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.


Obama Job 1: Create Jobs

August 25, 2011 by · Leave a Comment 

By Fareed Zakaria

Democrats are finally up for a fight — with President Obama. Having despaired that Obama gave in to the Tea Party on the debt deal, they now criticize him as too cautious in his proposals to boost American jobs. They’re right that Obama should present a sharp distinction to the public between his efforts and the Republican Party’s utter passivity in the face of a national employment crisis. But perhaps Obama realizes that the most important factor that will help his reelection — and Democratic prospects more generally — is a rise in employment. And to have any impact on the actual economy, Obama needs proposals that can get through Congress, not ones that sound good on TV.

The problem before the country is more acute than people realize. It goes beyond the indebtedness issues that are surely depressing the recovery. In June, the McKinsey Global Institute published an eye-opening report called “An economy that works: Job creation and America’s future.” It points out that for 20 years, America has had huge difficulties creating jobs. After every recession since the Second World War, once gross domestic product recovered to pre-recession levels, employment also returned to pre-recession levels within about six months.

Until 1990. In the recession that began in 1990, it took 15 months for jobs to come back after GDP had recovered. In the recession of 2001, it took 39 months for jobs to come back.

And now? Since the start of this year, American GDP has returned to its pre-crisis levels — but with 6.8 million fewer workers. At the current rate of job creation, it will take 60 months — five years! — before employment returns to pre-recession levels.

Even these numbers mask the problem. The Nobel Prize-winning economist Michael Spence has found that of the 27 million jobs created between 1990 and 2008, 40 percent were in government and health care — sectors that can’t keep growing at their previous pace. Meanwhile, employment in the tradable sector of the U.S. economy, the sector that produces goods and services that can be consumed anywhere, such as manufactured products, engineering and consulting services — which accounted for more than 34 million jobs in 1990 — grew by just 600,000 jobs over the same 18-year period.

Why is this happening? Nobody knows for sure, but it does seem as though the timing coincides with the two great tidal waves that have been powering the global economy since 1990. The first is information technology, which expanded from a narrow, data-processing function in the 1980s to streamline every aspect of every business. Today, computer programs that do conceptual searches are used at law firms to read and code documents, replacing the dozens of young associates who used to be hired and paid handsomely to do the same job.

The second big shift is, of course, globalization, which has created a worldwide supply that allows companies to make new investments in regions where labor is cheap and newly emerging middle classes are eager for their products. The results have been great for American companies, but these same forces place enormous pressures on the American worker. The decline in American education has left Americans less able to compete in a world in which skills are the only path to high-wage jobs. As Bill Gross, the founder of the world’s largest bond fund, Pimco, succinctly put it, “Our labor force is too expensive and poorly educated for today’s marketplace.”

If we’re going to solve this problem, it will take a determination to make jobs Job One. Everything we do as a country should be geared toward the central task of boosting employment. Some of this will involve government spending. An infrastructure bank that uses current low interest rates, includes the private sector and chooses projects based on merit rather than patronage is one of the best ideas to come out of Washington in years. Obama should take his proposals to the country and press for a project to rebuild America.

But there are many cost-free policies that could boost jobs. Tourism is one of the largest growth industries in America, and yet because of exaggerated fears of terrorism, bureaucracy and politics, we have lost market share in global tourism over the past decade. We should make it much easier for tourists to get visas and work hard to make them feel welcome. They are, in the words of Starwood Hotels CEO Frits van Paasschen, a walking stimulus program.

The key is to subordinate politics to a national goal of job creation.

Right now, a smart program to rationalize the patent process, which could unleash thousands of start-ups, is languishing in Congress not because of some principled opposition but because of turf battles between congressional committees. We can’t keep doing this.


Saudi Arabia’s Three Worries

July 7, 2011 by · Leave a Comment 

By Jason Burke

In a speech, Prince Turki al-Faisal outlines Saudi Arabia’s concerns relating to the Arab spring, its foreign policies and Iran.

It was a very discreet meeting deep in the English countryside. The main speaker was Prince Turki al-Faisal, one of Saudi Arabia’s best-known and best-connected royals. The audience was composed of senior American and British military officials. The location was RAF Molesworth, one of three bases used by American forces in the U.K. since the Second World War. Now a Nato intelligence centre focused on the Mediterranean and the Middle East, the sprawling compound amid green fields was an ideal venue for the sensitive topics that Turki, former head of Saudi Arabian intelligence, wanted to raise.

After an anecdote about how Franklin D. Roosevelt was told by Winston Churchill that nothing between them or their countries should be hidden, Turki warmed to his theme: “A Saudi national security doctrine for the next decade.”

For the next half an hour, the diplomat, a former ambassador to Washington and tipped to be the next foreign minister in Riyadh, entertained his audience to a sweeping survey of his country’s concerns in a region seized by momentous changes. Like Churchill, Turki said, the kingdom “had nothing to hide.”

Even if they wanted to, the leaders of the desert kingdom would have difficulty concealing their concern at the stunning developments across the Arab world. Few — excepting the vast revenues pouring in from oil selling at around $100 a barrel for much of the year — have brought much relief to Riyadh.


Chief among the challenges, from the perspective of the Saudi royal rulers, are the difficulties of preserving stability in the region when autocracies that have lasted for decades are falling one after another; of preserving security when the resultant chaos provides opportunities to all kinds of groups deemed enemies; of maintaining good relations with the west; and, perhaps most importantly of all, of ensuring that Iran, the bigger but poorer historic regional and religious rival just across the Gulf from Saudi Arabia’s eastern provinces, does not emerge as the winner as the upheavals of the Arab spring continue into the summer.

“The [Saudi king], crown prince and government cannot ignore the Arab situations, we live the Arab situation and hope stability returns,” the al-Sharq al-Awsat newspaper quoted Prince Nayef, the second in line to the throne and Minister of the Interior, as saying in Riyadh last week.

Iran, a majority Shia state committed to a rigorous and highly politicised Islamist ideology, remains at the heart of such fears in Saudi Arabia, a predominantly Sunni state ruled by the al-Saud family since its foundation in 1932. Recent moves such as the Saudi-inspired invitation to Morocco and Jordan, both Sunni monarchies, to join the Gulf Cooperation Council (GCC), a group of Sunni autocratic states, are seen by analysts as part of Riyadh’s effort to bolster defences against Tehran. So too is the deployment of Saudi troops under the umbrella of the GCC to Bahrain, where largely Shia demonstrators took to the streets to demand greater democratic rights from the Sunni rulers.

One fear in Riyadh is that the 15 per cent or so of Saudi citizens who are Shia — and who largely live in the oil-rich eastern province — might mobilise in response to an Iranian call to arms.

“It is a kind of ideological struggle,” said a Ministry of Interior official. Describing Iran as a “paper tiger” because of its “dysfunctional government … whose hold on power is only possible if it is able, as it barely is now, to maintain a level of economic prosperity that is just enough to pacify its people,” Turki, according to a copy of his speech at RAF Molesworth, said the rival state still had “steel claws”, which were “effective tools … to interfere in other countries.”

This Tehran did with “destructive” consequences in countries with very large Shia communities such as Iraq, which Turki said was taking a “sectarian, Iranian-influenced direction”, as well as states with smaller ones such as Kuwait and Lebanon. Until Iraq changed course, the former intelligence chief warned, Riyadh would not write off Baghdad’s $20bn debts or send an ambassador.

More worryingly for western diplomats was Turki’s implicit threat that if Iran looked close to obtaining nuclear weapons, Saudi Arabia would follow suit. “Iran [developing] a nuclear weapon would compel Saudi Arabia … to pursue policies which could lead to untold and possibly dramatic consequences,” Turki said.

A senior adviser said it was “inconceivable that there would be a day when Iran had a nuclear weapon and Saudi Arabia did not.”

“If they successfully pursue a military programme, we will have to follow suit,” he said. For the moment, however, the prince told his audience, “sanctions [against Iran] are working” and military strikes would be “counterproductive.”

One alternative, Turki told his audience, would be to “squeeze” Iran by undermining its profits from oil, explaining that this was something the Saudis, with new spare pumping capacity and deep pockets, were ideally positioned to do.


Money has long been a key foreign policy tool for Saudi Arabia. Turki’s speech reveals the extent to which the kingdom is relying on its wealth to buy goodwill and support allies. In Lebanon, to counter Syrian influence and the Shia Hezbollah movement, the kingdom has spent $2.5bn since 2006.

The aim of such expenditure — only a fraction of the state’s $550bn reserves — is to minimise any potential ill-will towards Saudi Arabia among populations who have deposed rulers backed previously by Riyadh.

King Abdullah, who has ruled Saudi Arabia since 2005, initially backed long-term ally Hosni Mubarak, reportedly personally interceding on his behalf with President Barack Obama.

“The calculation in Riyadh is very simple: you cannot stop the Arab spring so the question is how to accommodate the new reality on the ground. So far there is no hostility to the Saudis in Tunisia, Egypt or elsewhere, popular or political,” said Dr. Mustafa Alani, from the Gulf Research Centre, Dubai.

One difficult issue is that of the “unwanted house guests.” Saudi Arabia has a long tradition of offering a comfortable retirement home to ex-dictators, and two of the deposed leaders — Zine al-Abidine Ben Ali of Tunisia and Ali Abdullah Saleh of Yemen — are now in the kingdom. Ben Ali is reported to have been housed in a villa on the Red Sea coast. Saleh is in a luxury hospital receiving treatment for wounds caused by the bomb that forced his flight from the country he ruled for 21 years as president, and is now under pressure from his hosts to retire permanently.

Other regional rulers are being gently pressured to ease crackdowns, in part in response to western outcry over human-rights abuses, one official said.

Yemen, however, remains a major security concern to the Saudis, who worry about the presence of Islamic militants and Shia rebels who, again, they view as proxies of Iran.

“It is very important to make sure Yemen is stable and secure and without any internal struggle,” said one Interior Ministry official.

In his speech in the U.K., Turki worried that Yemen’s more remote areas had become a safe haven for terrorism comparable to Pakistan’s tribal areas.—

Source: The Guardian