Capitalism exploited the developing world’s resources during the boon years while vast numbers in poor countries lived in absolute poverty. Millions routinely die from treatable diseases like cholera and malaria. Recession in the developed world has not made the situation any better in the developing world.
This financial crisis has quickly spread from the west to developing countries that have blindly adopted capitalism’s economic model. There are several reasons for this:
Many developing countries have set-up stock markets to encourage international capital transfers. Most of these countries have little or no industry to speak of expect mining or drilling activities with their newly acquired stock exchanges little more than glorified gambling casinos. As western governments have nationalised their banks they have at the same time directed these banks to focus lending on domestic western economies. Private international funds have therefore dried up causing the western financial crisis to have direct repercussions on the developing world.
The financial crisis in the west has precipitated what appears to be among the worst recessions in the west in over 50 years. Demand for finished goods in the west has dropped drastically causing international trade to ‘fall off a cliff’. Developing countries that have modeled their economies on the capitalist model of export led growth have consequently seen demand for their raw materials and manufactured goods plummet not due to uncompetitiveness but due to recession in far away economies over which they little say. The little real employment that existed in the private sector in these developing countries has declined with the consequent loss of livelihoods and increases in poverty.
The developing world holds large dollar currency reserves to service their important bills and some even tie their local currencies to the dollar. The moves by the US to cut interest rates, increase public borrowing and most recently desperately resorting to printing money has depressed the value of the dollar and thereby reduce the value of developing countries’ vital reserves. These rapidly diminishing reserves are a vital lifeline and leave many developing countries vulnerable to being unable to service their food and fuel import bills.
Many developing countries rely on remittances from their citizens working in the west and sending funds back home to support families and dependants. With recession at home many western governments are turning back economic migrants, who were previously welcomed, in favour of their own citizens – many of whom are falling prey to the deepening recession.
Finally, aid from the west provided a vital lifeline to the poorest developing countries. Aid is normally provided as a proportion of the donor’s GDP. However, as GDP falls so will absolute levels of aid from the west even though many western governments never honoured their Millennium Development Goals.
Capitalism failed to lift most of the developing world out of poverty during the boon years. Now during recession in the west the developing world is suffering once again from the misery of adopting capitalism’s models of economic growth.
The developing world needs to learn from the mistakes of the past and abandon capitalism.
A future Khilafah state in the Muslim world would provide an example of sustainable economic growth at home and a foreign economic policy built on spreading prosperity as a means of invitation to Islam in contrast to capitalism which has merely pillaged the developing world’s resources with no regard to the welfare of the people.