As the fastest growing global super-power, China commands attention by all the super-powers and especially by the middle powers all over the world. Pundits ask whether Islamic Banking, which China looks upon favorably, will be a new challenge to Wall Street. Islamic banking will not pose a quantitative challenge in terms of nominal assets during our lifetime, but it has the potential to change the entire paradigm of thought on money and credit and thereby to transform the world.
In Peking last month, from October 21 to 23, 2010, the CAUX Round Table (CRT) held its Twenty-Fifth Annual Global Dialogue to “focus on the compelling need, in the wake of the global financial crisis, to find platforms of business ethics and corporate responsibility that can be embraced by business and financial investors globally. China is already a global economic powerhouse, and as a major driver of global growth its role in the development of such platforms is critical”.
Among the sponsoring organizations was The Center for International Business Ethics (CIBE), which is China’s foremost non-government center dedicated to research and training in corporate social responsibility and business ethics and has an essential role in contributing to China’s economic growth and emergence as a harmonious society.
Session three on October 23 was entitled “Responsibility: A Values Driven Approach”. After a panel discussion on “The Personal Ethics of Confucius and Mencius and the Role of Law: What is the Origin of Duty and Responsibility”, small group discussions focused on “Stakeholder Interests”. This raised the issue of expanding the number of stakeholders in order to reverse the rapidly growing wealth gap both within and among nations. The two Chinese characters for the title of this three-day gathering of business leaders and business advisors from around the world are translated as “Charting the Path”.
Two weeks later on November 7, 2010, Andrew Sheng reported in The China Post,http://www.chinapost.com.tw/commentary/the-china-post/special-to-the-china-post/2010/11/07/278933/Is-Islamic.htm on th,e just held meeting in Kuala Lumpur, Malaysia, of the Global Islamic Finance Forum, which included “the whole glitterati of the Islamic world, including the Hong Kong, good and great”. He reports that in the past twenty years, Islamic finance has grown from a fledgling fringe industry of about US$150 billion to about $1 trillion and is expected to double in the next five years. Today, there are roughly US$800 billion in Islamic banking funds, $100 billion in the sukuk (or Islamic bond) market and another $100 billion in takaful (Islamic insurance) and fund management business. This is still small quantitatively compared with the several trillion dollars in the traditional banking industry worldwide, but paradigmatic revolutions are necessarily qualitative revolutions. The issue is whether the old or the new best serves the cause of justice for all persons and nations.
The critical issue is not merely the short-run stability of the existing system, which has proven recently to be structurally unstable, but the long-run pursuit of peace, prosperity, and freedom through the reform of institutions as a means to pursue justice.
The critical question within the critical issue is which system of banking, the Western or the Islamic, best promotes or can promote broadened ownership of productive assets. Eliminating interest does remove the incentives for secondary markets, like derivatives, which has been an enormous concentrator of paper wealth. But much more needs to be done so that Islamic banking will be more than an imitation of what it pretends not to be. Until Islamic banking, whether adopted by China or any other super power, becomes what it is intended to be, Islamic finance may not effectively challenge Wall Street in the 21st century.
Very briefly, the key to genuine Islamic banking is the creation of money by governments only for investment in real assets and with provisions to overcome the barriers to credit, such as requirinq credit to be based on past rather than on future wealth. The Islamic banks claim to respect private property ownership, but real respect requires easier access to capital ownership, for example through the Capital Homestead Act (see http://www.cesj.org), so that it can become universal.
Until we have accomplished this, 90% of humankind will remain in bonded wage slavery, the wealth gap within countries and among them will constantly increase, governance will be based on one-dollar-one-vote, corruption will become endemic even with full transparency, and terrorism will increase with increasingly sophisticated weapons until eventually civilization will collapse.
Of course, this might be the ultimate cure, so we can learn from the past, God willing, and build a better future. The Chinese have a single character for both crisis and response, based on the principle of harmony. In Islamic thought this is known as tawhid. Within tawhid are the principles of harmony through justice known as the maqasid al shari’ah or purposes of normative law.
A major principle in the maqasid is haqq al mal. This is the duty to respect private property based on competition through the free market and free enterprise. Justice in a such a system requires universal access to productive wealth through a corresponding system of money and banking designed so that every person will be a stakeholder in the trillions of dollars of new wealth in the future. This is a bedrock principle behind the universal human right to both personal and national self-determination.