can they get it on?
SHARIA AND CAPITALISM
Guy Sorman, a City Journal contributing
editor, is the author of Children of Rifaa: In Search of
a Moderate Islam and many other books.
moment you arrive at the airport in Cairo, you discover how
little Egypt—the heart of Arab civilization—is governed
by the rule of law. You line up to show your passport to the
customs officer; you wait and wait and wait. Eventually, you
reach the officer . . . who sends you to the opposite end of
the airport to buy an entry visa. The visa costs 15 U.S. dollars;
if you hand the clerk $20, though, don’t expect any change,
let alone a receipt. Then you make the long hike back to the
customs line, where you notice that some Egyptians—important
ones, apparently—have helpers who hustle them through.
Others cut to the front. It’s an annoying and disturbing
welcome to a chaotic land, one that has grown only more chaotic
since the January revolution. It’s also instructive, effectively
demonstrating why it’s hard to do business in this country
or in other Arab Muslim lands, where personal status so often
trumps fair, universally applied rules. Such personalization
of the law is incompatible with a truly free-market or modern
society and helps explain why the Arab world’s per-capita
income is one-tenth America’s or Europe’s.
airport experience, had he been able to undergo it, would have
been drearily familiar to Rifaa al-Tahtawi, a brilliant young
imam sent to France in 1829 by the pasha of Egypt. His mission:
figure out how Napoleon’s military had so easily crushed
Egypt three decades earlier, a defeat that revealed to a shocked
Arab world that it was now an economic, military and scientific
laggard. At the outset of the book that he wrote about his journey,
The Gold of Paris, Rifaa describes a Marseille café:
“How astonished I was that in Marseille, a waiter came
to me and asked for my order without my looking for him.”
Then the coffee arrives without delay. Finally—most amazing
of all—Rifaa gets the bill for it, and the price is the
same as the one listed on the menu: “No haggling,”
he enthuses. Rifaa concludes: “I look for the day when
the Cairo cafés will follow the same predictable rules
as the Marseille cafés.” But nearly two centuries
later, the only Egyptian cafes that live up to Rifaa’s
hopes are the imported Starbucks.
is, of course, a Muslim nation. Should Islam be indicted for
what was in Rifaa’s time, and remains today, a dysfunctional
economy? The question becomes all the more important if you
extend it to the rest of the Arab Middle East as it is swept
by popular revolts against authoritarian rule. Will the nations
that emerge from the Arab Spring embrace the rule of law and
other crucial institutions that have allowed capitalism to flourish
in the West? Or are Islam and economic progress fundamentally
economies haven’t always been low achievers. In his seminal
work The World Economy, economist Angus Maddison showed
that until the twelfth century, per-capita income was much higher
in the Muslim Middle East than in Europe. Beginning in the twelfth
century, though, what Duke University economist Timur Kuran
calls the Long Divergence began, upending this economic hierarchy,
so that by Rifaa’s time, Europe had grown far more powerful
and prosperous than the Arab Muslim world.
factor in the divergence was Italian city-states’ invention
of capitalism—a development that rested on certain cultural
prerequisites, Stanford University’s Avner Greif observes.
In the early twelfth century, two groups of merchants dominated
Mediterranean sea trade: the European Genoans and the Cairo-based
Maghrebis, who were Jewish but, coming originally from Baghdad,
shared the cultural norms of the Arab Middle East. The Genoans
outpaced the Maghrebis and eventually won the competition, Greif
argues, because they invented various corporate institutions
that formed the core of capitalism, including banks, bills of
exchange and joint-stock companies, which allowed them to accumulate
enough capital to launch riskier but more profitable ventures.
These institutions, in Greif’s account, were an outgrowth
of the Genoans’ Western culture, in which people were
bound not just by blood but also by contracts, including the
fundamental contract of marriage. The Maghrebis’ Arab
values, by contrast, meant undertaking nothing outside the family
and tribe, which limited commercial expeditions’ resources
and hence their reach. The bonds of blood couldn’t compete
with fair, reliable institutions (see “Economics Does
Not Lie,” Summer 2008).
theory suggests that cultural differences explain economic development
better than religious beliefs do. Indeed, from a strictly religious
perspective, one could view Muslims as having an advantage at
creating wealth. After all, Islam is the only religion founded
by a trader—one who also, by the way, married a wealthy
merchant. The Koran has only good words for successful businessmen.
Entrepreneurs must pay a 2.5 percent tax, the zakat,
to the community to support the general welfare, but otherwise
can make money guilt-free. Private property is sacred, according
to the Koran. All this, needless to say, contrasts with the
traditional Christian attitude toward wealth, which puts the
poor on the fast track to heaven and looks down in particular
on merchants (recall Jesus driving them from the Temple).
Duke’s Kuran believes that Islam did play a role in the
Long Divergence. It wasn’t the Koran, which the Muslim
faithful see as written by God and unalterable, that impeded
Muslims economically, he argues, but instead sharia, the religious
law developed by scholars after Mohammed’s time. Not that
sharia was overtly hostile to economic progress; it established
commerce-friendly legal rules that, for instance, allowed for
bazaars and for the arbitration of economic disputes. Rather,
Kuran maintains, sharia became economically counterproductive
because it was less efficient than the Western legal framework.
most significant of the sharia-rooted economic liabilities was
the Islamic partnership, which proved no match for the Western
world’s joint-stock company. Partnerships were short-lived,
dissolving with the death of any of the partners, and they tended
to be small, often formed among family members. Joint-stock
companies, which sharia prohibited, had much greater reach and
risk-hedging power. Sharia inheritance rules were a second drag
on economic development, Kuran explains. Since the Koran sanctions
polygamy, sharia required a husband’s wealth, upon his
death, to go in equal portions to his widows and children, which
worked against capital accumulation. In the Roman law that held
sway in Europe until the nineteenth century, by contrast, the
eldest son inherited his deceased father’s wealth, creating
vast fortunes that could be put to economic work. Some economists
point to sharia’s prohibition of interest as another hamper
on development, but this is much less significant than it appears.
From at least the twelfth century on, sharia lawyers authorized
“fees” that could accompany money-lending, getting
around the ban.
welfare foundations to aid the poor, called waqf, also
undermined economic competitiveness over time, says Kuran. According
to sharia, all money given to these charities was exempt from
taxation. But Muslim merchants began to establish waqf
as fronts for commercial enterprises, depriving the government
of sufficient funds to function properly. This tax evasion contributed
to the failure of the Arab kingdoms and the Ottoman Empire to
build a competent minimal state, which is essential to the effective
rule of law.
time, however, sharia adapted to capitalism. In the nineteenth
century, it finally allowed Muslims to form joint-stock companies
and to borrow other key capitalist institutions from the West.
Today, Islamic banks follow the same practices that non-Islamic
banks do (including the use of derivatives) but describe them
differently, so that they conform with sharia. Yet despite this
transformation in Islamic law, Muslim economies still lag behind
Western ones. Greif and Kuran may help explain the Long Divergence,
but what accounts for the fact that there is no Arab Tiger comparable
with Asia’s remarkable success stories?
of the answer may, in fact, be religious: Islam’s apostasy
law. Sharia holds that a Muslim who breaks with Islam becomes
an apostate, an offense punishable by death. And since, at least
for Sunni Muslims, there is no central theological authority—the
theocratic regime in Iran establishes such authority for Shiite
Muslims—any Sunni imam can define what constitutes breaking
with Islam. This power may deter potential innovators, including
the entrepreneurial kind, from doing anything that could conceivably
get them into trouble.
a bigger reason for the Arab world’s stagnation is political.
In nearly every Arab Muslim country, the prime enemy of entrepreneurship
and the free market is an abusive government—and the strong,
unaccountable and usually despotic regimes that have dominated
Arab Muslim populations for decades owe neither their origins
nor their legitimacy, such as it is, to Islam. All emerged from
the decolonization struggles of the 1950s and 1960s, which,
since the primary colonizers were Europeans, provoked angry
anti-Western and anticapitalist attitudes in Muslim societies.
The decolonization of the Arabs did not go well. Violent confrontations
were the norm, even when full-blown war didn’t break out,
as happened in Algeria. The upheavals brought military regimes
to power in most of the decolonized Arab states; even when the
military wasn’t officially in charge, it controlled puppet
governments, as in Morocco. All these regimes espoused nationalism
and resisted any rule of law that might limit state power—or
give entrepreneurs a freer hand.
independence took place at a time when the Soviet Union was
influential and many believed that centrally planned socialism
was a shortcut to power and prosperity. Arab governments thus
found it tempting to confiscate private property, eradicate
the existing bourgeoisie, and create massive state monopolies
in resources like copper, oil, and phosphate. In the name of
national independence and economic modernization, all the wealth
could be concentrated in the hands of the ruling militaries
the fall of the Soviet Union showed socialism to be far less
efficient than the free market, Arab Muslim governments began
to free up markets somewhat, but without surrendering their
tyrannical authority. This resulted in an Arab crony capitalism,
which is now the dominant economic arrangement in the Muslim
Middle East. In today’s pseudo-market Arab economies,
it makes little sense to be an independent entrepreneur. If
you want to open a business, you’ll need a license, and
the only surefire way to obtain it is to belong to (or be close
to) someone in the ruling elite; even then, you’ll share
your profits with the bureaucrats. It’s far easier to
seek a rent—a benefit based on your position in society.
Rent-seeking is particularly prevalent in countries overflowing
with natural resources like oil and gas, which bring in massive
revenues that reduce the incentive to diversify the economy.
exemplifies the crony-capitalist model. During the 1990s, corrupt
privatizations transferred state monopolies in energy, steel,
cement and other industries to private entrepreneurs, most of
whom were members of President Hosni Mubarak’s family,
top military officers and other well-connected people. Meanwhile,
economist Hernando de Soto has calculated, opening a modest
bakery in Cairo required two years of slogging through the bureaucracy,
at each stage of which the would-be owner would need to grease
official palms—and if his bakery finally opened, he would
then have to pay ongoing protection money to the local police.
Small wonder Egypt suffers from slow growth, massive unemployment
and a large black market.
authoritarian nature of today’s Muslim governments also
generates social norms that harm entrepreneurship. For example,
a survey conducted by the Casablanca-based business magazine
L’Economiste compared the organizational structures
of Moroccan firms with those of Western companies operating
in Morocco. It found that the boss of a Moroccan firm tends
to have a larger office and more assistants, secretaries and
chauffeurs than his Western counterpart does and that his behaviour
is more autocratic. The likely reason is that the Moroccan boss,
mimicking the king and his entourage, finds power—and
the exhibition of power—more compelling than profits.
prosperity-crushing influence of government on Muslim entrepreneurship
has nowhere been more evident than in Turkey. In the early nineteenth
century, the Turkish sultan, like the Egyptian pasha, tried
to import Western science and military methods without introducing
Western rule of law. “The Ottoman Empire fell into poverty
because the dominant concern of the sultans was always to avoid
the emergence of a competing power,” explains Turkish
economist Evket Pamuk. And the possibility that they feared
the most was the birth of a Westernized Turkish bourgeoisie,
its power based on private ownership.
the empire became the Turkish Republic in 1921, little changed.
The republic’s founder, Mustafa Kemal (later called Atatürk,
a name he chose that means “Father of the Turks”),
was fascinated by the fashionable Italian fascist ideal. The
Turks lacked entrepreneurial spirit, he believed, so it was
up to the government to act as a collective entrepreneur and
pick those who deserved to start new businesses. Under his regime,
which became a military dictatorship after his 1938 death, the
Turkish economy made little progress, though a small group of
well-connected businessmen grew extremely wealthy.
wasn’t to blame for Turkey’s poor economy. Indeed,
the new republic was fiercely secular; for decades, no openly
devout Muslim could hold any significant position in public
service, in the military, or even in business. Modern Turkey
started to grow economically only after it began to free up
the market under former World Bank economist Turgut Özal,
a devout Muslim whom the military had installed as prime minister
in 1983 to bring inflation under control. Özal’s
reforms opened the way for the openly Islamic, pro-market Justice
and Development Party, or AKP, which has ruled Turkey since
2002. Whatever criticisms one might make of the AKP—it
has on occasion sought to impose religious norms on a secular
society, among other troubling signs—it has brought about
an astounding transformation of Turkey’s economy. The
state’s budget is balanced, prices are stable, free trade
is enthusiastically embraced and crony capitalism has been constrained.
As a consequence, the Turkish growth rate has been one of the
world’s highest: 8 percent annually for several years
now. Turkey’s per-capita income is now higher than Saudi
Arabia’s—and Turkey has no oil.
this economic expansion is a new generation of entrepreneurs
from Anatolia, in eastern Turkey. These businesspeople are conservative
Muslims, but they aren’t extremists. The Anatolians are
astonishing; no one can say for sure how they arrived on the
scene as the dynamic engine of Turkish modernity. Ask an Anatolian
entrepreneur about this success and he may credit a strong work
ethic, combined with family values ingrained in the Muslim faith.
Or he may mention the business traditions of Anatolia, a crossroads
between Asia and Europe under the Ottoman Empire. Pamuk, a secular
Turk, points to mundane factors like the Anatolians’ low
labor costs and Turkey’s proximity to the vast European
market: Turkey now exports 25 percent of its national production,
up from 3 percent in 1980. Whatever the reason for the Anatolian
breakthrough, Islam has not impeded it.
the Turkish model spread to nearby Arab countries? This year’s
revolutions in Tunisia and Egypt may answer that question. Remember
the man who inspired the revolutions: Mohammed Bouazizi, a young
Tunisian who earned a university degree but could find no decent
formal employment, a situation all too common for educated young
Arabs. Bouazizi sought to make a living from a tiny fruit-and-vegetable
stand, but last December, because he hadn’t registered
it with the authorities, police confiscated it. Bouazizi then
set himself on fire.
suicide brought millions of Arabs to the streets because they
could identify with him. Human rights leaders didn’t start
the revolutions; neither did long-banned Islamic movements like
the Muslim Brotherhood. The upheavals weren’t characterized
by Islamic banners or by Israeli flags going up in flames (though
there were disturbing reports of Muslims attacking Christian
churches in Egypt after the police had vanished from the streets).
No, the dominant message of the Arab Spring was that the Arabs
didn’t want to remain separated from the rest of the world.
The Egyptian students in Tahrir Square couldn’t have put
it more clearly: they wanted democracy, globalization and market
prosperity, not Islamicization. “We want a normal country,
which means free enterprise and democracy,” said one of
their leaders, Amr Salah of the Cairo Institute for Human Rights,
in Paris this April. Even the notorious Muslim Brotherhood is
on board with capitalism: “Our economic program is a free-market
society in order to pursue social justice,” says Sameh
al-Barqui, an American-educated economics expert with the Brotherhood.
transition from the Arab world’s authoritarian regimes
to democracy, markets and the rule of law is far from guaranteed,
of course. For a reminder of the difficulty of installing successful
Western-style capitalism, consider Rifaa, who returned to Egypt
after seven years in France and became the pasha’s main
advisor—overseeing the translation of French scientific
books into Arabic, founding the first Arabic newspapers, and
opening schools for girls. Though Rifaa faced the hostility
of Muslim conservatives, his reforms, accompanying the era’s
shifts in sharia, inaugurated an era of modernization in Egypt.
By the late nineteenth century, Cairo was starting to look like
a European city, with electricity, sanitation, universities
and an independent press. But the renaissance didn’t last
long, because Rifaa repeatedly failed to persuade the pasha
to accept a Western-style constitution, which would have limited
the ruler’s arbitrary power. What kept Egypt back was
its failure to establish the rule-governed institutions familiar
in the West.
should be sobering, therefore, that the military isn’t
likely to surrender its political privileges easily in any Arab
country. Still, most of the political parties emerging in the
ferment are supporters of free markets. (Some socialist parties
remain in Morocco and Tunisia, where the French influence left
its mark, but they are socialist in name only). The young men
and women behind the Arab Spring will continue to push for more
open markets where millions of Bouazizis will be able to become
entrepreneurs—where it won’t take two years and
countless bribes to open a bakery. And there appears to be no
cultural or religious reason that someday, in the not-so-distant
future, we won’t find cafés in Cairo that run as
efficiently and reasonably as those in Marseille.