Muslim economies haven’t always been low achievers, Guy Sorman notes, but since the Long Divergence beginning in the 12th century they’ve slowly fallen behind:
A key factor in the divergence was Italian city-states’ invention of capitalism—a development that rested on certain cultural prerequisites, Stanford University’s Avner Greif observes. In the early twelfth century, two groups of merchants dominated Mediterranean sea trade: the European Genoans and the Cairo-based Maghrebis, who were Jewish but, coming originally from Baghdad, shared the cultural norms of the Arab Middle East. The Genoans outpaced the Maghrebis and eventually won the competition, Greif argues, because they invented various corporate institutions that formed the core of capitalism, including banks, bills of exchange, and joint-stock companies, which allowed them to accumulate enough capital to launch riskier but more profitable ventures. These institutions, in Greif’s account, were an outgrowth of the Genoans’ Western culture, in which people were bound not just by blood but also by contracts, including the fundamental contract of marriage. The Maghrebis’ Arab values, by contrast, meant undertaking nothing outside the family and tribe, which limited commercial expeditions’ resources and hence their reach. The bonds of blood couldn’t compete with fair, reliable institutions (see “Economics Does Not Lie,” Summer 2008).
Greif’s theory suggests that cultural differences explain economic development better than religious beliefs do. Indeed, from a strictly religious perspective, one could view Muslims as having an advantage at creating wealth. After all, Islam is the only religion founded by a trader—one who also, by the way, married a wealthy merchant. The Koran has only good words for successful businessmen. Entrepreneurs must pay a 2.5 percent tax, the zakat, to the community to support the general welfare, but otherwise can make money guilt-free. Private property is sacred, according to the Koran. All this, needless to say, contrasts with the traditional Christian attitude toward wealth, which puts the poor on the fast track to heaven and looks down in particular on merchants (recall Jesus’s driving them from the Temple).
But Duke’s Kuran believes that Islam did play a role in the Long Divergence. It wasn’t the Koran, which the Muslim faithful see as written by God and unalterable, that impeded Muslims economically, he argues, but instead sharia, the religious law developed by scholars after Mohammed’s time. Not that sharia was overtly hostile to economic progress; it established commerce-friendly legal rules that, for instance, allowed for bazaars and for the arbitration of economic disputes. Rather, Kuran maintains, sharia became economically counterproductive because it was less efficient than the Western legal framework.
The most significant of the sharia-rooted economic liabilities was the Islamic partnership, which proved no match for the Western world’s joint-stock company. Partnerships were short-lived, dissolving with the death of any of the partners, and they tended to be small, often formed among family members. Joint-stock companies, which sharia prohibited, had much greater reach and risk-hedging power. Sharia inheritance rules were a second drag on economic development, Kuran explains. Since the Koran sanctions polygamy, sharia required a husband’s wealth, upon his death, to go in equal portions to his widows and children, which worked against capital accumulation. In the Roman law that held sway in Europe until the nineteenth century, by contrast, the eldest son inherited his deceased father’s wealth, creating vast fortunes that could be put to economic work. Some economists point to sharia’s prohibition of interest as another hamper on development, but this is much less significant than it appears. From at least the twelfth century on, sharia lawyers authorized “fees” that could accompany money-lending, getting around the ban.