The Global Financial Crisis: The self-destruction of global capitalism and an introduction to the alternative Islamic economic model
Global Capitalism has faced no lack of criticism since its inception, always controversial and never dull. From Das Kapital in the 19th century to the Anti-Globalisation movement in the late 20th century, there has been no shortage of predictions that the Global capitalist system was about to fail, on its last legs hoisted by its own petard of excess and greed.
Some may try to argue that the crisis of September 2008 is not the end for capitalism. They will argue this was a bubble, like many before. However, the fact that major western nations, led by the United States and Britain, have injected record amounts of capital to save the banking sector from complete collapse is unprecedented. Banks have been nationalised – something repugnant to those who believe in the free market – rather than allowed to collapse like Lehman brothers. Stock markets around the world plummeted by record levels. The effect on pensions, inflation, taxation, home repossession and unemployment is expected to be dire, but the eventual extent is as yet unknown. The human tragedy that may occur as the ripple effect affects economies in poor countries is frightening to contemplate. The geo-political implications of the crippled US economy will unfold over the coming years in a way that is as yet hard to predict.
In our view, this unfolding crisis marks nothing less than the beginning of the end of capitalism. For what is certain is that a foundational element of capitalist belief – an absolute trust in the free market – has been irrevocably damaged. Those who continue to argue the usefulness of the current system, who say there is no alternative and who seek greater regulation (a tweaking of the system) cannot defend the very key principle upon which the system was founded and under which it flourished.
Moreover, not only has the free market ideology failed, but certain fundamental principles of capitalism are central to the cause of this current crisis, yet no one has proposed any change to these fundamentals. These, which are discussed in this paper, are the interest led banking system, the fiat currency model, the system of trade in the stocks and derivatives markets and the failure to identify that not all ownership should be in private hands.
Furthermore, people around the world outside of the west – who were dazzled by the brilliance of capitalism’s light, now see that light fatally diminished. What little faith they had in this western model, which for decades they have tried to emulate, now raises more questions than provides answers. Can this be the only way to trade, create wealth and see economies grow? Can it be right for business that trade occurs in such an inherently unstable system? Where is the fairness if profits largely remain in private hands and based on massive bets in financial markets, and that consumers and taxpayers have to bail out the cumulated losses of the rich due to their risky transactions?
The embers of capitalism may still glow and provide heat for some time yet, but they are only embers. Just as freedom and democracy have been severely undermined by Abu Ghraib, Guantanamo bay and extraordinary rendition, free-market capitalism has been severely undermined by this financial meltdown.
People are now looking for an alternative. People are now looking for leadership. It is only in Islam that such an alternative exists. For Islam has a system, tried and tested over centuries which has certain pillars rendering it as not only a system capable of producing economic growth but of sharing that growth more fairly – something that capitalism has manifestly failed to do.
Islam provides stability in its economy for the currency must be fully backed by gold and silver. Islam prohibits interest-based lending. Whereas, the Islamic treasury – the Bait al Maal can lend interest free to businesses and those who need help. Trade is hugely encouraged in Islam, but the rules of trade are clear, fixed and not open to political manipulation by powerful lobbyists. Finally, Islam clearly defined which things are owned by the state, which is held by the state but for public ownership, and which is the private wealth of citizens in which the State has no power to interfere.
This work provides little more than an introduction to this system, reflecting on Islamic solutions to the key financial crisis questions. What is clear is that two things lie in a huge state of flux: the future of the world economy and where political influence in the world will lie in the years ahead. And in that state of flux opportunity for change exists. Moreover, it is a duty upon the Muslim world to establish the Islamic system, under the Khilafah, to lead that change and to provide the alternative that will end, not only the inevitable cycle of boom and bust, but also the intractable gap between rich and poor – a misery that capitalism has utterly failed to address while it dominated the world.
“And Allah has full power and control over His Affairs, but most of men know not.”
[Translated Meaning of Quran Yousuf: 21]