Reviewed by Mark Rush, American University of Sharjah, U.A.E.
This is a fascinating and important study. In The Long Divergence, Timur Kuran seeks to explain “why classical Islam's distinct combination of economic institutions, obviously compatible with success in the medieval global economy, failed to produce the transformations necessary for keeping the Middle East globally competitive" (p.xi). This is a daunting task that, as the book demonstrates, is not easy to undertake successfully.
The study will appeal to scholars interested in understanding the sources of the norms that come to inform legal and political systems. In the same way for example, that Robert Putnam demonstrated the historical roots of the differences in political capital in northern and southern Italy and Francis Fukuyama developed a taxonomy of political and business cultures based on the presence and manifestation of trust, Kuran looks to determine the sources of the values and norms that characterized Islamic law and explain why and how these values hampered the economic development of the Middle East. In this respect, the book’s focus on the law is secondary to its emphasis on the social and religious values norms that informed the law and, through it, informed economics and finance.
Kuran faces a difficult task because he must draw conclusions about a region and a religion that are both quite diverse and then compare them to their western counterparts. For the purposes of this study, "the West" consists of "European societies that, from the 12th to the early 16th century, share a common political legal and religious subordination to the papal hierarchy of the Roman Catholic Church" (p.6). The "Middle East" includes "the entire Arab world and Iran, but also Turkey, along with the Balkan Peninsula." He leaves out other, vast parts of the contemporary Islamic world such as India and the rest of South Asia and Indonesia. He also exempts Spain despite the fact that much of it was under Islamic rule for the better part of a millennium. Thus, his focus really is on the contemporary Middle East, North Africa, and, for lack of a better term of art, contemporary Southwest Asia.
While a scholar has the right to set the parameters of an inquiry, Kuran’s geographic limitation of the scope of the study is a bit troublesome. In seeking to identify the sources of the norms that informed the legal practices and interpretations that rendered the Islamic Middle East an economic underperformer, Kuran does not always clearly distinguish between factors that are regional and those that may be described as religious. Muslims who [*307] were expelled from Spain during the “reconquest”, for example, were a powerful force in that economy. Why were they not as powerful in the Middle East?
Kuran says that several key factors, whether by plan or coincidence, condemned the Arab/Islamic world to a millennium of underdevelopment in which it was unable to compete with or develop legal and financial institutions similar to those that catapulted Western Europe’s economy. Yet, Kuran leaves the reader asking why it is that, despite being exposed to and familiar with western practices that were clearly superior and more flexible, merchants and financiers who were Muslim and/or residents of the Arab world chose not to mimic them or at least to machinate for evolution in legal or scriptural interpretation that would enable them to develop and compete with western counterparts.
Arab society boomed economically in the latter part of the first millennium and into the first part of the second. Kuran notes, for example, that a Western traveler in the year 1,000 C.E. would not have regarded it as the economic laggard that it became 1,000 years later, and may have noticed little difference between the purchasing power of residents of Istanbul and themselves. . As late as 1750, the purchasing power "of the average worker in London or Amsterdam" was only twice that of the average worker in Istanbul (p.3).
"The Middle East fell behind the West because it was late in adopting key institutions of the modern economy. These include laws, regulations, and organizational forms that enabled economic activities now taken for granted in all but the most impoverished parts of the globe: the mobilization of productive resources on a huge scale within long-lasting private enterprises in the provision of social services through durable entities capable of transformation" (p.5).
Thus, in the first millennium, Arab merchants thrived and Islam was by no means a hindrance to economic development. Kuran describes, for example, the robust economy that arose as a result of the pilgrimages to Mecca. In this respect, mercantilism and religion blended as easily in Arab and Islamic culture as they did in Christian European culture (the various pilgrimage routes to Santiago were equally robust economic zones).
He emphasizes that Islam is not, in and of itself, dogmatically opposed to economic development, the amassing of wealth or the cultural habits that seem to go hand in hand with the development of strong economies (and, by the same token, flourishing political systems). But particular visions or interpretation of the Quran did have retarding effects on economic development. The Quran can be read in a manner that would forbid the charging of interest, a fact that would hamper the creation of wealth. But Christianity was also antithetical to the charging of interest as Islam was (and, some would argue, continues to be). However, over time the clergy and canon lawyers refined their interpretations of scripture to accommodate practices that would foster instead of hinder economic development and wealth accumulation.[*308]
Kuran notes that private practices and business conventions in Arab societies arose that allowed for the charging of interest while remaining faithful to the teachings (or at least particular interpretations or readings) of the Quran. This is manifest today in what are described as the distinct practices of “Islamic Finance.”
While the interest prohibition can be evaded through creativity, it does impose a certain transaction cost that renders markets more inefficient. Still, the interest prohibition has not been a determinative factor in the region’s underdevelopment. Instead, Kuran indicates that several other key institutions and practices hampered the development and expansion of the medieval economy into an equally successful renaissance one.
Egalitarian inheritance laws required the dissolution of estates among surviving family members. While this was driven by a desire to prevent destitution and give women financial security, it also ensured that wealth could not be accumulated into the sort of vast fortune that enabled economic expansion in Europe.
The rules governing waqfs (trusts) also constrained wealth accumulation and, more importantly, the individual freedom to pursue new initiatives with the wealth accumulated in a waqf. Waqfs could not redirect their assets toward more profitable endeavors, nor could they pool their assets with other waqfs. This ensured that trustees of the waqfs did not violate the founders’ wishes but also constrained initiative and development.
Finally, partnership laws did not evolve to incorporate norms of limited liability, corporate personhood, and so forth until the 19th century. Accordingly, the death of a partner could force the partnership to dissolve and reconstitute itself. At any time, a partner could threaten to pull out and cause essentially the same result. Further, individual partners were personally liable for their dealings. This imposed disincentives to pool wealth into partnerships and amass the sort of private economic power that is necessary to propel an economy forward.
The confluence of these constraining forces led to a systemic inability to develop robust systems of credit and banking because they hampered the society’s capacity to amass capital and perpetuated a lack of the interpersonal trust within and among institutions that fuelled successful economic and political modernization in Europe, the Americas and Asia. In general, then, “delayed financial modernization was an unintended consequence of institutional choices that served laudable objectives” (p.164).
Still, Kuran leaves the reader wondering why the merchants and other financial stakeholders were unable or unwilling to machinate for a better, more profitable financial and economic system. They might, at least, have developed conventions and folkways to get around these restrictions in the same manner as they did to get around the prohibition on interest. Regardless, insofar as merchants were exposed to and familiar with western practices that were clearly successful, it remains a mystery why they did not push harder, sooner for reform. [*309]
The late but clear transformation and evolution of Middle East financial practices in the 19th century was “a natural response to structural advances abroad” (p.166). Several factors contributed to this change. Not least was the culture of tolerance for minorities and foreigners and a legal pluralism. Kuran notes that throughout the Middle East, nonmuslims (“Dhimmis”) had a right that Muslims did not: the latter could choose the legal system under which they conducted business (except in criminal matters) and when dealing with Muslims (pp.175ff).
While this option to choose among laws sometimes led the merchants to work within Islamic rules, their exposure to and familiarity with European financial practices and corporate structures enabled them to benefit disproportionately from their knowledge. Local, native merchants suffered. One result of this growing disparity of wealth was the development of ethnic tensions and threats to the foreign merchants.
This begs the question that Kuran does touch upon: Insofar as Muslim and Arab merchants were exposed to these western institutions, what prevented them from calling for changes that would enable them to benefit from the western practices?
While there is no reason to gainsay Kuran’s account and description of peculiarly Arab or Islamic traditions and institutions that may have hampered economic development, there is also no gainsaying the fact that there was clearly an economic and mercantile impulse that might have brought about small, incremental secular changes that would have accelerated the pace of economic development in the region. Instead, it was not until the full impact of Western banks was realized in the 19th century that the region began to experience and implement changes that would foster the development of indigenous institutions on the scale of their western counterparts. So, the reader is left wondering why Arab and Muslim merchants were unable to challenge and reform their social institutions in response to market forces while their Christian or European counterparts were.
This comment is not meant to be dismissive or insensitive to differences in cultural or religious institutions that may render them more or less resilient to external forces of change (such as education, economics, market forces, etc.). Instead, it is meant to embrace the fact that within the two regionally, religiously and culturally distinct cases that Kuran studies, we find a clearly comparable and similar economic impulse. Yet, something muted its impact in the Muslim/Arab world that did not do so in Europe.
To a certain point, it is clear that the slower trajectory of the former can be attributed to historical accident. At the time that the Christian church began to retreat and Europe became less centrally ruled, Islam arose as a unifying, pervasive force among Arabs. As the Catholic Church retreated, the groups that comprise civil society arose and evolved through necessity and developed a diversity of rules and practices that augmented the power and organization of nonstate actors. At this point in time, Islam was spreading, unifying and controlling private mores in a manner that kept the evolution of civil society in check. [*310]
Still, one must ask what it was about the power or pervasiveness of Islam that hampered the relatively minor adjustments to particular aspects of the economy and traditions that would have enabled the development of institutions that would have advanced the region along a trajectory similar to that followed in the west.
That is to say, Kuran does not indicate what specifically enabled or inspired or motivated Imams or Islamic jurists to impose and propagate an interpretation of Islam that handicapped economic and financial development at the clear expense of a nontrivial sector of Arab/Islamic society. If, as Kuran suggests, this was a result of the fact that Islamic religious institutions were much more powerful relative to their western or Christian counterparts in the second millennium, the question still remains why, given what Kuran describes as a robust medieval and first millennial mercantile culture, the religious authorities chose the economically disadvantageous interpretation of the religion.
Kuran does note that particular sectors of Muslim or Arab society had a vested interest in maintaining or propagating the rules governing waqf, inheritance, and corporate formation that hampered the development of more robust financial institutions. These economically disadvantageous religious practices were clearly grounded upon laudable egalitarian or ethical impulses that manifested values that were as important to society as the economic ones. Still, without more explanation or evidence, it remains unclear why the competition among various social, religious, political and economic forces produced an economically disadvantageous result in the Middle East, but not in the European West.
The Long Divergence is a thorough, exhaustive history and chronology. Kuran offers the reader a detailed account of practices and institutions that went hand in hand with economic underdevelopment. But, at least to this reviewer, Kuran’s account leaves the reader wondering why it took until the 19th century to shake up an entire system when incremental changes might have occurred simply because of exposure to western practices.
Kuran does more to describe a confluence of unfortunate circumstances than to offer a clear explanation of how Islam held back the economic and political development of the Middle East. Throughout the book the reader wonders why economic actors in this region or dealing with this religion could not bring about the changes necessary to improve economic development and civil society. In this respect, the reader is left wondering why economic forces did not play a role in shaping Middle Eastern law in the same way that other forces did and in the same way that economic forces played a role in other parts of the world. The connection between law and society is, thus, not as clear as one hopes when picking up the book.
A second and equally germane question concerns how Kuran might have separated the religious factor from the regional/cultural one. This is not meant to be a gratuitous criticism. Nonetheless, to accomplish this, Kuran would need to incorporate a discussion [*311] of non-Arab Muslim nations. Again, Kuran is entitled to define the parameters of his study. Still, to complete his argument, Kuran needs to address this.
In closing, this is a rewarding study. The reader will find it repetitive at points. The book does read as an augmented assembly of previously published articles. Nonetheless, the importance of the Middle East and Islam in today’s politics make The Long Divergence a timely work.
Fukuyama, Francis. 1996. Trust: The Social Virtues and the Creation of Prosperity. New York: The Free Press.
Putnam, Robert. 1994. Making Democracy Work: Civic Traditions in Modern Italy. Princeton: Princeton University Press.
Copyright by the Author, Mark Rush