For many in the Muslim world
Multinational companies such as Coca Cola, McDonalds, ExxonMobil and General
Electric represent awe inspiring success stories of Capitalism. Their global
reach, thousands of workers and the ability to mobilise resources and people
who churn out billions in profits every year for many are aspects of the West
that demand imitation. The Muslim rulers regularly distribute contracts to
foreign companies who extract oil, minerals, build infrastructure, hospitals,
and provide services such as banking and insurance as well as production plants
which produce food and goods. Saudi Basic Industries, Saudi Arabia's chemical
organisation, is the 157th largest company in the world and the only
company from the Muslim world to make the famous Forbes list with assets of
$36 billion.
Companies have been around for a few
centuries, the earliest of which existed around the sixteenth century in
England and Holland. Originally a corporation (as they were known at the time)
was a social invention of the state. That is, a state grants a corporate
charter, permitting private financial resources being used for public purposes.
This initial creation of private finance and merchants was to aid in the
colonial expansion of Britain and served to expand colonial and imperial
interests to start with, as well as help in war efforts between empires.
Corporations had therefore the potential, from the onset, to become very
powerful. Even Abraham Lincoln recognized this: "I see in the near
future a crisis approaching that unnerves me and causes me to tremble for the
safety of my country. ... corporations have been enthroned and an era of
corruption in high places will follow, and the money power of the country will
endeavour to prolong its reign by working upon the prejudices of the people
until all wealth is aggregated in a few hands and the Republic is destroyed."[1]
As long-distance trade continued to
grow, this also gave rise to corporations. Shareholding broke down the social
barriers among different classes of merchants and enabled individuals to divide
their goods among ships destined for different ports. No longer was
international trade limited to those who could afford to travel. Such companies
although created by the state were privately owned and managed, held national
monopolies over trade with certain regions. The industrial revolution made
Europe the centre for international trade. The growth of industrial production
was accompanied by a rapid expansion of trade. To ensure this status quo
remained nations began to use the corporations to dominate international trade.
In the 17th century making money became the major focus for corporations. Their
wealth was used to finance European colonial expansion. Companies were used by
the imperial powers to maintain control of trade, resources and territory in Asia,
Africa, and the Americas.
The first of such companies was the
East India Company, set up by British merchant adventurers and granted the
Royal Charter of Queen Elizabeth I in 1600. Partners combined their personal
stock, turning it into company stock to create the world's first commercial
corporation. It shipped out gold and silver to Asia in return for spices,
textiles and luxury goods. The East India Company expanded into a vast
enterprise, conquering the Al Hind region (India) with a total monopoly on
trade and all the territorial powers of a government. At its height, it ruled
over a fifth of the world's population with a private army of a quarter of a
million. In America, resentment was brewing against British rule, including
corporations that ran American colonies with ruthless monopoly powers. Royal
charters decreed that raw material was shipped from the colonies to Britain for
manufacture, with the colonies forced to purchase the finished goods. The
American Revolutionary War began in 1776 with a determination to root out the
British.
In 1886 a landmark decision was made by
a US court recognizing the corporation as a ‘natural person' under law. The
14th amendment to the Constitution: ‘no state shall deprive any person of life,
liberty or property' - adopted to protect emancipated slaves in the hostile
South - was used to defend corporations and strike down regulations. Relying
on the Fourteenth Amendment, added to the Constitution in 1868 to protect the
rights of freed slaves, the Court ruled that a private corporation is a natural
person under the US Constitution, and consequently has the same rights and
protection extended to persons by the Bill of Rights, including the right to
free speech. Thus corporations were given the same "rights" to
influence the government in their own interests as were extended to individual
citizens, paving the way for corporations to use their wealth to dominate
public thought and debate. The debates in the United States in the 1990s over
campaign finance reform, in which corporate bodies can "donate"
millions of dollars to political candidates stem from this ruling although
rarely if ever is that mentioned. Thus, corporations, as "persons,"
were free to lobby legislatures, use the mass media, establish educational
institutions such as many business schools founded by corporate leaders in the
early twentieth century, found charitable organizations to convince the public
of their lofty intent, and in general construct an image that they believed
would be in their best interests. All of this in the interest of "free
speech" and arguably set the stage for the full-scale development of the
culture of Capitalism, by handing to corporations the right to use their
economic power in a way they never had before.
Today much criticism and debate is
taking place to the role companies' play in national economies and in the Third
world. There influence and control of resources are seen as the most prominent
aspect of modern day colonialism. The rights afforded to them make them very
powerful and able to influence policies in foreign countries. Many western
companies have benefited immensely from IMF and world bank conditions on
creating free markets and privatizing key industries which foreign
multinationals have been all to happy to snap up. In the pursuit of corporate
interests wide scale abuse and corruption have commonly been uncovered by
western multinationals in the third world. In March 2003, James Giffen of the
Mercator Corporation was indicted, accused of bribing President Nursultan
Nazarbayev of Kazakhstan with $78 million to help ExxonMobil win a 25 percent share
of the Tengiz oilfield, the third largest in the world. In June 2001 a lawsuit
against ExxonMobil was filed in the Federal District Court of the District of
Columbia under the Alien Tort Claims Act. The suit alleges that
ExxonMobil knowingly assisted human rights violations, including torture,
murder and rape, by employing and providing material support to the Indonesian
military forces, who committed the alleged offences during civil unrest in
Aceh.[2]
Companies in Islam
Islam has laid down rules for ownership
and designated various rules for when individuals come together and distribute
profits amongst themselves. This is different to employment (Ijara)
where one is compensated for the use of their skill or labour in the form of
wages or a salary.
In the Khilafah companies will operate
in pre-determined spheres of the economy, due to Islam designating any utility
regarded as indispensable for the community, such that its absence would
require people to search far and wide for it, as a public property. This
means the utilities would be publicly owned and the revenue generated would be
administered for the benefit of all citizens. This is derived from the hadith
of the Prophet (SAW) "Muslims are partners in three things: in water,
pastures and fire". This means ownership of key
utilities will always remain with the state; however the extraction,
development, refining or construction can be undertaken by companies who will
be paid for such a contract. This will ensure the Khilafah becomes self sufficient
and not reliant on foreign companies.
In all other sectors of the economy
companies can operate freely without any intervention by the state, individuals
can come together to fulfill any need in the economy.
A Company (Sharikah) is
essentially a contract where people come together and instead of paying
themselves a salary they distribute the profits amongst themselves. In origin a
company is a contractual matter and Islam has laid out detailed rules for
contracts. In Islamic contracts there must be an offer and acceptance between
partners over something i.e. over the thing they will trade in. Thus there are
always two parties or more in the formation of a company. The work they do
forms the subject matter of the contract because this is the reason they have
some together. One of them as a minimum must be able to dispose on behalf of
the company i.e. make purchases, dispose of assets etc, as a result Islamic
companies came to be defined as the following:
1.
The Company of Equals (Al-'Inan)
this is where both partners put their money into a business
and work with it. Both partners would have the right to buy and sell and take
the company forward, hence all partners are all equal in their deposal.
2.
The Company of Bodies (Al-Abdan)
this is where two or more people come together with their
skills such as a consultant, doctor or craftsmen. Although they use their
money, the skill they have is what constitutes the basis of the company.
3.
The Company of Body and Capital (Mudharaba)
this is where one funds the capital of the business and the
other partner works with it. The partner who provides the capital element is a
silent partner and takes no part in the running of the business. The other
partner buys and sells on behalf of the company.
4.
The Company of Reputation (Wujooh)
this is a company similar to madharabah but the capital is
provided by a silent partner who has respect and standing and based upon this
the company trades. The partner could be a rich merchant, which would mean
debts will always be paid by this company as they are backed by a wealthy
individual.
5.
Company of Negotiation (Mufawadha)
this is any combination of the above.
An Islamic company can be summarised as
follow:
- The Sharika (Company) is an agreement between two or more people to do some type of work in order to make profit. So one partner usually provides the capital and the other works with it. Sole proprietors are allowed in Islam and this would be the investing of an individual's wealth.
- The Company and its partners are one unit, not separate, it is their personal wealth which is the capital of the business, and upon this the contract was formed.
- The profit distribution ratio can be decided according to what is agreed in the contract i.e. 50/50, 40/60 etc whilst the loss is distributed relative to the amount each partner invests in the business, thus if only two people owned a company, and the company failed with debts of $15 billion, the partner who contributed 40% of the capital would need to pay 40% of this debt. A partner's liability will not be limited to the amount put in; thus there is no limited liability in Islam.
Understanding this shows us there are
some fundamental differences between the corporations in the West compared to
companies in Islam. Fundamentally this is down to two core issues:
The corporation represents a particular
type of contract in the West. The ‘Solitary Will' is where an individual agrees
to the written constitution of a company by purchasing its shares with no
formal offer from anyone. This came to be termed as the Individual Will whereby
shares could be exchanged very quickly without the need for two people to
continuously sit down and have a formal offer and acceptance. An example of
this is the take-over bid of the world's richest football club, Manchester
United FC by Malcolm Glazier. He imposed his will on the company (i.e. he
brought shares) and even though other shareholders were against such an action
it was a valid form of acquiring ownership from a legal perspective even though
there was only one person in the contract (acceptance but no offer).
Most contracts involve two parties
where one party offers terms and the other accepts, however under corporate law
in the West setting up a business is a contract of ‘solitary will.' It is not a
contract between two or more people, rather it is an agreement that all agree
to when they subscribe for shares in the company. So an individual joins
himself to the conditions of a company - through purchasing their shares. This
means to become a partner one does not actually need to seek the permission of
the owners.
This contradicts Islam as a company is
a contract between two people over terms; in corporate law in the West they see
giving charity, claiming insurance and the setting up of a company and trade as
the same type of contract. In Islam these are viewed as different types
of contracts.
According to corporate law in the West
once a company has fulfilled all the legal requirements it is then established
and the partners become separate to the company as the company become ‘a legal
entity in its own right.' This means a company is a physical person and liable
to pay its own tax and can be taken to court and sued. This evolved from a
number of incidents that occurred in history but fundamentally if one was to
take McDonalds to court, the wealth of the shareholders, the employees or the
directors will not be held in contempt, this intangible person called McDonalds
is on trial.
This contradicts Islam as the partners
are the company; if the company is taken to court it is the partners that are
liable. The corporation takes all personal elements away from the company thus
in the case a company goes bankrupt the owners only lose what they put in and
no more and all those who are owed debt will not receive anything.
From this short exposition it can be
seen there are some fundamental differences between companies in Islam and
those in the West, the structure of the corporation in the West fundamentally
disagrees with the Islamic rules of company structures, this would make the
purchase of shares in them invalid as well as the shares represents a piece of
the company and the company is invalid from Islam.
Below are some facts and statistics on
the influence of corporations in the West:
1.
Of the 100 largest economies in the
world, 51 are corporations; only 49 are countries (based on a comparison of
corporate sales and country GDPs).
2.
The Top 200 corporations' sales are
growing at a faster rate than overall global economic activity. Between 1983
and 1999, their combined sales grew from the equivalent of 25.0 percent to 27.5
percent of World GDP.
3.
The Top 200 corporations' combined
sales are bigger than the combined economies of all countries minus the biggest
10.
4.
The Top 200s' combined sales are 18
times the size of the combined annual income of the 1.2 billion people (24
percent of the total world population) living in "severe" poverty.
5.
While the sales of the Top 200 are the
equivalent of 27.5 percent of world economic activity, they employ only 0.78
percent of the world's workforce.
6.
Between 1983 and 1999, the profits of
the Top 200 firms grew 362.4 percent, while the number of people they employ
grew by only 14.4 percent.
7.
A full 5 percent of the Top 200s'
combined workforce is employed by Wal-Mart, a company notorious for
union-busting and widespread use of part-time workers to avoid paying benefits.
The discount retail giant is the top private employer in the world, with
1,140,000 workers, more than twice as many as No. 2, DaimlerChrysler, which
employs 466,938.
8.
US corporations dominate the Top 200,
with 82 slots (41 percent of the total). Japanese firms are second, with only
41 slots.
9.
Of the US corporations on the list, 44
did not pay the full standard 35 percent federal corporate tax rate during the
period 1996-1998. Seven of the firms actually paid less than zero in federal
income taxes in 1998 (because of rebates). These include: Texaco, Chevron,
PepsiCo, Enron, WorldCom, McKesson and the world's biggest corporation -
General Motors.
10. Between
1983 and 1999, the share of total sales of the Top 200 made up by service
sector corporations increased from 33.8 percent to 46.7 percent. Gains were
particularly evident in financial services and telecommunications sectors, in
which most countries have pursued deregulation.
Top 200: The Rise of Corporate Global
Power, Institute for Policy Studies
[1] U.S. President Abraham Lincoln,
Nov. 21, 1864 (letter to Col. William F. Elkins) "The Lincoln
Encyclopedia", Archer H. Shaw (Macmillan, 1950, NY)
Or,
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