Islam and Economic Growth

8/7/2019 Islam and Economic Growth

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Disaster Capitalism

Capitalist notions of economic growth have dominated the global economicscene, however the free market has been unable to deliver sustainable andstable economic growth and this continues to be its biggest failure. Economicgrowth has been achieved with the regular recession, crash, slumdepression. Whilst Capitalist nations have achieved phenomenal econogrowth their economies continue to self destruct at regular intervals.

Capitalism may have driven wealth creation like never before; however there area number of developments that it should also be certified with. The worldeconomy maybe generating record wealth with liberal democracies driving this,but half of the world's population will not have had enough food today as theyearn less then $2 a day - 80% of the world lives on less then $10 a day. World

poverty has in fact accelerated under Capitalism.Capitalism's next success has been creating histories greatest ever wealth faultline. Whilst the majority of the world barely survives on a few dollars, the US hasmost of the world's billionaires, in what is mankind's greatest lopsided worldeconomy. In 2006 the World Institute for Development Economics Research ofthe United Nations released the culmination of a global study; a number of itsfindings are staggering. By gathering research from countries all over the worldthe study concluded that the richest 1% of the world own 40% of the planet'swealth and that only 10% of the world's population owned 85% of the world'sassets. Richard Robbins in his award winning book Global Problems and the

Culture of Capitalism' confirmed this when he said"

The emergence ofCapitalism represents a culture that is in many waysis the most successful that has ever been deployed interms of accommodating large numbers of individualsin relative and absolute comfort and luxury. It has notbeen as successful, however, in integrating all inequal measure, and its failure here remains one of itsmajor problems."

Capitalism has also created the most indebted world in history, where individualsand nations have more debt than income. The fact that the world generated $54trillion is irrelevant when most of this has been funded by debt. The westernworld has become obsessed by consuming more then it really needs and most ofthis is funded by debt as most of the wealth generated is in the hands of a few.The USA, the world's superpower, the world's largest economy and for many asymbol of Capitalism's success is drowning in a sea of debt, which the creditcrunch crisis has brought to the forefront.

INTERNATIONAL ISLAMIC UNIVERSITY ISLAMABAD

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The US generated nearly $14 trillion in 2007, however the national debt - this ismoney the central and federal governments owe to the US public and the worldthrough the bonds they have sold - stands at $9.7 trillion. The US citizenry havea huge appetite for imports and real estate; as a result consumer debt stands at$11.4 trillion. The debts of US companies amounts to $18.4 trillion. This makes

the US indebted to the tune of just under $40 trillion - nearly 75% of what theworld produces. 37 million Americans live below the poverty line. Capitalism'scontinued endeavour of perpetual economic growth has drowned the world inmoney it does not have which makes the prosperity liberals insist on remindingus, rather irrelevant.

Perpetual Economic Growth = Mission Impossible

Whilst it is undeniable that Capitalism has pumped out more wealth than anyperiod in history, in this apparent success lays its failure. The need for perpetualeconomic growth is what causes the regular crash. Capitalist notieconomic growth require the national economy to continually grow, this in turn

needs consumers to continually spend, the availability of debt allows this on amassive scale. Once consumers have spent beyond their means a cut inspending is inevitable - in which case a boom is followed by the inevitable crash.

The UK's current economic crisis is a classic example of this. The UK witnesseda boom for nearly a decade that was driven entirely by financial services and thereal estate boom. Britain like most western economies was driven by a handful ofsectors which was used to stimulate the remainder of the economy. Once thereal estate bubble ran out of steam, the UK's engine packed up and unlessanother engine can replace the broken economy the UK economy will seize tomove. The bubble was aided in its expansion due to the ability to print money atwill, the want for consumers to spend beyond their means and the availability ofdebt all contribute towards expanding the bubble. In fact one aspect of theCapitalist economy that will always make all economic growth unsustainable isthe fact that money can be printed at will and will always exceed what isproduced by the economy.

Islam Produces Sustainable Economic Growth

Free market economies will always have booms and busts as the need toachieve permanent economic growth is unsustainable. Any variation of the freemarket will have the same outcome. Islamic economics on the other hand has adifferent view on the economy and has at its core some fundamental conceptsthat create a stable and sustainable economy. This allows for a much stableeconomy with sustainable growth and not miracle growth which eventually runsout steam.

Economic growth stems from the endeavour of society to produconsumption, this endeavour naturally pushes for better technology to producemore'. The breakthroughs in splitting atoms, cloning cells, manipulating andminiaturising items or the development of material that absorb light, are alldevelopments that Islam is not at odds with. Islam permits the adoption of


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science and technology as they are universal disciplines that makdifference weather one is a Muslim or a Christian, these are developments thatrequire the understanding of the environment and reality. Such facts are thesame whether in China or the US because they are not influenced by any belief.Hence Islam can adopt developments from other civilisations that are scientific in

nature, Islam would adopt them fully and add to the body of research anddevelop the field further. Islamic economics in no way is a step backwards andwill adopt all the 20 th and 21st century technological and scientific developments.The key distinguishing feature between all economic systems is how wealth,resources and goods are circulated around the economy.

Sustainable economic growth is achieved in an Islamic economy through anumber of ways:

1) The Islamic economy is built upon the real economy with agriculture andmanufacturing the key sectors in the economy that generate wealth. Islam doesnot recognise the interest-based financial markets in their current form as seen in

the west. The Islamic economy creates wealth through the manufacturing of realgoods and the value added at each stage of production. This in no way meansIslam is against a service sector, in an Islamic economy the emphasis is uponthe real economy.

2) By removing the role dubious financial asset markets in an economy, theirremains the real economy where trade, investment, salaries and wealth isgenerated and circulated. This creates the much needed stability absent in freemarket economies as speculation has been effectively removed. The $500 trillionderivatives market allows speculation upon events in the real economy on a hugescale, the ability to make money in such a manner means it ceases to be in thereal economy creating a duel economy. The Islamic economy in effect only has

the real economy, hence all participants engage in the same sphere.

The Islamic prohibition of interest frees up idle wealth. Allah :said

"That is because they say: Trade is just like riba, whereas Allah permittedtrade and forbade riba."[Al-Baqarah, 2:275]

The existence of interest causes wealth to remain in banks in order to accrueinterest rather than remain circulating in the economy. In free market economiesall banks use most of their customer deposits to speculate on the financialmarkets which is a double whammy as money again is not circulating in the realeconomy. The removal of interest removes the incentive to deposit excesswealth in banks for long periods. The only way to increase wealth is throughinvesting it across the economy in projects or entering into business. In this wayan Islamic economy will grow and it will be real growth built upon wealth which is


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Inflation will be rare in an Islamic economy, this allows for stable purchasingpower which causes certainty in the economy.

Conclusion

The Islamic economy fundamentally creates growth through unrestricted wealth

circulation. Allah even mandated the central government to intervenein the economy in cases of misdistribution of wealth in the economy:

"In case it (wealth) circulates solely among the wealthy from amongst you."[Al-Hashr, 59:7]

Islam also mandated the central government to create the necenvironment where the basic needs of society can be fulfilled. At the same timeIslam has made it obligatory initially upon the family to cater for each other incases where ones basic needs cannot be fulfilled. The state will intervene if an

individual cannot fulfil their basic needs and has no dependents to fall upon.Islam allowed society to increase its wealth and is in no way prescriptive in themethods this can be achieved with. However Islam regulated and has not setsociety completely free in accumulating wealth, as this inevitably leads tocorruption and the creation of the poor. The Islamic economy has restrictedthrough a number of quranic verses and ordered citizens in an Islamic economyto live within their means, at the same time Allah extravagance. Allah through many verses praised those who seek andwork with their own skills and wealth, Allah praised those who benefitfrom their accumulated wealth, all this shows that Islam has promoted makingmoney and enjoying life's pleasures. Islam at the same time has the necessary

tools to achieve sustainable economic growth and a distributive wealth systemwhere all can live in relative comfort and ease.


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Islam and Economic Growth

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