Book Review: “The Long Divergence: How Islamic Law Held Back the Middle East”

The Long Divergence: How Islamic Law Held Back the Middle East. Princeton: Princeton University Press, 2013 by Timur Kuran

Middle East, the region that includes the old Ottoman Empire, Iran, Egypt, the Maghreb (Tunisia, Algeria, Libya etc., countries), is marred with economic backwardness and wars at least since last millennia. This cradle of civilization, where the Biblical heaven is supposed to be located, is struggling to survive and modernize at the present time. These countries are predominantly Muslim countries in that the majority of the population follows the religion of Islam, which was established by Prophet Muhammad in the Seventh century AD. Most of these countries are very rich in terms of natural resources like oil, which is the basic energy source of our civilization, but they still need Western physical and human capital to extract and utilize them. They have failed to develop their own physical and human capital. They have failed in developing their own system of Capitalism. Why this is so? What are the root causes of Middle East’s economic backwardness? These questions are important because during few first centuries of Islam these places were not economically or culturally backward. Quite the contrary. The beginning years were the Golden age of Islam which coincided with all kinds of economic and cultural flourishing of these places. The empire of Islam spread as wide as the North Africa, the Maghreb and the Andalusia (modern day Spain), the Balkans, the South-East Asia and China. After remaining at the forefronts of human civilization for many centuries then why these places started to lag behind? Prof. Timur Kuran’s important book, The Long Divergence, takes a very careful look at the historic causes of this lag and tries to solve this puzzle. I will briefly discuss these issues in the following paragraphs. There are important lessons to be learned from the story of the Middle East.

Kuran’s book is divided into four parts. In the first part he introduces the subjects and singles out the economic role of some of the most important Islamic laws, known as Shari ‘a, that lies at the root of the economic retardation of the Middle East. Part two in detail discusses the organizational and institutional implications of those Islamic laws. Third part discusses the major factors behind the late nineteenth century sudden ascent of the Middle East minority populations of Christians and Jews. Part four concludes where Prof. Kuran summarizes his findings and discusses the important question of, did Islam inhibit economic development of the Middle East?

Prof. Kuran’s detailed historical and empirical research brings out in focus following Islamic institutions that helped delay the economic development of the Middle East. They are presented in the table below:

Table 1 Islamic Institutions that Helped to Delay Economic Modernization

I will briefly discuss them now. We all know that the system of Capitalism, which is a prerequisite for economic progress, is characterized by institutions like long lasting corporations (corporations which are legally recognized as individual person), joint-stock companies whose shares sell in the very sophisticated stock markets, modern advance technologies which represents vast accumulation of physical capital, the presence of modern commercial banks, a modern judiciary system which can handle the cases against those personalized corporations, impersonal exchanges (as against small tribal personal exchanges), modern accounting techniques like the double-entry bookkeeping to keep track of profit and loss of those long lasting big corporations etc. And these modern institutions in turn are dependent on the prior sustained long term accumulation of capital via production, saving and investment. These processes require an institutional backing that makes them possible and self-sustaining. These institutions and organizational capacities started to lag behind in the Middle East, after few centuries of relative glorious performance, due to above mentioned Islamic law institutions.

Prof. Kuran explains these institutions,

In its early centuries, Islam developed a law of contracts that was sophisticated for the time. Facilitating the pooling of resources across family lines, Islamic partnerships stimulated commerce and helped merchants carry Islam to far corners of the globe. Islamic contract law allowed passive investors to shield heir personal assets against liabilities incurred on behalf of the partnership. However, active partners carried full liability. Also, an Islamic partnership lacked entity shielding, in that any member could force its dissolution unilaterally, and its assets were exposed to demands from third parties. The death of a partner terminated the partnership automatically, giving his heirs an immediate claim on a share of the assets; all surviving members incurred costs. The number of heirs could be large, because Islam’s inheritance law assigns mandatory shares to designated relatives of the decedent. The partnership termination rule, like the lack of entity shielding, thus discourages the formation of long-lived partnerships. Merchants and investors would form small and short-lived partnerships in order to lessen the risks of untimely dissolution. In allowing polygyny, Islam compounded the incentives to keep partnerships atomistic and ephemeral. This is because merchants with multiple wives tended to have more heirs. Rarely did the business empire of the most successful merchants survive them, because their estates got divided into many pieces to make recombination practical.

The stagnation in the size and longevity of Middle Easter partnerships had dynamic consequences. Exchanges remained largely personal, removing the need for transformations essential to the modern economy. No demand arouse for standardized accounting or a business press. Incentives to trade shares were dampened. Finally, prior to the nineteenth century, oral rather than written contracting remained the norm, and adjudication relied mostly on oral testimony. In sum, several self-enforcing elements of Islamic law – contracting provisions, inheritance system, marriage regulations – jointly contributed to the stagnation of the Middle East’s commercial infrastructure. From around the tenth century to the industrial era, commercial enterprises did not gain complexity, as they did in Western Europe.

In the nineteenth century, the most heavily capitalized commercial enterprises of the global economy tended to be organized as corporations rather than partnerships. Meant to last indefinitely, they enjoyed legal personhood. The stagnation of the Middle East’s commercial infrastructure could have been overcome through business corporations. Two factors precluded this option. For one thing, precisely because of the delay in economic modernization, the preconditions for making business corporations viable were lacking. In the absence of stock markets, standardized bookkeeping, and courts accustomed to large organizations, people would not invest in corporations. For another, the concept of a corporation was alien to Islamic law in general. Although the corporation was known to Middle Easterners even before the seventh century, early Muslims had limited legal standing to natural individuals. Hence, until well into nineteenth century the corporate form was absent also from other domains of the domestic economy, including urban government, education, and charitable services. The resulting lack of experience made it impossible to introduce the corporations into commerce when the need presented itself. Thus, when technologies of mass production raised the demand for large scale financing, banks could not be established under Islamic law to mobilize the required resources. Nor could the new technologies be exploited through appropriately capitalized manufacturing enterprises.

In the premodern Middle East, many services now generally provided through corporations were delivered through the waqf, a form of trust. A waqf was established by endowing income producing property to provide a service in perpetuity. Like a corporation, it could outlive its founder and employees. However, it was not self-governing. Required to abide by its founder’s wishes, as recorded in the deed, a waqf could not easily remake its internal rules or modify its objectives. This rigidity reduced its usefulness in the face of structural economic changes.

Apart from these institutional problems, the Islamic ban on riba, wrongly understood as interest, also hindered the development of banks in the Middle East. Commercial banks are again a necessary institution to pool vast amount of resources and channelize them in productive enterprises. People of Middle East did find out indirect ways of avoiding the Quranic ban of charging interest, but such indirect ways were costly and they failed in developing modern banking institutions.

Prof. Kuran emphasizes that these institutions were not designed to deliberately impair the commercial life of the Middle East. Those people who put these institutions in practice during those centuries didn’t know that over a period of time they will create economic stagnation of their countries. In the given time and context those intuitions were superior in solving the issues that they were facing. It was just that all the circumstances came together and developed into this stagnation over a period of one millennia.

Also, it is only because the Western world started developing those modern Capitalist institutions that the once modern Islamic institutions of Middle East started to lose their supremacy relatively. The West’s political fragmentation and their relative openness to discuss and debate various institutions, like the Jewish and Christian ban on charging interest, made them overcome various deficiencies that the Islamic world could not overcome. The authoritarian Ottoman state in the Middle East didn’t allow the kind of experimentation that the highly politically fragmented West could carry out locally with different institutions. Whenever any local challenge arouse against the Ottomans, like the likely evolution of tax farmers in big corporations, they crushed those challenged which hurt the Muslim population in the end.

The reasons why in the nineteenth century the Middle Eastern minorities like the Christians and the Jews outperformed the Muslims were the benefit of ‘choice of law’ that they enjoyed under the original pact of Umar and the various government’s trade treaties, known as capitulations, with foreign merchants. The religious minorities were allowed to choose whatever law under which they wanted to practice trade and live their lives. As long as Islam was reigning supreme, the local minorities mainly used Islamic law institutions because they were more beneficial, but as with the dawn of nineteenth century the Ottoman’s started borrowing and implanting modern Western institutions in the Middle East, the minorities got the first chance of utilizing these modern institutions and race ahead. Under the strict apostasy laws the Muslims were not allowed to practice these Western laws. In this way the Islamic laws harmed the Muslim population more than the minorities! The Capitulations were also mostly favorable to the foreign Western merchants and the minorities took full advantage of various clauses of these treaties to race ahead of the local Muslims.

Prof. Kuran singles out the apostasy law as the only big retarding factor for the Middle East even today.  He says,

Insofar as it makes Muslims refrain from proposing bold reforms, from criticizing policies and institutions identified with Islam, and from exerting pressure on conservative clerics, Islam’s apostasy law must be retarding the region’s economic development.

After years of lagging behind, finally the Islamic rulers started realizing their mistakes and, beginning in the nineteenth century, they started borrowing and implanting Western institutions wholesale in the Middle East. Did this borrowing and implanting Western institutions help the Middle East develop? The ongoing underdevelopment of the Middle East proves that it did not. Prof. Kuran discusses three major obstacles in this implanting work. First, modern organizational forms have been transplanted into societies with social norms inimical to their efficient use: relatively high corruption and nepotism, and low trust in organizations. These norms are among the legacies of traditional Islamic law. As many other authors have mentioned, e.g., Francis Fukuyama, implanting modern Western intuitions in predominantly tribal societies of the Middle East, or South Asia or Latin America or Africa, is bound to fail because the cultural background in these societies is not the same. Second, the weaknesses of private sectors and civil societies, which are rooted in the region’s institutional history, breed complacency toward autocratic rule. The history of strong authoritarian states is not helping the Middle East today. And third, economic failures have created fertile ground for (a) inward-looking ideologies that limit adaptation to changing global realities and (b) Islamism, which fosters political uncertainty and limits experimentation in certain areas. This means, the more the Middle East fails in developing itself, the more rigid it becomes in its outlook. Instead of looking for inherent problems in Islamic laws, it looks for external scapegoats like the supremacy of the West and its colonial policies.

In the end Prof. Kuran mentions the conditions that are necessary if the Middle East wants to grow and develop. He ends with these words,

The region as a whole has not yet come to terms with the reasons why it turned into an economic laggard. The idea that outsiders are somehow responsible for the Middle East’s underdevelopment resonates with much of the population, including secularists who consider Islamic law backward and obsolete. In particular, the role of Islamic law in blocking organizational modernization and stultifying Middle Eastern, and particularly Muslim, enterprise is hardly understood. This situation limits the rhetorical toolkit of Middle Eastern proponents of globalization and modernization. It also sustains sterile debates about the virtues of embracing Islam for solutions to poverty, mismanagement, and powerlessness. Not even the typical Islamist appreciates the limitations of Islamic law (generally known as the Shari’a) as a basis for social, economic, and political order in the twenty-first century.

… Islamic history offers abundant precedents for promoting free enterprise and limiting government’s economic role. In no period has private enterprise been lacking. Widely admired empires had shallow governments that left to waqfs the provision of social welfare, education and urban amenities. A predominantly Muslim society is not inherently incompatible, then, with an economy based on free competition, openness to borrowing and innovation, and government eager to support, rather than stifle, private enterprise.

Prof. Kuran’s book offers an important lesson to every economically underdeveloped countries e.g., India.  As long as these countries do not change their institutions, that are retarding economic progress, they are never going to progress. Borrowing and implanting Western institutions will also not work as long as their local culture is not compatible with those institutions. Such changes are necessarily going to take a long time, and they will take place only when people of these countries openly discuss their inherent deficiencies instead of blaming external factors like colonialism or imperialism all the time. As long as this open discussion and reforms or wholesale changes are not taking place, the third world will remain third world only.