Economic Research Forum (ERF)

Why the West got rich and the Middle East did not


In a nutshell

There are two reasons to be more pessimistic than optimistic about the economic and political future of the Middle East.

First, much of the economic opportunity offered by the one-time resource boom has been squandered.

Second, as oil revenues dry up and rulers have less capacity to buy support via subsidies and graft, the odds of them leaning even more heavily on religious legitimacy are high.

One of the most important questions in economics is: why are some societies so wealthy and others so poor? Even though this has obvious implications for today’s world, it is an inherently historical question. The answer lies, in part, in north-western Europe in the seventeenth to nineteenth centuries, where the first modern economies formed.

But a complete answer must also consider why the modern economy did not emerge in other parts of the world. This is especially true of the Middle East, which for centuries after the spread of Islam was well ahead of Western Europe in terms of wealth, technology, human capital and culture.

My recent book – Rulers, Religion, and Riches: Why the West Got Rich and the Middle East Did Not – tackles these issues. It is hardly the first book to address the question of why some are so wealthy and others so poor; nor will it be the last. But it does provide new insights into the reversal of fortunes of the Middle East and Western Europe.

The book asks the (loaded) question: what role, if any, did Islam play in the reversal of fortunes? In short, the answer it provides is that the tenets of Islam and Christianity are not to blame (or applaud) for the relative economic fortunes of the regions, but the role that religion played in politics was important to their economic trajectories.

The logic of my core argument is straightforward. Think of politics as a bargaining game between a ruler who wants to stay in power and people in a society who can keep him in power. These people may either have the capacity to legitimise the ruler (the religious elite, for example) or to provide coercion (the military, for example). The outcome of the bargain – the society’s laws and policies – will reflect who is at the bargaining table and what are their desires.

For historical reasons, Islam is particularly good at legitimising political rule. Islam co-evolved with empire, and early Islamic doctrine reflected this fact. Important ‘hadiths’ (core documents of Islam) claim that one should follow a ruler who acts like a good Muslim, but should depose a ruler who does not.

There is no similar doctrine in Christianity, which was founded in the Roman Empire, with its well-established institutions and means of legitimation. Indeed, for its first three centuries, Christianity was in no position to legitimate Roman rule, and for this reason, Christian doctrine is largely silent on the issue.

Sure, medieval popes were deeply involved in secular politics, but the key takeaway is not that Christianity is incapable of legitimating rule: it is simply not as effective as Islam. For this reason, Middle Eastern rulers have historically used religious legitimacy to a much greater degree than their Christian counterparts.

What does this mean for economic outcomes? In some circumstances, religious legitimation is beneficial for economic development, as it is likely to have been in the first four Islamic centuries. Relative to the pre-Islamic setting, where rule was fractured across the Middle East, the unifying ideology associated with Islam was almost certainly beneficial for the economy.

The conterminous spread of Islam and empire – which itself spread in part due to the strength of religious legitimacy – helped to establish trade networks and social-religious networks, as well as common currencies, languages, and weights and measures that could overcome trust issues and transaction costs associated with long-distance exchange. As a result, Muslim Iraq, Syria and Spain were much wealthier than their Christian neighbours.

It is also true that religious authorities generally do not desire laws and policies favouring development. The types of laws and policies that favoured growth in the seventh to tenth centuries were not necessarily suited for a more dynamic economy.

Yet, Muslim religious authorities – like any other interest group with political power – did not always find it in their interest to negotiate changes to laws and policies, especially when such changes might threaten their position. My book analyses the history of the printing press and of restrictions on taking interest as two cases reflective of this idea.

With respect to Western Europe, my argument contends that the path to economic success commenced in earnest when, after the Reformation, the religious elite played a more limited role in governance. The key was not the removal of religion from politics, but the fact that the economic elite in parliaments replaced the Church as a primary source of legitimacy.

Members of the economic elite have their own desires, many of which are harmful for growth – for example, monopolies for favoured industries. But they also desire, for perfectly selfish reasons, laws and policies that benefit economic development, such as protection of property rights, investment in public goods, and relatively impartial law (at least with respect to finance).

These insights help to explain why the modern economy was born in two Protestant nations: England and the Dutch Republic. Indeed, even most Catholic nations of Western Europe fell behind just as the English and Dutch began their ascent. For example, Spain and Italy fell well behind their Protestant neighbours in spite of having a centuries-long lead. More importantly, the modern economy certainly did not emerge in the Middle East, despite its head-start at least until 1000 CE.

While the book is primarily about why this outcome arose in history, my arguments clearly have implications for the twenty-first century fortunes of the Middle East. Religion still plays an important role in legitimating Middle Eastern political rule. Rulers of the three largest economies in the region – Turkey, Iran and Saudi Arabia – all look to religious authorities as a key source of legitimacy.

Turkey is an especially instructive case, since only recently has religious legitimacy become part of the menu of options for a ruler trying to secure his rule – and President Erdoğan has employed it effectively. Despite the fact that Turkey had been a secular republic since 1923, in the last half-decade, it has become an autocratic regime legitimated in part via appeals to religious orthodoxy.

The Turkish blueprint will continue to be an issue for the foreseeable future in the Middle East. Even when some semblance of democracy is established, there is always the lure of religious legitimacy for a ruler who wants to pursue unpopular policies or a rival who wants to unseat the regime in power.

What does this mean for the future of Middle Eastern economies? In the short term, many will be insulated from turmoil due to their vast oil reserves. But the medium to long-term forecasts look grimmer, as the rise of alternative fuels drives down demand for oil and technological progress increases supplies from outside the region. How will political leaders react to these changes, and what will their reactions mean for their economies?

There are two reasons to be more pessimistic than optimistic about the economic and political future of the Middle East. First, much of the economic opportunity offered by the one-time resource boom has been squandered. Although the United Arab Emirates recently diversified its economic portfolio, most of the oil-rich Middle Eastern states are still too reliant on oil revenues to survive in a low-oil revenue world. Efforts to diversify their economies will be key in this process.

Second, as oil revenues dry up and rulers have less capacity to buy support via subsidies and graft, the odds of them leaning even more heavily on religious legitimacy are high. This means the exclusion from the political bargaining table of precisely the types of people who would push for policies that portend long-run growth: leaders in manufacturing, tourism, finance, higher education and so on. Here’s hoping this prognostication is wrong.

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