The Middle East Is Capitalism’s Next Frontier

Nabi Yunus market in Mosul, Iraq, March 2017 (Youssef Boudlal/Reuters)
The part of the world today known for endless conflict might also be the once and future home of free markets.

Editor’s Note: This article is adapted with permission from the author’s book, The Birthplace of Capitalism: The Middle East.

The people of China have experienced a significant wealth increase over the last few decades thanks to the country’s integration of some market principles into its economy. Now a similar transformation is taking shape in India. It is commonly argued that the success of Western capitalism has encouraged China and India to adopt free markets. However, China and India have a tradition of enterprise and markets which is older than that of the Western world. These ancient civilizations are returning to their own free-market roots.

But the next wave of free-market reforms is waiting to happen in the part of the world where capitalism was originally born some 4,000 years ago: the Middle East. Americans should encourage this renewal by focusing more on trading with Middle Eastern countries and less on interventionist foreign policy. It might sound odd to the modern reader, but for most of human history, Middle Eastern civilizations have flourished through free enterprise. The oil-dependency of Middle Eastern nations will decline over time. If the obstacle of its oil-dependency finally ends, free markets might again make the Middle East great.

The cities of Mosul and Aleppo have featured heavily in American news in recent years. The two cities, separated by a day’s drive through the deserts and mountains of Iraq and Syria, are too often home to war and extremist violence. Extremism, war, ethnic conflict, dictatorship, terror, and human suffering: This is what the world has come to associate with Mosul and Aleppo. Add “oil” and “corruption” and you have a list of the words most commonly associated with the Middle East.

Prospering cities such as New York, London, Stockholm, Singapore, and Hong Kong are characterized by commerce, enterprise, vibrant city life, and entertainment. Yet, for centuries, these terms best described Mosul and Aleppo, gaining these cities admiration around the world. Free markets run deep in the DNA of the Middle East, and Mosul and Aleppo are just two of many examples of the enterprising history of the region.

The ideas of free markets, individual liberty, and limited government are concepts with a much older origin than is commonly understood. The first entrepreneurs, enterprises, banks, and financial speculators had already emerged 4,000 years ago in ancient Babylonia and Assyria. Over time, a large number of clay tablets from these civilizations have been found and deciphered. Many of these clay tablets are receipts of economic transactions, and they paint a clear picture: Middle Eastern civilizations prospered and fostered human progress because they were largely driven by market exchange. Surviving accounts even tell us how the market prices in ancient Babylon fluctuated from month to month. As Dutch historians Robartus Johannes van der Spek and Kees Mandemakers have written: “That market mechanisms played their part in the Babylonian economy seems now to be unquestionable.”

This market tradition persisted in the Persian Empire, founded by Cyrus the Great — which at its peak accounted for a substantial chunk of the global population. Adam Smith is often considered to be the father of economics and the first intellectual supporter of free-market ideals. But the first account of how markets develop through the division of labor and specialization was given by the Greek historian Xenophon, who described the workings of a marketplace in ancient Persia fully 2,000 years before Adam Smith was born. Xenophon retells a Persian story that amounts to the world’s first known defense of voluntary market exchange. The story concerns Cyrus the Great, and its moral was that a wise ruler should not regulate the marketplace based on what the ruler believed to be an efficient exchange; rather, he should concern himself only with whether the transaction had been conducted voluntarily and in accordance with property rights. That, of course, is the essence of free enterprise.

Later came the Islamic Golden Age, which lasted from the 8th century to the 13th century. It was a period characterized by advanced market practices and proto-industrialization. Many kinds of businesses developed, including agribusiness, astronomical instruments, ceramics, chemicals, distillation technologies for the early oil industry, clocks, mechanical hydro- and wind-powered machinery, matting, mosaics, glass, pulp and paper, perfumery, petroleum, medicines, rope-making, silk, sugar, textiles, and weapons. Early factory complexes (tiraz) were built for these industries. Knowledge generated from these industries made its way to Europe, encouraging early European industrialization. Egyptian craftsmen in Greece founded simple glass factories in the 11th century.

For a long time, Baghdad was one of the wealthiest cities in the world. The heroes of the One Thousand and One Nights collection of Middle Eastern folk tales are often merchant capitalists, who — through their pursuit of wealth — benefit themselves as well as the rest of society. The Eastern tradition of portraying entrepreneurs as heroes differs sharply from the modern Western tradition, in which the agent of an economic enterprise is often the villain, while the hero is characterized by his disregard for material wealth. Today, Western institutions are shaped in accordance with the principles of the market economy, yet parts of contemporary Western culture still retain a hostile view of enterprise, commerce, and wealth accumulation. Such concepts continue to be celebrated in Middle Eastern cultures.

Hamid S. Hosseini writes about the Islamic economic tradition in the book A Companion to the History of Economic Thought (2003), explaining that medieval Muslim writers held a more favorable view of economic activity and wealth accumulation than do contemporary Christian thinkers. Hosseini cites several influential Persian Muslim thinkers, who praised wealth accumulation and self-interest. He notes: “In contrast to their European counterparts, medieval Muslim writers praised economic activity and the accumulation of wealth, viewed individuals as acquisitive, and scorned poverty” This reflects that individual aspirations and ingenuity were seen as important drivers on the marketplace.

Khajeh Nasir Tusi, an influential Persian Islamic intellectual during the 13th century, provided intellectual support for individual wealth accumulation. The ideal of rational self-interest, many centuries later made popular by Western intellectuals, was first expressed during the Islamic Golden Age. The concept that American conservatives often refer to as the Laffer Curve, which stipulates that as taxes rise to a high-enough level, tax revenues might actually fall, was originally developed by the 14th-century North African Arab philosopher Ibn Khaldun.

The Middle East is not the only society in which markets independently evolved. First came the Middle East; then came China and India. The Chinese thinker Mencius, born in 372 B.C., an influential Confucian philosopher, argued in favor of protecting private property, emphasized the importance of market competition, opposed monopolies, and explained that individuals constitute the fundamentals of the country. Lao-tzu, the founder of Taoism, believed that government, with its “laws and regulations more numerous than the hairs of an ox,” was an oppressor of the individual, and should be feared more “than fierce tigers.” The “Tale of the Moneyed Rat Trader,” an old Indian folktale, explains how voluntary market exchange and capital accumulation can allow even the most impoverished individual to climb the social ladder.

And China has, over the last two-and-a-half millennia, seen its economic policies shift forward and back, from the laissez-faire model of free exchange to central government control. During the second half of the 20th century, the failed Communist experiment led to tens of millions of Chinese starving to death. Market reforms that began in the 1980s saw China return to its capitalist roots. In 1990, more than 60 percent of people in East Asia were in extreme poverty — the people of China and its neighbors were in some instances poorer than those who lived in Africa. Now only 3.5 percent of those who live in East Asia are extremely poor. A similar transition from poverty to wealth is happening in India. Cultures with a long tradition of enterprise can, relatively quickly, generate prosperity.

Our current time, when the region is associated with sectarian violence, oil-dependency, and statist control, is after all more of a historic parenthesis than the normal state of the region.

Such can also be true of the Middle East. The region has thrived for millennia through enterprise, and it can thrive once again. Our current time, when the region is associated with sectarian violence, oil-dependency, and statist control, is after all more of a historic parenthesis than the normal state of the region. Free-market thinking was strong in the region before the birth of Islam, and it continued to flourish during the golden age of Islam.

Today, many pundits believed that the Middle East could be “fixed” by military force and other forms of foreign government intervention. But commerce ought to be the way forward. It is easy to view Palestine, Lebanon, and Israel as places of eternal conflict. Yet, the ancestors of the Palestinians, the Lebanese, and the Jews were successful traders and entrepreneurs who paved the way for great progress. It was in this region that the ancient Phoenicians invented the alphabet, largely to keep track of economic transactions. The Phoenicians’ trade networks played an important role in the early development of the Mediterranean region, in which much of early Western civilization evolved. This tradition of enterprise still lives on.

Iranians, Arabs, Turks, Kurds, Assyrians, Jews, and the myriad other groups in the Middle East have much that set them apart from one another — but they are all natural dealers. Throughout its history, the region has been ravaged by wars countless times. Some of these — such as the brutal attacks of the Mongols and Timur — left deep and lasting scars. Yet the Middle Eastern societies have always bounced back, not by relying on the riches provided by oil, but rather through commerce and enterprise. This is also a viable path in our time, when Marxist ideology and oil-dependency are gradually losing their grips on the Middle East. The U.S. can encourage such a transformation by relying more on free exchange than foreign intervention. American conservatives should understand that the ideas of limited government, strong markets, and strong families run deep in Middle Eastern tradition. The part of the world which is today known for endless conflict might one day be known as a vibrant home of capitalism. That is an admirable goal to strive for.

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