Daily Times

Capitalism is the economic manifestation of secular democracy. In its ideal form, a capitalist society should have free markets, no price control, no regulations, no barriers to entry or exit, and free flow of capital. This idealistic view of capitalism was never in practice but was credited with the rise of the west. In the early 1990s after the collapse of the communist Soviet Union, it was aggressively pushed for universal adoption as part of the new world order. In the early part of the 21st century, the failure of the west to contain their economic recession has stalled this effort. On the other hand, the Arab Spring has taken everyone by surprise and the question that comes to mind is whether this movement would produce an alternative Islamic economic model.

The classic definition of capital is land, labour and equipment. It is the interplay of these three resources that define an economy. In the 20th century, land and labour was provided by the colonised regions of Asia, Africa and South America while the technology and equipment was the domain of the west. After the end of the Second World War, exhausted imperial powers had to reluctantly allow independence to their dominions. Since the prime mover for colonisation was economics, a two-pronged strategy was adopted to maintain their control, i.e. introduction of a global corporation and support for autocratic proxy rulers.

Like the Frankenstein’s monster, the global corporations did not have allegiance to any one nation but rather were driven to achieve higher profits for their investors. Growth in profitability could be achieved in one of two ways. First, reduce per unit cost through pursuing economies of scale by building ever larger factories and automation. This made it impossible for the small guys to compete and forced them to go out of business, severely affecting local economies. Second, relocating plant and equipment where the labour was cheaper or raw material was in abundance. This started a process of imparting some of the industrial knowledge to emerging economies like South Korea, Japan, Brazil, India, China and Singapore.

In a truly capitalist world there should be free flow of labour across borders. It is ironic that it was the capitalist societies that introduced, for the first time in human history, a visa regime creating barriers to the free flow of labour. A brain drain from the third world to the developed world enabled them to staff their companies with the best talent without spending a dime on their education. This created an imbalance in the distribution of humanity, seeding an impending ecological disaster. Africa, which was plundered for the last two centuries for its natural and mineral riches, was left with a large population, no infrastructure or organised societies to cope with famine and food shortages. On the other hand, Europe is faced with declining populations. It is estimated that the nation of Estonia will disappear from the face of the earth by 2050. Asia is experiencing rising populations that are eager to migrate to Europe, Australia and the US, which can accommodate many more people.

In a free world there is no place for most favoured nation (MFN) status or need for a General Agreement on Tariffs and Trade (GATT). Nations can impose a uniform tariff on all imports rather than discriminate based on the origin of the goods. The imposition of favourable terms has become a political instrument to meddle in the internal affairs of other nations or to pressure them to accept a certain definition of human rights. The Islamic concept of trade requires free flow of goods across borders and respect for intellectual rights.

As new nations emerged in Africa, the Middle East and South Asia, they were ruled by autocratic rulers that got their weapons and support from their former colonists. These rulers granted special mining rights to international companies that made them dependent on foreign technologies rather than developing it indigenously. The petro-dollars earned were stuffed into private bank accounts in offshore banks, enriching a select elite rather than filtering down to the masses. This hampered the development of a middle class that are traditional torchbearers of establishing democratic societies. This produced societies that were dependent on a subsistence level stipend from the government and devoid of entrepreneurial energy. This status quo got a jolt last year with the advent of an Arab Spring that overthrew their shackles, demanding a voice in national affairs. This is now trickling down to the west, challenging the basis of capitalism and seeking an alternative.

The Islamic concept of economy requires minimal interference from the state to impose restrictions on the movement of labour or capital. An Islamic state is required to maintain a balanced budget. Taxes should be kept at a level so as to finance the functions of a government that are limited to border security, internal security, provision of justice, ensuring equal rights of the citizens and development of basic infrastructure. In an Islamic society, social services like education and healthcare are the responsibility of non-governmental organisations (NGOs) created and run by wealthy and professional individuals. These NGOs are required to be non-profit, self-sustaining operations where the rich pay higher prices for services while the poor are subsidised or even given free service. It is a concept practiced by the Sindh Institute of Urology (SIUT), Shaukat Khanum Memorial Hospital or Lahore University of Management Sciences (LUMS).

Individuals have complete liberty in investing their capital in whichever manner they see fit and have complete control of their property without any conditions imposed by the state. Individuals are required to be active investors in businesses rather than seek a fixed return in the form of interest. This is a concept similar to the venture capital industry in the US where wealthy individuals not only offer capital but advice to start-up companies. Islam does not look down upon accumulation of wealth. Instead, it defines wealth as one of the blessings of God and a test for individuals to manage it wisely for the benefit of themselves and society at large. Islam does look down upon exhibitionism, consumerism and waste, while it encourages modesty in daily life. It prefers wealthy individuals to engage in active participation in charity by not only giving money but also engage in its decision making. To reduce income inequality, Islam imposes a social tax in the form of zakat that is mandatory and must be distributed to the poor segments of society.

As capitalism loses its universal appeal, it is an opportunity for Islamic intellectuals to offer an alternative that is more natural, equitable and social.

The writer is the Chairman Council of Past Presidents, Pakistan Chamber of Commerce-USA. He can be reached at abdul.kundi@gmail.com