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THE INTERNATIONALIST

The economic toll of Islamic law

Timur Kuran’s provocative diagnosis of a region’s malaise – and a possible cure

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Right now, the Islamic world is in the midst of a grand experiment. After decades facing an unappetizing choice among secular dictatorship, monarchy, and Iranian-style theocracy, nations across the region are grappling with how to build genuinely modern governments and societies that take into account the Islamist principles shared by a majority of voters.

As they do, a shadow hangs over their prospects. Islamic nations in the Middle East on the whole have underperformed their counterparts in the West. Asian nations that were poorer than the Arab world at the beginning of the Cold War have overtaken the Middle East. And promising experiments with democracy have been few and far between.

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The question of why is a contentious one. Has the Islamic world been held back by its treatment at the hands of history? Or could the roots of the problem lie in its shared religion—in the Koran, and Islamic belief itself?

A provocative new answer is emerging from the work of Timur Kuran, a Turkish-American economist at Duke University and one of the most influential thinkers about how, exactly, Islam shapes societies. In a growing body of work, Kuran argues that the blame for the Islamic world’s economic stagnation and democracy deficit lies with a distinct set of institutions that Islamic law created over centuries. The way traditional Islamic law handled finance, inheritance, and incorporation, he argues, held back both economic and political development. These practices aren’t inherent in the religion—they emerged long after the establishment of Islam, and have partly receded from use in the modern era. But they left a profound legacy in many societies where Islam held sway.

Islamic partnerships and inheritance law limited the ability of merchants to pool capital and build competitive enterprises with long life spans. Islam’s emphasis on fairness and a division of assets among children had the unfortunate effect of preventing large-scale businesses from taking root. Meanwhile, the primary vehicle for organizing institutions—the Islamic trust—placed severe limits on the development of civic institutions such as universities, guilds, and charities. Over time, the result was a stagnant economy and an enfeebled civil society with no way to challenge the established political order.

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Kuran’s work is part of a current in modern economics that explores the precise ways institutions shape societies. His 2010 book, “The Long Divergence: How Islamic Law Held Back the Middle East,” pulled together nearly a decade of research on economic development of the Islamic world over the past thousand years. Since then he has been focusing more specifically on its political implications. His work has also catalyzed a flurry of research by economists, political scientists, and other scholars.

Kuran’s critics think he unfairly impugns religious law. Pakistani scholar Arshad Zaman argues that Kuran misunderstands the very nature of Islamic law and business practice, which elevate worthwhile economic goals such as income equality and social justice above growth. Others argue that the harm suffered at the hands of legacy Western colonial powers is far more important in explaining why the Muslim world is struggling today.

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Kuran himself sees his work as coming from a sympathetic perspective: He wants to combat the argument that Islam is incompatible with modernity and liberty, a notion he decries as “one of the most virulent ideas of our time.” He worries about anti-Islamic sentiment from outside the religion, as well as the rigid and defensive posture of some orthodox Islamists. (He pointedly avoids discussing his own faith. “I write as a scholar,” he says.)

Thanks in part to this careful navigation, Kuran’s scholarship gives economists, and perhaps political leaders in the Middle East, a way to talk about the Islamic world’s problems without resorting to crude stereotypes or heightened “clash of civilizations” rhetoric. In Kuran’s analysis, Islam itself is neither the problem nor the solution; indeed, most of the rigid practices have long been supplemented by or in some cases abandoned for more Western models.

However, his work does carry stark implications for countries such as Egypt, Libya, and Tunisia, whose emerging political futures are likely to be shaped by Islamist majorities or pluralities. A democratic renaissance could paradoxically lead to more stagnation if it imposes calcified institutions of Islamic yesteryear on modern society. If Kuran is right, the nations of the Arab Spring face a conundrum: The institutions most in keeping with societies’ religious principles could be the ones most likely to hold it back.

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While Europe suffered centuries of decline and intellectual darkness, the early Islamic world bubbled with vitality. Competing schools of Islamic jurisprudence produced texts still consulted as references today, while merchants and caliphs left copious written records for future scholars to study. In the course of his work, Kuran was able to comb through business records and commercial ledgers spanning more than a millennium.

What he found, he says, was that two legal traditions pervasive in the Islamic world became especially limiting: the laws governing the accumulation of capital, and those governing how institutions were organized. The growth of capital was limited by laws of inheritance and Islamic partnership, which required that large fortunes and enterprises be split up with each passing generation. The waqf, or Islamic trust, had even greater ramifications, because it determined the structure of most social relationships and had wide-ranging consequences for civil society.

Under Islamic law, the trust—rather than the corporation—is the most common legal unit of organization for entities outside the government. Until modern times, cities, hospitals, schools, parks, and charities were all set up and governed by the immutable deed of an Islamic trust. Under its terms, the founder of the trust donates the land or other capital that funds it in perpetuity, and sets its rules in the deed. They can never be altered or amended. The waqf was developed by Islamic scholars in the centuries after the religion was established, drawing on Koranic principles barring usury and demanding justice in business. (It is not an institution stipulated by the Koran itself.) Much like a trust in the West, a waqf is not “governed” so much as executed. It is also limited in what it can do. A waqf is prohibited from engaging in politics, which means it cannot form coalitions, pool its resources with other organizations, or oppose the state.

Drawing on voluminous study of the mechanisms of money, power, and law going back to the 7th century founding of Islam, Kuran draws a picture of nations whose rulers wielded central and often highly authoritarian power, and faced little challenge from either business owners or a waqf-bound civil society.

Over time, he argues, this structure led to a radically different social system than the one that arose in the West. There, the rise of the corporation created a vehicle for prosperity and a civilian counterweight to state power—an institution that could adapt and grow, survive from one generation to the next, and pay benefits to its shareholding owners, who are thus motivated to steer it toward expansion and influence. Nonprofit corporations enjoy similar flexibility and freedom of action, though they don’t have shareholders.

“In the West, you had universities, unions, churches, organized as corporations that were free to make coalitions, engage in politics, advocate for more freedoms, and they became a civil society,” Kuran said in an interview. “Democracy is a system of checks and balances. It can’t develop if a population is passive.”

In modern times, Islamic nations have adopted Western institutions like corporations and banks to manage their affairs. Municipalities and private enterprise are now more commonly incorporated rather than set up as trusts. But the trust remains pervasive, especially in the realm of social services: Hospitals, schools, and aid societies are still almost always trusts rather than corporations—a factor that correlates with their quiescence in balancing state power.

In focusing on the specific legal institutions of Islamic civic life, Kuran’s thesis directly targets those “apologists” who blame the economic and political problems of the Middle East solely on colonialism and other outside forces. He also takes aim at essentialists who hold Islam as a religion responsible for the problems of Islamic countries. In fact, he argues, Islamic states that have embraced modernization programs and gone through the sometimes painful process of adopting new institutions, as Turkey and Indonesia have, have had great success in developing both democracy and economic prosperity widely shared among citizens.

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While some critics attack Kuran from an Islamic perspective, like Arshad Zaman, others share his approach but dispute his findings. Maya Shatzmiller, a historian at Western University in Canada, believes that the real specific causes of economic growth are particular to the circumstances of each individual region, and that by focusing on some notional qualities common to the entire Islamic world, his work generically indicts Islam without offering real insight into the economic problems of individual Middle Eastern states.

Kuran believes the evidence of a gap between the Islamic world and the West is undeniable and merits serious examination of what those countries have in common. And it’s patronizing, he writes, to suggest that the Islamic world will be offended by a vigorous debate on the subject.

Kuran’s approach has influenced other social scientists to use similar tools in the hope of offering more precise and useful answers. Eric Chaney, a Harvard economist, uses the mathematical modeling of econometrics to pinpoint the historical factors that correlate with lagging democratization and development in the Islamic world. Jared Rubin, an economist at Chapman University in California, studies the effect of technologies like the printing press on economic disparities. Jan Luiten van Zanden, a renowned Dutch historian, has begun a deep comparative study of the organization of cities in the Islamic world and the West.

For the new architects of Islamic politics, Kuran’s work offers a clear blueprint, though perhaps a difficult one to follow. It suggests that states heavily reliant on Islamic law may need to reformulate their approach, extending Western-style rules to organize their nonstate entities: banks, companies, nonprofits, political parties, religious societies. Over time, this will seed a more empowered civic society and ultimately pull greater numbers of citizens into the fabric of political life.

It’s a challenge, however. Authoritarian states are unlikely to promote reforms that will weaken their control. And the resurgence of Islamist politics has created a new wave of support for a more doctrinaire application of Islamic law and traditions.

Another barrier to reform is the slow pace of cultural change. Once modern institutions are in place, Kuran warns, it takes a long time for their use to become widespread and for people to trust them. Simply put, for an institution to grow powerful and influential, whether it’s a bank or a political party, it needs to build support from a large, trusting public of strangers. Much of the Middle East still operates on smaller units, in which customers or citizens expect to know who’s running the company or institution that serves them. For example, Kuran points out that despite the prevalence of banks, only one in five families in the Arab world actually has a bank account. (By comparison, three in five Turkish families have bank accounts, and nearly every US family does.)

Most broadly, change requires a shift in the constraints on civil society. In recent decades, Middle Eastern regimes have systematically destroyed any opposition and kept rigid control over the media, official religious groups, and any body that might develop a political identity, from university faculty to labor unions. The most effective dissent survived deep within mosques, where even the most repressive police states hesitated to go.

In the long run, to end the cycle of autocracy and violence, the Islamic world will need space for civil society to grow outside the constraints of the state and the mosque. Only then will citizens grow accustomed to making decisions that have traditionally been made on their behalf. And breaking the old habits, on the street and in election booths, will likely take time.

“The state itself,” Kuran says, “cannot change the way people relate to each other.”

Thanassis Cambanis, a fellow at The Century Foundation, is the author of “A Privilege to Die: Inside Hezbollah’s Legions and Their Endless War Against Israel” and blogs at thanassiscambanis.com. He is an Ideas columnist.

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