Figure 1.--This Arab scene was photographed in the 1950s. It shows a scene that could have been taken in the 12th century AD, if not the 12th century BC. Economists need to answer how a region that was once more advanced than Europe remained essentially unchanged for more than a millennium. What we find even more interesting is that Arabs when discussing economic development focus on a few decades of European rule (when steps toward modernization actually began) and not on the millennium of abject econnomic failure that preceeded the European colonia era.

For an economist, the Middle East is a fascinating subject. It was in the Middle East that covilization was born. It was a happy marriage of climate, river valley, and natural flora that made possible the development of low-technology agriculture. And it was the increased production from agriculture that made possible civilization. This was a stunning economic and cultural schievement. Many important civilizations developed in the Middle East, including the Sumerians who in addition to agriculture invented writing. They were followed by the Babylonians, Egyptians, Assyrians, Hittites, Phonecians, Persians, and many others. The Indus River culture was influenced by the achievemrnts in the Middle East. Arab culture rose in the Middle East in the Middle Ages. The Caliphate was a culture with stunning cultural achievements far beyond that of contemprary medieval Europe. The Ottoman Empire achieved considerable economic success. The important question which many economists fail to address, however, is why there was no significant economic achievements in the Arab World since the 12th century. For an area of such stunning economic and cultural achievements, how could time in economic terms virtually stood still for nearly a millenium. Certainly the Mongol Invasion was part of the equation, but wide aereas of Europe were also devestated by the Mongols. And even the Ottoman Empire was eclised by the Europeans beginning in the 17th century. In discussions with Arabs, Iranians, and Pakistanis there is a tendency amounting to virtually a cultural imperative to blame European colonialsim. The only problem here is that Eurooean colonialism was a relatively recent phenomenon. Many Middle Eastern countries until World War II had societies that were vurtually unchanged since the 12th century. And much of the progress that was achieved at the time of decolonialization came during the European colonial experience. Many Arab countries after the War, embarked on socialist planned economic policies which proved to be disasters. Even today, few countries in the area have modern, productive economies. Most people in region live in poverty. Those countries where people do lead prosperous lives, do so primarily by exploiting oil resources. Economists need to answer the question as to why economic success has eluded the Middle East.

Sectors

Civilization began in Mesopotamis with the Agricultural Revolution (aromd 8,000 BC). And for most of recorded history human history agriculture was the mainstay of Middle Eastern ecomomies and most other economies. The River Valley civilzatiins had an advantage over other civiliaztions ni that river vally soil was fertile and constantly being enriched by periodic flooding and water was always available. This meant that even the most basic technolog could achieve substantial harvests. In the lon run, however, there were limits on economic develiopment. While land in the 1) Tigris-Euphrates valley , 2) Nile Vally, and 3) Indus Valley was productive, most of the surrounding land was virtuallyh sterile desert. Only about 15 percent of the land is suitable for farming and in most other other countries there was no major river as well as wide areas of desert and largely unprocductibr acrubland. As a result, the original River Valley cibilatiioins nehan to give way to more technologically advanced civilizations. Wheat and barley were the most impotant food crops. Figs and dates were grown in desert oases and citrus fruits in the Mediterranean coastal region. Over time cotton, coffee, and tobacco became important. Livestock raising also became important. Agricultural surplluses resulted in the rise of the first cities. And here we see the beginning of handicraft industries. This included both artistry and the productiin of products with practical uses like clay pots and mud brricks. Great empires arose that gradually absorbed the river valleys. This all led to the developmenhy of an important merchant class. While the Middle East lacked major resources like lumber and metasl, its location betwwen Asian and Europe giving Middle Eastern merchants a huge competive advantage. The Golden Age of Islam had created the most advanced civilization which came cliose to inventing science. Then Islamic clerics led the Middle East into a scientific black wole. At the same tome just the opposities occurred in Europe. The Christian Church led Europe into the Renaisssamce and a newwotldof modernity and scienve. Middle Eastern economies continued a long decline with the European maritime expansion that connected Europe and the East over sea routes (15th century). This reduced much of the Middle Wast to poverty. And it did not cahnge untilthe developmen of oul fields (20th century). Unfortunately, the region even with the oil money has failed to develop modern economies. But the one

Individual Countries

Bahrain

Egypt

The Egyptian economy has been based on agriculture and centered on the Nile. Agriculture generated on civilization in the Mile Valley and was based on grain. In modren times cotton became an agricultural mainstay. Land is very expensive because of the large population and limited area of arable land outside the Nile Valley. The country had a very high population growth rate--over 2 percent annually (2003). As a result, Egypt which used to be a major grain exporter, mow has to import food. The government has developed the petroleum, services, and construction sectors, but for the most part Egyptian industry is unproductive. The basic problenm is that most industries are government-owned are controlled. This is in part the consequences of Egypt's experiment with Arab socialism on which Nasser embarked. There have been efforts to liberalize the economy, but it has made only limited progress. Despite resources committed to indusry, at the expense of agriculture, the country indusrial sector is inefficent and uncompetive. Another major problem is the country's huge beaureacracy which consumes a large share of available resources. Egypt has obtained foreign aid from both the Soviet Union nd the tUnited States. The Gulf states which and the United States rewarded Egypt for helping to form the First Gulf War coalition. There are also foreign exchange earnings from Suez Canal traffic, tourism, and the remittances of Egyptians working abroad. Despite this Egypt has made little progress in developing a modern economy. Despite bering the largest Arab nstion and a substantial educational system, Egypt produces few scientific papers and achieves no medical advancment. Nor is their an industrial sector capable of competing on the international market.

Iran

Iraq

What is now modern Iraq has at times been an important economic center. Iraq encompses ancient Mesopotmia. It was here along the Tygrus and Euraptes Rivers that civilization first began. It ws based on the development of agricukture. Expanded agricultural harvests financed handicrafts and artisanal activities in the cities. Severl different civillizatiins develoopment in esopotamia (Summer, Babylon, and Assyria were the most important). Agriculture was the base of theseeconomies, bolstered by trade and cmmerce. Military conquest also generated great wealth. The Caliphate centered at Baghdad was an even larger empire. The economy continued to be based on agriculture, but the huge expanse of the Caliphate opened up a vast trading empire from Spain east to Persia. An important part of the economy in the early years was the dhimma system. Christians were taxed at high levels with the jizya which helped finance the state. This was an important factor in promoting conversion. Since the collapse of the Caliphate, Iraq has been an economic backwater. During the extended period of Ottoman rule, it was one of the poorer [arts of the Empire. Photographs taken in the early-20th century show a society little changed for a millenium. The country is, however, blessed with enormous oil reserves which the British began to develop after driving out the Ottomans during World War I. Indepedent Iraq with the oil income began to develop modern infrastructure. The Bath Party built alarge state sector. Sadam Hussein after seizing power (1979) allowed the country's developing infrastructure to deteriorate as he squandered the country's oil ernings on military equipment and ruionous foreign adventures. Improving security and exopanding oil production is now helping Iraq to repairthe dme left in Sadam's wake. Economic activity is concentrated in the energy, construction, and retail sectors. The Broader economic development remains in doubt. While oil revenue is increasing, the country still has a large, inefficent state sector. There is little meaningful ecomonomic activiy outside the oil sector which generates more than 90 percent of government revenue and 80 percent of foreign exchange earnings. Iraqis produce very little that is of interest to other countries. The country is depedent of foreign technolgy for virtually all of its modern life and like other Arab countries makes no meaningful cotribution to the worldeconomy other than exporting oil.

Israel

Kuwait

Modern Kuwait located just south of Iraq and thus on the fringe of ancient Mesopotamia. was located very close to ancient Sumer, the craddle of civilzation. What is now Kuwaut was located south of the Tigris-Eurphrates and the important Sumerian cities, although Ur and Eridu were located very close to the borders of modern Kuwait. This must have affected to locl economy, but we are not sure just how. There seem to have been trade links. This continued to be the case during the Islamic era. Kuwait provided a conecting point for caravans headed east toward the Levant and Egypy and west toward the Caliphate cities abd Persia. It was also a port fot trade with areas to the south, including India and East Africa. Kuwait was a trade port and resting place for both desert caravans and Haj pilgrims on their way from Iraq and Persia to Hejaz. The area around Kuwait City seems to have been more fertile than is the case today. This trade began to decline with theEuropean maritime expansion and the establishment of sea route links with the East. Along with the rest of the arab world, the Kuwait economy declined. This did not change until the modern era and the discovery of oil in Kuwait. The Emir of Kuwait granted an oil concession to the Kuwait Oil Company (KOC) (1934). KOC was jointly owned by the Anglo-Persian Oil Company (the future British Petroleum Company--BP) and the american Gulf Oil Corporation. The Kuwaiti Government nationalized KOC (1976). Kuwait then seized control over onshore production in the Divided Zone between Kuwait and Saudi Arabia (1977). KOC produces in the Divuded Zone jointly with Texaco. And by the purchase of Getty Oil Company, acquired the Saudi Arabian onshore concession in the Divided Zone (1984). Kuwait is believe to have some 10 percent of the world's oil reserves which explains why Saddam Hussein wanted it and invaded Kuwait (1990). among other natters, the Iraqi invasion adversely affected the country's oil diversification efforts. Oil and gas dominates the country's economy, accounting for nearly half of Kuwait's GDP and nerly all (95 percent of both export revenues and government income). The oil resource is so great and the population so small that here has been little incentive or need to diversify the economy. And a deadlock between parliament and governmenthas prevented any consensus on economic reforms. Kuwait inagurated a free-trade zone (1999). As a result of the oil income, Kuwait has a well-developed banking system. The National Bank of Kuwait is the most important bank in the country and one of the largest in the Arab world. It is not clear how permanent the 2014-15 drop in oil prices is going to be and just how it will affect Kuwait. A substantial revision of peal oil calculations, however, must inevitably affect a country so dependent on oil. High oil revenues have until now made it possible to excuse policymakers from making the tough choices needed to liberalize the economy, such as privatizing inefficent state-owned enterprises. There is also a problem with rising protectionism.

Lebanon

The Lebanese economy from time immemorial has been largely agricultural. What is now known as Lebanon aooeared in the written record (around 4000 BC). A group of coastal cities rose with a heavily forested imteriir. The first population was the Canaanites, a Semitic people. The Greeks called them Phoenicians because of the desintxtive purple (phoinikies) dye they sold. The Phoenicians turned to the sea, where they engaged in trade whuch became the core of the economy. Trade and foretry were imprtant, but there was also a viatal agriculture component. There are no major mineral resources or riday oil fields. Arable land is limited, but the climate and spring fed water ebabled an intensive cultivation on the more gentle slopes and along the coast. Crops today in irrigated areas include market vegetables, bananas, and citrus crops. Inland the principal crops are olives, grapes, tobacco, figs, and almonds. Higher up (about 1,500 feet, there are orchards (apricots, cherries, peaches, and plum). Higher uo there are also apple and pear orchards. The Bika Valley is a fertile area east of the mountains. Sugar beets, cereals, and vegetables are among the majpr crops. Poultry is very important and goats, sheep, and cattle are also raised. After World War I under French tutelage, Lebanon developed as a rare area of stability and financial institutions began to develop important which really became important after oil resources were developed in the region. With independence at the ebd of World War II, democratic instititions developed which further enhanced Lebanon's status as an island of stability and increassing prosperity. The Palesitinian Black September revolt in Jordan spilled over into Lebanon, destroying the fragil power sharing arangements. The 1975-90 Lebanese civil war seriously damaged Lebanon's economic infrastructure (1975-90). It cut national output in half. This undermined Lebanon's position as a Middle Eastern entrepot and banking hub. Syria controlled Lebanon for more than two decdes, but the country is now a tinder box of armed camps with the the Iranian- financed Shi'a Hezbollah militia becoming increasingly important. And this has insured that Lebanon could never recover its former stability and prosperity. Today Lebanon has rising debt, spiraling inflation, increasing unemployment, plumeting foreign curency reserves, and a cratring Lebanese pound. The population can no longer count on the dependable flow of electricity and water. The hospitals are short of staff and suoplies and that was the case before the Wuhan Virus outbreak (2020). The country has stopped paymemts on a $1.2 billion Euro bond loan.

Libya

The economy since ancient times has been agricultural. Libya was better watered in ancient times than today. The coastal area of Tripolitania was fertile. The Phoenicians and Greeks established coastal cities as trading posts with the interior (1000 BC). The powerful kingdom of the Garamentes was established in the Fezzan (southwestern interior) (500 BC-700 AD). They are related to modern Tuaregs. The Garamentes controlled the oases and the caravan trade. They oversaw some irrigation to promote agriculture. Rome acquired western Libya (Tripolitania) as a result of the Third Punic War (186 BC). Eastern Libya was peacefully acquired (96 BC). Libya was a prosperous Roman province. A golden age was described (2nd century AD). The city of Leptis Magna rivalled a rebuilt Carthage and Alexandria. The Emperoir Septimius Severus came from Libya and reprtedly fostered economic growth. For some four decades, Tripolitania and Cyrenaica were wealthy and prosperous Roman provinces. The population live in a cosmopolitan spciety and sghared a Roman identity, common language, and impressive legal system. North Africa was an important source of grain during the Roman era and Tripolitania was an important farmin area. The Arabs conquered Libya (642-44). The Ottomans after conquering Egypt seized the area (16th century). It was a very poor province as agriculture was declining and so mmuch of the country was desert. Dates, olives, and oranges were grown in coastal oasis. There was some economic activity as a result of Saharan caravans. Enslaved African captives were a primary caravan offering. Like the rest of the North African coast, Libya became a haven for pirates. The slave trade and piracy were the mainstay of the economy. The fledgling Uniuted States fought its first foreign war with the Barbary Pirates based in Tripoli and other nominally Ottoman provinces--the First Barbary War (1801-05). The economy continued to langulish under Ottoman rule. Italy invaded Lestablishing their authorithy Libya just before World Wat I (1911). They had trouble establishing control beyond the major coastal cities. Musollini launched a vicious pacification campaign after the War resorting to poispn gas (1920s). The Italians began an effort to improve infrastructure, brining in Italian settlerts and develo the economy. One effort was to expand the production of cotton. Libya was a World War II battleground (1940-43). Oil was discovered after the War (1957). Exporting oil became the country's primary economic activity, brining great wealth to an impoverished country. For the first time since the Roman imperial era wealth was created from a domestically produved product. Col. Gaddafi seized power (1969). He brought stability and a chaotic system to Libya. Like other Arab oil expoters, the oil wealth turned Libyans into consumers although only limited benefirs filtered down to the lower ranlks of society. And the oil money rather than help finance a modern economy, actually adversely affected much of the limited economic activity which existed before the discovery of oil. Gaddafi used much of the oil money to enrich chronies and to finance both military purchases and and terrorism. There was no real effort to develop a modern economy. The economy is almost entirely dependant on oil and gas exports. The Arab Spring brought down Gaddafi, but the country has since descened into chaos.

Mauritania

Morocco

Oman

Qatar

Saudi Arabia

Much of Saudi Arabia is covered by a desolate arid landscape which did not support agricultural. In a world that agriculture was the primnary genrator of wealth, this left the Arabian Peninsula and the people libing there poor with little cultural development. Nor was there much mineral resources. The primary resource that the prople of the arabian Penoinsula had was geography--the location of the Peninsula. The Arabian Peninsula is situated between the Arabian Sea (Indian Ocean) and the Mediterrnen Sea. As there was no sea connection, trade routes criss crossed the Peninsula and imporant trding ports sprang up all along the perifery. This was the primary economic activity for centuries, involvement in trade or raiding those involved in trade. With the Islamic outburst, Arabs seized control of a vast empire (7th century). Important economic activity developed in this empire, but not in Arabia itself. Arabia's one economic assett (geography) was suddenly undercut with first the European maritime outreach (15th century). The Europeans were able to reach th East without relying on trade routhes through the Arabian Peninsula or ports on the perifery. The Suez Canal undermined the trading position of Arabia even further (1860s). As a result, the people of Arabia were among the poorest people in the world. Saudi Arabia when established as a nation state after World War I was very poor without a modern economy or education system. The region in general was desperately poor. Saudi Arabia was, however, poor and backward even by Middle Eastern standards. Most of the population lived a life virtually unchanged for centuries. This chanbged after World War II when oil discoverine began to be developed. The discovery of oil has brought vast wealth to the country, financing a rapid modernization campaign, at least in infrastructure and living standards if not in outlook. Saudi Arabia has an almost exclusively oil-based economy with strong government control, meaning the Saudi royal family, over the oil industry. Saudi Arabia at one time was believed to possess some 20 percent of the world's proven petroleum reserves. There was considrable difference of opinion on this issue as the saudi's are very secrtive about such matters. And now new innovative techniques developed in America have suceeded in finding substantial new resources. This has changed the calculation of proven reserves and peak oil. Now the cost of production have to enter into the calculation. Saudi Arabia can produce oil very inexpenbsively. The new oil being found is often much more expemsive to produce. Some of it may not be economic to recover, but it doies place a limit on what the sudis and other oil exporters can charge. The Saudis have been the largest oil exporter. They have played a major rolein the Organizatioin of Petroleum Exporters (OPEC), an international cartel that raised oil prices to very high levels, orcestrating a massive transfer of wealth from America and Europe to the Saudis and other major exporters. The petroleum sector accounts for almost all of Saudi government revenues as well as export earnings. The Government provides generous welfare benefits to Saudi citizens and employs much of the work force in Goverment agencies or corportions. The country has a rapidly growing populationand these welfare progrms are becoming increasingly expensie. Most workers in the country's private sector are foreigners. The Saudi Government promotes ecomnomic development to diversify the economy. They have made little progress in this area. There are non oil projects, but many of these projects are premised on inexpensive oil.

Sudan

Syria

Tunisia

Turkey

United Arab Emirates

The location of the Arabian Peninsula between Europe and the Far East conveyed great importance in terms of trade. Goods coveted by the Europeans from China, the Spice Island and India until the European maitime outburst passed throufg Arabia. This gave the Arabs a huge trading advantage. With the decline of the Caliphate, the Turks exerted increasing influence, eventially seizing the Arab Lands. At the same time, the Europeans rounded the cape of Good Hope and defeated Arab sea power in the Indian Ocean (16th century). The Bedouin remained in control of the sandy desert interior, but the change in trade flows made the Arab lands a cultural and economic backwater. The bedouin seized control of Abu Dhabi and Dubai, but without the previous lucrative trade flows they were poor centers compared to the days when trade fom the East flowed through them. The Emirates were some of the poorest communities in the world. Technology was virtually unchanged from medieval times. The pearling industry was a rare economic success, but hurt by the Great Depression (1930s) and the Japanese developmnt of a culture pearl industry. The economic situation began to change when Western oil companies initiated geological surveys. Crude oil exports began (1962). As a result of the oil, the UAE economy is the second largest Arab economies after Saudi Arabia, The UAE like Saudi Arabia has been sattempting to diversifying the economy. The UAE has made some success, but the diversified sectors are almost all dependent on the huge oil resenue. Sectors like agriculture, construction, finance, manufacturing, and others are all financed by the oil income. More than 85 percent (2009). The situation is today little changed. While Abu Dhabi and other UAE emirates have remained relatively conservative in their cultural outlook. Dubai, which has few oil reserves of their own, has been more aggresive in its diversification efforts. Tourism is the only inportant economic sector not linked to the oil revenue.

Yemen

Despite being located on important world trade routes, Yemen is a very conservative part of the Arab world with few modern influences. Yemnis played an important role in the Arab trading that pre-dated the European outreach (15th century). Many Indonesians are of Arab (especially Yemeni) origins. The economy is largely agricultural, although the climate is arid. There are fertile regiions in Yemen, in cotrast to the mire arid areas to the north. Major crops are fruits, grains, coffe, and qat. Incomes levels are very low. Yemen has attracted the interest of Western tourists interested in exotic locations. Tourism in Yemen can be an adventure. Foreigners especially Westeners in Yemen's tribal society can become targets. Groups have kidnapped Westerners in an effort to gain concessions from the Government.

Prosperity

Muslim readers have question just how we measure prosperoty and economic success. That is certainly a fair question. The easiest way is percapita income. This is the quickest and easiest method of assessing economic prosperity. But currencies can be over and undervalued, so such measures need to be confirmed with other measures. Here good indicators are wage levels, dietary levels, home ownership, home square footage, and other measures. Educational achievement and literacy are other factors. Scientific progress measured in Nobel prizes, scientific papers published, and patons granted are important. Infrastructure such as miles of paved road and rail lines as well as electricity generation are other important indicators. There are a range of other measures that can be applied. Unfortunately by virtually all such measures, most of the the countries of the Middle East and North Africa all do poorly. Yhe primary exceotion are the countries with small populations and large oil resources. With the exception of the oil states, the one specuacularly successful country is Israel--a country without important natural resources but which has exploited its human resources to the fullest. Another relatively succesful country is Turkey--notably the most secular country in the region.

Economic Developmnt

The countries of the Middle East and North Africa have experimented with different ecomomic approaches. And the various countries have changed those approaches over time. The largest group of Middle Eastern countries are the Arabs. And for a time many of these countries experimented with Arab Socialism with no success. We no longer here the term because it was such a filure. Many Arabs Governments continue to follow statists economic programs. Israel was fonded as a Jewish state, but along secular lines. The discovery of oil and gas has enabled several countries to finance prosperous life styles, but none of the countries have suceeded in developing modern economies. The oil country that has come cloest has been Iran, in part because of the economic and development projects of the Shah. The founders of Israel included many devoted socialists. Experience revealed, however, that Jewish socialism worked no better that Soviet, Arab or other forms of socialist. Market reforms turned tiny Israel into a regional economic powerhouse. Other than Israel, Turkey has the strongest economy in the region, in large part because after World War I, Kemal Attaturk led the country in a secular direction. The current tremd in Turkey as in the Arab countries is toward Islaminization. Despite the fact that no Muslim country developed a modern economy on Islamic principles over Islams 13th century history, an increasing number of Muslims have reached the conclusion that Islam can lead them toward propspeity amd modernity.

Created: 7:01 PM 12/3/2009
Last updated: 12:06 AM 4/2/2020