The weak foundations of Arab economy

Timur Kuran writes in the New York Times on The Weak Foundations of Arab Democracy but in the process he also gives an outline of why the Arab world has advanced economically more slowly than the Western world.

On the political front Kuran says,

THE protesters who have toppled or endangered Arab dictators are demanding more freedoms, fair elections and a crackdown on corruption. But they have not promoted a distinct ideology, let alone a coherent one. This is because private organizations have played only a peripheral role and the demonstrations have lacked leaders of stature.

Both limitations are due to the longstanding dearth, across the Arab world, of autonomous nongovernmental associations serving as intermediaries between the individual and the state. This chronic weakness of civil society suggests that viable Arab democracies — or leaders who could govern them — will not emerge anytime soon. The more likely immediate outcome of the current turmoil is a new set of dictators or single-party regimes.

He goes on to point out problems that affect both the political and the economic aspect of Islamic society. He notes,

But the handicaps of Arab civil society also have historical causes that transcend the policies of modern rulers. Until the establishment of colonial regimes in the late 19th century, Arab societies were ruled under Shariah law, which essentially precludes autonomous and self-governing private organizations. Thus, while Western Europe was making its tortuous transition from arbitrary rule by monarchs to democratic rule of law, the Middle East retained authoritarian political structures. Such a political environment prevented democratic institutions from taking root and ultimately facilitated the rise of modern Arab dictatorships.

Strikingly, Shariah lacks the concept of the corporation, a perpetual and self-governing organization that can be used either for profit-making purposes or to provide social services. Islam’s alternative to the nonprofit corporation was the waqf, a trust established in accordance with Shariah to deliver specified services forever, through trustees bound by essentially fixed instructions. Until modern times, schools, charities and places of worship, all organized as corporations in Western Europe, were set up as waqfs in the Middle East.

A corporation can adjust to changing conditions and participate in politics. A waqf can do neither. Thus, in premodern Europe, politically vocal churches, universities, professional associations and municipalities provided counterweights to monarchs. In the Middle East, apolitical waqfs did not foster social movements or ideologies.

Starting in the mid-19th century, the Middle East imported the concept of the corporation from Europe. In stages, self-governing Arab municipalities, professional associations, cultural groups and charities assumed the social functions of waqfs. Still, Arab civil society remains shallow by world standards.

The development of the corporation was one, albeit significant, factor in the economic development of Europe. Kuran continues,

A less powerful business sector also hindered democracy. The Middle East reached the industrial era with an atomistic private sector unequipped to compete with giant enterprises that had come to dominate the global economy. Until then, Arab businesses consisted exclusively of small, short-lived enterprises established under Islamic partnership law. This was a byproduct of Islam’s egalitarian inheritance system, which aimed to spread wealth. Successful enterprises were typically dissolved when a partner died, and to avoid the consequent losses Arab businessmen kept their enterprises both small and transitory.

Arab businesses had less political clout than their counterparts in Western Europe, where huge, established companies contributed to civil society directly as a political force against arbitrary government. They also did so indirectly by supporting social causes. For example, during industrialization, major European businesses financed political campaigns, including the mass education and antislavery movements.

Since the late 19th century, commercial codes transplanted from abroad have enabled Arabs to form large, durable enterprises like major banks, telecommunications giants and retail chains. Still, Arab companies tend to be smaller relative to global norms, which limits their power vis-à-vis the state.

Kuran closes by saying,

A stronger civil society alone will not bring about democracy. After all, private organizations can promote illiberal and despotic agendas, as Islamist organizations that denounce political pluralism and personal freedoms demonstrate. But without a strong civil society, dictators will never yield power, except in the face of foreign intervention.

Independent and well-financed private organizations are thus essential to the success of democratic transitions. They are also critical to maintaining democracies, once they have emerged. Indeed, without strong private players willing and able to resist undemocratic forces, nascent Arab democracies could easily slip back into authoritarianism.

So development of a strong civil society with its long lasting corporations which includes a powerful business sector, all of which which acts as a counterweight to government, helps both economically as well as politically.