Question

Essay Topics: Write a short essay on each of the topics, answering all questions in each topic in a clear, coherent, and concise essays.

A. Dual-track Transition Describe the Chinese dual track approach to economic reform/transition.

Explain what it is, how the mechanism works, and what makes it an

appealing approach to economic reform/transition. Make sure you discuss dual track

in both agricultural and industrial sectors in China.

B. Islamic Economic System Describe the institutions in the Islamic economic system.

What are the three main institutions and how do they work? How does Islamic

economic system compare to both capitalism and socialism?

Answer 1

A.

The dual track system happened in the early 1990's because you had an socialist system in which factories were told what to produce by the state, while you wanted to add on a market based system.

The big difference was prices. In a market system, you get your supplies based a negotiating with suppliers, and you decide what to produce based on what makes you a profit. In a central planning, you decide what to produce based on state orders. This means that you get your supplies for free, and you produce things based on state orders, and it doesn't matter if anyone actually buys what you produce.

The trouble was to move the Chinese economic from a state-planned system to a market system. One strategy that Russia tried was the "big bang" or "shock therapy" approach. In this, you just instantly make everything market based. The trouble with this approach is that you instantly have wide spread unemployment since the socialist factories turn out to be wildly unprofitable in the new system. You also have problems because in the chaos, people that are politically connected get access to the parts of the factories that are worth something and they end up making insane profits.

(1) In agriculture: i) Practice: Household Responsibility System was piloted in a village in Anhui in 1978. It soon gained popularity and official endorsement in 1981. The system covered 98% of rural population within 3 years; Under HRS, land was distributed to households as 15-year leases; Lease holders required to produce a planned allotment at planned (fixed) prices, but free to produce and market any amount beyond planned allotment.

ii) Outcome: Agricultural output grew by 42% from 1978-1984. Farmers increased labor supply to non-agricultural businesses.

iii) Reason: The production decisions and profits were transferred from the commune to the household. The decision-making automy provided better incentives. Semi-ownership of land caused increase in labor productivity which released labor into small-scale entrepreneurship.

(2) In industrial sector:

i) Practice: Market channel was introduced to allocate goods to supplement traditional plans.

ii) Outcome: robust economic growth in light industries mended demand shortage.

iii) Reason: Increased market competition facilitated more efficient allocation of production factors and provided incentives to growth.

B.

Islamic Economic System (IES) is an economic system which owes much of its philosophy to the Islamic belief system, but it is an independent and self sustainable system. This is to that for successful implementation of the IES islamisation is not a condition precedent. Non-Muslims can benefit from it as much as the Muslims can.

The first thing about the IES is that it enjoins upon every man and woman to spend “his/her” wealth. The implication of this commandment is more severe: he/ she should have only what is his or hers. No one can be a Robin Hood — for no one has any right or power to spend “other’s” wealth.

Circulation of wealth should maximise through trade and commerce — with everyone regardless of his religion or caste, etc. The Prophet of Islam died as a debtor of a Jewish trader from whom he had purchased some merchandise on credit and had pledged his armour as security.

Actually IES gives the solution to the global problem of alienation in which every state is trying to protect itself behind as many firewalls as possible. Islam through its economic system says no to this approach. Islam maintains that different communities living in different parts of the world, because of their varied and diverse ideologies, won't be compatible with one another but they can be easily made inter-dependant and thus protect one another.

IES enjoins the wealthy to invest their wealth everywhere, and it expects the others too to do the same. This will produce wonderful results. Every wealthy person will become concerned about the security and safety of the place where he has invested his money. This is happening at a very low level, under the present system. IES calls for aggressive investment with the hard-up people, unlike present dispensation in which the so-called investor run away when the rating of a country is downgraded! If one’s fellow walker falls down, he deserves to be helped to be able to stand up again. But our investors maintain that he should be forsaken for new friends.

IES does not recognise the distant investment in stock market as the desired investment. It does not approve of pseudo economy. IES wants investors to invest in real economy and on inter-national level it wants Muslims to “go” with their investments. Under IES there have to be only exporters and no importers at all.

The price hike is curtailed, quite effectively, by the IES by denouncing “corporate centricity” of modern capitalism under which fictional corporate entities amass and sit over people's wealth to their own aggrandisement. IES advocates a “customer centric” business model in which the enterprises would self-impose a ceiling of their choice on their holdings and pass the benefit of any excess profit on to their customers.

On fair practices IES heavily comes against ‘charging for nothing’ in trade and commerce which remain the only and the largest mode of passing on property from one person to another. Fairness is a sine quo non of trade and commerce, unlike gracious gifting in which the recipient does not have to reciprocate. It is this excess charge which is called riba. For example, if a milkman sells a litre of 30% adulterated milk for 50 bucks, he takes 15 bucks for no-milk, and amount is riba for him.

Another important rule of the IES is anti-tatfeef which commands that a person should allow as much gain to the counter-party as he wants for himself. So the corporate chocolates barrens making billions for themselves will be required to pay adequate price to the cocoa farmers.

As for the lending, it is on the borrowers’ terms in the IES. So as one borrows on his terms, he repays on the lender’s terms. This would automatically bring to an end the modern nuisance of bad loans which are substantially a consequence of over financing by the greedy creditors. And please remember, IES is the first and the only financial system to prescribe on insolvency/ bankruptcy.

With this brief summary of the IES, it needs to be added that an important and conducive factor for the IES is the Islamic tax system which levies virtually only one production or income tax to be levied at the time generation only, and not to exceed a tithe. There is another property tax for defenders purposes exclusively. And third is a social annual tax of 2.5% of surplus wealth above a certain measure that must have been with the payer for a full year. This has specified social usages only, and no others.

Lastly, under the IES the role of a limited bureaucracy, apart from tax collection, is nothing but preventing the people from being prevented from exercising their rights and enjoying their liberties without preventing the others from doing the same.