Is Islamic Law to Blame for the Middle East's Economic Failure?

[asianobserve]

Is Islamic Law to Blame for the Middle East's Economic Failure?
Time, Michael Schuman


One of the great mysteries of economic history concerns how the Islamic world lost its mojo. A thousand years ago, the Middle East was richer and more influential in the global economy than Europe. According to data compiled by the late economist and statistical wizard Angus Maddison, the Middle East accounted for about 9.5% of global GDP in the year 1000 while Western Europe's share was less than 9%. By 1700, however, the situation had totally reversed, with Western Europe commanding a hefty 22% of global GDP and the Middle East a pathetic 3%. The Arab world had controlled many of the lucrative trade routes between Asia and the West, but that role got usurped first by the Portuguese, then by the British and Dutch. What went wrong?

Economists and historians have struggled over that question for centuries. The answer is not just of academic interest. The revolutions that have swept through the Middle East, toppling dictators in Libya, Egypt and Tunisia, got a good part of their momentum from the widespread public frustration over the persistent lack of economic progress and opportunity omnipresent in the Middle East. Perhaps the biggest challenge facing the new governments that have emerged from the Arab Spring is providing the jobs and higher incomes all of those young people who participated in the rebellions desperately expect. If the new political leaders fail to deliver, the Arab Spring, which has brought such hope to the region, could deteriorate into a cycle of protest and political upheaval that will only set back its economic development.

There have been many theories of how the Middle East lost out economically to the West. But they have generally felt unsatisfactory. One argues that European colonialism suppressed the economic progress of the region. However, the dominance of the West is a symptom of the Middle East's economic decline, not a cause. If the Arab world had maintained its edge over the West in economic clout, it is unlikely that European imperialists could have advanced very far in the region. Another theory claims that Islam itself is biased against economic progress. This argument, too, falls very flat. If Islam was inherently un-economic, how can we explain the vibrancy of the Muslim world's economies in the centuries after the Arab conquests? And in modern times as well, certain Islamic nations, especially Malaysia and Indonesia, have been among the world's best economic performers. Remember, Mohammad himself was a merchant before he became the Prophet, and Mecca, the first city of Islam, had been a major center of the caravan trade.

A much more compelling argument was outlined by economist Timur Kuran in his 2010 book The Long Divergence. He makes the intriguing case that Islamic law was at the root of the problem. Its strictures, he claims inhibited the emergence of the institutions of modern capitalism as they developed in Europe. And the Middle East is suffering for that failure to this day.

How's that? When first developed, Islamic law was actually quite progressive for its time on economic matters, allowing, for example, for the easy formation of partnerships and clear rules to guide commercial behavior in a fair fashion. However, over the centuries, it fell out of touch with the times and failed to adapt to the new world economy being designed by European capitalists. While Europeans were creating innovative types of institutions that allowed them to amass and mobilize resources on a mammoth scale – such as joint stock companies and modern banking systems – Islamic law in the Middle East prevented these same institutions from forming. Partnership practices, which allow any partner to dissolve the arrangement, and inheritance laws, which mandate the deceased's assets go to certain family members, discouraged the emergence of the modern corporation, for example, by restricting the Muslims' ability to form long-standing business organizations. Ordering the death penaly for apostasy made it extremely difficult to do business in non-Muslim legal systems. The new institutions of capitalism gave the West an edge that it has never relinquished. Even after strict Islamic law was eventually liberalized in many parts of the Muslim world, its strictures had already done their damage, leaving the Middle East devoid of the strong private economies it needed to compete. When Arab countries then tried to copy Western economic institutions, like courts with European commercial codes, they proved a poor fit. Having not emerged naturally from society, the imported institutions didn't work as they did back home. In modern times, that left the state to play an overly powerful role in the Middle East's economic development, which didn't produce the same, amazing results of the Asian model based on trade and entrepreneurship.

We can see the consequences by looking at the shape of Middle East economies today. I personally cannot think of one private company from the Arab world that holds a significant international presence. Those corporations that do play on the world stage – like Dubai-based airline Emirates, for example – are owned by the state. And those small parts of the Islamic world that have developed modern, competitive economies have done so through building better institutions. Take, again, Dubai. As I detailed in a recent story for TIME magazine, the secret behind Dubai's success is, to a degree, due to its ability to import Western-style economic institutions and make them work. Yes, Islamic finance is a powerful economic force in the emirate, and will only grow further, but Dubai didn't become a wealthy city by sticking to Islamic law. The forward-looking leadership in Dubai launched a stock market, created special zones for finance and media with Western-style regulatory systems to govern them, and backed it all up with a level of religious and cultural tolerance that is rare in much of the region. And when Dubai has stumbled – most notably with its colossal property bust – the factors behind those failures can be found in the incomplete development of these institutions of capitalism, such as insufficient transparency and weak corporate governance. Dubai is an institution-building experiment in progress.

So what does all of this mean for the Arab Spring? The rest of the Arab world is going to have to follow Dubai's example. The Arab world's incoming leadership has been left with the unenviable task of first building the foundation necessary for vibrant, modern, competitive economies. Without that, the emerging governments won't be able to create the healthy private economies they need to bring the jobs and growth the region so badly desires. Perhaps they'll copy their institutions from the West; perhaps they'll find a new route, through modernized Islamic-style systems. But the process could be painful and slow. Kuran, though writing before the Arab Spring emerged, had the foresight to recognize the problems the revolution faces:

In leaving its private sectors and civil societies weak for centuries, the Middle East's premodern institutions set the stage for today's bloated state bureaucracies and, in many places, government policies and social norms harmful to creativity. Consequently, with a few exceptions, the countries of the region are uncompetitive in the global marketplace for industrial products and services, and, again with few exceptions, their civil societies are too poorly organized, and too beaten down, to provide the political checks and balances essential to sustained democratic rule. If the region's autocratic regimes were magically to fall, the development of strong private sectors and civil societies could take decades. (p. 301)

The Arab Spring governments, however, don't have decades to build the institutions they need to compete economically. The angry people who brought them into power don't have that much patience. They want jobs and better living standards now, not in 2060. This leaves the Middle East's new leaders in a dangerous mismatch between what people expect and the tools they have to deliver it. Whether we should blame Islamic law or not, how the Arab Spring leaders solve this problem could very well determine their success or failure.



Read more: Is Islamic law to blame for the Middle East's economic failures? - The Curious Capitalist - TIME.com

 

[Yusuf]

Rise of the west left behind the rest of the world. India and china were the leaders with India being the worlds biggest economy for 1000 years at about 25% before we went into a steep decline.

It's probably more to do with the western ingenuity of the times something that is still continuing. The rest of the world did not innovate and adopt new technology and methods like the west did. Surprising though that this came about when they were actually tightly controlled by the Church that did not like innovation and could not digest the fact that the earth rotates around the sun and not the other way around.

 

[asianobserve]

Most historians agree that the rise of modern Europe really took off during Reformation. The era of almost absolute reign of the Pope (Roman Catholic Church) was considered as the dark ages, this is the period when the Church and the State were practically inseparable or when the states bow to the Church, and knowledge were tightly controlled by it. Certainly new ideas and innovations were not welcome during this era.

 

[Galaxy]

Islamic law is bad for every country. If few countries didn't had enormous black commodity and natural gas, All would be like Islamic Pakistan and Somalia.

 

[pmaitra]

Sharia Law, although perfect when they were conceived, are absolutely retrograde now. These laws were once made to block actions harmful to society but are used today to block progress and freedom of expression.

Sharia Law is not Islamic Law (rather post Islamic Law and not necessarily binding on Muslims) according to one school of thought among Islamic scholars and I, although not a scholar, subscribe to this view.

P.S.: The brutality of punishment in Sharia does have parallels in Arthashastra as well.

 

[ejazr]

The article is only discussing the Middle East that consists of about 20% of the Muslim world. And not countries like Turkey, Indonesia or even India where most of the Muslims lived and had historically or even continue to have lucrative economies

There are two main points here:

(1) That Islamic Law is implemented across the Middle East
(2) That Middle East is an economic failure

Both are debatable

Islamic law or sharia focuses mainly on personal matters like inheritance, marriage e.t.c When it comes to businesses, the only guidelines that would apply are things like being honest or not taking interest. So you may say that Islamic law prevented the emergence of financial institutions based on interest, but to say that it was also responsible for not being able to create corporations is stretching it a bit too much. Eventually, Islamic law innovated the Islamic finance concept where finance could be provided without using the interest instrument and today it continued to be one of the fastest growing finance path in the world. As the writer pointed out, the Arab world (he says Islamic, but he is geographically referring to the middle east in the article) was very progressive int he middle ages unlike Europe. They had supremacy in the fields of science, trade on the land and sea routes, mathematics and architecture for quite some time until they gave way to stagnation among themselves and started declining by the 12th century.

Not to mention that after the brutal Mongal invasions of the 12th century, the Arab world has been colonized more or less, first by the Mongols, then by the Turks (under Ottomans), then by the Europeans and today by dictators supported by Western or Soviet powers. Its really now that the Arab world is truly emerging as an independent actor on world stage after close to a 800 years of subjugation under foreign powers.

Now the second point about the ME being an economic failure. I think till 2000, this was true, but after the first decade and in particular the Arab spring there has been a major shift. And you have to compare where these countries were 30-40 years ago (colonies of European powers), there has been a massive jump. Most of the GCC countries had literacy in the single digits and now today have literacy levels in the 80s-90s percentile. In countries like UAE, there are more female graduates than males. The GCC collectively is more than $ 1 trillion economy and also are making massive investments in education, infrastructure and R&D. Iraq which was in terminal decline since the 1990s has started to pick up pace. And while the US and EU are suffering through the financial crisis, the GCC economies have performed quite well.

On the other hand, N. African economies have been less fortunate due stifled economies and dictatorships. Syria is also another example where dictatorial rule has not been beneficial unlike the GCC countries. Not to mention that these countries (Syria, Iraq, Libya, Tunisia e.t.c) were all socialist secular Arab dictatorships, not ruled by Islamic clerics. Here the Arab spring may end up playing a seminal role in shaking up the regimes and making the rulers focus on their economies and providing jobs to their people because of increased accountability.

And although there are state run companies that have a massive presence in the global market like Saudi Aramco - Wikipedia, the free encyclopedia , there are brands like Al Jazeera or construction company Emaar that are becoming well known.

So in short Islamic law played minimal role, mainly around interest based finance institutions not being developed in Arab societies. The major role was to do with decline in innovation and freedom in the Arab lands as well as the colonization under the Mongols, Turks and later Europeans and the Cold war blocs that continued the era of decline.

Somalia's nominal govt. and consitution still refers to a Socialist democratic state and Pakistan only uses the name Islamic with its common law derived from the British India IPC that India also uses for commercial and business rules. Infact, Pakistan had a more open economy than India for most of the 19th century and PV Narsima Rao used the example of Pakistan to push through reforms and open up the Indian economy.

 

[mattster]

Colonization by foreign powers is no excuse for being backward......many non-Islamic countries have suffered far worse consequences of colonization and still bounced back.

I know that this is not a politically correct thing to say......but the problem with Islamic countries is Islam itself. It is a religion that is fixated with control of its followers. That Fixation over control is amplified when it comes to women.

The Saudis and Kuwaitis, and all the other kingdoms of the Middle-East can spend billions of petrodollars in building world-class infrastructure but they will never generate world-class talent. How can you ? How can you expect a society where women cannot drive or even expose their face to produce world-class innovations. They are mentally imprisoned by their religion. They cant leave it, or even be agnostic as that may get them in trouble with the authorities. They can import all the talent they can afford, but dont expect anything great to come from these Islamic countries.

The only progressive countries in the Islamic world were Malaysia and Turkey. Both countries that have highly secular government until recently.
Malaysia was about 50% non-Muslim until about 20 years ago. Now it is 60% Muslim and becoming more Islamic by the day. Malaysia is falling behind as the most talented non-Malays start migrating to Western countries. Now even some moderate Malay Muslims are migrating.

Turkey was kept on a strictly secular path by the military until the recent elections and it remains t be seen how the new Islamist governemnt of Turkey does.

 

[LurkerBaba]

As the writer pointed out, the Arab world (he says Islamic, but he is geographically referring to the middle east in the article) was very progressive int he middle ages unlike Europe. They had supremacy in the fields of science, trade on the land and sea routes, mathematics and architecture for quite some time until they gave way to stagnation among themselves and started declining by the 12th century.

Islamic Golden Age ? That was the contribution of multiple civilizations such as the Syrians, Egyptians and the Persians under the banner of Islam, not the Saudi Arabs.

Europe progressed once they separated state and religion, encouraged free thought, it wasn't easy though. Arabs on the other hand seem to be going in the backward directing, the most popular movement, Wahhabism call for a return to 7th century practices.

Not to mention that after the brutal Mongal invasions of the 12th century, the Arab world has been colonized more or less, first by the Mongols, then by the Turks (under Ottomans), then by the Europeans and today by dictators supported by Western or Soviet powers. Its really now that the Arab world is truly emerging as an independent actor on world stage after close to a 800 years of subjugation under foreign powers.

Completely disagree, 'Arab world' is a misnomer. People in Egypt, Syria, and Baghdad are Arabs only by language and culture and not by race, it was the Arabs (from Saudi Arabia) who brutally colonized these places. It was the colonization of Persia that gave the Arabs the cultural depth. Arabs have been a bunch of fighting tribes before Islam, their society seems to have reverted back.

 

[ejazr]

@LurkerBaba

Again, if you look at the history, you can't deny that there certainly was an Arab golden age from the 800-1100 AD. (I don't agree with just linking it with Islam even though it was the predominant religion). Also Arabs is not just Saudi Arabia. There have been and are even today Arab Jewish and Christian tribes. The Arabian peninsula (present day Saudi Arabia) has always been sparsely populated with the main population centers being on the coastal regions or north of the peninsula. Most of southern Iraq and Syria had Arabic speaking or Semitic populations as well. It is from this region that they migrated south INTO Hejaz historically, while another subsection migrated from Horn of Africa/Yemen northwards. The Hejaz region has always been cosmopolitan before and even after the coming of Islam. If you read up on history you will know that Jews and Arabs are both Semites and ancient Arabic scripts are found in present day Jordan, Sinai (Egypt) southern Iraq and Syria. The ancestral language for Arabic like Nabataean and Aramaic which again is native to this region. By the fourth century AD, you had Arab kingdoms of the Lakhmids in southern Iraq, the Ghassanids in southern Syria the Kindite Kingdom emerged in Central Arabia. A little research on this will show that Arabs were native to most of this region along with the native Jews. One of the reasons why Hebrew and Arabic are the only two languages that are written from right to left and are also very closely related. So the idea that only the Saudis are the only Arabs is not based on historical facts or present day reality. Espicially since present day Saudis consist of other migrants from as far away as Indonesia and central Asia who had settled in Saudi Arabia before the country as such was formed in 1907.

Once you move away from this region, you will see only linguistic Arabs as you mentioned before. Such as the Berbers in North Africa or the Kurds and Assyrians in Northern Iraq and northern Syria.

@mattster
And Colonization does play a major role. Look at the mainly Christian and tribal sub-Saharan Africa. Is this inherent in Christianity or tribal customs the problems they are suffering from? The civil war in Congo and the killings in the name of Christianity are more a function of the backward nature of the economies that become fertile grounds for such extremism and violence than the religion of customs they follow. India was among the top 2 positions in terms of GDP in the world for 18 centuries. Just a 100 years of British colonial exploitation put us down at the bottom. And it will take us approximately a 100 years from independence to regain that position. So shouldn't we give the Arabs at least an equal chance; most of who got independence in the 60s and 70s an equal amount of time to reach to their potential?

And speaking about women, lets have a look at some facts. In 1950s, almost all GCC countries as well as most Arab countries had female literacy in the single digits. Fast forward today and they all have literacy in the 80-90 percentile range. Compare that to other colonized countries like Sub-saharan Africa or even in India where female literacy has lagged even though we were ahead in the 1950s. Similarly, the number of female graduates in countries like UAE, Qatar e.t.c. are much more than males. They may not be top quality graduates but this shows that education is not being denied to females.

Another important factor missed is that women in the west and other societies had no right to property. The UK actually gave the right to property for married women only in 1882 (Married Women's Property Act 1882 - Wikipedia, the free encyclopedia). Something that Islamic law had reformed and allowed 1400 years ago by guaranteeing property rights to women which in turn helped them to run their own businesses.

If you look at voting rights to women. But universal women suffrage was legalised in the UK in 1928 and in the US in 1920. This was despite the fact that these countries were not colonized. Turkey was the first muslim majority country in 1930 to do so. India did it in 1950 as soon as it got independent.

The same happened with Arab countries where women were given voting rights as soon they became independent. Women were granted the right to vote on a universal and equal basis in Lebanon, Syria, Egypt, Tunisia in 1950s. And other countries that go independent later Mauritania, Algeria, Morocco, Libya, Sudan e.t.c in the 1960s and so on. Even Saudi Arabia which was probably the only Arab country that had not yet given women the right to vote has indicated that starting from the next elections, women will have the right to vote and stand for office. (Saudi women to be given right to vote and stand for election in four years | World news | The Guardian)


This is of course not to deny the fact that the Arabs are also have a major blame for their own backwardness. Equality among women particularly in workplace participation (now that equality in education has seen a lot of progress) is needed. Investment in R&D and non-oil sector is required and something that is being seriously looked into. And of course to develop an over all tolerant, free and inclusive atmosphere rather than a regressive are restrictive environment. This means that monarchies and dictatorships will have to be removed and representative govt.s put in its place. It will happen sooner or later. The question is will the reforms come quickly and peacefully or will they require massive peaceful intervention like the Egypt and Tunisian revolutions. Or will they be bloody and violent like Libya and Yemen. Only time will tell.

 

[Yusuf]

Exactly ejaz, I dont know how Islamic laws come in the way of business? The only point is interest and I think that is being addressed now. Having said that, western banks do existing middle east. People still take credit regardless.

The Prophet himself was a businessman. He did not device any laws that hurt business.

 

[mattster]

@Ejazr

How do you get these numbers that India was in the top 2 in terms of GDP for 18 centuries. I am sure you are going to come back with some historian's quote or research. May I suggest that even a recently a 3 or 4 centuries ago - most nations did not even have the means or knowhow to compute their annual GDP. Historians may have guessed but they were mostly guesses.

India backwardness then and now is due to a couple of things:

1) Breeding like rabbits

2) Maharajas who were useless punks who couldnt wait to sell the country in pieces to the Brits in order win favor with the Brits against other rival princely states.

3) The Caste system - a truly ingenious system that used religion to convince the peasant masses that they truly deserved their miserable fate in life by virtue of their sins in the past-life, and that it was their destiny. So the upper-caste did not have to shoulder the blame - just blame it on Karma !!

4) The Indian mindset - A traditional society that is slow to adapt to changes and seize the moment when opportunities arise - as true today as it was 10 centuries ago.

5) Colonialism - something like a measly 40,000 Brits ruled over 400 million Indians. Thats a ratio of 1 Brit to 10,000 Indians. The Brits didnt fight to take over India - they just walked in and Indians handed the country to them on a platter.

6) The introduction of Islam into India, and the never ending Hindu-Muslim rivalry that was inevitable.


Now lets get back to Arab societies - Unfortunately for all Muslims - Islam was founded by a Bedouin and as a consequence of that; regardless of what the Koran says or not, Islamic societies are today saddled with the vestiges of a primitive tribal Bedouin mindset where tribal Arab traditions, customs and regressive practices have been co-opted into the practice of Islam. In many non-Arab Muslim countries it has even replaced the century old
indigenous progressive cultural values.

As early as 40 years ago, when I was a kid growing up in Malaysia - not a single Muslim woman wore the Hijab that covers most of their hair and neck. Today most Muslim women in Malaysia wear it. These were not part of the Malay culture but they have been adopted under the new found religious identity. Malaysia is touted as one of the few successful progressive tolerant Muslim countries - most people dont realize that Malaysia is only 60% Muslim which is one of the main reasons why they are not another basket-case Muslim country like Indonesia which is 95% Muslim.
But go to Malaysia today, and every other week there is a new religious controversy in the papers.

Now you have many a liberal Muslim scholar saying lets not confuse obscurant practices of the Saudis and Arabs with Islam - but hey, they are whistling in the wind. The Saudis and their Salafist Wahhabi ideology is winning the battle in most Muslim countries.

And thats the short story of why Islamic countries are such backward basket-cases. As long as Islam plays a major role in these societies - they will continue to be basket cases !!

 

[W.G.Ewald]

Does sharia law address anything regarding business other than usury?