Why POVERTY PREVAILS?

Author: Ismail Nizam

ECONOMIC SYSTEMS CREATE POVERTY

The resources on the earth are sufficient to feed the world population. According to the report “World Hunger: Twelve Myths” by CIFDP, there is food in abundance in the world, so much so that 78% of all malnourished children aged under five live in countries with food surpluses. The reason for malnutrition is that many people are too poor to buy readily available food. The report further adds; “The true source of world hunger is not scarcity but policy, not inevitably but politics. The real culprits are the economies that fail to offer everyone opportunities.”
Never was the need for a new global economic thought more demanded than today. Repeated failures of world economies, sometimes as Latin American economic crisis, sometimes appearing as South East Asian economic crisis and more recently the apparent symptoms of failures of world’s largest economies.
Economic laws are not like natural laws which were fixed and unavoidable. Natural laws are obliged to be obeyed irrespective of the religion, whether a Muslim or non-Muslim. The laws of nature are set by the Divine decree. For example, unless astronauts follow the law of gravitation, they cannot send a rocket into the space.
Such is not the case with economics. Economics is a social science. A discipline of social science has always the room for change and improvement. The contemporary economic system has evolved over the centuries, but yet, it is not a guarantee that what we have is the only and the best economic system possible.

CUASES OF POVERTY

1. The Concept of Scarcity

Scarcity, according to Economists, is the originating point of economic thought. The conventional economics has failed at this very origin of economics. Conventional economists define scarcity as insufficient natural resources to satisfy unlimited human wants. Islamically speaking, scarcity is not an absolute concept. Islam, does not disagree with scarcity. However, Islamic view on the scarcity is different. Islam disagrees to natural resources scarcity, as Allah has provided enough resources for the creations to sustain their living. What is scarce is the effort and knowledge of human being to extract the resources. Furthermore, scarcity is created by wrong choices in the production, distribution and consumption functions by the economic agents. This is the chief cause of poverty in the world.

2. The so called interest

When a business man borrows money from banks or capital market, he has to pay interest irrespective of the stressful conditions of the business in terms of losses or need to retain fund within the business working capital. When the lenders pressurizes the businessmen to repay the amount with interest, the businessmen recover the lost sum by charging higher prices to consumers. This aggravates inflation.
Further, interest is deterrent to productive economic activities. This is evident in situations when interest rate is low and people are ready to invest and expand the business. And in the case when interest rate is high people are discouraged from real investment. As a result of interest rate discouraging investment, the economy loses small and medium sized businesses causing a aggregate supply shortage. This in turn raises the inflationary pressure in the economy. The reduction in these small and medium size enterprises creates unemployment and skill loss of people as they provide employment to many people. This ultimately put the country into a situation where few large companies supporting the whole economy. Having gained monopoly power, these few companies, in most cases, exploit the common men’s income. The country becomes more vulnerable to world economic crisis because of less corporations to be depended on.
As explained above, loss of small and medium businesses allows the nation’s wealth to circulate in few hands. This perpetuate inequality in the distribution of resources. Interest becomes the source to major problems of economic discipline: Inefficiency and inequity.