Privatization of SOEs: Islamic Views

As a result of our  Deep-Seated Inferiority Complex , we have come to regard Western knowledge as superior to the deep wisdom of our inherited intellectual traditions. This is why we no longer look to our tradition for insights about modern problems, and generally think that the teachings of our religion have nothing to say about it. The talk given below looks at the problem of privatization of State-Owned Enterprises in the light of the teachings of Islam, and comes to conclusions very different from what is generally being said about this matter in the literature.

Brief Summary of article & video talk by Dr. Asad Zaman at Round Table Conference on REFORMING THE STATE-OWNED ENTERPRISES OF PAKISTAN: LEARNING FROM CHINA & BRI COUNTRIES held on Nov 12, 2018 at the Center of Excellence for CPEC, PIDE.

Brief Summary:

To establish efficient SOEs, we need to work on re-aligning the motives of the workers in the SOEs. Privatization is based on the idea idea that the selfish profit motive is superior to the motive of social service. This idea is anti-thetical to Islam, which teaches us to develop our motivation to serve humanity – the creation of God — for the sake of the love of God.  In fact, the idea of the “invisible hand” that the selfish private profit motive works best to produce social benefits has been proven wrong by many different examples. The Global Financial Crisis was caused by the search for profits, without regards to social responsibility. In contrast, Chairman Mao-Tse-Tung changed the destiny of the Chinese by inspiring them with a powerful vision based on their past. Similarly, campaign based on inspirational poetry aligned with our heritage based on Islamic ideals can launch the internal changes required to create great managers in both public and private sectors.

The 22-minute video talk is linked below — Detailed outline of talk is also given below

A 2200 word summary of the talk was published in The Nation on 10th Jan 2019

Privatization of State Owned Enterprises

Should we privatize our State Owned Enterprises (SOEs)? Would privatization solve the management issues and make them successful?  SOEs are, or should be, motivated by social service, while private sector works on the profit motive. Paradoxically, it seems that the profit motive creates more public benefits than social service. Is this really true? This is a hot topic of debate among economists, policy makers, and legislators, which has very serious consequences and implications. But some very important aspects are often overlooked in the discussion. There is no serious discussion among scholars on key variables such as Integrity, honesty and morality, and motivation for work effort. Ignoring these central issues has led us to solutions that don’t work. The question of why issues central to the public versus private debate are neglected has to do with the fact that this question emerged in European societies within the historical context of modern secular states.  Because the relationships between private and public sectors have been very different in Islamic societies, and were dramatically disrupted by the process of colonization, there is a need of finding different solutions which are more relevant to our cultural, historical and religious context.

The Problem is formulated in the Wrong Way

When we talk about regulating enterprises from an Islamic perspective there are three main parameters. The institutional structure, the rules and regulations and the spiritual aspect. All three aspects are of central importance in terms of the comparisons between private and public sectors. Eurocentric conceptions exclude these considerations, focusing purely on institutional structures and law. Scholars like Weber and Tawney have shown the central importance of Christian ethics in the emergence of Capitalism, as well as the shaping of institutional structures in Europe. Similarly, Institutional structures which are compatible with our local historical context and ideological frameworks cannot be imported from Europe. Rather, it is essential to design our institutions in conformity with our social values and collective goals as a society. Given the right social values, both public and private enterprises would work with similar levels of efficiency, while a general failure of moral education in a society would be equally reflected in poor performance in both public and private sector. Thus the focus on public versus private misses the essential elements that we need to consider.

Origin of the Problem

To understand the misconception that private and public sector represent polar opposites in terms of efficiency of operation, we need to go back to Europe where this idea originated.  Centuries of violent religious warfare led to general dis-enchantment with religion. The secular state was conceived as a collection of communities living under common rule of law, but with different religions and no common purpose. The scope of collective action was restricted to the government, since the people were divided into communities with no collective identity. Thus, there was either public ownership or private ownership and there was no intermediary.  Since there was no agreement on purpose, collective consensus could only be achieved on the mediating agencies of wealth and freedom, which would allow each community to strive for their separate goals. Wealth and freedom are intermediate goods, valuable only because they allow people to achieve their final purpose. Through a long and slow process, these intermediaries came to be regarded as the final goods – the ends for which we strive. It was the gradual decline of religion that took out meaning from the lives of the people. They were left with no clue as to what do with the freedom, liberties and wealth that they had acquired.

Religion and the Rise of Capitalism

Secular European society has erased its religious roots, so that the standard Eurocentric narrative ignores and neglects the strong contributions of Protestant religion to the emergence of Capitalism. This story has been developed in great detail by Tawney in Religion and the Rise of Capitalism and Weber in The Protestant Ethic and the Spirit of Capitalism. One of the central elements in the transformation of traditional society based on religion to a secular society was the change in attitudes towards wealth. The Christian maxim that “love of wealth is the root of all evil” was replaced by the Shavian maxim that “Lack of wealth is the root of all evil”.  In particular, Calvinism introduced the concept that working is a sacred duty and that worldly wealth is a sign of the favor of the Lord. Parenthetically, Islam emphatically rejects this, and explicitly asserts that wealth is not a sign of the favor of the Lord.  Nonetheless, this view became widely accepted, so that working hard and earning wealth, without indulging in luxury, came to be regarded as a sacred duty, required of good Christians. Originally, this conception was meant as a cloak for use by the religious people to enable them to enter the dirty and impure world of work and wealth without getting contaminated. However, even though religion lost its grip on minds and hearts, the habits of working for wealth became embedded within the cultural frameworks, excluding serious re-conceptualization of lifestyles required by the loss of faith. In the elegant metaphor of Weber, what was meant as a cloak to be lightly put on for dealing with the world, became an iron cage.

Divorcing religion and redefining Knowledge

Loss of faith in the certainties of religion and afterlife had profound consequences on European society. Europeans learned to distrust the heart, which had led to collective consensus on the illusion that Christianity had proven to be. Enlightenment philosophers argued that all traditional knowledge must be put to the critical test of reason. Rejecting the heart, and relying solely on the rational faculty led to a highly imbalanced theory of knowledge, which could not provide answers to critical questions that we all face in our human lives. Based solely on rational calculations, all moral considerations can be set aside in pursuit of wealth and power, as recommended by Machiavelli. All of the modern social sciences were founded on the basis that men are rational robots without hearts and soul. Take the example of discipline of Economics. One of the core assumptions of Economics is that we live solely for the sake of the pleasure derived from consumption. Rational human decisions are guided by profit and loss consideration, so that honesty, commitments, trust, and sympathy are excluded from economic theories of human behavior. The larger questions like a vision of the good life and the good society are lost from view, leading to a deep sense of meaninglessness. Today the world is governed by social science theories which are based on a deeply defective understanding of what it means to be human. The results of this are evident in the multitude of catastrophes which confront the planet as corporations pursue short-sighted profits, at the expense of laborers, environment, and humanity.

Colonial Era, Governance and present day Governance problems of Pakistan

Private sector versus public sector is a red herring – if we have honest people who have the desire to serve the public, they can run organizations equally well, whether they are in the public or the private sector. As proof, consider China where around 70% of the production takes place within State Owned Enterprises, and yet it has had the highest growth rate for over a decade. Importantly, many of these SOEs are tasked with social responsibilities, in addition to the financial goals private sector firms have. Chinese SOEs have been engines of growth, so we must consider the special features of Pakistan which make our SOEs a liability and a burden.

To understand governance structures in Pakistan, it is essential to consider our colonial history. The British destroyed efficient and functional educational systems which provided training to the masses without charging any fees. These were replaced by educational institutions that aimed at producing bureaucrats who had contempt for their own heritage and traditions, and were loyal to the British. The goal of all institutional structures was to maximize the extraction of revenues from the colony. This colonial legacy continues to haunt us in terms of poor performance of the public sector because bureaucrats represent the lords and rulers of the country and are not answerable to the public. The central problem of governance is to change the attitude of the bureaucrats to be the “public servants” that they are in name.

To improve the performance of SOEs, we will have to try to change these mindsets and this will take place in steps. The first step is to create a community and common goals, to bridge the divide between the rulers and the public. We need to get a buy-in by the stakeholders in the society. We need to find the points where the interests of all the people of the society converge. This was the strategy used by Mahathir Mohammad to create the East Asian Miracle in Malaysia. The community leaders of the Indians, the Chinese and the native Malays came together and agreed on certain principles and goals. The progress that Malaysia has made is an excellent example explaining the miracles of the consensus built upon the basis of community based collective action.

Does the Profit Motive Work?

The mistake committed by all of us is the unverified and invalid argument that systems based on community, social responsible, and common goals cannot work because the profit motive is the only reliable driver for enterprise. Counterexamples to this assertion surround us in Pakistan. Abdus-Sattar Edhi built a world class charity, while the Indus Hospital is a world class hospital run on the basis of social responsibility. Akhtar Hameed Khan showed how communities can self-organize and solve their own problems with very little help. The essence of the debate on SOEs is that the social service motive of the SOE’s can be replaced by the profit motive of the private sector and this will bring the desired positive change. In the world, we see many examples where private sector greed has led to massive losses. The biggest example is the Global Financial Crisis where the greed of the financial sector led to trillion dollar losses worldwide. But thousands of other examples of the same phenomena, where corporate greed has led to massive losses to public welfare, can easily be found.

The Solution

Instead the mirage of the profit motive, real solutions lie in inspiring people to act with social responsibility. This requires aligning work incentives with our religious and cultural background. For instance earning Halal rizq is an act of worship. Serving the public for the sake of the love of Allah is an act of worship. According Islamic teachings, the leader is the servant of the people. This spirit still exists, but only in very weak form. Real change is created when the people are inspired to work together for larger goals. Today, in Pakistan, we need to use education and media to nurture and strengthen this spirit. Once the motivations are re-engineered and the right motivations are presented then it won’t matter that whether the Enterprise is state owned or privatized it will bring positive changes in the society. China is a good example for this. Mao-Tse-Tung’s dynamic leadership inspired the nation to work together for change. Chinese SOE’s place great emphasis on the social responsibility and contribution to the society. The profit motive is replaced by the service motive and it has worked in China. The biggest obstacle on our path is the defeated mindset created by a century of colonization. In fact, the subcontinent has produced many great world class leaders. Mahbubul Haq changed the direction of the development discourse from accumulation of wealth to Human Development. The Grameen Bank pioneered the concept of microfinance. Akhtar Hameed Khan and his followers introduced the concepts of community driven development to the World. Word class social work and successful programs for graduation out of poverty have been pioneered in the subcontinent.

Conclusion

In conclusion, I would say that the question of SOE’s versus privatization is a red herring. The real question is how to improve management. This requires finding honest, efficient, and competent managers inspired with the desire to serve the people. If we can educate and train people to work with the right spirit, they will create productive enterprises whether in the public sector or in the private sector. We could ask if this is merely a pipe-dream, or whether there are some realistic examples of success of such models? We gave a few examples of successful world class public service organizations earlier. The truth is that at the grass roots level there are thousands of domestic organizations working to serve the public. We need to come out of colonial mindset and look at our Islamic traditions of service and excellence. Since our common factor is our heritage, we can inspire people to unite for high common goals only on this basis. If we can succeed in creating the spirit of service, , for the sake of the love of Allah, the internal revolution will create an external revolution. Then the public sector and private sector will work together harmoniously for a common cause, creating development on a scale which we cannot currently imagine.

 

 

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Quest for Prosperity: Culture & Economy

The dominant definition of prosperity today differs radically from Islamic concepts. Consequently, how we strive for prosperity must also be radically different. The Quaid-e-Azam lecture at the 33rd Annual General Meetings of Pakisan Society of Development Economics held in 2017 was devoted to this topic.

This lecture explained that the West has defined prosperity by material wealth and comforts. In contrast, the Islamic tradition has always defined prosperity as human development — our progress towards the goals of becoming better human beings. This Islamic insight was encapsulated in the human development paradigm, formulated by Mahbubul Haq, and this launched a revolution in the thinking about development, by focusing, for the first time, on our internal world, instead of the external. This reflects the Hadeeth that “true richness is the contentment of the heart”. A ten minute summary of lecture is given in the video below.  A longer written summary of 1000 words, and a video of the complete lecture, is also linked below.

1000 word summary of the Quaid-e-Azam Lecture entitled “The Quest for Prosperity: Culture and Economy” on 14th Dec 2017 at 33rd PSDE AGM & Annual Conference, by Dr Asad Zaman, VC PIDE. Link to full 42m lecture is also given at bottom of this post. Also, a classroom discussion of key concepts in this lecture is linked belwo.

The main thesis of our lecture is that our quest for prosperity has failed to deliver the sought-after goals because we have misunderstood the meaning of prosperity, and looked for it where it cannot be found. We base our economic policies on modern economic theory, which is based on the amazing assumption that human being act to maximize lifetime consumption, since this is the sole source of human welfare.  Recent Nobel Winner Richard Thaler has spent several decades shows the dramatic differences between actual human behavior and the assumptions of economic theory. Human beings are far more generous and cooperative than the assumptions of economic theory allow for. Even more important is Richard Easterlin’s discovery that enormously increased levels of consumption do not bring about corresponding increases in happiness. Consumption only bring short-run happiness; long-run happiness has no correlation with consumption, and is far better correlated with character traits like generosity and gratitude. Mindless pursuit of wealth, implemented by policies to maximize growth, has led to increasing misery, instead of prosperity. Growth-oriented policies have destroyed family lives, engaging all members in production of wealth, and they have damaged our environment, destroying the future of our species for short run gains.

Can this damage can be reversed? Can we improve human lives and welfare, and also stave off the impending environmental crisis? At the core of the crisis we face is the prioritization of wealth over human beings. A market economy cheapens human beings because it is based on the idea that human lives are commodities for sale in the labor market. Reversing these priorities requires the recognition that all human lives are infinitely precious, with amazing potentials and capabilities for growth in dimensions unknown. Taking this principle seriously would require re-writing all economics textbooks, and radically re-organizing our economic, political and social institutions. Taking collective responsibility to ensure that all members of a society get the chance to develop their capabilities would be a new definition of prosperity, very different from GNP per capita, which is the current focus of policy makers across the globe.

Modern economic theory makes accumulation of wealth the goal of economic activity, and values human lives only to the extent that they contribute to production. How can we reverse these priorities, putting the enrichment and empowerment of human lives at the center, and valuing wealth only to the extent that it is helpful in achieving this goal? The first requirement is to win the battle of ideas, creating consensus on the prioritization of human beings over material wealth. To do this, we need to recognize modern economic theory for what it is, instead of what it claims to be. To accomplish this goal, it is useful to label modern economic theory as Economic Theory of the Top 1% — or ET1% — and explain how all aspects of this theory are designed to portray increasing wealth of the top 1% as the goal of society, and also to show that this serves to benefit the entire society. For example, use of GNP per capita as a yardstick of social welfare exactly fits this description, since gains to the top 1% are first divided over the entire population and then measured, thus appearing to be generally beneficial, when in fact they are not. Overcoming this deception will involve replacing ET1% by ET90% — a new economic theory for the bottom 90%.

Karl Marx clearly recognized the deceptive nature of economic theory, and stated that functioning of capitalism requires convincing the laborers of the necessity and fairness of their own exploitation. ET1% does this by arguing the growth is the best policy to pursue for all, since benefits which obviously accrue to the rich will eventually trickle down to the poor. In contrast, Marx offered ET90% by asking for a shift from each according to his abilities to “each according to his needs”, thereby prioritizing the needs of the poor over growth to provide more wealth to the already wealthy.

As a prescription for change, Marx urged the laborers of the bottom 90% to unite, and throw off their chains.  Experience shows that we can successfully unite laborers to revolt against the capitalists, but after the revolution, control necessarily remains in the hand of a small minority. The nature of power is such that this small minority will be corrupted by it, and will use it for personal gains, and to oppress the majority. Just like democracy has failed to give ‘power to the people’, so alternative systems of government also fail.

The Islamic solution works along different dimensions. It seeks to co-opt the rich and powerful, instead of killing them off, and replacing them by another set of rich and powerful. This is done by creating social norms of generosity and social responsibility. Fourteen centuries ago, the revolutionary teachings of Islam led backwards and ignorant Arabs to world leadership. These teachings include the ideas that the best leader is the servant of the people, that power is given to us in order to protect the weak, and wealth is meant to be given to the needy. Widespread acceptance of these ideas created a society which provided basic needs, health care, and education to all members using the institutions of Waqf, and the norms of collective social responsibility and brotherhood. Because these ideas have been forgotten, they continue to have the same revolutionary potential today, as they did 1400 years ago. The most important first step in this revolution is sensitizing our hearts to feel compassion for sufferings of all mankind. The feeling that all of the creation is the family of God, and service to humanity, and all living creatures, is the highest form of worship, is essential motivation for the Herculean efforts required to create revolutionary changes required to reverse the increasing concentration of wealth at the top and misery at the bottom.

Short Link for above YouTube Video: bit.do/azqal (Asad Zaman Quaide Azam Lecture)

This lecture was also used for an inverted class in Advanced Micro; 55min discussion on the lecture can be accessed from: Adv Micro Lec 27 (AM27) Human Development

 

Learning to Value our Heritage

The greatest collective tragedy of the Ummah is not the present condition that we find ourselves in, steeped in ignorance and backwardness in all relevant dimensions. The tragedy is that this is exactly the same situation — the period of Jahilliyyah of pre-Islamic era — in which the teachings of Islam created a revolution. The complete transformation of the pre-Islamic society led the early Muslims from the depths of darkness to leadership of the world in a very short period of time. They launched a civilization which enlightened the world for a thousand years. The burning question is: do the teachings of Islam have the same power today as they did 1450 years ago? Can they change the dismal conditions of the Muslims today, like they did in the remote past? The greatest tragedy is that today, most Muslim do not think so — today most Muslims think that the solution to our problems lies — not in the Quran and Sunnah — but in the acquisition of Western knowledge which the West has acquired over the past few centuries.
A large number of Muslims feel that the cause for our current problems and backwardness is that we remain stuck in the past. We remember fondly the ancient glories of the vanished Islamic Civilization, and refuse to face the modern issues and the changing times. To these people, my message seems like exactly the wrong approach – dangerous lunacy.  People who listen to me will turn away from the solution, and get even more deeply stuck in the past. They will search for solutions in places where it cannot be found, instead of waking up and making progress towards the desperately needed acquisition of Western knowledge and capabilities that (appears to be) the only solution to our current problems. They think that while obviously there are some defects in Western knowledge and some conflicts with Islamic teachings, we should not call for wholesale rejection of it, as I have been doing (see “Questioning all of Economic Theory?
or “ The Search for Knowledge ”  In this post, I try to explain the reasons for my unusual and apparently illogical stand.
  1.  It is obvious to all, and agreed upon, that the Ummah is in bad condition — spiritual, economic, political — This observed reality is the source of a deep-seated inferiority complex  generally found in the Ummah. It appears obvious to all that we are behind the West in all relevant dimensions.
  2. There are sharp disagreements about the CAUSES and hence the REMEDY for this problem. See Rebuilding Islamic Societies  (translation in Urdu: Islami Muashere Ki Ta’meer-e-Nau )for an analysis of some options.
  3. The VAST majority of Muslims feel that we are sufficiently well informed about Islam so that additional  investment of time into studying teachings of Islam will not lead to a radical change. Rather, the reason for our backwardness is our failure to understand and adopt the Western knowledge which was produced in the last three to four centuries. (See Overcoming Shock-and-Awe of Western Knowledge)
  4. The EVIDENCE that this is the generally agreed upon diagnosis is to look at the amount of time collectively that the Ummah is spending in investing on the two types of knowledge. The vast majority of Muslim children study in Western schools and acquire a western educations — this is helpful in getting jobs, money, recognition, status. (see Crisis in Islamic Economics )
  5. I believe that this is a dangerous illusion. Today, as always, the perfect path to guidance is delineated in the Quran. Our collective neglect of the message of Quran is due to our being overly and unduly impressed by the Western knowledge of the past few centuries. Like the Mu’tazila were overly impressed with the complexity and sophistication of Greek philosophy and sought to make it part of the religion of Islam (saying that ‘aql was on par with waHy), so today Muslims are overly impressed with Western knowledge and consider it be on par with WaHy. (see The Modern Mu’tazila )
  6. EVIDENCE that when Western “science” and Quran conflict, Muslims re-interpret the Quran to match Western science is plentiful. I have cited several instances in many of my papers. As one simple example, consider the theory of utility maximization according to which the purpose of our lives is to maximize the pleasure we obtain from the consumptions of goods and services throughout our lifetime. This is the sole standard of rational behavior. While this is obviously in conflict with Islamic teachings, many muslim economists are on the record as defending this and supporting it with Ayat and Ahadeeth like Quran (3:14).(see the Quran: Perfect and Complete )
  7. In accordance with my diagnosis of the disease as being overly impressed with Western knowledge, I offer the antidote that Western knowledge is completely useless when it comes to the central goal of our  life: How to please Allah T’aala and How to succeed on the day of Judgment? For this purpose the Quran is complete and sufficient guidance. Once the awe and reverence of Western knowledge as being equivalent or superior to waHy is rejected — the disease is cured and the heart is purified — THEN the question can be taken up once again in the light of perspective provided by a correct understanding of the Quran and Sunnah as the basis and foundation for all knowledge. (seeAppreciating God’s Greatest Gift to Mankind )
I believe that Islamic knowledge encompasses many paradoxes and that the binary thinking I learned in West — something is either true or false — is just one of many poisons I ingested which I had to jettison to begin to understand the truth (see  Recovering from a Western Education ). Similarly my rejection of the totality of Western knowledge is also contextual, relative to the context which I have explained above. Because we are currently in shock-and-awe of the West, and accept everything that they say without the ability to critically evaluate it, it is best to reject it all and start all over again, on the solid foundations furnished by the Quran and Sunnah.  This is the best that I can do in terms of expressing my own imperfect, incomplete and continuously evolving understanding of a dynamic situation.
And Allah T’aala knows best.

The Need for Unity

The article below  explains how the current global trading system came into existence after the Bretton-Woods conference, and how it is immensely unjust. It allows the USA to purchase oil and precious commodities made with blood and sweat in return for paper. As the hegemonic hold of the USA weakens, a new global trading order is emerging. At this time, it is essential for the Islamic bloc to understand what is going on, to put aside differences, and to forge unity, in order to have a say in the creation of the new system. As the Quran says (8:46) “… Do not dispute with each other lest you lose your courage, and your strength departs … ” and also (3:103)  “And hold firmly to the rope of Allah all together and do not become divided. And remember the favor of Allah upon you – when you were enemies and He brought your hearts together and you became, by His favor, brothers.” If we are united, and we have a plan, and a voice, it would be possible to create an equitable system which treats the poorer countries fairly. Only a few leaders of the Islamic world, like Mahathir Mohammad and the late Mahbubul Haq, have understood the importance of Muslim unity to counteract to global capitalist order which sucks trillions of dollars of wealth from the poorest countries effortlessly, using the power of the dollar and interest based finance.  The article below provides background information needed to construct a new plan for a global trading system, based on an Islamic bloc.

(Published in Dawn, 7th Dec 2018):   “A Lopsided System“

SADLY, it is true that ‘money makes the world go round’. But, it is also true that very few people understand how. This article is an attempt at explaining the basics of our global trading system.

A good starting point is the Bretton-Woods conference which took place in 1944, while the Second World War was still raging. The two World Wars had drained the treasuries of the European states, making the gold standard impossible to maintain. An entirely new system had to be created to enable global trade for the post-War era. At the Bretton-Woods conference, the most sensible proposal for the global trading system was created and advocated by John Maynard Keynes. Unfortunately, the political power of the United States enabled it to quash this proposal. Instead, gold was replaced by the dollar standard, with the proviso that dollars could be exchanged for gold.

When the Vietnam War forced the US to print an excessive amount of dollars, president Richard Nixon declared in 1971 that dollars would no longer be backed by gold, creating a brave new world of currencies without any backing. Just like a fixed exchange rate is the natural consequence of pegging currencies to dollar or gold, so too a floating exchange rate system emerges naturally when there are no pegs for any currency

Today, the dollar is at the centre of the global trading system, and is as good as gold once was. Everyone needs dollars as reserves to back up their currencies. To acquire dollars, all countries other than the US, must strive to increase exports — this is how one earns dollars. The US can increase imports just by printing dollars, while the rest of world exports goods and services to earn dollars. Because dollars are the gold of the modern financial system, the US can print money without adverse consequences. For instance, the US printed trillions of dollars to finance the Iraq war, and other trillions to bail out the financial sector from the global financial crisis that was created by it.

If we pause to reflect, the consequences of the dollar-based global trading system are truly breathtaking. Because of mutual dependencies, no one can opt out of the global trading system. Everyone within the system needs dollars, and must strive to increase exports, in order to earn dollars. Net exports cannot increase, and cannot earn dollars, unless the US increases imports. In this financial colonisation of the world, everyone must strive to pay tributes in terms of goods to the US, while the latter country prints dollars to pay for them.

For anyone who falls behind in their payments of tributes, the IMF is there to ‘help out’ by extending a loan, which puts the borrowers deeper in debt enslavement. The results of this system whereby the US prints dollars in return for tributes in real goods provided by the rest of the world are obvious in terms of the immense disparities between American levels of consumption and those of the rest of the world.

A rough measure of how much tribute has been extracted is the current level the US debt, which is $21tr. About $15tr of this total amount has been acquired since 2000. As a benchmark for comparison, note that the world GDP, excluding the US, was around $60tr dollars in 2017. Many more details are required for a more accurate calculation of benefits which accrue to the US due to this dollar-based global trading system, which requires all of us to work hard at increasing exports, while the US printing presses work hard to print dollars to pay for them.

What can be done to replace this immensely lopsided and unjust global trading system, which gives tremendous benefits to the US at the expense of the rest of the world? The first opportunity was lost — rather, suppressed — when Keynes’ proposal for a symmetric trading system was rejected at the Bretton-Woods conference. Keynes’s original proposal continues to be attractive to this day, but many new ideas for how to structure global trading have also emerged over the past few decades.

There are two main concepts at the heart of all such proposals, which differentiate them from the current system. In any fair trading system which treats all countries equally, the target for all countries would be to balance exports and imports. The second concept is to place the burden of adjustment on countries with excess exports as well as those with excess imports. This is more equitable than the current system which places all the burden on the weaker country. With the emergence of China and the European Union as major players, the time is ripe for the demise of the dollar. With multiple centres of economic power, we may hope for a transition to a more equitable global trading system.

The Heart and Soul of Islamic Economics

[bit.do/az34agm] Presidential Address by Dr Asad Zaman, VC PIDE at 34th AGM and PSDE Conference. Very briefly, the address explained that European definition of knowledge excludes the heart and soul of man from scientific discourse. This make Western Social Science completely incapable of understanding human behavior, sources of human welfare, and human motivation. As a result, modern Western social science is based on absurd and ridiculous theories of human behavior. This is a deep deficiency which is addressed by Islamic approaches to social science. This approach starts by the consideration of human purpose and the normative ideals for human behavior. Then it considers the descriptive realities of imperfect human behavior, which is determined by the battle between the forces for good and evil. When we come to correct understanding of the purpose of human existence, then all dimensions of buman society – economic, political, social, environmental — must be changed so as to contribute towards achievement of these goals. Such changes will create systems of thought and action radically different from the pathways described by modern economic theory. The video of the lecture is given below.

 

An outline of the points made in the lecture, based on the ppt slides for the lecture is given below, The slides are also available from links below.

Lecture started by noting the extremely high cost of extremely faulty economic theories which led to the Global Financial Crisis, the environmental crisis which threaten to destroy the entire planet as a suitable habitat for mankind, which has already eliminated huge numbers of other species, and created inequality and misery of billions of lives on a scale never before seen.

We argue that at the heart of these problems is a theory of knowledge which developed in the West which excluded the heart and soul of man as sources of knowledge. On the other hand, the revolution created by the teachings of Islam changed the course of history precisely because it was addressed to the heart and soul. Creating the internal change by purifying the hearts led the ignorant and backwards Arabs to world leadership and created a civilization which enlightened the world for a thousand year. Even the European enlightenment was sparked by the light of knowledge from Islamic Spain so that all sciences that we know today — whether social or physical — originate in the Islamic Civilization. For more details, see What the World Lost Due to the Decline of the Islamic Civilization. This lecture explains the answers to the following questions:

  1. Can the teachings of Islam create a revolution today, like they did 1450 years ago?
  2. If so, then WHY are Muslims unable to see this, and why are the unable to use the teachings of Islam to lift themselves out of their present misery and backwardness?
  3. The answer to (2) lies in the colonization of Islamic lands, and the conquest of minds which took place — due to this, we Muslims see the World from a Eurocentric point of view.
  4. The Europeans, for reasons peculiar to their history (and explained in the lecture) excluded the heart and soul of man as a source of knowledge.
  5. Following them blindly, Muslims ALSO exclude heart and soul as valid producers of knowledge. But people whose hearts are blind cannot see the value of Islamic teachings.
  6. Because Western type education blinds us to the value of Islamic teachings, Muslims are today UNABLE to see that Islam offers a solution to our modern problems

Detailed explanations of this brief outline are given in the video lecture above. It might be worth looking at the slide given below while watching the lecture to see the outline of the points being discussed.

 

 

The slides for the lecture can be viewed or downloaded from SCRIBD below

 

 

 

 

Islamic Approaches to Economic Problems

Paper with title above was eventually published with title “Islam Versus Economics”, as Chapter 2 of Handbook on Islam and Economic Life, Edited by M. Kabir HassanMervyn K. Lewis, Edward Elgar Press, 2014. This draft is longer and covers more topics with more details than the revised version which condensed this 15,000 word paper to 11,000 words. Below we present some excerpts from the paper, and also provide a link to the full paper at the bottom of the post:

ABSTRACT: This paper argues that scarcity is not the fundamental economic problem, but rather distribution is. It also shows that economic growth will not solve our economic problem. Islam offers a radically different perspective on human economic problems and how to solve them. The main difference is that Islam considers human behavior as changeable, and focuses on improving behavior as the key to all positive change.

INTRODUCTION: The most fundamental teaching of economics is that economics is the science of scarcity. Without scarcity, there would be no economics, since everything would be abundantly available to all. The way to remove scarcity is by increasing production of goods. Sufficient wealth will solve the problem of scarcity.  {…}

Several important beliefs … are widely shared by economists:

  1. Even though love of money is bad, it must be encouraged, for this will lead to the accumulation of wealth.
  2. Once enough wealth accumulates (which might take another hundred years), we will leave the tunnel of economic necessity, and emerge into the daylight of plenty for all.
  3. When everyone has plenty of wealth, then there will be a great change in the code of morals. People lie, cheat, steal, only because they do not have sufficient wealth. They will become kind generous and gentle when the problem of scarcity has been solved.

The object of this paper is to show that this conventional approach to economics is fundamentally flawed. Furthermore, Islam teachings on economics explain the flaws of this approach, and offer an alternative approach which is radically different. We will attempt to show that this alternative approach offers a more promising solution to the economic problems currently facing mankind.

Section 2: Does Growth Remove Scarcity? 

If scarcity – that is, insufficient goods available – is the fundamental economic problem, then it seems apparent that producing more goods via economic growth, should solve the problem. Instead of taking it as an article of faith that economic growth will remove the problem of scarcity, let us look at the empirical evidence which can be brought to bear on this matter. There is a wide variety of different types of evidence, all of which show quite conclusively that economic growth as such does not affect scarcity. First we examine this evidence; later, we will look at the reasons why growth does not remove scarcity.   {….see paper linked below for extensive evidence…} The most fundamental issue here is that there are ALREADY in existence enough productive resources to comfortably feed, house, clothe, educate and provide health services to all of the people on the planet. Acquiring MORE resources is NOT necessary for this purpose. When we do try to acquire more, the extra wealth only ends up with those who are already wealthy and does not help in terms of solving the problem of scarcity for the poor.

Section 3: Why Growth Does Not Remove Scarcity

The Quran teaches us that the reason for scarcity is not the lack of goods. Allah T’aala is bountiful in provision of resources, which are sufficient for all living creatures on this planet:

11:6 There is no moving creature on earth but its sustenance dependeth on Allah.

Allah T’aala has promised to provide food for all on the planet. Figure 4 shows that global per capita food supply has been increasing slightly – quite contrary to Malthusian predictions. This graph shows clearly that food is available for all, as promised by Allah. If scarcity was the problem, then a solution would be to increase food supplies, and this is the line being taken by economists. But if current food supplies are already adequate to feed the planet, then further increase in food supply clearly does not address the problem. We must look elsewhere to find the reasons why this food is not reaching the poor. Similarly, as we have shown earlier, resources being wasted on wars and destruction are enough to provide adequately for all human needs. Again seeking growth to add to these resources will obviously not solve the problem of scarcity – they are already present in sufficient quantities for our needs.

==Paper discusses how economists believe that economic growth will solve all problems, including poverty. Concentration of wealth at top is not their concern because they believe it will trickle down to the poor. This is why economists focus on increasing GDP per capita, and economic growth, and pay no attention to distribution===

Section 3.2: Quranic Explanation of Failure of Trickle-Down

Contradicting the economists views that growth is the solution to all economic problems, the Quran informs us that the opposite is true:
42:17 And if Allah were to enlarge the provision for His slaves they would surely rebel in the earth, but He sendeth down by measure as He willeth. Lo! He is Informed, a Seer of His bondmen.
If people get more than enough, they become rebellious and spread corruption on Earth. This is exactly what we see today, when the richest and most powerful countries of the world combine forces to exploit and bleed the poor and powerless. Over the past decade, the poorest countries in the world have made interest payments of over $500 billion to the richest countries, without making a dent in the principal of the loan. If we follow the Keynesian prescription of encouraging greed, then the rich and powerful will accumulate wealth. However, greed will prevent them from sharing the gains with poor.

Indeed, the Quran predicts that they will use this wealth and power in bad ways. This is clearly illustrated by the recent war history of USA. The wealthiest and most powerful country in the planet invaded and occupied poor and helpless countries to capture their natural resources. Trillions were spent on these wars, which would have been sufficient to solve the problem of scarcity. If wealth is further increased, it will not solve the problem of scarcity, since it will only increase the rebellious behavior of the wealthy. As an illustration, according to the data for 2005, the combined wealth of the top 125 persons was greater than the GDP of all the LDC’s put together. However, they were not
motivated to solve the problems of feeding the poor. The Quran points to a solution radically different from the Keynesian solution of the accumulation of wealth, which is currently being pursued with vigor all over the planet.

=== This solution involves creating compassion in the hearts, and inviting the wealthy to share their wealth with the poor, as strongly encouraged in the Quran. ===

My Spiritual Father

We are all from Allah and to Allah we shall all return. My father made this journey towards his Creator on 10th Muharram in 1438 (see Remembering My Father). More recently, on 9 RabiulAwwal 1440, Haji Abdul-Wahhab, the head of the movement of Tableegh and Dawa, also returned to meet his Creator. Like millions of others, I consider Abdul-Wahhab Saheb as my spiritual father — The work to which he devoted his life, completely changed the life of my father, and later, the lives of his five sons — that is myself and my four brothers. It is impossible to exaggerate the influence of the work that he did. Everything I know about life and religion is the result of the extraordinary work for which he was the leader in Pakistan.

After the battle of Uhud, in which Muslims suffered heavy losses, there was much sadness and mourning in Medina. Even our Prophet Mohammad SAW was saddened by the Shahadat of his beloved uncle Hamza RA. Allah T’aala consoled the Muslims in the following amazing ayah of the Holy Quran:

(33:23) Among the believers are men true to what they promised Allah. Among them is he who has fulfilled his vow [to the death], and among them is he who awaits [his chance]. And they did not alter [the terms of their commitment] by any alteration

Instead of mourning their loss, Allah T’aala asks us to celebrate the fulfillment of their promise to Allah, and encourages those who await to follow their footsteps. There is no question in my mind that Haji Abdul-Wahhab fulfilled his commitment, devoting everything he had to Allah, and showing millions of people the path to leading meaningful lives as Muslims:

(6:162) Say: Lo! my worship and my sacrifice and my living and my dying are for Allah, Lord of the Worlds.

Even though I am sad that, soon after the loss of my physical father, I also lost my spiritual father, I am also happy that Haji Abdul Wahab lived a life which is an example and a model for all of us to follow. He was the source from which the amazing Deen of Islam reached me, and his teachings cleared away the cobwebs of cultural and traditional Islam, which had no attraction for me. Under his guidance, the efforts of the Tableeghi teams which wander the world, carrying the message of Islam in their lifestyles, and in their struggle and sacrifice, I came to understand the revolution that Islam brought to the world.

Indeed it is true that the message of Islam came as a stranger, and, as prophesied, has again become a stranger. Even though I was born and bred in an Islamic atmosphere, taught Quran, Namaz, and listened to sermons and read books, I had no understanding of Islam until I spent 40 days in Tableegh. Unlike the traditional Peer-Mureed relationship, the path of Tableegh is itself the teacher, the experience of travelling for the purpose of igniting the flame of the love of Allah in the hearts of the people, is the training. Whereas traditional Sufi methods develop the love and reverence for the Peer, as a stepping stone to the love of the Prophet SAW and the love of Allah, However, the method of Tableegh strongly de-emphasized personalities, and instead focuses on the WORK of the Prophet SAW, which was to spread the Deen of Islam to the entire humanity. There is so much that I have learnt from this work that it is impossible to encapsulate it in multiple volumes, let alone a short blog post. Perhaps the most important of these lessons has to do with the purpose of live.

How we should live our lives depends entirely on the purpose for which we live. Before I encountered Tableegh, my purpose was a successful career, sufficient wealth for comfortable living, good family life, acquisition of knowledge as a means to getting respect and recognition from my academic peers, as so on. The religion of Islam was a set of constraints — rules and regulations that I was supposed to follow, while I pursued goals set by myself. More accurately, the goals were those that my peers were following, and like a sheep, I was also following along with them.

The call by Haji Abdul-Wahhab to make this work the purpose of my life woke me up to the fact that it was possible to have a higher purpose than individual success.  The “Maqsad” towards which we were being invited was breathtakingly bold, unimaginably ambitious. We were being asked to devote our lives, every breath of it, to the mission of our Prophet to take the Message of Allah to all of humankind currently living as well as everyone who would come to the planet until the day of judgment. We were to do this work, utilizing all the gifts given to us by God — our energies, our health and our wealth — until the Deen was restored to the state that the Prophet Mohammad SAW left it in.

How can an insignificant, ignorant, and talentless person like me even THINK about such a huge goal? It was explained to us that we are completely powerless. Even when I want to lift my hand, the movement can only happen with the will and the power of Allah — I have no power at all. Once we understand that the effect of anything I do is created by Allah T’aala and is completely out of my power, then we understand that I can make the intention and undertake the actions required — the effect will be put in it by Allah T’aala, who is ALL POWERFUL. Just like the CALL towards the House of Allah issued by Ibraheem Alaihissalam was conveyed to all of mankind till the day of judgement, so Allah T’aala can choose to create the effects of our actions on a much larger scale than we can imagine.

Allah T’aala has said that man can have nothing but that which he strives for  (53:39). As explanation, Allama Iqbal writes that — you were the simpleton who settled for a few flower petals, when the Garden contained the secrets of life itself. I realized that I had settled for a very low goal, when much higher goals were possible. It was clear that the highest goal is the goal of our Prophet Mohammad SAW: —

(12:108) Say (O Muhammad SAW): “This is my way; I invite unto Allah (i.e. to the Oneness of Allah – Islamic Monotheism) with sure knowledge, I and whosoever follows me (also must invite others to Allah i.e to the Oneness of Allah – Islamic Monotheism) with sure knowledge.

The change of purpose and IDENTITY created a revolution in my life. From thinking of myself as a professor with a mission to teach economics and econometrics, I learned to think of myself as an ordinary person, but one who belongs to the extraordinary Ummah of the Best of the Prophets, tasked with the mission of taking the Message of Allah T’aala to all of mankind.

The consequences of this transformation ramify in all dimensions of my life. The central problem of life was how to convert all of our actions into worship, and how create the best of deeds, ones which will receive the greatest weight on the scales on the day of judgment. How to transform my work into worship was a difficult task. Learning how to teach courses as an Ummati, how to make it an act of worship, created a transformation in both the subject matter and style with which I taught statistics and econometrics  (See: Statistics: An Islamic Approach?. I hope discuss some of these dimensions in later posts.

Let me end with the prayer that Allah T’aala may grant His special favors, blessings, and mercy to the soul of Haji Saheb, and all others whose lives were touched by Haji Saheb, and who have returned to their Creator. As for those who remain behind, let us pray that Allah T’aala transforms our struggles and sacrifice, our living and dying, and accepts them as part of the mission of the Prophet Mohammad SAW to convey the message of Islam to all of mankind.