Selling Out The Koran

First Tunisia, then Egypt, and now Libya: Muammar Gaddafi looks set to join the cohort of fallen Middle East dictators. And about time too. Under Gaddafi’s tribe-centric Stalinism, Libya has consistently ranked in the bottom 10 countries for economic, social, political, and press freedom.

Libya is not alone. The Arab world fills the lower ranks of all these indexes.

The causes of the region’s discontent are obvious. It has escaped nobody’s notice that the Arab world is almost uniformly undemocratic and illiberal. And poor – the 22 member states of the Arab League have a per capita income less than a third of that in the Western world.

Those truths colour the developed world’s view not just of the region, but of its 360 million people. And, just as importantly, their majority religion.

But how did the Arab world get that way?

A ground-breaking book released last year by the Turkish economist Timur Kuran, The Long Divergence: How Islamic Law Held Back the Middle East, couldn’t be more timely. Kuran is a professor of economics and political science at Duke University in North Carolina.

The title of his book is very specific: Islamic law limited economic growth in the Arab world. Not Islam per se, but the legal framework which built up over centuries in Islamic societies.

After all, the Koran is pretty good on economic growth: it encourages entrepreneurship; it promotes commerce; it praises the acquisition of wealth, instructing Muslims to “seek the bounty of Allah”; it endorses private property.

Muslims were once some of the world’s greatest entrepreneurs. When bandits captured the Chinese city of Guangzhou in 878, they found more than 100,000 Middle Eastern traders there.

So if 1000 years ago you were to wager what religion would dominate the next millennium, Islam would have seemed fairly safe money. Christian Europe was far behind. A European touring the Middle East would have met people who had much higher incomes. So what happened?

Kuran argues Islamic law primarily failed to develop the concept of a corporation: an economic and legal construct, separated from family and tribal loyalty, designed to encourage investment and profit sharing.

Islam’s early strength – shared faith to unite warring tribes – became a weakness, as it manifested itself in hostility towards smaller, corporate, capitalist forms of organisation.

As corporations multiplied in Europe from the 17th century, the Arab world’s relative success disappeared. It needn’t have been so. There’s nothing particularly un-Islamic about the corporation – the organisation was embraced by Muslims in the 20th century. Kuran shows Islamic law is flexible enough to change, but a failure to encourage economic growth meant Arab nations slipped behind the West.

Today, the other economic positions taken by the Koran – the importance of commerce, the defence of private property, and the freedom to seek wealth uncompromised by state action – are notably absent in the Arab world.

A rich country tends to be a liberal country. Wealth and freedom progress together. So too does social development. Women and minorities in the First World have respect and rights that are the envy of those in the Third World.

Conversely, poverty feeds social backwardness, which reinforces that poverty.

The relative economic decline of the Arab world in the 20th century caused its political decline. The political vanguard in the Middle East has careened from assertive nationalism, to Soviet client socialism, to Islamism.

Islam’s critics focus on the obviously archaic and often brutal views held by Islamists. They blame them for the problems of the Arab world. Fundamentalist Islam seeks not only to restore premodern social relations, but premodern economic structures as well. The future caliphate will shield itself from the dynamism of contemporary capitalism.

But it was defective legal institutions that originally put the Arab world behind, not culture or religion. Hence reasons for optimism.

Institutional failures have institutional solutions. An Arab nation that adopts the very best political, economic and legal structures of the developed world could be just as rich, successful, and liberal.

And the pro-market Koran won’t need to be discarded to do so. Timur Kuran’s findings suggest Islamic faith is perfectly compatible with modernity.

Research published in February in the journal Public Choice, “Economic freedom, culture and growth”, backs this up.

Using the World Values Survey, the most comprehensive database we have on global beliefs, two economists empirically answer the question of whether culture is a barrier to development. It is – up to a point.

If a country’s economy is not free – if it labours under the burden of an overbearing government, high taxes, and high regulation – then culture matters a lot.

But the importance of culture disappears as a country becomes economically free. Once a nation has the “peace, easy taxes, and a tolerable administration of justice” Adam Smith described, it will grow rich. Regardless of religious or cultural baggage.

That’s a lesson the revolutionaries trying to liberate the Middle East will need to quickly understand.

Right now, in Egypt, Tunisia, Libya and Bahrain, the revolt has a liberal character. A lot of time has passed since the Iranian revolution in 1979. Today, even radical Islamists in those countries are agitating for democracy above all else – not theocracy.

Whether the revolutions remain liberal is far from certain.

But if the citizens in the Middle East wish not to just discard tyranny, but grow rich and prosperous too, they’ll need to enact not just political but institutional change. A free, capitalist economy is the foundation of a free society.