Articles on Islamic Economics

Need for a New Economic Framework

Despite exemplary growth since the Second World War in the middle of the twentieth century, the world is still facing serious food insecurity, hunger, poverty, inequities, climate change, loss of biodiversity, waste and existential threat to life on this planet for future generations due to the damage caused by humans through waste, pollution and showing inaction for corrective measures. 

According to the World Health Organization, over 820 million people are suffering from hunger in 2019 despite consistent rise in per capita food production ever since the 1970s. As per Oxfam, 26 people together own the same amount of wealth as the combined wealth of 3.8 billion people who make up the poorest half of humanity. The redistribution of resources through taxation is ineffective. According to Oxfam, only 4 cents in a dollar of tax revenue come from wealth tax. Even progressive income taxation has not been able to check rising inequities both in the developed and developing countries.

The rich people and countries having enough economic muscle to invest in green technology and infrastructure are doing very little. In fact, Oxfam reports that around 50% of all carbon emissions are emitted by the richest 10% of the world’s population.

Tied aids and debt servicing on money debt result in more money flowing out of poor countries than comes in as aid. Ending poverty and hunger does not require insurmountable financial resources. But, the lack of political will and greed leaves much of the population in South Asia and Africa to face poverty despite the consistent rise in overall value of Gross World Product. It is estimated that $600 million daily is needed to feed every poor person, yet about $2.75 billion value of food is wasted every day, according to Food and Health Organization.

Interest based financial intermediation provides risk-less means for the wealthy and rich to continue wealth accumulation and avoid wealth taxes through various means of parking wealth in parts of the world in different forms. 26 wealthiest people own $1.4 trillion, according to Oxfam. Imagine that 10% interest on it can give them risk free increase in wealth of $140 billion, just enough to feed all the poor people for eight months of the year alone.  

While reflecting on these facts, one can comprehend that a value system which idealizes and gives absolute liberty for pursuing self-interest is unable to help create social change by looking beyond one’s personal interest and affairs in life. Also, in a society with high income and wealth inequality, policymaking under democracy struggles to reflect the will of the people and working for the common good of all.

Looking at the current financial system, banks lend money on interest to those who have collateral. Poor are targeted to save with bank, but are excluded when it comes to obtaining finance. Money flows mainly from a large number of small savers to a small number of big corporates and upper income class people. This can cause rise in inequities in society. Hence, there is need for an economic framework that brings moderation, responsibility, conservation, dignity of life, empathy, sharing, equitable distribution and justice in society.

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