THE FAILURES OF AMERICAN CAPITALISM AND THE ISLAMIC
ALTERNATIVE

In an explanation of Marxist economic theory, a
professor of government and foreign affairs at the
University of Virginia remarked that capitalism is
based upon a fetishism of money. From being a medium
of exchange for the necessities and enjoyment of life,
money becomes an end in itself. Capitalism is
organised to make money rather than to satisfy human
needs. It is irrational in the way it uses the
enormous wealth it engenders not for the enhancement
of human life but the creation of more wealth as an
end in itself (Dante Germino). Everyone probably
recalls the now infamous speech of Gordon Gekko in the
movie ?Wall Street? where he proclaims to shareholders
that ?Greed is Good, Greed is Great?. Also in the film
?Other People?s Money? Danny Devito?s character
enjoins the factory workers whose company he intends
to takeover to look at their self-interest before
rejecting his offer to buy out its management. A
highly Smithsonian sentiment as reflected in Adam
Smith?s groundbreaking book ?An Inquiry into the
Nature and Causes of the Wealth of Nations?,

?But man has almost constant occasion for the help of
his brethren, and it is in vain for him to expect it
from their benevolence only. He will be more likely to
prevail if he can interest their self-love in his
favour, and show them that it is for their own
advantage to do for him what he requires of them.
Whoever offers to another a bargain of any kind,
proposes to do this. Give me that which I want, and
you shall have this which you want, is the meaning of
every such offer; and it is in this manner that we
obtain from one another the far greater part of those
good offices which we stand in need of. It is not from
the benevolence of the butcher, the brewer, or the
baker that we expect our dinner, but from their regard
to their own interest. We address ourselves, not to
their humanity but to their self-love, and never talk
to them of our own necessities but of their
advantages. Nobody but a beggar chooses to depend
chiefly upon the benevolence of his fellow-citizens.
Even a beggar does not depend upon it entirely.?

Was it therefore a perversion or inversion of these
ideas that allegedly led the CEO?s, CFO?s and
accounting agents at Enron, Adelphia, Merrill Lynch,
Piper Jaffray, Sotheby?s, Tyco, ABB, Global Crossing,
Salomon Smith Barney, Imclone, WorldCom and Arthur
Anderson to cook their books to make it appear that
their companies were doing well rather than revealing
the debt or losses the companies and accrued or
incurred over the years and actually boosting their
earnings data to unimaginable proportions. In some of
these cases, it was a mere matter of market
manipulation and attempts to defraud investors without
and saving grace. Further investigations are being
started against Martha Stewart, Qwest, Dynegy, CMS
Energy, El Paso Corp., and William Cos. This
particular crisis has become even more complicated and
acute as it seems the President and Vice-President of
the United States have allegations being brought
against them concerning their involvement in energy
giants Halliburton and Harken Energy Co. To add bathos
to pathos and injury to insult the head of President
Bush?s new corporate-crime task force served as a
director at a credit card company that paid more than
$400 million to settle allegations of unfair and
deceptive business practises. The Far Eastern Economic
Review describes recent events as a World Con (July 11
2002). According to John A. Byrne of BusinessWeek
magazine WorldCom and Xerox Corp. restatements
together, alone nearly match the combined total hit of
$5.8 billion from all restatements in 1998, 1999, and
2000. According to Mr. Byrne, many executives began to
believe that capitalism rewarded the companies that
hit their earnings targets, no matter how they did it.
(BusinessWeek ? July 15, 2002) As Alan Greenspan so
elegantly put it, ?An infectious greed seemed to grip
much of our business community.? This can be explained
as a few bad apples going too far and taking
self-interest to excess. But the bad news continues to
come in of restatements and further restatements.
Predictably, all these scandals are taking their toll
and a lack of confidence exists in investors that have
brought the Dow Jones to post September 11 levels and
even pre-1997 levels in some European markets.
Consumer confidence, as measured by the University of
Michigan index, fell almost 4.5 points in June and is
expected to fall further in July. Write-ups in the
Economist, The Wall Street Journal, The New Statesman,
and Time make for dismal reading. Time magazine
commented in its July 22 issue that, ?By now people
know that capitalism is a spectacle of hope and greed
and guts and guile, all racing towards the bottom
line. That is its genius, but without guardrails, the
whole contraption can take us over a cliff.?
According to CNN Special Report, $7 trillion in market
capitalisation has been lost since March 2000. Even
with 10%, returns per year the NASDAQ would hit the
5000 points index only in 2016. A recent survey shows
investors think U.S. earnings quality is the worst in
the world.

Adam Smith had warned his readers that there was a
certain class of persons that are by nature selfish
and have no heed to the public good, ?It comes from an
order of men whose interest is never exactly the same
with that of the public, who have generally an
interest to deceive and even to oppress the public,
and who accordingly have, upon many occasions, both
deceived and oppressed it.? I am not sure that Adam
Smith had the CEO?s and accounting firms in mind when
he made this statement but this seems to then raise
inherent weaknesses in capitalist theory as
self-interest is solely dominating the capitalist
culture in America and its progeny Japan. An
untrammelled pursuit of self-interest only appears to
end in scandal and fraud.

There is also a wide assortment of people in
Bangladesh who are more interested in illegally
accumulating capital (black money) for unproductive
pursuits that does not benefit the country in any way.
Some of the CEO?s, CFO?s, and accounting firms caught
in the fraud net in America would not be out of place
in Bangladesh boardrooms. May be we should think of
importing them here to create that artificial feeling
of well being and prosperity only just for a little
while. Saifur Rahman (Finance Minister) in his budget
may have been more successful if he had tried to
appeal to the baser instincts of human nature rather
than simply the more idealistic notions of patriotism
(this should not be taken as a retraction of my
comments on gas exports as in that article many
reasons other than patriotism were put forward that
must be amongst our considerations when deciding this
issue.). The persistent American disease of greed and
selfishness has become an epidemic in the hot and
humid climate of Bangladesh and arguments on
patriotism alone will not suffice. I wonder whether
it was out of patriotism or self-interest that many
first class government officers caused a loss of more
than Tk 11,000 crore or 4.7 per cent of GDP to the
country in 2001 (Transparency International). The new
economic mantra for Bangladesh is apparently
self-sufficiency and self-dependence. I wonder whether
this is because foreign donors are tightening their
purse strings. Why is it only now that these concepts
are coming into being? Now that the mediocrities that
had run the country for the last thirty years (except
for a few exceptional beings such as President Ziaur
Rahman) cannot find funds abroad, they are appealing
to our natural patriotic feelings while they only
looked after their self-interest and looted the
country without mercy (I am sure this must have
occurred to Saifur Rahman also). This must be
unrestrained capitalism third world style. Of course,
an alternative exists for Bangladesh that is not based
purely on self-interest and a point I will return to
later on in this article.

While Adam Smith, David Ricardo, and Thomas Robert
Malthus set the intellectual foundations for
capitalism, it was Karl Marx who maintained that
capitalism was beset with internal contradictions of
such magnitude that it would inevitably collapse
(Dante Germino). Karl Marx?s assumptions about class
struggle were wrong and irrational. If he had
emphasised more the greed inherent in capitalism and
its effects on managers, shareholders and investors
his thesis may still be relevant today. The rule in
America seems to have been the exploitation of
investors and shareholders by the large multinational
companies based in the United States. That communism
itself would collapse was not a foregone conclusion
nor was it predicted by the West. More relevant to
communism?s collapse in the Soviet Union was the
Afghanistan and Chechnian conflict which became an
excessive burden on the State. I doubt however, that
communism as practised in the Soviet Union could have
ever kept pace with the Western economies. Nor would I
advocate to the reader a godless regime as required by
Communism or Marxism but Capitalism itself has
produced unethical captains of industry and finance
who seem to be no less dishonest than their communist
counterparts were. The requirement of self-interest
in capitalist thinking today has been the single most
pronounced aspect of capitalist practise and culture
and I would say the single greatest cause of most of
the recent upheavals in the financial world that have
afflicted stock markets in recent days. Without a
controlling factor, self-interest naturally merges
into greed and selfishness a point that Adam Smith was
well aware of.

Although, K. Knies was of the opinion that there was
no foundation in the belief, that man was moved by
self-interest alone. According to him, the motives of
human conduct were numerous and complex; to isolate
one, was bound to lead to wrong conclusions. To this
charge, economists like Menger could reply that the
classics (i.e. Smith and Ricardo) were not ignorant of
the existence of motives other than self-interest. All
that the classics had done was to take that motive
which could be regarded as the most persistent and to
study its effects. Or, as other economists claimed,
the classics had isolated a motive the results of
which were most easily observed and measured (see Eric
Roll ? A History of Economic Thought). Similarly, John
Stuart Mill had doubts about the unfailing beneficence
of the free play of the forces of self-interest (Eric
Roll). He could not in the end find a convincing
alternative and his conclusions tended to be ambiguous
and inconsistent. Both Friedrich A. Hayek and Ludwig
von Mises seemed to consider the individuals own
self-interest to be his principal motive, or the one
most easily used in the analysis of economic
behaviour, or even as the one that ?ought? to prevail
over others (Eric Roll: see also Milton Friedman ?
?Liberalism?; Robert E. Lucas, Jr and his "rational
expectations hypothesis,"; R.J. Barro - Are Government
Bonds Net Wealth; James Tobin ? ?The Invisible Hand in
Modern Macroeconomics?; Joan Robinson ? ?The Economics
of Imperfect Competition? and ?Economic Heresies,
Some Old Fashioned-Questions in Economic Theory?; P.A.
Samuelson ? ?What Keynes would have thought of
Rational Expectations?; Frank Knight ? Some Fallacies
in the interpretation of Social Cost?; John Kenneth
Galbraith ? ?The Affluent Society?. ) Things had come
to such a pass that Kenneth Galbraith wryly commented
that when a modern conservative sees someone agitating
for change, either at home or abroad, he inquires,
almost automatically: ?What is there in it for him??
He suspects that the moral crusades of reformers,
do-gooders, liberal politicians, and public servants,
all their noble protestations not withstanding, are
based ultimately on self-interest, ?What,? he
inquires, ?is there gimmick?.

However, we would be unfair to Adam Smith if we did
not take account of his equally renowned work, ?The
Theory of the Moral Sentiments?. In an important
passage from the work, the ethical foundations on
which he subsequently based self-interest is
elaborated,

?The wise and virtuous man is at all times willing
that his own private interest should be sacrificed to
the public interest of his own particular order or
society. He is at all times willing, too, that the
interest of this order or society should be sacrificed
to the greater interest of the state or sovereignty,
of which it is only a subordinate part. He should,
therefore, be equally willing that all those inferior
interests should be sacrificed to the greater interest
of the universe, to the interest of that great society
of all sensible and intelligent beings, of which God
himself is the immediate administrator and director.?
(PART VI - ?Of the Character of Virtue?)

This excerpt would probably be completely novel to
most and especially to those who are business leaders
in the West and even more so in Bangladesh business
circles. Clearly, Adam Smith saw religion as a
controlling factor in human actions in the economic
field. It was this ethical aspect that most Marxists
ignored about capitalism as well as for those people
who profess capitalist ideals today. The result has
been a complete mess in the world?s equity markets.
John C. Bogle, founder of mutual-fund company Vanguard
Group Inc commented that, ?It looks like we were wrong
to rely on the moral integrity of our corporate
leaders. If we sent a white-collar criminal to Attica,
I don?t think we?d have another white-collar crime in
this generation.? (BusinessWeek) Even Alan Greenspan
had to remind the Committee on Banking, Housing, and
Urban Affairs, U.S. Senate that, ?Falsification and
fraud are highly destructive to free-market capitalism
and, more broadly, to the underpinning so of our
society.?

But of course, we in Bangladesh do not have to resort
to Western concepts to find our own ethics of
business. Such ideas existed in Islam long before Adam
Smith arrived on the scene of economic theory. It
seems that, Maxime Rodinson may have gone too far in
her assessment of Islamic economics when she suggested
that, ?Economic activity, the search for profit,
trade, and consequently, production for the market,
are looked upon with no less favour by Muslim
tradition than by the Koran itself.?

In a deeper analysis of the subject, Dr. Mohammad
Malkawi in an article entitled, ?Economic Justice:
Islam versus Capitalism? makes comparisons between
Islam and Capitalism and puts forward the concept of
an Islamic Economic system based on the Holy Quran and
other sources of Islam. Since the article is available
on the internet, I would request the reader to have a
look for a more in-depth understanding of the subject.
What is apparent to me from my reading of the article
is that Islamic economics cannot be divorced from
ethics or morals as is so easily achieved under
capitalist systems. While capitalism, based and
justified by self-interest could do without ethics and
morals, the same cannot be said of Islamic economics.
Under the American version of capitalism, digressions
from norms can be eliminated by stringent regulations
and an arrangement for sanctions and penalties that
could be put in place which indicates to me that the
basic premises of capitalism is false. The view that
markets will regulate themselves as self-interest will
guide individuals to act appropriately and morally has
been shown to be absurd. It was in the view of
ultra-orthodox capitalists that the production and
exchange of goods can be stimulated, and a consequent
rise in the general standard of living attained, only
through the efficient operations of private industrial
and commercial entrepreneurs acting with a minimum of
regulation and control by governments. To explain this
concept of government maintaining a laissez-faire
attitude toward commercial endeavours, Adam Smith
proclaimed the principle of the ?invisible hand?:
Every individual in pursuing his or her own good is
led, as if by an invisible hand, to achieve the best
good for all. Therefore, any interference with free
competition by government is almost certain to be
injurious (Microsoft Encarta Encyclopaedia 2002.).
This theory has certainly been subject to modification
over the centuries but it is still the foundation for
capitalism and has gained impetus once America became
home of economic thinking after John Maynard Keynes
and his ideas came under scrutiny and eventual
rethinking.

Dr. Mohammad Malkawi explains the difference of
emphasis of the two systems (i.e. Islamic Economics
and Capitalism) which are strangely similar to the
views of Lionel Robbins in his article ?Politics and
Economics, Papers in Political economy?,

??capitalism does not concern itself with the nature
of society, but rather with the economic material
resources (economic commodities), as means of
satisfying human needs. Therefore, the capitalist
economic system primary function is to supply
commodities and services i.e. to provide the means of
satisfying man?s needs, irrespective of any other
consideration ? The reference to the needs, which
require satisfaction as being purely materialistic, is
wrong, and contradicts the natural reality of human
needs. Human beings have moral, spiritual, and ethical
needs that require satisfaction, which in turn require
commodities and services for their satisfaction ...
Islam does not consider what the society ought to be
separate from the issue of securing the satisfaction
of the basic needs for every individual, and enabling
him to satisfy his luxuries. Rather, Islam makes the
satisfaction of the needs and what the society ought
to be, as inseparable matters from each other, but by
making what the society ought to be as a basis for
satisfying the needs.? (Dr. Mohammad Malkawi)

Regards

Munshi



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