IslamQA: Islam, the Good Parts: A Basic Income System that Encourages Employment, Productive Investment and Automation

Within the next 50 years, most of the jobs that today employ people will not exist, because robots and computers will be able to do them better and cheaper.

Over the past 50 years there has been much talk of artificial intelligence, and much of it was empty and little came out of it. The true artificial intelligence revolution only started within the last 5 years. Today we have computers that are capable of looking at the picture of a person and telling us the emotion displayed on their face. There are programs that can write paragraphs that accurately describe the scene portrayed on a painting. This is a new type of machine intelligence that many people, even among technical professionals, are unaware of. What used to be exclusively in the realm of science fiction is now merging with our day-to-day reality.

We have the technology, and the computing power, to use artificial intelligence to automate large portions of the Western economy, because we have overcome the barrier that stopped a robot revolution from taking place in the 20th century. From an individual’s point of view, the automation revolution might be nearly invisible. You may not foresee any robot in the near future that could possibly do 10% of the work you do. To see the effects of automation, look at large companies and industries. Wal-Mart fired 7000 office workers in 2016. It wasn’t because some robot suddenly appeared on the scene that perfectly did the jobs of all of these people. Rather, Wal-Mart incrementally improved, optimized and automated its internal functioning over many years. These effects slowly mounted until the managers  realized they’ve reached a point where they could get by just fine without these employees, so they fired them.

The Taiwanese manufacturing giant Foxconn that builds iPhones for Apple Inc. fired 60,000 workers in 2016, replacing them with robots.

This trend is going to continue. As the effects of automation mount year after year, a factory that requires 1000 workers today will probably function just as well with 900 employees in the next few years. Automation slowly and subtly reduces the load on a company’s workers so that every year fewer workers are needed to maintain the same level of production.

The world’s current economic systems are entirely unprepared to deal with the robot revolution. Some people expect widespread unrest and civil wars as employment opportunities continue to dwindle. What automation will do is similar to what the NAFTA did to small US towns. The NAFTA (short for the North Atlantic Free Trade Agreement) enacted free trade between the United States, Mexico and Canada in 1994. Vast numbers of factory jobs were sent to Mexico, creating widespread unemployment in these US towns. Alcoholism and drug addiction skyrocketed and life expectancies fell. People lost the will to live. On the other side of the border, millions of Mexican farmers were put out of work by cheap US corn, causing the largest Mexican illegal immigration wave to the US in history (and the rich on both sides of the border got richer because of it).

The effects of the NAFTA happened mostly in small US towns, out of the sights of big-city dwellers, so it went mostly unnoticed. Automation is going to be the next NAFTA, except this time it will not spare the snobby and educated city-dwellers who think the plight of America’s peasant class is something to laugh at. Automation will it make increasingly harder for skilled workers to find jobs, since the skill of the robots is continually increasing and encroaching on high-skilled fields more and more every year.

Islam’s basic income system

Basic income systems have been proposed as a way of remedying the joblessness caused by automation. The problem with basic income is that on the one hand it requires a potentially massive increase in taxes, and on the other it discourages employment by giving people a way of opting out of work.

Who will pay for this system, and who will benefit? Will it not continue the process of enriching the super-rich and feeding the poor at the expense of the middle class, like nearly all socialist policies?

The Islamic solution to these concerns is its zakat system and its ban on usury (the charging of interest), which together direct the economy in a direction that promotes employment and automation while also providing for everyone who needs help. Zakat is a wealth tax but with special clauses that prevent it from being the disasters that Western efforts at taxing wealth have been. Zakat is only charged on uninvested and speculatively invested wealth at the rate of 2.5% a year, such as large amounts of money kept in the bank for a whole year, or wealth held in speculative investments (such as real estate) that a person intends to sell rather than hold for the long-term.

Zakat is distributed to the needy directly. Abu Bakr, Islam’s first caliph, gave an annual zakat stipend to every person under his rule who qualified as poor.

To understand how the Islamic zakat-minus-usury system would work in a Western context, let’s take the example of Wal-Mart’s firing of its 7,000 office workers. If the average annual salary of these workers was $35,000 USD, and if Wal-Mart spent another $10,000 annually per employee on various expenses, by firing them, Wal-Mart will save $315 million. If the costs of automating the jobs of these employees was $50 million, that means Wal-Mart will gain $265 million in net savings.

In an Islamic system, what would Wal-Mart do with this new cash?

If the company keeps the money in the bank, doing nothing useful with it, it will have to pay 2.5% of the money into the basic income system, meaning $6.6 million of the $265 million. In the present system, things work in quite the opposite way: Wal-Mart can lend this money and earn interest on it. Islam forbids usury, therefore Wal-Mart will not be able to invest it in bonds or any other interest-bearing asset. Instead of being able to earn interest on its cash hoard, Islam will make the company to pay interest to society. In this way, even though Wal-Mart saved money, the savings will actually slowly go to society unless it does something else with it.

Wal-Mart’s other option is to invest the money speculatively, by buying assets like stocks and houses, so that it can sell them again at a profit. The problem for Wal-Mart is that Islam charges zakat on speculative investments. Assets bought with the intention of selling them again within say the next 10 years are going to be charged a 2.5% annual zakat, therefore while the company might profit from this, society will continue charging their 2.5% annual interest on the company’s speculatively invested wealth. Wal-Mart can avoid this zakat by buying real-estate or stocks and holding them long-term. In this case, it will still have to pay zakat on any rent or dividend it receives.

The last option Wal-Mart has to avoid zakat is to productively invest it, rather than speculatively. It either has to spend it in research and development, improving its infrastructure and inventing new technologies (while hiring people to do this), or expanding into new businesses (and hiring people), or buying start-ups (and expanding them and hiring people), or buying shares in other companies, who have to go on to repeat these same behaviors.

This last option, buying shares in other companies, may seem like a way of escaping the zakat tax, but it is not, because the zakat tax will operate on that company too, since zakat is also charged at a rate of 2.5% on all corporate profits. In this way, if Wal-Mart spends its $265 million buying Apple shares, it may earn $4.6 million in dividends over the year, which is charged 2.5% interest for society, or $115000, which is not much. But the $265 million in wealth that is now “parked” at Apple is not going to lie dormant. It will increase Apple’s power to expand and profit, enlarging Apple’s cash hoard…which is charged a 2.5% annual interest for society unless Apple invests it productively.

In the zakat-minus-usury system, the super-rich will not be allowed to hoard cash or speculate with assets without paying a 2.5% tax to society. And they will not be able to park their money in bonds and other interest-bearing assets, because all interest will be prohibited. If they want to avoid having their wealth charged a 2.5% tax, they will have to invest their money productively, creating new businesses, hiring people, bringing the economy to life.

By forbidding or taxing all anti-social profiteering mechanisms (usury and speculation), the wealthy are forced to either contribute to society by productively investing their wealth in businesses (which themselves pay zakat on their profits and cash hoards, unless the businesses go on to productively invest what they earn), or, if they have nothing productive to do with their wealth, they must give up 2.5% of it every year to society, in this way enabling others to use the wealth productively.

This process will end up creating a massive increase in wages and employment, because businesses will want to use their money productively, leading to increased spending on research and development and risky projects that may or may not profit. The wealthy will frantically search for all possible ways of using their wealth productively so that they can avoid paying the 2.5% annual interest on their wealth. Companies will compete with each other for the available talent, raising wages. People who are discouraged today from working due to low wages will be motivated to join the employment market again.

Through automation, the rich increase their profits, spending less money and earning more cash. The Islamic system makes them use their newfound money productively in the real economy, in this way creating jobs and raising wages, otherwise they will have to pay 2.5% interest on their cash to society. A fully automated factory is no longer a disaster for society; the wealth it generates goes back to society one way or another, either through productive investment, or through direct cash transfers to the needy.

Who pays and who benefits?

In a town of 1000 families, 100 of which are rich, 400 of which are middle class and 500 poor, the 100 rich families may each pay $25,000 in zakat, meaning a sum of $2.5 million. When given to the poor, this means $5,000 annually for each poor family.

And if automation progresses to a point where it seriously reduces employment opportunities, this means that the profits of the rich, and the zakat of the poor, will both increase, balancing things out. The zakat system can be used to guarantee each adult a certain level of income. Each person who earns less than say $2000 a month will have the difference made up for them by the zakat system, so that if they earned $1500, they will automatically get $500 deposited into their bank account at the end of the month.

Beyond a pipe dream thanks to decentralization

The wealthy, who own every major media outlet and every politician one way or another, will never allow a zakat-minus-usury system to be implemented. However, thanks to the fact that zakat-minus-usury is as much an obligation on every Muslim as is the daily prayer, Muslims themselves live and act according to this system regardless of the law. Every single devout Muslim millionaire is already paying tens of thousands of dollars in zakat every year. Every single devout Muslim is doing their best to avoid paying the West’s usurious neo-liberal economic system through the use of alternative financing methods. Islamic financing is not just usury by another name. If it is really in compliance with Islam, it will be a wholly different type of financing designed to treat both lenders and borrowers on an equal footing rather than having the lenders act like vultures. For more on this see the discussion on “Socratic financing” in this essay of mine.

Muslims are already helping heal Western economies through paying zakat and avoiding usury. They avoid the speculation that has turned Western economies into casinos for the super-rich. The few who engage in it are forced to give up 2.5% of their profits from speculation every year. And they use the wealth they earn to create productive businesses rather than contributing to wasteful government spending by lending money to the government through bonds. They help slowly diminish the power of the banks over the economy by refusing to use their usurious services, by creating alternative services, and by cutting them out of the business ecosystem.

Decentralized spillover economics

You have heard of the “trickle-down effect”, in which your billionaire neighbor’s wealth benefits you by enabling you to work for UPS thanks to his ability to order caviar and gold by the pound online. The idea of a wealth trickle-down benefiting the poor is nonsense because the Western system is designed to be full of loopholes that allow the rich to keep their wealth either in bonds (which is the way rich people charge interest on the average tax payer using the government as their tool) or various tax-avoiding assets and havens. According to the IMF an increase in the wealth of the top 20% is not associated with an increase in economic activity. The money just accumulates in the hands of the rich, who continue to a larger percentage of the nation’s wealth every year.

But in the Islamic system, there actually is a very real and powerful wealth spillover effect. A town that hosts the headquarters of a wealthy corporation owned by devout Muslims is going to enjoy millions of dollars in cash transferred to the town’s poor through the zakat system. The poor in turn will spend this added income, stimulating the economy. The more corporations there are that act like this, the more wealth spillover will exist, to the point that many towns could have poverty entirely eradicated in them. Each wealthy devout Muslim contributes to the local economy in the same way, although, of course, on a smaller scale. Unlike wealthy Jews and Christians who act like parasites on site, demanding interest on their wealth from society, the wealthy Muslim acts in the exact opposite direction: giving interest on their wealth to society.

Fixing the labor market without unions

Productive investment is the major means available for avoiding zakat, therefore zakat-payers will have a strong incentive to find non-speculative, non-usurious ways of investing their wealth, and that means creating businesses. A zakat-paying corporation founded by devout Muslims does not have the option of usuriously lending its profits to other corporations as Apple, Google and Amazon do. It has to either

By increasing the competition of businesses for available talent and ending the desperation of workers for work, wages will rise and working conditions will improve. Workers will have more choice on who they work for, since they will not be desperate for jobs (they won’t even have to work if they don’t want to), meaning that businesses will be forced to offer workers more and more privileges, better conditions and better pays to attract them and keep them working.

The way workers have often tried to get better working conditions and wages in the West has been through unions, which always lead to vicious conflicts with business owners. The zakat system fixes this issue by making businesses take better care of their workers out of self-interest, in order to be able to attract and retain workers.

This aspect of zakat, of improving the living conditions of workers, is one of its most important but least appreciated benefits. It doesn’t just take wealth from the rich, it also forces them to be nice to their workers.

Inflation

Inflation is caused by the expansion of the money supply. As the government prints more paper money, the money is able to buy less and less. A person who earned $50,000 a year in 2000 was actually earning a higher income than a person who earns $70,000 today. Another reason for inflation is the factional reserve banking system. For every $1000 in cash that a bank has, it is allowed to create $4000 or more out of thin air to lend it to others. This is new money that is created, and it is being done by every bank.

Inflation forces corporations to lend their money to the government because if they do not, their cash hoards lose 2% or more of their value every year. To avoid this, they buy government bonds (i.e. they lend their money to the government), helping fund government spending, so that the government can spend trillions of dollars killing people overseas and getting away with it just as hundreds of thousands of homeless walk American streets. Lending money to the government is the only safe way of avoiding getting your money slowly taken by the government through inflation.

While inflation does that, it also makes life difficult for the average person. Wages have stagnated for the past 15 years just as inflation has increased the prices of most things.

The Islamic system, if properly applied, through forbidding usury, would prevent governments for borrowing money, so the present fiasco of the rich lending money to the government which spends it buying things from the rich (such as ultra-expensive military equipment that will be worthless in 10 years) will end. When the pressure of inflation is lifted and replaced with zakat, corporations will not longer be forced to lend to the government and will instead either have to productively invest their wealth (creating jobs and technologies in the process and making the world a better place) or give it to the poor.

Even if zakat causes inflation through more money circulating (and this is not something that has been empirically tested on a macro level), unlike ordinary inflation which helps fund government spending on products and services from the super-rich, it will help fund the poor’s spending on what they need while helping expand the economy (an increase in the income of the bottom 20% of society helps expand economies, while there is no similar effect when the income of the top 20% increases).

Encouraging automation

Ideally, work should not be necessary. If we have machines to take care of all of our needs, what is the point of “job creation”, this thing that so many politicians claim to have on their agendas? Isn’t job-elimination better?

The Islamic system encourages automation by making labor more expensive. Unlike today, people will not be desperate for jobs since they will be able to have a decent life without one thanks to the basic income system. Businesses will have to compete with one another for available talent on the one hand, and on the other, the available talent is not desperate for jobs, since there is a basic income system taking care of their needs.

Both of these forces encourage businesses to automate things to avoid the labor market as much as they can. When this happens, the result is that businesses become more efficient. They profit more, and end up paying 2.5% zakat on their new profits on the one hand, and are forced to either productively invest their profits or pay 2.5% of those newfound profits every year into the basic income system.

In this way, even as low-tech jobs get eliminated, basic income stipends raise. A worker, instead of being forced to work at McDonald’s to make a living instead has their job eliminated, and instead of suffering, gets paid more for their eliminated job. Every time a job is eliminated the zakat payments rise slightly.

Banning usury comes before zakat

This is a crucial point that must never be forgotten. Zakat is interest charged on the wealth and profits of the rich, for the benefit of the poor. Usury is its exact opposite, it is interest charged on the wealth and wages of society, for the benefit of the rich. Through the American government bond system, tax payers have to be upwards of $200 billion a year solely in interest paid to the rich who lend money to the government. It is like a form of zakat invented by the anti-Christ; ordinary people are forced to give up their wages so that the super-rich may earn interest on the one hand and sell their products to the government to the tune of trillions of dollars every year. It is a beautiful system that cuts out the ordinary person entirely; it extracts money from you, gives it to the government, which uses it to buy bombs and aircraft from the super-rich and also uses it to pay interest on money borrowed from the super-rich.

There is very little point to zakat if usury is allowed. A rich person may earn 5% interest from society while paying 2.5% interest to society in zakat, in effect stealing 5% from society and giving back 2.5%. If usury is allowed, the zakat system will not be able to force the rich to create new businesses and projects that benefit the economy, they will instead continue lending their money to society (through credit cards, student loans, mortgages and various other types of loans and bonds), taking more than they give, even if they are forced to pay zakat.

Enforcing zakat while tolerating usury is a way of taking much from society and giving a little bit back. It will do very little good in the long-term, and this is perhaps the most important reason why zakat is not doing much good in the Muslim countries.

Preventing war

The United States was able to spend trillions of dollars dropping bombs over the Middle East over the past 20 years. Where does the money for this come from?

Through the bond system, the US government borrows money from the rich, spends much of it by buying from the rich (buying weapons and services from their corporations), and uses this on its wars abroad. Who pays the ultimate cost? America’s tax payers. The US government will have to pay interest on this money it borrows from the rich to buy things from the rich, and that interest is paid through your tax dollars. The US government pays over $200 billion dollars of your tax money every year to the rich in interest payments.

This usurious system turns war into a cash-cow for the country’s super-rich. The government is forced to borrow money from them, paying them billions of dollars in interest, and it is also forced to buy goods and services from their corporations, again paying them. It is a double stream of massive amounts of cash, taken from the country’s citizens and placed right in the bank accounts of the rich.

This means that the country’s super-rich will always push the country toward more wars, since it is so profitable. Most of the rich are incredibly selfish and greedy, as the actions of their corporations abundantly show. They had zero qualms about killing millions of Afghans and Iraqis, and they will have zero qualms about killing millions of Iranians or Russians in the next war that they constantly lobby through the newspapers, websites, TV stations and politicians they own, which is nearly all of them.

To the super-rich, a war is nothing more than a way of taking money from their fellow citizens and enlarging their own cash hoards. The fact that people get killed abroad and countries destroyed is just a minor side effect (for American Jews, of course, there is also the very important benefit of turning yet another country that threats Israel’s hegemony over the Middle East into rubble.)

Banning usury will end this perpetual cycle of war, because the government will be banned from issuing bonds, so that wars will have to be directly funded, and American citizens, who are too short-sighted to see the harms of usury, will immediately rebel against having to pay anything right now to fund wars. If it is their children or grandchildren who will pay the ultimate cost, they are perfectly fine with it. But by banning usury, the government will be forced to fund wars directly, and it will not be able to do that, because the vast majority of Americans will not agree to have their comfortable lives inconvenienced just for the sake of killing more Muslims and benefiting some random Israelis who do not feel safe if a Muslim country like Iran is doing too well.

In this way the government will be forced to responsibly manage its finances, instead of acting like it has an infinite credit line enabling it to spend trillions killing foreigners for no good reason.

There can be no peace while there is usury. War is simply too profitable for usurers for them to stop lobbying for more of it.

Can such a system realistically be implemented?

As mentioned, devout Muslims are already implementing this system in their own lives regardless of where they live.

The super-rich own the West’s media, and you will almost never see a single article or TV program that examines the evils of usury, of a system that takes money from the poor to enrich the already-rich, that enslaves young people to student debt, that enslaves families to mortgages, that enslaves workers to their employees since they are desperate for the work they can get.

This system is designed by and for the rich, and they will fight tooth and nail to prevent any reform to it that may threaten their parasitical profiteering, and they will use their Nobel-winning economists to prop up their system and direct attention toward side issues. You can expect them to propose a million and one clever solutions while always staying clear of the matter of usury and anything else that could threaten their wealth and power.

A movement to ban usury and enforce a wealth and speculation tax (zakat) will therefore have to be something widely supported by the conscience of the people and enforced by them despite an all-out propaganda campaign against it by the country’s richest and most powerful. They will use every dirty trick in the book to derail any such movement.

It is my belief that there can be no such thing as a usury-free society without strong religious belief. Humans are simply too short-sighted and selfish to avoid it. Therefore in my view the only realistic solution to usury is religious belief. Usury can in fact be thought of as an infestation designed to slowly but surely wipe out nations that do not have a sufficiently strong spirituality to reject it.