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.