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Economic Immorality and Capitalism

By

Ibn-e-Sami

Capitalism as the dominant social, political, and economical system, first of Western Europe and later of much of the world, has bred the polarisation of income to the extremes of the earnings spectrum. While capitalism apparently posits equal opportunity for all, social harmony through the pursuit of self-interest and a free-market economy, and private property rights, the real outcome of this system has been discrimination, exploitation of labor, and economic concentration of wealth in society. In this regard, it becomes obvious that economic immorality is not only a salient feature of capitalism (and other oppressive systems such as Imperialism, Colonialism, Socialism and Apartheid), but an inevitable consequence of a system which is not based on Islamic principles and which continues to ignore the natural laws of Almighty God.

Today in the US, the earnings disparity between the common worker and those who own the means of production (such as, CEO’s and high level executives) has reached unprecedented proportions. However, this has not always been the case. Studies show that during the post-war era, most American families could expect to see their incomes grow from one year to the next. Nevertheless, since the early 1970s, the nation’s experience has not been as encouraging. In the past 25 years, incomes have not grown at all, and for Americans near the bottom of the earnings distribution, incomes have even shrunk. From 1973 to 1995, the purchasing power of the average American worker fell by approximately 20 percent (Burtless, Gary). At the same time, the productivity increased by 25 percent. At first blush, it would seem that America has not enjoyed prosperity since 1973. On the contrary, the nation added more than 40 million jobs and enjoyed three of its longest and most rough post-war economic expansions during the past two decades.

However, American prosperity has been extremely uneven and has resulted in the growing concentration of wealth among a small subset of the population. The bifurcation between those at the top-of the income scale and those at the bottom has widened significantly since 1960s. A recent study noted that from 1968 to 1994 the share of the nation’s aggregate income that went to the top 20 percent of its households increased to 47 percent from 40 percent (US Census, 1994). During the same time, the share of income earned by the rest of the country’s households declined. Stagnant and falling wages tell only part of the story of the rising inequality and economic immorality. Moreover, poverty rates have continued to climb even during the economic expansions of the 1980s and 1990s. For example, in 1994 almost one third of African-Americans and one in five children were living in poverty in the US (Economic Policy Institute).

All these well documented trends and evidence from numerous studies underscore the view that the widening income disparity among workers is becoming an entrenched fixture of the country’s economy. Many social scientists have begun to express concern over this economic stratification and its implications on the social fabric and stability of the country. In this regard, the Holy Quran describes some signals for determining if imbalances have arisen in a society. These signposts are clearly stated in the following verse: "Nay, but you honour nor the orphan. And you urge not one another to feed the poor. And you devour the heritage of the other people wholly. And you love wealth with exceeding love" (Ch. 89, vs 18-21). Indeed, American capitalist society is moving in the direction described above. A concomitant implication of this movement is that low-income citizens may begin to feel a weaker bond with the rest of society and see less reason to respect its rules and institutions. In this regard, a nascent Marxist-type social revolution based on a moving balance of antithetical forces may be at work (a class conflict revolution). In other words, the growing class polarization sets the stage for working class unrest and ultimately for a revolution.

The classical Marxist theory predicts that affluent members of society will always attempt to inexorably drive down wages and create a large chasm between the rich and the poor. These outcome results as the owners of production (the ‘capitalists’) maximize profits by, in part, minimizing wages. Workers, however, want the wages to be as high as possible. Since profits and wages come from the same pool of funds, ongoing conflict occurs. According to this doctrine, the conflict between the capitalists and workers would eventually and fundamentally destroy the capitalist system. In this regard, the Holy Quran says, "Mutual rivalry in seeking worldly increase diverts you from God. Till you reach the graves. Nay! You will soon come to know the truth" (Ch. 102: Al-Takathur, vs.2-4).

While Marxist-type arguments may provide interesting commentary on contemporary developments in the capitalist system. The favored solution of the Marxist tradition is also fundamentally flawed (i.e., scientific socialism or communism). In socialism, there are no incentives or market motivators to allow capital to cycle and recycle into productive processes. In this case, the state monopolizes capital and renders the system of interest totally irrelevant and meaningless. Of course, in capitalism, interest is a central motivating force which channels capital into producing more capital. Thus, free enterprise system, interest is sufficient to create incentives to channel capital into productive activities. In the socialist economic system, however, there is a lack of incentive as those who employ capital do not own it.

Interest plays an important role in capitalism beyond just creating incentives. Modern corporate finance principles incorporate the use of interest rates in determining which capital investments will yield the greatest payoffs. A communist state, however, lacks this system of monitoring financial decisions and thus the state handles capital without financial obligations to fulfil and without any kind of accountability. Moreover, a socialist government has no means by which to judge the real rate of economic growth. Therefore, the lack of personal interest in outcomes (or ownership) and the lack of rough financial decision tools ultimately relegate the socialist system into inefficiency and defalcation. This path, of course, has serious consequences for a society established on Marxist-Leninist traditions. Over the past decade, the decline of communism has been rapid and pervasive; the only major country left with this system is China. Indeed, any economic philosophy not based on Islamic principles and teachings will inevitably fail.

The purported ‘victory’ of capitalism over communism and the end of the Cold War raises serious questions as to the sustain-ability of such an arrangement. Advanced capitalist countries, operating unfettered from a communist threat, are stepping up their exploitative activities and exacerbating the economic imbalances between countries. For example, the capitalist economic revolution taking place in the Far East countries like Japan, Singapore, and South Korea are occurring at the expense of less fortunate Asian countries like Indonesia, Thailand, Bangladesh, and Sri Lanka. Similarly, the economic disparity between the so-called Third World countries of Africa and Europe continues to widen. The state of affairs that the world is experiencing today cannot last indefinitely. As mentioned earlier, the capitalist philosophy is inherently flawed—as exploitation widens as usury increases, and as economic dissimilitude expands, the apparent victory of capitalism will ultimately prove to be hollow and transient.

It becomes apparent from these failures of communism and capitalism that a different system is needed based on a unique ideology to attain a humane world economic and social order—it is the teachings of Islam which prodigiously fill this void. The wisdom of Islam furnishes guidance in all spheres of life and sets forth a standard of values, which help make life on earth beneficent in all aspects. While it is beyond the scope of this article to circumscribe the intricate details of the Islamic economic system, it would be remiss not to mention some relevant fundamental principles.

In sharp contrast to other systems, Islam posits that while individual ownership (right of possession, use, and transfer of property) is recognized and safeguarded in Islam, the world is common inheritance of all mankind. In other words, all ownership is subject to the moral obligation that all segments of society have a rightful share in all wealth. The Holy Quran repeatedly reminds us, "To Allah belongs the Kingdom of the heavens and the earth; and Allah has powers over all things" (Ch. 3, v. 190).

"Have they a share in the Kingdom? Then would they not give men even so much as the little hollow in the back of a date stone?" (Ch. 4, v. 54).

"Surely thy Lord enlarges His provision for whom He pleases, and straitens it for whom He pleases. Verily He knows and sees His servants full well" (Ch. 17, v. 31).

This latter verse teaches the supreme lesson that money spent in helping and serving the poor is important. Islam attempts to create an attitude whereby the wealthy are constantly reminded that it is in their own ultimate interest to establish an equitable economic system. Thus, there are checks and balances to avoid the disturbing wage and income disparities that America is experiencing today. Furthermore, less financially wealthy individuals in society should not in any way be hindered from pursuing fundamental economic rights. Through these mechanisms, Islam creates an atmosphere where the rights of others supercede the demand for one’s own rights. The level of consciousness and sensitivity to fellow human beings is raised to a degree whereby members of society as a whole are concerned more about what they owe to society rather than what society owes them. This ‘societal consciousness’ establishes an equitable and stable environment in which to live. Specifically, Islam inhibits the accumulation of wealth in few hands through the Islamic system of inheritance, the prohibition of hoarding money, and the prohibition of lending money on interest. These standards are supplemented by the principle of compulsory levies and under the institution of Zakat and the encouragement of voluntary contributions to the poor. In this regard, the Holy Quran note, "And spend in the way of Allah and do nor expose yourself to destruction with your own hands and do good to others. Surely Allah loves the doers of good" (Ch.2, v. 195).

"Observe prayer and pay the Zakat and obey the Messenger that you may be shown mercy" (Ch. 24, v. 57).

In an economic sense, Zakat can be considered a motivating force analogous to interest in the capitalist system—but with important differences. In Islamic economic order, Zakat propels the economy, as idle capital is continually taxed irrespective of who possesses it. If capital owned by individual is not employed in some economic project, it decreases in value for that individual. Thus, the incentives behind individual effort and enterprise is not weakened or compromised as it is under communism. Under the Islamic system, joint-ventures, partnerships and other entrepreneurial pursuits operate on a strict profit and loss basis without obligations to any financial institutions which charge interest on credit (borrowed capital).

Economists often argue two points—allocative efficiency and distributive efficiency. Today in the US, both types of efficiencies are being attacked under the weight of the capitalist system. The income and wage disparities between various sectors of society are causing a visible polarization in the social fiber of the country. It is clear from the events that the real ethos of capitalism is discrimination, exploitation of labor, and the economic concentration of wealth in society. The Holy Quran expostulates at length on the inimical effects of this type of socio-economic system. The economic and social order presented by Islam will ultimately prove to be the only true bulwark of economic morality, justice, and efficiency.


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