Lehman Brothers, Fannie May, Freddie Mac, Bear Stearns, AIG, Washington Mutual, and Merrill Lynch have become internationally known household names over the past month, not only because of the rapid transfer of information but because global markets are feeling the effects. Russia, Japan and Europe now face similar crisis and it would seem that the entire global financial system is in chaos.
The forces of market capitalism, once seen as the lynchpin of political economy, globally society and interstate and substate relations worldwide, are now in question. Flaws in the stability of Western market capitalism’s heavy reliance on lending are now undeniable. The problem of an overall lack of confidence in Western economic and hence, relative power is growing.
The term usury (or riba in the Islamic World), or the charging of interest (in the West, it has come to mean unlawfully high interest rates) has become mildly significant in the wake of this crisis as the dangers of interest have become clear in credit markets across the globe, except for the Islamic World. Islamic banks and their 1 trillion dollar finance industry have been largely sheltered and are thriving, despite the global credit crunch because they are forbidden to charge interest.
The superiority of unchecked market forces, once unquestioned, is now under heavy scrutiny. It is possible that Islamic finance will be adopted, as some experts have argued, beyond Islamic countries. The decline of Western economic power, and the rise of the East is now creating a new paradigm for political economists, world leaders and financiers. For the first time since the Cold War, an alternative economic model is now on the global stage. Unlike the Cold War, a “viable” alternative economic model is now on the global stage. Profit sharing requirements and the insistence that assets underpin transactions coupled with non-existent interest-based lending is creating an attractive, slower, more stable regiment for growth and development with a clear ideological view towards long-term gains.
First of all, this phenomenon is was not intentional, but few in the Islamic world, specifically the highly religious, would say that “conventional” banks and markets, didn’t have it coming to them. Not to say Islamic markets haven’t suffered but frankly, these losses were indirect and the product of their inextricability from conventional markets. The validation of Islamic finance as common sense is but one example of the growing threats to traditional post-Cold War balance. Some for instance, see the decline of American power through the lens of imperialism, evidenced by the downward spiral of rising national debt and overstretch and politicians in Iran, Venezuela and other nations are not lamenting these changes one bit.
A new global class-consciousness and the rise of alternative economic models are mere symptoms of a broken world order that never came to be. The Western world will continue to decline unless it helps design a new strategic economic balance with the East where systems of finance and governance can coexist peacefully. The alternative has been foreshadowed lightly over the last month and the full brunt of such a meltdown is something the world simply cannot bear.