Islamic State v. Capitalism

November 10, 2011 by · 1 Comment 

By Abdul Quayyum Khan Kundi (Abdul.Kundi@GMail.Com)

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, labor and equipment. It is the interplay of these three resources that define an economy. In the 20th century, land and labor was provided by the colonized 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 colonization 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 labor 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 labor 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 labor. 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 organized 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 favored 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 favorable 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 labor 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 organizations (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 subsidized 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.

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Warren Buffett’s Investment Advice for You

March 4, 2010 by · Leave a Comment 

Buffett Says Consumer Behavior May Be Forever Changed by Recession

By Katie Escherich and Bianna Golodryga

Billionaire investor Warren Buffett believes that the U.S. will emerge from the current economic recession “stronger than ever,” but he said the behavior of the American consumer may be forever changed.

“We were on a binge before,” the CEO of Berkshire Hathaway told “Good Morning America” in an exclusive interview. “I mean, we are not saving extraordinary sums now but the savings behavior has changed. … I don’t necessarily think that we will go back to behaving the way that we were two years ago.”

The man known as the “Oracle from Omaha” because of his history of successful investments, shared his top three pieces of advice for average Americans who want to grow their savings and keep their money safe.

Number one: “If it seems too good to be true, it probably is.”

Number two: “Always look at how much the other guy is making if he is trying to sell you something.”

Number three: Don’t go into debt.

“Stay away from leverage,” he said. “Nobody ever goes broke that doesn’t owe money.”

The “binge,” he said, was fueled largely by over-borrowing by both individuals and companies.

“The U.S. public as a whole has gotten into problems from leverage, financial institutions have gotten into problems through leverage,” he said. “A long, long time ago a friend said to me about leverage, ‘If you’re smart you don’t need it, and if you’re dumb, you got no business using it.’”

At a time when many college graduates face uncertain futures and are struggling to find jobs, Buffett said he still believes that “investing in yourself is the best thing you can do. Anything that improves your own talents. And I always advise students to do that, high school students, college students and obviously investing in your children is, in some ways, investing in yourself.”

No matter what happens in the economy, “if you have true talent yourself, and you have maximized your talent, you have a terrific asset.”

Warren Buffett on Budget Deficit

Buffett showed some support for the idea of a second economic stimulus package, but cautioned that it should be handled differently to restore the American public’s confidence.

The number of earmarks included in the bill were “part of what has affected the American psyche,” he said. “When we go on and we talk about earmarks and that sort of thing, and then we get the kind of behavior we’ve got, I mean, that is not reassuring to the American public.”

He called the first stimulus “like taking half a tablet of Viagra and having also a bunch of candy mixed in, you know, as if everybody was putting in enough for their own constituents.”

He also cautioned that the American public will have to be patient and give the economy time to recover, particularly when it comes to the surplus of houses on the market that resulted from overbuilding.

“The American public will get disappointed, but it is going to take time to work through the overhang of houses, for example,” he said. “You can’t cure that in a day or a week or a month, so a stimulus doesn’t cure that.”

Buffett also expressed confidence in Federal Reserve Chairman Ben Bernanke, and dismissed rumors that the Fed chief may not return once his current term is up at the end of the year.

“Well, I think he should keep his job,” he said. “And as to what people say, well they are going to say something, they have always talked about Fed chairmen when their terms are coming up. But taking Bernanke out of the lineup would be like if you had the Ryder Cup, taking Tiger Woods out of it. It just doesn’t make any sense.”

Buffett acknowledged that the actions taken by the government will lead to an even bigger budget deficit. “It will happen and I worry about it, but I would worry more if we weren’t doing anything right now.”

He compared the current situation to “a friend that is sinking in quicksand.”

“You throw them a rope and they tie it around themselves and a car pulls them out, they may dislocate a couple of shoulders but it’s still the right thing to do. And we are doing things which will have negative consequences down the road, but they are still the right thing to do to get us out of this particular economic quicksand that we are in.”

Warren Buffett on Health Care Reform

Asked if he agreed with President Obama that passing health care reform would help limit the ballooning budget deficit, Buffett replied, “I really don’t think that I’m an expert on health care,” but said the system needs to be drastically changed.

“I think it’s a moral imperative that everybody have access to health care,” he said. “It’s a terrible problem.”

Despite the pressing economic concerns, he said he would be in favor of the government devoting resources to devising a plan for health care reform “if there’s a well-thought-out program that actually promises to bring down the cost of health care.”

“We are spending 2 trillion plus on health care a year,” he said. “If we could come up with something that even maintains the present cost and promises not to have a greater-than-inflation rate of gain in the future, and brings health care to the people that aren’t getting it now, then I think that will be a huge improvement. I don’t think that is an easy task.”

In anyone’s lifetime, “you will see many recessions, some bubbles,” he said, but he’s optimistic about the future.

“If we sat down here [at the] start of the 20th century, and I said there is going to be the panic of 1907, there is going to be a world war. It will be followed by a Great Depression with 35 percent unemployment, and then we will have another war that it looks like we are going to lose, and then we are going to have a nuclear bomb like no one has ever seen … by the time I got through, you’d be crying. But the Dow went from 66 to 11,497 during that same century, and the average person’s standard of living went up 7 to 1. We have a system that unleashes human potential like nobody has ever seen, and it has done it in the past, it will do it in the future. So I’m a huge bull on America — it does let people like you and me do far more than we could have done 200 years ago.”

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