by Jared Rubin
Figure 1.2 Twenty Most Populous Cities in Europe and the Middle East, 1300 CE
Source: Bosker et al. (2013).
By 1800, the reversal of fortunes was complete. Seventeen of the twenty most populous cities in the region were not only Christian but located in either Western or Central Europe. The Industrial Revolution had commenced in Great Britain, and the European powers had colonized much of the rest of the world. Real wages were much higher in northwestern Europe than they were in the wealthiest parts of the Muslim world.6 The divergence was not solely between northwestern Europe and the Middle East. By this time, real wages diverged dramatically between northwestern Europe and China, Japan, and India as well.7
Figure 1.3 Twenty Most Populous Cities in Europe and the Middle East, 1800 CE
Source: Bosker et al. (2013).
Figure 1.4 summarizes this trend in economic fortunes. This figure presents the “urban center of gravity” of Western Eurasia for each century from 800 to 1800. This is a simple metric of the average longitude and latitude of the region weighted by where urbanites lived. More populous areas “pulled” the center of gravity closer to themselves. The path in this figure is clear. In 800, the urban center of Western Eurasia was just west of the Anatolian Peninsula. It was pulled strongly to the southeast by the Abbasid Caliphate, which was centered in Iraq, while it was pulled south by the bustling urban areas of Egypt. The primary reason the center was so far west of the Abbasid capital was the presence of large Muslim urban populations in the Iberian Peninsula. Over time, the urban center shifted to the northwest; first toward Italy as the northern Italian city states expanded beginning in the late tenth century, and ultimately toward northwest Europe in the sixteenth–eighteenth centuries as urban populations in England and the Dutch Republic grew relative to the rest of the region. By 1800, the urban center of Western Eurasia was located in northwestern Italy, near Milan – about 2,000 miles away from the old Abbasid capital Baghdad, but only about 500–600 miles from the two great commercial cities of northwestern Europe: London and Amsterdam.
Figure 1.4 Urban Center of Gravity in Europe and the Middle East, 800–1800
Note: Maps in Figures 1.1–1.4 are for representational purposes only. Europe is on a slight tilt in this map relative to its conventional representation in order to accommodate the entire region.
Source: Bosker et al. (2013).
Ultimately, any satisfactory explanation of the reversal of fortunes must account for two historical features. First, it must account for both the rise of the great Muslim empires as well as their relative stagnation. Second, although it is not clear from Figures 1.1–1.4, the modern economy was very much a product of northwestern Europe – England and, before that, the Netherlands. An understanding of where modern wealth comes from must therefore account for long-run differences both between Western Europe and the Middle East and within Western Europe.
It is the purpose of this book to address these two issues within one consistent framework. The framework eschews simplistic notions that Islam is at the root of the divergence or, on the contrary, that Catholicism or Protestantism are causes of European success. It does argue, however, that how political authorities used religion to legitimize their rule did matter, and the exact mapping from religion to legitimacy to economic outcomes is dependent on historical processes.
Implications and Limitations of the Argument
The consequences of this “long divergence,” as Timur Kuran has called it, are still with us in the twenty-first century. If it were not for the temporary shock of oil wealth, the Middle East would be one of the poorest places on earth, rivaled only by sub-Saharan Africa and parts of Southeast Asia. Historical curiosity should be enough to warrant an investigation into how this region – once the wealthiest and most cultured region in the world – fell so far behind.
But historical curiosity is not always enough. Historians and other intellectually minded individuals may appreciate the uncovering of historical connections as ends in themselves, but others consider historical research of this type worthwhile only if it sheds light on contemporary problems. This book should satisfy such a reader. It is first and foremost a book of economics. It uses economic theory to search for the general features of an economy that yield success under some conditions and stagnation under others. It uses Middle Eastern and Western European history as a testing ground for the theory. History provides one of the best testing grounds for economic hypotheses: what happened is behind us, and the long-run consequences are clear. This is certainly true of the long-run divergence between Western Europe and the Middle East. One set of economies was clearly much more successful than the other in the long run despite falling well behind early on.
This book addresses this issue with a general economic argument. When economists say that an insight is “general,” they tend to mean that it applies to many situations, and the insight may predict different outcomes depending on the parameters involved. This book aims to provide such a general insight into how and why economic success and stagnation occur over very long periods. It should be obvious that this is not just an issue of concern for the Middle East and Western Europe: the arguments made in this book have implications for the difficult process of alleviating human suffering associated with economic underdevelopment around the world. After all, Western Europe was at one point an economic backwater, and the average wealth of medieval Europeans was lower than most of the poorest parts of the world today. Understanding the mechanisms through which Western Europe escaped such poverty – and the Middle East, for the most part, did not – clearly has implications for the possibilities and limits of economic growth in the twenty-first-century developing world.
The history of the long-run divergence between Western Europe and the rest of the world is therefore important to understand not just for the sake of historical interest, but because it has real implications for how we view the world and how we can change it. Using the economic framework outlined in Chapter 2, this book delves into the historical past to find out what worked in Western Europe and what did not work in the Middle East. Yet, it never implies that merely transplanting what worked in Western Europe into the Middle East will solve all its economic problems. Quite the opposite is true; the solutions that worked in Western Europe arose and evolved in a specific context. Understanding this context is essential for establishing the limits of how previous experience can inform the present.
Nor does this book imply that the Middle East is helpless to change its fortunes. In fact, one of the primary insights gathered from the book’s framework is that there are many forks along the path of a society’s economic, political, and institutional progression. Once a society takes one path along the fork, it becomes more difficult over time to revert to the other side. Yet, new forks arise all the time, often for unanticipated or unforeseeable reasons such as new technologies or natural disasters. How societies respond to these opportunities can have enduring consequences. But nothing predetermines how a society will respond or when an opportunity will arise. History is not deterministic; we are not slaves to our historical and institutional past.
This book also does not suggest that the type of economic success that Western Europe experienced could have only happened there. The twentieth-century successes of South Korea and Taiwan are prima facie evidence against such a claim. Instead, this book urges a more nuanced view of why long-run economic success occurs, while searching for general features linked time and again to economic success.
Thinking in Terms of Incentives
Economists like to think in terms of incentives. This book is no different. At every historical turn, it asks the question: Why did the relevant parties act in the manner they did? The answer given in this book always boils down to: “They were incentivized to act in that manner.” Incentives come from a host of societal attributes: politics, religion, social norms, laws, and culture are just a few. The inquiry cannot stop there: simply noting the incentives that individuals fac
e is the last step. It is critical to take a step back and ask: Why were those incentives there in the first place? Why do the incentives people face differ in different places and at different times, and why do they change over time? Why do they sometimes not change over time?
Thinking in terms of incentives means tossing simplistic ideas of long-run economic divergence out of the window. Take, for instance, the idea that the root of economic divergence between the Middle East and Western Europe lies in the “conservative nature” of Islam. This is no straw man argument. A long tradition of Eurocentric explanations for the divergence suggests that the “conservative” or “mystical” nature of Islam discouraged curiosity and prevented risk-taking, innovation, and mechanization.8 In this view, Islam is inherently hostile to commerce and finance. Indeed, in varying times and places, Muslim religious authorities advocated laws that inhibited economic development, such as regulations on taking interest and printing, suppression of women, laws discouraging mass education, and adherence to antiquated inheritance and partnership laws. So, at a minimum, there is a correlation between the presence of Islam and laws antithetical to economic development.
But correlation is not causation. A simple economic example illustrates the problem with arguments relying on “inherent conservatism.” Consider the fact that elderly individuals are less likely to use computing technologies than teenagers are. On the surface, it may seem like older people are inherently more conservative – they prefer sticking with writing letters over sending e-mails. This, however, is a too simplistic argument. Older people are less likely to use advanced computing, not because they prefer the old ways more than teenagers do, but because the costs and benefits of learning a new technology are different. It may in fact be less costly in terms of time for a seventy-year-old to become Internet proficient. Yet, a shorter life horizon for the elderly not only means that they will enjoy the fruits of learning to use the Internet for a shorter period of time, but the opportunity costs associated with the time taken to learn new technologies are much greater as well. Moreover, since their friends are much less likely to be on the Internet, the benefits associated with larger networks are also lower. Hence, older people often take actions that lead to more conservative outcomes, but this is not necessarily a result of an inherent resistance to change. Instead, the incentive structure is such that the elderly have less incentive to learn new technologies.
This book applies a similar logic to economic history. Chapter 2 provides a framework based on the incentives the relevant players face in the bargain over laws and policies. It shows the conditions that incentivize these players to choose laws and policies that respond to changing economic environments. “Conservative” outcomes result when these conditions are not present, in that laws and policies do not change in spite of a changing world. But these are outcomes, not preferences. This book does not rely on some ad hoc theory of a “conservative nature” of certain groups of people; instead, it shows why certain people act conservatively.9
In the context of the Middle East–Western Europe divergence, an implication of this way of thinking is that conservatism is an outcome to be explained – it is not itself a cause of stagnation. While there is indeed evidence suggesting that Islamic political and religious thought became more conservative starting sometime around the turn of the first millennium, this does not mean that we should take the false path connecting a conservative outlook to economic stagnation. Instead, the correct questions to ask are why some cultures are more conservative than others and were there incentives in the Middle East which eventually led to conservative outcomes. A deeper answer requires that we look beyond cultural differences and analyze the key drivers of incentives, be they economic, religious, social, or political. Where do incentives come from? If not from culture, from where?
The Argument Summarized
Chapter 2 lays out the central framework of the book. It focuses on the players in an economy who affect the enacted set of laws and policies: rulers and their agents. One of its central ideas is that there are people or organizations in society that, due to their identity or access to resources, can help rulers stay in power. I call these people propagating agents. The framework focuses on two types of propagating agents: coercive agents and legitimizing agents. Coercive agents propagate through force – people follow the ruler because they face punishment otherwise – while legitimizing agents propagate through legitimacy – people follow the ruler because they believe he (or, much more rarely, she) has the legitimate right to rule. Propagating agents can provide immense benefits to the ruler, but they also come at a cost: the ruler gives them a seat at the bargaining table in return for their support. The laws and policies resulting from this bargain are reflective of the bargaining power of each player and their preferences.
Religious legitimation is especially attractive to rulers because it is inexpensive. Thus, rulers rely on religious authorities when those authorities have the capacity to legitimize their rule. In such a world, rulers are loathe to update laws in response to changing economic circumstances if doing so would undermine the religious establishment. As a result, those with the most to gain from modernizing a society’s laws and policies – producers, merchants, and commercial farmers – have little incentive to push for change. Not only are rulers unlikely to side against the religious establishment, but such a request is also a sin. Consequently, laws and policies do not change in response to changes in the outside world, and the result is economic stagnation. This logic indicates that conservatism is a result of the incentives faced by the relevant players, not an ultimate cause of bad economic outcomes.
The upshot is that differences in laws and policies across societies and over time within societies are a result of differences in the identities of propagating agents. These differences are themselves a result of differences in costs and benefits to rulers of using propagating agents. At any one given point in time, a society’s institutions impose these costs and benefits on rulers. Institutions are those aspects of society that help form the “rules of the game” by which all players abide. All societies have numerous types of institutions – religious, political, social, and economic – all of which help shape the “game” played between rulers and their propagating agents.
Chapter 3 brings the framework to the economic histories of Western Europe and the Middle East, exploring the historical reasons that rule-propagating institutions were different in the two regions. It argues that the circumstances surrounding the births of Islam and Christianity had important consequences for the manner in which rule was propagated. Islam was born in the seventh-century Arabian Peninsula, and it formed as the early Islamic empires were rapidly expanding. Many aspects of Islamic doctrine were a response to this environment, including doctrine supporting a ruler’s right to rule as long as he acted “Islamic.” Christianity, on the other hand, was born in the Roman Empire, with its previously established, well-functioning legal and political institutions. Early Christianity never formulated a corpus of legal or political theory that came close to rivaling that of early Islam for the simple reason that early Christian thinkers did not need to do so. This is not to say that religious legitimacy was unimportant in European history – it merely entails that Islam was more conducive to legitimizing rule than Christianity was, meaning that the benefits of religious propagation were greater in the Middle East than in Western Europe. The framework therefore predicts that, all else being equal, religious authorities should have had a greater seat at the bargaining table in the Middle East than in Western Europe.
It matters who sat at the bargaining table for two reasons: (1) doctrine exists in both Islam and Christianity that affects economic practices; (2) the interests of religious elites do not always align with the types of laws and policies that favor economic success. Chapter 4 brings to light one consequence of this insight, overviewing the history of an economic doctrine common to Islam and Christianity: laws against taking interest on loans (usury). This chapter
employs the framework to shed light on why usury doctrine diverged in the two religions. It highlights the different ways that political and religious authorities interacted in the two regions and how this in turn affected the willingness of rulers to permit interest. This chapter hardly claims that differences in interest laws were the reason Western European economies surpassed the Middle East. Yet, it does show that these restrictions were not completely innocuous. The type of financial instruments employed in the two regions reflected doctrinal differences and, more importantly, the lack of banking institutions in the Middle East prior to the nineteenth century.
