Business

From Wikipedia, the free encyclopedia

A business (company, enterprise or firm) is a legally recognized organization designed to provide goods or services, or both, to consumers, businesses and governmental entities. Businesses are predominant in capitalist economies. Most businesses are privately owned. A business is typically formed to earn profit that will increase the wealth of its owners and grow the business itself. The owners and operators of a business have as one of their main objectives the receipt or generation of a financial return in exchange for work and acceptance of risk. Notable exceptions include cooperative enterprises and state-owned enterprises. Businesses can also be formed not-for-profit or be state-owned.

The etymology of "business" relates to the state of being busy either as an individual or society as a whole, doing commercially viable and profitable work. The term "business" has at least three usages, depending on the scope — the singular usage (above) to mean a particular company or corporation, the generalized usage to refer to a particular market sector, such as "the music business" and compound forms such as agribusiness, or the broadest meaning to include all activity by the community of suppliers of goods and services. However, the exact definition of business, like much else in the philosophy of business, is a matter of debate and complexity of meanings.

Basic forms of ownership

Although forms of business ownership vary by jurisdiction, there are several common forms:

• Sole proprietorship: A sole proprietorship is a business owned by one person. The owner may operate on his or her own or may employ others. The owner of the business has personal liability of the debts incurred by the business.
• Partnership: A partnership is a form of business in which two or more people operate for the common goal which is often making profit. In most forms of partnerships, each partner has personal liability of the debts incurred by the business. There are three typical classifications of partnerships: general partnerships, limited partnerships, and limited liability partnerships.
• Corporation: A corporation is either a limited or unlimited liability entity that has a separate legal personality from its members. A corporation can be organized for-profit or not-for-profit. A corporation is owned by multiple shareholders and is overseen by a board of directors, which hires the business's managerial staff. In addition to privately owned corporate models, there are state-owned corporate models.
• Cooperative: Often referred to as a "co-op", a cooperative is a limited liability entity that can organize for-profit or not-for-profit. A cooperative differs from a corporation in that it has members, as opposed to shareholders, who share decision-making authority. Cooperatives are typically classified as either consumer cooperatives or worker cooperatives. Cooperatives are fundamental to the ideology of economic democracy.

For a country-by-country listing of legally recognized business forms, see Types of business entity.

Classifications

Wall Street, Manhattan is the location of the New York Stock Exchange and is often used as a symbol for the world of business.

There are many types of businesses, and because of this, businesses are classified in many ways. One of the most common focuses on the primary profit-generating activities of a business:

• Agriculture and mining businesses are concerned with the production of raw material, such as plants or minerals.
• Financial businesses include banks and other companies that generate profit through investment and management of capital.
• Information businesses generate profits primarily from the resale of intellectual property and include movie studios, publishers and packaged software companies.
• Manufacturers produce products, from raw materials or component parts, which they then sell at a profit. Companies that make physical goods, such as cars or pipes, are considered manufacturers.
• Real estate businesses generate profit from the selling, renting, and development of properties, homes, and buildings.
• Retailers and Distributors act as middle-men in getting goods produced by manufacturers to the intended consumer, generating a profit as a result of providing sales or distribution services. Most consumer-oriented stores and catalogue companies are distributors or retailers. See also: Franchising
• Service businesses offer intangible goods or services and typically generate a profit by charging for labor or other services provided to government, other businesses, or consumers. Organizations ranging from house decorators to consulting firms, restaurants, and even entertainers are types of service businesses.
• Transportation businesses deliver goods and individuals from location to location, generating a profit on the transportation costs
• Utilities produce public services, such as heat, electricity, or sewage treatment, and are usually government chartered.

There are many other divisions and subdivisions of businesses. The authoritative list of business types for North America is generally considered to be the North American Industry Classification System, or NAICS. The equivalent European Union list is the NACE.

Management

The efficient and effective operation of a business, and study of this subject, is called management. The main branches of management are financial management, marketing management, human resource management, strategic management, production management, service management and information technology management.

Reforming State Enterprises

In recent decades, assets and enterprises that were run by various states have been modeled after business enterprises. In 2003, the People's Republic of China reformed 80% of its state-owned enterprises and modeled them on a company-type management system. Many state institutions and enterprises in China and Russia have been transformed into joint-stock companies, with part of their shares being listed on public stock markets.

Organizing

The major factors affecting how a business is organized are usually:

The Bank of England in Threadneedle Street, London, England.

• The size and scope of the business, and its anticipated management and ownership. Generally a smaller business is more flexible, while larger businesses, or those with wider ownership or more formal structures, will usually tend to be organized as partnerships or (more commonly) corporations. In addition a business that wishes to raise money on a stock market or to be owned by a wide range of people will often be required to adopt a specific legal form to do so.
• The sector and country. Private profit making businesses are different from government owned bodies. In some countries, certain businesses are legally obliged to be organized in certain ways.
• Limited liability. Corporations, limited liability partnerships, and other specific types of business organizations protect their owners or shareholders from business failure by doing business under a separate legal entity with certain legal protections. In contrast, unincorporated businesses or persons working on their own are usually not so protected.
• Tax advantages. Different structures are treated differently in tax law, and may have advantages for this reason.
• Disclosure and compliance requirements. Different business structures may be required to make more or less information public (or reported to relevant authorities), and may be bound to comply with different rules and regulations.

Many businesses are operated through a separate entity such as a corporation or a partnership (either formed with or without limited liability). Most legal jurisdictions allow people to organize such an entity by filing certain charter documents with the relevant Secretary of State or equivalent and complying with certain other ongoing obligations. The relationships and legal rights of shareholders, limited partners, or members are governed partly by the charter documents and partly by the law of the jurisdiction where the entity is organized. Generally speaking, shareholders in a corporation, limited partners in a limited partnership, and members in a limited liability company are shielded from personal liability for the debts and obligations of the entity, which is legally treated as a separate "person." This means that unless there is misconduct, the owner's own possessions are strongly protected in law, if the business does not succeed.

Where two or more individuals own a business together but have failed to organize a more specialized form of vehicle, they will be treated as a general partnership. The terms of a partnership are partly governed by a partnership agreement if one is created, and partly by the law of the jurisdiction where the partnership is located. No paperwork or filing is necessary to create a partnership, and without an agreement, the relationships and legal rights of the partners will be entirely governed by the law of the jurisdiction where the partnership is located.

A single person who owns and runs a business is commonly known as a sole proprietor, whether he or she owns it directly or through a formally organized entity.

A few relevant factors to consider in deciding how to operate a business include:

1. General partners in a partnership (other than a limited liability partnership), plus anyone who personally owns and operates a business without creating a separate legal entity, are personally liable for the debts and obligations of the business.
2. Generally, corporations are required to pay tax just like "real" people. In some tax systems, this can give rise to so-called double taxation, because first the corporation pays tax on the profit, and then when the corporation distributes its profits to its owners, individuals have to include dividends in their income when they complete their personal tax returns, at which point a second layer of income tax is imposed.
3. In most countries, there are laws which treat small corporations differently than large ones. They may be exempt from certain legal filing requirements or labor laws, have simplified procedures in specialized areas, and have simplified, advantageous, or slightly different tax treatment.
4. To "go public" (sometimes called IPO) -- which basically means to allow a part of the business to be owned by a wider range of investors or the public in general—you must organize a separate entity, which is usually required to comply with a tighter set of laws and procedures. Most public entities are corporations that have sold shares, but increasingly there are also public LLCs that sell units (sometimes also called shares), and other more exotic entities as well (for example, REITs in the USA, Unit Trusts in the UK). However, you cannot take a general partnership "public."

Commercial law

Offices in the Los Angeles Downtown Financial District

Most commercial transactions are governed by a very detailed and well-established body of rules that have evolved over a very long period of time, it being the case that governing trade and commerce was a strong driving force in the creation of law and courts in Western civilization.

As for other laws that regulate or impact businesses, in many countries it is all but impossible to chronicle them all in a single reference source. There are laws governing treatment of labor and generally relations with employees, safety and protection issues (Health and Safety), anti-discrimination laws (age, gender, disabilities, race, and in some jurisdictions, sexual orientation), minimum wage laws, union laws, workers compensation laws, and annual vacation or working hours time.

In some specialized businesses, there may also be licenses required, either due to special laws that govern entry into certain trades, occupations or professions, which may require special education, or by local governments. Professions that require special licenses range from law and medicine to flying airplanes to selling liquor to radio broadcasting to selling investment securities to selling used cars to roofing. Local jurisdictions may also require special licenses and taxes just to operate a business without regard to the type of business involved.

Some businesses are subject to ongoing special regulation. These industries include, for example, public utilities, investment securities, banking, insurance, broadcasting, aviation, and health care providers. Environmental regulations are also very complex and can impact many kinds of businesses in unexpected ways.

Capital

Mexican Stock Exchange in Paseo de la Reforma, Mexico City

When businesses need to raise money (called 'capital'), more laws come into play. A highly complex set of laws and regulations govern the offer and sale of investment securities (the means of raising money) in most Western countries. These regulations can require disclosure of a lot of specific financial and other information about the business and give buyers certain remedies. Because "securities" is a very broad term, most investment transactions will be potentially subject to these laws, unless a special exemption is available.

Capital may be raised through private means, by public offer (IPO) on a stock exchange, or in many other ways. Major stock exchanges include the Shanghai Stock Exchange, Singapore Exchange, Hong Kong Stock Exchange, New York Stock Exchange and Nasdaq (USA), the London Stock Exchange (UK), the Tokyo Stock Exchange (Japan), and so on. Most countries with capital markets have at least one.

Business that have gone "public" are subject to extremely detailed and complicated regulation about their internal governance (such as how executive officers' compensation is determined) and when and how information is disclosed to the public and their shareholders. In the United States, these regulations are primarily implemented and enforced by the United States Securities and Exchange Commission (SEC). Other Western nations have comparable regulatory bodies. The regulations are implemented and enforced by the China Securities Regulation Commission (CSRC), in China. In Singapore, the regulation authority is Monetary Authority of Singapore (MAS), and in Hong Kong, it is Securities and Futures Commission (SFC).

As noted at the beginning, it is impossible to enumerate all of the types of laws and regulations that impact on business today. In fact, these laws have become so numerous and complex, that no business lawyer can learn them all, forcing increasing specialization among corporate attorneys. It is not unheard of for teams of 5 to 10 attorneys to be required to handle certain kinds of corporate transactions, due to the sprawling nature of modern regulation. Commercial law spans general corporate law, employment and labor law, healthcare law, securities law, M&A law (who specialize in acquisitions), tax law, ERISA law (ERISA in the United States governs employee benefit plans), food and drug regulatory law, intellectual property law (specializing in copyrights, patents, trademarks and such), telecommunications law, and more.

In Thailand, for example, it is necessary to register a particular amount of capital for each employee, and pay a fee to the government for the amount of capital registered. There is no legal requirement to prove that this capital actually exists, the only requirement is to pay the fee. Overall, processes like this are detrimental to the development and GDP of a country, but often exist in "feudal" developing countries.

Intellectual property

Businesses often have important "intellectual property" that needs protection from competitors for the company to stay profitable. This could require patents or copyrights or preservation of trade secrets. Most businesses have names, logos and similar branding techniques that could benefit from trademarking. Patents and copyrights in the United States are largely governed by federal law, while trade secrets and trademarking are mostly a matter of state law. Because of the nature of intellectual property, a business needs protection in every jurisdiction in which they are concerned about competitors. Many countries are signatories to international treaties concerning intellectual property, and thus companies registered in these countries are subject to national laws bound by these treaties.

Islamic economic jurisprudence

From Wikipedia, the free encyclopedia

Islamic economics refers to the body of Islamic studies literature that "identifies and promotes an economic order that conforms to Islamic scripture and traditions," and in the economic world an interest-free Islamic banking system, grounded in Sharia's condemnation of interest (Riba). The literature originated in "the lates 1940s, and especially" after "the mid-1960s." The banking system developed during the 1970s. Islamic economic literatures' central features have been called "behavioral norms" derived from the Quran and Sunna, zakat tax as the basis of Islamic fiscal policy and prohibition of interest.

In Shia Islam, some scholars such as Mahmoud Taleghani, and Mohammad Baqir al-Sadr, have developed an "Islamic economics" emphasizing the uplifting of the deprived masses, a major role for the state in matters such as circulation and equitable distribution of wealth, and ensuring participants in the marketplace are rewarded for being exposed to risk and/or liability.

Islamists movements and authors generally describe an Islamic economic system as neither Socialist nor Capitalist, but a "third way" with none of the drawbacks of the other two systems.

History

Main article: Islamic economics in the world

Traditional Islamic concepts having to do with economics included

• zakat - the "taxing of certain goods, such as harvest, with an eye to allocating these taxes to expenditures that are also explicitly defined, such as aid to the needy."
• Gharar - "the interdiction of chance ... that is, of the presence of any element of uncertainty, in a contract (which excludes not only insurance but also the lending of money without participation in the risks)"
• Riba - "referred to as usury (modern Islamic economist have consensus that it does not refer to usury only rather Riba is any kind of interest)"

These concepts, like others in Islamic law, came from the "prescriptions, anecdotes, examples, and words of Muhammad, all gathered together and systematized by commentators according to an inductive, casuistic method." Sometimes other sources such as al-urf, (the custom), al-aql (reason) or al-ijma (consensus of the jurists) were employed.

In addition, Islamic law has developed areas of law that correspond to secular laws of contracts and torts.

Early reforms under Islam

Main article: Early reforms under Islam

Some argue early Islamic theory and practice formed a "coherent" economic system with "a blueprint for a new order in society, in which all participants would be treated more fairly". Michael Bonner, for example, has written that an "economy of poverty" prevailed in Islam until 13th and 14th century. Under this system God's guidance made sure the flow of money and goods was "purified" by being channeled from those who had much of it to those who had little by encouraging zakat (tax) and discouraging riba (usury/interest) on loans. Bonner maintains Muhammad also helped poor traders by allowing only tents, not permanent buildings in the market of Medina, and not charging fees and rents there.

Classical Muslim economic thought

Statue of Ibn Khaldoun in Tunis

Main article: Islamic economics in the world

To some degree, the early Muslims based their economic analyses on the Qur'an (such as opposition to riba, meaning usury/interest), and from sunnah, the sayings and doings of Muhammad.

Perhaps the most well known Islamic scholar who wrote about economics was Ibn Khaldun (1332–1406), who is considered a father of modern economics. Ibn Khaldun wrote on economic and political theory in the introduction, or Muqaddimah (Prolegomena), of his History of the World (Kitab al-Ibar). In the book, he discussed what he called asabiyya (social cohesion), which he sourced as the cause of some civilizations becoming great and others not. Ibn Khaldun felt that many social forces are cyclic, although there can be sudden sharp turns that break the pattern. His idea about the benefits of the division of labor also relate to asabiyya, the greater the social cohesion, the more complex the successful division may be, the greater the economic growth. He noted that growth and development positively stimulates both supply and demand, and that the forces of supply and demand are what determines the prices of goods. He also noted macroeconomic forces of population growth, human capital development, and technological developments effects on development. In fact, Ibn Khaldun thought that population growth was directly a function of wealth.

Other important early Muslim scholars who wrote about economics include Abu Hanifah, Abu Yusuf (731-798), Ishaq bin Ali al-Rahwi (854–931), al-Farabi (873–950), Qabus (d. 1012), Ibn Sina (Avicenna) (980–1037), Ibn Miskawayh (b. 1030), al-Ghazali (1058–1111), al-Mawardi (1075–1158), Nasīr al-Dīn al-Tūsī (1201–1274), Ibn Taimiyah (1263–1328) and al-Maqrizi.

Economy in the Caliphate

During the Arab Agricultural Revolution, a social transformation took place as a result of changing land ownership giving individuals of any gender, ethnic or religious background the right to buy, sell, mortgage and inherit land. Based on the Quran, signatures were required on contracts for major financial transactions concerning agriculture, industry, commerce, and employment. Copies of the contract were usually kept by both parties involved.

There are similarities between Islamic economics and leftist or socialist economic policies. Islamic jurists have argued that privatization of the origin of oil, gas, and other fire-producing fuels, agricultural land, and water is forbidden. The principle of public or joint ownership has been drawn by Muslim jurists from the following hadith of the Prophet of Islam:

Ibn Abbas reported that Muhammad said: "All Muslims are partners in three things- in water, herbage and fire." (Narrated in Abu Daud, & Ibn Majah) Anas added to the above hadith, "Its price is Haram (forbidden)" Jurists have argued by qiyas that the above restriction on privatization can be extended to all essential resources that benefit the community as a whole.

Aside from similarities to socialism, early forms of proto-capitalism and free markets were present in the Caliphate. An early market economy and early form of merchant capitalism developed between the 8th and 12th centuries. A vigorous monetary economy developed based on the wide circulation of a common currency (the dinar) and the integration of previously independent monetary areas. Business techniques and forms of business organization employed during this time included early contracts, bills of exchange, long-distance international trade, early forms of partnership (mufawada) such as limited partnerships (mudaraba), and early forms of credit, debt, profit, loss, capital (al-mal), capital accumulation (nama al-mal), circulating capital, capital expenditure, revenue, cheques, promissory notes, trusts (waqf), savings accounts, transactional accounts, pawning, loaning, exchange rates, bankers, money changers, ledgers, deposits, assignments, the double-entry bookkeeping system, and lawsuits. Organizational enterprises similar to corporations independent from the state also existed in the medieval Islamic world. Many of these concepts were adopted and further advanced in medieval Europe from the 13th century onwards.

The concepts of welfare and pension were present in early Islamic law as forms of Zakat one of the Five Pillars of Islam, since the time of the Rashidun caliph Umar in the 7th century. The taxes (including Zakat and Jizya) collected in the treasury (Bayt al-mal) of an Islamic government were used to provide income for the needy, including the poor, the elderly, orphans, widows, and the disabled. According to the Islamic jurist Al-Ghazali (Algazel, 1058–1111), the government was also expected to stockpile food supplies in every region in case a disaster or famine occurred. The Caliphate was thus one of the earliest welfare states.

Post-colonial era

During the modern post-colonial era, as Western ideas, including Western economics, began to influence the Muslim world, some Muslim writers sought to produce an Islamic discipline of economics. Because Islam is "not merely a spiritual formula but a complete system of life in all its walks", these writers believed that it should logically follow that Islam also had its own economic system unique from and superior to non-Islamic systems. To date, however, there have been no agreement as to the methodological definition and scope of Islamic Economics.

In the 1960s and 70s Shia Islamic thinkers worked to develop a unique Islamic economic philosophy with "its own answers to contemporary economic problems." Several works were particularly influential,

• Eslam va Malekiyyat (Islam and Property) by Mahmud Taleqani (1951),
• Iqtisaduna (Our Economics) by Mohammad Baqir al-Sadr (1961) and
• Eqtesad-e Towhidi (The Economics of Divine Harmony) by Abolhassan Banisadr (1978)
• Some Interpretations of Property Rights, Capital and Labor from Islamic Perspective by Habibullah Peyman (1979).

Al-Sadr in particular has been described as having "almost single-handedly developed the notion of Islamic economics"

In their writings Sadr and the other authors "sought to depict Islam as a religion committed to social justice, the equitable distribution of wealth, and the cause of the deprived classes," with doctrines "acceptable to Islamic jurists", while refuting existing non-Islamic theories of capitalism and Marxism. This version of Islamic economics, which influenced the Iranian Revolution, called for public ownership of land and of large "industrial enterprises," while private economic activity continued "within reasonable limits." These ideas helped shape the large public sector and public subsidy policies of the Iranian Revolution.

In the 1980s and 1990s, as the Islamic revolution failed to reach the per capita income level achieved by the regime it overthrew, and Communist states and socialist parties in the non-Muslim world turned away from socialism, Muslim interest shifted away from government ownership and regulation. In Iran, it is reported that "eqtesad-e Eslami (meaning both Islamic economics and economy) ... once a revolutionary shibboleth, is indubitably absent in all official documents and the media. It disapperared from Iranian political discourse about 15 years ago [1990]."

But in other parts of the Muslim world the term lived on, shifting form to the less ambitious goal of interest-free banking. Some Muslim bankers and religious leaders suggested ways to integrate Islamic law on usage of money with modern concepts of ethical investing. In banking this was done through the use of sales transactions (focusing on the fixed rate return modes) to achieve similar results to interest. This has been heavily criticized by many modern writers as a means of covering conventional banking with an Islamic facade.

In 2008 an economist and former adviser to Tony Blair, Tahir Iqbal, resolved the existing issues in Islamic economics of both providing a fully shariah compliant Islamic political economy (including the problem of government borrowing and mortgages) in his book "what is the sound of an invisible hand clapping", published by maison mascara books. The foundation of this was the quard al hasana (good debt)which when introduced with zakat on all assets sets in place a new framework that solves boom and bust and implies that poverty itself could be stopped using Islamic economics.

Traditional approach

While many Muslims believe Islamic law is perfect by virtue of its being revealed by God, Islamic law on economic issues was/is not "economics" in the sense of a systematic study of production, distribution, and consumption of goods and services. An example of the traditionalist ulama approach to economic issues is Imam Khomeini's work Tawzih al-masa'il where the term `economy` does not appear and where the chapter on selling and buying (Kharid o forush) comes after the one on pilgrimage. As Olivier Roy puts it, the work "presents economic questions as individual acts open to moral analysis: `To lend [without interest, on a note from the lender] is among the good works that are particularly recommended in the verses of the Quran and the in the Traditions.`"

Property

The Qur'an states that God is the sole owner of all matter in the heavens and the earth. Man, however, is God's viceregent on earth and holds God's possessions in trust (amanat). Islamic jurists have divided properties into three categories:

• Public property
• State property
• Private property

Public property

Public property in Islam refers to natural resources (forests, pastures, uncultivated land, water, mines, oceanic resources etc.) over which all humans have equal right. Such resources are considered the common property of the community. Such property is placed under the guardianship and control of the Islamic state, and can be utilized by any citizen, as long as it does not undermine the right of other citizens over it.

Some types of public property can not be privatized under Islamic law. Muhammad's saying that "people are partners in three things: water, fire and pastures", has led some scholars to believe that the privatization of water, energy and agricultural land is not permissible. Other types of public property, such as gold mines, were allowed by Muhammad to be privatized, in return for taxes to the Islamic state. The owner of the previously public property that was privatized has to pay zakat and, according Shiite scholars, khums as well. In general the privatization and nationalization of public property is subject to debate amongst Islamic scholars. Public property thus, eventually, becomes state or private property.

State property

State property includes certain natural resources, as well as other property that can't immediately be privatized. Islamic state property can be movable, or immovable, can be acquired through conquest, or peaceful means. Unclaimed, unoccupied and heir less properties, including uncultivated land (mawat), can be considered state property.

During the life of Muhammad, one fifth of military equipment captured from the enemy in the battlefield was considered state property. During his reign, Umar (on the recommendation of Ali) considered conquered land to be state property, instead of private property (as was usual practice). The reason for this was that privatizing this property would concentrate resources in the hands of a few, and prevent this property from being used for the general good of the community. The property remained under the occupation of the cultivators, but the taxes collected on it went to the state treasury.

Muhammad said "Old and fallow lands are for God and His Messenger (i.e. state property), then they are for you". Jurists draw from this the conclusion that, ultimately, private ownership takes over state property.

Private property

There is consensus amongst Islamic jurists and social scientists that Islam recognizes and upholds the individual's right to private ownership. The Qur'an extensively discusses taxation, inheritance, prohibition against stealing, legality of ownership, recommendation to give charity and other topics related to private property. Islam also guarantees the protection of private property by imposing stringent punishments on thieves. Muhammad said that he who dies defending his property was like a martyr.

Islamic economists have classified the acquisition of private property into three categories: involuntary, contractual and non-contractual. Involuntary means are inheritance, bequests, and gifts. Non-contractual is acquisition involves the collection and exploitation of natural resources that have not previously been claimed as private property. Contractual acquisition includes activities such as trading, buying, renting, hiring labor etc.

A tradition attributed to Muhammad, with which both Sunni and Shi'ite jurists agree, in cases where the right to private ownership causes harm to others, then Islam is in favor of curtailing the right in those cases. Maliki and Hanbali jurists argue that if private ownership endangers public interest, then the state can limit the amount an individual is allowed to own. This view, however, is debated by others.

Market

Islam accepts markets as the basic co-ordinating mechanism of the economic system. Islamic teaching holds that the market, through perfect competition, allows consumers to obtain desired goods, producers to sell their goods, at a mutually acceptable price.

The three necessary conditions for an operational market are said to be upheld in Islamic primary sources:

• Freedom of exchange: the Qur'an calls on believers to engage in trade, and rejects the contention that trade is forbidden.
• Private ownership (see above).
• Security of contract: the Qur'an calls for the fulfillment and observation of contracts.
• The longest verse of the Qur'an deals with commercial contracts involving immediate and future payments.

Interference

Islam promotes a market free from interferences such as price fixing and hoarding. Government intervention, however, is tolerated under specific circumstances.

Islam prohibits the fixation of a price by a handful of buyers or sellers who have become dominant in the market. During the days of Muhammad, a small group of merchants used to meet agricultural producers outside the city and bought the entire crop, thereby gaining monopoly over the market. The produce was later sold at a higher price within the city. Muhammad condemned this practice since it caused injury both to the producers (who in the absence of numerous customers were forced to sell goods at a lower price) and the inhabitants of Medina.

The above mentioned reports are also used to justify the argument that the Islamic market is characterized by free information. Producers and consumers should not be denied information on demand and supply conditions. Producers are expected to inform consumers of the quality and quantity of goods they claim to sell. Some scholars hold that if an inexperienced buyer is swayed by the seller, the consumer may nullify the transaction upon realizing the seller's unfair treatment. The Qur'an also forbids discriminatory means of transaction.

Government interference in the market is justified in exceptional circumstances, such as the protection of public interest. Under normal circumstances, government non-interference should be upheld. When Muhammad was asked to set the price of goods in a market he responded, "I will not set such a precedent, let the people carry on on with their activities and benefit mutually."

Islamic insurance

Some Muslims believe insurance is unnecessary, as society should help its victims. Muslims can no longer ignore the fact that they live, trade and communicate with open global systems, and they can no longer ignore the need for banking and insurance. Aly Khorshid demonstrates how initial clerical apprehensions were overcome to create pioneering Muslim-friendly banking systems, and applies the lessons learnt to a workable insurance framework by which Muslims can compete with non-Muslims in business and have cover in daily life. The book uses relevant Quranic and Sunnah extracts, and the arguments of pro- and anti-insurance jurists to arrive at its conclusion that Muslims can enjoy the peace of mind and equity of an Islamic insurance scheme.

Banking

Main article: Islamic banking

Interest

The Quran (3: 130) clearly condemns what it calls by the Arabic term "riba," usually translated "interest": "O, you who believe! Devour not riba, doubled and redoubled, and be careful of Allah; haply so you will prosper."

Further information: Riba

Debt arrangements

Most Islamic economic institutions advise participatory arrangements between capital and labor. The latter rule reflects the Islamic norm that the borrower must not bear all the cost of a failure, as "it is God who determines that failure, and intends that it fall on all those involved."

Conventional debt arrangements are thus usually unacceptable - but conventional venture investment structures are applied even on very small scales. However, not every debt arrangement can be seen in terms of venture investment structures. For example, when a family buys a home it is not investing in a business venture - a person's shelter is not a business venture. Similarly, purchasing other commodities for personal use, such as cars, furniture, and so on, cannot realistically be considered as a venture investment in which the Islamic bank shares risks and profits for the profits of the venture.

Money changers

Due to religious sanctions against odious debt, Tamil Muslims have historically been money changers (not money lenders) throughout South and South East Asia.

Natural capital

Perhaps due to resource scarcity in most Islamic nations, this form of economics also emphasizes limited (and some claim also sustainable) use of natural capital, i.e. producing land. These latter revive traditions of haram and hima that were prevalent in early Muslim civilization.

Welfare

Social welfare, unemployment, public debt and globalization have been re-examined from the perspective of Islamic norms and values. Islamic banks have grown recently in the Muslim world but are a very small share of the global economy compared to the Western debt banking paradigm. It remains to be seen if they will find niches - although hybrid approaches, e.g. Grameen Bank which applies classical Islamic values but uses conventional lending practices, are much lauded by some proponents of modern human development theory.

Islamic stocks

In June 2005 Dow Jones Indexes, New York, and RHB Securities, Kuala Lumpur, teamed up to launch a new "Islamic Malaysia Index" —a collection of 45 stocks representing Malaysian companies that comply with a variety of Sharia-based criteria. Three variables (the total debt of an indexed company, its total cash plus interest-bearing securities and its accounts receivables) must each be less than 33% of the trailing 12-month average capitalization, for example. Islamic bonds, or sukuk, use asset returns to pay investors to comply with the religion’s ban on interest and are currently traded privately on the over-the-counter market. In late December 2009 Bursa Malaysia announced it was considering enabling individuals to trade Shariah- compliant debt on its exchange as part of a plan to attract new investors to the securities.

Popularity and availability

Main article: Islamic economics in the world

Today there are many financial institutions, even in the Western world, offering financial services and products in accordance with the rules of the Islamic finance. For example, legal changes introduced by Chancellor Gordon Brown in 2003, have enabled British banks and building societies to offer so-called Muslim mortgages for house purchase.

In 2004 the UK's first stand alone Sharia'a compliant bank was launched, the Islamic Bank of Britain. Several banks offer products and services to its UK customers that utilise the Islamic financial principles; such as Mudaraba, Murabaha, Musharaka and Qard.

The Islamic finance sector was worth between 300 and 500 billion dollars (237 and 394 billion euros) as of September 2006, compared with 200 billion dollars in 2004. The number of Islamic retail banks and investment funds number in their hundreds and many Western financial institutions offer products that comply with Sharia law, including Citigroup, Deutsche Bank, HSBC, Lloyds TSB and UBS. In 2008, at least $500 billion in assets around the world were managed in accordance with Sharia, or Islamic law, and the sector was growing at more than 10% per year. Islamic finance seeks to promote social justice by banning exploitative practices. In reality, this boils down to a set of prohibitions—on paying interest, on gambling with derivatives and options, and on investing in firms that make pornography or pork.

Business Method Patents

With the recent ability to patent new methods of doing business in the United States, a small number of patent applications have been filed on methods for providing Sharia compliant financial services. These pending patent applications include:

• US patent US20030233324A1 Declining balance co-ownership financing arrangement. This discloses an allegedly Sharia compliant financing arrangement for home purchases and refinances that does not involve the payment of interest.
• WO patent WO06068837A2 Controlling a Computer System Enabling Sharia-Compliant Financing. This discloses an improved computer system for carrying out Sharia compliant financial transactions.

Views

Sohrab Behada's study argued that the economic system proposed by Islam is essentially a capitalist one.

Criticism

Its popularity notwithstanding, critics of Islamic economics have not been sparing. It has been attacked for its alleged "incoherence, incompleteness, impracticality, and irrelevance;" driven by "cultural identity" rather than problem solving. Others have dismissed it as "a hodgepodge of populist and socialist ideas," in theory and "nothing more than inefficient state control of the economy and some almost equally ineffective redistribution policies," in practice.

In a political and regional context where Islamist and ulema claim to have an opinion about everything, it is striking how little they have to say about this most central of human activities, beyond repetitious pieties about how their model is neither capitalist nor socialist.

Interest-bearing (Riba) and speculation-involving (Gharar) trading are clearly prohibited by explicit canonical texts. Based on this prohibition, presumably financial structures of all the Islamic products should be interest and speculation free. Nevertheless, some new empirical studies hypothesize that “Islamic finance products’ structure is based on the Islamic prohibitions; however, these products’ risk management is still based on revoking the underlying prohibitions”. The most prominent case here is Islamic financial market products such as, inter alia, Salam and Istisna’ these products are used are hedging methods for the Islamic bonds known as Sukuk. If Sukuk’s originator or investors wish to hedge against interest rate or exchange rate risks, then they have to use one of the former methods. These methods as they originally mimic the conventional risk management practice, should involve either interest-bearing or speculation-bearing trading or even both. There have been some innovations that try to avoid falling in interest-based and/or speculation based transactions. Parallel Salam and synthetics are some of the more recent.

Poverty reduction

Main article: Poverty reduction

Historically, poverty reduction has been largely a result of economic growth. The industrial revolution led to high economic growth and eliminated mass poverty in what is now considered the developed world. In 1820, 75% of humanity lived on less than a dollar a day, while in 2001, only about 20% do. As three quarters of the world's poor live in the country side, the World Bank cites helping small farmers as the heart of the fight against poverty. Economic growth in agriculture is, on average, at least twice as effective in benefiting the poorest half of a country’s population as growth generated in non-agricultural sectors. However, aid is essential in providing better lives for those who are already poor and in sponsoring medical and scientific efforts such as the green revolution and the eradication of smallpox.

Economic liberalization

Information and communication technologies for development help to fight poverty.

Ian Vásquez, director of the Cato Institute's Project on Global Economic Liberty, wrote that extending property rights protection to the poor is one of the most important poverty reduction strategies a nation could take. Securing property rights to land, the largest asset for most societies, is vital to their economic freedom. The World Bank concludes increasing land rights is ‘the key to reducing poverty’ citing that land rights greatly increase poor people’s wealth, in some cases doubling it. Peruvian economist Hernando de Soto has estimated that state recognition of the property of the poor would give them assets worth 40 times all the foreign aid since 1945. Although approaches varied, the World Bank said the key issues were security of tenure and ensuring land transactions were low cost.

In China and India, noted reductions in poverty in recent decades have occurred mostly as a result of the abandonment of collective farming in China and the cutting of government red tape in India. However, ending government sponsorship of social programs is sometimes advocated as a free market principle with tragic consequences. For example, the World Bank presses poor nations to eliminate subsidies for fertilizer even while many farmers cannot afford them at market prices. The reconfiguration of public financing in former Soviet states during their transition to a market economy called for reduced spending on health and education, sharply increasing poverty.

Trade liberalization increases the total surplus of trading nations. Remittances sent to poor countries, such as India, are sometimes larger than foreign direct investment and total remittances are more than double aid flows from OECD countries. Foreign investment and export industries helped fuel the economic expansion of fast growing Asian nations. However, trade rules are often unfair as they block access to richer nations’ markets and ban poorer nations from supporting their industries. Processed products from poorer nations, in contrast to raw materials, get vastly higher tariffs at richer nations' ports. A University of Toronto study found the dropping of duty charges on thousands of products from African nations because of the African Growth and Opportunity Act was directly responsible for a "surprisingly large" increase in imports from Africa. However, Chinese textile and clothing exports have encountered criticism from Europe, the United States and some African countries.

Deals can also be negotiated to favor developing countries such as China, where laws compel foreign multinationals to train their future Chinese competitors in strategic industries and render themselves redundant in the long term. In Thailand, the 51 percent rule compels multinational corporations starting operations in Thailand give 51 percent control to a Thai company in a joint venture.

Capital, infrastructure and technology

World GDP per capita

Investments in human capital, in the form of health, is needed for economic growth. Nations do not necessarily need wealth to gain health. For example, Sri Lanka had a maternal mortality rate of 2% in the 1930s, higher than any nation today. It reduced it to .5-.6% in the 1950s and to .06% today while spending less each year on maternal health because it learned what worked and what did not. Cheap water filters and promoting hand washing are some of the most cost effective health interventions and can cut deaths from diarrhea and pneumonia. Knowledge on the cost effectiveness of healthcare interventions can be elusive but educational measures to disseminate what works are available, such as the disease control priorities project.

Human capital, in the form of education, is an even more important determinant of economic growth than physical capital. Deworming children costs about 50 cents per child per year and reduces non-attendance from anemia, illness and malnutrition and is only a twenty-fifth as expensive to increase school attendance as by constructing schools.

UN economists argue that good infrastructure, such as roads and information networks, helps market reforms to work. China claims it is investing in railways, roads, ports and rural telephones in African countries as part of its formula for economic development. It was the technology of the steam engine that originally began the dramatic decreases in poverty levels. Cell phone technology brings the market to poor or rural sections. With necessary information, remote farmers can produce specific crops to sell to the buyers that brings the best price.

Such technology also makes financial services accessible to the poor. Those in poverty place overwhelming importance on having a safe place to save money, much more so than receiving loans. Also, a large part of microfinance loans are spent on products that would usually be paid by a checking or savings account. Mobile banking addresses the problem of the heavy regulation and costly maintenance of saving accounts. Mobile financial services in the developing world, ahead of the developed world in this respect, could be worth $5 billion by 2012. Safaricom’s M-Pesa launched one of the first systems where a network of agents of mostly shopkeepers, instead of bank branches, would take deposits in cash and translate these onto a virtual account on customers' phones. Cash transfers can be done between phones and issued back in cash with a small commission, making remittances safer

Aid

Local citizens from the Janabi Village wait their turn to gather goods from the Sons of Iraq (Abna al-Iraq) in a military operation conducted in Yusufiyah, Iraq. (U.S. Army photo by Spc Luke Thornberry)

Main article: Aid

See also: Welfare, Development aid, and Debt relief

Aid in its simplest form is a basic income grant, a form of social security periodically providing citizens with money. In pilot projects in Namibia, where such a program pays just $13 a month, people were able to pay tuition fees, raising the proportion of children going to school by 92%, child malnutrition rates fell from 42% to 10% and economic activity grew by 10%.Researchers say it is more efficient to support the families and extended families that care for the vast majority of orphans with simple allocations of cash than supporting orphanages, who get most of the aid.

Some aid, such as Conditional Cash Transfers, can be rewarded based on desirable actions such as enrolling children in school or receiving vaccinations. In Mexico, for example, dropout rates of 16-19 year olds in rural area dropped by 20% and children gained half an inch in height.Initial fears that the program would encourage families to stay at home rather than work to collect benefits have proven to be unfounded. Instead, there is less excuse for neglectful behavior as, for example, children stopped begging on the streets instead of going to school because it could result in suspension from the program.

Another form of aid is microloans, made famous by the Grameen Bank, where small amounts of money are loaned to farmers or villages, mostly women, who can then obtain physical capital to increase their economic rewards. For example, the Thai government's People's Bank, makes loans of $100 to $300 to help farmers buy equipment or seeds, help street vendors acquire an inventory to sell, or help others set up small shops. While advancing the woman and her household's position economically, microloans empower women and enable them to voice their opinions in general household decisions.

Aid from non-governmental organizations may be more effective than governmental aid; this may be because it is better at reaching the poor and better controlled at the grassroots level. Critics argue that some of the foreign aid is stolen by corrupt governments and officials, and that higher aid levels erode the quality of governance. Policy becomes much more oriented toward what will get more aid money than it does towards meeting the needs of the people.Supporters of aid argue that these problems may be solved with better auditing of how the aid is used.^[107] Immunization campaigns for children, such as against polio, diphtheria and measles have save millions of lives.

A major proportion of aid from donor nations is tied, mandating that a receiving nation spend on products and expertise originating only from the donor country. For example, Eritrea is forced to spend aid money on foreign goods and services to build a network of railways even though it is cheaper to use local expertise and resources. US law requires food aid be spent on buying food at home, instead of where the hungry live, and, as a result, half of what is spent is used on transport.

One of the proposed ways to help poor countries has been debt relief. Many less developed nations have gotten themselves into extensive debt to banks and governments from the rich nations and interest payments on these debts are often more than a country can generate per year in profits from exports. If poor countries do not have to spend so much on debt payments, they can use the money instead for priorities which help reduce poverty such as basic health-care and education. For example, Zambia began offering services, such as free health care even while overwhelming the health care infrastructure, because of savings that resulted from the rounds of debt relief in 2005.

Good institutions

Main article: Corruption

Efficient institutions that are not corrupt and obey the rule of law make and enforce good laws that provide security to property and businesses. Efficient and fair governments would work to invest in the long-term interests of the nation rather than plunder resources through corruption. Researchers at UC Berkeley developed what they called a "Weberianness scale" which measures aspects of bureaucracies and governments Max Weber described as most important for rational-legal and efficient government over 100 years ago. Comparative research has found that the scale is correlated with higher rates of economic development. With their related concept of good governance World Bank researchers have found much the same: Data from 150 nations have shown several measures of good governance (such as accountability, effectiveness, rule of law, low corruption) to be related to higher rates of economic development. The United Nations Development Program published a report in April 2000 which focused on good governance in poor countries as a key to economic development and overcoming the selfish interests of wealthy elites often behind state actions in developing nations. The report concludes that “Without good governance, reliance on trickle-down economic development and a host of other strategies will not work.”

Examples of good governance leading to economic development and poverty reduction include Thailand, Taiwan, Malaysia, South Korea, and Vietnam, which tend to have a strong government, called a hard state or development state. These “hard states” have the will and authority to create and maintain policies that lead to long-term development that helps all their citizens, not just the wealthy. Multinational corporations are regulated so that they follow reasonable standards for pay and labor conditions, pay reasonable taxes to help develop the country, and keep some of the profits in the country, reinvesting them to provide further development. In 1957 South Korea had a lower per capita GDP than Ghana, and by 2008 it was 17 times as high as Ghana's.

Funds from aid and natural resources are often diverted into private hands and then sent to banks overseas as a result of graft. If Western banks rejected stolen money, says a report by Global Witness, ordinary people would benefit “in a way that aid flows will never achieve”. The report asked for more regulation of banks as they have proved capable of stanching the flow of funds linked to terrorism, money-laundering or tax evasion.

Empowering women

Empowering women has helped some countries increase and sustain economic development. When given more rights and opportunities women begin to receive more education, thus increasing the overall human capital of the country; when given more influence women seem to act more responsibly in helping people in the family or village; and when better educated and more in control of their lives, women are more successful in bringing down rapid population growth because they have more say in family planning.

Demographics

Percentage of population living on less than $1.25 per day. UN estimates 2000-2006. Percentage of population suffering from hunger, World Food Programme, 2006 Life expectancy. The Human Development Index. The Gini coefficient, a measure of income inequality. Life expectancy has been increasing and converging for most of the world. Sub-Saharan Africa has recently seen a decline, partly related to the AIDS epidemic. Graph shows the years 1950-2005.

Main article: Poverty by country

Absolute poverty

Poverty is usually measured as either absolute or relative poverty (the latter being actually an index of income inequality). Absolute poverty refers to a set standard which is consistent over time and between countries. The World Bank defines extreme poverty as living on less than US $1.25 (PPP) per day, and moderate poverty as less than $2 a day. It estimates that "in 2001, 1.1 billion people had consumption levels below $1 a day and 2.7 billion lived on less than $2 a day." Six million children die of hunger every year - 17,000 every day.Selective Primary Health Care has been shown to be one of the most efficient ways in which absolute poverty can be eradicated in comparison to Primary Health Care which has a target of treating diseases. Disease prevention is the focus of Selective Primary Health Care which puts this system on higher grounds in terms of preventing malnutrition and illness, thus putting an end to Absolute Poverty.

The proportion of the developing world's population living in extreme economic poverty fell from 28 percent in 1990 to 21 percent in 2001. Most of this improvement has occurred in East and South Asia. In East Asia the World Bank reported that "The poverty headcount rate at the $2-a-day level is estimated to have fallen to about 27 percent [in 2007], down from 29.5 percent in 2006 and 69 percent in 1990." In Sub-Saharan Africa extreme poverty went up from 41 percent in 1981 to 46 percent in 2001, which combined with growing population increased the number of people living in poverty from 231 million to 318 million. In the early 1990s some of the transition economies of Eastern Europe and Central Asia experienced a sharp drop in income. The collapse of the Soviet Union resulted in large declines in GDP per capita, of about 30 to 35% between 1990 and the trough year of 1998 (when it was at its minimum). As a result poverty rates also increased although in subsequent years as per capita incomes recovered the poverty rate dropped from 31.4% of the population to 19.6% The World Bank issued a report predicting that between 2007 and 2027 the populations of Georgia and Ukraine will decrease by 17% and 24% respectively.

World Bank data shows that the percentage of the population living in households with consumption or income per person below the poverty line has decreased in each region of the world since 1990:

Region	1990	2002	2004
East Asia and Pacific	15.40%	12.33%	9.07%
Europe and Central Asia	3.60%	1.28%	0.95%
Latin America and the Caribbean	9.62%	9.08%	8.64%
Middle East and North Africa	2.08%	1.69%	1.47%
South Asia	35.04%	33.44%	30.84%
Sub-Saharan Africa	46.07%	42.63%	41.09%

Other human development indicators have also been improving. Life expectancy has greatly increased in the developing world since WWII and is starting to close the gap to the developed world.^{[citation needed]} Child mortality has decreased in every developing region of the world.^{[citation needed]} The proportion of the world's population living in countries where per-capita food supplies are less than 2,200 calories (9,200 kilojoules) per day decreased from 56% in the mid-1960s to below 10% by the 1990s. Similar trends can be observed for literacy, access to clean water and electricity and basic consumer items.

There are various criticisms of these measurements. Shaohua Chen and Martin Ravallion note that although "a clear trend decline in the percentage of people who are absolutely poor is evident ... with uneven progress across regions...the developing world outside China and India has seen little or no sustained progress in reducing the number of poor".

Since the world's population is increasing, a constant number living in poverty would be associated with a diminshing proportion. Looking at the percentage living on less than $1/day, and if excluding China and India, then this percentage has decreased from 31.35% to 20.70% between 1981 and 2004.

The 2007 World Bank report "Global Economic Prospects" predicts that in 2030 the number living on less than the equivalent of $1 a day will fall by half, to about 550 million. An average resident of what we used to call the Third World will live about as well as do residents of the Czech or Slovak republics today. Much of Africa will have difficulty keeping pace with the rest of the developing world and even if conditions there improve in absolute terms, the report warns, Africa in 2030 will be home to a larger proportion of the world's poorest people than it is today.

The reason for the faster economic growth in East Asia and South Asia is a result of their relative backwardness, in a phenomenon called the convergence hypothesis or the conditional convergence hypothesis. Because these economies began modernizing later than richer nations, they could benefit from simply adapting technological advances which enable higher levels of productivity that had been invented over centuries in richer nations.

Relative poverty

Relative poverty views poverty as socially defined and dependent on social context, hence relative poverty is a measure of income inequality. Usually, relative poverty is measured as the percentage of population with income less than some fixed proportion of median income. There are several other different income inequality metrics, for example the Gini coefficient or the Theil Index.

Relative poverty measures are used as official poverty rates in several developed countries. As such these poverty statistics measure inequality rather than material deprivation or hardship. The measurements are usually based on a person's yearly income and frequently take no account of total wealth. The main poverty line used in the OECD and the European Union is based on "economic distance", a level of income set at 60% of the median household income.

Other aspects

Slum in Mumbai, India. 60% of Mumbai's more than 18 million inhabitants live in slums.

Economic aspects of poverty focus on material needs, typically including the necessities of daily living, such as food, clothing, shelter, or safe drinking water. Poverty in this sense may be understood as a condition in which a person or community is lacking in the basic needs for a minimum standard of well-being and life, particularly as a result of a persistent lack of income.

Analysis of social aspects of poverty links conditions of scarcity to aspects of the distribution of resources and power in a society and recognizes that poverty may be a function of the diminished "capability" of people to live the kinds of lives they value. The social aspects of poverty may include lack of access to information, education, health care, or political power. Poverty may also be understood as an aspect of unequal social status and inequitable social relationships, experienced as social exclusion, dependency, and diminished capacity to participate, or to develop meaningful connections with other people in society. Such social exclusion can be minimized through strengthened connections with the mainstream, such as through the provision of relational care to those who are experiencing poverty.

Harlem, New York, USA. In 2006 the poverty rate for minors in the United States was the highest in the industrialized world, with 21.9% of all minors and 30% of African American minors living below the poverty threshold.

The World Bank's "Voices of the Poor," based on research with over 20,000 poor people in 23 countries, identifies a range of factors which poor people identify as part of poverty. These include:

• Precarious livelihoods
• Excluded locations
• Physical limitations
• Gender relationships
• Problems in social relationships
• Lack of security
• Abuse by those in power
• Dis-empowering institutions
• Limited capabilities
• Weak community organizations

David Moore, in his book The World Bank, argues that some analysis of poverty reflect pejorative, sometimes racial, stereotypes of impoverished people as powerless victims and passive recipients of aid programs.

Camden, New Jersey is one of the poorest cities in the United States.

Ultra-poverty, a term apparently coined by Michael Lipton, connotes being amongst poorest of the poor in low-income countries. Lipton defined ultra-poverty as receiving less than 80 percent of minimum caloric intake whilst spending more than 80% of income on food. Alternatively a 2007 report issued by International Food Policy Research Institute defined ultra-poverty as living on less than 54 cents per day. BRAC (NGO) has pioneered a program called Targeting the Ultra-Poor to redress ultra-poverty by working with individual ultra-poor women.

Voluntary poverty

See also: Simple living

"'Tis the gift to be simple, 'tis the gift to be free, 'tis the gift to come down where you ought to be, And when we find ourselves in the place just right, It will be in the valley of love and delight."

—Shaker song.

Among some individuals, such as ascetics, poverty is considered a necessary or desirable condition, which must be embraced in order to reach certain spiritual, moral, or intellectual states. Poverty is often understood to be an essential element of renunciation in religions such as Buddhism (only for monks, not for lay persons) and Jainism, whilst in Roman Catholicism it is one of the evangelical counsels. Certain religious orders also take a vow of extreme poverty. For example, the Franciscan orders have traditionally forgone all individual and corporate forms of ownership. While individual ownership of goods and wealth is forbidden for Benedictines, following the Rule of St. Benedict, the monastery itself may possess both goods and money, and throughout history some monasteries have become very rich. In this context of religious vows, poverty may be understood as a means of self-denial in order to place oneself at the service of others; Pope Honorius III wrote in 1217 that the Dominicans "lived a life of voluntary poverty, exposing themselves to innumerable dangers and sufferings, for the salvation of others". Following Jesus' warning that riches can be like thorns that choke up the good seed of the word (Matthew 13:22), voluntary poverty is often understood by Christians as of benefit to the individual – a form of self-discipline by which one distances oneself from distractions from God.

(from: wikipedia.com)

Effects of poverty

Again in a developed nation council houses in Seacroft, Leeds, UK have been deserted due to poverty and high crime.

See also: Malnutrition

The effects of poverty may also be causes, as listed above, thus creating a "poverty cycle" operating across multiple levels, individual, local, national and global.

Health

Main article: Diseases of poverty

Hunger, disease, and less education describe a person in poverty. One third of deaths - some 18 million people a year or 50,000 per day - are due to poverty-related causes: in total 270 million people, most of them women and children, have died as a result of poverty since 1990. Those living in poverty suffer disproportionately from hunger or even starvation and disease.Those living in poverty suffer lower life expectancy. According to the World Health Organization, hunger and malnutrition are the single gravest threats to the world's public health and malnutrition is by far the biggest contributor to child mortality, present in half of all cases.

Every year nearly 11 million children living in poverty die before their fifth birthday. 1.02 billion people go to bed hungry every night. Poverty increases the risk of homelessness. There are over 100 million street children worldwide. Increased risk of drug abuse may also be associated with poverty.

According to the Global Hunger Index, South Asia has the highest child malnutrition rate of world's regions. Nearly half of all Indian children are undernourished, one of the highest rates in the world and nearly double the rate of Sub-Saharan Africa. Every year, more than half a million women die in pregnancy or childbirth. Almost 90% of maternal deaths occur in Asia and sub-Saharan Africa, compared to less than 1% in the developed world.

Women who have children born in poverty, cannot nourish the children efficiently with the right prenatal care. They may also suffer from disease that may be passed down to the child through birth. Asthma is a common problem children acquire when born into poverty.

Education

Great Depression: man lying down on pier, New York City docks, 1935.

Research has found that there is a high risk of educational underachievement for children who are from low-income housing circumstances. This often is a process that begins in primary school for some less fortunate children. In the US educational system, these children are at a higher risk than other children for retention in their grade, special placements during the school’s hours and even not completing their high school education. There are indeed many explanations for why students tend to drop out of school. For children with low resources, the risk factors are similar to excuses such as juvenile delinquency rates, higher levels of teenage pregnancy, and the economic dependency upon their low income parent or parents.

Families and society who submit low levels of investment in the education and development of less fortunate children end up with less favorable results for the children who see a life of parental employment reduction and low wages. Higher rates of early childbearing with all the connected risks to family, health and well-being are majorly important issues to address since education from preschool to high school are both identifiably meaningful in a life.

Poverty often drastically affects children’s success in school. A child’s “home activities, preferences, mannerisms” must align with the world and in the cases that they do not these students are at a disadvantage in the school and most importantly the classroom. Therefore, it is safe to state that children who live at or below the poverty level will have far less success educationally than children who live above the poverty line. Poor children have a great deal less healthcare and this ultimately results in many absences from the academic year. Additionally, poor children are much more likely to suffer from hunger, fatigue, irritability, headaches, ear infections, flu, and colds. These illnesses could potentially restrict a child or student’s focus and concentration.

Housing

Afghan girl begging in Kabul.

See also: slums and orphanages

Slum-dwellers, who make up a third of the world's urban population, live in a poverty no better, if not worse, than rural people, who are the traditional focus of the poverty in the developing world, according to a report by the United Nations.

Most of the children living in institutions around the world have a surviving parent or close relative, and they most commonly entered orphanages because of poverty. Experts and child advocates maintain that orphanages are expensive and often harm children’s development by separating them from their families. It is speculated that, flush with money, orphanages are increasing and push for children to join even though demographic data show that even the poorest extended families usually take in children whose parents have died.

Violence

See also: slavery and human trafficking

According to a UN report on modern slavery, the most common form of human trafficking is for prostitution, which is largely fueled by poverty. In Zimbabwe, a number of girls are turning to prostitution for food to survive because of the increasing poverty. In one survey, 67% of children from disadvantaged inner cities said they had witnessed a serious assault, and 33% reported witnessing a homicide. 51% of fifth graders from New Orleans (median income for a household: $27,133) have been found to be victims of violence, compared to 32% in Washington, DC (mean income for a household: $40,127).

Drug abuse

Further information: Drug abuse

Unemployment and distance from rural areas are where most drug abuse occurs. Drug abuse can result in a community shouldering the impact of many nefarious acts such as stealing, killing, theft, sexual assault, and prostitution. Drug abuse is synonymous with poor performance in school & work, and a general malaise of intra-personal intelligence. People who have abused drugs and have spent all of their money buying substances—i.e. heroin, alcohol, methamphetamines etc.—become addicts. This induces a downward spiral in the functionality of most addicts, as the drugs and poverty can be cyclical. When an addict has no other way to support their addiction they result to illegal measures to obtain income. This is where a community becomes affected by drug abuse. The urge—or “Jonesin”—for many different substances begins to take over an addict’s life.

(from: wikipedia.com)