Consequences of the Legal Personality of Commercial Entities: An  Evaluation from the Perspective of Islamic Economics

Şencal Harun

doi:https://dx.doi.org/10.26650/ISTJECON2021-1023078

Research Article

DOI :10.26650/ISTJECON2021-1023078 IUP :10.26650/ISTJECON2021-1023078 Full Text (PDF)

Consequences of the Legal Personality of Commercial Entities: An Evaluation from the Perspective of Islamic Economics

This study aims to critically evaluate the institution of a legal personality from the perspective of Islamic economics. The legal personality of commercial entities plays an integral role in the emergence of the capitalist system. This system, in turn, is characterized by capital accumulation. We argue that although the social relations based on the solidarity envisaged by Islamic economics have weakened with the individualization of modern societies, the primary negative effect of individualization has been the commodification of several services provided by solidarity among the members of society in the capitalist market system.Typically, such a system has spurred the practice of leveraging the limited liability of commercial legal entities to earn unlimited profits. Furthermore, because corporations prefer earning profits by selecting the most efficient and cost-effective approaches developed by means of rational decision mechanisms, it leads to the increase of material inequality in society and the expansion of debt-based financial instruments. In addition, corporations move investments from the real sector to the financial field, therefore playing a significant role in the development of financial capitalism. In other words, incidental problems such as lack of regulation and supervision are effective in regulating the situation in the wake of the crises caused by financial capitalism and other social adversities; however, a pertinent issue that remains overlooked is the existence of commercial legal entities and the goal of obtaining unlimited profit, which has emerged as the mission imposed on these legal entities within the capitalist system.

Keywords: Islamic economics, Legal personality, Financialization

JEL Classification : G23 , O16 , P12 , P51

DOI :10.26650/ISTJECON2021-1023078 IUP :10.26650/ISTJECON2021-1023078 Full Text (PDF)

Ticari İşletmelerin Tüzel Kişiliğe Sahip Olmasının Sonuçları: İslam Ekonomisi Açısından Bir Değerlendirme

Harun Şencal

Bu çalışmanın amacı sermaye birikimini sağlayarak kapitalist sistemin ortaya çıkmasında önemli rolü bulunan kurumlardan biri olan tüzel kişilik kurumunu İslam ekonomisi açısından eleştirel bir değerlendirmeye tabi tutmaktır. İslam ekonomisinin öngördüğü dayanışma üzerine kurulu olan toplumsal ilişkilerin modern toplumlarda görülen bireyselleşme ile beraber zayıflamasına rağmen asıl olumsuz etkinin sınırsız kâr amacıyla kurulmuş olan ticari tüzel kişiliğe sahip şirketlerin sınırlı sorumluluk sahibi olmalarının getirdiği avantajları kullanarak kapitalist piyasa sisteminde birçok ilişkiyi metalaştırması olduğunu iddia etmekteyiz. Bunun ötesinde, tüzel şirketlerin rasyonel karar mekanizmaları dahilinde en verimli ve düşük maliyetli kâr elde etme yollarını tercih etmelerinden dolayı, toplumdaki maddi eşitsizliği artırmaya ve borca dayalı finansal araçların yaygınlaşmasına yol açmaktadır. Ayrıca, tüzel şirketler yatırımdaki ağırlıklarını reel sektörden ziyade finansal alana kaydırarak finansal kapitalizmin gelişmesinde önemli rol oynamaktadırlar. Diğer bir ifadeyle, finansal kapitalizmin yol açtığı krizlerde ve diğer toplumsal yıkımlarda düzenleme ve denetleme eksikliği gibi arızî sorunlar da etkili olsa da gündeme getirilmeyen önemli bir husus ticari tüzel kişiliklerin varlığı ve kapitalist sistem içerisinde onlara yüklenen misyon olarak sınırsız kâr elde etme hedefidir.

Keywords: İslam ekonomisi, Tüzel kişilik, Finansallaşma

JEL Classification : G23 , O16 , P12 , P51

EXTENDED ABSTRACT

According to the basic principles of Islamic economics, an economic system should promote social solidarity and human wellbeing, prioritize the sharing of profits and losses over interest-based financial instruments, and envisage a just and equitable financial system. However, due to the changes having taken place in the modern period, these basic principles have not been adequately realized. The individualization of modern society has acted as a primary agent of such societal changes. Although the degree of individualization varies among countries, premodern solidarity has been compromised significantly due to such large-scale individualization. Owing to such transformation, activities previously fulfilled through social solidarity are now governed by welfare state institutions and the market system. Furthermore, the existence of a legal personality facilitates the dominance of the market, curtails the benefits offered by the financial system to the real economy, and causes social inequality. Commercial entities with legal personalities operate with the goal of earning unlimited profit by leveraging limited liabilities. Such an objective contributes to the development of financial capitalism and an acute shortage of materials; moreover, it raises the volume of debt-based financial instruments. This study aims to critically evaluate, from the perspective of Islamic economics, the institution of legal personality, a phenomenon that plays an essential role in the emergence of the capitalist system that, in turn, facilitates capital accumulation.

We argue that financial crises and other such social adversities caused by financial capitalism stem primarily from the existence of commercial legal entities and the goal of unlimited profit as the mission imposed on them within the capitalist system, rather than incidental problems, such as lack of regulation and supervision. Hence, the legal personality exerts a significant influence on the financialization of the economy. The important assertion is that in the current scenario, it would be a rational decision for companies to pursue profits without considering the welfare of society, possess limited liabilities, and exhibit behaviors that might result in negative consequences. Although Islamic scholars have justified the validity of legal personality in Islamic law by referring to the mosque, waqf and state institutions, we argue that such an analogy not be used when evaluating commercial legal personalities. This is because the institutions referenced to legitimize the existence of the legal personality are either established for worship or as a means for Muslims to attain salvation (falah). For this reason, a controversial issue in Islamic law today is the status of the legal personality of corporations, which, as opposed to the legal personality in Islamic law, was established with the goal of obtaining unlimited profit, facilitating capital accumulation, and mitigating company owners’ risks.

For this reason, as claimed by Timur Kuran, it is true that Muslim societies had not developed commercial legal entities; however, such absence of commercial legal entities was not owing to a shortcoming of Muslim societies but because of the establishment of “commercial legal entities” was deemed impossible by the Islamic morality that governs Muslim societies. Kuran’s basic assumption is that capital accumulation is essential for material growth in all societies. This modern understanding, which claims to be a universal truth, has been challenged, particularly in the post-modern period. Questions such as, “Should material and spiritual growth and development coexist with Islamic moral values?” and “If so, how can this harmony be accomplished?” are subjects that require research in reference to the basic sources of Islamic economics. The scope of this study is to demonstrate the incompatibility of the Islamic morality with the current economic system, which assumes that capital accumulation is a universally inevitable phenomenon and legitimizes the existence of the institution of legal personality as a means for achieving this accumulation. Such incompatibility results from the social consequences of the legal personality. It is argued that existence of the legal personality leads to an increase in financialization as opposed to facilitating actual production. Ultimately, it promotes individualism and contributes to the diminishment of essential solidarity and cooperation among individuals.

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Şencal, H. (2021). Consequences of the Legal Personality of Commercial Entities: An Evaluation from the Perspective of Islamic Economics. Istanbul Journal of Economics, 71(2), 367-394. https://doi.org/10.26650/ISTJECON2021-1023078

AMA

Şencal H. Consequences of the Legal Personality of Commercial Entities: An Evaluation from the Perspective of Islamic Economics. Istanbul Journal of Economics. 2021;71(2):367-394. https://doi.org/10.26650/ISTJECON2021-1023078

ABNT

Şencal, H. Consequences of the Legal Personality of Commercial Entities: An Evaluation from the Perspective of Islamic Economics. Istanbul Journal of Economics, [Publisher Location], v. 71, n. 2, p. 367-394, 2021.

Chicago: Author-Date Style

Şencal, Harun,. 2021. “Consequences of the Legal Personality of Commercial Entities: An Evaluation from the Perspective of Islamic Economics.” Istanbul Journal of Economics 71, no. 2: 367-394. https://doi.org/10.26650/ISTJECON2021-1023078

Chicago: Humanities Style

Şencal, Harun,. “Consequences of the Legal Personality of Commercial Entities: An Evaluation from the Perspective of Islamic Economics.” Istanbul Journal of Economics 71, no. 2 (Apr. 2024): 367-394. https://doi.org/10.26650/ISTJECON2021-1023078

Harvard: Australian Style

Şencal, H 2021, 'Consequences of the Legal Personality of Commercial Entities: An Evaluation from the Perspective of Islamic Economics', Istanbul Journal of Economics, vol. 71, no. 2, pp. 367-394, viewed 18 Apr. 2024, https://doi.org/10.26650/ISTJECON2021-1023078

Harvard: Author-Date Style

Şencal, H. (2021) ‘Consequences of the Legal Personality of Commercial Entities: An Evaluation from the Perspective of Islamic Economics’, Istanbul Journal of Economics, 71(2), pp. 367-394. https://doi.org/10.26650/ISTJECON2021-1023078 (18 Apr. 2024).

MLA

Şencal, Harun,. “Consequences of the Legal Personality of Commercial Entities: An Evaluation from the Perspective of Islamic Economics.” Istanbul Journal of Economics, vol. 71, no. 2, 2021, pp. 367-394. [Database Container], https://doi.org/10.26650/ISTJECON2021-1023078

Vancouver

Şencal H. Consequences of the Legal Personality of Commercial Entities: An Evaluation from the Perspective of Islamic Economics. Istanbul Journal of Economics [Internet]. 18 Apr. 2024 [cited 18 Apr. 2024];71(2):367-394. Available from: https://doi.org/10.26650/ISTJECON2021-1023078 doi: 10.26650/ISTJECON2021-1023078

ISNAD

Şencal, Harun. “Consequences of the Legal Personality of Commercial Entities: An Evaluation from the Perspective of Islamic Economics”. Istanbul Journal of Economics 71/2 (Apr. 2024): 367-394. https://doi.org/10.26650/ISTJECON2021-1023078

Volume 71, Issue 22021, P. 367-394

TIMELINE

Submitted	13.11.2021
Accepted	24.12.2021
Published Online	31.12.2021

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