THE GROWTH IMPERATIVE OF CAPITALISM

& THE ISLAMIC ALTERNATIVE

Jamal D. Harwood

Economic Analyst / Lecturer, University of Wales

Sarfraz A. Wali

Economics commentator / Community Speaker

First Plenary Session

Sharia Economics Conference 2013

Hannover, Germany – February 9, 2013

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Current Context

� Property booms 80’s, 90’s and 2000’s

� Consumer booms 80’s, 90’s and 2000’s

� Stock Market booms including dot.com bubble early 2000’s

� Bond Market bubble to date

� Unprecedented money creation, cheap credit

� Unprecedented growth of derivatives

� Unprecedented budget deficits in the developed world

� Policy of Central Banks to reduce interest rates to close to zero

� “Non-conventional” funding policies of Central Banks (QE, Operation twist)

� Non-conventional and widespread changes to metrics (inflation, employment)

� Negative real rates of interest

� Growing inflation problem

� Banking crisis

� Sovereign debt crisis

� Growth crisis – crisis of confidence – lack of trust in Politicians

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Capitalist Failures =

Growth Imperative• Role of Interest based monetary system

� Debt service = Money Supply growth

� Growth in output needed to avoid hyperinflation

• Inability to survive deflationary environment

�Penalization of debtors

�Monetary policy becomes ineffective

�Delaying Consumption in deflationary environment

• Negative Effects of the Growth Imperative

�Growth of debt industry due to Consumerism

�Consumerism = Planned and perceived Obsolescence

�Resource depletion and unsustainability

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Recovery in Growth?

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Can you trust the

numbers?

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Adjusted for real

inflation rate

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Money Supply Growth

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Growth in Money Supply

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Debt Created and Taken

by the Federal Reserve

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What happened in 1917

and 1971?

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US Debt is not

Sustainable

RED – Public Debt (US)

Black – Public Debt plus Federal Debt (US)

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World Debt Crisis

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The Casino Market

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Islam’s Vision re Growth

"In case it (wealth) circulates solely among the wealthy from

amongst you."

[Translation of the meaning the Quran surah Al-Hashr, 59:7]

� Notion of wealth circulation to ensure a robust economy that meets the

needs of the people

� Growth is not a core objective of the economy but a pleasant outcome

� Environment which encourages spending and investment

� Gold/Silver currency the most stable currency and non-inflationary system

� Wealth oriented taxation – shunning income and consumption taxes

� Non interest coupled with anti-hoarding provisions

� Direct Investment and involvement within company/partnerships

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Despite money printing

money velocity is poor

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Strategic Growth

Advantages of Shariah 1

� Gold Silver based Currency

o Currency stability over millenia and a level playing field between Nations

o Only mild instances of deflation and inflation

o No counterparty risk, with manageable growth in currency

o Universally accepted, promotes sound and low cost trade policies

� Non Interest Economy

o Low cost risk based investment model without banking intermediaries

o Debt based creation of money out of control and grossly destabilising

o Advantages of G/S currency can only function with non-interest system

o Perversely Central Banks effectively moving to zero interest rate policies

� Non-Hoarding of Wealth Provisions

o Key to circulation of wealth – connected with explicit textual evidences

o Compare with the banking system which withdraws capital during downturns

o Investment, charitable giving, consumer spending – positive outcomes

o Business cycle downturns work against investment and spending

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Strategic Growth

Advantages of Shariah 2

� Wealth based taxation policy

o Zakat (2.5% on non-utilised wealth) Kharaj/Ushr on capacity of land, Jizyah

o No Income, Consumption, Business, Rates, Council, Transport taxes

o Wealth taxes are proportionate to wealth – fair on all (natural redistribution)

o Strong incentive for investment and spending and full employment

� Equity/Partnership financing

o Direct investment with responsibility – no stock market

o No start-up barriers (bureaucratic) and small business employment driver

o Corporate scandals engendered where Directors are not owners (body)

o Maximum corporate transparency

� Absence of Limited Liability

o Risk profile reflects what business owners can adopt

o Leveraged risk taking difficult due to non interest and full liability

o Encourages trade with clear counterparty responsibility for all transactions

o No government bailouts of companies

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Strategic Growth

Advantages of Shariah 3

� Prohibition of Gambling

o All gambling including most derivative contracts forbidden

o Derivatives increasing volatility in markets at higher risk levels

o Gambling in all forms take wealth out of circulation/trade

o Unacceptable losses to society via moral hazard

� Intellectual Property Rights

o Knowledge purchased along with the good or service where obtainable

o Faster product development and innovation

� Flexible Labour Markets

o Wages can go up and down based upon the value of the work/service

o Equal pay for the same value of work for male/female and age of employees

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Strategic Growth

Advantages of Shariah 4

� Land Reform

o Use it or lose it (3 years)

o Revival of dead, unused lands promotes widest ownership among masses

o No leasing of agricultural land

o Land tax encouraging full utilisation

o Laws against price fixing

� Ethical Trade Rights

o Clear annulment and set-aside provisions where trade is not fair

o Full trade descriptions required

o Protections for young and vulnerable (orphans, disabled)

� Regulatory Framework

o No monopoly, strong anti-fraud provisions

o Stable regulatory environment – laws consistent over 1400 years

o Lobbying unlawful

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Contact

Recent publication (freely downloadable):

thegoldreport.co.uk

Twitter: jamal_harwood

Daily Blog: 2nights3days.infowww.breakthrougheconomics.blogspot.com

www.newcivilisation.com