Sunday, October 26, 2008


Dear readers,

This is the english version of my earlier article on the same topic ( i.e the end of capitalism ).


As I am not trained as an economist, I have read the following articles written by the world renowned economists in order to understand the present economic crisis

• Francis Fukuyama ( “The Fall of American Inc” ) ,
• Fareed Zakaria ( “The Age of Bloomberg” and “There is Silver Lining “)
• Zachary Karabell (“ Awakening From the All-American Dream” ),
• Roberth Shiller ( “ The Ownership Myth“ ),
• William Underhill ( “Dark Days For the City of London” ),
• Jeffery E. Garten ( “We Need A New Road Map” ),
• Rana Foroohaar ( “ A New Age Of Global Capitalism Starts Now” ),
• Mohamed A. El-Erian ( “The Storm Cloud Spread” )
• Datuk Salleh Majid ( “In Need of A New Financial Structure” ) and
• Anna Taing ( “Are We Too Optimistic about the Economy” ) .

In a nutshell the world economists conclude that the Wall Street’s melt down has led the global economic players to critically question the entire Anglo Saxon system of capitalism.

French President Sarkozy has planned a world forum “ to rethink capitalism”. The Italian Minister of Finance even bitterly criticized the American model and said that the economic crisis shows “ the end of America as a financial superpower”. The Latin American leaders such as Hugo Chavez , Fernandez de Kirhner and Evo Morales cynically attacked Uncle Sam by saying that “ The U.S economic model is terminally ill.”)

The economic downturn marks, as rightly pointed out by Francis Fukuyama, the end of Reaganism or Thatcherism era. These two leaders namely Ronald Reagan and Margaret Thatcher , known as market friendly politician, had since 1970 launched a financial revolution by promoting a greater freedom of market as well as financial deregulation.

This financial revolution was later translated into a doctrine popularly known as the “Washington Consensus”. Based on this doctrine the US and all the powerful institutions under its influence such as the International Monetary Fund ( IMF ) and the World Bank had compelled the developing nations to open their economies and ensure their capital markets were more market friendly.

Without doubt the opening of the economy in developing countries has contributed a lot to the rapid economic growth as experienced now by China and India respectively. However the good things and bad things come simultaneously. Thailand and Korea for instance, acting under the advice and pressure from the US, had since 1990 decided to model their economy in line with the American pattern. By opening their economy and subscribing to the idea of freeing their capital markets , these two countries suffered a massive economic crisis in 1997-1998 when the hot money had started flowing to their economy and in turn created speculative bubble .

The present economic crisis has created a crisis of confidence in the laissez-faire capitalism and free markets. Historically speaking, as rightly pointed out by Newsweek editor, Fareed Zakaria, the capitalist system is pregnant with credit crisis, panic, financial melt downs and economic recession. Fareed also subscribed to the view that the present economic crisis signifies that the era of global domination by America has come to an end.

The muslim should not be bewildered with the present crisis. The Islamic economists such as Dr. Muhammad Umer Chapra ( The Senior Adviser of Monetary Agency of Saudi Arabia ) had long predicted that one day either socialism or capitalism will be sentenced to death.

The capitalism system which is based on secularism has promoted the pursuit of unlimited self interest translated in a form of free markets. This system , even though not denying the existence of Allah nevertheless presumes His existence has not carried any significant meaning for human life .

The world businesses including economic transactions are administered based on the assumption that there is no life after death and no accountability before God in the Hereafter. As we know secularism is a by product of the Enlightenment movement which tried to undermine the hold of religion as a collective force in society and placed great confidence in the ability of reason to discover ultimate metaphysical truths as well as prescribe values of ordering human life.

The founder of capitalism Adam Smith strongly argued that the serving of self interest will induce the individual to be most efficient. Therefore individuals should be given maximum freedom to serve their self interest through the maximization of their income and wealth. The pursuit of unlimited interest , which the market stands for, had a religious stigma attached to it. Capitalism gave rise to the concept of “economic man” which has served as the kingpin of modern economics. Self interest was the only motivation of his action.

The present economic crisis shows how consumption became the highest purpose of modern man’s life. Newsweek reports that in average every household of America has at least 13 credit cards. Consumption is also considered as the primay source of happiness and the ultimate justification of all their effort. Maximising earnings and want satisfaction became supreme virtues. The deep –seated dislike for , or indifference to, religion on the modern west made it averse to value judgments based on moral considerations. Human actions were to be judged , instead , in the light of a stark utilitarianism according to which “right” and “wrong” , “good” and “evil” were to be determined by the sensations of pleasure and pain.

Socialism and the Keynesian model has also failed. Even though socialism proposed a different strategy , it was based on the same world view as the market system. It was equally, if not more, secular in its outlook on life, It relied primarily on the curbing of individual freedom and profit motive and on the elimination of private property. The removal of profits as a direct reward for individual effort erodes initiative and efficiency both of which are indispensable for growth.

The present crisis has shown beyond any doubt that the both socialism and capitalism have failed miserably. It is not an exaggeration to say that the world can now write the obituaries of these two failed economic system. The world is definitely in a greater need of a new global economic system.

The Islamic based economic system has not hitherto been given a chance to replace these two failed global economic systems. Why doesn’t the world give it a try ?

1 comment:

Khalid Samad said...

Salaam Hanipah,

Khalid here. Do not seem to have your e-mail so am posting this on your blog site. Please remember our meeting will be tomorrow at the Parliament for Lunch. Her questions are as follows :-

I arrived in KL and wanted to follow up and let you know the areas of interest to my research. I am working on basically three areas of questions:

What other constitutional experiences influenced the drafting process of the constitution? The concept of including a “state religion” or some reference to Islamic law was already becoming common in the Muslim world by the time of the Malaysian constitution. Was Malaysia looking to other Muslim countries as positive or negative examples when drafting the constitution?
On the level of the Federation: what are the different ways in which participants envision the meaning of the clause “Islam is the religion of the Federation” and how are these meanings used as part of political debates?
On the level of the states: what is the range of a state’s rights to issue laws that may relate to or be based on Islamic law in some way, including criminal, personal status, banking, etc.? How are these laws drafted? When does the federal government step in and challenge a state’s jurisdiction? What are the results? Under this heading, I would like to know more about what the state law based on Islamic law looks like—is it codified? How much discretion does a judge of mufti have in conducting his own ijtihad from the Quran and hadith?

Salaam. Khalid Abd Samad