Global Economy – Searching a system for well being of humanity

The world is in search of a system that can benefit the mankind. The growth path has taken during the industrialized age has come to a point where sustainability is at stake. The need for a greener globe is increasing because with GG lies the food security and cure for global warming. The growth path the world has taken highlights a sensitive problem of disparity. Big corporation once thought to be able to fix this problem, but with passing time we are learning that it’s only works initially and creates more problems than benefits. No wonder US is marshalling its resources for invigorating its SME sector.


Our experience tells us SME sector is engine of growth; it creates employment and distributes wealth among a larger population of society. We learn that distribution of income is important for a stabile system and we learn all these in the aftermath of financial crisis not just the present one but even those that occur in the past. We learn that earlier crisis and our response inflated the problem for next time; therefore we are extra cautious this time but our remedy is old. Bank of International settlement has introduced BASEL III with a belief that increase capital requirements will keep the problem under control. G20 countries think otherwise as they increase they have double the amount suggested by BIS.

The developed countries have already feeling the burnt they have reduce the interest rate in USA it is almost zero and the amount of money they have pour into their system is making its way to developing countries; those growing are worried about monetary expansion, strengthening currencies and rising prices. The foreign inflows are increasing lending and speculation. These three elements were highlighted by the two US professors as the main ingredients for any financial crisis and eventually to economic well being of humanity. The BRIC countries are trying to solve these problems through monetary policy but it works sometimes and sometimes it does not, and therefore the world is in redefining the monetary policy process.

I have attended a lecture organized by State Bank of Pakistan under Zahid Hussain series, “Monetary policy under uncertain world” by Dr. Paul Levine. What I understood from that lecture is that the tools available are not sufficient and that the innovations underway would not be sufficient to address them either and it is because of the fact that we try to mould our economic needs according to our financial systems, I believe, it should be other way around. Vatican City in the aftermath of the crisis suggested the developed nation to consider Islamic mode of financing. Keeping the faith part aside if we filter out problems faced during the turmoil with guidelines provided in Quran we will learn that these problems would not have been emerged at all. For example, out of the three points explored by two professors one is excessive credit boom, just imagine if all the money lent were on the basis of sharing profits and losses, would we in this kind of mess?

Islam requires financing to be based on goods physically available. One major reason of the turmoil were the instruments (exotic derivatives) created by the financial institutions no ordinary man can easily understood. They were not based on physically available goods and thus when the crisis evolved no one had clue how to price them. Another source of a financial turmoil is foreign inflows; foreign inflows increase when investors see opportunity of making quick buck, the hot money comes and goes. No harm in attracting foreign inflows but it should be for productive purposes and not for speculation and that is strictly prohibited in Islam.

But it is indeed a difficult task to revamp the entire system, because we are hostage of the system and we cannot possibly exit from it. We study the principles but we hardly questioned its effectiveness for the humanity. The developed world in its effort to solve the economic problem is reverting back to “JUST”. But the Muslim world is Xeroxing developed world failures although they place “Islamic” in front but it is barely Islamic.