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

  The historical examples analyzed in Chapters 7 and 8 support this idea. By 1600, the manner in which rule was propagated in Protestant Northwestern Europe differed greatly from that in Catholic Europe, and even more so from that in the Middle East. In Protestant England and the Dutch Republic, the Reformation undermined the capacity of the Church to legitimize rule. As a response, rulers turned to parliaments comprised mostly of economic elites to propagate their rule and provide tax revenue. The economic elite thus obtained a seat at the bargaining table, which they used to enact laws and policies that benefited their interests. And the interests of the economic elite generally aligned more with laws and policies consistent with macroeconomic success. In England, the Crown and Parliament passed new laws providing clarity to property rights, relaxing usury laws, and improving poor relief. In the Dutch Republic, the economic elite negotiated for the provision of public goods such as vastly improved transport networks and land reclamation. Meanwhile, the Catholic Spanish Crown continued to derive legitimacy from the Church; the Pope crowned Ferdinand and Isabella the “Catholic Monarchs” for their role in the “fight against Islam.” This source of legitimacy, combined with mountains of gold and silver flowing in from the Americas, allowed the Spanish Crown to essentially ignore their economic elite. The Spanish Crown therefore pursued policies that damaged economic interests at the expense of other key constituencies; examples include religious wars in the Holy Roman Empire, the Inquisition of Jews and Muslims, protection for the sheep-owners’ guild, high taxes on the peasantry and urbanites, and export tariffs on key goods. In the Ottoman Empire, Islamic religious authorities had an even greater capacity to legitimize, and the sultan had little incentive to bring the economic elite to the bargaining table. This was especially true in the period of Ottoman expansion through the end of the sixteenth century, when the military elite also propagated the sultan. Ottoman merchants, manufacturers, and money changers never had a say in governance, and Ottoman policy reflected this. Property rights were relatively insecure, Islamic courts settled commercial issues, and the Ottomans frequently debased their currency.

  In other words, differences in the capacity of Christian and Muslim religious authorities to legitimize rule, which arose due to circumstances surrounding the births of the two religions, had important long-run economic consequences. In the Middle East, this relationship was self-reinforcing. Middle Eastern rulers were strong, and the very thing that kept them strong – religious legitimation – discouraged them to negotiate with other potential propagating agents or to permit laws and policies capable of undermining the religious establishment. On the other hand, the relative weakness of Western European rulers encouraged them to engage in more costly negotiations with the economic elite. The unintended, path-dependent consequences of these negotiations further weakened the capacity of the Church to legitimize rule, especially after the Reformation. This further encouraged Western European rulers to negotiate with the economic elite. Consequently, they enacted laws and policies more beneficial to the economy.

  Possible Misconceptions

  Throughout the book, I attempt to discredit four misconceptions that a skeptical reader might attribute to its arguments. It is worthwhile to reconsider them in turn.

  Misconception #1: Increasing the political power of the economic elite is always good for long-run economic development.

  An important part of the historical argument is that Protestant Northwestern Europe was primed for long-run economic success following the Reformation because the Church lost its propagating role to the economic elite in parliaments. A casual reader could easily take the argument to imply “economic elite = good, religious elite = bad.” Far from it. The point is simply that, like the religious elite, the economic elite look after their own self-interest. It so happens that their self-interest more often encourages them to seek laws and policies that benefit the entire economy. But the incentives of the economic elite do not always align with laws and policies that portend economic success. Rent seeking, which is ubiquitous in every economy, offers an example. Powerful economic elite can often use their power to line their pockets through monopoly grants, government subsidies, and advantageous tax policy. Such privileges tend to create more losers than winners and end up redistributing wealth to those who already have it. Indeed, this was touched on in the overview of the eighteenth-century Dutch Republic (see Chapter 7). The Dutch rose to prominence in the seventeenth century with an economy based on trade, manufacturing, and highly productive agriculture. The economic elite played an important role in governing the Republic, and they were in large part responsible for laws and policies favoring interests in these sectors. But with economic success came special interests. After the 1670s, these interests dominated Dutch politics, pushing through industrial regulations favoring their own interests at the expense of newcomers, taxes that served a narrow slice of society disproportionately, and numerous other measures benefiting some at the expense of many.

  Nothing in this book suggests, then, that giving more political power to the economic elite always improves the economy. What is true is that giving zero political power to the economic elite is definitely harmful to economic growth. Since other propagating agents are less likely to have interests conducive to economic success, giving those interests more say over a society’s decisions will result in laws and policies less conducive to economic success. In the terms of economics, there is an “internal optimum” for the share of power held by the economic elite. The best fraction is not zero; neither is it one. Just as the economic elite’s political powerlessness harmed the long-run economic fortunes of early modern Spain and the Ottoman Empire, an economy run entirely by corporations and wealthy power brokers could also be devastating for the vast majority of the population.

  Misconception #2: An argument that addresses why Middle Eastern economies fell behind Western European economies cannot account for the Middle East’s lead over Europe during Islam’s first few centuries.

  This is perhaps the most frustrating misconception because I go through great pains to explain how the early expansion of the Islamic Middle East is compatible with its subsequent stagnation. It is also the misconception of readers who might ask why the book says little about the positives of Islam. Let me begin by noting that the book hardly shines a positive light on Christianity, either. This is hardly a serious criticism anyways. A good hypothesis is one that has an empirical basis, not one that skirts controversy or simply tells people what they want to hear.

  This book states that in a premodern economic environment, Islam’s unifying ideology provided a more favorable context for trade than the fractured regimes pervading the Middle East and Western Europe following the fall of the Roman Empire. Islam’s conduciveness to legitimizing rule meant that Middle Eastern rulers were encouraged to enforce the growing corpus of Islamic law, which covered commerce and was well suited to the adjudication of premodern economic disputes. The question this book proceeds to answer is why the Middle East became “stuck” in this medieval equilibrium, which is why laws and policies barely evolved to meet the changing needs of merchants and other economic actors, needs that could not possibly have been foreseen during the first four Islamic centuries. But it would be a misreading to suggest that this is where the book’s argument begins. Although many more pages are dedicated to the relative “reversal of fortunes” between the Middle East and Western Europe, the book focuses on an explanation that accounts also for the original ascent of the Middle East.

  Misconception #3: Religion is harmful.

  Writing on religion is tricky, and there is always the chance of offending. This is especially true when the primary hypothesis is that the “rise of the (Protestant) West” is in part attributable to the loss of political power for religious authorities. But nothing in the argument relies on the content of any Islamic or Christian dictates, save those that facilitate political legitimation. Moreover, the argument says absolutely nothing about the role of relig
ion in daily life. Religion can be a powerful source of good, and it can be a powerful source of bad, especially when used to justify despicable acts. In my opinion, religion provides a net positive for the world – the benefits that it brings to individuals and communities well outweigh its costs. But my personal views are irrelevant to the argument, as is the fact that religion can be a source of both good and bad. All that matters is that religion can propagate rule.

  The book does argue that religious propagation of rule is worse for long-run economic prosperity than propagation by the economic elite is. This is a falsifiable, positive statement – it is about how the world “is,” not how it “should be.” The argument makes no normative claims about whether economic prosperity is a good goal or not for a society. The aim of the book is to understand why the West became rich and the Middle East did not. It makes no claim at all regarding the morality of prosperity. That is the subject of an entirely different study.

  It is made clear repeatedly that there is nothing uniquely bad about religious propagation. Indeed, propagation by military or police coercion is likely to have an equal, if not stronger, retarding impact on economic development. The reason is simple: propagating agents look after their own self-interest. This is as true of the religious elite as it is of the economic or military elite. And while the religious elite do have some interests aligned with economic success, such as keeping social order via poor relief, they have many other interests that are not, such as restrictions on taking interest. The military likewise has some interests consistent with economic success and other interests inconsistent with success. Increasing military resources may provide protection against foreign invasion or help quell social unrest. Alternatively, it can terrorize the population or keep an unpopular ruler in power. The key point is simply that the desired policies of the economic elite, based on their own self-interest, tend to align better than those of the religious elite with policies that promote economic success.

  Misconception #4: The Middle East was destined to fall behind Western Europe because of the role that Islam plays in politics.

  There is nothing deterministic about the argument presented in this book. History is not destiny, and it takes a major misreading to draw this implication. Instead, the framework points to what incentivized actors to make certain decisions at certain times, and to how these decisions affected the incentives of future decision-makers. There is nothing deterministic about this argument, and nothing implies that the economic paths of Western Europe and the Middle East had to diverge in the manner observed. Instead, it simply notes that actions of Middle Eastern and Western European rulers had unintended and unforeseen consequences for the incentives faced by future rulers, who themselves took actions that had unforeseen consequences for rulers even further in the future.

  Each step in the described path-dependent chain made prosperity more likely to occur in Protestant Western Europe and not the Middle East. The case of the Ottomans blocking the printing press highlights the lack of determinism in these path-dependent processes. It is certainly possible that an inspired sultan could have fundamentally changed the course of economic history by permitting the press and encouraging its spread. Yet, for centuries no sultan had the right incentives. While it is by no means self-evident that long-run economic trends were reversible had the Ottomans permitted the printing press, it does provide a fascinating opportunity to conduct counterfactual history. The most direct consequence of Ottoman printing could have been the religious establishment facing opposition to its legitimizing power. The opposition could have come from the masses, the Janissary corps, or local power brokers like the notables, and it would have been relatively easy to spread an anticlerical message via the printing press. With a weakened religious establishment less capable of providing legitimacy, the Ottomans would have had incentive to bring all of the economically powerful parties to the negotiating table in order to propagate their rule and ensure sufficient tax collection. This probably would have included the military, notables, and economic elite. Had the Ottomans propagated their rule in this manner, then laws encouraging property rights, innovation, exploration, and economic expansion would have been more likely to arise. This counterfactual sequence of events obviously did not happen. But a lack of institutional change did not occur because of some ad hoc process or cultural conservatism. It resulted from processes deeply, though not inevitably, rooted in the historical past.

  Implications for the Rise of the West

  The arguments presented in this book have implications for our understanding of the “rise of the West.” But there is one implication that readers should not take too far: very little has been said here about the specific mechanisms that led to industrialization. Indeed, the book’s primary arguments attempt only to explain the larger institutional differences between Western (and northwestern) Europe and the Middle East up through the turn of the seventeenth century. The fascinating accounts of England’s industrial rise put forth by renowned economic historians like Joel Mokyr and Robert Allen delve much deeper into the factors that permitted the onset of industrialization in the eighteenth century, and it is not my intention to confront these arguments.

  This book has aimed to identify the preconditions of the economic revolution brought on by industrialization and to explain why, by 1600, northwestern Europe was a likely candidate for such a revolution. It places the roots of this revolution in the political changes that followed the Reformation. But I do not argue that the Reformation was an isolated, exogenous event that randomly hit certain “lucky” nations. Rather, the Reformation was the culmination of a long series of path-dependent events, each explainable by taking into account the previous step in the path and the resulting institutional environment. And while this book follows this path all the way back to the births of Christianity and Islam, most of the action occurs in the latter half of the medieval period (c. 1000–1517). It was then that the Commercial Revolution facilitated the undermining of the legitimizing relationship between church and state in Western Europe. It was also then that a deeply entrenched equilibrium arose in the Islamic world whereby religious authorities gained power at the political bargaining table due to their role as legitimizers of political authority. Finally, it was at the end of the medieval period that the printing press spread in Western Europe while the Ottomans suppressed it, for reasons entirely consistent with the manner in which rulers in both regions propagated their rule.

  These were the preconditions that enabled the Reformation to take hold in certain parts of Western Europe, while a similar undermining of the religious establishment was unthinkable in the Middle East. This book therefore follows in the spirit of works by Robert Lopez, Douglass North, Avner Greif, Timur Kuran, Deirdre McCloskey, and Jan Luiten van Zanden, all of whom look for the roots of the modern economy in the medieval period. Where I depart from these scholars is in my focus on the manner in which rulers propagated their rule. The players at the bargaining table were different in Western Europe than in the Middle East, and they were ultimately different in Protestant and Catholic Europe.

  The process through which this occurred was inherently historical. In other words, it was far from predetermined. Understanding the mechanisms through which it occurred is important, and not just for the sake of historical knowledge. The keys to modern wealth are still only available to a minority of the world’s population, so knowing what actually did happen in England – and ultimately its followers in Europe, North America, and, much later, East Asia – provides an example of one path that did work.

  Is this path replicable? In short, no. The nature of path-dependent processes is that one event builds on another, and random, uncontrollable events determine the exact trajectory. Would Henry VIII have brought the Reformation to England had Catherine of Aragon borne him a son or the pope granted him a divorce? We will never know. What we do know is that the unforeseen consequences of Henry VIII’s decision were world-changing. Would the Dutch have had the world’s leadi
ng economy in the late sixteenth and seventeenth centuries had the Spanish crushed the Dutch Revolt in its early stages (which almost happened multiple times)? Probably not: the Dutch “bargaining table” would have looked very different, with the economic elite having much less say in laws and policies.