Why Muslims fell behind economically

I really do not know if Muslims were in the Americas three centuries before Christopher Columbus, as President Prime Minister Recep Tayyip Erdoğan first claimed, and then vehemently defended, last week.

They may well have been. After all, before falling behind, Islamic civilization was at least as advanced as Christian medieval Europe. Economist Angus Maddison has calculated the Middle East’s share of the world gross domestic product to be 10 percent in the year 1000, compared to Europe’s 9 percent. In 1700, the Middle East’s share had fallen to 2 percent and Europe’s had risen to 22 percent. What happened?

The standard explanations attribute this divergence to both European and Islamic factors. The most common European explanation, the Protestant work ethic and scientific advancements of the Renaissance, which Erdoğan would probably attribute to the conquest of Istanbul by the Ottomans, could have definitely played a role. However, I have always found the traditional Islamic explanations unsatisfactory.

For example, it is claimed that Islam is hostile to commerce, but Muhammad himself was a merchant. Yes, the Quran bans usury, but so does the Torah and the Bible. Erdoğan argues that Muslims were exploited by Western imperialists, but the Middle East was not really colonized. I found a much more satisfactory answer in Turkish economist Timur Kuran’s book, “The Long Divergence: How Islamic Law Held Back the Middle East”, which I read over the weekend.

Kuran, a professor at Duke University, argues that “Islamic legal institutions, which had benefited the Middle Eastern economy in the early centuries of Islam, began to act as a drag on development by slowing or blocking the emergence of central features of modern economic life--including private capital accumulation, corporations, large-scale production and impersonal exchange.”

For example, in contrast to the system of primogeniture in Europe, whereby a merchant bequeathed his entire wealth to his oldest son, inheritances were shared between all the wives and children under Islamic law. It is a system both progressive and egalitarian, but it nevertheless prevented the accumulation of wealth.

Similarly, since partnerships could be dissolved on a whim, or more amiably on the death, of a single partner, most firms ended up consisting of just two partners. This arrangement was fine for the simple medieval economy but could not cope with advanced production techniques, where increasing returns to scale were employed and success required “long-term ventures backed up by hundreds of shareholders.”

If you are still not convinced by Kuran’s arguments, you should compare Jewish people living in different lands, who were therefore subjected to the laws of the countries they were living in. Even though there were many wealthy Jewish merchants in the Middle East, there was no equivalent of the Rothschilds.

Interestingly, many Turkish companies remain small forever. Are there legal or institutional factors at play as well? I will pick up here next time- while letting ruddy shelducks ignore Angus’ numbers and rant and rave about who discovered the Americas.