THE ROLE OF GOVERNMENT IN THE ECONOMY

Abstract

Introduction
The recent past has seen fundamental changes in the government’s
role in the economy. With the defeat of socialism and the worldwide
onslaught of privatization, a new scenario is emerging. The direct role
of government is shrinking and its indirect role is increasing. Arguably,
privatization does not necessarily mean “no government,” but rather
“better government.” As a result, the following new issues are emerging:
What is the extent and nature of government regulation in the
economy? How can government play an effective role in the redistribution
of economic power and still keep the free market economy undisturbed?
What structural changes are necessary to protect the public
interest? How can government itself be regulated? How can we prevent
government from becoming an instrument of injustice and tyranny?
The present paper seeks to discuss these questions from the Islamic
perspective.
Need for Government
We need government to provide the fundamental legal and social
framework for a free market economy. This framework implies necessary
laws that define the property and other rights, enforce contracts,
and describe the status and form of various business organizations. We
need government to define the rules of the game. Through legislation
the government acts as a referee and forbids foul play. It prohibits
cheating and the sale of adulterated foods and drugs; it establishes ...