Capitalism and Islam

A lecture delivered by me in New York in March of this year. The lecture does not mention that India , China . Russia have made great strides in modern times by adopting Capitalism. Obviously Capitalism cannot be so bad except in all of these countries, the economic inequality of people is perpetuated. The rich become rich through access to power and once there they keep out the competition through access to power and capital. Adam Smith must be turning in his grave with disgust.

The idea of Islam presenting a better solution could be hilarious to many considering the lack of Islamic contributions to anything in modern times. I do believe Islam to be a very forward looking religion in spite of the retrogade practices of it's followers in recent times. I expect to write more in this subject in future. In the meantime feel free to circulate this lecture to your Capitalist friends.

Khusro

Date: Monday, March 31, 2008, 11:36 PM
Capitalism and Islam


Introduction

Capitalism is a modern concept for many practices which have been going on for centuries. In the olden days there was Feudalism which relied on a tribe financing itself with Taxes, levies and penalties. Then came Mercantilism which was the opening of new trade and new markets. This was backed by Governments and resulted in the discovery of America .

Islam practiced Capitalism mush earlier, between the 9th and 12 th Centuries. There were trading companies, Bills of Exchange, contracts, Mudarabas ( Limited Partnerships) Profit, Capital ( al-Mal).

The concept of private property was not introduced until the 15th – 18th Centuries. The economics of the world got modified as it moved from Agricultural to Maritime to Industrial societies.

As we know it today Capitalism means the right of an individual to become an entrepreneur for the purpose of making profit. This profit is made by making goods and services available to buyers in a free market environment where prices are set by supply and demand. It is assumed that a free market will allow competition which in turn will result in productivity and efficiency . It is assumed that there will be no Government intervention except to make sure that there is no cheating and the market is truly free.

Adam Smith, The rise of Capitalism

“Adam Smith's great book, The Wealth of Nations, was published in 1776, at a time when the power of free trade and competition as stimulants to innovation and progress was scarcely understood. Governments granted monopolies and gave subsidies to protect their own merchants, farmers and manufacturers against 'unfair' competition. The guilds operated stern local cartels: artisans of one town were prevented from travelling to another to find work. Local and national laws forbade the use of new, labour-saving machinery. And, not surprisingly to us today, poverty was accepted as the common, natural, and inevitable lot of most people. Adam Smith railed against this restrictive, regulated, 'mercantilist' system, and showed convincingly how the principles of free trade, competition, and choice would spur economic development, reduce poverty, and precipitate the social and moral improvement of humankind. To illustrate his concepts, he scoured the world for examples that remain just as vivid today: from the diamond mines of Golconda to the price of Chinese silver in Peru ; from the fisheries of Holland to the plight of Irish prostitutes in London . And so persuasive were his arguments that they not only provided the world with a new understanding of the wealth-creating process; they laid the intellectual foundation for the great era of free trade and economic expansion that dominated the Nineteenth Century. The Wealth of Nations changed our understanding of the economic world just as Newton 's Principia changed our understanding of the physical world and Darwin 's Origin of Species. “

Victory over Communism

After the second world war, Capitalism as represented by the US and Western Europe, clashed with Communism as represented by the USSR and Eastern Europe and for almost 50 years the cold war raged on as to which system would survive. As we know Capitalism was victorious and Communism collapsed and disintegrated. All this means is that Capitalism was better than Communism, to my mind it does not mean that Capitalism is the best Economic system. There are huge differences between the theory preached by Adam Smith and it's practice..
Nowhere in the world is it more seriously practiced than in the US . While Europeans are inclined to mix it with some form of Socialism, for the Americans it is almost a religious belief to keep it pure.

Does Capitalism create Wealth

Amongst the people rooting for free markets, competition and profits was myself until I became more aware of what was really driving Capitalism. It was not until I looked more deeply into Capitalism that I realized that the two things that were driving Capitalism as we know it are Greed and Exploitation. Individualism is driven by self interest and self interest is driven by selfishness.

True the glitter and riches that we see in the US appear to be fruits of Capitalism but the wealth that has been created has been through the exploitation of the labor of the poor and the downtrodden. The fundamental theory of Capitalism is to create surplus by exploiting the true price of labor. Stealing the land of the American Indian and profiting from the labor of the African Slave and then exploiting Mexican and South American Labor are the foundations of US Prosperity.

Does Capitalism create Poverty

Capitalism creates great wealth but only for a few. Today 1% of the worlds Population controls 80% of the worlds resources.( Vandana Shiva quoting from the Helsinki reports). The income distribution of Capitalism is so lopsided that Capitalism has actually created poverty. The Rich will keep getting richer and the poor will keep getting poorer. The rich once they achieve wealth also achieve power and they make sure that the rules are written in their favor. The Auto Industry in the US joined hands with the rubber and glass Industry to make sure that the railroad system never took off. The US has the most miserable public transport system because GM and the tire Industry made sure that people relied on cars for transportation.
The Defence Industry makes sure that there is a war every few years so that they can sell arms. The oil Industry created a revolution in Iran to make sure that oil prices were kept low.

We have been here before when the "System" tried to manipulate markets.

Silver ( 1980), When the Hunt's had begun accumulating silver back in 1973 the price was in the $1.95 / ounce range. Early in '79, the price was about $5. Late '79 / early '80 the price was in the $50's, peaking at $54.
The collapse of the silver market meant countless losses for speculators. The Hunt brothers declared bankruptcy. By 1987 their liabilities had grown to nearly $2.5 billion against assets of $1.5 billion. In August of 1988 the Hunts were convicted of conspiring to manipulate the market.
S& L Scandal The US Savings and Loan crisis of the 1980s and 1990s was the failure of several savings and loan associations in the United States. More than 1,000 savings and loan institutions (S&Ls) failed in "the largest and costliest venture in public misfeasance, malfeasance and larceny of all time."[1] The ultimate cost of the crisis is estimated to have totaled around USD$160.1 billion, about $124.6 billion of which was directly paid for by the U.S. government -- that is, the U.S. taxpayer, either directly or through charges on their savings and loan accounts-- [2], which contributed to the large budget deficits of the early 1990s.
The resulting taxpayer bailout ended up being even larger than it would have been because moral hazard and adverse-selection incentives compounded the system’s losses. [3]

The debts of Third World Countries ( 1983). In the 1960s and 1970s many Latin American countries, notably Brazil, Argentina, and Mexico, borrowed huge sums of money from international creditors for industrialization; especially infrastructure programs. These countries had soaring economies at the time so the creditors were happy to continue to provide loans. Between 1975 and 1982, Latin American debt to commercial banks increased at a cumulative annual rate of 20.4 percent. This heightened borrowing led Latin America to quadruple its external debt from $75 billion in 1975 to more than $315 billion in 1983, or 50 percent of the region's gross domestic product (GDP). Debt service (interest payments and the repayment of principal) grew even faster, reaching $66 billion in 1982, up from $12[ billion in 1975.[1]

1960s saw the US spend more than it had, resulting in the printing of more dollars.
Oil-producing countries, pegged to the dollar were affected as the value of the dollar decreased.
In 1973, the oil-producing countries hiked their prices as a result, earning a lot of money, which they put in to western banks.
Interest rates started to plummet resulting in more lending by banks to try and prevent a crisis.
A lot of the borrowed money went to western-backed dictators, resulting in little benefit for most people.
In 1982 Mexico defaulted on its debt payment, threatening the international credit system.
The IMF and World Bank stepped in to Mexico and other nations facing similar problems, prescribing their loans and structural adjustment policies to ensure debt repayment.
The poor have suffered the most as a result of the harsh conditions of structural adjustment.

the currencies of third world countries ( 1996), In 1996 international investors poured perhaps $100 billion into East Asia . East Asian economies were the darlings of the world capital market: it seemed as if everyone who wanted to lay claim to any financial sophistication was diversifying into these fast-growing economies. op-ed writers opine about "crony capitalism" and "unsustainable investment" and "weak financial systems" and "over lending. "


Enron ( 2001), “The rise and fall of Enron is an instant classic in the annals of capitalism because, in one calamitous stroke, it wipes out so many sanctified illusions that rule in the magic marketplace. Enron embodies Nobel-class hubris like that of the market sophisticates who brought Long-Term Capital Management to ruin in 1998. It also smells of the raw monopolistic greed common a century ago. An energy-trading company that Wall Street had valued at $80 billion ten months ago is now a penny stock.” - William Greider.
Stockholders lost $60 billion in market value, long-serving employees lost more than $2 billion in pension money, and 5,600 people lost their jobs.
In just 15 years, Enron grew from nowhere to be America 's seventh largest company, employing 21,000 staff in more than 40 countries. But the firm's success turned out to have involved an elaborate scam. Enron lied about its profits and stands accused of a range of shady dealings, including concealing debts so they didn't show up in the company's accounts.
There was widespread collusion between Banks, Auditors and Enron’s management to perpetrate this fraud.

Sub prime loans. 2007 Sub prime lending is a general term that refers to the practice of making loans to borrowers who do not qualify for market interest rates because of problems with their credit history or the inability to prove that they have enough income to support the monthly payment on the loan for which they are applying.
The value of U.S. sub prime mortgages was estimated at $1.3 trillion as of March 2007, [10] with over 7.5 million first-lien sub prime mortgages outstanding. [11]Approximately 16% of sub prime loans with adjustable rate mortgages (ARM) were 90-days delinquent or in foreclosure proceedings as of October 2007, roughly triple the rate of 2005. [12] By January of 2008, the delinquency rate had risen to 21%.

The Government, the regulators, the rating agencies were all complicit in creating a crisis which now dwarfs other financial crises.


Colonisations have all exploited the colonised, whether it was by the Ottomans, the British, The French, The Belgians, the Spaniards, the Dutch or the Americans. The colonisation of the American Indian or of Black Africa or of India never benefited the colonised but enriched the coloniser beyond all reason.
The theme of greed, fraud, exploitation and collusion runs through all the above examples.
Capitalism has become a disease. There is no free market, there are simply monopolies. More over Capitalism has become Imperialism.

Capitalism and Islam

What I call run away Capitalism, What Naomi Klein calls Disaster Capitalism and Dr Reich calls Super Capitalism cannot be recognized by Islam. Greed and Exploitation are considered sin in Islam and virtues in Capitalism. The short term benefits of Capitalism have created long term disasters for mankind. The erosion of the environment, the stealing of other peoples land and resources, the creation of mass poverty are crimes of the highest order.

The urgent need to replace Capitalism

They are there because the culture of God has been replaced by a culture of Materialism. All the benefits of Capitalism vanish when Capitalism becomes master and the Capitalist becomes the slave.
Today Islam has no greater role to play than to come up with an alternative to a system that is no longer in the hands of the Capitalist, it has become the god of the Capitalist. While we can say that the goal of the Capitalist is to make money, let us leave them alone and get on with the other issues, it might have been fine, but Capitalism’s corrosive effect is so deep that it has tainted Democracy and other things valued by Humans. Today there is so much money in Democracy that the representatives are no longer the representatives of people but represent Corporations. The media is owned by Capitalists , who write what sells their ads rather than what is real news.

The role of Islam

This is a tall order. What we want to address is not just Capitalism but Imperialism, Journalism, Democracy and Poverty. Before we do that let us salute the energy generated by greed. The profit motive has unleashed the desire to take risk and innovate. Islam encourages Entrepreneurship, it encourages profits, it encourages risk taking and innovation. The question is, is greed the only way to make this happen. The question is are human beings driven by self interest or are they driven by something bigger than themselves.
That is the contribution that Islam has to make. Islam says and Allah says Worship me and no other. Islam says, the return is to Allah. The wealth that you create will not go with you. The end of life is not how big your house will be or how many cars you will own. The end will be determined by whether you have cheated, killed, exploited your fellow humans and how you will be held accountable for it.
If Islam were defining the issues, it would be a war on Poverty and not a war on Terrorism. Terrorism is a by product of the exploitation of the poor and the weak. It is a by product of the injustices of Imperialism. The answer is not to kill the poor but to recognize injustice and address it.

How can we even begin to address an alternative to Capitalism when Islam today funds the war on terrorism? Saudi Arabia through funds and Pakistan through it’s army are in the forefront of the fight to kill other Muslims. We have a long way to go before we can all get on the same agenda.
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