Islamic Finance Guru Ibrahim Khan subjects Jeremy Corbyn’s economic policies to the Islamic litmus test. How did they do?
We all know that the economy isn’t in the best place at the moment. Workers are often struggling to make their paycheque last until the end of the month, investors are having to look into things like Bitcoin Digital because the stock market isn’t doing very well, and the unemployed are finding it harder to meet requirements to get benefits. So, when a certain someone announced his plans to fix the economy, I thought I would take a look.
The print and social media have been in meltdown over the past month or so over one hirsute, beige-wearing, honest-talking, sexagenarian. Yes, I’m talking about none other than Jeremy Corbyn.
Now, for those of you who follow my social media feeds you’ll know I’m a Jeremy Corbyn fan for a number of reasons, but what I thought I’d do this week is to approach Corbyn’s policy proposals in a completely different way and subject them to a lens they have not yet been subject to: the lens of Islamic economics.
This will be interesting for Muslims of course, but also for all ethical-finance aficionados.
I’ll shed some light on what exactly Jeremy has proposed and then what the Islamic economic perspective is on it – and a verdict.
There are some surprising results!
Proposal 1: A large public sector with nationalised railways and other industries
This is an age-old debate in economics.
The Left says “there are certain things we all use every day and they should be owned by us all or it’ll be unfair. These include things like the transport system – roads, railways, and airports.”
The Right says “Ah, but these things can be regulated by the state but they are much better and effectively run by the private sector.”
There are good economics arguments either way and the ones I am particularly convinced by right now are those put forward by Professor of Economics Mariana Mazzucato in her publications.
She argues that in fact state-owned industry can be a source of growth and innovation in an economy and can be very profitable and efficient. In other words, nationalising strategically is a good thing.
Islamic economics is pretty agnostic on this. It’s true that in traditional pre-modern-finance Islamic economies the state sector was relatively small, like most states at the time in fact.
However we can’t just extrapolate from that and argue that we should have a small state as the explosion that is globalisation has completely changed the way we do governance and comparing a 10th Century state to a 21st Century state is like comparing Manchester United with Middlesbrough FC (yep, I went there).
Furthermore, every Islamic state had a Bayt-al-Mal which would collect and distribute the 2.5% Zakat on every individual’s savings across the country. This was used in a number of pursuits that would now come under an expanded public sector.
So there does seem some Islamic basis for an active and largish public sector.
Verdict: NEUTRAL but veering towards YES
Proposal 2: A People’s QE & A National Investment Bank
We have all heard important-looking men in suits talking about QE, but what does it actually mean?
Really simply put, the Bank of England popped some money into existence and pumped it into the financial sector in the hope that this would shore up banks, increase spending, and basically kick off our economy again.
Sadly that’s not quite what happened. We ended up with artificially hiked up London housing prices and not too much lending still.
“Hang on a second – so you’re allowed to just pop money into existence?” you might say. In short, yes. See www.positivemoney.org for more details.
Islamically, the jury is still out on this, but more on that in a later blog.
What Corbyn is proposing is, if we have another financial crisis, rather than pumping £4oo billion into the coffers of the very sector which is to blame for the mess in the first place, a similar effect could be created by investing £400 billion into industries and technologies that are growing rapidly and we need as a country.
This would be done by creating a National Investment Bank.
Either way, £400 Billion ends up in the economy, but this way is fairer and more useful for the UK long-term.
Now Islamically this is interesting. We know that 97% of our money supply is created by banks and is linked to debt. The one bank that can create money without linking it to debt is the Bank of England, and this is exactly what they did for QE as normal banks weren’t lending and, well, someone had to create the money.
What an Islamic economy calls for is a reduction of the money creation ability of normal banks and for this to be transferred back to a central bank such as the BoE, and for a ban on interest-based banking.
This would be phase one.
If I lost you there, let me put it another way: let a public bank decide who to invest in and where – rather than a bunch of private unelected bankers, and switch banks back to the old partnership-based/equity-based system that they used to be run on just 50-100 years ago, so that they are risking their own money along with others.
Phase two would involve a very close and careful look at what exactly is “money” and exploring whether or not we should shift back to a gold standard, digital and cryptocurrencies, or just stick with our current paper money.
I don’t think the Islamic debate on this has really matured to the point where we can make a decision on this second phase, and I will contribute my thoughts in a later blog, but in any case, the more important fundamental shift is phase one.
So something like Corbyn’s National Investment Bank, which gives money creation ability back to the public sector, is a good step for Islamic finance, however it is nowhere near the finished product as it does not force banks to give up their power to create money nor does it ban interest-based banking.
Verdict: A Qualified YES
Proposal 3: Shifting budget cuts away from poorest to corporations and richest
This is probably the easiest one of the lot, and really it is the biggest change Corbyn is calling for.
Islamic economics always teaches that money should be provided to those who are most needy by those who are most well off – rather than the other way around as it seems to be happening under the Conservative government.
Corporation tax is down as is income tax for those who earn over £150,000, and inheritance tax for those who have assets more than £650,000. If you’re not sure about the probate valuation process, it determines whether or not you have to pay inheritance tax and needs to be done when passes away and leaves estate in their will. This proposal is at the expense of the welfare budget, the education budget, and healthcare that affects the poorest in society.
It’s a no-brainer.
Proposal 4: Borrowing for investment
Economically this proposal is sound, as with interest rates so low and the economy in need of some major investment for the future in green energy and digital technologies, now is the time to borrow.
Of course Islamically borrowing is a no-no. There are alternatives available to the government however. It can use sukuk, public-private partnerships, and other equity-based solutions to fund projects.
Verdict: No, but there are alternative ways of raising cash – and they should be used.
Proposal 5: balancing the budget
Corbyn proposes to make sure that the government’s day-to-day income and expenditure match up and so it doesn’t have to go into debt.
This is largely sensible however unlike our personal finances an economy is much better compared to a business’s finances, and many businesses remain in debt permanently on purpose as it helps with their growth.
So debt is not bad per se, especially if it can be funded using Islamic financial solutions such as sukuk; but yes, it is best avoided especially when talking about the government’s budget.
Islamic economics and an Islamic economy are such a paradigm shift to the way we currently run our economies and do our finance that the steps needed to get there are radical and ground-breaking.
Corbyn’s solutions were never going to be that radical, and indeed he has no theological reason to adopt an Islamic economic approach, however his policies are definitely a step in the right direction and refreshingly different from the conventional perspectives shared by other politicians and the media.
This article first appeared on Ibrahim’s blog and you can follow him on Twitter @ibrahimkhan