Cooperation is one of the pillars of Islamic economics and is therefore very necessary.
If the problems raised here can be successfully demonstrated, they will introduce a new dimension to economic analysis.
Islamic Recommendations and Incentives for Working Together
The development of Islamic thought, beliefs and behavior has occurred gradually over time and based on the teachings of the Qur’an.
Instead of only relying on limited and imperfect human understanding and wrong interpretations, we are referring to the Qur’an itself, which provides norms and reference values, the basis of Islamic behavior, which has evolved endogenously over time.
As noted by Tabellini:
While the traditional economic approach has produced important insights, it missed an important dimension. In many social situations, individuals behave contrary to their direct material interests, not because of intertemporal calculus regarding benefits and costs, but because they have internalized norms of good behavior. Where we refrain from stealing or cheating in economic transactions is also determined by our values and beliefs about what is right or wrong (Tabellini, 2007).
The importance of this problem cannot be overstated.
In this case Tabellini further observed that:
Until recently and with a few exceptions, economists generally refrained from asking these questions and had accepted the division of labor … The main product of this division of labor was that, until recently, analysis of norms social generally has escaped the discipline of individualism-methodological, economic paradigms.
Such oversight has had a substantial impact.
As Professor Tabellini notes further:
The norms of limited morality can only be applied to a narrow circle of friends and relatives … The norms of general morality are not meant to be applied generally to everyone. Individuals who have generalization morality norms tend to work together in larger situations.
For Muslims, the Qur’an is the most comprehensive of all books, from which all general moral norms are derived.
The process begins with the values chosen by parents to pass on to their children, and this is reinforced by the values of the prevailing social environment.
These values continue to shape the behavior of a Muslim to death.
Muslims believe the Qur’anic statement that “He [Allah] never breaks His promises” (Qur’an, 2: 8).
God is flawless and, more importantly, does not need His creatures in any form.
He is “the Eternal, Absolute” (Qur’an, 112: 2) and from him comes the general morality that forms the basis of Islam.
As correctly noted by Tabellini:
If more individuals follow the norm of general morality, then those who adhere to this norm are encouraged to expand the scope of cooperation.
Incentive System Taxonomy
Scheme peer-to-peer , multi-agency schemes and network ad hoc aims to exploit synergies arising from the cooperation.
However, this system consists of autonomous entities that are free to cooperate or not.
Economic analysis allows us to emphasize that in human society, incentives are indispensable to encourage cooperation between autonomous entities that compare their own profits and costs.
All forms of collective work have central concepts and problems such as participant autonomy and coordination.
There is also an awareness that teamwork produces synergy through the emergence of system behavior that is stronger than the sum of individual abilities.
When the number of participants increases, the synergies that are produced increase exponentially.
Incentive patterns are patterns that stimulate cooperation.
If the characteristics of each incentive pattern, which are basically trust based, are well explained to the players, the scheme can be understood more systematically by taking into account the results that directly affect the players.
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- Islamic Finance in Practice
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Incentive patterns stimulate players to act as direct participants.
Responses and roles of cooperative entities (cooperatives or players) are not necessarily even and symmetrical.
It may take time for each and every cooperative to see how their cooperative actions affect the results.
Incentive schemes have an important role to ensure symmetry and fairness for different players.
Remuneration must be judged fairly by the players, who are considered fair judges, especially in the long run.
Any unjust remuneration fails to be effective, at least in the long run.
Unlike remuneration in production, remuneration in consumption – such as those related to alms, infaq and qardhul hasan– basically non-money and directly influenced by player psychology.
This has to do with the player’s utility function, the amount of which cannot be measured.
Each player has individual preferences and can provide higher utility for certain things than other players.
Also, such remuneration cannot be saved by the player; rather it is part of the environment and the norms adopted by the players.
The consumption cooperation and the production cooperation are complementary that if production is a collective action, which means, consumption can also be collective.
