Oxfam’s 2019 report released in the past week has caught people’s headlines. According to their findings, the wealthy billionaire saw their fortunes 12% or 2.5 billion a day. The poorest saw their wealth drop by $500 million every day. CNN noted that “combined fortunes of the world's 26 richest individuals reached $1.4 trillion last year — the same amount as the total wealth of the 3.8 billion poorest people”.
The report is not without its critics. Vox's Ezra Klein notes that the report's finding for the poverty side of the report is skewed because some who has leveraged assets can show up as poor, when in fact they live great lifestyles. Specifically, he says:
“So for the purposes of Oxfam's calculation, a farmer in China's rural Sichuan province with no debt but also very little money is wealthier than an American who just graduated from medical school with substantial debt but also a hefty, six-figure income. By any sensible standard, the medical student is richer, but because her student debt still outweighs her financial assets, the net worth measure counts her as poorer than the Chinese peasant.”
However, that being true doesn't change how wealthy the wealthy have become. Even Klein admits:
“wealth disparities globally are typically much greater than the wealth disparities nationally. Even using the net worth calculation, Credit Suisse's data shows the top one percent controls 38 percent of the wealth in America, 23 percent in the UK, and 24 percent in Canada. Those numbers still speak to huge inequality in wealth, but it's quite a bit lower than the global inequality in wealth, and probably more relevant for thinking about wealth as a political resource. (In Russia, by the way, the top one percent holds 66 percent of the wealth.)”
So, the issue is not whether there is inequality but merely a question of its magnitude. In other words, regardless of the criticism if you concluded that we live in an unjust world than your conclusion remains intact.
The other contention I would have with the idea of leverage is that a life of debt is one of anxiety. As featured in Consumer’s Reports on the US student debt, you can see this mother breakdown when realizing that her daughter is awash in $90,000 worth of student loans.
We should remember that Prophet Muhammad (saw) used to pray:
“O Allah, I seek refuge with You from sin and heavy debt” [Bukhari, Muslim]
May Allah (swt) protect us from debt and free us of financial burdens.
How would Islamic Economics fix this?
Naturally, Islamic economics consists of more than five policies, but each of the following measures gives us an idea of how different things would be under such a system
#1 - Economic policy should focus on distribution not production: One of the critical problems of Capitalism is that it focuses on maximizing production. Production is a function of good science and technology; it has nothing to do with economic policy. What economic policy should focus on is distribution. That is, economists should be concerned whether the wealth produced is circulating in the society or just merely be exchanged by the wealthy elite. In this post, I noted that “GDP from 2007 to 2014 to the corresponding change in the level of poverty. For these 5 years, the GDP in the US grew from $14.4 trillion to $16.6 trillion. During the same period, the number of poor people didn't fall but actually rose from 37.3 million people in 2007 to 46.5 million people in 2014. So despite the fact that the GDP rose by over $2 trillion, there were 9.2 million more poor people. Consequently, those trillions of dollars added to the economy for 7 years did not improve the welfare of 15% of the US population! ”
#2 - Move from income taxes to assets: We see the massive wealth of the rich and watch it grow year after year. So the question is, are they paying enough taxes? In Islam, looks to assets as the determining factor of one's ability to pay tax. For example, zakat, which is 2.5% of one’s net assets that have remained with the person for over a year. In this post, I noted that the amount of tax would roughly double on the wealthy if they paid zakat instead of income taxes. I also stated that by taking the amount of tax currently paid as a proportion of their assets, we find that rich paid about 1.24% of their asset in taxes. To put this into perspective, this would be like spending $124 if you had saved $10,000. This post looks at specific use cases of Bezos, Trump and Buffet on how much they would respectively pay under Zakat system instead of an income tax regime.
#3- Eliminate interest-based transactions: An OWS protestor once asked on their placard, "Should we bank the Muslim way?" And the answer is yes; we should eliminate interest. It is an unsustainable policy. What would be owed if someone borrowed 1 penny at the birth of Jesus (peace be upon him) at a rate of 4% interest and then had to pay it off in 1750? The whole earth in gold. Also, the Babylonians used to cancel the debts to the state when the new king ascended to the throne – because they knew it was unsustainable. For more, see here.
#4 - Invest in partnerships, not stocks: One of the main ways that the rich rule the world is through the stock market. As I noted in this post, “A New Scientist study found that a "super-entity" of 147 tightly knit companies controlled 40 percent of the total wealth within the network of 43,000 transnational companies. "In effect, less than 1 per cent of the companies were able to control 40 per cent of the entire network," says Glattfelder [an author of the study].” In the same post, I noted that Don Tyson immunized his company from market forces by buying out the competition. Instead of corporations people should invest in human-centric partnerships. In this post, I note how partnerships could enable a more entrepreneurial economy as it would level the playing field between the eccentric entrepreneur and the wealthy. In Islam, both have equal rights and say in establishing the company – or dissolving it. Such a system would also empower skilled employees to go out on their own and start a business. As their experience matures, they can either be made partner by their employer or seek external investment and start their own business.
#5 - Give power to the people: In Islam, energy resources and mineral wealth are commonly owned. It is a unique category of ownership, where the ruler is accountable to the citizenry on how this wealth is used. For example, the ruler can't privatize oil fields and give them to the wealthy. Instead, this wealth must be administered on behalf of the people for their benefit. This could be by investing such funds in public goods, such as schools, hospitals, roads and other public services. This is a tremendous amount of wealth that would be put in the public's hands. As I note in this post, the global energy sector (e.g. oil, gas, electricity, etc.) invests about $114 trillion in assets with a return on asset rate of 1.73%. This amounts to over $1.97 trillion a year in profits to the investors. I also noted that there are $38 trillion assets invested in mineral wealth that has earnings of over $1.27 trillion or 3.32%.
For more on how Islam can address the challenge of inequality, check out the other policies that I have written about. These policies that will bring us to live in a just world instead of the unjust world we currently live in.