RENT SEEKING IN ISLAM

BY : GHAZANA SAID ATAN

CONTENTS :1.Definition of rent 2.What is economic rent ? 3.Rent seeking

3.1 3.2

3.3

Definition of rent seeking Rent seeking from Islamic perspective (restricted to Governments involvement only) Principles to assist government to regulate rent seeking activities in the society

4.Conclusion

DEFINITION OF RENTAdam Smith Rent is money paid for the use of capital asset whether land, a building, an office, a car, a bicycle or whatever someone might use but cannot or does not want to own

David Ricardo Rent is a payment made to the landlord for the original and indestructible qualities of land. He also argued that rent arises because land is of different quality

WHAT IS ECONOMIC RENT ?

Since modern economists have generalized the concept of rent to include all factors of production, the supply of any factors may at times fall short of its demand at the current price, thus, selling at a price higher than its production cost the excess of which is called economic rent

Zubair Hasan Economic rent is the price paid for the use of land including all natural resources that God has provided to mankind as a whole, free of charge

Ludwig von Mises Economic rent if the return in excess of opportunity cost. Since opportunity cost is subjective, the identification of economic rent depends on judgements of value

DEFINITION OF RENT SEEKINGAnne Krueger Rent seeking refers to lose-lose activities in which real resources are expended in an effort to capture money from others

Mirakhor Khan Rent seeking is the expenditure of resources and effort in creating, maintaining, or transferring rents. These expenditures can be legal, as with most forms of lobbying, queuing, or contributions to political parties. However, they can also be illegal, as in the case of bribes, illegal political contributions, expeditures on private mafias, and so on

DEFINITION OF RENT SEEKING contPatrick Gunning Rent seeking consists of legitimate, non-voting actions that are intended to change laws and administration of laws such as that one individual and/or group gains at the same or greater expense to another individual or group. There are 2 kinds of rent seeking : Market privilege rent seeking, which grants special market privileges to some people while taking privileges away from others. By interfering with free enterprise, the granting of such privileges reduce the market economys wealth generating capacity and economic efficiency Redistribution rent seeking, which does not interfere with free enterprise, although it affects incentives to produce wealth

Rent seeking from islamic perspective

Qualifying statement : For the purpose of this presentation, I will only discuss on the governments involvement in rent seeking. This is because :

Government

transfers huge amount of money for which people can compete Government can use force in ways that no private citizen or group of citizens can, and that use of force can be made to enrich some at the expense of others

In Islam, any government policies that create privileged groups are deemed undesirable and this is obvious from the following examples : Muhammad (s.a.w) took back land from his companion Abyad b Hammal when he came to know that it contained a salt mine and its private ownership may cause hardship to the general public Muhammad (s.a.w) donated land to some of his Companions with the hope that they would develop it. Later, when it was learned that the donee did not develop the land, it was taken back from him.

Prophet

Prophet

Principles to assist government to regulate rent seeking activities in society

The Islamic concept of rights accompanies obligations indicates that there are no rights that do not entail obligations. Therefore, the government should not create any right that does not specify the obligations of the beneficiaries To protect the interest of the general public, government donations should not be for the purpose of creating monopolies. Government donations should not allow some individuals to reap vast profits without the investment of labour or capital. Based on the example, the salt mine on the land given to Abyad b Hammal was on the surface and would not have required any development effort to extract salt from it

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Principles to assist government to regulate rent seeking activities in society cont

In Islam, the discretion to donate property to individuals should be decided by the society collectively on the principles of Shura (consultation). This is because government officials (including the president or prime minister), are only trustees of public resources Governments may create some rents as an incentive for a higher social objective like industrialization or technology development. However, rent seeking becomes objectionable when the vast profits generated in this process are not deployed productively for the benefit of the Ummah The government must enforce a code of conduct on public servants, politicians and businessmen, restraining them from seeking to influence the government for their own personal benefit

Conclusion :

Rent seeking in the aggregate may impose substantial losses on society, thus the need to have governments intervention to regulate such activities It would be too simplistic to presume that there is no special interest groups in todays Islamic society. However, it is not necessary that these groups act against social interests in each case. In some cases, they may play a positive role by providing information on specific problems. Therefore, government should accommodate them on the basis of the general principles of maslahah (welfare) Islamic government cannot remain passive to the ethical conditions of the people. The Holy Quran obliges an Islamic government to enforce proper behaviour and restrain people from improper behaviour. The belief of the Hereafter should be embedded in the minds of all so that everyone abides by the rules of social conduct

Thank you