The Current Crisis of Capitalism
Lessons for Pakistan
Keeping these fundamental problems in the modern paradigm of governing economy, Pakistan can also draw some lessons from this crisis.
1. The future employment potential, both within and outside the country, will increasingly be in technology and knowledge-based activities. Besides primary education, emphasis should, therefore, be laid on technical education and skill development. In addition to literacy and numeracy, operacy (skill to do) should be a part of the educational system.
2. Irrespective of the stage of economic development, poverty and inequality remain key issues. It is particularly so in case of Pakistan which is based on the ideals of Islamic social justice.
3. The individuals and enterprises should be permitted to act freely within a broad regulatory framework and social and moral norms. The activities of the entities that use the resources of others or exercise authority on their behalf, like banks, financial institutions, insurance companies and stock exchanges, should be closely monitored. These entities should function as trustee rather than owner.
4. Good governance is the most critical element as no society can progress without it. The conduct of the state should be fair, just, efficient and effective. The real test of a government is its ability to shun political interference and pressures of vested interests and be solely guided by law, justice and ethical norms. In this, fiscal discipline, responsibility and accountability have a key role.
Capitalism as practiced today is under immense pressure, yet it will be presumptuous to call it the demise of capitalism. The situation is grave but remediable. Stakes are too high to let the system fall. As Stiglitz argues: ‘an alternative vision should be the one that is based on ‘global social justice and a balanced role for the government and the market’. The question, however, remains: what should be the precise role of each?
Khurshid Ahmad
(Concluding Remarks)
The foundations of capitalism are said to be in the self-interest motive, property and enterprise, and market mechanism; but the question is whether these began with capitalism. In fact, the efforts to improve one’s position and to have a prosperous life have always been part and parcel of human existence on the earth since time immemorial. As far as private property is concerned, it is true that originally there was some kind of community ownership but then, of course, private property ownership started despite some sense of participation from community. Sophistication of the market that is witnessed at present, particularly the technological advancement, information, transport and the exchange processes, shows a qualitative change. Yet, the fact is that market has always been there and supply and demand had been the important forces in economic activity. The question arises, ‘what is unique with capitalism then?’
The unique characteristic of capitalism is the very world view or the particular vision that constructed the total milieu of capitalism, topped off with the imbalance, introduced by the liberal paradigm in which rationality was equated with self interest and profit maximization for a particular class of capitalists or entrepreneurs, who amassed economic and political power, and dictated what to produce and consume. Making the market as the only decision making instrument with the assumption that market is a self correcting mechanism and does not need any regulation, oversight or check was the milieu that transformed the universal values of interest, profit motive and property.
Under this umbrella of world vision, Economics developed as a discipline. The Wealth of Nation by Adam Smith was preceded by the forces of morality. According to Smith, the idea of prudence preceded self-interest, but over the course of two centuries, six major delinks took place, which transformed the whole system and vision.
The first and foremost was the delink between economics and ethics. The post renaissances obsessions, for instance, with confining reality, facts and truths to what was observable and measurable brought in the crucial delink between economics and ethics that had changed the entire course.
The second delink took place between economics and other disciplines, meaning that economics was extracted from other disciplines, such as sociology, psychology and anthropology etc. and it was thought that economics is self sufficient. So, the world of economics became limited. As a result, society was reduced to economy and economy was reduced to market, which became the domain of key players: capitalists, entrepreneurs and financiers.
Third is the deliberate delink between analysis and vision. In past, vision had played a dominating role and analysis was subservient to it, but the former is absent now and the most of the scholarship is contented with the latter. Thus, the present situation can truly be called the crisis of vision.
Fourth was the delink between efficiency and equity. While efficiency and optimal use of resources are very important, they are not enough and cannot go without social and human dimension. The shift from man to matter has taken place today that has done the greatest damage both to economics as a discipline and economic as a policy.
The fifth delink i.e. between the monetary economy and fiscal economy aggravated the entire problem, and had the snowballing affects over the years. Since barter system was able to satisfy the needs of people only to a particular level of development, money brought revolutionary change in the economic history of mankind as a facilitator and intermediary for production, and soon became the instrument for the promotion and production of goods and services, transforming trade from commodity-commodity (CC) to commodity-money-commodity (CMC), leading to protection of commodities and services. That is how a balanced prosperous society would be created.
However, in the capitalist system, money became an instrument of producing only money, playing the role of increasing production; affecting physical economy; enhancing flow of goods and services as well as their production; exchange and distribution; becoming exploitative. This is precisely the reason why the interest, banking, financial houses, and the whole financial arrangement has played a very important role in the transformation of both domestic and global economy.
The worst transformation has taken place in the last 70 years. The difference between monetary transaction and real physical transaction is 1 to 50. According to an estimate, 1.3 trillion dollars worth of monetary transactions is taking place every day that makes about 50 times of the real sector transactions, which is roughly 50 trillion dollars globally. The banking assets of the western world exceed only 200 trillion, but the derivatives are crossing over 900 trillion dollars. This whole fiduciary is enriching the rich without affecting the production, resulting in the affluence for some and deprivation for many. The whole idea of Wall Street occupation that may be expressed in the one liner that ‘we are 99%’ is indicative of the situation.
Presently in the United States of America, 17 percent of the population is below poverty line. Real unemployment is over 20 Percent whereas this crisis has not made any difference to upper 1 percent. In one go, the US provided 760 billion dollars bailouts to a dozen banks and investors who were responsible for this crisis, while 2 million house owners were ignored. The same financial institutions started again and the owners were thrown out of their homes in this ‘richest’ and ‘largest democracy’. Those 760 million bailouts were paid by the tax payers. So the irony of capitalism is that it wants non interference from the government to enable them to make their profits, but in case of crisis it wants the government to step in and bail them out at the cost of common man. This is the real crisis. Studying the different economic reports of 2007, one will find that scholars from both mainstream and minority-stream have similar questions as were had been raised in the Great Depression of 1929.
To come out of this perennial crisis, a new approach is needed, instead of a bit of tinkering here and there, some regulatory oversight, one stimulus plan or another, or merely a ‘reform’ of paradigm from within. The urgent need is to rediscover the relevance of above mentioned five delinks not but a paradigm shift.
One can say that there are voices which are emphasizing this aspect, at least on the periphery. Some important publications in this regard are worth mentioning: Roger Bootle’s “The Trouble with Markets,” Anatole Kaletsky’s “Capitalism 4.0: The Birth of a New Economy in the Aftermath of Crisis,” Joseph E. Stieglitz’s “Freefall: America, Free Markets, and the Sinking of the World Economy,” and Robert Fogel’s “The Fourth Great Awakening and the Future of Egalitarianism” to name a few.
One may argue that these voices do not represent the mainstream thinking, but important phenomenon is the increasing inflow of these alternate articulations. All these prominent scholars and respected economists refer to the moral deficit in the contemporary economic paradigm that needs to be rectified through a complete transformation or paradigm shift. Muslim Ummah, despite its failings in the past, could offer the much needed alternate paradigm in form of Islamic economic paradigm, provided the Muslim scholars and thinkers articulate it properly in all its ontological, epistemological, empirical and applied dimensions. They also need to realize the fact that while ideas have important role in history, a change comes only when a model is there. So, while the crisis of capitalism is a global challenge, it is an opportunity for the Muslim World to present its economic model for the alleviation of human suffering.
