Equity concept and role in welfare of human society

EQUITY, CONCEPT AND ROLE IN WELFARE OF HUMAN SOCIETY

The word Equity is used to carry different meanings in different contexts. A closer study would show that all these applications of the word are connected and are manifestations of human welfare. In law, it is used to represent a situation where any allowance is sought to be provided over and above the common law and it is akin to the concept of istihsan in Islamic parlance. In social welfare, equity connotes benefits beyond the strict contours of justice, which is referred to as ihsan in the holy Qur’an. The third and the most popular use of the word equity is in economics and finance where it refers to the provision of the fund based on sharing of risks as against debt which entails the transfer of risk in any venture. 

The heavy dependence of the economy on the debt has ruined its fabric and it is causing unsurmountable hardships to the common man. There is a need to discuss these ills and dispel the feeling that an economy cannot survive on equity. A discussion is required both on the feasibility and viability of an equity-based economy and a roadmap should be drawn for the transformation of the economy from the present human suffering to the needed human welfare.

The word Equity is used to carry different meanings in different contexts. A closer study would show that all these applications of the word are similar to each other and are manifestations of human welfare. We intend to first discuss and delineate the usage of this word and its related concepts in three different contexts and then proceed to the similarities in all such applications. 

1. Equity in common parlance and social welfare;
2. Equity in law
3. Equity in economics, business and finance

Later we shall proceed to deliberate in some detail on the viability and feasibility of equity in the context last-mentioned above. 

1. EQUITY IN COMMON PARLANCE AND SOCIAL WELFARE

In a loose sense, the word is used for equality or justice as if they are synonymous. But they are not. Equity is equality-plus or justice-plus. Equality and justice entail fair dealing, and impartiality, giving as much advantage or latitude to anyone as to any other. Where equity demands more than what is due. The Arabic word for justice is adl while that for equity is ihsan. Dr Mohammad Nejatullah Siddiqi has described these two concepts as under: 

“Justice is largely perceived in terms of equivalence (in exchange transactions) and reciprocity (in a social relationship). But equity (Ihsan) is urged on top of justice and defined as giving more than is due according to the standards of equivalence and reciprocity to ensure survival with dignity for all.”[1]

Dr Nejatullah Siddiqi has quoted Izz el-Din bin Abdussalam who wrote, “justice (al-adl) is treating equally and with fairness, and equity (al-ihsan) is either bringing some benefit (maslahah) or preventing some dis-utility (mafsadah).” Further, to make his point, Siddiqi quotes Syed Abul Ala Maududi: “ihsan means…. rendering to others even more than their rights. It is something more than justice.”[2]

In fact, ‘something more than justice is needed to maintain the balance in human life.’ Justice in society is primarily required. Otherwise, there would be chaos and severe law and order issues would crop up. But justice itself does not suffice. The needs of children, old aged and differently-abled persons, and other individuals and groups who are in any disadvantaged situation will not be served. Justice is like providing every person with the facility to participate in a race and equity is arranging different groups based on their age, health and gender for the competition. Another point needed to be stressed here is that equity is not a charity mode but in most cases a matter of right. One does not serve his or her old parents as a charity but as a natural and rightful act. This point needed to be made because the connotation of the word ‘ihsan’ in the Urdu language entails charity whereas it is not so in the Arabic language.

1. EQUITY IN LAW

In the British System of law, equity is different from common law. At times the application of common law and precedents is inflexible and harsh, particularly in matters relating to families and children. It was resolved through equity which prevailed over the rules of common law. In our country the system of appeal to the president after the judgment of the apex court, in matters of the death penalty is akin, to rather it is, the law of equity. The judgment of the Supreme Court is the outcome of the common law and it can not go beyond this and it may be too harsh from other social or familial considerations. Equity provides the way out. 

Shariah, the Islamic law, has a similar provision termed istihsan (Juristic preference). This is in particular a method adopted by Hanafi jurists to ease out a situation where the deductive logic of analogy (al-qiyas) brings to any undesirable conclusion. The inductive logic is applied to get a better and more equitable solution to an issue.[3]

The Juristic Preference in Islamic law is not cent per cent equal to equity. Rather they are similar. They are not identical but they bear a close resemblance. An author has rightly quipped, “Istihsan is the nearest Islamic law doctrine to the notion of equity in western jurisprudence.”[4] Both these concepts are inspired by fairness and conscience and both authorise departure from a rule of positive law when its enforcement leads to unfair results. The difference between the two lies in the position that equity relies on the concept of natural law and its superiority while istihsan is based on the values and principles of shariah. However, there are several, if not overwhelming, points of convergence between the values of natural law and the shariah[5]. Welfare of human beings takes the centre stage in, and it is the primary concern of, both the approaches of law.

1. EQUITY IN ECONOMICS, BUSINESS AND FINANCE

We refer to the Cambridge dictionary available on the website to understand the meaning of equity as applied in business and finance[6].

• the value of a company, divided into many equal parts owned by the shareholders, or one of the equal parts into which the value of a company is divided:
• the value of a property after you have paid any mortgage or other charges relating to it
• the value of a property or business after debts have been subtracted:
• ​ the equal parts, or shares, into which the value of a company is divided.
• ​the capital that a company gets from selling its shares rather than borrowing money
• ​the value of a property for the owner after it has been sold and any loan paid back:

The definitions above are similar and they encompass the use of the word in the US and UK, besides universally in the business world. The significant aspect that transpires from these usages is that equity represents the share of capital or fund of the owners of an enterprise as against that owed to creditors and loan providers. Hence equity is the contrary of debt. All the liabilities of a business enterprise are owed either to its owners/shareholders or to other persons or entities. The former is equity while the latter is debt. The basic difference between debt and equity is the incidence and absorption of risks and losses. Whereas fruits of any business or any other organisation, including profits and gains or incomes, are concerned those are shared by each according to their respective entitlements but losses and other risks are born squarely by equity. We can simply state that risk is transferred by debt and is shared by equity. Hence the delineating aspect that draws a line of demarcation between the two is the risk-transfer in the case of debt and risk-sharing in the case of equity.

VIRTUES OF EQUITY

Virtues of the first two types of equities, as referred to above, about human welfare are universally accepted. There is no need to discuss, debate or deliberate upon how society needs equity over and above justice or why we need to provide an alternative outlet at times to alleviate human beings from the unfair sufferings of the inflexible and harsh application of common law. But this unanimity does not exist about equity in economics, business and finance. There is a serious question mark on the feasibility and viability of equity in this area. A perception has crept in that although equity as such is good and its presence to a certain extent is needed it has to be supplemented by a heavy dose of debt. It means that in this opinion equity is not virtuous enough to address the basic needs of economics, business and finance. So there is a need to address the issue of feasibility and viability of equity in the economy.  

THE DREADED DEBT 

Debt when described concerning equity means the debt which carries a charge in the form of interest. Otherwise, any business or economic activity is hardly possible without trade debt as all transactions cannot be done in cash. Debt with charge (i.e. interest-bearing debt) has always existed and their references are found in all known periods of history. it has gone through three faces in history: Originally it was considered a total evil; later it was accepted as a necessary evil; and now it is accepted as a necessity. 

The level of debt without charge, i.e. trade debt, should always be commensurate with the level of equity. In other words, the real economy and financial economy should be in direct proportion to each other. An increase in the quantum of the former should be followed by a relative increase in the latter. But in reality, the size of the financial economy is much higher than the size of the real economy. It is estimated that the size of the financial economy in the world is more than 20 times the global GDP. This disproportionate swelling up of the financial economy is led by speculation and financial engineering and this is possible only on account of the charge on debt (interest). 

Many problems and chaos in the world may be attributed to this problem of heavy reliance of the economy on debt with interest. And the solution lies in encouraging equity and discouraging debt in economics, business and finance,                                                                                                     

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