Economics is one discipline above all where the West feels it needs no lessons from others. The demise of the Soviet Union is widely attributed to the unsustainable economic practises of the communist/socialist ideology. With regards to the Islamic world, the great wealth brought by the oil boom windfall cannot disguise the apparent underlying fragility of most of the economies of Muslim countries. As regards Islam's view of economics, both Muslim and non-Muslim economists are sceptical about how an Islamic model can run a modern, dynamic economy.
This supremacist attitude is unsurprising yet wildly misplaced. As Western economies enter a period of stagnation and in the midst of a near financial meltdown - a little more humility is clearly in order.
Capitalist economic illusion
On the face of it Western capitalist economies appear unassailable - the US tops the league with an economy worth $14 trillion (2007) and per capita incomes of nearly $46,000 for each of its 302 million citizens. In fact, according to the IMF, six of the top 10 countries by Gross Domestic Product (the most commonly recognised though flawed measure of worth) are western with China, India Brazil and Russia making up the rest. Take away the recent rapid growth in China, India, Brazil and Russia's substantial windfall from today's oil price at over $100 a barrel would leave the west (basically the US, Canada and European countries) with nine of the top 10 economies in the world - Japan being the anomaly. Hence the West's arrogant rejection of any other economic model than the capitalist model. What GDP statistics fail to reveal is the huge accumulated debt driving economic growth. In 2007, the external debt the US owed to the rest of the world totalled an astounding $12 trillion - accounting for a massive 85% of GDP. External debt is defined as the total public and private debt owed to non-residents repayable in foreign currency, goods, or services. The debtors can be the government, corporations or private households while the debt includes money owed to private commercial banks, other governments, or international financial institutions such as the IMF and World Bank.
Unsurprisingly, though rarely noted, there is a canny correlation between economies that top the GDP table and the biggest debtors in the world.
The Top Debtors in the World
| |
External debt
($ trillion) |
GDP
($ trillion) |
| US |
12.2 |
13.5 |
| UK |
8.2 |
2.2 |
| Germany |
3.9 |
2.7 |
| France |
3.5 |
2.0 |
| Italy |
2.0 |
1.9 |
Source: IMF, 2007 data.
The table underestimates debt levels in actual fact. With the US and European governments pump priming financial markets heavily recently with hundreds of billions of dollars, external debt levels have risen substantially already in 2008.
The stark reality is that the high GDP numbers of capitalist nations are not much of an economic achievement (let along being sustainable) when GDP growth is propelled by debt. When this economic reality is understood, the recent remarks of David Cameron about the failure of the Brown government to "put aside" some wealth during the boom years seem totally absurd!
Inequality is rife
GDP and income per capita also conceal unjust income inequality and poverty in capitalist countries. According to official figures there are between 40-45 million American's, equivalent to two thirds of the population of the UK, relying on welfare payments for mere survival, which makes the $46,000 GDP per capita figure redundant and misleading. This is also an indictment on the world's ‘leading' economy.
GDP also does not distinguish between "good" and "bad" economic output. Time, effort and resources devoted to producing, distributing, marketing and then dealing with the health and societal break down aspects of alcohol, for example, is all classified as ‘economic output' and contributing to the $14 trillion GDP per annum but is in fact hugely destructive for society, families and households. Likewise, the painfully adverse impacts on society of huge and rising debt levels and home repossessions, often contributing to family breakdowns and wider social ills.
As the credit crunch bites there is real and present danger that a financial meltdown could result in a major depression. If banks are unwilling to lend due to a lack of liquidity or are more selective with respect to the creditworthiness of individuals and households then consumer demand from car to washing machines - most of it financed by unsecured debt - will collapse. Factories that produce these goods and the shops that sell them will close and unemployment will rise. This in turn will lead to further falls in peoples' purchasing power resulting in less output and higher unemployment. A vicious downward cycle.
While inequality in the US and Britain has worsened in the boom times as the rich got even richer, ironically it is the poor and most vulnerable that are worst impacted by recessions. As tax receipts fall in a recession Governments cut back spending on health, education and local services such as public libraries, help for the aged and the vulnerable. This is justified as being necessary to get the ‘public finances in order' despite the urgent need for such spending at a desperate time by the ones most in need.
Such contradictions were exemplified recently when the British Government found £50 billion to bail out large and previously profitable banks but in the same week announced the abolition of the 10 pence income tax rate, which will reduce the take-home incomes of the lowest paid. What's more, the abolition of the 10 pence tax rate will save the Chancellor a mere £7 billion. With basic necessities such as food and energy costs at an all time high, such policies are disastrous for the low income sector of society and entrench poverty.
Islam's economic approach
In Islam the success of the economy is not judged by the size of GDP as this tends to be only mildly related to the welfare of every citizen. This is exemplified by the millions living in poverty in the affluent West in spite of high GDP levels and growth rates. By way of analogy, increasing the size of the national ‘cake' does not ensure that all individuals will get a bigger slice due to the elusive ‘trickledown effect‘. Thus high GDP is therefore not a necessary and sufficient condition to lift each and every citizen out of poverty.
In contrast to Capitalism, the success of the economic model in Islam is judged by its ability to secure the satisfaction of the basic needs of every citizen.
Bukhari narrated from Ibn Umar: The Prophet (saw) said: "The Imam is in charge (ra'i) and he is responsible for his citizens."
The Prophet (saw) also said: "Do you have, son of Adam, of your property except that which you ate and consumed, that which you wore and exhausted, and that which you donated and kept (for yourself)?"
Unlike, Capitalism, where distribution of income is seen as a handout and conditional upon the other ‘priorities' of government, in Islam distribution of income is the basis of the economic system and a principal role of Government.
According to the Islamic evidences, wealth and riches must circulate in the whole society and not just among the rich and wealthy.
Allah (swt) says:
"Lest it circulates solely among the wealthy from amongst you" [TMQ: Al-Hashr]
Furthermore, the Prophet (saw) actively distributed wealth from the Ansar to the Muhajireen at the time of the hijra to Medina. It has been reported on the authority of Ibn Abbas that the Messenger of Allah (saw) said to the Ansar: "If you wish I could ask you to share your homes and your wealth with the Muhajireen and divide among you this booty, or if you wish you could keep your homes and your wealth and I shall not have to give you anything from this booty."
Moreover, the hoarding of gold and silver, the currency in the Islam State, is strictly prohibited.
Allah (swt) says:
"And let those who hoard gold and silver and do not spend in the way of Allah know that a severe and painful punishment is awaiting them." [TQM: At-Tauba: 34]
Distribution of wealth is thus an integral aspect of the economic system in Islam. It is not based on hand-outs, charity or the good will of the rich. Islam strongly prohibits hoarding and at the same time actively promotes circulation of wealth - a two pronged attack on poverty. Thus everyone has the opportunity to earn a living, make an investment or profit from others' investments such that deprivation does not become entrenched in society.
Conclusion
Capitalists like to goad about the apparent success of western economies. However, scratching the surface uncovers debt-ridden economies with hollow financial systems where inequality and poverty is rife. These economies, therefore, do not deserve to be emulated by developing nations or the Muslim world. By contrast, the Islamic ideology provides real practical solutions to the economic problems of the day. The Islamic economic system with its focus on the real (not financial) economy and with the money supply tied to gold and silver provides a model of sustainable and responsible growth, with distribution of the nations wealth at its core.
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