In reference to the Shuratic Process applied to the theory of the firm in Islamic political economy, the firm must be considered as an organization. The theory of the firm is then an organizational theory of an organism. This however is not the approach to much though not all of economic theory to the study of the firm. Neoclassical economics has traditionally treated the firm in technical terms as an engineering production unity whose only behavioural characteristics are embedded in marginalist concepts. Even when a firm is taken up as a cooperating agent within capitalist framework, as in the case of the study of share economy by Weitzman, the neoclassical marginalist assumptions are used to explain the resource allocation between a wage-paying firm and a worker managed firm. A study of this type for the Mondragon Cooperative has shown that the most problematic challenge that this cooperative faced was during the times of recession and inflation, when its own credits were subjected to the collateral conditions of loans and the financial uncertainties faced by the greater capital market, to which the Mondragon was subjected for its loan finances.

The point being made here is that finance and capital as well as production units of small and large enterprises must be somehow integrated in an intersectorial framework to get over the financial uncertainties that bedevils the efficient performance of cooperative enterprises. One such alternative is to establish own financial enterprises to support the real economic activities being undertaken by the cooperatives. In that case the financial companies so linked up with the total economic activity becomes a part of the total organizational structure. The financial enterprises then acquire certain perspectives that are not found to characterize large collateral-oriented financial intermediaries. The financial enterprises now transact funds in a growing sector of cooperatives that complement each other. The financial profitability of such enterprises is found to be based on the degree to which real economic activities are integrated with the total trading environment. The expanding nature of cooperatives becomes a sustaining force in complementarities that are generated. This at once also serves as a political lobyying power to the cooperatives to turn public policies in their favour.

Cooperative enterprises cannot therefore function by themselves in the climate of self-same firms and corporations. Such a perspective negates the very foundation of increasing complementarities on which the strength and future scope of the cooperative enterprises lie. The limitations of enterprises such as, the Mondragon, the Employee Savings and Ownership Plans and many rural cooperatives that exist today is precisely because of such constraints they have faced due to capital needs and growing uncertainties in a greater competing market milieu that severs the total economic system into mutually conflicting enterprises. This is the same as to treat cooperative enterprises according to neoclassical economic theory. Consequently, governments remain prone to large corporations and defeat the well-being of the community at large that could come about by means of cooperative enterprises.

When organizational theory in a neoclassical framework has been applied to the firm, we still find that such theories have concentrated much on the transactions costs that arise in resource allocation. They have thus taken a social welfare analysis of the firm by examining transaction costs and how social costs can be effectively controlled by public policy to increase social welfare. Here we have the seminal works of Coase and Arrow on social costs and benefits and organizational theory in relation to transaction costs, respectively. Yet at the end of the treatises one finds no significant departure from the behaviour of marginalism and opportunity cost in either of these two schools. Consequently, the neoclassical theory of resource allocation that is assumed to maximize a certain criterion function subject to all the marginalist conditions on the cost and benefit sides, is fully expounded. Such is also the view of Whittaker on Arrow's theory of organization.

Subsequently, when public choice behaviour is invoked to explain the rational preferences of government as an institution, here too the entire bulk of neoclassical economic theory and of utilitarianism is poured out. The consequence then is, that methodological individualism and self-seeking (rather than self- interest) strategies pervade public policy formulation in as much as they describe individual and firm specific goals. It is then obvious to infer that in such a pervasive climate of methodological individualism taken to the level of public organizations, firms do not and cannot exist as growing cooperatives enjoying and producing complementarities. Economic theory taken up in this pervasive social sense is found to be inimical to the normative perspectives the moral ought statement through transformation processes. Processes if any that exist, are meant to reinforce the global application of individualistic behaviour.

Other economic theories of the firm on behavioural basis are those by Herbert Simon and the evolutionary economists, an important exponent of which school was Schumacher and Boulding. Also Winter and Shelly recently have written on this topic.

Schumacher embeds his small size firms in a national development plan and treats markets as a socializing milieu to realize a transformation into life-sustaining goods. He also advocates for nationalized enterprises that would meet the needs of sustainability. Problems arise from the analytical side not the ethical side in Schumacher in regards to the fact that national development plans are formulated by governments, whereas no role has been given to enterprises to play their primal role in formulating such development plans. The traditional concept of development plans is an allocation of nationa resources or what is the same, to view the generation of the national output by a ssystem of intersectorial relationships. Firms are then required to fit into this blueprint of socioeconomic development. If there are no precise relations arising from the small enterprises playing a significant role in development plans alongwith other public authorities and corporations including governments, the plan gets imposed upon them. This runs the scope of marginalizing the small enterprises in Schumacher's nationalized perspectives of the economy.

Herbert Simon's bounded rationality in the decision-making by firms makes them as organizations that simulate and not optimize objective criteria. Yet in all these, the question of inducement that causes firms to interact internally and in a wider social system, on both aspect of which Simon wrote, remains an variable that is externally generated and hence endogenous. Such an inducement, which the Japanese firms consider as perks, must be explained by an endogenous theory that links up with the firm's production and allocation criteria. In the absence of an endogenous theory of incentives, the process model of the firm as an interlinked subsystem remains incomplete and in the limiting sense, marginalized

To summarize we emulate the remark that was made by Stepen Marglin on the production function of the firm: It is an engineering device that says how technology converts efficient inputs of production into maximal amount of goods as the firm is found to formulate its objective criterion (one of many) to be maximization of output subject to the cost of production. The production function says nothing on the nature of relationships, the dynamics of decision-making that play so fundamental role in the operation of the firm, its pricing, nature of goods, distribution to factors and relationship with the general milieu of institutions around including the government in terms of various policies. Indeed it is these kinds of relations when taken up in interactive ways among them, that make the firm a social organism and brings to the production menu, not simply efficiency considerations but also deep ethical issues. Ab example of such deep ethical issues is the ecological concern and the relations that the firm must develop to be an ecologically friendly unit.

The study of a cooperative enterprise is a most important form of the firm looked upon as an organistic decision-making economic agent. As Vanel has pointed out, the survival function and goodwill that turns out subscribed capital for the cooperative's joint ventures together with the social well-being that the communitarian outlook of a cooperative is able to generate, makes the cooperative system economically and socially viable. All this must present the cooperative as a dynamic socioeconomic agent that interlinks with and develops interlinkages with the total social system. It is through such interactions between the firm as a part of the total social system and the latter whole that the intensity of interactions can be realized. Policy statements and along with the ought statements of ethics and morals enter the firm's objective criterion in the systemic perspective.

Now when we turn to the treatment of the theory of the firms in the Islamic economic literature, we find the following kinds of stands taken by various authors: First, a firm is simply taken to be a neoclassical firm. Metwally and Hallaq treat the firm as such. The only interdiction made is by introducing the Zakat (Islamic wealth tax) variables and by arguing exogenously, that the Islamic firm must follow Shari'ah (Islamic Law) conditions on selection of goods and technology. Zarqa writes in favour of amelioration of labour in production without stating why this should be necessarily followed by capitalists, when the question of property rights over ownership holds true for both labour, capitalists and other participants. Siddiqui is not agreeable to an extensive transformation of the Islamic economy into a great cooperative system, as he considers wage payments to be of substantial nature. Some Islamic economists have invoked the social regulatory institution of the classical Islamic society, called the Hisbah Fil-Islam (Ibn Taimiyyah), to suggest that firms and markets are to be socially controlled by legislation. Whereas it is known that while legislation can work to a degree for firms, but they do not mean anything for the markets. This is all the more true when free markets, morally though, are promoted by Islam. A similar point is raised by Hayek but in a neo-liberal frame of arguments, that markets remain benign to the concept of social justice. But here we are making the point that the Islamic economic literature treating the theory of the firm in all its varied perspective, either leaves out the organistic characteristics, does not define the dynamics that integrates moral preferences in the production and market menus with legislation being minimal in such a case over a sequence of changes having taken place, or finally, the firm is simply an ethically exogenous, morally benign enterprise endowed with the same kinds of behavioural conditions, goals and objective criteria as the neoclassical firm. In none of these approaches we find a moral theory of the firm and markets, a term that Nienhaus had used. The fact of the matter is that we cannot tame markets with the cane of legislation. Hence firms cannot be imposed to act morally in such a market. We need to transform the market into an ethicized market by means of endogenizing the moral element in all of the socioeconomic menus, preferences, institutions and interactions. Contrarily, the socialists tried to impose market controls in the name of social justice and to protect labour from its exploitation, but simply failed for good. The reason for this was that the truly ethical person, firm, society and markets could not be born out of exogenous impositions of norms, when these were in the beliefs system of the populace. There was not other epistemological basis for socialism than a certain form of socialist altruism as form of over-weaning institutional preference.

Let us examine briefly how risk has been viewed in the literature on the theory of a financial firm in Islamic economics. By a critique here, this author does not exonerate his own earlier leanings in these neoclassical directions. But this view has complete reversed itself now eversince the formalization of the Shuratic Process as the soul of an organizational theory of the firm. Waqar Masood Khan treats the Islamic financial firm under risk conditions in a two-person Nash game. The financial firm faces assymetric information flow because of risk and a moral hazard problem from the rising cost of cheating or assymetric supply of information. The utility analysis that then engenders to incorporate risk-attributes of the financial firm assumes that income is an increasing function of return, reported return and a cost of monitoring, for the latter must prevail to enable returns to occur. But there is no explicit incorporation of the risk variable in the utility function. Hence, the utility function is an increasing function of income (as in the case of the utility function of money). The relationship between income and returns is monotonic or governed by diminishing marginal utility of returns. Assume just two conditions to occur, which are both treated as exogenous factors in the financial firm's utility-of-income/return function.

First, let the financial firm be a risk-averter. In that case, the utility function must result in a relative price between risk and return. Islamic economic literature takes this relative price either to be interest rate -- some authors legitimate it as risk-coverage (see Naqvi's arguments); some reject its validity as being pricing of speculation (Gharar). On the other hand, let us argue that the risk factor is priced out by diversification of the risk through portfolio selection in Islamic markets. If this assumption is made to the limit (say) that diversification can increase indefinitely, then income must be forever be increasing with returns and the effect of diversification on diminishing marginal utility of return would be annulled. Besides all these, the question remains, how does diversification appear and risk is marginalized to yield growing risk-free market environment? Answers to these questions must inevitably bring to the forefront the great relevance of the process of complementarity playing its role in diversification with the advance of flows of knowledge in perpetuity. Such knowledge values are essential variables of the descriptive function, and the utility function does not explain these fundamental phenomena -- neither in the mechanical sense of usage nor in the substantive epistemological sense.

Take the other case: financial firm is a risk-preferer or risk neutral (zero risk-averter, zero risk-prefer). The risk factor, defined as the variance of returns in a standard neoclassical economic analysis, must now be a constant (can be zero). The second kinds of questions as mentioned above now occur. What causes the marginal diminishing returns to occur? Any assumption of this type must hold that there is some form of risk in attaining the returns and there is a distortionary mapping between expected returns and reported returns. Otherwise, the marginal assumption must be abandoned by incorporating the knowledge variable in the descriptive function and allowing limitless diversification to take place. In this case the utility analysis must be rejected.

The conclusion gained from Islamic economic treatment of the theory of the firm, is that all such approaches have remained neoclassical in essence, and nothing Islamic has been gained either in terms of analytics (models) or methodology (epistemological). The essential need for the knowledge parameter in the entire theme of the theory of the firm necessitates an organizational theory that interacts, integrates and dynamizes the firm as an entity like many other ones in the hub of nexual interrelationships in an Islamic political economy. The methodology here is to invoke the Shuratic Process both within the firm and between it and the intersectorial flows of relations. Such relations form capital, goods, technology, factors and returns. The income function of returns is increasing under the endogenous impact of the knowledge flow variable primordially impacting upon returns and then increasing the social viability of the process continuity. etc. 

Coming back to the treatment of the Islamic firm in the Islamic political economy, the Shuratic Process must be indispensably invoked in terms of its methodology of Unification Epistemology describing a unified world view that is derived from the nature of Unity of God in the order of Reality. In the institutional complex of social life this epistemological context must pervade. That is how preferences are transformed. Along with this, firms are changed ethically within themselves in response to the interactions between individuals (households), other agents, firms, corporations, polity, government and varied other sectors taken up in increasing levels of extensions (res extensa). This is how the Divine Laws (both Sunnat Allah of the Qur'an and Sunnat Rasul of the Prophet are taken up as a conformable body of epistemological knowledge to discurse and build upon.

We will not expand upon the Shuratic Process, which has been done in the earlier lectures in this series. Instead, we will now discuss how the firm becomes an organization in the Islamic political economy. Here the idea of Islamic political economy is to be recalled. It is the systemic study of interactions resulting in integration (social consensus) and creative evolution to higher levels of knowledge formation. This circular causation and continuity world view of primal knowledge impacting upon and forming knowledge-augmented material forms and then bringing about fresh flows of knowledge to emanate and continue the recreative process, is the essence of unification taking place in the Islamic political economy. Within this methodology and unified world view derived from the Divine Laws (an extensive domain of Shari'ah), the relations on capital, labour, production, profit-sharing and joint ventures under economic cooperation, nature of the goods (preferences) and technological questions in relation to ecological consciousness, and in this way the relevance of the firm in terms of socioeconomic development plan, the grassroots and the overseeing agency of the government, become a self-same interactive process with possibility for greater extensions as flows of knowledge continue to expand indefinitely.

The firm is therefore formed as a social contract in which private ownership is upheld by the limits of conscious social behaviour as presented by the Shari'ah. The moral conviction for the participants to comply with such a social contract of the firm is the function of knowledge diffusion. This diffusion of knowledge acts at all levels, starting from the individuals, the family, the community, the subnation, the nation and extending in this way to the Ummah (World Nation of Islam) along with all the sectors, economy, society, science etc. that organized life comprehends and continuously discovers. The principal framework of this knowledge pervasiveness is the Unification Epistemology along with its specific circular causation and continuity methodology of the epistemic-ontic evolutions.

Once the knowledge process is in place by the common weal from the grassroots upward into hierarchies of interrelations, the discursions that take place establish the contracts for realizing social justice, distribution, nature of the goods, the channels of trading outlets (avoiding speculative ventures=Gharar), the pricing of goods and services under conditions of complementarity to be sought in ethicized markets without undue legislation and with decreasing legislation as knowledge advances; and the social well- being to be attained in the great communitarian sense. Indeed in this Idea of the grassroots preferences extending without bounds and communitarianism defining the precept of progress, the concept of capitalist globalization, the one the world is being ravaged with today, is changed to objective globalization as a comity of nations under the moral precept of Unity.

The socioeconomic development plan at the national and global (Ummatic) levels are formed by the interlinked actions and responses between the grassroots and the other echelons of decision-making. Sectors of the economy are equally governed by such micro-level interlinkages and then the latter feeds on the advancing form of the total order. Policy matters (particularly, what is termed in macroeconomics as fiscal, monetary, incomes, human resource and trade policies) are now discursively evolved from the nature of the micro-oriented socioeconomic development plan. In all these the Islamic firm plays the participatory agency on the side of producing real goods, investments and ecologically conscious development programs, efficiency and productivity that emanate from product complementarity, diversification. Hence, the prices of specific nature evolves from the natural interactions in the market order. Elsewhere, such a firm is described as a cooperative-competitive organization. It is cooperative in being participatory and complementarity following the generic essence of the Unification Epistemology. It is competitive in the sense of excelling in these functions as they are found to be the sources of productivity, efficiency, market transformation and social well- being reinforcing the total strengths once again. Thus competition when applied to gain excelling levels of complementarity, cooperation and sharing of resources (Mudrabah-Musharakah) must logically at once complement the attribute of cooperation. In this sense, competition-cooperation is a complementary concept on the moral plane.

The essence of participation, complementarity and growth alongwith social well-being negates the neoclassical fundamental of opportunity cost and marginalist concept in resource allocation. The growth of the Islamic firm together with the progressive transformation of markets into ethicized markets, brings about cooperation between workers and capitalists. The Idea of the Grassroots prevails at all echelons through a progressive knowledge diffusion in the form of interactions-integration- evolution. At every moment of the life of the firm within its own organization, in relation to the total embryonically constructive socioeconomic development plan, through the hierarchies of decision-makers at higher echelons and through extensive participation in the discursions over the nature of goods, payments contract, technology, markets and goodwill with the greater community at large, the firm becomes a living organism in all these.

Now money becomes a value in terms of the transactions of real goods and services. Governments and Central Banks play the role of advicea and control of this precise function in the monetary, investment, spending and trade sectors. These institutions do not create money based on IOU and promissory notes as is found to be true of the conventional economy today. Firms avoid speculations, which is a possibility caused even by the Grassroots orientation to production, choice of technology, preference changes and social well-being derived from price stability, abundance, simplicity and security.

The fiscal policies are related with monetary policies and are not independent of them. Thus, just as the value of money is generated by the value of real transactions, so also the fiscal needs mean a direction of such monies into the emerging socioeconomic developmental directions. We can now tie up trade and human resource development policies all together with fiscal and primarily monetary phenomenon. The primacy of monetary phenomenon in the real values of the Islamic political economy, shows the great importance that money as value of real transactions holds in this system. It is for this reason that we find that interest rate gets abolished as an unwanted, illogical price for money, when money ceases to be a commodity and its value is replaced by the value of real transactions in the absence of speculations, arbitrage and financial covers. Money now becomes a contravention to enable exchange among goods and services.

Now since the Islamic firm is that institution that performs the function of real transactions along with buyers, and such a firm also establishes the nature of the socioeconomic development plan, therefore the emanation of economic policies emanate from this micro-level organism. It is for this reason that we have dealt with the topic of the micro-macro interface in the Islamic political economy in one of the lectures of this series.

In conclusion then, the theory of the firm in Islamic political economy now becomes an organizational theory of the firm. The Islamic firm is an organistic agent that like many other agents of the Islamic political economy engages in a `global' process of interactions (discursions=knowledge flows), integration (social consensus) and creative evolution (diversification and growth). Just like all other elements of the Islamic political economy, the Islamic firm is an agent in the Shuratic Process that links up with the total social order. In this way the Islamic firm derives its rules from the premise of Unification Epistemology in the substantive sense of the embalming methodology in this. Finally, the same methodology of interactions-integration-evolution, which marks the role of the firm alongwith other agencies of the Islamic political economy, to realize the Unification Process in the real sense.

Within the Shuratic Process as the background for the organization of the Islamic firm with the social totality, can be now taken up details respecting the kinds of producing organizations, namely, monopoly and various kinds of imperfect competition. The nature of the Islamic firm in contradistinction to the theory of perfect competition, imperfect competition and monopoly is that of competition-cooperation organization. These are taken up elsewhere and are not expounded here.

The nature of abundance that arises from the principle of universal complementarity and ethicized market transformation in which the firm alongwith other agents play their roles, is presented in many verses of the Qur'an. Of these is the following: "Behold! In the creation of the heavens and the earth; in the alternation of the Night and the Day; in the sailing of the ships through the Ocean for the profit of mankind; in the rain which God sends from the skies, and the life which He gives therewith to an earth that is dead; in the beasts of all kinds that He scatters through the earth; in the change of the winds, and the clouds which they trail like their slaves between the sky and the earth; -- Here indeed are Signs for a people that are wise. (Chapter II, verse 164)