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1 IDB/IRTI LECTURE CAPITALISM, SOCIALISM, THE WELFARE STATE, AND ISLAM PROF. KHURSHID AHMAD MIHE, MARKFIELD, LEICESTER NOVEMBER 6 TH, 2007.

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Presentation on theme: "1 IDB/IRTI LECTURE CAPITALISM, SOCIALISM, THE WELFARE STATE, AND ISLAM PROF. KHURSHID AHMAD MIHE, MARKFIELD, LEICESTER NOVEMBER 6 TH, 2007."— Presentation transcript:

1 1 IDB/IRTI LECTURE CAPITALISM, SOCIALISM, THE WELFARE STATE, AND ISLAM PROF. KHURSHID AHMAD MIHE, MARKFIELD, LEICESTER NOVEMBER 6 TH, 2007

2 2INTRODUCTION  1.1 Comparative Economic Systems - Rise and Fall of the Discipline - Capitalism: the Challenge from Socialism - Decline of Socialism and the Disintegration of the Soviet Union - “The End of History” Euphoria “As mankind approaches the end of the millennium, the twin crises of authoritarianism and socialist central planning have left only one competitor standing in the ring as an ideology of potentially universal validity: liberal democracy, the doctrine of individual freedom and popular sovereignty… In its economic manifestation liberalism is the recognition of the right of free economic activity and economic exchange based on private property and markets.” - Francis Fukuyama, The End of History and the Last Man, 1992 Yegor Gaidar, former Prime Minister of Russia in his address to the International Economic Association, Moscow, August 1992 said: “Henceforth books on Comparative Economic Systems will be found on the shelves dealing with Economic Development.” - The expected adoption of the American Model of Capitalism by the entire world did not materialise.

3 3  1.2 Disintegration of the ONE Global Capitalism Scenario - Challenges from within - Many Capitalist Models  Liberal Market Capitalism  Managed Market Capitalism  Institutional/Cultural Factors  Moral and Spiritual Versions  Social Market Capitalism  Developmental Capitalism  Communist-Capitalist System - The Dilemma: “The search for an alternative Capitalism is fruitless in a world where Capitalism has become utterly dominant, and no final crisis is in sight or, short of some ecological catastrophe, even really conceivable. The socialist alternative has lost its creditability, while contemporary anti-capitalist movements seem to lead nowhere… Those who wish to reform the world should focus on the potential for change within capitalism. There are different capitalisms, and capitalism has gone through many transformations. Reform does, however, require an engagement with capitalism and cannot be accomplished by movements that stand outside it and merely demonstrate against it.” James Fulcher, Capitalism: A Very Short Introduction, Oxford University Press, 2004, p 127.

4 4  1.3 Contemporary Crises of Capitalism -Failure of Privatisation Strategies -Frustrated Take Off for Global Spread of Capitalism -Popular Disenchantment -Search for Alternatives The Russian Scenario Source: Comparative Economics In A Transforming World Economy By J. Barkley Rosser Jr. and Maria V. Rosser, Second Edition, The MIT Press, Cambridge, Massachusetts, 2004. p 296.

5 5  1.4 Revival of Interest in Alternatives -Variants of Socialist Economies -Russia, China, Poland, Hungary, South America -Islamic Economics and Economics of other Religions -Iran and the Struggle for a New Traditional Economy  1.5 Islamic Alternative/ Alternatives -Founding Fathers  Mawdudi  Sayyed Qutb  Baqar Al-Sadre -Contemporary Critiques/ Expositions -Current Experiments: State Level/ Private Sector

6 6 II MAJOR CONTEMPORARY ECONOMIC EXPERIMENTS  2.1 CAPITALISM  2.2 SOCIALISM  2.3 FASCISM  2.4 WELFARE STATE All under the umbrella of one civilizational paradigm of SECULARISM - World View - Concept of Man and Society - Objectives - Parameters for Decision making - Operational Mechanisms

7 7 III EVALUATION: ACHEIVEMENTS AND FAILURES  3.1 POSTITIVES 3.1.1 Development/ Affluence/ Welfare 3.1.2 Power/ Control/ Supremacy 3.1.3 Freedom/ Democracy/ Participatory System 3.1.4 Innovation/ Technology  3.2 NEGATIVES 3.2.1 Injustices/ Contradictions/ Conflicts and Rivalries 3.2.2 Exploitative/ Colonial/ Hegemony 3.2.4 Inefficient/ Wasteful 3.2.4 Instability 3.2.5 Unsustainable

8 8 IV THE GLOBAL SITUATION  4.1 FROM WHERE WE BEGAN RELATIVE SHARES OF WORLD MANUFACTURING OUTPUT RegionCountryYears 17501800183018601900 Europe23.228.134.253.262.0 (Russia)(5.0)(5.6)(5.6)(7.0)(8.8) (U.K)(1.9)(4.3)(9.5)(19.9)(18.5) USA0.10.82.47.223.6 Third World 73.067.760.536.611.0 (India/Pakistan)(24.5)(19.7)(17.6)(8.6)(1.7) — Source: PAUL KENNEDY The Rise and Fall of Great Powers, Random House, New York, 1987.

9 9 Per Capita Levels of Industrialization (1750-1900) (Relative to UK in 1900 = 100) RegionCountryYears 17501800183018601900 Europe88111635 (Russia)(6)(6)(7)(8)(15) (U.K)(10)(16)(25)(64)(100) USA49142169 Third World 76642 (India/Pakistan)(7)(6)(6)(3)(1) — Source: PAUL KENNEDY The Rise and Fall of Great Powers, Random House, New York, 1987, p. 149.

10 10  4.2 WHERE WE ARE TODAY 4.2.1 THE PRESENT POSITION IS THAT THE TWENTY TWO DEVELOPED COUNTRIES OF THE WORLD HAVE 87 PERCENT OF WORLD GDP WHILE THE REMAINING 160 COUNTRIES HAVE TO LIVE ON ONLY 13 PER CENT. INEQUALITIES BETWEEN THE DEVELOPED AND DEVELOPING COUNTRIES AS WELL AS WITHIN THESE COUNTRIES ARE INCREASING, MAKING RICH RICHER AND THE POOR POORER. THE WORLD IS BECOMING MORE UNJUST AND EXPLOITATIVE. 4.2.2 INCREASE IN GLOBAL INEQUALITY “AN EXAMINATION OF INTERNATIONAL INEQUALITY USING ABSOLUTE RATHER THAN RELATIVE MEASURES OF INEQUALITY REVEALS A STEADY INCREASE OVER THE LONG RUN, AS WELL AS IN RECENT DECADES………”.

11 11  “…. INTERNATIONAL INEQUALITY WAS ESSENTIALLY NEGLIGABLE AT THE TURN OF THE NINETEENTH CENTURY ACCOUNTING FOR ROUGHLY 12 PER CENT OF GLOBAL INEQUALITY, BUT THAT, IT INCREASED VERY RAPIDLY UNTIL WORLD WAR II, AND THEN CONTINUED TO INCREASE BUT AT A MUCH SLOWER PACE…. IN SUMMARY, WHILE THE WORLD GOT RICHER, INCOME INEQUALITY RELATIVE AND ABSOLUTE, INTERNATIONAL AND GLOBAL INCREASED TREMENDOUSLY OVER A LONG PERIOD OF TIME (1820-1992)” (WORLD DEVELOPMENT REPORT 2006, EQALITY AND DEVELOPMENT, THE WORLD BANK, 2006, P.64-65) (WORLD DEVELOPMENT REPORT 2006, EQALITY AND DEVELOPMENT, THE WORLD BANK, 2006, P.64-65)

12 12  4.2.3 THE RICHEST 1% OF PEOPLE IN THE WORLD RECEIVE AS MUCH AS 57% AT THE BOTTOM. THAT IS LESS THAN 50 MILLION OF RICH PEOPLE IN THE HIGH INCOME COUNTRIES RECEIVE AS MUCH AS 2.7 BILLION POOR PEOPLE IN THE WORLD.  TOP 10% OF THE US AGGREGATE INCOME IS EQUAL TO THE TOTAL INCOME OF THE POOREST 43% OF THE WORLD. THAT IS INCOME OF 25 MILLION PEOPLE IN AMERICA IS EQUAL TO THE TOTAL INCOME OF 2 BILLION POOR PEOPLE IN THE WORLD.  IT MAY BE INSTRUCTIVE TO RECALL THAT THE TOTAL US FOREIGN AID TO THE WORLD IS 0.2% OF ITS GDP.  AVERAGE INCOME DIFFERENTIAL BETWEEN THE RICH AND THE POOR COUNTRIES OF THE WORLD WAS 1:78 IN 1988, 1:114 IN 1993 AND 1:140 IN 2006.  RECENTLY A NUMBER OF FUND MANAGERS ARE REPORTED TO HAVE RECEIVED AN ANNUAL TAKE HOME INCOME OF US$1 BILLION EACH THIS YEAR.

13 13  4.2.4HALF OF THE HUMAN RACE IS LIVING TODAY ON LESS THAN US$2 PER DAY, THAT IS OVER 3 BILLION PEOPLE.  AROUND 1 BILLION HAVE TO SURVIVE ON LESS THAT US$1 A DAY.  AROUND 800 MILLION ARE REPORTED TO BE SUFFERING FROM MALNUTRITION AND HAUNTED BY THREATS OF STARVATION.  MILLIONS ARE SUFFERING FROM CURABLE DISEASES AND THOUSANDS DYING EVERYDAY BECAUSE OF LACK OF MEDICAL CARE.  ALMOST 1/5TH OF HUMANITY IS SUFFERING FROM THE AGONY OF A LIVING DEATH.

14 14  4.2.5AFRICA  “THE POST INDEPENDENCE INTEGRATION OF THE AFRICAN ECONOMIES INTO THE WESTERN CONTROLLED GLOBAL ECONOMY HAS PROVED TO BE DEVASTATING TO THE CONTINENT’S DEVELOPMENT EFFORTS. WHEN AFRICAN COUNTRIES WERE FREED FROM COLONIALISM IN THE 1960’S, WESTERN CAPITALIST POWERS STRUGGLED HARD TO ENSURE THEIR ECONOMIC DEPENDENCE ON THE WEST …… AFRICAN STATES SLID INTO GREATER ECONOMIC PROBLEMS AS THEY BEGAN TO ADOPT EXTERNALLY GENERATED ECONOMIC POLICIES THAT HAVE LITTLE OR NO RELEVANCE TO THEIR SITUATION ……THE STRUCTURAL ADJUSTMENT PROGRAMME FORMULATED BY THE WORLD BANK AND THE IMF, TO SAY THE LEAST, HAS NOT LED TO IMPROVEMENT IN THE LIVING STANDARD OF THE PEOPLE. THE CONDITIONALITIES OF THE PROGRAMME LIKE CURRENCY DEVALUATION, FOR EXAMPLE, HAVE HAD A CRIPPLING EFFECT ON A LARGE POPULATION OF THOSE AFRICAN STATES IMPLEMENTING THE PROGRAMME. MOHSIN KHAN FOUND THAT THE PROGRAMME NEGATIVELY AFFECTS GROWTH RATES IMMEDIATELY AFTER IT IS ADOPTED.”  VICTOR OGUEJEOFOR OKAFOR AND SHERIFFDEN TELLA, “ECONOMIC DEVELOPMENT AND THE PROSPECT FOR ECONOMIC SECURITY IN AFRICA”,IN ADABAYO OYEBADE AND ABIODUN ALAO, “AFRICA AFTER THE COLD WAR : THE CHANGING PERSPECTIVES OF THE SECURITY” AFRICA WORLD PRESS, TRENTO, 1998, p.p. 24-25.

15 15  4.2.6 Capitalism is characterised by establishment of a debt-based economy. Income inequalities, demand manipulations and easy debt facilities have resulted in a lifestyle of living beyond ones means. Interest has played a pivotal role in producing a debt-based economy. Developed and developing countries both are caught in the grip of this new form of virtual slavery. Some idea of the plight of humanity can be had from the following facts:  HOUSEHOLD DEBT IN THE UNITED KINGDOM  1963£9.0 BILLION  1973 £32.0 BILLION  1983£151.0 BILLION  1993£625.0 BILLION  1997£780.0 BILLION  “IN 2006, U.K. INDIVIDUALS AND HOUSEHOLDS OWED £1,174 BILLION, ALMOST EXACTLY EQUAL TO TOTAL U.K. INCOME OR GDP.  IN OTHER WORDS, EVERY UK’S ADULT OWED ON AVERGE £25,200 MORE THAN MEDIAN ANNUAL EARNINGS WHICH IN 2004/ 05 WERE ONLY £22,900.(ANN PETTIFOR, THE COMING FIRST WORLD DEBT CRISIS, Palgrave, 2006, p.97)

16 16  4.2.7 UNITED STATES OF AMERICA  TOTAL NATIONAL DEBT AT THE BEGINING OF THE 20TH CENTURY WAS REPORTED TO BE ONLY US$ 1 BILLION.  IN THE YEAR 2004 IT HAD SOARED TO US$ 7.8 TRILLION. THAT IS GOVERNMENT DEBT ONLY. TOTAL NON FINANCIAL MARKET DEBT STOOD AT US$ 23 TRILLION IN 2004.  FOREIGN INDEBTEDNESS OF THE ONLY SUPER POWER WAS US$ 3.3 TRILLION IN 2004, UP FROM ROUGHLY ZERO IN 1987.  (KEVIN PHILLIPS, AMERICAN THEOCRACY: THE PERIL AND POLITICS OF RADICAL RELIGION, OIL, AND BORROWED MONEY IN THE 21ST CENTURY, PENGUIN BOOKS, 2006, P.272- 273).

17 17  4.2.8 DEVELOPING COUNTRIES TODAY OWE OVER US$3.242 TRILLION TO THE RICH COUNTRIES OF THE WORLD. THIS SCENARIO HAS UNFOLDED OVER THE LAST HALF A CENTURY. TOTAL INDEBTEDNESS IN 1970 WAS US$ 97 BILLION. IN 2006 IT HAD SNOWBALLED TO US$ 3.242 TRILLION. THIS IS SO DESPITE THE GRUESOME FACT THAT THE DEBTED COUNTIES IN THE UNDER DEVELOPED WORLD DURING THE LAST TWO DECADES PAID TO THE NORTHERN CREDITORS OVER US$1.5 T RILLION.  DEBT SERVICING IN YEAR 2006 HAS JUMPED TO US$665.2BILLION, EVEN HIGHER THAN THE TOTAL AMOUNT OF DEBT OWED BY ALL THE DEVELOPING COUNTRIES OF THE WORLD IN 1980 (i.e. US$633.3 BILLION).

18 18  4.3 POVERTY, UNEMPLOYMENT AND INEQUALITY ARE THREE MAJOR PROBLEMS DEFYING SOLUTION.  These problems are not confined to the Third-World Countries.  Most of the Developed/Rich countries face them in varying degrees.  Poverty measured by percent of children with less than one half of median income (mid-1980s to mid 1990s) in respect of some of the developed countries present the following picture Source: Rosser and Rosser, opt. Cit, p.131.

19 19  4.4 Poverty in the US, the richest Capitalist country, based on officially measured poverty rates, defined as money income being less than three times the estimated cost of a minimum food budget, has persisted over the decades. The following table reflects the overall situation as well as poverty in relation to race and ethnicity of the population:

20 20  4.5 Inequalities of income and wealth in the US have also increased, rich getting richer and poor getting poorer, a phenomenon prevalent in the entire Capitalist world. In 1970 top fifth of the population (20%) received 40.9% of the National Income, whose share in 1999 increased to 47.2%. The share of the bottom fifth came down from 5.4% to 4.3% of the National Income. (Source: For 1970 Statistical Abstract of the United States 1997, table 725; for 1980-1999, Statistical Abstract of the United States 2001, table 670.  4.6 Unemployment, despite all developmental efforts, could not be eliminated in any of the developed countries of the world. Relative data for some of the countries for the entire span of the twentieth century is worth reflecting upon.

21 21 Country19211931195119611971197919932000 Australia5.917.91.32.31.86.110.76.6 Belgium6.16.84.42.51.77.113.510.7 Canada5.811.62.47.06.17.411.66.8 France2.72.22.11.52.65.911.79.2 Germany1.213.97.30.70.73.37.59.2 Italyn.a4.37.33.44.97.111.311.4 Japann.an.a1.71.41.22.12.54.6 Sweden1.34.81.61.52.52.19.03.9 UK11.014.82.22.03.85.110.45.3 USA11.415.23.26.55.95.85.84.0 Percentage of Labour Force Unemployed Source:Rosser and Rosser, Page 44

22 22  4.7 Instability of the system is symbolised by recurring financial and production crises. Fractional and now almost fictional system of lending based on interest, and highly speculative character of commodity and financial markets are at the root of the instability of the system.  4.8 Sustainability has also become a grave issue in view of extensive overuse and misuse of the resources of the planet, ignoring the needs of the posterity.

23 23 V ISLAMIC MODEL(s)  5.1 NEED FOR A CHANGE OF THE PARADIGM AND NOT SIMPLY CHANGE WITHIN THE PARADIGM  5.2 WORLD VIEW AND VALUE FRAMEWORK 5.2.1 TAWHEED (UNITY OF GOD) 5.2.2 RABYBIYYAH (DIVINE SYSTEM OF SUSTENANCE) 5.2.3 RISALAH/ PROPHETHOOD AND GUIDANCE 5.2.4 AAKHIRAH (LIFE- HEREAFTER/ ACCOUNTABILITY) 5.2.5 ISTIKHLAF (VICEGERENCY/ STEWARDSHIP) 5.2.6 TAZKIYYAH (PURIFICATION AND GROWTH) 5.2.7 KAFALAH (MUTUAL SUPPORT/SOCIAL SOLIDARITY) 5.2.8 ‘ADALAH AND QIST (JUSTICE AND EQUITY) 5.2.9 FALAH (WELLBEING/ HERE-HEREAFTER)

24 24  5.3 CHARACTERISTICS 5.3.1 HOLISTIC/ COMPREHENSIVE/ INTEGRATED 5.3.2 VALUE BASED IDEALS AND OBJECTIVES: CLEAR STATEMENT OF MAQASID-E-SHARIAH PROVIDING THE VALUE FRAMEWORK FOR ECONOMY AND SOCIETY.  PROTECTION OF DEEN  PROTECTION OF INTELLECT  PROTECTION OF BODY  PROTECTION OF FAMILY/ POSTERITY  PROTECTION OF WEALTH 5.3.3 BALANCED  SPIRITUAL AND MATERIAL  INDIVIDUAL AND SOCIETY  SELF- INTEREST AND SOCIAL RESPONSIBILITY

25 25 5.3.4 REALISTIC:  WORLDY/ MATERIAL DIMENSION  WELFARE AND WELLBEING OF ALL  MONEY’S UNIQUE ROLE AS MEDIUM OF EXCHANGE PROMOTING PHYSICAL ECONOMY AND NOT JUST FIDUCIARY EXPANSION  DIIVERSITY AND PLURALITY 5.3.5 HUMANISTIC FOCUS ON MAN AND NOT MERELY ON WEALTH/ PRIORITY FOR HUMAN DEVELOPMENT AND WELLBEING. 5.3.6 JUSTICE AND EQUITY FOR ALL

26 26 VI MAJOR PRINICIPLES AND PROCESSES OF AN ISLAMIC ECONOMY  6.1 FOUNDING ECONOMIC AND FINANCIAL DEALINGS ON MORAL VALUES AND GUIDELINES FOR CONSUMPTION, PRODUCTION, EXCHANGE AND STATE ACTIVITIES.  6.2 PRIVATE PROPERTY, FREEDOM OF ENTERPRISE AND MARKET MECHANISM, WITH:  MORAL FILTER, AT INDIVIDUAL AND SOCIETAL LEVELS  CIVIL SOCIETY, SUPPORT MECHANISMS, WAKF, AND STRENGTHENING OF ALTRUISTIC (NON-PROFIT) SECTOR.  SUPPORTIVE, REGULATORY AND CORRECTIVE ROLE OF THE STATE.

27 27 6.3 ABOLUTION OF RIBA (INTEREST/ USURY), MAISIR (SPECULATION/GAMBLING), AND GHARAR (AMBIGUITY, UNCERTAINTY AND DECEPTION) 6.3 ABOLUTION OF RIBA (INTEREST/ USURY), MAISIR (SPECULATION/GAMBLING), AND GHARAR (AMBIGUITY, UNCERTAINTY AND DECEPTION) 6.4 EQUITY-BASED, RISK-SHARING AND STAKE HOLDING ECONOMY AS AGAINST DEBT-BASED ECONOMY 6.4 EQUITY-BASED, RISK-SHARING AND STAKE HOLDING ECONOMY AS AGAINST DEBT-BASED ECONOMY 6.5 USEFUL CONSUMPTION AND PRODUCTION 6.5 USEFUL CONSUMPTION AND PRODUCTION 6.6 DISTRIBUTIVE JUSTICE 6.6 DISTRIBUTIVE JUSTICE 6.7 MONETARY DISCIPLINE AND PRICE STABILITY 6.7 MONETARY DISCIPLINE AND PRICE STABILITY 6.8 EFFICIANCY WITH EQUITY AND WELL-BEING FOR ALL 6.8 EFFICIANCY WITH EQUITY AND WELL-BEING FOR ALL 6.9 GLOBAL COOERATION AND INTEGRATION, WITH SELF- RELIANCE OF THE UMMAH 6.9 GLOBAL COOERATION AND INTEGRATION, WITH SELF- RELIANCE OF THE UMMAH

28 28 Suggested Readings 1. AHMAD, Khurshid, “The Challenge of Global Capitalism: An Islamic Perspective”, in Making Globalisation Good: The Moral Challenges of Global Capitalism, ed. by John H. Dunning, Oxford, 2003. 2. CHAPRA, Mohammad Umer, Islam and the Economic Challenge, Leicester, Islamic Foundation, 1992. 3. CHAPRA, Mohammad Umer, The Future of Economics: An Islamic Perspective, Leicester, Islamic Foundation, 2000. 4. HALL, Peter A. and David Soskice, Varieties of Capitalism, Oxford, 2001. 5. PORRITT, Jonathan, Capitalism: As If the World Matters, London, Earthscan, 2005. 6. Rosser, J. Barkley and Marina V. Rosser, Comparative Economics in A Transforming World Economy, The MIT Press, Cambridge, 2004. 7. SHUTT, Hary, The Trouble With Capitalism: An Enquiry Into The Causes of Global Economic Failure, London, Zed Books, 1998.

29 29 8. LANE, R., The Loss of Happiness in Market Democracies, Yale University Press, 2000. 9. YOUNG, S., Moral Capitalism: Reconciling Private Interest With Public Good, Berrett-Koehler, San Francisco, 2003. 10. AMBLE, Bruno, The Diversity of Modern Capitalism, Oxford University Press, 2003. 11. ROSEFIELDE, Steven, Comparative Economic Systems: Culture, Wealth and Power in the 21 st Century, Blackwell, 2002. 12. MONTIAS, John Michael, Avner Ben-Ner, and Egon Neuberger, Comparative Economics, Routledge, 2002 13. SCHWEICKERT, David, Against Capitalism, Westview Press, Oxford 1996. 14. FULCHER, James, Capitalism: A very Short Introduction, Oxford, 2004. 15. THUROW, Lester. C., The Future of Capitalism: How Today’s Economic Forces will Shape Tomorrow’s World, London, Nicholas Brealey, 1996.


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