13 - Politically Powerless Entrepreneurs and Enterprises

Summary

As the Middle East became an economically underdeveloped region, its entrepreneurs did not form movements to constrain either rulers or clerics. They did not bring about liberalization through organizational innovations that strengthened them politically. A basic reason is that, until the transplant of modern economic institutions from Europe, the Middle East’s private enterprises remained small and ephemeral. These characteristics precluded sustained coalitions representing business interests. A further consequence was the failure to institute political checks and balances of the type that made European rulers submit to rule of law. Several elements of the Islamic institutional complex contributed to keeping Middle Eastern enterprises structurally stagnant until the 1800s. Most critically, Islam’s partnership rules allowed partners to pull out at will, and its inheritance system hindered capital accumulation. The upshot is that enterprises did not experience operational challenges of the type that would have stimulated organizational innovations. Among the innovations that did not emerge indigenously are banks, chambers of commerce, business publications, stock exchanges, and formal insurance markets. Their long absence contributed to keeping private economic actors politically weak. It also compounded the endemic weaknesses of civil society.