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Economic History of the Middle East, 622–1914  

Timur Kuran

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.


The Ottoman Empire: Institutions and Economic Change, 1500–1914  

Şevket Pamuk

The Ottoman Empire stood at the crossroads of intercontinental trade for six centuries until World War I. For most of its existence, the economic institutions and policies of this agrarian empire were shaped according to the distribution of political power, cooperation, conflicts, and struggles between the state elites and the various other elites, including those in the provinces. The central bureaucracy managed to contain the many challenges it faced with its pragmatism and habit of negotiation to co-opt and incorporate into the state the social groups that rebelled against it. As long as the activities of the economic elites, landowners, merchants, the leading artisans, and the moneylenders contributed to the perpetuation of this social order, the state encouraged and supported them but did not welcome their rapid enrichment. The influence of these elites over economic matters, and more generally over the policies of the central government, remained limited. Cooperation and coordination among the provincial elites was also made more difficult by the fact that the empire covered a large geographical area, and the different ethnic groups and their elites did not always act together. Differences in government policies and the institutional environment between Western Europe and the Middle East remained limited until the early modern era. With the rise of the Atlantic trade, however, the merchants in northwestern European countries increased their economic and political power substantially. They were then able to induce their governments to defend and develop their commercial interests in the Middle East more forcefully. As they began to lag behind the European merchants even in their own region, it became even more difficult for the Ottoman merchants to provide input into their government’s trade policies or change the commercial or economic institutions in the direction they preferred. Key economic institutions of the traditional Ottoman order, such as state ownership of land, urban guilds, and selective interventionism, remained mostly intact until 1820. In the early part of the 19th century, the center, supported by the new technologies, embarked on an ambitious reform program and was able to reassert its power over the provinces. Centralization and reforms were accompanied by the opening of the economy to international trade and investment. Economic policies and institutional changes in the Ottoman Empire began to reflect the growing power of European states and companies during the 19th century.