Economic Problems faced by the common man

This blog is an introduction to some of the issues we face and a high level insight into the alternative vision that the Islamic Economic System has to offer. This alternative does not exist anywhere in the world today. The aim of this blog is to create awareness of a radically different economic paradigm which forms part of the wider Islamic civilization that lead the world in science, education, economy, order, justice and equality for many centuries until its formal demise in 1924.

1. House Prices

• We have seen a disproportionate rise in house prices over the last 10 years.
• A bubble occurs when a buying frenzy pushes prices of specific commodities way above those of other goods. Such prices are not sustainable and inevitably crash down to be in line with market fundamentals.
• The bubble in property prices is similar to other bubbles for ex the .dot com bubble of the 90's, the food bubble of  '08 and the oil price bubble that were currently seeing.
• Bubbles are more prevalent when there is an over supply of paper money that is created out of 'thin air' and is not based on any tangible asset  like gold.
• Such funds tend to get channeled into speculation and many buyers cause the prices to sky rocket looking to pull out before the inevitable crash.
• This devastates people who have a genuine need for the underlying commodity.
• In Islam, money is backed by Gold and Silver and this prevents bubbles forming and for prices to constantly rise.

2. Tuition Fees and Student Loans

• Governments used to pay all university tuition fees and give grants to students.
• Over time, governments have been living beyond their means and are now massively in debt.
• This has lead to a variety of measures to reduce the role of the state including funding such study.
• For Muslims, this presents an additional issue as the loans come with interest.
• For students generally this means that they often have to work and study and some students have resorted to extreme measures to help finance themselves. They also have a major liability as soon as they graduate and many find to difficult to find jobs commensurate with their education.
• In Islam education is a free service provided by the state.
• Governments do not have the option of living beyond their means by printing money.
• There are adequate job opportunities in the Islamic economic system due to its distribution of wealth mechanisms

3. Unemployment and lack of new Jobs

• Wages have been in decline since the 1970's in real terms and personal debt has made up the shortfall.
• Smaller companies are responsible for the bulk of job growth.
• Despite the outwards appearance of diversity, behind the scenes company consolidation has been occurring and this has destroyed competition. This is a negative development as new business growth and innovation in the private sector is key for new job creation.
• Innovation by small business has been replaced by the acquisition of innovating firms by large firms.
• Technological unemployment is another factor with more and more jobs being replaced by automation.Historically the displaced jobs were reabsorbed by the services (tertiary) sector but increasingly these jobs are also being replaced by technology (ex Google car replacing taxi drivers). The long term impact of technology creeping up the job sectors and replacing jobs is that there will be mass structural unemployment as the loss of jobs to technology exceeds the ability of the economy to re-absorb such workers in new jobs in the tertiary and quantinery sectors. 
• Coupled with increasing wealth concentration based on this trend of displacing labour, we have to consider mass growing unemployment and unrest.
• This will lead to extinction of the masses leaving the elites who own such technology obtaining value via their respective technology and trading goods and services amongst each other in a very elite economy. It will not be the masses who can afford the goods and services as they will not have a job and they will slowly start to grind into greater and greater servitude working for next to nothing to just survive as is the case currently were often both partners have to work just to survive. The next step will surely be de-population. 
• In Islam the propensity for mass polarization of wealth is removed through rules relating to capital and company structures and intellectual property such that technology and its fruits will be shared more evenly so that many jobs will still be replaced but everyone can benefit.
• Another cause of job destruction has been off-shoring and also bubble economics once the bubbles burst many people become unemployed. The business cycle being another.
• Wealth is so protected by the upper classes and exempted from tax and re-circulation that the wealth forms a circuit amongst the few elites who extract greater and greater effort from the weakening working and middle classes that they resort to a live of servitude to banks and debts to make their way rather than share in the overall pie.
• If the wealth was unlocked, then more disposable income would lead to more creativity and business ideas and more businesses being formed and more demanded products which would trigger more purchases which would trigger more reinvestment and this would act as a positively reinforcing mechanism that would benefit everyone through a ripple effect.

4. Job Security

• Increasingly we see companies off shoring jobs to cheaper and cheaper labour markets were wages are lower and employee rights are not secured
• This trend has arisen due to the trend towards globalization which operated at an accelerated level during the Reagan and Thatcher era.
• This has lead to many jobs being lost and off shored
• Lack of worker rights is as a result of imperialist regimes that serve the interests of the west and not their subjects
• Lack of jobs in foreign countries due to corrupt governments living of debts and selling resources to sustain their systems and accept IMF terms that turn their societies into states of servitude.
• This leads foreign workers accepting very low pay and conditions and this out prices jobs in the west leading to off shoring.
• Furthermore, many jobs which leave the various vertical sectors cannot be filled by higher level jobs due to lack of investment by companies facing so much uncertainty.
• Uncertainty is in form of prices, business cycles, long term demand etc
• All rights including worker rights are protected through contracts enforced through the legislative apparatus of the state. The state would not be permitted to off shore jobs in this way to countries operating such ‘sweat shops’
• In Islam, job creation is a by product of the way wealth flows through the economy and various rules are stipulated that ensure wealth flows and benefits all.

5. Inflation

• In the West, money is FIAT meaning that it can be created from nothing and is not based on any tangible asset like gold.
• This leads to a tendency of printing more money that the available supply of goods and services which causes monetary inflation
• This endless increase and unpredictability of long term in prices leads to a poor investment climate and weakening wage purchasing power
• In Islam, money is backed by Gold and Silver which restrains the ability to print money and cause such monetary inflation
• Purchasing power is constantly increasing as there is a general deflationary effect in the society which operates gold and silver.

6. Unfair Taxation

• As governments have been living beyond their means and creating ever expanding debt levels to serve special interest groups and having avoided taxation that leads to lack of popularity, the inevitable tipping point comes were the state is in potential crisis as far as the interest rates on their credit and the purse needs to tighten and austerity and taxation hikes come into effect.
• The imminent withdrawal of benefits for the needy will be a very painful symptom of this problem with  weak and disabled people being pushed into work or face losing the social safety net
• Tax comes in direct and indirect ways and lead for well over 50% of income going back to the government (VAT, fuel duty, capital gains, income tax etc etc)
• The large companies often avoid paying tax and engage in tax evasion and tax avoidance through loopholes in tax laws. This creates a greater and greater tax burden on the ordinary citizens.
• In Islam, taxes are levied on wealth and this doesn’t disproportionately penalise the less privileged classes of society. This system ensures that wealth is not accumulated and instead is reinvested back into the wealth cycle which benefits all market participants.
• In Islam, the families of the weak act as the safety net lowering the burden on the state which only gets involved in the person has no family member obligated to supporting them.

7. Fuel Prices

• Approximately 70% of the prices we pay for petrol is a tax
• Approximately 30% of the prices for petrol is driven by oil speculators via commodity futures trading.
• Large taxes such as these are not levied in Islam and speculation through the parasitic financial sector does not exist as alternative capital model exists in Islam. Credit is available through partnerships and not financial institutions such as banks.

8. Pensions Crisis

• Demographic trends is leading to an ever imminent crisis with the ratio of people working to retiring shrinking every year
• Pension fund looting is rife in the corporate world. This will lead to massive problems for those who are reliant on such income once they retire
• In Islam, the demographic trend of towards population growth
• Investments are made by people themselves so they have transparency over their wealth.
• Children are a form of investment as the parent/child relationship is radically different under the Islamic family structure negating the need for the elderly to be so reliant on their own income.

9. Credit Scarcity

• Credit is often very difficult to obtain unless collateral can be provided and interest rates are usually very high which discourages people from accessing credit
• Credit is only available with interest and this makes it impossible for Muslims to access credit despite having good business ideas. Such business ideas subsequently never reach the market place and this stifles economic activity and entrepreneurship.
• In Islam, due to the rules which penalise those who sit on their wealth, there is a natural tendency for people with capital to seek out people with business ideas and form partnerships. So the credit will be more accessible for people wanting to start a business.

10. Consumerism

• Marketing has become a means of manipulating human emotions to switch from needs to wants and wants are based on products which have no clear connection with any underlying legitimate need. See torches of freedom, 1929)
• This manipulation started in the 1920's with the work of Edward Bernays, the master of Public Relations.
• As the nephew of Sigmund Freud, he was well acquainted with how to reach into the subconscious mind and manipulate society.
• Today, products are desired and sought even when people go into debt to obtain such useless items whose price does not reflect their utility or genuine value.
• Perceived and planned obsolescence have become ways to force consumers to buy and convince people to buy what they wouldn't ordinarily buy. 
• Parents are under pressure to help their children keep up with the trends and this puts a big drain on their already stretched resources.
• In Islam, society learns to evaluate things without such manipulation of desires and for the utility of things and how this utility directly meets a need.
• Also, Islamic society does not build personalities were people try to impress others via displaying wealth so the drive for consumerism is eliminated from its roots.
• Islamic society looks down on people who spend beyond their means which further minimize the possibility of people buying commodities  against their means.

11. Personal Debt

• The weakening of the real value of wages has lead many to resort to debt to make ends meet.
• Often both partners have to work to stay afloat or many jobs are taken on by one partner. In the case of the former option, over supply of labour brings wages down further and family values suffer leading to juvenile delinquency.
• Destruction of unions a key factor in explaining why wages rates have fallen below labour productivity increases.
• Up until 1970’s, the west had a thriving middle class were one partner could work and afford all the usual luxuries that are now only possible through debt and excessive work.
• Rampant inflation a key factor in explaining the weakening purchasing power of wages.
• Other reasons include technology gains leading to excessive labour supply in service sector and also women’s liberation explaining growth of women in labour market further driving down wages.
• Increasing size of state has resulted in growing tax burden to fund states expansionary role leaving less disposable income and hence more reliance on debt.

September 2012

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