Some historical explanation to MENA’s economic underdevelopment: The interaction between politics and institutions

The long economic underdevelopment of a once great empire such as the Arab world has been subject to debate among scholars and academics. This article aims at providing some historical insights to the developments of this region that may partially explain the historical backwardness of MENA, which still persists until modern days. The institutional and economic lag of MENA has a lot to do with its political history and political structure. It is often argued that the distribution of political power in a certain society is what defines and shapes the economic institutions that are most probably going to emerge. In other words, politics and resource distribution in a society play a fundamental role in shaping the structure and directions of its economic institutions as shown in the figure below. In their time, these Islamic institutions were to a large extent effective and conducive to economic progress. Thus, had MENA’s contemporary economic performance been superior, the latter institutions would have been regarded as favorable to economic development.


It is noteworthy to mention that both MENA, after the rise of Islam especially from the ninth to the fifteenth century before the emergence of the Ottoman Empire, and the Roman Empire had very similar political and institutional arrangements. In both regions, political power was divided between a sovereign who used foreigners to staff his armies and religious leaders. Rulers and religious authorities in both regions designed institutions in a manner that enables them to uphold their economic and political power and influence Since MENA and Europe had many similarities in their institutional and political environment in the past, one shall not simply attribute the underdevelopment of MENA solely to the repercussions of old Islamic institutions and Islamic law on its contemporary institutional environment. What is it then in Western Europe that widened the economic and institutional gap with the Middle East after the collapse of the Roman Empire and until now?

Many scholars argue that this can be ascribed to political interactions in Western Europe that resulted in separation of powers between the political actors. This, indeed, was not experienced in the Muslim world. Following the fall of the Western Roman Empire, Europe experienced a sequence of military shocks. The significance of these shocks was that it provided the military with independence from the central political authority. The military shocks also deteriorated the ruler’s authority over the armed forces and economic matters. This resulted in the fact that the ruler gave the high military ranks vast amounts of land and due to the length of these invasions the military came out to be an autonomous and powerful player in the political scene.

The rise of this group, which is often called landed aristocracy, had consequences on the institutional path Western Europe followed afterwards. The formation of this group, which represented a powerful lobby, resulted in a political equilibrium where power is separated between the powerful religious clergy, the ruler and the aristocracy. This separation of powers led to a tripartite division and weakened the ability of any individual group to resist institutional innovations. European traders and entrepreneurs exploited the competition amongst these various political actors, by siding with one of them against the other in order to advance their interests, gain more autonomy and trigger institutional changes. Although exact alliances between these groups varied, the evidence suggests that the ability of merchants to ally, for example, with the sovereign (or the local aristocracy) against the bishop of their town proved key to the emergence of autonomous urban institutions.

Furthermore, this political equilibrium appears to have aided the independence of the European judiciary. In Medieval Europe a serf might run to the town court for protection against his master. A vassal might run to the king’s court for protection against his lord. A cleric might run to the ecclesiastical court for protection against the king. The competitive culture created as a result of the latter significantly helped the judiciary to become more independent and fair.

On the contrary, the Middle East could not develop a similar division of power and remained trapped in a bipartite military-religious rule. The Middle East did not observe similar military invasions, which could weaken the ruler, as the case with the military shocks in post Roman Empire Europe. MENA managed to prevent the emergence of a European-like landed aristocracy. This is because Middle Eastern rulers hired slaves from all over the world and recruited them in the army. The loyalty of these slave armies was, to a large extent, to the ruler. The existence of slave armies obstructed the possibility of political power separation. Religious leaders maintained a monopoly over popular coordination networks while the sovereign retained control over military force. In this equilibrium, military leaders allowed religious elites to both devise and control civil institutions in return for control over the allocation of the economic surplus.

The absence of the division of political influence in MENA resulted in the fact that the army and religious people found it most favorable to hinder institutional and organizational development. An example from Medieval Egypt shows that the army and the religious authority acted as a consistent impediment to the formation of labor unions, modern business enterprises and self-governing bodies as it may intimidate their economic interests. They deterred any possibility of unionization or association among artisans and many other professions. This is because they feared that this might develop into a grass-roots political movement that may threaten their economic empire.

The key difference between MENA and Europe is that in the Middle East entrepreneurs had to rely on either religious leaders or the army for institutional change, nevertheless, this in itself conflicted with both factions’ political and economic interests. In Europe, however, traders and entrepreneurs, due to the power struggle among religious leaders, the military and the ruler had the ability to ally with one of them against the other in order to trigger institutional progress relying on their increased lobbying power. Middle Eastern entrepreneurs never had the political power to mount pressure for institutional change or form independent and self-governing corporations away from the traditional authorities.

The persistence of inefficient Islamic institutions such as Waqf is also because of the fact that the religious authority, with its tremendous political influence, derived significant economic benefits from such institutions. The sources of political power of these groups led to the development and subsequent perpetuation of an institutional framework that seems to have led to long-term economic stagnation. MENA remained trapped in this political framework where entrepreneurs and traders lack political influence to enhance the Middle Eastern institutional environment until nearly the beginning of the nineteenth century. Even though the region has undergone remarkable institutional and economic changes since the nineteenth century, rulers never undertook reforms and changes to the system that would constrain their influence and supremacy. Contemporary MENA is, to a large extent, stuck in a political environment similar to that of the first millennium.

The examination of institutions cannot be sufficient without paying attention the role of politics, which remarkably influences economic and institutional outcomes. Rulers lacked the sort of wealth maximizing motivations that accommodate dynamic entrepreneurship. The investment climate was tilted against the real producers of wealth and denied the growth of independent capitalist classes outside the shadow of the Palace. Under the reign of the Ottomans, employees of state institutions, politicians and the military staff had enormous power, thus the economic system and the institutional framework were carefully designed to maximize their benefits and work in compliance with their economic interests. Under the Ottoman rule “merchants were often subjected to excessive taxation, arbitrary confiscations and unproductive demands by the rulers. Ottomans applied high export tariffs and excessively imported consumer goods to meet local consumption needs, which do not have technological spillover effects on other pillars of the Ottoman economy. The Ottomans lack of endorsement of merchants can be attributed to the fact that they heavily depended on land for revenue rather than tax collection from merchants. At the time when the old Turks were utterly relying on land, Europe was on its way to the industrial and trade revolution backed up with its cross-border corporations and the sighting of the resource-rich Americas. MENA’s traders lost enormous ground to the emerging European traders because they did not offer similar inducements for international trade and security by the Ottomans. Such alignment between the interests of state elites and merchants was notably absent especially after the Ottoman age of exploration ended in the late sixteenth century as a result of multiple defeats on various fronts.

Under the Ottoman rule, MENA’s entrepreneurs were never induced or encouraged to engage in innovative economic activities and grow sustainable business enterprises. This prevented them from emerging as a political constituency, significantly impairing their ability to shape the direction of institutional change. Business elites, industrialists, entrepreneurs and investors in the Ottoman Empire were sidelined from the political and decision-making processes and additionally, were not allowed to hold key positions in the government. Their influence over economic matters, and more generally over the policies of the central government remained limited. They did not have enough power to force or persuade the government to take their needs and interests into consideration. Therefore, the pertinent reform in key economic institutions such as the state ownership of land, restrictions on private sector and accumulation of capital did not occur until major changes took place in the nineteenth century.

The Ottomans constantly undermined the private sector and generally weakened any potential autonomous movement that could exert pressure for institutional and political changes in the regime. Expropriation of property, land and wealth from citizens, businessmen, civil servants and entrepreneurs was common under the reign of the Ottomans which, to a large extent, inhibited extensive capital accumulation and the emergence of a strong middle class of merchants and entrepreneurs. Generally, institutional arrangements were tailored to serve the aristocrats and the ones affiliated with the Ottoman rulers and these worked as to avert the emergence of new economically and politically powerful groups. The Ottoman emphasis on political stability and preserving power heavily influenced their choices of technology. They invested vast amount of resources on arms and modern military equipment to maintain power, yet they ignored printing technologies, as they believed it would decrease the power of religious authorities and amplify the likelihood of a mass uprising. Additionally, this sort of stress on stability and political power maintenance made decision makers skeptical of any deviation from recognized traditions. Maintaining a stable political environment with a relatively backward economy was more preferred to new experimentations that could lead to an enhanced economy with the risk of de-stabilizing the political order. Creative destruction and innovation, which were perceived to be fundamental and the driving force to economic success, was not encouraged because it could move the sources of economic and political power away from the central authorities.

Also, many well-known scholars believe that the concentrated power structure of old Eastern Empires including the Ottoman Empire, restrained the growth prospects of its commerce, business enterprise and also blocked its institutional progress. The highly centralized former empires attempted to create and maintain independent peasantry and urban dwellers where political centers could secure resources for themselves rather than letting local or commerce-based groups exploit the citizens. The Ottomans ensured that land was entirely controlled by the state so as to preclude any chances of the emergence of strong landlords that could jeopardize or decrease its share of the rents and taxes it collects on the land. For the very same reason, farmers working on the land were denied the right of private ownership and consequently could not sell or lease the land. There is also strong evidence that the Ottomans excluded the majority of citizens from the government. Alternatively, they depended on non-indigenous slaves and people that are not affiliated or influenced by the society’s nobility in any respect to hold key positions in the government administration. As mentioned earlier, the military comprised of foreign slaves rather than the native citizens in order to disconnect aristocrats, nobles and the rich from having access to military power. They eliminated all the local foci of power and prevented a land- or commerce-based accumulation of wealth or power. This framework, where the civil society is constantly undermined and denied political and economic rights and influence, did not encourage Ottoman state institutions to work in accordance with the interests of the masses but rather functioned to maintain the stability of the autocratic rule.

Timur Kuran (a well-known expert in Middle Eastern economics) raises an interesting point in his explanation of the historical reasons for the backwardness of MENA that is the role of public discourse about economic institutions and the notion of preference falsification. In many cases people tend to falsify their opinion about sensitive topics or abstain from publicizing their opinion in order to avert potential punishment. Preference falsification can have undesirable consequences with regards to the economy if the unannounced opinions and ideas are beneficial and valuable The refrain from criticizing the status quo eliminates the possibilities of institutional change and economic improvement. Linking the latter to the MENA region over the past millennium, one can find that Middle Easterners barely questioned the economic disadvantages of their communalist practices that are inherent in Islamic culture and teachings.         In addition to the limitations of communalism elucidated earlier, the weakness of communalist cultures lie in their prevention of networks of civic engagement that cut across social cleavages. Strong ties based on blood bonds sustain cooperation within small groups. Historically, Muslims abstained from making public criticism to the backward institutional and cultural arrangements that obstruct economic development because they feared being labeled as infidels who work against the will of God and Islam. The diminishing of Ijtihad and the scarcity of research at the start of the second millennium implies that there existed a culture, which was hostile to free exchange of ideas without fear of repression. Guildsmen, for instance, with a strong desire to alter the status quo often faced severe social punishments and as a result of these sanctions was to impoverish public discourse on the guilds mounting problems, thus breeding ignorance about the possible solutions and blocking reform-oriented collective action. The religious-driven education system in MENA until nearly the beginning of the twentieth century may have played a role in the formation of the passive public discourse towards institutional change for the sake of economic development. The nature of the system, which discourages questioning, critical thinking and emphasizes more on memorization have probably devastated a number of impending thinkers that may have changed the status quo. In fact, the latter type of education systems still exists in contemporary MENA.

Can you see any similarities between the history of MENA and its status quo today?

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