The Global Credit Crunch and The Crisis of CapitalismThe world is once again in the midst of a global crisis which began with the financial crisis, that engulfed the world. The ‘Credit crunch’ as it has come to be known brought panic and turmoil in the summer of 2007 to the world’s financial markets causing the US housing market bubble to burst. The crisis threatens a worldwide economic recession, potentially bringing to a halt more than a decade of increasing prosperity and employment for Western economies and potentially wiping a staggering $1 trillion off of the value of the world economy.
The Global credit crunch, food crisis and oil crisis has once again highlighted the fragility of Capitalism, as the fallout from the credit crunch and the wider economic crisis continues, demands for alternatives are certain to grow. The aim of this book, written by our expert Adnan Khan, is to scrutanise the causes of the current crisis and evaluate some concepts which go to the heart of Capitalism which will always cause such crisis. It will asses the various factors that have all contributed to the crisis and scrutanise why Capitalism regularly has economic crisis. The Islamic view on such factors will be presented in the form of an Islamic economy under the Khilafah in order to show how Islam will bring the much needed stability the world needs.
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Contents
Introduction
Global Credit Crunch
Oil: The crude facts
Global Food Crisis
Understanding the Fragility of Capitalism
The Islamic economy
Capitalism: A history of financial crisis
Conclusions
Glossary
Bibliography
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Nadia
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Dear Adnan, Great work, indeed you are true scholar who didnt ristrict his work to his self, its an open document. God Bless you. My students get the chance to read and review it just bcz its easily available. I am happy to see a work by a muslim for muslims. one thing i would like to add here its useful for those who have prior some knowledge of islamic economy. this book is indeed a source to learn the short comings of prevailing system rather a criticism. i appriciate the healty debate on the above argument. well done Adnan. May Allah Bless you. Regards Nadia. |
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Adnan Khan
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In Islam shareholding can be of different types. The common factor however is the fact that partners directly partake in the risk of the venture and debts are also shared between all the shareholders. Hence in the Mudharaba contract one partner puts the money in the business whilst the other actually works with it. To become a shareholder in an Islamic company means one is becoming a partner, hence all the existing owners will need to agree to this, in a Capitalist company structure, the purchase of shares makes one a partner regardless of the permission of the existing shareholders. This is why companies get taken over through aggressive takeover bids. The credit crunch has exposed the practices of the global banking industry. As customer deposits only make up a small proportion of bank finance, most banks borrow in order to invest. Banks borrowed so much in the boom of the last decade which found its way onto the financial markets and the dubious financial products. Hence banks borrowed to invest. When these investments collapsed banks had no way to pay back the money they had borrowed so they collapsed taking customer deposits with them. This is all analysed in my book The Global Credit Crunch and The Crisis of Capitalism - http://www.khilafah.com/index....capitalism |
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Taimur Ali
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This Book Can Also b Downloaded or viewed at this URL: http://www.scribd.com/doc/7492...Adnan-Khan There are many options available by virtue of which u can embed this book to ur blog or webpage. |
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Brian Moretta
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Re Adnan Khan Thank you for your attention to my comments. At the risk of replying back to front, I'll start with the comments on Islamic economies. I didn't mean to say that the Islamic economy is the same as a socialist one. However your paper did make me think of it and I would suggest that the common ground with socialism is much stronger than that with capitalism. I'd also suggest that the differences between the Islamic economy (as you described it) and socialism are stronger at the microeconomic level and at the macro level I think the two may look quite similar. I agree with your comments on the Muslim world. I think the level of inequalities are a problem globally, so to point the finger purely at capitalism on this is unreasonable. Even in communism, where the whole concept was based on everyone being equal, some were more equal than others. Alas I have no good solution to this and, unfortunately, I wasn't convinced by yours either. Re the solutions to capitalisms problems. I think we are both agreed that unfettered capitalism is bad and there are many examples to prove it! I would say that a complete command & control economy (in essence how communist economies were run) is worse, but there's not much in it. There is a scale from one extreme to the other and I think the current debate is how far along that scale we should be. It is clear that its not as close to the unfettered capitalism end as many thought! My understanding of your position is that by proscribing certain behaviours you are, in some sense, much closer to the command and control end. I think that many countries are moving in your direction. (I realise that characterising systems in this simplistic way glosses over a lot of details, but I find this a helpful way to look at things.) An interesting idea that the order within an economy is characterised by the strength of the institutions within it. Where capitalism fails, as you suggest its where people are not subject to the consequences of their actions. Unfortunately this seems to be the defining characteristic of most poor countries. Perhaps you could expand on how this would work in an Islamic economy. I know the phrase Sharia Law inspires bad reactions in much of the West, but I think this is a key (perhaps the single most important) part of any economy. I look forward to further articles which expand on these issue. |
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Adnan Khan
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RE: Brian Moretta Thank-you for your comments, Your comments were very constructive and are the sort of debate we need. You raised a number of points I will attempt to address most of them Western solutions to the credit crunch There is a common argument by Western Governments and Free market ideologues after every crisis, which is more regulation and transparency is needed. This is based upon what classical Capitalist economics understands of how different players in the free market function and make decisions. Such a model is constantly thrown at the public whenever a crisis happens. My problem with this argument is it actually avoids the root causes of the problem, what drives credit rating agencies to rate debt more then it is really worth, what drove investment banks to take huge risks in products which were highly risky, more transparency and regulation in no way deals with the underlying motive of such individuals and institutes. So the question is what drives such people to make money by taking huge risks with little care for the repercussions. The Free market You mentioned that some businesses will always fail and this is just the role of nature, I do not necessarily disagree with this. My issue really is, is the free market the best model for businesses to operate in, does the free market create a level playing field for all. The free market is considered a utopia in economic text books, in reality the free market is very different in real life and a model which can be easily manipulated as it has been and it has a track record of not being able to allocate resources effectively and efficiently – Many Western thinkers recognize this failure such as Richard Robbins and Paul Krugman. Oil The chapter on Oil was more explanatory rather then giving multiple views. At the time of writing the book much was still taking shape. My central argument still remains and is considered central to the Global credit crunch and the global food crisis, and that is of speculation. Islamic Economy I think it is important to understand that Islam existed centuries before Socialism/communism hence to equate the Islamic economy to Socialism would be incorrect. Although there may be some similarities (which also exist between Islam and Capitalism) this is no way makes them the same. The Islamic model does not aim to nationalize everything or remove private ownership as Socialism does. Muslim World In regards to the inequality in the Muslim world, none of the nations in the Islamic world implement Islam; in fact the economy is essentially there personal treasury. However how do you explain the huge disparity and inequality in the West when Capitalism is being applied, how do you explain the continues Inflation when Capitalism is being applied. We do plan to explain much more of the Islamic economy, in which we will elaborate on its details and how it will tackle economic problems in future articles. |
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Brian Moretta
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I found this book interesting but ultimately unconvincing. The commentary on capitalism summarises several of the known problems and focusses on some of the more spectacular & recent catastophies. It is hampered by numerous factual errors, which probably are more irritating than damaging to the author's arguments. When he sticks to logical arguments derived from facts he makes some good points, but too often it slips into ranting. My main criticism is that on several occasions he is dismissive of western suggested solutions to the problems (greater disclosure, tighter regulation etc) without substantiating why they wouldn't work. The historical commentary is interesting, yet fails to give much perspective beyond the facts. Its dimissal of stock and future markets as creations for speculators ignores their roots in the supply of capital to industry and the ability to stabilise business by hedging, though you cannot disaggree with the conclusion that they dominate now. His description of the banking system is perhaps a little symplistic, though it captures many of the relevant points of the current crisis. One of the key points of capitalism is that while some businesses succeed, others have to fail. Investors and businessmen must be allowed to make mistakes to find out what works. Where banks become too big to fail this can't happen and capitalism, in effect, becomes disfunctional. The author at times gets close to this argument, without quite reaching it. The section on oil is probably the worst of the book. For example the lack of oil refineries in the Middle East seems to be portrayed as a western conspiracy, when I would ask why the local governments haven't diverted more of their cash flow into that rather than grandiose building projects (for example.) There seems to be little link between the facts and conclusions here. As someone whose knowledge of Islamic finance is limited, I found the chapter on this topic the most frustrating. Unfortunately it reminded me of articles on socialism or communism which show how society would be a paradise if everyone followed these wonderful rules. Unfortunately none of these experiements have worked, and its revealing that there are no examples from the last 500 years which the author could point too. Unfortunately the macroeconomics he cites depend on a closed economy. For example, relying on gold to remove inflation depends on no more gold ever appearing in the economy. Similarly, an utopian situation is described where everyone behaves as per the Islamic ideal, whereas human nature being as it is you have to proscribe or regulate behaviour, the very methods which are dismissed within capitalism. Perhaps the most telling condemnation is that inequality in most Islamic societies appears to be as bad as in the West. I suspect the author would blame the west for polluting them with capitalism, but I feel that would be an evasion of responsibility. Overall a nice contribution to the debate and I'd be interested in seeing the ideas developed more fully. |
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