Global Economic Crisis: Islam an Alternative

The Study Circle, Jamaat-e-Islami Hind, Delhi and Haryana zone, organised a meeting on Global Economic Crisis: Islam an Alternative in the Capital on November 30. Presided over by Professor M. Rafat of Jamia Millia Islamia, the meeting discussed the causes of ongoing global economic meltdown and presented Islamic economic system as its viable solution.

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The Study Circle, Jamaat-e-Islami Hind, Delhi and Haryana zone, organised a meeting on Global Economic Crisis: Islam an Alternative in the Capital on November 30. Presided over by Professor M. Rafat of Jamia Millia Islamia, the meeting discussed the causes of ongoing global economic meltdown and presented Islamic economic system as its viable solution.

Pointing out the causes of the present global economic crisis, in his power-point presentation, Dr. Waquar Anwar, Cost Accountant, described the symptoms like food crisis, volatility in oil prices, sub-prime crisis and recollected the ultimate collapse of the system. He assigned the meltdown to the failure of laissez faire capitalism caused by de-regularisation, low saving, excessive credit and failure of debt servicing, highlighting that these things are ingrained in the free market capitalist system. World economies got affected. Developing economies like India could also not escape the ill effects like high outflow of Foreign Institutional Investors’ funds, nose-dropping Sensex, depreciation of currency, unemployment and IT services export reduction.  He also presented the underlying principles of the capitalist economy and compared them with those of the Islamic system.

Dr. Javed Ahmad Khan of Jamia Millia Islamia dwelt in detail upon the overview of Islamic banking and finance. He said that major development has been done in the fields of Islamic Economics and Islamic Finance during the last 15 years. Although these developments can be traced to last 30 years, there were theoretical discussions from earlier periods, then some practices and research activities started. At one stage it was said that it is all faith-based commitments related to denouncing the prevalent system having no academic worth.

The scenario changed and the world started noticing it seriously and research work started in western universities too. Post-1990 world market opened. Market in the Arab world also opened up and the oil wealth proved an impetus for development in this field. Scholars of different religions worked in western universities and appreciated the functioning of Islamic banking and finance.

It is agreed that there are many weaknesses in the Islamic banking. But these are teething and human problems. Developments are done only in this manner and initial weaknesses are controlled with the passage of time. There are human problems also. The ill and wrong practices of some people in the name of Islamic banking are not ruled out. There are many good points scored. Investment in the name and mode of Islamic finance are now acceptable in several countries including Indonesia, Malaysia, Japan, China, England, USA, etc.

Dr. Javed added that the system is passing the test of time and becoming acceptable. Muslims are not bold enough and others are also not hesitant in application of their funds in line with the Islamic principles. India is very cautious. The Government is studying and has not allowed the system yet. These are positive developments. The conventional banking is also taking stock of the developments. New terms like ethical banking and green financing are in use. These are also positive developments and the underlying concepts are similar to that of the Islamic banking.

Dr. Javed described the causes of the present global economic recession.  The recent crisis in America has occurred on account of crisis of confidence. Money as such has not vanished. But the investors and consumers have lost confidence in the market. That is why the governments of the developed and developing countries are injecting funds in the market. The moment confidence is recovered the crisis will be over. Such depression is a routine economic phenomenon. That happens after every eight to ten years.

Thus the crisis of confidence occurred in the USA. However one point should be understood. America has the strength of its treasury bills despite huge deficits. Their expenditure is much more than their income. All other countries keep their surpluses and export earning in the USA. All foreign reserves are kept in the USA. USA has become the banker of other countries. These funds are kept because of the super power status of the USA and security in that country. Everyone else has confidence in the US treasury. The irony is that despite condemning, most of the countries keep their funds therein. The USA is like banks whose strength is the petty funds deposited by the public.

The world of Islamic bank is very small compared to the size of the world economy. But this development is very hopeful. This is because the development is on the right path. There are many problems, no doubt. These Islamic banks are private ventures and till date they are devoid of any system support. Even in Saudi Arabia the Central Bank has not granted the Islamic banks the status that is granted to conventional commercial banks. The strength of the Islamic banking is that the growth is based on real economics avoiding speculation and other wrong practices.

In his presidential address, Prof. M. Rafat referred to a question raised in the open house session regarding the difference between Capitalist, Socialist and Islamic systems. One difference is of philosophy, the worldview and the concept about man. If we consider from that angle both capitalism and socialism have the same concept about man – that man is basically selfish and he strives for his own personal gains.  Further, they consider the world to be meaningless because only material forces are interplaying. But there is one difference between the two. Capitalism is only an economic system whereas communism is a total system dealing with all walks of life. So the communists have a philosophy of history whereas the proponents of capitalism have no such concept.

Islam’s worldview is based on the concept of tawheed, oneness of God, and the man’s khilafat (vicegerency). The concept of khilafat of man means that man will control his selfishness if he wants to be a good, according to the teachings of Islam. Islam considers man to be basically free, and a desirable behaviour has been ordained for him. This question of desirable behaviour does not arise in communism because it basically takes man not-to-be-free. For capitalism the selfishness of man is acceptable. Islam provides this choice for man to choose between desirable and undesirable behaviours. However, Islam recommends man to opt for good deeds.

Another difference between these systems is on the practical frame as to the economic behaviour of man relating to private enterprise and private ownership. The question of production is of paramount importance. The communist approach is that means of production should be in the control of the state. Although they could not practise this system completely, they stick to this concept. Islam does not bind us on this regard as to give total control on means of production to the state or give state’s control on some of the means or keep everything beyond state control. Capitalism insists that all means of production should be in private hands. Islam insists on another area. It is incumbent on the state to establish justice and equity in all walks of life, including economic life of man. If the state has to take control of some of the means of production for its function of establishing justice, then it can do so.

We have the example of Khilafat-e-Rashida in support of this approach that state took control of more means of production when it was so needed and did not intervene when there was no such need. Islam provides right to private property. On the conceptual frame Allah is the owner of all things and on practical basis man has been assigned ownership of resources with the proviso of accountability for the manner in which he utilises the resources.

Islam is the complete system of life. It concerns everything from faith, character and society to state. As for the alternative economic system, it amounts to the concept of state. It is true that we will try to make man good individuals and improve the society. But the question is the concept of state that can solve the crisis. The economists accept that in the capitalist system the ups and downs (crests and troughs) in trade cycle are bound to happen. The cycle as such is recurring in nature. One cannot say with certainty the timing of this recession in trade cycle but it is certain that a capitalist system will periodically face this problem of depression.

The depression may be understood as the phenomenon where a significant portion of the society which is engaged in economic activity is incapacitated. The purchaser does not remain in a position to purchase; the small businessman is not in a position to do business, and the like. Only few people remain in a position to continue to engage in the economic activities. Until and unless the majority is in a position to engage in economic activity these few persons are able to go on because their existence is dependent on the engagement, rather exploitation, of the majority. But when the majority is incapacitated the few having resources also cannot function smoothly in an economy. This is the stage of economic depression. In other words all means of production is concentrated at few places and the economic activity is hampered. This crisis is overcome by relaxing the resources, empowering people and encouraging them to come out and engage in usual economic activity.

Referring back to the topic of discussion, Dr. M. Rafat said Islam solves the problem at the place where it arises. It gives state vast powers to intervene in the economy where it is so required for the purpose of establishment of justice. In this regard Islam provides the guideline, the norm (which may be understood as the desirable behaviour for the state) as ordained in the Qur’an with regard to resources that “in order that it may not (merely) circuit between the wealthy among you.” (59:7) The Islamic approach is to circulate the resources whereas the capitalist approach is to concentrate them. Crisis comes when that concentration reaches its highest level. Islam works towards circulation of wealth and in that case the crisis like recession will not happen. No consumers, businessmen and others, big or small, will become powerless.

So the alternative is that the state will be duty bound to fulfil certain goals and objects. The primary goal of the state will be to establish justice and fair-play. For that the state will make policies to see to it that resources are circulating properly in the economy. The state will see that the abilities of every person get proper opportunities for their economic activity. Further, the state will act to make everyone adhere to the limits of halal and haram fixed by Islam, either they be individuals or groups. Islam provides a clear concept of desirable, credited, discredited, undesirable and banned activities.

The capitalist system is based on a big myth that man should be free to pursue his economic activities and such freedom of man and free market will ensure equilibrium and fulfilment of every person’s needs. But this is not the correct position. Men are not equal. The haves and the have-nots both are not in the same position to compete freely. Islam brings that freedom, makes everyone equal in the eyes of the law and then leaves them free to pursue according to their respective abilities. We should recall what the first Rightly Guided Caliph Abu Bakr said in his maiden speech after taking charge of the caliphate that it was his duty to give the weakest among them his dues, and take back the wrongly amassed resources from the mightiest among them and give it back to the weakest.