From boom-bust to double-dip: Capitalism’s continuing crises
UK enters a second recession in as many years
While many have been in denial regarding the state of the UK economy the Office for National statistics (ONS) confirmed on the 25 April 2012 that in Quarter 1 2012 the UK fell into recession – for the second time in about as many years, in what has come to be known as a double-dip recession.
The financial crisis of 2008 dragged the global economy down with it and governments across the world have attempted various strategies to deal with its effects.
As the UK goes into recession again, this would suggest that all the solutions that have been implemented have failed. Initially bank bailouts and nationalisations were used as a policy to save the economy from collapse. Yet saving failed businesses on an industrial scale clearly contradicted capitalist free- market principles.
As the UK economy, like that of the Western world more generally, contracted governments turned to quantitative easing, which is printing money on an industrial scale in the hope that people would again start spending and thus the recession would end.
The arrival of the ConDem coalition government in May 2010 ushered in a policy of austerity to address the huge debt overhang from unsustainable government spending levels with the dogmatic belief that once the budget balanced the economy would stop shrinking and begin to grow.
Stimulus nor austerity has worked because the economy has gone back into recession.
Economic growth is measured through the economic metric of Gross Domestic Product (GDP). This is the value of the goods and services produced by all sectors of the economy including, agriculture, manufacturing, energy, construction, the service sector and government. The contribution of all of these sectors is calculated by periodically surveying a small selection of companies in each sector. Data is also collected from government departments covering activities such as health and education. As perpetual growth is of so much importance to capitalist countries the UK produces the earliest estimate of GDP of the major economies, around 25 days after the quarter in question. But this is based on only around 40% actual data for the quarter with the rest being based on the guess work of economists and statisticians. A growing economy with increasing production of goods and services is said to be a healthy economy. This is because, for capitalists, peoples wants are unlimited so with ever increasing production more people are more able to access goods and services to satisfy those wants and therefore to be happy.
The fundamental problem with the UK is that its economy is dominated by the financial sector, with the driving engine being the defunct banking industry. The financial crisis began in 2008 with the credit crunch and thus the UK’s largest sector collapsed taking the whole economy down with it.
The problem here is the financial industry does not just dominate the economy, it also dictates politics – as recent scandals have shown. This industry’s influence reaches parliament and government creating powerful vested interests, who protect the ailing and flawed sector despite it handicapping the UK economy.
A more fundamental issue however is the role of economic growth in the economy. Boom periods see debt drive economic growth. These artificial bubbles eventually run out of steam and burst. This last happened in 2008 but there have been major recessions at the start of each decade in 1970s, 1980s, 1990s and 2000s.
The capitalist model thus does not promote sustainable growth but economic growth at any cost, even if it undermines the long term interests of the economy. This obviously is not sustainable as periodic booms followed by busts have demonstrated – none more so than entering a second recession in about as many years.
Islam and economic growth
Islam recognises human needs and wants and their requirement for satisfactions. Needs such as food, clothing and shelter are however different from wants i.e. luxuries because without the former a person will not survive. Thus in contrast to the capitalist’s fixation with economic growth to satisfy human collective wants [which is in fact impossible] Islam’s economic policy actively works to ensure households to not go without to food, clothing and shelter. This is according to a hadith reported in Tirmidhi:
“The Son of Adam has no better right than that he would have a house wherein he may live, a piece of clothing whereby he may hide his nakedness and a piece of bread and some water.” [Tirmidhi]
Once peoples basic needs are looked after they have the capacity and ability to engage in acquiring their lawful luxuries.
In contrast to the capitalism where economic policy is orientated towards economic growth, the focus of Islam’s economic policy is on fulfilling human needs to ensure that poverty is eliminated in society. This avoids a scenario in the capitalist growth model where millions do not adequately have the basics of food, clothing and shelter in spite of the wealth in society.
But this does not mean that the Islamic (Khilafah) state hands out food, clothing and shelter to all households or that all industries that provide these basic needs are state owned.
The economic model in Islam is integrated with individual and household Islamic rights and responsibilities which are implemented via the Shariah (the law of Allah (swt). Thus for example wives and children have a right to, at least, food, clothing and shelter and it is the responsibility of the husband/father to provide these. A failure to do so allows wives to seek redress in the courts from the property of the father. This chain of responsibility and accountability stretches across Islamic society to parents, grandparents, sons and grandsons. Only when individuals are not able to be supported by their wider household does the state step in to secure individual basic needs.
Thus in Islam the imperative is to remove poverty which enables all citizens to engage in all lawful business activity. There are no taxes on income so work is incentivised and spending is boosted creating demand for a variety of lawful goods and services providing jobs and livelihoods. Meanwhile the gold and silver standard ensures price stability encouraging business investment and boosting jobs. The role of the state is clearly defined with prohibitions on price and wage fixing which promotes entrepreneurship. This creates balanced growth in the real economy in line with population and productivity increases such that growth is sustainable with all citizens always able to fulfil their needs and avoids the perennial booms and busts under capitalism which over time plunges ever increasing numbers into poverty.