IDB/IRTI LECTURE
CAPITALISM, SOCIALISM,
THE WELFARE STATE, AND
ISLAM
PROF. KHURSHID AHMAD
MIHE, MARKFIELD, LEICESTER
NOVEMBER 6TH, 2007
1
INTRODUCTION
 1.1 Comparative Economic Systems
-
Rise and Fall of the Discipline
Capitalism: the Challenge from Socialism
Decline of Socialism and the Disintegration of the Soviet Union
“The End of History” Euphoria
“As mankind approaches the end of the millennium, the twin crises of
authoritarianism and socialist central planning have left only one
competitor standing in the ring as an ideology of potentially
universal validity: liberal democracy, the doctrine of individual
freedom and popular sovereignty… In its economic manifestation
liberalism is the recognition of the right of free economic activity and
economic exchange based on private property and markets.”
- Francis Fukuyama, The End of History and the Last Man, 1992
Yegor Gaidar, former Prime Minister of Russia in his address to the
International Economic Association, Moscow, August 1992 said:
“Henceforth books on Comparative Economic Systems will be found
on the shelves dealing with Economic Development.”
- The expected adoption of the American Model of Capitalism by the
entire world did not materialise.
2
 1.2 Disintegration of the ONE Global Capitalism Scenario
- Challenges from within
- Many Capitalist Models
 Liberal Market Capitalism
 Managed Market Capitalism
 Institutional/Cultural Factors
 Moral and Spiritual Versions
 Social Market Capitalism
 Developmental Capitalism
 Communist-Capitalist System
- The Dilemma:
“The search for an alternative Capitalism is fruitless in a world where
Capitalism has become utterly dominant, and no final crisis is in sight or,
short of some ecological catastrophe, even really conceivable. The socialist
alternative has lost its creditability, while contemporary anti-capitalist
movements seem to lead nowhere… Those who wish to reform the world
should focus on the potential for change within capitalism. There are
different capitalisms, and capitalism has gone through many
transformations. Reform does, however, require an engagement with
capitalism and cannot be accomplished by movements that stand outside it
and merely demonstrate against it.”
James Fulcher, Capitalism: A Very Short Introduction, Oxford University Press,
2004, p 127.
3
 1.3 Contemporary Crises of Capitalism
- Failure of Privatisation Strategies
- Frustrated Take Off for Global Spread of Capitalism
- Popular Disenchantment
- Search for Alternatives
The Russian Scenario
Source: Comparative Economics In A Transforming World Economy
By J. Barkley Rosser Jr. and Maria V. Rosser, Second Edition, The MIT Press, Cambridge,
Massachusetts, 2004. p 296.
4
 1.4 Revival of Interest in Alternatives
-
Variants of Socialist Economies
Russia, China, Poland, Hungary, South America
Islamic Economics and Economics of other Religions
Iran and the Struggle for a New Traditional Economy
 1.5 Islamic Alternative/ Alternatives
- Founding Fathers
 Mawdudi
 Sayyed Qutb
 Baqar Al-Sadre
- Contemporary Critiques/ Expositions
- Current Experiments: State Level/ Private Sector
5
II
MAJOR CONTEMPORARY ECONOMIC
EXPERIMENTS




2.1
2.2
2.3
2.4
CAPITALISM
SOCIALISM
FASCISM
WELFARE STATE
All under the umbrella of one civilizational paradigm of SECULARISM
- World View
- Concept of Man and Society
- Objectives
- Parameters for Decision making
- Operational Mechanisms
6
III
EVALUATION: ACHEIVEMENTS AND
FAILURES
 3.1 POSTITIVES
3.1.1
3.1.2
3.1.3
3.1.4
Development/ Affluence/ Welfare
Power/ Control/ Supremacy
Freedom/ Democracy/ Participatory System
Innovation/ Technology
 3.2 NEGATIVES
3.2.1
3.2.2
3.2.4
3.2.4
3.2.5
Injustices/ Contradictions/ Conflicts and Rivalries
Exploitative/ Colonial/ Hegemony
Inefficient/ Wasteful
Instability
Unsustainable
7
IV
THE GLOBAL SITUATION
 4.1 FROM WHERE WE BEGAN
RELATIVE SHARES OF WORLD MANUFACTURING OUTPUT
Region
Years
Country
1750
1800
1830
1860
1900
23.2
28.1
34.2
53.2
62.0
(Russia)
(5.0)
(5.6)
(5.6)
(7.0)
(8.8)
(U.K)
(1.9)
(4.3)
(9.5)
(19.9)
(18.5)
0.1
0.8
2.4
7.2
23.6
73.0
67.7
60.5
36.6
11.0
(24.5)
(19.7)
(17.6)
(8.6)
(1.7)
Europe
USA
Third World
(India/Pakistan)
— Source: PAUL KENNEDY The Rise and Fall of Great Powers, Random House, New York, 1987.
8
Per Capita Levels of Industrialization (1750-1900)
(Relative to UK in 1900 = 100)
Region
Country
Years
1750
1800
1830
1860
1900
8
8
11
16
35
(6)
(6)
(7)
(8)
(15)
(10)
(16)
(25)
(64)
(100)
USA
4
9
14
21
69
Third World
7
6
6
4
2
(7)
(6)
(6)
(3)
(1)
Europe
(Russia)
(U.K)
(India/Pakistan)
— Source: PAUL KENNEDY The Rise and Fall of Great Powers, Random House, New York, 1987, p. 149.
9
 4.2 WHERE WE ARE TODAY
4.2.1 THE PRESENT POSITION IS THAT THE TWENTY TWO DEVELOPED
COUNTRIES OF THE WORLD HAVE 87 PERCENT OF WORLD GDP
WHILE THE REMAINING 160 COUNTRIES HAVE TO LIVE ON ONLY 13
PER CENT. INEQUALITIES BETWEEN THE DEVELOPED AND
DEVELOPING COUNTRIES AS WELL AS WITHIN THESE COUNTRIES
ARE INCREASING, MAKING RICH RICHER AND THE POOR POORER.
THE WORLD IS BECOMING MORE UNJUST AND EXPLOITATIVE.
4.2.2
INCREASE IN GLOBAL INEQUALITY
“AN EXAMINATION OF INTERNATIONAL INEQUALITY USING
ABSOLUTE RATHER THAN RELATIVE MEASURES OF INEQUALITY
REVEALS A STEADY INCREASE OVER THE LONG RUN, AS WELL AS
IN RECENT DECADES………”.
10

“…. INTERNATIONAL INEQUALITY WAS ESSENTIALLY
NEGLIGABLE AT THE TURN OF THE NINETEENTH CENTURY
ACCOUNTING FOR ROUGHLY 12 PER CENT OF GLOBAL
INEQUALITY, BUT THAT, IT INCREASED VERY RAPIDLY UNTIL
WORLD WAR II, AND THEN CONTINUED TO INCREASE BUT AT A
MUCH SLOWER PACE…. IN SUMMARY, WHILE THE WORLD GOT
RICHER, INCOME INEQUALITY RELATIVE AND ABSOLUTE,
INTERNATIONAL AND GLOBAL INCREASED TREMENDOUSLY
OVER A LONG PERIOD OF TIME (1820-1992)”
(WORLD DEVELOPMENT REPORT 2006, EQALITY AND DEVELOPMENT, THE
WORLD BANK, 2006, P.64-65)
11
 4.2.3
THE RICHEST 1% OF PEOPLE IN THE WORLD RECEIVE
AS MUCH AS 57% AT THE BOTTOM. THAT IS LESS THAN
50 MILLION OF RICH PEOPLE IN THE HIGH INCOME
COUNTRIES RECEIVE AS MUCH AS 2.7 BILLION POOR
PEOPLE IN THE WORLD.

TOP 10% OF THE US AGGREGATE INCOME IS EQUAL
TO THE TOTAL INCOME OF THE POOREST 43% OF THE
WORLD. THAT IS INCOME OF 25 MILLION PEOPLE IN
AMERICA IS EQUAL TO THE TOTAL INCOME OF 2
BILLION POOR PEOPLE IN THE WORLD.

IT MAY BE INSTRUCTIVE TO RECALL THAT THE TOTAL
US FOREIGN AID TO THE WORLD IS 0.2% OF ITS GDP.

AVERAGE INCOME DIFFERENTIAL BETWEEN THE RICH
AND THE POOR COUNTRIES OF THE WORLD WAS 1:78
IN 1988, 1:114 IN 1993 AND 1:140 IN 2006.

RECENTLY A NUMBER OF FUND MANAGERS ARE
REPORTED TO HAVE RECEIVED AN ANNUAL TAKE
HOME INCOME OF US$1 BILLION EACH THIS YEAR.
12
 4.2.4
HALF OF THE HUMAN RACE IS LIVING TODAY ON
LESS THAN US$2 PER DAY, THAT IS OVER 3
BILLION PEOPLE.

AROUND 1 BILLION HAVE TO SURVIVE ON LESS
THAT US$1 A DAY.

AROUND 800 MILLION ARE REPORTED TO BE
SUFFERING FROM MALNUTRITION AND HAUNTED
BY THREATS OF STARVATION.

MILLIONS ARE SUFFERING FROM CURABLE
DISEASES AND THOUSANDS DYING EVERYDAY
BECAUSE OF LACK OF MEDICAL CARE.

ALMOST 1/5TH OF HUMANITY IS SUFFERING
FROM THE AGONY OF A LIVING DEATH.
13
 4.2.5 AFRICA
 “THE POST INDEPENDENCE INTEGRATION OF THE AFRICAN ECONOMIES
INTO THE WESTERN CONTROLLED GLOBAL ECONOMY HAS PROVED TO
BE DEVASTATING TO THE CONTINENT’S DEVELOPMENT EFFORTS. WHEN
AFRICAN COUNTRIES WERE FREED FROM COLONIALISM IN THE 1960’S,
WESTERN CAPITALIST POWERS STRUGGLED HARD TO ENSURE THEIR
ECONOMIC DEPENDENCE ON THE WEST …… AFRICAN STATES SLID INTO
GREATER ECONOMIC PROBLEMS AS THEY BEGAN TO ADOPT
EXTERNALLY GENERATED ECONOMIC POLICIES THAT HAVE LITTLE OR
NO RELEVANCE TO THEIR SITUATION ……THE STRUCTURAL
ADJUSTMENT PROGRAMME FORMULATED BY THE WORLD BANK AND
THE IMF, TO SAY THE LEAST, HAS NOT LED TO IMPROVEMENT IN THE
LIVING STANDARD OF THE PEOPLE. THE CONDITIONALITIES OF THE
PROGRAMME LIKE CURRENCY DEVALUATION, FOR EXAMPLE, HAVE HAD
A CRIPPLING EFFECT ON A LARGE POPULATION OF THOSE AFRICAN
STATES IMPLEMENTING THE PROGRAMME. MOHSIN KHAN FOUND THAT
THE PROGRAMME NEGATIVELY AFFECTS GROWTH RATES IMMEDIATELY
AFTER IT IS ADOPTED.”

VICTOR OGUEJEOFOR OKAFOR AND SHERIFFDEN TELLA, “ECONOMIC DEVELOPMENT
AND THE PROSPECT FOR ECONOMIC SECURITY IN AFRICA”,IN ADABAYO OYEBADE AND
ABIODUN ALAO, “AFRICA AFTER THE COLD WAR : THE CHANGING PERSPECTIVES OF
THE SECURITY” AFRICA WORLD PRESS, TRENTO, 1998, p.p. 24-25.
14
 4.2.6 Capitalism is characterised by establishment of a debt-based
economy. Income inequalities, demand manipulations and easy debt
facilities have resulted in a lifestyle of living beyond ones means. Interest
has played a pivotal role in producing a debt-based economy. Developed
and developing countries both are caught in the grip of this new form of
virtual slavery. Some idea of the plight of humanity can be had from the
following facts:






HOUSEHOLD DEBT IN THE UNITED KINGDOM
1963
1973
1983
1993
1997
£9.0 BILLION
£32 .0 BILLION
£151.0 BILLION
£625.0 BILLION
£780.0 BILLION
 “IN 2006, U.K. INDIVIDUALS AND HOUSEHOLDS OWED £1,174 BILLION,
ALMOST EXACTLY EQUAL TO TOTAL U.K. INCOME OR GDP.
 IN OTHER WORDS, EVERY UK’S ADULT OWED ON AVERGE £25,200 MORE
THAN MEDIAN ANNUAL EARNINGS WHICH IN 2004/ 05 WERE ONLY
£22,900.(ANN PETTIFOR, THE COMING FIRST WORLD DEBT CRISIS,
Palgrave, 2006, p.97)
15
 4.2.7 UNITED STATES OF AMERICA

TOTAL NATIONAL DEBT AT THE BEGINING OF
THE 20TH CENTURY WAS REPORTED TO BE
ONLY US$ 1 BILLION.
 IN THE YEAR 2004 IT HAD SOARED TO US$ 7.8
TRILLION. THAT IS GOVERNMENT DEBT ONLY.
TOTAL NON FINANCIAL MARKET DEBT
STOOD AT US$ 23 TRILLION IN 2004.
 FOREIGN INDEBTEDNESS OF THE ONLY SUPER
POWER WAS US$ 3.3 TRILLION IN 2004, UP FROM
ROUGHLY ZERO IN 1987.
 (KEVIN PHILLIPS, AMERICAN THEOCRACY: THE PERIL AND
POLITICS OF RADICAL RELIGION, OIL, AND BORROWED
MONEY IN THE 21ST CENTURY, PENGUIN BOOKS, 2006, P.272273).
16
 4.2.8
DEVELOPING COUNTRIES TODAY OWE OVER
US$3.242 TRILLION TO THE RICH COUNTRIES OF
THE WORLD. THIS SCENARIO HAS UNFOLDED
OVER THE LAST HALF A CENTURY. TOTAL
INDEBTEDNESS IN 1970 WAS US$ 97 BILLION. IN
2006 IT HAD SNOWBALLED TO US$ 3.242
TRILLION. THIS IS SO DESPITE THE GRUESOME
FACT THAT THE DEBTED COUNTIES IN THE
UNDER DEVELOPED WORLD DURING THE LAST
TWO DECADES PAID TO THE NORTHERN
CREDITORS OVER US$1.5 T RILLION.
 DEBT SERVICING IN YEAR 2006 HAS JUMPED TO
US$665.2BILLION, EVEN HIGHER THAN THE TOTAL AMOUNT
OF DEBT OWED BY ALL THE DEVELOPING COUNTRIES OF
THE WORLD IN 1980 (i.e. US$633.3 BILLION).
17
 4.3 POVERTY, UNEMPLOYMENT AND INEQUALITY ARE THREE MAJOR
PROBLEMS DEFYING SOLUTION.
 These problems are not confined to the Third-World Countries.
 Most of the Developed/Rich countries face them in varying degrees.
 Poverty measured by percent of children with less than one half of median
income (mid-1980s to mid 1990s) in respect of some of the developed
countries present the following picture
Source: Rosser and Rosser, opt. Cit, p.131.
18
 4.4 Poverty in the US, the richest Capitalist country, based on
officially measured poverty rates, defined as money income being
less than three times the estimated cost of a minimum food budget,
has persisted over the decades. The following table reflects the
overall situation as well as poverty in relation to race and ethnicity of
the population:
19
 4.5 Inequalities of income and wealth in the US have
also increased, rich getting richer and poor getting
poorer, a phenomenon prevalent in the entire Capitalist
world. In 1970 top fifth of the population (20%) received
40.9% of the National Income, whose share in 1999
increased to 47.2%. The share of the bottom fifth came
down from 5.4% to 4.3% of the National Income.
(Source: For 1970 Statistical Abstract of the United
States 1997, table 725; for 1980-1999, Statistical
Abstract of the United States 2001, table 670.
 4.6 Unemployment, despite all developmental efforts,
could not be eliminated in any of the developed countries
of the world. Relative data for some of the countries for
the entire span of the twentieth century is worth
reflecting upon.
20
Percentage of Labour Force Unemployed
Country
1921
1931
1951
1961
1971
1979
1993
2000
Australia
5.9
17.9
1.3
2.3
1.8
6.1
10.7
6.6
Belgium
6.1
6.8
4.4
2.5
1.7
7.1
13.5
10.7
Canada
5.8
11.6
2.4
7.0
6.1
7.4
11.6
6.8
France
2.7
2.2
2.1
1.5
2.6
5.9
11.7
9.2
Germany
1.2
13.9
7.3
0.7
0.7
3.3
7.5
9.2
Italy
n.a
4.3
7.3
3.4
4.9
7.1
11.3
11.4
Japan
n.a
n.a
1.7
1.4
1.2
2.1
2.5
4.6
Sweden
1.3
4.8
1.6
1.5
2.5
2.1
9.0
3.9
UK
11.0
14.8
2.2
2.0
3.8
5.1
10.4
5.3
USA
11.4
15.2
3.2
6.5
5.9
5.8
5.8
4.0
Source:Rosser and Rosser, Page 44
21
 4.7 Instability of the system is symbolised by recurring financial and
production crises. Fractional and now almost fictional system of
lending based on interest, and highly speculative character of
commodity and financial markets are at the root of the instability of
the system.
 4.8 Sustainability has also become a grave issue in view of
extensive overuse and misuse of the resources of the planet,
ignoring the needs of the posterity.
22
V
ISLAMIC MODEL(s)
 5.1 NEED FOR A CHANGE OF THE PARADIGM AND NOT
SIMPLY CHANGE WITHIN THE PARADIGM
 5.2 WORLD VIEW AND VALUE FRAMEWORK
5.2.1
5.2.2
5.2.3
5.2.4
5.2.5
5.2.6
5.2.7
5.2.8
5.2.9
TAWHEED (UNITY OF GOD)
RABYBIYYAH (DIVINE SYSTEM OF SUSTENANCE)
RISALAH/ PROPHETHOOD AND GUIDANCE
AAKHIRAH (LIFE- HEREAFTER/ ACCOUNTABILITY)
ISTIKHLAF (VICEGERENCY/ STEWARDSHIP)
TAZKIYYAH (PURIFICATION AND GROWTH)
KAFALAH (MUTUAL SUPPORT/SOCIAL SOLIDARITY)
‘ADALAH AND QIST (JUSTICE AND EQUITY)
FALAH (WELLBEING/ HERE-HEREAFTER)
23
 5.3 CHARACTERISTICS
5.3.1 HOLISTIC/ COMPREHENSIVE/ INTEGRATED
5.3.2 VALUE BASED IDEALS AND OBJECTIVES: CLEAR STATEMENT OF
MAQASID-E-SHARIAH PROVIDING THE VALUE FRAMEWORK FOR
ECONOMY AND SOCIETY.
 PROTECTION OF DEEN
 PROTECTION OF INTELLECT
 PROTECTION OF BODY
 PROTECTION OF FAMILY/ POSTERITY
 PROTECTION OF WEALTH
5.3.3 BALANCED
 SPIRITUAL AND MATERIAL
 INDIVIDUAL AND SOCIETY
 SELF- INTEREST AND SOCIAL RESPONSIBILITY
24
5.3.4 REALISTIC:
 WORLDY/ MATERIAL DIMENSION
 WELFARE AND WELLBEING OF ALL
 MONEY’S UNIQUE ROLE AS MEDIUM OF EXCHANGE PROMOTING
PHYSICAL ECONOMY AND NOT JUST FIDUCIARY EXPANSION
 DIIVERSITY AND PLURALITY
5.3.5 HUMANISTIC
FOCUS ON MAN AND NOT MERELY ON WEALTH/ PRIORITY FOR HUMAN
DEVELOPMENT AND WELLBEING.
5.3.6 JUSTICE AND EQUITY FOR ALL
25
VI
MAJOR PRINICIPLES AND PROCESSES
OF AN ISLAMIC ECONOMY
 6.1 FOUNDING ECONOMIC AND FINANCIAL DEALINGS ON
MORAL VALUES AND GUIDELINES FOR CONSUMPTION,
PRODUCTION, EXCHANGE AND STATE ACTIVITIES.
 6.2 PRIVATE PROPERTY, FREEDOM OF ENTERPRISE AND
MARKET MECHANISM, WITH:
 MORAL FILTER, AT INDIVIDUAL AND SOCIETAL LEVELS
 CIVIL SOCIETY, SUPPORT MECHANISMS, WAKF, AND
STRENGTHENING OF ALTRUISTIC (NON-PROFIT) SECTOR.
 SUPPORTIVE, REGULATORY AND CORRECTIVE ROLE OF THE STATE.
26
• 6.3 ABOLUTION OF RIBA (INTEREST/ USURY), MAISIR
(SPECULATION/GAMBLING), AND GHARAR (AMBIGUITY,
UNCERTAINTY AND DECEPTION)
• 6.4 EQUITY-BASED, RISK-SHARING AND STAKE HOLDING
ECONOMY AS AGAINST DEBT-BASED ECONOMY
• 6.5 USEFUL CONSUMPTION AND PRODUCTION
• 6.6 DISTRIBUTIVE JUSTICE
• 6.7 MONETARY DISCIPLINE AND PRICE STABILITY
• 6.8 EFFICIANCY WITH EQUITY AND WELL-BEING FOR ALL
• 6.9 GLOBAL COOERATION AND INTEGRATION, WITH SELFRELIANCE OF THE UMMAH
27
Suggested Readings
1.
2.
3.
4.
5.
6.
7.
AHMAD, Khurshid, “The Challenge of Global Capitalism: An
Islamic Perspective”, in Making Globalisation Good: The Moral
Challenges of Global Capitalism, ed. by John H. Dunning, Oxford,
2003.
CHAPRA, Mohammad Umer, Islam and the Economic Challenge,
Leicester, Islamic Foundation, 1992.
CHAPRA, Mohammad Umer, The Future of Economics: An
Islamic Perspective, Leicester, Islamic Foundation, 2000.
HALL, Peter A. and David Soskice, Varieties of Capitalism,
Oxford, 2001.
PORRITT, Jonathan, Capitalism: As If the World Matters, London,
Earthscan, 2005.
Rosser, J. Barkley and Marina V. Rosser, Comparative Economics
in A Transforming World Economy, The MIT Press, Cambridge,
2004.
SHUTT, Hary, The Trouble With Capitalism: An Enquiry Into The
Causes of Global Economic Failure, London, Zed Books, 1998.
28
8.
9.
10.
11.
12.
13.
14.
15.
LANE, R., The Loss of Happiness in Market Democracies, Yale
University Press, 2000.
YOUNG, S., Moral Capitalism: Reconciling Private Interest With Public
Good, Berrett-Koehler, San Francisco, 2003.
AMBLE, Bruno, The Diversity of Modern Capitalism, Oxford University
Press, 2003.
ROSEFIELDE, Steven, Comparative Economic Systems: Culture, Wealth
and Power in the 21st Century, Blackwell, 2002.
MONTIAS, John Michael, Avner Ben-Ner, and Egon Neuberger,
Comparative Economics, Routledge, 2002
SCHWEICKERT, David, Against Capitalism, Westview Press, Oxford
1996.
FULCHER, James, Capitalism: A very Short Introduction, Oxford, 2004.
THUROW, Lester. C., The Future of Capitalism: How Today’s Economic
Forces will Shape Tomorrow’s World, London, Nicholas Brealey, 1996.
29