Invigorating The Human Factor (2/3)

Labour Reforms

Islamic values require employers to consider employees as members of their own family. This demands that employees be treated with respect and compassion and that their well-being be ensured. Real wages in a Muslim society should ideally be at least at a level that would enable employees to fulfill all their and their families' essential needs properly. They must also be provided with training, job security and, preferably, also a share in profits within the framework of a long-term, harmonious relationship. 

In sharp contrast with this, real wages in most Muslim countries are so low that,  in spite of nearly 10-14 hours of hard work, a labourer is unable to meet his own and his family's basic needs. In addition, employees do not enjoy any job security.

The reasons for this are not merely low productivity, excess supply of labour, and lack of adequate opportunities for employment, as the neo-classical economists would have us believe.

A substantial role is played by exploitation, which is made possible by a configuration of unjust forces, including inappropriate official policies, concentration of wealth and power, and lack of training and financing facilities for workers.

Unless the forces of exploitation are substantially weakened, it may not be possible to do justice to workers and to induce them to work conscientiously and efficiently.

The prescription of minimum wages may not, nevertheless, be the immediate solution. It would be difficult to enforce and, if enforced, it could have two adverse effects. Firstly, it could lead to a difference in wages as reported to the authorities and those actually paid. This would imply a reduction in the tax liability of the employer without any real benefit to the labourer. Secondly, it could exacerbate the prevailing high level of unemployment.

It would hence be better to resort to an entirely different package of policies - policies that would blunt the edge of exploitation, firstly, by raising the productivity of workers, and secondly, by expanding the opportunities available for self-employment in both rural and urban areas. Such policies should include: a) provision of better vocational training to raise productivity; b) extension of financing facilities to promote SMEs; and c) restructuring of the entire economy in favour of need fulfillment and a more equitable distribution of incomes and wealth. These policies should be further reinforced by making profit-sharing schemes as widespread as possible for enabling the employees to share in the profits of their firms.

Every firm should be required to implement a profit-sharing scheme for employees. A certain agreed proportion of the firm's net profit should be required to be partly allocated for distribution among the employees as profit-sharing bonus and partly utilized to provide training facilities, to improve their working conditions, and grant medical benefits, educational allowances for children, housing facilities, and food subsidies.

Linking the increase in income and benefits of employees beyond a certain minimum needed for comfortable living to their firm's profitability, should have a number of benefits. These would include: a) reduction in the existing apathy through a boost in the employees' morale, thus leading to greater conscientiousness, less wastage and higher productivity; b) improvement in labour-management relations through worker participation in management, thus helping revive an important characteristic of an ideal Muslim society; c) keeping the employees' earnings flexible and responsive to the health of the national economy and the performance of their firms - the employees sharing amply in their firm's prosperity when profits are good but not being laid off when profits are low or the firm is suffering losses; d) reduction in tax evasion (provided that the tax system is reformed), because the employees, in their own self-interest, would keep an eye on the firm's actual profits with respect to which they are currently indifferent: and e) increase in the competitiveness of the economy and the firms, thus improving the general climate for investment and the macro-economic performance of the economy. While implementing the profit-sharing scheme, it is necessary to ensure that this policy does not lead to exploitation. This could happen if the minimum wage, which is not subject to risk, is not adequate to meet the basic needs of the employee.

The employees' share of profit, in addition to being distributed in the form of cash bonuses, subsidies and services, could also be distributed in the form of shares to implement an Employee Stock Ownership Plan (ESOP).

The introduction of ESOP can enable workers to become equity owners and can go a long way towards reducing concentration of wealth and power.

It will enable workers to participate actively in the firm's management and motivate them to be more conscientious and efficient. It will also help reduce industrial strife.

It will raise savings, discourage the unproductive alternative of gold-hoarding and also help raise their social status in the company and society. ESOP has been adopted in even some capitalist countries like France, the U.K. and the U.S.A., and there is no reason why it should not receive enthusiastic support in Muslim countries.

Fair Return to Small Depositors and Shareholders

The low rates of return on deposits and shares in many Muslim countries, the result of administrative fiats and corporate corruption, hurt mainly the small savers and investors. Big businesses use various devices to get their due return.

They are, besides, alleged to keep most of their savings abroad to evade taxes, to protect themselves from the depreciation of the national currency, and to get a higher international market-related return. They do, however, borrow from local banks and government financial institutions at lower prime or concessionary rates for domestic investment. This accentuates inequalities.

This is not a plea in favour of higher interest rates, which hurt investment, but rather a strong case in favour of equity financing and reform of banks and non-bank corporations in conformity with the objectives of the Shari‘ah. This will not only enable savers and investors to get a just reward but will also help bring about greater allocative efficiency, economic stability and growth.

Justice to Producers, Exporters, and Consumers

Similarly, unrealistic exchange rates and unnecessary price controls hurt producers and exporters, while high protective tariffs hurt consumers.

The plea that these measures serve the interest of the common man and promote the country's development is usually a facade. They do not. They, rather, serve the vested interest of the rich and the powerful who have been continuously growing richer at the expense of the masses who have become more and more impoverished.

They also prevent the authorities from adopting healthy policies that would curb inflation, expand the supply of need satisfying goods and services, and expand employment and incomes.

All measures that enrich a minority of the population at the expense of the majority cannot be defended in the light of the Shari‘ah. It is necessary, however, to take adequate measures to safeguard the interest of the poor before the exchange rates are realigned and price controls are removed.

Such measures may take different forms, including income supplements or relief payments out of zakah and other funds earmarked for this purpose, accompanied by incentives and facilities to expand the supply of need fulfilling goods and services and income-earning opportunities.