Interview with Dr. Farooq Mahmood: ‘There are inherent contradictions in current day capitalism’ Part I


Capitalism is sick and the disease is only getting worse. The coronavirus pandemic, unprecedented in its magnitude, is sending a fearsome warning to economists about the radical level of uncertainty that hangs over the future of our economies. Critics of the current economic and financial system are vast, and it is obvious that the answer is not simple but incredibly complex. Indeed, it involves taking into account the many different parameters of a deeply intertwined financial system. However, the question of the morality of the system remains ignored and is too often absent from economic debates.

The Review of Religions interviewed Dr. Farooq Mahmood and talked to him about the links between finance and morality, and how the Islamic faith can contribute to a better and more sustainable economic system in the long run.

Dr Farooq Mahmood is a Senior Lecturer, teaching Management Accounting, Financial Management and Financial Institutions at Kingston University and the London School of Economics and Political Science (LSE). He is a Chartered Management Accountant and Chartered Global Management Accountant. Dr. Mahmood is a Fellow of the Higher Education Academy, serving as the secretary of British Accounting and Finance Association (BAFA) SEAG. Below is a lightly edited transcript of the conversation between Dr Farooq Mahmood (FM) and Ahmad Danyal Arif (ADA), Editor of the Economics Section for The Review of Religions.

ADA:The scientific community often portrays the disciplines of economics and finance as value-neutral that crisply demarcates facts from personal value judgements. As such, economists are trained to avoid normative judgements and opinions. Yet, contrary to what the majority of textbooks says, economics is predominantly a normative field. Economics not only describes the world but is frequently about how the world should be (it should be effective, ideal of perfect competition and high GDP-growth, the effort to achieve high competitiveness, etc.) Is economics not, in the end, a social and moral science?

FM: Economics is a social science that deals with the production, distribution, and consumption of goods and services in an economy. Hence, by definition, it is like any other field of knowledge with its specific objectives. I do not think that anything is good or evil per se; it depends on those who utilise a resource that leads to its good or evil outcomes. Just as atomic energy can be utilised for the benefit of humankind, humans used it for the murder and deformity of hundreds of thousands of their fellow humans.

Similarly, the global financial system, within capitalism, has been utilised by the few for their selfish interests while the majority of the world suffers immeasurably. With regards to the shortcomings of the current financial system the Worldwide Head of the Ahmadiyya Muslim Community, the Fifth Caliph, His Holiness, Hazrat Mirza Masroor Ahmad(aba) said in the summer of 2019 in Germany:

A decade on from the global financial crisis, the European countries should not think that their national economies are secure or that the capitalist system is thriving. Even Western experts and economists are accepting the shortcomings of their financial system.‘ [1]

You have asked a rather philosophical question; therefore, I may have to start with a little context. You refer to the term normative and I believe you are comparing that with positive economics. In very brief terms normative economics is prescriptive, whereas positive is descriptive; descriptive in the sense that it is a mere statement of facts. Hence, through normative economics, an economist communicates their value judgement; there may be biases, depending on their respective schools of thought. Positive economics is objective, based on measurable facts, without making value-judgements. 

The interplay of economics and politics is quite deep-rooted and therefore the choice of economic policies is one of the most potent tools in achieving political objectives, hence it makes sense for macroeconomics to be normative. 

Economics and Finance are disciplines within social sciences. In social sciences, in contrast to the natural sciences, there could be an element of subjectivity in how humans behave in their social contexts. Human behaviour is not an exact science and not consistent between humans. In natural sciences, for example, the speed of light in a vacuum is a universal physical constant, hence there is no subjectivity involved in its analysis. Such an analysis would be entirely based on empirical evidence from observation and experimentation. I opine that it is quite difficult in practice to remain completely unbiased for a social scientist. 

In research, there are two broad paradigms namely positivist and interpretivist approaches of epistemological inquiry. A positivist would prefer scientific quantitative methods, whereas interpretivists favour qualitative methods with the perspective that humans have their social contexts which can significantly vary between individuals. Interpretivists do not see a single or objective social reality but believe that social reality is shaped by human experiences and their social contexts. There are subjective interpretations to be made from the observations. Therefore, the methodology for inquiry differs between a positivist and an interpretivist. A positivist is more likely going to employ quantitative techniques in analysing data. In social sciences, whatever approach is taken for inquiry, in the end, you are right, an economist is expected to make value judgements or interpretations from his perspective within his chosen theoretical framework. 

Now I come to the latter part of your question, where you have referred to certain examples of measures that appear prescriptive, or more technically speaking, are examples of normative economics. I agree that GDP-growth has been the most common measure of success by the mainstream macroeconomists, and a political tool to hail ‘success’ or otherwise of a government. In fact, it is a convenient number due to being ‘objective’ appearing to support a positivist paradigm, which is an easier approach to convince the public or sway public opinion. An objective number appears closer to natural sciences and a more useful ‘bitesize’ information to win the electorate’s or financial markets’ attention. 

It is a completely different argument whether the GDP-related data is reliable or truly comparative between nations. There is a growing demand for alternative measures of success as GDP completely ignores externalities such as obesity owing to the consumption of unhealthy food and drinks in a ‘growing’ economy, the level of general happiness or standards of morality in an otherwise ‘prosperous’ society, the level of carbon footprints or pollution associated with industrialisation etc. Measuring happiness (or lack of it) should not be difficult. I would argue that there could be several proxies to measure general well-being of society such as the reported cases of anxiety/depression and other mental illnesses, the number of jobless young people, over-qualified employees in less-skilled jobs, family-breakups, crime rates, substance abuse cases, etc. My conjecture is that if one were to study using these or similar proxies, there has been a consistent decline through time.  Hence, we may be growing in terms of the GDP measure, but this has been far from true prosperity that the majority of any nation would have aspired TO in the past 50 years. 

There is enough academic evidence that links happiness and mental health with religiosity. Similarly, separate academic studies show a significantly strong negative association between active religiosity and crime rate.

In your question, you have also used the term perfect competition. This is all good in theory. For this to be true, we need to have a demand and supply equilibrium and there must be perfect information available to all stakeholders. In practice how much of that is discernible, is debatable. The level of competitiveness in the market is a latent variable and cannot be measured directly; hence, it requires other observable variables that are correlated with a theoretical measure of competitiveness. In social sciences, several latent variables can be indirectly measured through the use of observable and measurable proxies. As far as I understand, neither it is possible to have one comprehensive proxy to suggest whether perfect competition exists in the market or a particular industry, nor do any of the developed Western countries claim to have perfect market conditions. I do not believe that there will ever be perfect markets in practice, anyway. Hence, economic theory and practice do not converge in every case. 

The most important ingredient for a perfect competition to exist is complete or perfect information with no information asymmetries that discriminate between market players. This is practically not possible. Secondly, all firms should be selling identical products and the costs for entering and exiting a market should be nil. Again, to feed into mathematical computations and complicated econometric models in theoretical papers, this could be an aesthetically palatable assumption. However, in practice, sometimes, there are prohibitively enormous investments involved in entering or exiting a particular industry. These large barriers to entry cannot encourage perfect market conditions. 

Inevitably, this draws our attention to the most prominent tech giants, the so-called FAANG (Facebook, Apple, Amazon, Netflix and Google) corporates. Their colossal dominance is counterintuitive and contradictory in pursuit of a free-market economy. These corporate giants present us with a paradox. On the one hand, they can be viewed as a prominent symbol of capitalism, because on the most quoted stock market index, S&P 500, they make up almost a quarter of the invested ‘capital’ (stock value) of the largest US publicly traded companies. On the other hand, these humongous corporates defy the essence of perfect competition. Not to mention how powerful they could be in shaping public opinion globally. Hence, they challenge the very core of capitalism, the market competition that most capitalists may have hailed as the reason for their superiority over socialism.  

In a nutshell, there are inherent contradictions in the current day capitalism. Although I do not see the normative (prescriptive) approach by economists as problematic, a balanced debate from different schools of thought should be given equal opportunity in contributing to the body of knowledge. Unfortunately, it is easier to publish papers in reputable peer-reviewed journals by deductive reasoning, i.e., by testing existing theories. Hence, meaningful progress in thought remains indolent. 


ADA: The debate of debt sustainability re-emerged with the coronavirus crisis and some political leaders have been quick to suggest the necessity of a debt relief for poor countries. In fact, it is no coincidence that in Dutch and German, for instance, the word ‘Schuld’ means both ‘debt’ and ‘guilt.’ A similar linguistic association is found in the Hebrew word ‘Chayav’. These terms illustrate the deep-seated cultural anxiety attached to debt and the powerful feelings of shame it can provoke. It seems like debt also secretes a moral of its own, doesn’t it?

FM: Debt could be issued to personal, corporate or sovereign clients. I do not think a detailed discussion on the risks associated with each of the three types of debt is the focus of your question. Therefore, I will try to respond with a particular focus on the current day examples in support of your assertion.

In addition to what you have noted, in the Greek New Testament, ‘debt’ means ‘sin’. There is considerable extant academic literature, which finds significant association between religion and the desire for the loan. Interestingly, there is academic evidence that suggests that nonconformist, agnostic or atheist religious views have more permissive attitudes towards debt. Similarly, other academic studies report strong associations between debt and crime.

In the scriptures of every major religion, there are passages that strengthen the position of a debtor and help ease off restrictions and bondages associated with debt. In the most elaborate fashion, it was the Holy Quran and the practice of the Holy Prophet(sa) that protected the debtor from being exploited by the creditor in the most comprehensive manner.

The current coronavirus pandemic has uncovered huge inequalities in societies. ‘Essential’ or ‘key’ workers who cannot work from home, can legitimately question, if they are too essential to work from home during the pandemic and risk their lives, why are they then paid a miniature fraction of another person who has the luxury of working from home? Should the pay package not be a function of how indispensable a job is? We are aware that studies have indicated that a large fraction of the people in the low paid jobs comes from ethnic minorities and they are significantly more susceptible to contracting coronavirus.

I am not suggesting that everyone who works remotely should risk their lives by mingling freely with others or that they must get paid the same as anyone less. Islam does not discourage rewarding one for intellectual capital, within reason. However, the disproportionate levels of remuneration awarded to the board of directors compared to the median income of corporates have been a matter of debate. CIPD-commissioned research, last year, found that the FTSE 100 (an index made up of shares from the 100 biggest companies by market capitalisation on the London Stock Exchange) CEOs reward package was 117 times bigger than that of a UK full-time worker on a median salary of £29,574 per annum.

It is true that governments have resorted to debt in these times of crisis, and that in itself, is not an illogical approach. As long as the end-result is a boost to the real economy and not just the avaricious financial markets, it would be a rational move. However, it is a known fact that trillions of dollars that governments of the Western world spent to bail out banks during the 2007-09 credit crunch were at an unprecedented scale. A vast proportion of the amount was then recycled back through capital market investments. The economy is on its knees during the pandemic and people of comparatively low-paid professions are more exposed to the virus by design. Within the economy, the stimulus from the taxpayer’s money did not improve the financial state of a teacher, a waiter, a bus driver, a nurse, a cleaner or the average working-class person, or anyone who is now being classed as ‘key worker.’

The irony is that the stock markets in the US and here in the UK are still flamboyant while the rest of the economy is in dire straits. This tale of paradoxes deserves a detailed discussion and may not be suited for this interview.

As you suggested in your question, indeed, it sounds intuitive and a very noble deed to give debt-relief to the poor at the individual as well as national levels. Nevertheless, the prevailing prerequisite on both ends has to be founded on honesty, integrity and justice. There are enough voices among policymakers and the public, in favour of debt-relief but unfortunately, corrupt and unjust people govern most of the poorest nations. When transferring scarce resources to corrupt governments, only a small fraction of the assistance ever ends up with the most deserving. The richer nations that act as white knights have their own vested interests and they draw more resources out of the poor nations than the apparent ‘relief’ that they extend. His Holiness, Hazrat Mirza Masroor Ahmadhas alluded to this in a number of his public discourses.

Your question has touched upon the shame associated with debt. I am not too sure, whether lenders or borrowers find it more shameful than they would have in the past. If anything, people are being enticed further into taking loans for anything and everything. It has become an integral part of the current day capitalism where people’s wants are misconstrued as needs. The car one’s neighbour purchases becomes the reference point for a person’s aspirations and not his affordability. Not many have enough disposable liquid cash to buy that new Mercedes outright. The Quranic teaching of ‘Vie with one another in good works’ is the best antidote to the frantic vying for fancy possessions.

Even governments prefer borrowing to taxes, especially when elections are on the horizon. The popular vote is becoming increasingly important in the West and elsewhere, and arguably, this desire for popularity by governments is contributing to encouraging nationalism. Sadly, there has been a growth in recent years, in often-controversial rhetoric by major Western governments to appease the uninformed populace. Often times cash handouts and rushed government expenditures on ill-planned projects for short-term gains prove quite costly in the long run.

Coming back to the current pandemic, Thiemo Fetzer, Associate Professor of Economics at the University of Warwick and a Visiting Fellow at the London School of Economics has found that the UK treasury’s ‘eat out to help out’ scheme could have directly caused a large number of new coronavirus case clusters over the summer. Likewise, it has not even helped the hospitality industry in reaping the long-term benefits. Two-thirds of respondents in the hospitality and catering sector reported a fall in sales and bookings between June and the end of September, the British Chambers of Commerce has reported.

The government has been clearly fraught, with a looming self-inflicted Brexit adventure. This may have increased pressure on the government to rollout half-baked plans in pursuit of quick acceptability. One wonders whether due diligence and robust checks are in place during such times of crises.

Then the National Audit Office (NAO) has warned that up to 60% of customers may fail to pay back the loans that the government hurriedly provided to small businesses with minimal credit checks and fraudulent applications. It is estimated that taxpayers face losing up to £26bn as a result of the COVID19 bounce-back loan scheme.

In short, the current pandemic has uncovered several deficiencies and injustices embedded in the current system. It has again reminded us that in the times of crisis or in prosperity, only a system founded on the principles of absolute justice can uphold economies.


ADA: But from a historical perspective, even today, it is a fact: external debt has been and is still a powerful weapon of domination, right?

FM: Indeed, there is no doubt that the bondage associated with debt is rampant at an individual and international level; and perhaps at the levels not seen before. On the surface, slavery may be a thing of the past, but in essence the effects of are even more pervasive in the current world. The only difference is that the modes of exploitation in the modern-day slavery are more sophisticated and better disguised. Rich countries have the resources to lend to the poor countries leading to a manipulative creditor-debtor relationship. Concerning this, the Fifth Caliph and Worldwide Head of the Ahmadiyya Muslim Community, Hazrat Mirza Masroor Ahmad (aba) said:

In today’s world, physical slavery no longer exists, but it has been replaced by economic bondage and servitude, wherein the relationship between the most powerful nations on earth and weaker countries has become akin to the relationship of a master and a slave. For example, loans disguised as ‘aid-packages’ are given by rich countries to weaker nations who have no option but to accept whatever strings are attached. Invariably, the crippling levels of interest mean that the short-term loans lead to long-term misery and liability. The end result is that the defaulting country has no choice but to bend to the will of the dominant nation. Such slavery is utterly immoral.‘ [2]

Under traditional slavery, freedom was only possible through repayment of the underlying debt. It would not be known when the debtor would be able to discharge the obligation. This meant that not only were many slaves were born slaves, they died as such and passed slavery down through generations. 

In servicing the debt, interest payments lead to a vicious cycle of poverty. Islam vehemently forbids the charging of interest and admonishes those who wage war against Allah, in the strictest possible terms.

During the current pandemic, a large number of poor countries are faced with a huge dilemma. Unless these nations are compassionately granted debt-relief, they neither have sufficient resources to spend on their mounting health-related costs nor can they afford to assist a rapidly rising number of jobless citizens during the pandemic. It’s a question of survival for millions of families. The destitute countries, already distressed with excessive levels of debt, are not left with a choice other than borrowing more. Their underdeveloped systems and rampant corruption are a hindrance in collecting sufficient funds through taxes. Hence, piling upon an already enormous debt appears the last resort.

There is a desperate and urgent need for global impetus with heartfelt compassion for such nations. If richer nations extend their support, out of sheer benevolence, such act of goodwill could potentially sow seeds for a refreshing era of mutual love. An era that the world is in desperate need for in averting the looming clouds of catastrophic global conflicts.


  1. Address delivered by Hazrat Mirza Masroor Ahmadaba during the Annual Convention in Germany of the Ahmadiyya Muslim Community, 6th July 2019: