Economic History of the Middle East, 622–1914

Abstract

In the Middle Ages, the Middle East was an economically advanced region. Driving its successes were an essentially uniform legal system that supported intra- and interregional commerce, partnership rules that supported commerce among nonrelatives, and a form of trust known as waqf, which served as both a wealth shelter and a vehicle for endowing social services with protections against state predation. These same institutions disincentivized the institutional advances needed to generate the modern economy’s infrastructure indigenously. Home-grown innovations, such as the tradable equity known as gedik and a form of waqf used for moneylending (cash waqf), were ill-suited to large-scale and perpetual enterprises. Partnerships used to form small and ephemeral enterprises did not spawn organizational forms conducive to pooling resources on a large scale and perpetually. The waqf’s rigidities led to increasingly serious capital misallocation and misuse with changes in relative prices and the emergence of new technologies. Thus, the Middle East reached the Industrial Era institutionally unprepared. Sensing an existential threat from the West, its ruling elites launched massive economic reforms in the 1800s. These reforms involved transplanting Western economic institutions to the West in a hurry. Although the Middle East’s economic performance improved greatly in absolute terms, it remained underdeveloped in 1914, and the catch-up process has continued. Until the 1700s, the economic fortunes of the Middle East’s religious minorities generally tracked those of its Muslims. Thereafter, non-Muslims pulled ahead. As the global economy modernized, they benefited from a right that, from the early years of Islam, was denied to Muslims: choice of law. With the development of modern economic institutions by Europeans, choice of law enabled non-Muslims to increase the efficiency of their business operations. In the century preceding the Industrial Revolution, non-Muslims benefited also from international treaties that strengthened their property rights vis-à-vis those of Muslims.