1. The Economy
System
The Global World
PREPARE BY: M. Assad Fahim Khan (313001)
SUBMITTED TO: SIR RIAZ HUSSAIN SOOMROO
SEMESTER: MBA - 1

2. What is system?
System (from Latin systema, in turn from Greek systēma) is a set of interacting or interdependent
entities, real or abstract, forming an integrated whole.
A group of interdependent items that interact regularly to perform a task.
OR
A System is a number of INTERDEPENDENT parts functioning as a whole for some purpose.
E.g., to understand the functioning of the human body, the working of its interdependent parts
(ears, eyes, brain).
TYPES:
 Closed: mostly mechanical; A clock, with its wheels, gears, etc, doing the same
predetermined work irrespective of its external environment
 Open: a plant. Constant interaction with the external environment is critical to its
survival.
Economic System
An economic system is a system that involves the production, distribution and consumption of
goods and services between the entities in a particular society. The economic system is
composed of people and institutions, including their relationships to productive resources, such
as through the convention of property. In a given economy, it is the systemic means by which
problems of economics are addressed, such as the economic problem of scarcity through
allocation of finite productive resources. Examples of contemporary economic systems include
capitalist systems, socialist systems, and economic system of Islam. Economic systems are the
economics category that includes the study of respective systems.
OR
Each society gives the three basic questions different answers, but the economic system of an
economy is further determined by the resource ownership(who owns the resources and how
owners are paid) and the extent to which the government attempts to coordinate the economic
activities in that society.

3. Ranging from the most free to the most regimented type of economy, the market system or the
free market is at the opposite end of the spectrum while command system is at the other end.
They are the most typical types nowadays, but other mixed and transitional economies also
pervade. Practically, no pure market system or pure command system exists today, all countries
are at one point of the spectrum that's neither of the extremes. However, for sake of discussion,
let's pay more attention to the extreme ones.
Under pure market system, resources are absolutely privately owned and the coordination of
economy is ultimately based on the sum total decisions of millions of individuals who pursue
their own self-interest without any central direction or regulation. Government is left out, and the
market is the exclusive central institution in which the three basic questions are answered.
Buyers and sellers of goods and services, resource owners and bidders interact in no way
affected by other force like the government regulation. Their decisions are dependent only on the
interest of their own. Consumers dictate what is produced(or the consumer sovereignty) and
producers have to produce the goods and services people want, so is the resources allocation
process. The distribution of output is also determined in a decentralized way. The amount that
any one household gets depends on its income and wealth. The income and wealth are
determined by their capabilities and skills as well as the choice whether to go to work or not. In a
word, in a pure market system, while non-government members of the society determine their
individual actions, they ultimately determine the whole economy.
In a pure command system, resources are directed and production is coordinated based on the
command, or central plan, of government rather than by markets. A central authority or agency
establishes what will be produced and when, sets production goals, makes rules for distribution
and determines how much compensation workers are to receive for their labors. In theory, a pure
command system incorporates individual choices into collective ones. In practice, however, it
has flaws, most notably are:
1. Since nobody in particular owns resources, people have less incentive to employ them in
their highest-valued use; so some resources are wasted.
2. Central plans may reflect more the tastes and preferences of central planners than those of
society.
3. Since the central government is responsible for all production, the diversity of products is
much more limited than that in a competitive economy.
4. Each individual has less personal freedom in making economic choices.
Because of these limitations, countries have modified the pure command system to allow a role
for markets. North Korea is perhaps the most centrally planned economy in the world today.

4. Economic System of Islam
Islamic Economic System implies a mood of satisfying the economics needs of the members of
organized society in accordance with is injection of Quran and Sunnah. The mood of spending
production, distribution and exchange of wealth is determined by the tenor of these injections. In
this system the economic activities of the members of the society are regulative by the certain
values of which pity, justice, benevolence, cooperation, brotherhood and equality are especially
important. The sources and origin of these values are the Holy Quran and the Sunnah of Allah‟s
Apostle (PBUH). They are eternal and immutable. Consumers, producers and traders are must
abide these values.
At one level, the state can also use the its powers to implements and enforce these values,
however, Islam mostly ensure their implementations and daily affairs of life through its system
of education and training and by creating a general climate of piety in the society.
As a complete way of life, Islam has provided guidelines and rules for every sphere of
life and society. Naturally, a functioning economic system is vital for a healthy society,
as the consumption of goods and services, and the facilitation of this by a common
medium of exchange, play a major role in allowing people to realize their material and
other goals in life.
Islam has set some standards, based on justice and practicality, for such economic
systems to be established. These standards aim to prevent the enmity that often occurs
between different socioeconomic sections. Of course, it is true that the gathering of
money concerns almost every human being who participates in transactions with others.
Yet, while these standards recognize money as being among the most important elements
in society, they do not lose sight of the fact that its position is secondary to the real
purpose of human existence, which is the worship of God.
An Islamic economic system is not necessarily concerned with the precise amount of
financial income and expenditure, imports and exports, and other economic statistics.
While such matters are no doubt important, Islam is more concerned with the spirit of the
economic system.
A society that implements Islamic laws and promotes Islamic manners will find that it
bring together all the systems – social, economic, and so forth – that it deals with. Islam
teaches that God has created provision for every person who He has brought to life.
Therefore, the competition for natural resources that is presumed to exist among the
nations of the world is an illusion. While the earth has sufficient bounty to satisfy the
needs of mankind, the challenge for humans lies in discovering, extracting, processing,
and distributing these resources to those who need them.
Islam consists of a set of beliefs which organizes the relationship between the individual
and his Creator; between the person and other human beings; between the person and

5. universe; and even the relationship of the person to himself. In that sense, Islam
regulates human behavior, and one type of human behavior is economic behavior.
Economic behavior is dealt by Muslims as a means of production, distribution, and
consumption of goods and services. In Islam, human behavior -whether in the economic
area or others - is not value free; nor is it value neutral. It is connected with the
ideological foundation of the faith.
The Sources of Islamic Economics
The fundamental sources of Islam - the Quran and the Sunnah of the Prophet- provide
guidelines for economic behavior and a blueprint of how the economic system of a
society should be organized. Therefore, the values and objectives of all “Islamic”
economic systems must necessarily conform to, and comply with, the principles derived
from these fundamental sources. The purpose of these articles is to outline the most
salient characteristics of an economic system based on the fundamental sources of Islam.
The focus here is on the principal features of the Islamic system.
The Islamic economic system is defined by a network of rules called the Shariah. The
rules which are contained in the Shariah are both constitutive and regulative, meaning
that they either lay the rules for the creation of economic entities and systems, as well the
rules which regulate existing one. As an integral part of the revelation, the Shariah is the
guide for human action which encompasses every aspect of life – spiritual, individual,
social, political, cultural, and economic. It provides a scale by which all actions, whether
on the part of the individual agents, society, and the state, are classified in regards to their
legality. Thus there are five types of actions recognized, namely: obligatory;
recommended; permissible; discouraged; and forbidden. This classification is also
inclusive of economic behavior.
The basic source of the Shariah in Islam is the Quran and the Sunnah, which include all
the necessary rules of the Shariah as guidance for mankind. The Sunnah further explains
these rules by the practical application of Prophet Muhammad, may the mercy and
blessings of God be upon him. The expansion of the regulative rules of the Shariah and
their extensions to new situations in later times was accomplished with the aid of
consensus of the scholars, analogical reasoning - which derived rules by discerning an
analogy between new problems and those existing in the primary sources - and finally,
through textual reasoning of scholars specialized in the Shariah. These five sources - the
Quran, the Sunnah, consensus of the scholars, analogical reasoning, and textual reasoning
- constitute the components of the Shariah, and these components are also used as a basis
for governing economic affairs.

6. Justice
In summary, we can say that the Islamic Economic system is based upon the notion of
justice It is through justice that the existence of the rules governing the economic
behavior of the individual and economic institutions in Islam can be understood. Justice
in Islam is a multifaceted concept, and there several words exist to define it. The most
common word in usage which refers to the overall concept of justice is the Arabic word
“adl”. This word and its many synonyms imply the concepts of “right”, as equivalent to
fairness, “putting things in their proper place”, “equality”, “equalizing”, “balance”,
“temperance” and “moderation.” In practice, justice is defined as acting in accordance
with the Shariah, which, in turn, contains both substantive and procedural justice[2]
covering economic issues. Substantive justice consists of those elements of justice
contained in the substance of the Shariah, while procedural justice consists of rules of
procedure assuring the attainment of justice contained in the substance of the Law. The
notion of economic justice, and its attendant concept of distributive justice,[3] is
particularly important as an identifying characteristic of the Islamic economic system.
The rules governing permissible and forbidden economic behavior on the part of
consumers, producers and government, as well as questions of property rights, and of the
production and distribution of wealth, are all based on the Islamic view of justice.
The following topics will be discussed in the following articles:
(a) individual obligations, rights, and self-interest;
(b) property rights;
(c) importance of contracts;
(d) work and wealth;
(e) the concept of barakah;
(f) economic justice;
(g) prohibition of interest (riba);
(h) competition and cooperation; and
(i) the role of the state.

7. US ECONOMY SYSTEM
The United States of America (US or USA) is the largest and most important economy in the
world. In 2010, The US economy was responsible for 20.218 percent of the world‟s total GDP
(PPP) or US$ 14.624 trillion.
Yet despite leading the world‟s economy for more than a hundred years, The US economy is
now facing its greatest ever challenge since World War II. This challenge has been a result of
both domestic and international factors.
US Economic Structure
Ever since the 1960s, the US economy has been primarily responsible for absorbing global
savings. Despite the challenge from emerging economies, the US remains the most heavily
invested-into country in the world, with foreign direct investments at home worth $2.398 trillion
in 2010. The US is also the largest investor in the world, investing $3.259 trillion abroad in 2010.
The US is a market-oriented economy, where private individuals and business firms make most
of the decisions, and the federal and state governments purchase goods and services
predominantly from the private marketplace.
US business firms have more flexibility than their counterparts in Western Europe and Japan in
decision making when it comes to expanding the capital plant, lay off surplus workers, and
develop new products. At the same time, they face higher barriers to entry in competeing
overseas markets than foreign firms do in the US.
US firms are at or near the vanguard in technological advances, especially in computers and in
medical, aerospace, and military equipment. This advantage has narrowed since the end of World
War II. The onrush of technology in the US can also explain the gradual development of a two-
tier labor market where those at the bottom receive less training and benefits than those at the
top.
Although the US strongly advocates free market principles, the government still plays a major
role in dictating the US economy. The US still relies on the government to address matters that
the private sector overlooks, from education to protecting the environment. From time to time,
the US government has also been tasked with nurturing new industries, and also protect
American companies from foreign competition. This is clearly visible from the highly subsidized
agriculture industry in the US
As such, the US economy is best described as a mixed economy where the economic structure is
upheld through the interactions between the private, public and international sector. As the
leading economy in the world, fluctuations in the US economy have had far reaching impact on
other economies throughout the globe.

8. US Export, Import and Trade
US foreign trade and global economic policies have changed drastically since the days of its
founding fathers. Prior to the Great Depression and World War II, government and businesses
mostly concentrated on developing the domestic economy irrespective of what went on abroad.
Since then however, the US has generally sought to reduce trade barriers and coordinate the
world economic system.
Today, the US is the world’s largest trading nation – simultaneously leading the world in
imports and being among the top three exporting nations in the world. As the top export
market for almost 60 trading nations, the US has had a certain degree of economic and political
leverage throughout the world, which allows it to shape global policies towards its own.
One such policy is its commitment to global free trade. The US has had a major role in the
formation of global trade agencies such as GATT, as well as its future incarnation as the WTO.
Apart from the guidelines set by these agencies, the US also has numerous Free Trade
Agreements (FTAs) with individual nations.
Current FTAs
US-Israel FTA - since 1985
North American FTA (NAFTA) – since 1994, including Canada and Mexico
US-Jordan FTA – since 2001
Australia-US FTA – since 2004
US-Chile FTA – since 2004
US-Singapore FTA – since 2004
Dominican Republic-Central America FTA (DR-CAFTA) – since 2005, including Costa
Rica, El Salvador, Guatemala, Honduras, Nicaragua and the Dominican Republic
US-Bahrain FTA – since 2006
US-Morocco FTA – since 2006
US-Oman FTA – since 2006
US-Peru Trade Promotion Agreement – since 2007
FTAs waiting approval
Panama-US Trade Promotion Agreement
Colombia-US Trade Promotion Agreement
Republic of Korea-US FTA
Proposed FTAs
Free Trade Area of the Americas (FTAA) – to include all countries in Western
Hemisphere except Cuba
US-Middle East Free Trade Area (USMEFTA) – to include most countries in the Middle
East
Transatlantic Free Trade Area (TAFTA) – European Union

9. US-Thailand FTA
US-New Zealand FTA
US-Ghana FTA
US-Indonesia FTA
US-Kenya FTA
US-Kuwait FTA
US-Malaysia FTA
US-Mauritius FTA
US-Mozambique FTA
US-Taiwan FTA
US-United Arab Emirates FTA
US-Southern African Customs FTA – to include South Africa, Botswana, Lesotho,
Swaziland and Namibia
US-Ecuador FTA
US-Qatar FTA
US Recovery From the Financial Crisis
In the near future, the US is likely to rely on its services industry in its recovery attempts. Since
the 1970s, the US economy has gradually shifted from producing goods to providing services.
The large majority of service-providing jobs are found in the group of trade, transportation, and
utilities occupations. Other key service industries for the US include finance, tourism and
information technology.
Another instrument for the US is its natural resources. Apart from having the world’s largest
proven reserves of coal, 22.6 percent of the world’s total, the US also possesses the 14th
largest proven oil reserves and the 6th
largest proven natural gas reserves. Other natural
resources include copper, lead, molybdenum, phosphates, uranium, bauxite, gold, iron, mercury,
nickel, potash, silver, tungsten, zinc, and timber.
However, the most important factor for the US is its population of 310.282 million. Although
this number pales in comparison to India‟s and China‟s billion-plus population, the US has the
world’s best labour force participation rate with 139.396 million workers.
The majority (35.5 percent) of the labour force‟s occupations are managerial, professional or
technical in nature. A further 24.8 percent hold sales or office jobs, 22.6 percent are in either
manufacturing, extraction, transportation and crafts, 0.6 percent are in arming, forestry or
fishing, and 16.5 percent have jobs in other services.
The government has also recently introduced policies aimed at supporting economic growth and
increasing American consumers‟ confidence. Unfortunately, while the Congressional Budget
Office (CBO) expects economic growth to remain moderate in 2011 and 2012, productivity and
employment are likely to stay well below the economy‟s potential for a number of years at least.

10. Economic System of Pakistan
In Pakistan, we have neither of the two extreme systems but our economic system is a via media
compromise of both the systems of capitalistic and socialistic patterns. It can safely be said that it
is a mixed economy.
Concept of Mixed Economy
Mixed Economy is an economic system, which combines in itself the elements of socialism as
well as of capitalism. It is an economic system, which is planned and directed partly by the state
and by private enterprise. Under the “Mixed Capitalist System” or “Mixed Enterprise System”,
both State and private institutions exercise economic control.
Panacea of the Defects of Capitalism and Socialism
A privately owned capitalist system cannot guarantee full employment and elimination of
poverty. It may lead to unequal distribution of wealth and air and water pollution. It produces
trade cycles. i.e. sometimes depression and at other times an inflationary situation. On the other
hand, a government owned business system might stifle innovation and invention. It may not be
quickly responsive to public desired for products and services and may even limit the freedom of
the people. It is so realized that economic development cannot be achieved at the desired rate of
growth without any active government help and guidance. That is why most of the capitalistic
and socialistic economics of world have become mixed economics in order to minimize the evils
of unadulterated capitalism and socialism to accelerate economic growth.
Salient Features of Economic System of Pakistan
1. Co-Existence of the Public and Private Sectors
In the economy both public sector and the private sector function together. In one part are those
industries, the responsibility for the development of which is entrusted to the state and they are
owned and managed by the state. Other industries are left under the authority and control of the
private entrepreneurs. The private sector is free to develop them and start new enterprises in this
sector.
2. Role of Price System And Government Directives
So far as the public sector is concerned, economic decisions relating to production, prices and
investment are made by the government or authorities appointed by the government. In industries
in the private sector, the decisions regarding investment, production, prices, etc, are made by
private entrepreneurs with the object of making maximum profit on the basis of the price system.
3. Government Regulation and Control of Private Sector
In a mixed economy, the government adopts necessary measures to regulate and influence the
private sector, so that it may function in the interests of the nation rather than exclusively in the
interests of the private entrepreneurs.

11. 4. consumer’s Sovereignty Protected
The consumers are free to buy commodities of their choice and the private entrepreneurs produce
commodities according to consumer‟s demand or preferences, although the government can
control their prices in public interest so that they can be prevented from rising unduly high.
Besides, the government can also ration the commodities in short supply so that the limited
available quantities can be fairly distributed.
5. Government Protection of Labour
In a mixed economy, Government saves labour from exploitation by the exploitation by the
capitalists. Several factory acts have been passed to regulate the working conditions of labour.
The government also takes necessary steps to prevent industrial disputes.
6. Reduction of Economic Inequalities
The governments in mixed economics take necessary steps for the reduction of inequalities of
income and wealth for promoting social justice and social stability and social welfare, increasing
production and for providing equal opportunities for all.
7. Control of Monopoly
A charge against monopolies is that they reduce output and raise prices in order to get maximum
profit leading to miss-allocation of productive resources of the community, economic
inequalities, and unemployment and hampering of industrial development.
The government tries to control and regulate monopolies in order to remove the above evils and
make them function in public interest. Also, when the government considers it necessary in
public interest, it takes over monopolies and operates them in public interest.
8. Government Provision of Public Services
The government provides certain indispensable public services without which community life
would be unthinkable and which by their nature cannot appropriately be left to private
enterprises. Examples are the maintenance of national defence, of internal law and order and the
administration of justice etc.

12. Types of Economic System
There are two economic systems
• Capitalism
• Socialism
Capitalism
Capitalism is the economic system in which the means of production are distributed to openly
competing profit-seeking. Capitalism is not merely an economics system but a peculiar attitude
of mind and behavior. Basically it springs out of the notion of the capitalist that he has earned his
wealth by his own ability, skills, knowledge and wisdom.
Some of the features of capitalism are written below.
1. Private persons and where investments, distribution, income, production and pricing of
goods and services are predominantly determined through the operation of a market
economy
2. Capitalism is originally defined as a mode of production, where it is characterized by the
predominant private ownership of the means of production, distribution and exchange in
a mainly market economy
3. Capitalism is usually considered to involve the right of individuals and businesses to
trade, incorporate, and employ workers, in goods, services (including finance), labor and
land.
4. In Capitalism, state action is confined to defining and enforcing the basic rules of the
market though the state may provide a few basic public goods and infrastructure.
5. The most laissez-faire capitalist economies, as measured by indices of economic
freedom, include countries like Hong Kong and Canada .
Socialism
Socialism or communism means an economics system in which the mean of production are
owned by the state. A central directorate controls the production of goods and services. The
directorate decides the nature, quantity, and mood of production of goods. This distribution of
goods is also directed by the central body.
Socialism refers to a broad set of economic theories of social organization advocating state or
collective ownership and administration of the means of production and distribution of goods,
and the creation of an egalitarian society.
Modern socialism originated in the late nineteenth-century working class political movement.
Karl Marx posited that socialism would be achieved via class struggle and a proletarian

13. revolution which represents the transitional stage between capitalism and communism.
Socialists mainly share the belief that capitalism unfairly concentrates power and wealth among
a small segment of society that controls capital and creates an unequal society. All socialists
advocate the creation of an egalitarian society, in which wealth and power are distributed more
evenly, although there is considerable disagreement among socialists over how, and to what
extent this could be achieved
Some features of socialism are written below
1. Socialism is not a discrete philosophy of fixed doctrine and program
2. its branches advocate a degree of social interventionism and economic rationalization,
sometimes opposing each other.
3. Another dividing feature of the socialist movement is the split on how a socialist
economy should be established between the reformists and the revolutionaries.
4. Some socialists advocate complete nationalization of the means of production,
distribution, and exchange;
5. While others advocate state control of capital within the framework of a market economy.
Social democrats propose selective nationalization of key national industries in mixed
economies combined with tax-funded welfare programs.
6. In the 1970s and the 1980s, Yugoslavian, Hungarian, Polish and Chinese Communists
instituted various forms of market socialism combining co-operative and State ownership
models with the free market exchange.
7. This is unlike the earlier theoretical market socialist proposal put forth by Oscar Lange in
that it allows market forces, rather than central planners to guide production and
exchange.
Difference between Islamic economic System and
others (Capitalism and Socialism)
Comparison of Capitalism with Islam:
1. Right to ownership:
The existence of right of private ownership of property is the hallmark of capitalism. The system
believes in the private ownership of the means of production, distribution and exchange which
are managed and controlled by individuals or groups of individuals for private profit. The
unrestricted right to own property and earn profits leads to concentration of wealth in few hands.
This necessarily disturbs the balance of distribution of wealth and income in society. The
economic disparities and the ever-increasing gulf between the rich and the poor sows the seeds
of discord and destruction in the capitalist society.
Islamic concept of ownership is unique one. Ownership, in reality, belongs to God while some
rights only vest in man so that he may fulfill the purpose of God, that is the purpose of
community by acting as a trustee for those in need. In other words, what Allah has created for

14. benefit of and service to man belongs collectively to the whole humanity. Legal ownership by
the individual is recognized in Islam but it is subject to the moral obligation that in all wealth all
sections of society have the right to share. Thus private or individual ownership in Islam is not
unlimited or unrestricted. All the means of production are not placed under private ownership as
public ownership of certain things of common utility exists side by side with it in an Islamic
state. Islamic state has also the right to nationalize certain things which are under private
ownership for the benefit of the community. In this way the limited right of private ownership
with law of inheritance which distributes the estate of the deceased among fairly large number of
heirs averts concentration of wealth in few hands and thus prevents class-conflict.
2. Monopoly:
Competition, which is another feature of capitalism, leads to the destruction of minor enterprises
and firms. This encourages merger of smaller business organizations into major ones and thus
monopolies or cartels are established. Monopolies kill free competition, cause inflation in prices
and ultimately result into unemployment. Thus labor and consumer are both exploited in such a
situation. Moreover, trade-cycles, unplanned production, over-competition, increasing
accumulation of capital upsets the balance between production and consumption which
sometimes leads to economic depressions.
Islam forbids unhealthy competition and bans all the ways which lead to it. Islam also disallows
establishment of monopolies. The Prophet of Islam is reported to have said Whoever monopolies
is a sinner. Especially monopolies over food-stuffs or articles of daily use are forbidden by
Islam. Commodities and services which are of the common interest of the community are never
allowed to be monopolized.
3. Institutions of Interest:
The Institution of banking and interest is the life-blood of capitalistic form of economy. For
business, trade and industry especially for big projects and economic ventures, huge funds are
required which no individual or firm can arrange. This leads to establishment of banks who
borrow capital from depositors and investors on lower rate of interest and lend it to business
enterprises on higher rate of interest. Thus the institution of interest has become part and parcel
of capitalism.
Islam considers interest as the most exploitive institution for humanity and has abolished it root
and branch in its every form and manifestation. According to al-Quran taking of interest
tantamount to war against God and His Apostle, while according to Prophet Muhammad (PBUH)
interest is worse than adultery. Islam builds its economy on interest free basis and promotes
profit and partnership as incentive for saving and investment.

15. Comparison of Socialism with Islam
1. Materialism:
Socialism, especially scientific socialism rests on a purely materialistic basis. Dialectic
materialism or materialistic interpretation of history is the most vital element of Marxism. Marx
has sought to explain every event in history on economic grounds. According to him, origin of
every activity of man lies in economic factors. Marx does not believe in religion which, in his
view, is a bourgeois invention to keep the proletariat under their perpetual control. Engels said :
Matter is the only real thing in the world. The communists believe that human reason is just a
manifestation of matter and soul has no independent existence of its own but is a product of
matter. They hold that all the different stages of human progress are determined by the interplay
of conflicting economic forces alone, thus leaving no place for God‟s will.
Islam is the perfect and final religion revealed by Lord of the universe for the guidance of
mankind. Its foremost aim is to ensure „falah‟ or well-being of humanity in this world and in the
Hereafter. It does not give importance to matter only at the cost of spirit as does a secular
ideology like socialism. Islam believes in the material as well as moral and spiritual welfare of
its followers at micro and macro level. Followers of Islam believe in one God, in all the Prophets
and Holy Scriptures, in the Hereafter, in the moral code and in the universal brotherhood of
mankind.
2.Economic Equality:
Economic equality is another claim of communism although it has never been realized so far. In
theory at least it is claimed that the rights of the individuals in the economic sphere are governed
by the principles of equality. Every individual is provided with the necessaries of life according
to his needs.
Islam, unlike communism, recognizes that there is no equality among human beings as regards
the economic means and possession of worldly wealth. The Quran considers these inequalities
and disparities in the distribution of wealth as part of Divine economic order and, therefore, does
not try to eliminate them by unnatural and artificial means. Islam does not tolerate the existence
of unbridgeable gulf between the rich and the poor, but unlike socialism it does not believe in
equal distribution of wealth. Actually Islam believes in fair, just and equitable distribution of
wealth and in social justice. For ensuring equitable distribution, Islam has taken many steps such
as institution of Zakat and Sadaqat, laws of inheritance and bequest, voluntary alms and levy of
compulsory contributions in the form of taxes and duties

16. Factors affecting world economy in 2012
Global economic growth slowed sharply in 2011 partly due to the European sovereign debt
crisis. Although a global double-dip recession is unlikely, the world economy will face more
uncertainties in 2012 as the debt crisis is still spreading in developed countries.
Whether the European debt crisis can be completely resolved depends on the political will for
European integration. The recent changes of governments in Greece and Italy as well as the
European Union‟s breakthrough in fiscal integration have shown their will to resolve the crisis.
Only with a strong political will can the European Union completely resolve the debt crisis and
eliminate the possibility of a euro area break-up.
The United States has a better economic outlook than Europe. The U.S. government is
reasonably confident about solving its debt problems, and the U.S. property market has shown
signs of bottoming out. In addition, the Japanese economy will grow faster this year due to post-
disaster reconstruction.
Emerging economies will continue to maintain relatively rapid growth and drive global
economic growth. However, due to the weak economic growth in developed countries, emerging
economies face a difficult dilemma between economic growth and inflation.
Since the global financial crisis, emerging economies have been leading world recovery through
massive government intervention, and have suffered heavily from inflation and overheating. Due
to the sovereign debt crisis plaguing developed countries, emerging economies have to loosen
their economic policy again before bringing inflation under complete control. The overheated
domestic economy and sluggish external demand have put emerging economies in a dilemma
between maintaining rapid growth and controlling inflation.
International capital flows may reverse and return from emerging economies to developed
countries. In the second half of 2011, international capitals started flowing from emerging
economies to developed countries, especially the United States. On the one hand, this backflow
probably reflects the hedging character of international capitals. On the other hand, two middle
and long-term factors should be noticed.
First, in order to deal with the sovereign debt crisis, financial organizations of developed
countries have adopted “deleveraging” measures, which lead to sustaining demands for capital
backflows.
Second, the risk from bubbles of emerging countries' capital markets has increased significantly.
Once the international capital backflow turns into a trend, emerging economies' financial systems
may face new impacts.
The bulk commodity prices may continue fluctuating at a high level. Emerging economies will
stimulate their economic developments and serve as engines for the global economy. It will
offset the economic slowdown of developed countries and the world. Meanwhile, quite a few
countries are implementing new stimulus policies. Under the condition of currencies keeping

17. increasing, it is unpractical to expect that bulk commodity prices will decline significantly.
In 2012, the short-term risk of the sovereign debt crisis will not be a big problem, but the middle
and long-term risk of the crisis indeed needs our close attention.
Impact of Terrorism On Pakistan’s Economy
Terrorism has greatly affected the foreign investment in Pakistan. Foreign investment is decline
to $ 910.20 Million from $1.4 Billion in Fy 08-09. Dye to decline in investment poverty and
unemployment rises. Poverty have reached to 41.4% from 37.5% in 2008-09. Due to unstoppable
terrorism acts in Pakistan world bank has blocked two lending key loans of worth $820 Million
till the conditions ameliorate to the paradigm.
Similarly, Terrorism increases the expensive of the forces to meet their needs to fight against
terrorism. Pakistan has received total disbursement of $11,998 Million from US under Coalition
Support Fund (CSF), out of this amount $3,129 Million were economic related aid and security
related aid amounted to $8,869 Million.
In addition, risk of the investors and more troops in Afghanistan deployment by US rise the rish
of investors to invest in Pakistan that cause serious downfall of deposits of banking sector that
shows deposits fell from Rs.3.77 Trillion to Rs3.17 trillion on September 2009.
In 2002, Karachi stock exchange (KSE) was awarded “The best performing stock market of the
world for the year 2002”. Similarly, On December 2007, KSE closed at index of 14,127 points
with capitalization of Rs.4.57 trillion. But after war declared by government within Pakistan
dropped its index to 4,675 points with a market capitalization of Rs.1.58 trillion, a loss of over
65% from its capitalization in 2007.
Furthermore, terrorism also promoted smuggling in Pakistan, due to porous border between
Pakistan and Afghanistan smuggling becomes the source of culprits and expedients for terrorists
to wash their hands from it to meet their financial needs. According to US-Pak business council
report (2009), Pakistan is prime victim of Afghanistan‟s instability and due to which Pakistan
economy has so far suffered directly or indirectly huge loss of $35 Billion.
It becomes necessary for the Pakistan to bottle the gene, before it becomes bigger tin size to
unable to fit in it.