Rulers, Religion, and Riches: Why the West Got Rich and the Middle East Did Not (Cambridge Studies in Economics, Choice, and Society)

by Jared Rubin

  Having access to courts that decide guilt based on the available evidence rather than political or social power is a fundamental determinant of the magnitude of commercial transactions in a society. A merchant is unlikely to enter into a contract with another party if he knows that his associate might renege on the contract without penalty. Hence, a partial judicial system reduces the number of mutually beneficial transactions that occur. Western Europeans solved this problem in the late medieval period with institutions such as the merchant guild and the community responsibility system, both of which incentivized rulers to provide impartial jurisprudence.65 But these problems were not solved in the Ottoman Empire, at least until reforms were undertaken in the nineteenth century. Timur Kuran and I (Kuran and Rubin 2017) identified a further consequence of biased courts: privileged Ottoman subjects (men, Muslims, and elite) paid higher interest rates on loans than non-privileged subjects did. This is the opposite of what one expects in a modern context, where the privileged pay lower interest rates because their default risk is lower. In the Ottoman Empire, privileged borrowers were more likely to get away with reneging, so lenders imposed surcharges on them to make up for the risk associated with lending to them. We found that in the seventeenth and eighteenth centuries, men, Muslims, and elites paid about three to four percentage points higher interest on their loans, which was about one-sixth of the average interest paid for all loans. This feature of Ottoman lending markets likely exacerbated the divergence between the Ottoman and Western European economies. Since long-run economic development depends substantially on investment in capital, which itself depends in large part on the free flow of funds, the fact that the privileged paid higher interest rates indicates that those who were in the best position to invest paid the highest cost to do so. This must have had a dampening effect on capital accumulation in the early modern Ottoman Empire.

  A final casualty of the manner in which the Ottomans propagated their rule was that Ottoman literacy remained low throughout the early modern period. As late as the nineteenth century, the Ottoman literacy rate was around 2–3 percent, while it surpassed 50 percent in England and the Netherlands by 1700, and reached at least 20 percent in the rest of Europe by 1800. Ottoman literacy rates remained strikingly low for two reasons: a low supply of books and a low demand for literacy. Both of these factors are attributable to the manner in which the Ottomans propagated their rule. The low supply of books resulted directly from the restrictions on presses printing in the Arabic script, which were in turn a consequence of Ottoman reliance on religious legitimation (see Chapter 5). The low demand for literacy was also a consequence of the many outcomes described in this book. As long as merchants remained engaged primarily in personal exchange, neither literacy nor numeracy were critical to conducting business. As long as the religious establishment had a monopoly on both education and the interpretation of legal and religious thought, they had incentive to restrict the number of potential challengers. And they had the capacity to do so by restricting access to madrasas, setting the curriculum for madrasas, and seeking favorable laws and policies from the sultan when necessary. Moreover, as the wages of Ottoman workers began to fall behind their Western European counterparts, the returns from literacy diverged in tandem. The vast interregional differences in literacy that emerged in the early modern period did not cause the relative Ottoman decline; rather, they were a consequence of the deeper features responsible for the divergence.

  It Matters Who Propagates Rule

  By now, the key point of the last two chapters should be clear: it matters who propagates political rule. In Spain and the Ottoman Empire, a mix of religious authorities, local power brokers, and military elite propagated rule, leaving rulers with little incentive to negotiate with the economic elite. In England and the Dutch Republic, the Reformation provided the death knell to the Church as an agent that could provide religious legitimacy, forcing (in England) the Crown to negotiate with the economic elite or (in the Dutch Republic) propelling the economic elite to a position of political power. The long-run effects of these institutional differences are clear. After the Reformation in England and the Dutch Republic, rulers and parliaments drafted laws and policies conducive to long-run economic success. These included stronger and clearer property rights, new institutions for the provision of public goods, poor relief, and investment in transportation networks. Spanish and Ottoman rulers did not undertake such reforms. Their policies gave their citizens less incentive to invest in productive pursuits, and the bases for sustained economic growth were largely missing.

  These rule-propagating institutions did not arise out of thin air. Chapters 3 through 6 suggest that these institutions evolved over centuries, and institutional differences are traceable to the births of Islam and Christianity. This book thus provides a partial answer to two important and interrelated questions: “What does a society need to achieve economic prosperity?” and “How does a society maintain the fruits of prosperity in the long run?” The first question is a static one – at any point in time, it is possible to observe how rulers propagate their rule and analyze what this means for the types of laws and policies its government pursues. The second question is inherently historical and dynamic. Establishing the “right” institutions for sustained economic growth is an endogenous, historical process. There are many ways to get the “right” institutions, and there are many possible “right” institutional forms. For instance, the economic and political histories of England and the Low Countries are different in many ways, yet both eventually culminated in a setting conducive to growth. There is no one catch-all recipe for long-run economic success. But once the “correct” elements are in place, they tend to reinforce each other in a manner that further perpetuates economic growth, because it is in the interests of the key players for this outcome to arise. The opposite occurs when the “incorrect” elements are in place. In these settings, powerful individuals and groups perpetuate their own power and wealth at the expense of long-run economic growth, and stagnation results.

  9

  Conclusion

  The degree to which the Middle East, and to a greater extent the Islamic world, fell behind Western Europe can be gathered by viewing a political map of the two regions in the early twentieth century. On the eve of World War I – the war that would serve as the final death knell to the long-suffering Ottoman Empire – much of the Islamic world was under the control of European powers (see Figure 9.1). France, Italy, and England split control over North Africa, and England controlled the southern Arabian Peninsula, with its important strategic position as gatekeeper of the Red Sea and Persian Gulf. Elsewhere in the Islamic world, England ruled over much of south Asia, and large swaths of central Asia were under Russian rule. The Ottoman Empire was crumbling, and tribal warfare pervaded the Arabian Peninsula.

  Figure 9.1 Middle East and North Africa on the Eve of World War I

  Sources: Data from map available from UK National Archives, www.nationalarchives.gov.uk/cabinetpapers/themes/maps-interactive/maps-in-time.htm

  The signs of Middle Eastern stagnation were apparent well before World War I. Even by the turn of the nineteenth century, Middle Eastern economic, technological, and military prowess had fallen visibly behind Western Europe. The Ottoman Empire was at best a peripheral economic power in the early nineteenth century and posed no serious military threat to Western Europe. An obvious symbol of its relative economic decline was the concessionary trade regime offered by the Ottoman government to the European powers at the expense of its own merchants. The economic disadvantages rooted in the capitulations were symptomatic of a much broader reversal of fortunes that were centuries in the making.

  A central thesis of this book is that the environments under which Christianity and Islam were born spawned institutions that had important and unforeseen long-run consequences for the “rise of the West” and the stagnation of the Middle East. The thesis is hardly straightforward; the chain connecting the births of Islam and Christia
nity to economic outcomes more than a millennium later has many links. A summary of the argument follows, beginning with the first link.

  The fundamental difference between Western Europe and the Middle East explored in this book – and the only doctrinal difference between Islam and Christianity that matters for the argument – is that Islamic doctrine is more conducive to legitimizing rule than Christian doctrine is. The reason for this doctrinal difference was the circumstances under which the religions were born. Christianity was born in the Roman Empire, which had well-functioning legal and political institutions. Moreover, early Christians were in no position to legitimize the Roman emperor. Islam, on the other hand, formed initially alongside the expansion of a political state under Muhammad. The corpus of Islamic law grew further under the empires of the First Four Caliphs and the Umayyads – the largest empires the world had ever seen at the time. A natural consequence of this coevolution – especially given the important religious role played by the early caliphs – was the formation of Islamic doctrine supporting the legitimation of rule by Islam.

  Subsequent Middle Eastern rulers thus had the capacity to derive legitimacy from a unifying ideology. The spread of a relatively uniform Islamic legal framework helped foster this ideology, which could accommodate divergent tribal interests. This had a number of beneficial consequences for the economies of the Middle East, North Africa, and Iberian Peninsula. The spread of Islamic political rule helped promote trade by providing greater security for merchants, a common social and religious network, a common currency, a common language, and common financial instruments.

  Any convincing explanation for the decline of Middle Eastern economies relative to those of Western Europe must also explain why the Middle East was so far ahead for so long. As we have seen, the same feature can account for both the economic rise and decline of the Middle East: the strength of early Muslim rulers, due in large part to their ability to derive legitimacy from Islam, allowed Muslim-governed states to support trade in a manner unachievable by the more decentralized states of the pre-Islamic Middle East and post–Roman Europe. But this strength ultimately became a weakness. As trade expanded, new laws and policies were required for further expansion, none of which were imaginable in the context of the seventh-century economy. Yet, Middle Eastern rulers had little incentive to adopt such laws and policies. Doing so would have undermined the religious elite, who were the primary interpreters of commercial law and were largely responsible for the rulers’ strength in the first place.

  There was nothing predetermined about this outcome. Indeed, it was hardly unthinkable that Muslim rulers circa 1000 could have reformed Islamic law in a manner that would have benefited the economic elite. This book has provided two historical processes – one static and one dynamic – that can account for their failure to do so. The static process consists of the “game” a ruler plays to determine how to best propagate his rule. He considers the costs and benefits of different forms of propagation – both of which stem from institutions formed in the historical past – and chooses some combination of propagating agents that best help him stay in power. These choices have dynamic consequences over the long run, many of which are unforeseeable or occur so far in the future that they are of minimal concern to the ruler in the present. These consequences stem from the fact that propagating agents do not support the ruler for free – they expect some say in laws and policies in return. Their choices can have unintended, path-dependent consequences for future rulers.

  Each link in the chain of these path-dependent processes makes sense in isolation, but rarely is it obvious how the end link connects to the first. This analysis is thus inherently historical. It identifies each link of a long chain, up to the ultimate outcome. Not only can this framework explain why Middle Eastern rulers had little incentive to make pro-commercial reforms circa 1000; it can also explain why the incentives fell over time. Moreover, it also makes sense of why Western European rulers were ultimately more incentivized to do so, especially after the Reformation. Importantly, nothing about this argument relies on old, easily dismissed arguments that Islam was antithetical to commerce or that it was inherently more conservative than Christianity. Indeed, nothing about this framework relies on any tenet of Islam and Christianity, except for Islamic doctrine being more conducive to legitimizing political rule.

  The book first considers the static consequences of the relatively weaker capacity of Christian rulers to derive religious legitimacy. It meant that Western European and Middle Eastern rulers faced different incentives when deciding how to propagate their rule. Middle Eastern rulers derived greater benefits from religious legitimation, so they gave the religious elite an important seat at the bargaining table. In the short run, the rulers of the two regions pursued different laws and policies, especially with respect to commerce. After commerce began to revive in Western Europe in the late tenth century, merchants ran into constraints imposed by laws and policies unsuited for a commercial economy. European rulers ultimately gave the economic elite a seat at the bargaining table – at the expense of and occasionally in defiance of the Church – because the benefits of doing so outweighed the costs of less propagation from the Church. Muslim rulers faced a different set of costs and benefits from enacting laws and policies opposed by the religious elite. On the one hand, the benefits of ceding to the interests of the economic elite were actually greater in the Middle East for most of the medieval period than in Western Europe, as Middle Eastern economies were ahead of Western European ones. But the costs of upsetting the religious establishment were also far greater for Middle Eastern rulers, who relied more critically on clerics for legitimacy.

  These static decisions made by Western European and Middle Eastern rulers had dynamic, unforeseen consequences. First, the decisions made by Western European rulers placed the Church in a no-win situation: either it would update its doctrine to reflect changing commercial needs (and risk losing its claim to hold “eternal” doctrine), or it would hold steady in the face of changing circumstances (and risk losing its moral authority). Either way, the Church’s influence over its subjects, and especially the economic elite, weakened over time. Second, laws and policies favoring commerce had the unintended consequences of spurring on further economic and financial innovation. The widespread use of usurious financial instruments such as bills of exchange encouraged innovations in the structure of partnerships. In turn, these innovations ultimately led to the emergence of the banking system and the rise of impersonal exchange. These consequences arose hundreds of years after the Commercial Revolution sparked the initial changes in laws and policies, and they were unintentional and unforeseeable. Yet, it is difficult to imagine a world where the “rise of the West” would have occurred when and where it did without these initial changes. Meanwhile, in the Middle East, rulers rarely enacted laws that openly transgressed the wishes of religious authorities, and Islamic religious authorities never faced the no-win situation their Catholic counterparts did. Thus, religious legitimation remained an important part of the propagating regime. As a result, what were once relatively small differences in the manner in which Middle Eastern and Western European rulers propagated their rule diverged immensely over time.

  Another important path-dependent consequence of the differences in rule propagation involved different reactions to the spread of the printing press. From a static perspective, the responses of the Ottomans and Western Europeans are understandable given the costs and benefits of their choices. The printing press posed a threat to Islamic religious authorities: not only would it have threatened their control over information and the high barriers to producing Islamic thought; events in Western Europe showed just how quickly the press could undermine a vulnerable religious establishment. The sultan propagated his rule using a combination of religious legitimacy and military might; without the support of the religious establishment, his hold on power would have been much weaker. The Ottoman sultan therefore had an incentive to block the press. A
very different sequence played out in Western Europe, where the press spread quickly after its invention in 1450. Had the Church wanted to stop its spread, it would have failed because its influence over secular rulers was relatively limited.

  The dynamic, unforeseen consequences of printing were all the more important. The most monumental of these consequences was that the printing press helped facilitate the successful spread of the Reformation. Empirical tests indicate that the presence of a printing press prior to 1500 increased by 52.1 percentage points the probability that a city would become Protestant in 1530. The Reformers were successful where previous attempts at reforming the Church failed because they could spread their antipapal grievances quickly, before the Church could suppress them. Meanwhile, in the Ottoman Empire, even had there been anticlerical grievances like those expressed by the Protestant Reformers, any movement against the religious establishment was unlikely to spread quickly and was thus likely to be suppressed by the Ottoman sultan, who relied on clerics for legitimacy. In other words, the very thing that could have undermined the religious establishment – the printing press – did not spread in the Ottoman Empire precisely because religious legitimacy was so important.

  The final link in the causal chain mapped out in this book is the connection between Protestantism and economic outcomes. A cursory reading of the argument might suggest that Protestantism is “better” for economic outcomes than Catholicism, which itself is better than Islam. Insofar as these readings make sense, they have nothing to do with the content of the religions. The connection between religion and economic outcomes involves the capacity of the religious elite to legitimize political rule. It was stronger in Islam than in Catholicism, and minimal in Protestantism. What was important about the Reformation, therefore, was not that it questioned the validity of certain church practices or even its religious nature. Instead, its importance lies in that it fundamentally altered the relationship between rulers and those who propagate their rule. This key point of the book has nothing to do with religion per se or, for that matter, culture in general. The argument is therefore in the spirit of Richard Tawney’s (1926) classic rebuttal to Weber’s “Protestant Ethic” hypothesis, which holds that the most important outcome of the Reformation was the secularization of law and political economy. Tawney’s critique suggested that the Church had an ingrained anti-commercial philosophy, and capitalistic impulses spread only after the Reformation broke the Church’s stranglehold over the marketplace. The argument proposed here is close in spirit to Tawney’s argument, but with an important twist. Instead of focusing on how the Church affected the political and economic culture of the medieval period or on how this culture changed with the Reformation, I highlight the pathway through which religious propagation of political rule affected economic outcomes. In the process, I have answered why the religious elite had the power to affect decisions made by rulers in the first place and how this power manifested itself in policy.