Capitalism in Crisis:Causes & Consequences

Dr. Asad ZamanIslamic Banking Forum, Bandung, Indonesia

26 December 2011, Location: University Padjadjaran

Slides+Audio available from:http://asadzaman.net/online-lecture/economics/

capitalism-in-crisis/

Global Financial Crisis & Consequences Extreme & Increasing Income Inequality. Massive Ecological and Environmental

Problems Crisis of Knowledge – Economic, Social,

Political Theories Corrosion of Character in Market Society.

Crisis on Many Fronts

Mortgage CrisisGreed Encouragement of Greed.

A failed experiment spanning two centuries. Solutions no longer available in West Islam offers solutions & opportunity to lead

the way. But leadership requires vision & courage

Root Causes of Crisis are Deep

BIBLE: “Love of money is the root of all evil”

Shaw: “Lack of money is the root of all evil.”

How did we get from BIBLE to Shaw?

Root Cause: Promotion of Greed

HISTORY:Corruption in Catholic Church Martin Luther: The ReformationBloody, Interminable Warfare between Protestants & Catholics Emergence of Secular Thought.

Why & How Greed became Good

No common goals. Society requires commonalities:

FREEDOM to pursue their own religion. FREEDOM to pursue Wealth – means to all

ends.

Needs of a Secular Society

Market Societies generate surplus, creating power, search for consumers, exploitation, conflict, wars.

Centrality of Markets requires strengthening motivation of greed.

Division of Labor, Specialization contrast with self-sufficiency.

Needs of a Market Society

Polis: Society is an organic whole, united in a common purpose.

Societas: No agreement on goals, values and purposes in a secular society. Political and social organization is a means of regulating conflicts and allowing people with disparate and conflicting goals to live together in peace.

Societas versus Polis

“The modern conservative is engaged in one of man's oldest exercises in moral philosophy; that is, the search for a superior moral justification for selfishness.” 

Attributed (perhaps incorrectly) to: J K GalbraithFIRST ARGUMENTS: Passions versus Interests Religious Fanatics cause a lot more

bloodshed then greedy traders. Greed is counterfoil to Fanaticism.

Why Greed is Good: I

SECOND ARGUMENT:Invisible Hand Paradox:

Selfish actions lead to social benefits. What is the need for such an argument?Hobbes: people are brutes; powerful governmentLocke: society will self regulate - government role to ensure level playing field and protect property

Why Greed is Good: II

Early 20th Century ArgumentsMax Weber defines The Protestant Ethic as: the earning of more and more money, combined with the strict avoidance of all spontaneous enjoyment of life… It is purely an end in itself, (with no relation to) the happiness of, or utility (of) the individual. It appears … absolutely irrational. Man is dominated by the making of money, by acquisition as the ultimate purpose of his life. This reversal of … the natural relationship (money for satisfaction of needs), so irrational from a naïve point of view, is definitely a leading principle of capitalism.

Greed is Good: III

When the accumulation of wealth is no longer of high social importance, …(morals will improve).

The love of money … is a disgusting morbidity .. But beware! For at least another hundred

years we must pretend to ourselves and to everyone that fair is foul and foul is fair; for foul is useful and fair is not.

Avarice and usury and precaution must be our gods … For only they can lead us out of the tunnel of economic necessity into daylight

IV: The Keynesian Argument

Hayek: Individual Freedom is the HIGHEST goal.

Friedman: Business should only pursue profits – SHOULD NOT pursue social goals.

CONSEQUENCE ONE: Boesky: Greed is Good.

V: Friedman & Hayek

To SUMMARIZE:Greed is a powerful force.Allow it freedom in the LIMITED domain of trade.Wealth will accumulate, and lead to HEAVEN on Earth.Freedom from all needs and wants.Luxury for all.Excellence in Morals as well

RECAP: The Great Hope

The Jinn of “Greed” comes out of the bottle. Does not remain confined to trade. Penetrates ALL social institutions. Reversal of ALL social values, and

catastrophic consequences.

The Consequences

Iraq War:1 million killed, 40 million lives destroyed – for oil

Debt kills. Some 11 million children die each year around the world, due to conditions of poverty and debt.

Unfair trade (Oxfam) US 1 billion per day of aid to farmers in rich countries, affects lives of 2.5 billion poor farmers.

Dashed Hopes: Traders Are Worse Than

Fanatics

Dashed Hopes:No Trickle-Down

Hunger, Homelessness, Unemployment are at Record Levels:USDA reports for 2009Record 15% = 50 million people hungryRecord 1 million individuals, 170,000 families homeless Bureau of Labor Statistics:Record: 15,000 or 9% unemployed, highest since 1950

Dashed HopesNo Prosperity

Highest Divorce Rates: 50% Lowest Marriage Rates: Half couples just “live

together” – no commitments 33% USA, 50% UK, Children living in broken

homes. Loneliness: 33% one person households, up

from 10% Is there anyone you can talk to about your

problems? Majority say NO.

Dashed Hopes:No Happiness

Everything for sale in market society – humans, wombs, kidneys, pollution rights, etc.

Josephson Institute Surveys. All is fair in love and war. Hiroshima, Nazi death camps, Dresden

Corrosion of Character

Why not our own difficult problems in EAST? ANSWER: The train we are on is headed West All of these problems are “COMING SOON” We must get off & change directions. A propaganda machine glorifies the West. Creating the will for change requires learning

the TRUTH about the West.

Why talk about Problems of the West?

Reality: The Easterlin ParadoxWhat is true for an individual is not true for society.Every person is happier with more money. Not true for society as a whole.

Illusion: Money buys Happiness

Simple Lifestyles lead to global happiness.Pursuit of Luxury leads to global unhappiness. Greed is self-destructive. Lane: Loss of Happiness in Market Economies.Barry Schwartz: "The Costs of Living: How Market Freedom Erodes the Best Things in Life.“

Reality: Richness is Contentment

GNP per capita is increasing Science & Technology advancing Inventions, Gadgets, etc. Computers, Rockets, etc. Knoweldge Explosion

Illusion: World is Richer

Countries & Societies destroyed for profits. Species of Flora and Fauna destroyed. Ozone Layer, Rainforests, Lakes, Rivers –

dead & dying Costs of resources used up more than

growth. Loss of Wisdom.

Reality: World is Poorer

Vacuum Cleaner, Referigerators, Washing Machines

Rockets, Genetic Engineering, Nano-Technology

Internet, Computers, Social Networking Medical Advances Increased Life Expectancies.

Illusion: Humans are Better Off

Selfishness, Pursuit of Luxury broken families

Children in broken homes: 33% in USA, 50% in UK

Higher crime, alcoholism, depression, suicide, etc.

Universities provide no moral training. Happiness depends on virtue: generosity,

compassion, love, sacrifice.

Reality: Moral Degeneration

The West is lost – they don’t have the social/cultural resources to recover from social collapse.

Our turn is next – we are rapidly headed the same way.

Greed, pursuit of pleasure/luxury, selfishness are being rapidly promoted.

Hollywood present a charming picture of a cruel reality.

Analysis & Stock-Taking

Promote Generosity Promote Concern for Others, Compassion Promote TrustREVERSE MBA: We do service to earn profits We make profits to provide service.

Solutions: How to Fight Back

Promote Families Building Character – the literature of the East Money is to be spent on others, not to be

hoarded or accumulated. Promote SIMPLICITY and reduced standards

of livings

The Most Important Fronts