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Created: April 18, 2002
Latest Update: April 18, 2002
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An Economic Perspective
Economics – as much as religion – may explain the Middle East crisis

Backup of Middle East article from the USC Alumni News. Essay up soon. jeanne

Copyright: Jeanne Curran and Susan R. Takata and Individaul Authors, April 2002.
"Fair use" encouraged.

Photo by Irene Fertik USC economics professor Timur Kuran examines why the Middle East has remained underdeveloped while the West has advanced economically. The poster behind him shows the signature of Suleyman the Magnificent, sultan of the Ottoman Empire in the 16th century.

4/11/2002

The College: Economics – as much as religion – may explain the Middle East crisis

Professor Timur Kuran examines a question that few people paid much attention to before Sept. 11: Why has the West advanced economically while the Middle East became, and has remained, underdeveloped?

by Gilien Silsby

For more than a decade, Timur Kuran, a USC economics professor, has examined a question that few people paid much attention to before Sept. 11: Why has the West advanced economically while the Middle East became, and has remained, underdeveloped?

Today, Kuran’s question is being asked by more than a narrow group of academics. Lawmakers, media and the general public are eager to understand the multifaceted crisis in the Middle East, which may be as much about economics as it is about religion.

"It’s not Islam itself that hinders economic growth," said Kuran. "It’s certain local institutions – such as legal systems and regulatory bodies – that limit development. For example, overgrown states – states that are more intrusive than is socially efficient – block creativity. Such a state regulates economic activities that are best left unregulated, thus stifling enterprise, investment and innovation."

Egypt is an example of a country with an enormous bureaucracy that puts a brake on development, he said.

"Surprisingly, the Middle East once had a standard of living higher than that of Europe," Kuran said. "But by the 19th century it fell behind in many areas, including economic production, technological creativity, democratization and military strength. I ask the question, why? What mechanisms blocked change and limited creativity?"

Islam's egalitarian inheritance system and its law of partnerships, said Kuran, are prime examples of mechanisms that can limit organizational development.

According to the Islamic law of partnerships, a single business partner's death requires a partnership's immediate liquidation. All agreements among partners immediately become null and void. And, said Kuran, the larger the number of partners, the greater the chance that one of them will die before the partnership's mission is complete, forcing a costly, premature liquidation.

"In principle, the surviving partners could form a new partnership," said Kuran. "But this is not so easy: Under the Islamic inheritance system, the number of heirs is usually large because brothers, sisters, parents and children – and sometimes even more distant relatives – are all entitled to shares."

Consequently, said Kuran, merchants and financiers have refrained from forming large partnership.

In analyzing the causes of underdevelopment, Kuran looks at history from an economic perspective. His recent research finds that several elements of classic Islamic law are better suited to a medieval economy, the relatively simple economy – one in which people dealt primarily with people they knew personally – that existed before the beginning of industrialization.

These elements unintentionally block economic modernization, he believes.

In the past several months, Kuran has been tapped by a variety of sources – including congressional staff members – to lead seminars on understanding the Middle East. In January, he gave four workshops on the economic sources of Middle Eastern anger and terrorism for a bi-partisan group of Congressional chiefs of staff.

"They wanted to go beyond the headlines in learning about the Middle East," Kuran said. "If I was surprised by anything, it was how many of them genuinely wanted to learn about the region's problems."

The staffers have invited Kuran back to meet directly with senators and representatives on Capitol Hill. The Congressional Black Caucus is also interested in his running a seminar.

"Policy-makers and the public are trying to come to terms with what went wrong in the Middle East," Kuran said. "The historical causes of underdevelopment in the region have now become relevant to everyone."

Kuran is working on a three-volume book on the economic underdevelopment of the Middle East. The first volume looks at what elements of Islamic law have contributed to bottlenecks in the region. The second volume covers belief systems and mental models that have contributed to perceptions conducive to underdevelopment. It analyzes the roles of educational systems and religion in accumulating wealth.

The third volume looks at Islamist reactions to economic modernization, which gathered steam in the second half of the 20th century.

Kuran holds a joint appointment in economics and law in the USC College of Letters, Arts and Sciences and the USC Law School, and holds the university's King Faisal Chair in Islamic Thought and Culture. In addition to law and economics, his teaching and research draw on multiple disciplines, including political science, sociology and psychology. This interdisciplinary approach has led to some novel applications of economic theory.

In particular, Kuran has used economic theory and concepts to explain movements of public opinion and misperceptions of these changes. His best known theoretical work is "Private Truths, Public Lies: The Social Consequences of Preference Falsification" (Harvard University Press), which deals with the repercussions of being dishonest about what one knows and wants.

"Kuran is among USC economists who are giving USC a very strong presence in many aspects of economics," said Joseph Aoun, dean of the College.

"It's a presence, I might add, that is, as yet, largely unheralded," he said.

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