah, Sadaqaat
and Infaaq fi sabilillah are quoted in general terms.
Various verses from the Quran and various Ahadith are
quoted to substantiate this claim. But when we see the
reality we find high incidence of starvation and extreme
poverty in Muslim societies.
Another anomalous situation that we observe in
contemporary Muslim world is the verdict that Zakah
collected by government can be invested for future
benefit of poor, particularly to improve their capacity
and to enable them to improve their economic status.
Indirectly, we can say that Zakah can be used for
sustainable development in the same sense in which UN has
defined it. As a result of this approach, we can find
several contemporary Muslim countries, where Zakah has
been collected in huge amounts but is waiting to be
distributed or invested in various projects a fashion
that it can contribute to sustainable development in the
society. The funds keep waiting for sustainable for
suitable project to deploy the Zakah funds for the
benefit of the poor whereas HNEP sections of the
population continue to suffer from starvation, diseases,
infant deaths, maternity deaths, etc .I have no basis to dispute with Shari'ah scholars on
using the Zakah funds for sustainable development but
still I would like to pose the following questions for
the Shari'ah scholars to reflect.
1.Is there any priority among the 8 heads mentioned in
the Quran on which Zakah can be spent3? How do wedefine priority in the use of Zakah, particularly
when there is hunger, starvation and extreme poverty
prevalent in the society ?
3 The Quran (9:60)
2.Does not the Quranic verse (9:60) give top priorityto Fuqaraa? The order of preference can clearly be
seen in this verse .3.How do we define Fuqara? Does not ‘Fuqaraa’ mean
those suffering from starvation and extreme poverty?
4.A tradition from Prophet (peace be upon him)narrates that ‘Faqr’ leads to Kufr. Then doesn’t itmean that top priority be given to Zakah funds first
to eliminate starvation and extreme poverty and do
it on spot on immediate basis?
5.Isn’t the category of human needs ‘darooryyaat’means give top priority to eliminate starvation andextreme poverty to save ‘nafs’ from destruction or
decimation ?6.Is it not the Hadith of profit (peace be upon him)
that one is not a believer if he sleeps his fullstomach and his neighbour is starving? Does it notmean that starvation be removed on the spot and on
immediate basis?
7.Is food not one of the two instinctive problems,hunger and fear (hunger having priority) as
mentioned in the verse al-Quresh (106:3-4) and,
therefore, should be attended on priority 8.Is it not that “Not encouraging to feed poor
(107:3)” means denying ‘Deen’ [Similar theme also
repeated in 89:19] 9.We also know a couple of Ahdith that recommend
advance discharge of Zakah obligations. Does it meanto meet the needs of HNEP urgently
If the answer to these questions is positive, thenis it not true that
a)Immediate elimination of hunger is the duty ofindividuals, community and state
b)Immediate elimination of hunger is important becauseit may lead people to murder their children or sell
them (as is being witnessed some poor countries).The Quran mentions it as Big Sin (Khit-an Kabiran)
c)It is close to Haraam (prohibited) to save any Zakahfor future use and not using it immediately for
feeding those starving and suffering from extreme
poverty?
d)Zakah should not be used for such programs as
“sustainable development”There are numerous successful examples of feeding hungry
people even in contemporary Muslim societies. And so is
the case in non-Muslim societies. Apparently, no
difference may be visible between the two. Then how can
we claim that Islam has unique system to deal with HNEP?
However, a little reflection will reveal the following
facts.i)Feeding the hungry is a religious duty and not a
voluntary act. This is a duty of every one who caneat full to his stomach to take care that his
neighbour does not sleep hungry.ii)Hungry have to be fed immediately. So is the case
with the ills of extreme poverty, diseasesrequiring immediate attention, primary education
to enable read and write an simple passage in anylanguage etc
iii)The institutional framework of Islam mobilizesvoluntary efforts to feed the hungry and theextremely poor. The Awqaf, NGOs, voluntary
organizations are some examples found in allMuslim countries. State’s primary role in this
respect is confined to developing simplestructures in different parts of the country thatwould be used by devoted Muslims to feeding hungry
and provide basic and immediate medical care toneedy. Role of state can be simply regulatory and
supervisory as central bank is to banking and
financial institutions .My conclusion, on the basis of the above discussion, is
that the Islamic approach requires starvation and extreme
poverty to be the prime target of Zakah and to supplement
them with Sadaqaat and Infaq fi sabeelillah, if there is
high incidence of starvation and extremely in the
society. I have not substantiated this statement. I will
wait for the comments from the discussants and from floor
and do the research to substantiate the statement that
eliminating hunger and extreme poverty is the primary
target of all Zakah and Sadaqah.
The two targets, MDG and Islamic, do not conflict but
differ in following way in their respective perspective
1.Time line for eradication of Faqr: Phasederadication of Faqr, waiting 15 years to eradicateFaqr from half of the population (no time frame toachieve complete eradication for the Faqr) is the
MDG target. Islamic target should be immediate
eradication of starvation 2.Deliverables/Targets: MDG target is to halve the
proportion of people suffering from Hunger andachieve Full employment and provide decent work for
all where as Islamic target is to Eradicatepopulation suffering from Hunger as early as
possible, if immediately is not possible. Othertargets like full employment and decent work is
secondary target 3.MDG does not suggest institutional framework that
would take care of starvation and extreme poverty.Islam gives institutional framework to eradicate
HNEP 4.MDG approach aims at achieving for sustainable
development that will gradually reduce theproportion of HNEP in the population. The pursuit of
sustainable development has been left to thenational governments to orient their development
strategies and plans so that the society is put onthe path of development where ultimately starvation
and extreme poverty may not exist. The abovediscussion on Islamic approach clearly indicates
that Islamic institutions of Zakah and Sadaqaat andInfaaq fi sabeelillah are meant to eradicate HNEPthrough transfer of resources from rich to poor.
Apparently, this approach does not aim sustainabledevelopment. It only aims at taking care of HNEP.The fact that the above mentioned institutions donot lead to sustain development and instead onlytransfer resources to meet immediate and urgent
needs of HNEP, has attracted criticism from certaincircles that this approach creates a section ofextremely poor population that will continuously
look forward to receiving assistance and that stock
of population my continue over time4. This is nottrue. This paper shows that Islamic system generates
sustainable development.The lastmsentence is the main theme of this paper. In my
view, Islamic system of life uses one single word to
describe hunger and extreme poverty. Islamic system aims
at eradicating Faqr. Islam deals with Faqr in two
dimensions.
a)Motivating the Muslims, individually or severally tohelp existing stock of starving and extremely poorpopulation to meet their minimum needs immediately
through Zakah and Sadaqaat.b)Introducing in the Islamic system of life, elements
that lead to sustainable development. so as to stopthe flow into the starving and extremely poor
population and instead causes the flow out from the
existing stock of such people.Rest of the paper is devoted to explaining in detail the second dimension.
4 Nobel laureate Dr Yunus, the founder of Grameen, mentioned in alecture at IDB that Islamic institutions of Zakah and Sadaqaat
creates beggars in the society rather than making them improve their
economic status .
PART II
Islam and Sustainable Development
Islam is not merely for development; it is for SUSTAINABLE Development
1 .Introduction
There is no dispute on the premise that Islam is for
development. A research conducted by an American Think
Tank “Institute for International Economic” concludes,
“If any thing, Islam is for development”5. Carly Fiorina,
CEO of Hewlett Packard is on record to say the following:And this civilization was driven more than anything, by invention. Its architects designed buildings that defied gravity. Its mathematicians created the algebra and algorithms that
5 Marcus Noland, “Religions, Culture, and Economic Performance,Washington DC, Institute for International Economics
would enable the building of computers, and the creation of encryption. Its doctors examinedthe human body, and found new cures for disease. Its astronomers looked into the heavens, named the stars, and paved the way for space travel and exploration…. When other nations were afraid of ideas, this civilization thrived on them, and kept them alive. When censors threatened to wipe out knowledge from past civilizations, this civilization kept the knowledge alive, and passed it on to others. The civilization I’m talking about was the Islamic world from the year 800 to 16006.
There are several other evidences to prove that Islam
poses no threat or hurdles to develop. Instead it is
conducive to development. But it has not yet been argued
that Islam is not merely for development. Instead it is
for sustainable development. This paper elaborates on
this thesis .
1.1 UN Concept of Sustainable Development?
Sustainable development refers to economic development
that meets the needs of all without leaving future
generations with fewer natural resources than those we
enjoy today. It is widely accepted that achieving
sustainable development requires balance between the
economic, ecological and social pursuits of human being
in seeking their wellbeing on earth.
6 Carly Fiorina “http://www.islamfortoday.com/hewlettpackard.htm”
According to the above definition, sustainability of
development is multidimensional concept. The General
Assembly, in its 1997 Program for the Further
Implementation of Agenda 21 (paragraph 27) decided that
poverty eradication should be an overriding theme of
sustainable development for the coming years. It is one
of the fundamental goals of the international community
and of the entire United Nations system, as reflected not
only in Chapter 3 of Agenda 21, but also in commitment 2
of the Copenhagen Declaration on Social Development.
Poverty is addressed in Chapter II of the Johannesburg
Plan of Implementation. The Chapter describes the
priority goal as “Enabling the poor to achieve
sustainable livelihoods”.
This priority goal requires actions in the followingdirections:
1. Improving access to sustainable livelihoods, entrepreneurial productive opportunities and resources;
2. Providing universal access to basic social services;
3. Progressively developing social protection systems to support those who cannot support themselves;
4. Empowering people living in poverty and their organizations;
5. Addressing the disproportionate impact of povertyon women;
6. Working with interested donors and recipients to allocate increased shares of ODA to poverty eradication; and
7. Intensifying international cooperation for poverty eradication
1.2 Conventional Economics Sustainable Development
In conventional economic theory, currently know as Neo
Classical theory, growth is explained without
institutions, while development stays out of discussion.
Neo Classical Economics is based on the assumption that
humans are rational. The approach is based on a concept of
efficiency, which means more is better than less. If the
market mechanism is allowed to work freely and
competitively with no information and transaction cost,
economic agents’ operations in the market will result in
an efficient use of scarce resources. This will benefit
the economic agents individually as well the economy as a
whole.
The current developments in economic theory, emphasizing
role of institutions, explain economic growth and
development with specific reference to the institutional
framework of the society. World Bank report on
Institutions (2001) lends support to this hypothesis. The
Report emphasizes the institutional foundations of a
market economy.
The economists still debate that economic theory,
basically explaining economics of developed countries
(DCs), is relevant to explain economics of less-developed
countries (LDCs). In many respects this is true. It is no
wonder if some economists are trying to develop an
economic theory that can be relevant to all societies on
the globe. Some form of institutional economics may help
achieve this objective because it is the set of
‘institutions’ that distinguishes one community from the
other in the global village.
1. 3 Islam System of life and Sustainable Development
Objective of Islamic system of life is to require
human beings to pursue their wellbeing7. The pursuit of
wellbeing depends on defining wellbeing and what human
beings need to achieve this wellbeing. This essentially
requires understanding human behaviour and resource
allocation in the process of fulfilling their needs. The
present theory of consumer behaviour despite its
robustness and amenability to mathematical manipulations
covers a very limited ground as far as understanding the
consumer behaviour is concerned with respect to achieving
such objectives as sustainable development and
eradication starvation of extreme poverty. The theory may
have contributed substantially to understanding the
consumer behaviour in some societies of the West where
state takes care of starving and extremely poor sections
of the society. But the theory hardly proves its
relevance to understand the decision-making process of
consumers in majority of the countries in the
contemporary world. For example, why consumers prefer to
7 Shatibi, al-Muwafiqaat
spend on conspicuous luxury goods while their basic needs
are unfulfilled. Or what type of consumer choice it is
to prefer leisure instead of working for contributing
even a small income to the poverty stricken family. Or
how a consumer would objectively identify whether or not
there is waste of resources in his consumption pattern.
Or why items like education of children and family health
are low priority items in majority of the developing
countries. Or why sometimes consumers prefer not to
consume certain items despite that they know there is a
lot of utility for them and instead ends up consuming
items of low utility to them. The present theory is not
only limited in scope with respect to understanding of
the consumer behaviour but it also lacks the ability to
understand and explain some of the contemporary economics
problems that are directly the result of certain
peculiarities in the consumer behaviour. Incidence of
poverty has a lot to do with the consumer behaviour but
this is not a subject of existing theory of consumer
behaviour. Economic development also has strong roots in
the consumer behaviour but the existing theory is not
geared towards understanding consumer behaviour as a
reason for development particularly sustainable
development. The world Summit on Sustainable Development
held in Johannesburg, South Africa, from August 26 to
September 4, 2002 recognized that changing consumption
pattern is one of the essential requirements for
Sustainable Development. But the theory of consumer
behaviour has yet to recognize it. The Sustainable
Development will remain a subject outside the mainstream
Economics unless there is a theory that identifies
endogenous elements in consumer decision-making process
that can help keeping consumer behaviour in line with the
society’s perception of Sustainable Development.
Sustainable development is eventually a matter of
observing certain ethics in economic behaviour. A theory
of consumer behaviour that ignores the role of ethics in
consumer’s decision making is bound to leave such
pressing economic problems like alleviation of poverty
and sustainable development outside the mainstream of
Economics.
It is in this background that the need for an
alternate theory is emphasized. There is need to review
the objectives and assumptions of the existing theory and
see if an alternative formulations of objectives and
assumptions are needed to lead us to a theory which is
more realistic and more comprehensive in understanding
consumer behaviour and hence provides better insight into
the contemporary economic problems and their solutions.
2. Study of Economic Behaviour: A Realistic Approach
2.1 Objectives and AssumptionsHuman behaviour depends on what is the human perception
of objective of life. The objective of his life is
supposed to determine the nature of his activities. We
can assume that a rational human being will do all what
will improve their wellbeing and will avoid anything that
will create hardships for their life or will make their
living conditions bad for them.
In doing so human beings are confronted with two
sets of choices. Firstly, they have choice set generated
by instinctive impulses. This set may or may not refer to
any objective criteria for the choice. Some are most
intensely desired than others merely on the basis of
personal whims. Let us call it Desires Set. Secondly, he
has choice set reflecting defined needs referring to a
defined institutional framework of the society. This Need
Set includes all those things that are needed for the
preservation of various aspects of human life in the
society. The needs may have three levels of fulfilment;
namely essential level, complimentary level and
beautifying level. These levels will be discussed in
detail later in this section.
The two sets may overlap. The degree of overlap will
depend on the commitment of the human beings to
institutional requirements. The distinctive feature of
Need Set include is that it may include desires which are
purely psychological or instinctive desires but they have
to be included in choice set for the sake of personal
development, to improve personal well being and to
achieve the objective of life as understood by human
beings in the institutional framework of the society.
In this scenario, human being, under certain
institutional framework, have to push aside their Desires
in order to pursue their Needs. Because of multiplicity
of needs and scarcity of resources to meet them, the
desires that do not meet the criteria to qualify, as
“Needs” will often have to go unsatisfied within the
defined enforceable institutional framework of the
society. This will be assumed to be a key element of
rational behaviour of economic agent. The decision making
process that motivates economic agents to push aside
certain instinctive desires in the interest of meeting
‘Needs’ necessitated by institutional framework of the
society distinguishes Economics of developed societies
from less developed societies. Obviously we are talking
about the ability to distinguish needs from desires. This
ability is a key element in decision-making process of
economic agents. This ability also explains the
difference in the behaviour of economic agents in
different societies. The institutional framework of the
society determines the dimensions and intensity of the
ability to determine needs and to distinguish needs from
desires. It is this ability that also explains difference
in the economic behaviour of DCs and LDCs. There are
certain needs that human beings are obliged to meet only
because society wants to be met irrespective of whether
they are desired or not. On the other hand there are
desires one may very much like to satisfy but cannot do
because society does not allow it. Institutional
framework of a society ensures this. The key element to
pay attention to, in this respect, is rationality. This
paper introduces Rushd as an alternative concept to work
this to help distinguishing desires from needs.
2.2 Rushd 8 : An Essential Part of Rational Economic BehaviourInstinctive desires are driving force for human
behaviour. Human beings also have instinctive desire to
develop and improve their welfare. The instinctive urge
to improve one’s welfare leads to screening the desires
so as to give priority to those that would contribute to
wellbeing and improve human life on earth.
A set of rules, norms and values for filtering
instinctive desires before embarking on their
satisfaction. We thus can identify two elements playing
crucial role in economic decision making of economic
agents.
i) Instinctive desire to develop and
improve one’s wellbeing.
ii) Social norms, values, rules, culture
and regulations (which are
collectively called as institutions)
aiming at improving wellbeing
8 Rushd is an Arabic term describing a certain reference of humanbehaviour. It is difficult to precisely define the concept of Rushd
because it has multidimensional meanings. This is basically a Quranicterm, which will be discussed in detail in the section on Islamic
approach to understand economic behaviour.
The needs of economic agents are not limited. For
all practical purposes, they are unlimited in reference
to the resources. The needs, therefore, have to be
prioritized. (Prioritization is different from the
concept of preference ordering as used by Neo Classical
Economics). Priorities may differ from person to person,
place to place and time to time.
If a society gives some objective criteria to
identify needs from non-need desires then the proportion
of economic resources devoted to non-Need desires can be
regarded by the society as the indicator of waste of
resources, as this does not contribute anything to the
well being of economic agents operating in the society..
This raises two questions: First, why rational human
beings would waste scarce resources. In other words, why
human being would devote scarce resources to meeting non-
Need desires rather than to meeting Needs? We will call
it lack of ‘sound-mindedness’. We will use this term as
counter part of ‘rationality’ used in Neo-Classical
Economics. While ‘rationality’ in Neo-Classical Economics
refers to Homo Economicus, the concept of sound-mindedness
refers to the human beings whose economic activities or
economic decisions are influenced not merely economic
considerations but also by social, moral, legal and
cultural and other considerations that society wants to
be taken care of by individuals as member of a society.
The concept of sound-mindedness refers to what Becker9 has
explained in the context of ‘bounded rationality’.
For the purpose of this paper, we will use the term
Rushd instead of Bounded Rationality. This is an Arabic
word signifying sound mindedness. The term has been used
in the Quran. For example, consider the following verse
11:87 where the nation of Hood challenges the Rushd of
prophet Shoaib referring to his preaching how to use
their wealth. The concept of Rushd as opposed to bounded
rationality will be discussed in more detail in the next
part of this paper. The concept of Rushd is much broader
than the concept of bounded rationality. This is
particularly true when discussing economic behaviour
sustainable development in Islam.
Creation of wealth and its accumulation is itself a
need if it is meant for ones present and future
development and for sustaining the development for and
meeting needs of future generations.
2.4 Rushd and Economic Decision Making
In this framework, if we assume Rushd on the part of
the economic agents, the resource will be allocated to
resources prioritised list of needs until he exhausts his
resources. This is in equilibrium because the resulting
allocation of resources maximizes wellbeing. Any other
9 Becker, 1976 and 1993
resource allocation would mean lower wellbeing. The
equilibrium is also stable in the sense that any external
influence or shock may change the resource allocation
only temporarily but he will have urge to come back to
the original allocation to restore the wellbeing level.
We can elaborate this decision making process as
below:
1. An economic agent may have unlimited desires to
pursue, but operating within an institutional
framework and ability to judge good from bad, the
economic agent would rather like to identify needs
and fulfil them rather than satisfying his
instinctive desires.
2. An economic agent thus has a list of needs to be
fulfilled.
3. Criteria to qualify a desire as need will be based on
the Institutional Framework of the society
4. Needs have different intensities. They may be
presented in a scale starting from very essential
needs to least essential needs.
5. Rushd plays a central role in preparing the list of
needs to be fulfilled is created by factors like
education, religion, and social cultural and other
institutional influences on the economic agents. The
nature and strength of Rushd, however, may vary. Some
economic agents may have strong Rushd so that all
desires will be strictly judged on Rushd through to
qualify as needs. Other economic agents may be weak
on Rushd, which may allow some desires to be
camouflaged as “needs”. The nature of Rushd will
depend on the nature of Institutional Framework of
the society
6. Deviations from Rushd are observable around the mean
level of Rushd in the society.
7. Internal Pressure: An economic agent has a pressure
from inside to work for his wellbeing and any
deviation from his commitment to fulfil the needs for
his well-being may bring a pressure from inside to
correct his behaviour. If smoking, is being met as
non-Need desire there will be pressures from inside
to tell him not to do that. Education (formal or
informal) is one of the main factors underlying the
internal pressure.
8. External Pressure: An economic agent faces external
pressures if he does not yield to internal pressures.
These pressures may come from family and other
institutions (social, religious, legal etc).
9. Consumer spends his resources on fulfilling the needs
starting from the top of the list until his resources
are exhausted. Some may have to stop in the very
beginning of the list because of the resource
constraints and some may go quite far down the list
with more resources at their disposal.
10. The list of needs is exhaustible by definition.
However, nothing precludes it from being a very large
list and may remain inexhaustible for many or all of
the consumers in a society. The list may vary from
person to person, from time to time and place to
place.
11. The economic problem of a consumer is how to go as
far as down the list as possible.
12. Equilibrium. An economic agent is in equilibrium in
the sense that he has no internal or external
pressure to make him change his consumption pattern
to seek maximization of his wellbeing with his
resources. There may still be several needs
unfulfilled but no change in his list of needs and
priority there-in, can bring an improvement in his
well being.
13. In practice, however, an economic agent may end up
allocating resources to a list consisting of his
needs and desires due to lack of Rushd.
Theoretically, this will be a situation of
disequilibrium because consumer’s allocation of
resources to contribute to his wellbeing is not
optimal and he will be at a level of well being less
than what he potentially can achieve.
14. Temporary versus permanent disequilibrium. The
disequilibrium can be temporary or permanent. It will
be temporary if internal and external pressures are
operating to influence him to correct the list of
needs and hence correct the resource allocation. It
will be a permanent disequilibrium if the internal or
external pressures are absent or are weak to bring
about the needed correction.
15, Higher versus lower level equilibrium. Even if an
economic agent is in equilibrium, it does not mean
that there is no economic problem. Consumer may only
be fulfilling only part of his Needs from the
resources available to him. As more resources the
wellbeing is improved and reaches higher levels of
equilibrium.
16. Poverty Trap. Equilibrium/Disequilibrium may occur
below poverty line. In other words, individuals’
category (i) may remain unfulfilled needs (and hence
suffering from HNEP) while he has exhausted all his
resources according to the prioritized list of his
needs.
1.7 Individual and collective equilibrium in the society.
It is possible that individual may be in equilibrium
but society may be collectively in state of
disequilibrium. For example, the some individuals may
be on higher levels of equilibrium as their S-needs
(category (i) needs) and part of X-needs (category
(ii) needs) are being fulfilled and there is no
economic problem for him but the equilibrium may not
be in line with the ultimate socio-economic goals of
the society. While some members of the society are
suffering from HENP, there are others who are meeting
there category (ii) needs.
The above approach will help us understanding the
concepts like poverty, sustainable development,
starvation and the role of religion and other
institutions under which society conducts its economic
activities. This approach, thus, will be used to
understand Sustainable Development in Islamic Society.
This approach has been developed because Neo-Classical
Economics does not allow us to understand the behaviour
that leads to HENP and sustainable development and it
also does not help us understand the role of
institutions, as institutions have no role in Neo-
Classical Economics. Before we understand the role of
Islamic institutions in the above-mentioned theoretical
framework let us see what difference this framework would
make compared to using the framework of Neo-Classical
Economics.
3. Difference, the Proposed Theory MakesWhat difference does it make to analyse economic
behaviour in the above framework? What new information
we get about economic behaviour? How far this
information is amenable to a processing that can yield
results for studying the phenomenon like sustainable
development or extreme poverty and hence improving the
economic conditions of members of a contemporary society
irrespective of whether it is developed society or
underdeveloped society? Some points of major difference
that such a framework would make are discussed below:
3.1 Additional Information
We get some additional information that we can get
when using the neo-classical analytical framework. Some
examples are given below:
3.1.1 Waste of Resources:
The economic agents may not be pursuing their needs
and may be allocating resources according to their
desires. As already explained, this may happen if
economic agents have weak Rushd. For a society
interested in sustainable developments, this information
would be very useful and will help the society design
ways and means to ensure that members of the society
minimize their consumption of what they do not need in
order to save and conserve resources for the development
of present and future generation.
3.1.2 Wellbeing
Neo-Classical Economics, though refers to
wellbeing, this is a subjective concept based on
Economic agents’ personal perception of utility. In
fact, wellbeing may mean different meaning for
different individuals. It may mean happiness
(Aristotle) satisfaction (Selfish benefits) or Falah
(religious jargon) etc. Neo Classical Economics does
not recognize all such variations in wellbeing. The
concept of needs implicitly has an objectively
defined concept of wellbeing.
3.1.3 Unhealthy Demonstration Effects: Conspicuous
consumption of certain items by affluent class in a
society may generate unnecessary emphasis on non-Need
desires or on needs very low in priority, as they may
become status symbol. Such tendencies not only imply
waste of resources in the affluent classes and sacrifice
of important needs by over spending on less important
needs in the less affluent classes, they will be also be
detrimental to the wellbeing as defined by the society.
Some sections of the society may be starving and
extremely poor while others may be indulged in
conspicuous consumption of less important needs or non-
need desires.
Such analysis is useful for the society not only in
the interest of economizing on the use of resources for
future generation but also for the development of present
generation so that they are not ill-fed and different
members of society do not create ill-effects on less
affluent members of the society and hence become a source
of corruption and unrest in the society.
3.1.4 Labour Supply Distortions
Economic agents have to allocate their time
(a) For work (to purchase goods and services
to meet the needs)
(b) For other needs (which cannot be
purchased)
The waste of resources can occur in allocating time as
well. In less developed societies it has been often
observed that even in extremely poor population the
labour force (population in working age) remains idle but
would not accept jobs below a certain wage or a job that
is not of the choice of the labour. The idle labour may
not even be looking for a job believing that job of their
choice does not exist. With such attitudes, several of
the needs would remain un-met. It is observable in
several parts of the world10. Why this happens?
Obviously the Rushd element is weak or is not working.
Internal and external proportions to correct the
behaviour are weak or are absent or are not geared to
wards defining needs and making economic agents to meet
them. This is a disequilibrium situation. Needs remain
un-met despite availability of resources. In several
communities this disequilibrium can take the form of
permanent disequilibrium.
3.1.4 Interpersonal Comparison:
Policy makers and social decision makers often need to
make interpersonal comparison to assess social welfare
affect of various policy options and decisions. In
practice, such comparisons are made consciously or
10 See The Lewis-Ranis-Fei (LRF) Model of Surplus Labor is an economic
development model. Also see Khan (1978)
unconsciously and explicitly or implicitly in almost all
policy decisions. The recognition of needs and their
significance for different individuals and groups of
individuals is made at various levels in government and
other social organizations. Developing a framework for
analysis of economic behaviour and generating necessary
data in that respect would make policy making simpler and
straight forward whenever interpersonal comparison is a
part of the policy making process.
3.1.5 Perception on Economic Problems: A Major
Difference
Economic problems are multidimensional. Economic
behaviour can be related not only to the above problems
at micro level but also to the problems of society at
macro level, like unemployment, poverty, income
distribution, inflation and sustainable economic growth
and development. Economic problem, thus, is how to gain
maximum human wellbeing within constraints of time and
resources. He has multitude of needs to meet with
respect to his wellbeing. He has to prioritize them in
order of their contribution to his wellbeing. His first
problem is how to rightly prioritize them. One’s own
sense of Rushd will help screening one’s needs. Even if
he has succeeded to make an optimal choice, the
individual may not be able to keep pace with the dynamics
in the society leading to improved wellbeing anticipated
by the dynamics of the society leading to reduced well
being? All these elements have positive aspects as well
as normative aspects. These elements can be understood
only by recognising the concept of Rushd.
3.1.6 Issue of Development
Economic behaviour has implications for self-
development at micro level as well as development of
society at macro level. When economic agents, whether as
consumer or a producer, are in equilibrium in the sense
already mentioned, then this is static equilibrium. In
dynamic sense, he may not still be in equilibrium. To
grow and develop and reach a higher level of wellbeing,
in inter temporal sense, is also a need. This will
require resources to meet the future needs. But
resources saved for this purpose may not be enough to
fulfil the anticipated future needs. Depending on the
priority of future needs, an individual may be in
disequilibrium if the individual is meeting lower order
needs ignoring future needs carrying higher priority.
Such a situation may raise development issues for the
society at macro level too. If individuals do not have
urge to move to higher levels of wellbeing, the society
will lag behind in development compared to the societies
where individuals are seeking higher and higher level of
well being.
Thus the problem of lack of development may be a
result of the following elements:
i) Weakness of Rushd sense.
ii) Weakness of internal and external pressures to
correct the sense of Rushd.
iii) Lack of collective spirit and initiative to
respond to the individuals’ need to move to higher
level of wellbeing.
iv) Lack of resources in the society to create
opportunities for individuals to help them move to
higher level of wellbeing.
3.2.3 Unemployment
Employment, in the context of our approach, would
mean inability to find a job for the number of hours
he/she intends to work for. This will be an involuntary
unemployment. An individual, however, may spend more
time, by choice, to meat lower order needs than working
for income needed to meet higher order needs. Inability
to find job This may generate voluntary unemployment.
Since he needs to work but decides not to work, this
voluntary unemployment leaves him at a lower level of
wellbeing. Both types of unemployment mean that the
individual is in the state of disequilibrium as some
needs of higher priority are not met and instead time is
being spent on meeting needs of lower priority. It means
the weakness of Rushd
3.2.4 Poverty
Our framework allows us to define the problem of
poverty. This is not possible under Neo-classical
framework. We can define three dimensions of poverty
also, which have implications both at micro level as well
as macro levels.
(a) Involuntary Poverty: Individuals are unable to meet
their critical needs. This may occur in two ways.
Despite that all his time is devoted to meeting these
needs, time value of his/her efforts is not enough to get
him resources sufficient to meet even his needs. Lack of
capital, human or physical, may often be the reason. The
individual has no choice but to depend on the society’s
institutional framework to provide necessary assistance
to get him/her out of the poverty trap. This is the
category of poverty where consumer’s choice does not play
any role.
(b) Voluntary Poverty: Individuals may assign their
critical needs a lower priority and spend his/her
resources on needs, which do not have higher priority.
Such poverty is result of
i) An individual’s lack or absence of Rushd
ii) Weak External pressures.
In this situation a person may remain content with his
economic condition and spend most of the time in leisure
or low priority needs instead of using his time to
improve his economic conditions. Many developing
countries will find this category of poverty prevailing
there.
(c) Potential Poverty: Individuals may have enough
resources meeting their present critical needs but they
may be ignoring their self development needs or future
needs. Demonstration effect of the consumption pattern in
the community may distort the consumption priorities of
low-income group of population. This type of poverty too
will result due to lack of Rushd and/or weaknesses of
internal and external pressures.
3.2.5 Pollution of Environment This is another major economic problem that Neo-
Classical Economics cannot address in its framework of
analysis. An individual imbued with Rushd is assumed to
be using the resources judiciously. Rushd based economic
behaviour only can ensure sustainable development of self
and society. As the sense of Rushd in the economic
agents weakens and desires, not needs, get priority in
their choice, the resources get misallocated and
environment is on stake. As sustainable development is
needed for the well being of all, society is required to
have an institutional framework with respect to the
economic behaviour. Since affluent members of society can
easily slip away from the rightly prioritized list of
needs and since demonstration effect from the affluent
section of society are strong in influencing the economic
decision making in the rest of the society, the
sustainable development will be more at stake, the more
skewed is the income distribution.
4. Application of Theory
Two basic questions need to be answered to complete
this theory.
1) One basic question is the following.
What is the reality on the ground? Is it Rushd that
guides economic behaviour of individuals or is it
Rationality, as defined in the Neo-Classical
framework, that guides individuals’ economic
behaviour.
2) The second basic question is how to determine that
an individual is following Rushd and is fulfilling
his needs, instead of satisfying his desires at the
cost of postponing or ignoring needs
3) A related question is, how to determine when the
consumer is not in the desired equilibrium state and
when community or government needs to do something
to bring microeconomic behaviour to equilibrium
state. This will require determining some benchmarks
for various needs and spelling out some guidelines
for economic behaviour. Every society does have
such benchmarks, implicitly or explicitly. They
need to be identified explicitly for the purpose of
analyzing economic behaviour and for developing
institutional framework to motivate to meet the
benchmarks. As society commits itself to sustainable
development of its members, as well as of the
society as a whole, comprehensive bench marks and
guidelines will need to be developed to give the
society enough basis to devise strategies and plans
for consumers to gear their behaviour towards
attaining maximum well-being and sustainable
development. If the society happens to be having no
explicit or implicit benchmarks then where to start?
Many countries already conduct household income –
expenditure surveys and those who do not conduct may
not find it difficult to start conducting such
surveys. These surveys are already designed with
the implicit objective of determining needs of the
household without any explicit theory of economic
behaviour. These surveys can be specifically
oriented towards explicitly determining benchmark
for various needs too with explicit theory how to
analyse them. Some countries use these surveys to
prepare consumption plans for various food items,
particularly for food grains. The concept of
determining benchmark for various needs using
household survey is, therefore, not a new concept
for economists. The main question would be who will
determine the needs and fix the benchmark for
different categories of needs. This will be
discussed in the next part in Islamic context.
5. Conclusion of Part II
Economic behaviour is an important aspect of human
behaviour. It can lead the man and society to drift
easily into such problems as unemployment, poverty,
underdevelopment, and exhaustion of natural resources,
pollution of environment. Two things can stop a behaviour
leading to such economic evils: a) Correcting the sense of
Rushd b) Committing collectively to social responsibility.
Market alone cannot correct economic behaviour. Social
institutions will be required to guide the market and
sometime to regulate the market. The social institutions
will emerge from the ethical base that society is
committed to.
No society is void of an ethical base that would
leave individuals free to behave the way he likes or leave
market free to allow individuals to satisfy whatever
desires he intends to satisfy. On the other hand, not all
societies have same set of ethics and norms for its
markets and the behaviour of its economic agents. Each
society has a set of ethics and norms not only defining
rules for behaviour but also reflecting the worldview and
objective of life that society members are assumed to be
pursue.
Islamic system of life provides unique and elaborate
rules for market as well as for the behaviour of its
economic agents. The next part of this paper discusses
what Islamic institutional framework and how it enables
the individuals and society continuously improve level of
their well being on a path of sustainable development. It
may be mentioned that the next part can be read without
reference to religious beliefs. Though some religious
beliefs have been mentioned in the next part, but these
beliefs are more in the nature of virtues and ethics
universally recognized. The beliefs can be considered as
ethical values or socio-economic institutions. This fact
has been pointed out to emphasize that the Islamic
approach to economic activity has lessons for even non-
Muslim societies and that Islam offers a global message
how to save the economies from catching economic diseases
and economic ills and put them on a path of sustainable
development.
References for Part II
1. Becker, Gary, The economic way of looking at
behavior, Nobel Lecture,(1993)Becker, Gary, The
economic approach to human behavior, Chicago,
University Press, Chicago, (1976)
2. Vorgelegt von, From Fragmentation to Innovation: The
Application of Institutionalism towards Financial
Market Theories, Ph.D. Dissertation (2004)
http://elib.suub.uni-bremen.de/publications/disserta
tions/E-Diss1259_Bernstorff.pdf
3. Lewis, Arthur Lewis, W. Arthur (1954). “Economic
Development with Unlimited Supplies of Labor”,
Manchester School of Economic and Social Studies,
Vol. 22, pp. 139-91 (1954)
4. Khan, M. Fahim, A study into the causes of wage
fluctuations in Labor surplus countries, Ph. D.
Thesis (Unpublished) Boston University, 1978
5. Renis, G. and J.C.H. Fei. “A Theory of Economic
Development”. American Economic Review, 51, 533-565
(1961)
Part III
Islamic Theory of Consumer Behaviour
Is Conventional Theory of Consumer Behaviour Totally
Irrelevant? Even though need is the driving force for
consumer behaviour the instinctive desires too often
remain a factor in consumer choice. The conventional
analysis of consumer behaviour still remains valid. It
will always be useful to study unusual, undesirable,
unhealthy patterns in consumer behaviour. It will still
be relevant to study what may be called the dark side of
human nature. Consumption of alcohol and drugs, markets
of pornography, money spent on illicit and abnormal sex
activities, spending resources spent on criminal actions,
economics of prostitution, consumption of goods abhorred
by society or prohibited by law, wasting money in funs and
games and gambling, the excessive use of resources in
glamorous sports, wresting, and other entertainment and
all such behaviour cannot be analysed in the need based
framework described above. The conventional rationality
based approach is the only framework that can analyse such
behaviour.
Need for “Islamic” Theory
Islamic scholars interested in science of Economics
have several reasons to be dissatisfied with the current
theory and believe they must develop an alternate theory
to understand what Islam teaches them about economic
behaviour. From Islamic sources, based on divine
revelations, they get a different understanding of the
nature and behaviour of human being compared to what
conventional Economics provides. The textual sources of
Islam, for example, make elaborate references to elements
of human behaviour relating to consumption. The Islamic
economists, when they try to analyze these elements
within the framework of the conventional theory of
consumer behaviour, they feel lost. The conventional
theory is very restrictive and not rich enough to allow
economic understanding of these elements. Some of the
concepts mentioned in the divine text pertaining to
consumer behaviour are just not recognizable in the
conventional theory of consumer behaviour. An alternative
to conventional theory, more realistic and wider in
scope, is in the wider interest of the discipline of
Economics
There is an added interest in an alternative theory
for Muslim economists. They need a theory that can help
understanding the divine commandments about the behaviour
and can lead to better conclusions for the benefit of the
human existence in this world.
Another factor that makes it important to develop a
theory relevant to Islamic theory of consumer behaviour
to Muslim Economists is Islam’s urge to develop human
being as individuals and also develop an institutional
mechanism to support a sustainable development in the
society to make the life on earth easy and comfortable
for all generations to come as long as this world exists.
Alleviation of poverty in a society, meeting the needs of
less privileged members of society, restraining from
corrupting the earth (land and sea and air) and
environment are among the clear objectives of Islamic
system of life and they have been made an explicit part
of the consumer choice. To achieve this objective, an
elaborate legal and moral framework for consumer
behaviour has been specified in Quran and Sunnah. For
example, we have specific injunctions; to avoid Israf,
Tabzeer and Itraf, to keep a balance in spending; to keep
watch on needs of neighbours and the have-nots; to eat
good food (Tayyibaat), not to use the prohibited
commodities; not to make consumption harmful to health,
environment or fellow beings; to spend in the cause of
Allah; to observe Taqwa (God-consciousness) and Iman
(belief in God and his commandments) in spending, to seek
Falah (success in both the worlds), to follow Ihsan (best
way of doing things) in all activities etc. These
injunctions to some extent can be subjected to economic
analysis, using the tools of conventional economics and
conclusions can be drawn for policy purposes. This is
what I have done in my paper on Consumption Function and
in my paper on Consumer Behaviour published earlier. Such
analysis, though useful on its own merit is not the
subject of this paper. What needs to be done is how to
incorporate these values in the theory of consumer
behaviour and draw implications for such objectives as
alleviation of poverty and sustainable development,
creation of harmony in society etc.
The purpose of this paper is to analyze Islamic
injunctions about consumption and consumer behaviour in
an appropriate theoretical framework more relevant to
understand these injunctions and draw policy conclusions.
The framework developed in Part II will be utilized in
this section to delineate a theory which can allow
scientific analysis of the Islamic approach to
consumption in order to
i) Understand the economics of the Islamic legal and moral
framework for consumption
ii) Draw policy conclusions on how to use this framework for
sustainable development of individuals and society
Some of the distinctive feature of Islamic approach
to consumption, that make the conventional theory of
consumer behaviour not relevant for economic analysis of
Islamic consumer behaviour and makes the theoretical
framework developed in Part II more relevant, are
highlighted below:
Distinctive Features of Islamic Approach to Consumption
The Rationality Assumption
The consumer behaviour is analyzed only for a
rational consumer. But rationality has to be pre-
defined, realistically, before getting into the analysis
of consumer behaviour. The conventional theory defines
rationality in too simplistic terms, which in fact makes
the scope of analysis too restrictive and makes the
application of theory too limited. The rationality for
example keeps ethics out of the human behaviour. It is
done in the interest of keeping the framework value free.
But that is not realistic. The definition, for example,
implies that “more is preferred to less”. This, in
itself, is value judgement and not a positive statement.
If it is value judgement, then virtue is that consumer
would be following some golden mean of the extreme of
this ethical value. “A virtuous consumer, would neither
consume ‘too much’ nor ‘too little’ but will have a
balance somewhere in between”. This attitude has to be a
part of the rationality assumption. This ethical virtue
in human behaviour is observable in all
civilized/educated/developed societies.
All societies abhor waste and a rational consumer is
expected to avoid waste. Just like we know that risk-
loving behaviour cannot be expected from rational not a
part of rational behaviour, we need to define in a way
that waste-loving behaviour is not a part of rational
behaviour.
Another element of a consumer’s choice is his/her
ability to judge what is good and what is bad for and
that he/she will go for the good and leave the bad. This
element of consumer choice is a significant factor in
real life decision-making process but it is absent from
the definition of rationality in conventional theory of
consumer behaviour.
Understanding consumer behaviour, in Islamic
perspective requires the Islamic legal and moral
framework for human behaviour to be included in the
rationality definition. Working with such wider meaning
of rationality would make the theoretical framework
relevant for both positive and normative analysis of
consumer behaviour. The Quran has emphasized the concept
of rationality in economic behaviour and has referred to
it as “Rushd”. For consumer behaviour some vary specific
norms and injunctions have been laid down that would
conform to Rushd. These have to be taken into account in
the analysis of consumer behaviour.
Allais Paradox
Maurice Allais, a Nobel prize winning economist, died earlier this month. In this post, I’m going to focus on one of his many intellectual contributions, as it profoundly influenced modern psychology. It’s known as the Allais Paradox, and it was first outlined in a 1953 Econometrica article. Here’s an example of the paradox:
Suppose somebody offered you a choice between two differentvacations. Vacation number one gives you a 50 percent chance of winning a three-week tour of England, France and Italy. Vacation number two offers you a one-week tour of England for sure.
Not surprisingly, the vast majority of people (typically over 80 percent) prefer the one-week tour of England. We almost always choose certainty over risk, and are willing to trade two weeks of vacation for the guarantee of a one-week vacation. A sure thing just seems better than a gamble that might leave us with nothing. But how about this wager:
Vacation number one offers you a 5 percent chance of winning a three week tour of England, France and Italy. Vacation number two gives you a 10 percent chance of winning a one week tour of England.
In this case, most people choose the three-week trip. We figure both vacations are unlikely to happen, so we might as well go forbroke on the grand European tour. (People act the same way with lotteries: we typically buy the ticket for the biggest possible prize, regardless of the odds.)
Allais presciently realized that this very popular set of decisions – almost everybody made them – violated the rational assumptions of economics. Instead of making decisions thatcould be predicted by a few mathematical equations, people acted with frustrating inconsistency. After all, both questions involve 50 percent reductions in probability (from 100 percent to 50 percent, and from 10 percent to 5 percent), and yet generated completely opposite responses. Our choices seemed incoherent.
The Allais paradox was mostly ignored for the next two decades. But then, in the early 1970s, two Israeli psychologists, Daniel Kahneman and Amos Tversky, read about the paradox and were instantly intrigued: they wanted to know why people didn’t respond to probabilities in a linear manner. Based upon their conversations with each other, it seemedobvious that people perceived a smaller difference between probabilities of 1 percent and 2 percent than between 0 percent and 1 percent, or between 99 percent and 100 percent. In other words, all changes in risk
are not created equal. As Allais had observed decades before, we value complete certainty aninordinate amount.
But why was certainty so attractive? Kahneman and Tversky wanted to understand the psychology behind the paradox. Their breakthrough came by accident. Kahneman had been reading a textbook on economic utility functions, and was puzzled by the way economists explained a particular aspect of our behavior. When evaluating a gamble—like betting on a hand of poker, or investing in a specific stock—economists assumed that we madethe decision by taking into account our wealthas a whole. (Being rational requires factoringin all the relevant information.) But Kahneman realized that this isn’t how we think. Gamblers in Las Vegas don’t sit around the card table contemplating their complete financial portfolio. Instead, they make quick decisions that depend entirely upon the immediate terms of the gamble. If there is a $100 wager, and you’re trying to decide whether or not to ante in with a pair of aces,you probably aren’t thinking about the recent performance of your mutual fund, or the value of your home.
But if we don’t make decisions based upon a complete set of information, then what are ourdecisions based upon? Which factors were actually affecting our choices? Kahneman and Tversky realized that people thought about
alternative outcomes in terms of gains or losses, and not in terms of states of wealth. The gambler playing poker is only concerned with the chips right in front of him, and the possibility of winning (or losing) that specific amount of money. (The brain is a bounded machine, and can’t think about everything at once.) This simple insight led Kahneman and Tversky to start revising the format of their experiments. At the time, theyregarded this as nothing but a technical adjustment, a way of making their questionnaires more psychologically realistic.
This minor change in notation soon revealed one of the most important discoveries of theircareers. When Kahneman and Tversky framed questions in terms of gains and losses, they immediately realized that people hated losses.In fact, our dislike of losses was largely responsible for our dislike of risk in general. Because we felt the disadvantages of risky decisions (losses) more acutely than theadvantages (gains), most risks struck us as bad ideas. This also made options that could be forecast with certainty seem especially alluring, since they were risk-free. As Kahneman and Tversky put it, “In human decision making, losses loom larger than gains.” Theycalled this phenomenon “loss aversion”
This simple idea has profound implications. For one thing, it reveals a deep bias built into our brain. From the perspective of
economics, there is no good reason to weight gains and losses so differently. Opportunity costs (foregone gains) should be treated just like “out-of-pocket costs” (losses). But they aren’t – losses carry a particular emotional sting. Take this imaginary scenario:
The U.S. is preparing for the outbreak of an unusual Asian disease, which is expected to kill 600 people. Two alternative programs to combat the disease have been proposed. Assumethat the exact scientific estimates of the consequences of the programs are as follows: If program A is adopted, 200 people will be saved. If program B is adopted, there is a one-third probability that 600 people will be saved and a two-thirds probability that no people will be saved. Which of the two programs would you favor?
When this question was asked to a large sampleof physicians, 72 percent chose option A, the safe-and-sure strategy, and only 28 percent chose program B, the risky strategy. In other words, physicians prefer a sure good thing over a gamble that risks utter failure. They are acting just like the people who choose thecertain one week tour of England. But what about this scenario:
The U.S. is preparing for the outbreak of an unusual Asian disease, which is expected to kill 600 people. Two alternative programs to combat the disease have been proposed. Assumethat the exact scientific estimates of the consequences of the programs are as follows: If program C is adopted, 400 people will die. If program D is adopted, there is a one-third probability that nobody will die and a two-thirds probability
that 600 people will die. Which of the two programs would you favor?
These two different questions examine identical dilemmas. Saving one third of the population is the same as losing two thirds. But when Kahneman and Tversky framed the scenario in terms of losses, physicians reversed their previous decision. Only 22 percent voted for option C, while 78 percent of them opted for option D, the risky strategythat might save everyone. Of course, this is aridiculous shift in preference, as nothing substantive has changed in the scenario.* But our choices are guided by our feelings, and losses just make us feel bad. Because the coldhearted equations of classical economics neglect emotion, their description of our decisions remained woefully incomplete.
And this returns us to Maurice Allais. It would be easy to dismiss his paradox as a trifling issue, an irrelevant foible of human decision-making. But it actually helped lead to a radical revision of human nature. (DanielKahneman went on to win the Nobel Prize in 2002.) We’ve come to realize that we’re not nearly as rational as we like to believe, thatthe brain is driven by all sorts of inarticulate feelings and pre-programmed instincts. It’s worth noting, however, that the modern investigation into our irrationality didn’t begin with a brain scan, or with discussions of the amygdala. Instead,
it began with a few inconsistent people, making economic decisions about their vacation. Leonard Cohen said it best: “There’sa crack in everything – that’s how the light gets in.” Allais found an important crack.
*Patients exhibit a similar bias: When asked whether they would choose surgery in a hypothetical medical emergency, twice as many people opted to go under the knife when the chance of survival was given as 80 percent than when the chance of death was given as 20 percent.
Source: http://www.wired.com/wiredscience/2010/10/the-allais-paradox/
The Allais paradox was mostly ignored for the next two decades. But then, in the early 1970s, two Israeli psychologists, Daniel Kahneman and Amos Tversky, read about the paradox and were instantly intrigued: they wanted to know why people didn’t respond to probabilities in a linear manner. Based upon their conversations with each other, it seemedobvious that people perceived a smaller difference between probabilities of 1 percent and 2 percent than between 0 percent and 1 percent, or between 99 percent and 100
percent. In other words, all changes in risk are not created equal. As Allais had observed decades before, we value complete certainty aninordinate amount.
But why was certainty so attractive? Kahneman and Tversky wanted to understand the psychology behind the paradox. Their breakthrough came by accident. Kahneman had been reading a textbook on economic utility functions, and was puzzled by the way economists explained a particular aspect of our behavior. When evaluating a gamble—like betting on a hand of poker, or investing in a specific stock—economists assumed that we madethe decision by taking into account our wealthas a whole. (Being rational requires factoringin all the relevant information.) But Kahneman realized that this isn’t how we think. Gamblers in Las Vegas don’t sit around the card table contemplating their complete financial portfolio. Instead, they make quick decisions that depend entirely upon the immediate terms of the gamble. If there is a $100 wager, and you’re trying to decide whether or not to ante in with a pair of aces,you probably aren’t thinking about the recent performance of your mutual fund, or the value of your home.
But if we don’t make decisions based upon a complete set of information, then what are ourdecisions based upon? Which factors were actually affecting our choices? Kahneman and
Tversky realized that people thought about alternative outcomes in terms of gains or losses, and not in terms of states of wealth. The gambler playing poker is only concerned with the chips right in front of him, and the possibility of winning (or losing) that specific amount of money. (The brain is a bounded machine, and can’t think about everything at once.) This simple insight led Kahneman and Tversky to start revising the format of their experiments. At the time, theyregarded this as nothing but a technical adjustment, a way of making their questionnaires more psychologically realistic.
This minor change in notation soon revealed one of the most important discoveries of theircareers. When Kahneman and Tversky framed questions in terms of gains and losses, they immediately realized that people hated losses.In fact, our dislike of losses was largely responsible for our dislike of risk in general. Because we felt the disadvantages of risky decisions (losses) more acutely than theadvantages (gains), most risks struck us as bad ideas. This also made options that could be forecast with certainty seem especially alluring, since they were risk-free. As Kahneman and Tversky put it, “In human decision making, losses loom larger than gains.” Theycalled this phenomenon “loss aversion”
This simple idea has profound implications. For one thing, it reveals a deep bias built
into our brain. From the perspective of economics, there is no good reason to weight gains and losses so differently. Opportunity costs (foregone gains) should be treated just like “out-of-pocket costs” (losses). But they aren’t – losses carry a particular emotional sting. Take this imaginary scenario:
The U.S. is preparing for the outbreak of an unusual Asian disease, which is expected to kill 600 people. Two alternative programs to combat the disease have been proposed. Assumethat the exact scientific estimates of the consequences of the programs are as follows: If program A is adopted, 200 people will be saved. If program B is adopted, there is a one-third probability that 600 people will be saved and a two-thirds probability that no people will be saved. Which of the two programs would you favor?
When this question was asked to a large sampleof physicians, 72 percent chose option A, the safe-and-sure strategy, and only 28 percent chose program B, the risky strategy. In other words, physicians prefer a sure good thing over a gamble that risks utter failure. They are acting just like the people who choose thecertain one week tour of England. But what about this scenario:
The U.S. is preparing for the outbreak of an unusual Asian disease, which is expected to kill 600 people. Two alternative programs to combat the disease have been proposed. Assumethat the exact scientific estimates of the consequences of the programs are as follows: If program C is adopted, 400 people will die. If program D is adopted, there is a one-third
probability that nobody will die and a two-thirds probability that 600 people will die. Which of the two programs would you favor?
These two different questions examine identical dilemmas. Saving one third of the population is the same as losing two thirds. But when Kahneman and Tversky framed the scenario in terms of losses, physicians reversed their previous decision. Only 22 percent voted for option C, while 78 percent of them opted for option D, the risky strategythat might save everyone. Of course, this is aridiculous shift in preference, as nothing substantive has changed in the scenario.* But our choices are guided by our feelings, and losses just make us feel bad. Because the coldhearted equations of classical economics neglect emotion, their description of our decisions remained woefully incomplete.
And this returns us to Maurice Allais. It would be easy to dismiss his paradox as a trifling issue, an irrelevant foible of human decision-making. But it actually helped lead to a radical revision of human nature. (DanielKahneman went on to win the Nobel Prize in 2002.) We’ve come to realize that we’re not nearly as rational as we like to believe, thatthe brain is driven by all sorts of inarticulate feelings and pre-programmed instincts. It’s worth noting, however, that the modern investigation into our irrationality didn’t begin with a brain scan,
or with discussions of the amygdala. Instead, it began with a few inconsistent people, making economic decisions about their vacation. Leonard Cohen said it best: “There’sa crack in everything – that’s how the light gets in.” Allais found an important crack.
*Patients exhibit a similar bias: When asked whether they would choose surgery in a hypothetical medical emergency, twice as many people opted to go under the knife when the chance of survival was given as 80 percent than when the chance of death was given as 20 percent.
Allais ParadoxIn identical experiments, an Allais paradox occurs when the addition of an independent event influences choice behavior. Consider the choices in the following table (Kahneman and Tversky 1979).
lottery
1to33
3435 to100
preference
018%
82%
0083%
017%In Experiment 1, a choice of and was given, and most participants picked . In Experiment 2, a choice of and was given, and most participants picked .
This observed pattern violates the independence axiom, since in both experiments, the payoff is identical if a
ball is picked, while if the event is disregarded, the two experiments are identical.
To see it another way, consider the event to be a black box that is always received if the random ball value is . Knowing or not knowing the contents of theblack box should not influence behavior.
http://mathworld.wolfram.com/AllaisParadox.html
Rushd as Islamic alternative to the Concept of
Rationality
The Quran has referred to the term “Rushd” (often
mentioned in the sense of “right-mindedness or sound-
mindedness”), for the economic behavior. For example,
the people of Shoaib asked the Prophet Shoaib “O Shoaib!
Does your prayers command that we give up what our
fathers used to worship or that we give up doing what we
like with our wealth (resources)? Verily you are the
fore-bearer, right minded (Rasheed)” (11.87). ‘Rasheed’
can be translated most closely by the English word
Rational personal but with a difference than what implies
in the definition used in Neo-Classical Economics. This
means people of Shoaib believed that they can behave
rationally to decide how to use their resources. But
profit Shoaib did not agree with their concept of
rationality. What was the difference? It required certain
moral and social responsibilities. Hence, the Islamic
concept of rationality, to be called ‘Rushd’, is more
than what is involved in concept of rationality in Neo-
Classical analysis economic behaviour. Similarly, for the
custodian of the property of an orphan, it has been
ordained in the Quran “… if then you find rationality
(rushd) in the, release their property to them ……” (4:6).
If we try to understand Rushd in the Quranic terminology,
we will find that Rushd will include:
1. The conventional definition of rationality
2. Social responsibility
3. Ethical responsibility
4. Religious responsibility, and
5. Golden mean between niggardliness and Israf
(waste)
6. Etc.
Introducing following two concepts can sum up this
discussion:
a. Sound minded judgement
b. Right minded judgement
In secular context, Rushd would mean sound judgement. It
would mean rationality as known in the context of Neo-
classical Economics plus the ethical and social
considerations of the society. In Islamic context, it
would mean sound judgement within the Islamic framework
for human behaviour, in general, and economic behaviour,
in particular. As the Quran mentions, “And We had
certainly given Abraham his Rushd (sound minded judgment)
before, and We were of him well-Knowing” (21:51).
Obviously, the sound-minded judgment, here, refers to
sound judgment of a right-minded person, not of any
common man. Right-minded person would be the one who
follows only the right as revealed through the divine
guidance.
The implications of above mentioned distinctive
classification of Rationality is that we will refer to
sound minded judgment when we are analyzing economic
behavior of any person. We will refer to right minded
judgment when an economic decision is made in the
framework of divine guidance; namely, ‘Islamic’ for the
purpose of this paper.
Ethics and Rationality-The concept of Rushd
There are two sets of ethics, one includes a set of
ethics that are universal and are explained in divine
sources while the other is the set which is developed
over time as Muslim culture. The later set may have
changed over time and may also vary from country to
country due to mixing up of ethics with local traditions
and culture. The former, however, is universal and does
not change over time. For example, prohibition of pork,
gambling, intoxication, extra marital relationship etc
remains unchanged with respect to time. However, female
circumcision, polygamy, eating seafood other than fish,
eating camel meat and horsemeat are relative to time and
culture. Rushd takes both types of ethics as a factor in
determining consumer behaviour of Muslims. However, an
analysis of Islamic economics would consider only the
universal ethics given by divine guidance. These ethics
are listed and briefly explained later in this chapter.
When we study the consumer behaviour in present day
Muslim societies, then the relative ethics become
relevant. This will, however, be a matter of empirical
study.
Categories of consumption
Human being’s consumption decisions are, generally,
recognized by economist to be made in two dimensions,
a) To satisfy their present needs and
b) To satisfy their future needs.
Muslims’ consumption decisions are also made in
these dimensions. But there is a third dimension also
that is extremely important for Muslims and is part of
their decision process with respect to consumption. The
third dimension is ‘to care for others’. This is
explicitly or implicitly a part of their budget
constraint. It not only includes giving away money or
food or other consumption goods to have-nots, but it also
includes spending on removing hardships for others and
creating trusts and institutions to care for others who
need to be cared.
Though such activities may be found in non-Muslim
communities as well but they are not a part of consumer’s
choice. They are non-economic decision taken with no
economic value in consideration. For a Muslim consumer
this is an integral part of the consumer choice.
The third dimension therefore has to be accommodated in
the analytical framework to understand the consumer
behaviour in Islamic perspective. The inclusion of third
dimension with other features of consumer choice such as
avoiding waste, etc implies that the conventional
framework for the analysis of Muslim consumer behaviour
does not remain very much relevant.
Needs as Basis for Consumer Decision Making
In the process of exploring the Islamic theory of
consumer behaviour, another distinct question is whether
the conventional concept of utility can continue to
remain the basis for understanding the consumer decision-
making. The concept of utility has a particular
philosophical underpinning derived from the Greek
philosophers’ discussions for the motivation of human
behaviour. Is their any other possible concept that can
be utilized for understanding the consumer decision-
making process that will be more relevant to the Islamic
approach to consumption?
Islamic social scientist, Ibn-e-Khaldoun, for
example, based his discussion on socio-economic behaviour
on the nature of human needs and their relationship with
different stages of development in society. In his
analysis, needs is the motivation for human socio-
economic behaviour to move from one stage of human
development to another.
Islamic philosophers, Shatibi and Ghazali, have been
more elaborate and specific on concept of need. They
referred to the term Maslaha (well being of mankind) as
the objective of Islamic system of life and discussed the
concept of needs to achieve this objective.
The concept of need as found in the Islamic
philosopher’s discussion with respect to the motivation
for human behaviour is a sound and more realistic basis
for developing an Islamic theory of consumer behaviour.
There are several reasons. Firstly, it is more realistic
and definable basis than the concept of utility.
Secondly, it would make interpersonal comparison of the
welfare of consumer possible, which is not possible under
the utility-based approach. Interpersonal comparison is
often required in the analysis of Islamic consumer
behaviour, particularly in view of the third dimension
discussed above. Irrespective of whether a person is
Islamic or unlslamic, it seems more logical to assume
that a person will look at the ‘need’ of a particular
commodity before he decides to consume it and will not
merely look at the so called utility (satisfying a
desire) aspect of the commodity.
It may be argued that use of “need” or “utility” is
only a matter of semantics. What a man needs also has
utility for him and he feels satisfaction in fulfilling.
Yes, this is true but the reverse is not true. He may
desire and feel satisfaction in consuming a thing, which
may not be his need at all. In real life we clearly
observe that one may desire several things but decides
not to go for many of them and instead may go for only
those things, which are his needs.
Conventional analysis of consumer behaviour is
concerned with allocative efficiency, which means that
the resources are used so that they are not wasted. The
concept of waste in conventional analysis using the
concept of utility is quite vague. According to
conventional analysis, if resources are used in a way
that it would not be possible to use them to make one
person better off without making another person worse
off. This requires interpersonal comparison. While
theoretically we may make such comparison, this
comparison is not practically possible within the concept
of utility. Waste of resources is said to be
misallocation of resources and justifies government
intervention to correct the allocation of resources. But
there is no practical significance of this theorization.
The use of the concept of needs in the consumer analysis
makes the concept of waste meaningful and makes the case
of government intervention more realistic.
Efficient allocation of resources is one of the
primary concerns in Islamic economic teachings. Waste is
abhorred in Islam. The use of concept of need in
analysing consumer behaviour will, therefore, be very
much relevant in Islamic framework. Market failures in
avoiding waste will be more objectively, identifiable and
allocative efficiency will be more realistically
achieved.
Methodology
Working with the concept of need will not allow us
to use the conventional methodology of defining utility
function for analysis of consumer behaviour. A different
methodology is needed. This would require identifying
criteria for categorizing and prioritizing needs.
Conventional theory can hardly help in this respect.
Though conventional theory does discuss categories like
inferior goods, Giffen goods, necessities, luxuries etc.
yet this categorization develop in utility-based
framework does not have much relevance for need-based
analysis. This categorization is not meant to classify
which goods contribute more to well being. Categorizing
needs and prioritizing them according to defined
criteria, thus, will be another important distinctive
feature of the Islamic theory of consumer behaviour.
Some classical Islamic scholars did discuss
categorization and prioritization of needs but not
specifically in the context of theorizing consumer
behaviour. Ibn-e-Khaldoun, for example, used the
categorization of primary needs, secondary needs and
luxuries to explain motivation of man’s development from
one stage to another. Shahibi and Ghazali used the
categorization of needs into Essentials (called
Darrooryyat), complementaries (Hajiyyat or Takmillyyat)
and Amelioratories (Tahsinyyat). Defining categories of
needs and their priorities thus will be a major and very
distinct function of economists seeking to analyze
consumer behaviour in an Islamic framework. In
developing this theory, it may not pose much a problem
(as it does not pose a problem in defining smooth
indifferences curves in conventional theory). Its
application to a real economy, however, will require
substantial field work to collect necessary data which in
turn will require regular periodical households surveys
about their income and expenditure patterns. Such
surveys are already being carried out in different
economies but not for the purpose of analyzing consumer
behaviour but for purpose of information for public
policy making.
However, the main change required in the methodology
and analytical framework to study economic behaviour is
to move away from the current approach, which is derived
from mathematics. Economics is a science studying human
behaviour. We need to be guided by sciences that deal
with the study of human beings at micro level. This is
the subject of separate chapter, which is not included in
this paper.
Objective of the Theory
Finally, objective of theory is its most distinctive
element. It would not merely aim at understanding how
consumer makes a choice with respect to allocating their
resources to meet their different needs. It primarily
would aim understanding whether allocation of his
resources to various needs was aimed at maximizing his
wellbeing and whether the wellbeing he achieved meets the
threshold of well-being. This is altogether different
question that conventional theory addresses. The Islamic
theory of consumer would have the following concerns:
1. Does consumer’s allocation of income aim at maximizing
his wellbeing?
2. Is there a threshold of wellbeing that consumer has to
maintain?
3. Is his consumption pattern consistent with the
sustainable development of society?
The Islamic theory will also be concerned with
1. How to make consumers to contribute towards their
development?
2. How to make the society develop over time?
Islamic Elements of Rushd (Rationality)
It has been emphasized earlier that Rationality is influenced
by institutional elements around the consumer. The
institutional elements that Islam provides the human beings
for their behaviour on the globe specify a set of ethics. This
set of ethics includes specifically the following:
1. Righteousness:
This is basic and principal norm for human behaviour
and for all human activities, including economic
activities, as mentioned in the Quran.
“Those who believe in the Quran and those who follow
Jewish (Scriptures) and the Christians and Sabians, any
who believe in Allah and the Last Day and work
righteousness shall have their reward with the Lord. On
them shall be no fear, nor shall they grieve (2:62)”.
“Say: Not equal are things that are bad and things that
are good even though the abundance of bad may dazzle
thee. So fear Allah, so that you understand, so that you
may prosper (5:103)”.
There are many verses to this effect. These verses
determine the dimensions of Rushd (right minded
judgement) for a Muslim that would force him/her to think
of right and wrong; and good and bad before needs are
fulfilled. Only those needs are fulfilled which are
right and which are good.
2. Attitude towards Borrowing/Lending
Borrowing is discouraged and lending is encouraged only
as Sadaqah (a good act with eyes on the reward in
hereafter. Borrowing is not a desirable behaviour in the
ethical system of Islam. On the other hand lending is
cherished, but only as Sadaqah, in the spirit of helping
a fellow being to meet his needs. (Lending is prohibited
to be a commercial or economically beneficial
proposition). The underlying spirit is that the members
of society do not exploit each other on account of
economic crises arising in the lives of fellow beings11.
It is argued that encouragement of lending as an act
of charity and in the spirit of helping fellow being in
their economic crises situation is expected to reduce
class conflicts (between haves and have-nots), reduce
feelings of social injustice and contribute to creating
an environment of peace and harmony in the society.
Lending, therefore, is a non-economic institution
effecting human behaviour. It is part of ethical system.
11 But limitations on borrowing do not mean that it would put limitations on the economic and business growth. The ethical norm to shy away from borrowing does not preclude seeking financial accommodation for production and trade purposes. There are several ways known and practiced in Muslim as well as non-Muslim world where businesses can accommodate each other financially without resorting to borrowing-lending phenomenon.
This generates a mentality different from that of
satisfying unlimited wants. It generates a mentality of
fulfilling genuine needs as much as allowed by one’s
resources, without resorting to borrowings, as much as
possible. The mentality that leads to what is called
“consumerism” and is triggered by the easy access to
credit is discouraged. This mentality becomes a part of
the ethical System of Islam and hence a part of right-
minded rationality (Rushd) for a Muslim in his/her
economic behaviour.
Fulfilling the needs in order of their priority
requires value judgment and therefore ethical part of
Islamic system of life. Maximizing the utility also
involves value judgement but Neoclassical Economics
treats it as value neutral concept. The ethical element
discouraging requires that the things lower on the
priority need to be postponed rather than fulfilled by
borrowing even if the financial cost of borrowing is less
than the benefit of fulfilling the need, unless there is
clear capacity to pay back.
3) Ihsaan
This is a norm for all human activities and human
dealings and it means doing the things in their best
style. The human activities and dealings are required to
be ameliorative and beautifying the activity so that the
one, doing the activity not only achieves the objective
but feels good too for doing so and makes all others
involved in the activity feel good.
4) Avoiding Harm (Damage/Loss)
It is a general rule for human conduct not to
inflict harm upon oneself nor cause harm to any one else.
For consumption, it has direct implication with respect
to components of consumption basket and method of
consuming and meeting needs. Thus consumer goods that
can cause harm to one’s health or consumption habits that
can pollute environment or create harmful effects for
others are required to be avoided.
5) Specific Values and Injunctions forConsumption and Consumer Behavior
The above are some of the moral values for human
behavior which have implications for consumption as well.
Besides these values, there are a set of values and
injunctions that directly relate to consumption of
consumer behavior. These values and injunctions can
easily be categorized into
a) values leading to judicious allocation of resources for
consumption
b) values relating to quality and style of consumption.
The values leading to judicious use of resources for
consumption are the following:
6) Values Leading to Judicious Use of Resources
Avoiding Waste ( Israf ) “…. But waste not for Allah loves not
the wasters”. (6:141). And “O children of Adam! Wear your
beautiful apparel at every time and place of prayer: eat
and drink: and waste not , For Allah does not love
wasters”. (7:31)
Israf literally means waste of resources. Islam
strongly requires Muslims not to waste resources. Though
this is an Islamic norm yet all civilized societies
would, in principle, abhor the attitude to waste12.
Working with the theory that consumer satisfies his
desires rather than meet needs, will hardly leave much to
be categorized as waste13. The only waste, in such a
framework, will be something that consumer will throw or
destroy resources for no reason. Such a behavior, in any
case, will not be a subject of economics, because this
will be considered an irrational behaviour.
We can identify waste when we see consumption of a
good that is not really needed by the consumer. Also, any
consumption of a low priority at the cost of not 12 It has been discussed earlier, conventional theory discusses role of government to reduce market failures in order to avoid waste of resources.13 Since consumer is assumed to always equate marginal utility to the price, there is no waste as long as he decides to consume a good.
fulfilling a high priority need would also be a waste of
resources and required to be avoided. Furthermore, there
will be a waste if a consumer fulfils one’s needs by
consuming goods more than what is normally required to
meet that need in a community. This will particularly be
applicable to commodities that are in the nature of
essential and basic needs. One narration from Prophet
(peace be upon him) advises to conserve water, while
washing for prayers even if one is washing at the bank of
a river. This tradition from the Prophet emphasizes the
significance to conserve resources. Mere abundance at a
particular time and place should not be an excuse for not
using it judiciously.
Avoiding Extravagance ( Tabzeer ) “………. But waste not (your
wealth) in the manner of a spend thrift. Verily, the
spend thrifts are brothers of devils and Devil is ever
ungrateful to his Lord” (17:28)
This is a concept similar to Israf but refers to waste
caused by consumers spending on goods without
consideration of needs and their priority. Tabzeer will
more commonly refer to the affluent class of the
population, who may not pay attention to what is needed
and what is not needed while spending their money. Many
of their purchases may end up unused as they never needed
them and therefore may not end up consuming them.
Compared to this Israf can appear in the behavior,
affluent or not. We may distinguish Tabzeer as waste in
the spending of resources in acquiring the goods for
consumption, while Israf as a waste in the actual
consumption of a commodity. Both these concepts, however,
relate to the concept of need.
While some consumers may have tendency to waste
resources by indulging in Israf and Tabzeer, there are
others, who do not like to spend resources and like to
hold back the resources as much as possible. This too is
not desirable in Islamic framework.
Maintain Moderation “Those who, when they spend, are not
extravagant and not niggardly but hold a just (balance)
between those extremes (25:67). “And make not thy hand
tied (like a niggard) to thy neck, nor stretch it forth
to its utmost reach, so that thy become blameworthy and
destitute” (17:29). These commandments too can be
understood better under the concept of need based
consumer behaviour. This can occur with one instinctive
desire and that is to hold back resources rather than
spending them. And Islam discourages this tendency. The
Quran has referred to this behaviour as below:
“Say (to the disbelievers): If you possessed the
treasures of my Lord, then you would surely hold them
back (from spending) for fear of being exhausted. And man
is ever miserly14”. This instinctive desire is not
recognized in conventional theory but consumers do often
satisfy this desire.
7) Spending for Others: ( Infaq , Sadaqaat and Qardh Hasan )
Infaq means to spend to meet the needs of the others
not as a favour to others but for the sake of reward from
Allah. “The parable of those who spend their substance in
the way of Allah is that of a grain of corn; it grows
seven ears, and each grain has a hundred ears; and Allah
gives many fold increases to whom he wills and Allah is
all-sufficient (to meet his creatures’ needs) and is all-
knowing” (2:261)
Sadaqaat includes, besides Infaq, any act to help
reduce hardships for fellow beings. Meeting their
consumption needs is a very desirable form of Sadaqaat.
“If you disclose your Sadaqaat, it is good; but if you
conceal them and give them to the poor, that is better
for you. Allah is well-acquainted with what you do.”
(2:271)
Qardh Hassan means a good loan. It refers to meeting
the needs of fellow being for the sake of Allah. It
becomes a loan to Allah and He rewards it many folds.
“Who is he that will lend to Allah a goodly loan so that
He may multiply it to him many times. And it is Allah
14 The Arabic term that has been used here to describe such a behavioris “Qatoora”. This can only be explained. It means the mentality thatmakes a man keen to hold back resources, being scared that his resources may exhaust sooner than later.
that decreases and increases, and unto him you shall
return.” (2:245) and “Verily those who give Sadaqah, men
and women, and lend Allah a goodly loan, it shall be
increased manifold and theirs shall be an honourable good
reward” (57:18).
Apparently, this all may seem to be what is commonly
known as charity. But, in fact, it is altogether a
different concept. Let us lump together the three terms,
infaq, sadaqaat, and qardh hasan in one term “Sadaqah”.
Sadaqah is an Arabic word. This can loosely be translated
into an act of benefiting some one without seeking a
reward in return from the beneficiary. Sadaqaat is plural
of sadaqah.
Some of the major differences between Sadaqah and
secular concept charity are as below:
1) There is an obligatory part in Sadaqah but not in
charity. Every Muslim is obliged to give a certain
percentage of his defined resources as Sadaqah.
2) Sadaqah is a regular economic feature of consumer
behaviour while charity is not recognized as a
regular economic feature of human behaviour.
3) Charity has no economic value and hence cannot be a
part of economic behaviour as no benefit is sought
out of it. Sadaqah has an economic value and is done
for one’s own benefit, irrespective of whether
someone else benefits from it or not. The explicit
reward for this is promised in this world as well as
World Hereafter.
4) Motivation for charity has to come from inside but
for Sadaqah it is imposed from outside (by the
religion). There is penalty for those who accumulate
wealth but do not make Sadaqah out of it and there
is a promise of multiplied reward for those who do
it. (See the verses quoted above).
5) Sadaqah is a wider concept than charity. Sowing a
tree on ones own land is a Sadaqah even though it
benefits the one who sowed the tree. Taking steps
for reducing pollution of water or land or air or
environment is a Sadaqah even if it is to improve
the surroundings of his residence
6) Charity, in secular context, is recognised as part
of ethical system in various societies (even in
Christian culture15) but Islamic system makes it a
part of the economic system embedded in the beliefs
system.
The economic significance of Infaq or Sadaqah is
obvious. While injunctions for moderation could lead to
take away resources of the economy from circulation, the
infaq will more than compensate it.
It is this dimension that directly brings the
concept of sustainable development in the behaviour of
15 Acquinas)(
the consumer, as this dimension would require making
spending for following purposes:
1) To meet the needs of have-nots and to help them
raise their economic status in the society
2) To spend (time or money) to generate something
that will benefit future generations. This is
called Sadaqah Jarriyah. It is an Islamic belief that
when a person dies all his connections with this
world are severed except that three things
continue to reach him. One, the knowledge that he
spread and is being beneficially used, the asset
or resources that he built and which continue to
benefit people after his death, like sowing trees,
or developing land, or improving environment and
the pious off-spring who pray for their parents.
3) To save for off springs to make them a generation
as good, if not better, than the present
generation (particularly in terms of upholding the
beliefs and values of Islam which include the
consumption related values)
Infaq, sadaqaat or qard hasan, is a highly commendable
act in Islam and have been repeatedly ordained in the
Quran. This behaviour cannot be understood when working
with the concept of maximization of satisfaction of one’s
own desires and wants. Why a man should do that. If it
is a matter of satisfying wants that contributes to
welfare then my wants are as important to my welfare as
any one else’s wants are to his welfare. But if I know
that my neighbour’s essential needs are not being
fulfilled while I am spending on fulfilling my non-
essential needs then obviously, the spirit of sadaqah will
be invoked. This raises my welfare as well as of my
neighbour’s welfare. The social welfare increases.
Since spending to meet the needs of others increases
the well being of myself as well as of the others
simultaneously, there will always be room to improve
social welfare. There will always be possibilities to
making oneself and some one else better off
simultaneously.
8) Prohibition of Interest
Interest is prohibited in Islam. And in this
connection it has been mentioned in the Quran “Allah
destroys Riba (which includes interest on loans) and gives
increase to Sadaqaat” (2: 276). Widespread conviction to
make sadaqaat eliminates the need from the less privileged
members of the society to borrow. The Riba has to fade out
if sadaqaat increase.
The above mentioned consumption values i.e. Israf,
Tabzeer and Infaq aim at ensuring not only judicious uses
of resources for consumption but also make the
consumption conducive for circulating the wealth in the
economy and conducive for growth and development of the
economy.
9) Values Relating to Quality and Style of Consumption
The second set of values relate to the quality and
style of consumption. There is strong emphasis on
careful selection of the composition of basket so that it
contains “good” goods, so as to not corrupt earth or
pollute the environment, not to create ill-feelings among
the fellow beings or creating unhealthy competition in
consumption or creating corruption, distortions and
disturbances in the economy. These values are in fact
the specific manifestation for consumer behaviour of the
norm “Ihsan” described earlier for the general behaviour
of man
“Good” ( Tayyibaat ) Goods The consumption basket of a
consumer is required to include only such goods which not
only meet his defined needs in prioritized manner but are
also the goods which are “good” and cherished by the
society. The consumer is required to be careful in
selecting the goods that are not dirty or harmful to
oneself or to the society or are not prohibited by the
religious injunctions.
“So eat of the sustenance which Allah has provided
for you, lawful and good16” (16:114). 16 The Quranic term is Tayyibaat. The exact translation of Tayyibaat may not be conveyed by the word “good”. The phrase “good and pure” maybe more closer but still the pure may give connotation that is not
And “They ask thee what is lawful to them. Say:
Lawful unto you are things that are good”. (5:4).
Every society has its own perception what is good to
consume and what is not. All societies, for example,
agree that narcotics are not good things to consume. The
societies get this perception from their own perception
of life, its objectives and the desired social setup.
Islamic teachings provide a very clear and distinct
perception of life, its purpose and how to build-up the
society. This society, thus, will have a clear perception
of what is good to consume and what is not. Perception of
society about consumers’ needs will be an important
determinant of a Muslim consumer’s behavior as it will be
in any other society. The strength of the influence of
society’s perception on needs on consumer behavior may be
different in different societies but it will always be
there. In Islamic society, however, this influence will
be very strong because of elaborate and strong teachings
in Islam on how a consumer should behave.
Itraf This too relates to consumption basket but addressed
to a specific group in the society, the very rich and
affluent. Rich and affluent members of the society are to
be careful in selecting the goods for consumption, not to
needed here. Tayyibaat will generally be understood in the society without explanation. It will not be those, which are specifically prohibited like pork, alcohol etc and will be those which are cherished in the society as good things to eat.
be conspicuous so as to serve as factor in distorting the
needs list of others members of the society and also not
to reflect an attitude “I do not care about laws and
ethics for my consumption, because I have resources and
power to do so”. This is probably what is referred to in
common man’s language as “filthy rich”. An attitude from
the affluent members of society can corrupt the
consumption pattern of the entire society and lead to
corruption of earth and corrupting the environment in the
society.
Avoid Corrupting Earth “……. Commit not evil on earth as
corruption” (11:86) “……. And do good as Allah has been
good to you. And do not seek to cause corruption on
earth. Allah does not love corrupters” (28:77).
“Corruption has appeared on land and sea because of what
the men have earned; that Allah may give them a taste of
some of their deeds; in order that they may turn back
from evil” (30:41).
This norm re-enforces the norms of Tayyibaat and Itraf
mentioned above. All such norms only emphasize quality
of goods in the consumption basket. The goods have to be
“good”, conducive to maintain harmony in the society and
keep the environment clean and pleasant.
The alternative perception on Theory of Consumer
Behaviour discussed in Part I offers more conducive
framework for the development of Islamic Theory of
Consumer Behaviour. Since this alternative perception is
wider in scope and more pragmatic in its application to
different situations, it is more relevant for its
application to Islamic consumer behaviour as well. The
alternative perception on the analytical framework has
been discussed somewhere else. Under the alternate
perception following factors determine a consumer’s
choice:
i) Well-Being
ii) Needs
iii) Rushd
While the first four actors have been discussed
earlier, the fifth factor needs further
elaboration, as it is key to ensuring
sustainable development. We need to discuss two
more elements in this analysis; Institutional
Framework ensuring Rushd in consumer behaviour
and the budget constraint.
For the purpose of this conference, these two
elements have not been discussed. They are part
of another paper. But following brief
discussion on Institutional arrangement for
ensuring Rushd in consumer behaviour
Institutional Framework to ensure
Rushd in Consumer Behaviour
At individual level, there is all the possibility of
developing lacunae in application of Rushd. There will
always be instinctive motivation to by-pass what Rushd
requires. This is what the Quran has warned about the
whole mankind.
“Satan threatens you with poverty and bids you to conduct unseemly. Allah promises you His forgiveness and bounties and Allah cares for all and He knows all things”(2:68)
It is assumed that a Muslim aware of Islamic laws
and ethics will resist instinctive temptation to ignore
Rushd in his economic decision-making. But still there
will remain possibility of deviating from the desired
path. The instincts may present the desires camouflaged
as “need”. While any deviations or even substantial
deviations may go unobserved for a short time but they
will soon be noticed and pressures will come either from
inside or from family, friends, neighbours and community
leaders.
Let there arise out of you a band of people invitingto all that is good, Enjoining what is right and forbidding what is wrong: They are the ones to attain felicity. (3:104)
Also society has a role in meeting the needs of the
members of the community if their resources do not enable
them to meet their essential first level needs. Sadaqaat
from those who are obliged to do so provide the sources
to help the society to manage this obligation. When
society is doing, it would have a leverage on its members
not deviate from Rushd based behaviour.
Resource Constraints
A few words are also in order with respect to
Resources at the disposal of consumer to meet his needs
and the prices of goods and services he has to buy from
the market to meet his needs are constraints to his
ability to meet all his needs. While prices and
disposable household income pose a binding constraint,
this constraint is relaxed because of the third dimension
in Islamic society discussed earlier. Sadaqaat being a
strong element of Islamic system, it can be assumed that
consumer’s level 1 needs will in any case be met even if
the consumer has no resources of his own to meet these
needs. Some Islamic scholars argue that it is one of the
functions of state in Islamic society to guarantee
minimum needs for all17.
An implicit constraint in this choice of goods to
meet his needs is the obligation of Sadaqaat. An Islamic
consumer will be constrained by the needs of other
consumers in his neighbourhood. He will not feel
comfortable meeting his low level needs if some consumers
17 Dr. Siddiqi (1994).
in his neighbourhood are finding it difficult even to
meet their survival needs18. Also there is minimum
obligation to give away to the needed and there is
tremendous encouragement to give away beyond the minimum
required.
Maximizing Well-Being
Maximizing of wellbeing is assumed to be the
objective of mankind on earth. And this is what Islam
aims at for the believers. A believer therefore will
allocate his time and money for solely purpose for this.
This means that consumer will identify his needs in the
light of his understanding of what Islam expects from
him, prioritize them and fulfil them while observing all
the Islamic norms and rules of consumption. The consumer
while doing so will be able to allocate resources that
will maximize his wellbeing.
The consumer needs to make three types of choices in
the process of seeking his maximum wellbeing:
1. Allocation of his time to various needs, which include
the need to earn income and accumulate wealth as a means
for maximizing wellbeing.
2. To allocate income between Sadaqah (to meet the needs of
others) and his own needs.
18 He is not a mumin who eats to his fill, while his neighbour is hungry beside him. (Hadith)
3. To allocate the income earmarked to meet one’s own needs
between present consumption and future consumption.
4. Choice of consumer goods and services for present
consumption.
Allocation of time
The central issue, with respect to allocation of
time, is how this choice would differ if the consumer
were not an Islamic consumer. A non-Islamic consumer may
also have needs that cannot be met by spending money and
these needs may rank quite high in the priority. The
difference will arise from the fact that how much the
needs that cannot be met by spending money fall into the
category of Sadaqaat. For an Islamic consumer, the
proportion of Sadaqaat in such needs may be much higher
than for a non-Islamic consumer just because of the
religious stress and rewards for Sadaqaat. Thus a non-
Islamic consumer may spend considerable time in “Leisure”
(e.g. in more than needed recreation activities), which
is non-productive from society point of view, and thus in
Islamic framework would be considered undesirable. Such
leisure is waste of time, which is not allowed. An
Islamic consumer, who is not working full time or
overtime will be spending time in activities contributing
either to his own development or to the development of
the society or developing assets (like plantation,
teaching etc.) that will be conducive to the sustainable
development of the society.
Allocation for Sadaqaat
Besides, that one may devote part of his time for
Sadaqaat activities, an Islamic consumer spends for
Sadaqaat out of the income he makes or wealth he
accumulates by devoting his time to work. Part of this
spending is obligatory and is linked to the volume of
income he makes or volume of wealth he has accumulated.
And there is encouragement to do more. Whatever is
obligatory to be spent from Sadaqaat out of accumulated
wealth is effectively paid out of the income. Sadaqaat
thus will therefore always be a proportion of income.
How this proportion is determined? The Quran has
specifically addressed the question how much should go to
Sadaqaat and the guidance is “Al-Afu”19 which can be
interpreted “as whatever can be spared from one’s needs”.
This obviously implies that one’s own needs have priority
over meeting other needs, except for the obligatory
Sadaqaat. Beyond the obligatory Sadaqaat, all other
Sadaqaat are voluntary. But the encouragement and rewards
for Sadaqaat is so great that one can always be tempted to 19 Verse 2:219: They ask thee concerning wine and gambling. say: “In them is great sin,
And some profit, for men; But the sin is greater than theprofit.”
They ask thee how much they are to spend;Say: “What is beyond your needs.”Thus doth Allah make clear to you his signs: in order
that ye may consider-
spend as much as possible. There are numerous verses in
the Quran and several traditions from the Profit to this
effect.
It is not righteousness that ye turn your faces towards East or West;
But it is righteousness to believe in Allah and the Last Day
And the Angels, and the Book, and the Messengers; And give away of your substance, out of love for
Him,For your kin, for orphans, for the needy, for the
wayfarer, for those who ask,And for the ransom of slaves; and are steadfast in
prayer, and give Zakah,And fulfil the contracts, which ye have made;And are firm and patient, in pain (or suffering) and
adversity,And throughout all periods of panic.Such are the people of truth, the God-fearing.
(2:177)
With so much emphasis on Sadaqaat, while still making
them secondary to own needs, suggests that the decision
how much to spend on Sadaqaat will be decided exogenously.
Sadaqaat will not be prioritized in the list of the
consumer needs for allocation of his resources. He will
make a priori decision, keeping in view his resources and
his needs, whether he is in a position to make Sadaqaat
and if yes how much. He will decide a priori certain
proportion of income or wealth to be devoted regularly to
Sadaqaat. It can, however, be assumed that accumulated
wealth will, by and large, be invested to generate at
least minimum obligation of Sadaqaat to be paid on the
wealth. We can, therefore, make Sadaqaat only a function
of income. Sadaqaat of course may generate after one’s own
at least critical needs have been met. It will require
some organization and institutional set up in the
community that would take the responsibility of pooling
the Sadaqaat of individuals and utilizing them for
alleviating poverty.
Umar Farooq, the second Caliphate was quick to
realize this need and established the institution at
state level called Baitul Maal. It was witnessed within
the period of Umar Farooq, that people had obligatory
Sadaqaat to make but there was no one to receive them.
The institutions to organize and manage Sadaqaat for
the development of poor (besides meeting their basic
needs) does not have to be at state level. NGOs have
been found throughout the Islamic history doing this job
in varying degrees in Muslim societies.
Institutionalization of Sadaqaat can be done at individual
level as well. The institution of Waqf is manifestation
of this effort. Several innovations are possible in
institutionalizing Sadaqaat for the purpose of organizing
and managing Sadaqaat and initiatives can be taken at
several levels; at individual level, at group of
individuals level, at NGO level, and at state level.
Emergence of such initiatives and organization is
motivated by teachings of Islam and the implied Islamic
system of life.
Allocation for future needs
This is a recognized element for Islamic consumer
behaviour20. This involves a little more detailed
discussion, which is avoided here. The consumer will
appropriately rank, in his list of needs, the allocation
for future needs. The fact that human beings, in general,
is myopic and may not clearly perceive his future needs
and hence their priorities versus current needs will
always call for an active role of community21.
There are several other discussion points, which are
bypassed for the time being. The point is that if Society
itself is weak on such institutions then it will not be
playing its role in correcting the consumer behaviour, in
correcting their priorities, and helping them in their
socio-economic development. The consumer behaviour, thus
will be sustaining poverty rather than development.
20 There is Hadith that tells us that it is better to leave your heirswealthy rather than leaving them poor, begging others ……………. (Sahaih al Bukhari).
21 In several countries, Government makes a compulsory deduction from the salaries of their employees to develop a pension fund for the employees. This is a recognition of the myopic behaviour of consumerbehaviour in allocating income for future needs. Government recognises that the employee will not make allocation for their level1 of their future needs and may spend on level 2 and level 3 of present needs. A compulsory deduction, therefore, is made to avoid misallocation of resources by individuals.
Built-in forces are mobilized by the commitment of
practising Muslims. This commitment generates following
forces:
1) Building up internal pressures that they are accountable
of all their deeds to the All-knowing and Omni Present
Almighty.
2) Developing an attitude to help others in need as a part
of normal consumer behaviour.
3) Developing institutions to generate external pressures on
individuals to remain on the optimal path of consumption
and to ensure that essential needs of have-nots are met.
Let us see what happens if these features cease to
exist. It has been discussed earlier that if an
individual consumer deviates from Islamic behaviour then
other things remaining same, this deviation will be short
lived and built-in-forces and society will bring him back
to the Islamic behaviour. This will, however, not be same
if the deviating consumers become dominant in the
community.
Implication of Deviating from Islamic Path
Implications of deviating from optimal path
Main and rather obvious implications are highlighted
below:
1. Some or many essential needs of consumers may go un-met,
because consumer prefers some other wants to such needs.
This may happen not only in lower income classes, but may
happen in affluent classes as well, as they may not
recognize some of their needs. Need for religious
education for example may get ignored. Lower income
classes may over spend low priority needs such as
entertainment at the cost of some other essential food or
education or health needs.
2. Some non-needs may enter into the consumption basket,
e.g. smoking, drugs, unhealthy and excessive time and
money consuming entertainment like gambling etc. This
implies not only waste of resources but also destroying
wellbeing.
3. Consuming over spending on low priority as well as high
priority needs may waste resources. This will be
violation of a religious duty as well which requires not
to do Israf.
4. Commodity mix and the style of their use in the basket
may not be environment friendly. The consumer may prefer
various wants not necessarily the needs or may opt for
such method of needs which violate the norm of good style
or pollute environment and make things ugly for the
community ignoring Islamic teachings in this respect and
may leave adverse impact for living conditions for future
generations.
5. Economic growth of individual and community may be put at
stake. Pursuit of some wants may lead the consumer to
ignore some needs meant for his own economic uplift or
economic uplift of the community. The rate of time
preference when consumer’s only objective is satisfaction
of wants may be higher compared to when the consumer’s
objective in fulfilment of needs including the future
needs. Pressure of wants can easily lead to ignoring
some of the future needs and hence sacrificing self-
development as well as social development.
Two specific behavioural peculiarities may occur. One,
the consumer may over spend on present needs and hence
wasting the resources that could be used for future
needs. The savings and capital accumulation thus will be
sub optimal. Second, the consumer may spend miserly on
his present needs, spend less than what is needed to meet
his present needs. This of course will save resources
from present consumption. But this is being done in
miserly behaviour and not as a rational choice between
present needs and future needs, and hence may not
necessarily result in using the resources for meeting
future needs. The resources may be used or hoarded in a
way not conducive to optimize on meeting future needs.22
6. Class conflict may be created. An affluent class may
indulge into Israf and Itraf which may create ill feelings
among less privileged classes and hence become a source
of class conflict. Peace and harmony in the community
may be adversely affected.
7. Human and social development may be thwarted seriously as
the needs for such developments like education, health
22 Following verses in Quran identify these two types of behaviour:Verily thy Lord doth provide sustenance in abundance for whom
he pleaseth, and HeStraiten it for He doth know and regard all His servants
(17:30). Also see 25:67
etc. be sacrificed for satisfying some mundane wants.
Lack of commitment on the part of individuals may let the
community also lag behind in developing institutions
needed for such development.
Indicators of a Community Being Off-Track in Consumer Behaviour
How to determine that most of the consumers in a
community are off track the path of their wellbeing and
that the community is no more seeking the wellbeing and
instead mostly allowing its members to pursue their wants
rather than needs? Several indicators can be defined by
conducting a household income-expenditure survey
carefully designed for this specific purpose of selected
sample of households from the community. The following
indicators can be used to infer whether the society is
off-track.
1. Poverty Incidence and income inequality
2. Environmental Conditions
3. Comparison of expenditure on basic food items by income
groups or comparison of income elasticity of demand for
by income groups.
4. Proportion of expenditure on goods harmful to health or
to environment and/or presence of goods prohibited in
Islamic law in the consumption basket of consumer
5. Number of children out of school or without home study
Various indicators can be derived through the normal
household income-expenditure surveys being currently
conducted in different Muslim countries. Special
surveys, however, can be conducted with carefully
designed questions to determine the knowledge and
commitment to Islamic rules and norms for consumer
behaviour.
How to Bring Back the Community to Islamic Track with respect to Consumer Behaviour
The society would degenerate to non-Islamic norms
when the forces at individual and community level fail to
re-enforce each other in maintaining the adherence to
Islamic norms. The forces of change, therefore, will
have to generate at state level.
The state will need to work in two directions:
a) Understanding the nature and extent of deviation from the
Islamic behaviour and factors underlying the deviant
behaviour.
b) Identifying and implementing appropriate policy measures.
A carefully and scientifically designed household
survey can help a lot in understanding the behaviour.
Conclusion
Rationalization of consumption and consumer
behaviour for the sake of development and growth and more
so far the sake of what is called sustainable development
is a serious concern of all developing countries,
including all Muslim countries. But Muslim countries
have the advantage that they have very specific guidance
in their religion about rationalization of consumption
and consumer behaviour that can lead to achieve such
goals faster. Since this is divine guidance and integral
part of their religious beliefs, the Muslim countries can
achieve better results in terms of growth and sustainable
development if rationalization of consumption on the
lines of Islamic teachings is a specific element of their
development strategy.
This paper elaborates on this point in the framework
of a theory of consumer behaviour, which is different
from the conventional theory but more relevant for
developing countries, in general, and Muslim countries,
in particular. In the framework of this theory it has
been shown that consumer behaviour rationalized according
to Islamic teachings leads to a fast track towards
alleviating poverty, accelerating sustainable
development, reducing class conflicts and promoting peace
and harmony in the society. As society commits itself to
sustainable development of its members, as well as of the
society as a whole, comprehensive bench marks and
guidelines will need to be developed to give the society
enough basis to devise strategies and plans for consumers
to gear their behaviour towards attaining maximum well-
being and sustainable development.
This paper is also an attempt to substantiate the
claim rigorously presented in international conferences,
seminars, and academic foras in late Seventies that
Islamic economics is a potentially scientific discipline
quite different from the discipline of Economics (Zarqa
1976). This paper negates the claim of some economists
(Muslim and others) that we do not need a distinct
theory. (Conventional) Economic theory is general enough
to accommodate variations in values and rules of
behaviour delineating economic systems (Al-Jarhi)).
Those who take this view, however, ignore the fact that
Islamic teachings refers to a very wide set of concepts
and statements about economic values and behaviour of
economic agents that the philosophy and methods of
conventional Economics just cannot capture within its
theoretical framework. For example, the statement in the
Quran [Say: “If ye had control of the Treasures of the
Mercy of my Lord, Behold, ye would keep them back, for
fear of spending them: for man is (ever) niggardly!
17:100] highlights an aspect of human nature which is
obviously outside the assumptions and methodology of
conventional Economics23. Islamic teachings on
consumption and consumer behavior refer to several
concepts and aspects of human behavior which cannot be
understood and explained within the theoretical framework
and methodology of conventional economics. We need a
23 Conventional Economics fails even to explain why people hold money despite substantial opportunity costs of doing so.
different theory. This is the central focus of this
paper. The paper develops a theory based on concept of
“needs” rather than on the concept of “wants” to
appropriately understand consumer behaviour in all its
aspects. Using this theory, the paper not only is able
to explain concepts like waste in consumption,
conspicuous consumption, irrationalities in consumer
behaviour etc. but also shows that the norms of consumer
behaviour embedded in Islamic teachings aim at
alleviating poverty and developing man and society on a
sustainable track. The paper also discusses how
deviation from these norms can occur and how and who can
bring back the consumers on the normal track.
Consumption is not the only area of Islamic system
of life that is required to be studied by economists in
an appropriate theoretical framework (not necessarily of
conventional Economics) for the sake of discovering
faster tracks towards development and growth of
societies, enhancing well-being of mankind and achieving
more peaceful and just economic order. The vast Fiqh
literature on exchange, for example, provides another
virgin field to be looked out by economists in such
perspective. Economists will find a lot to theorize
about market operations, market structures, risk
management in markets for creating a better environment
for enhancing production and exchange without creating
class conflicts and tensions in the society.
An unwritten moral of the paper is that if “Islamic
economists”, during the last thirty years, had paid more
attention to such aspects of Islamic economic teachings
as consumer behaviour, exchange, property rights et.),
instead of theorizing the complex subject of Islamic
finance and Islamic financial system, they would have
gone a long way to show to the world that Islamic
economics is a unique and distinct discipline promising a
more peaceful and just economic order for the mankind.
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