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New Study Finds Islam Does Not Slow Economies - 2004-03-02

Economists have debated the influence of religion on economic development for some time. Today, many observers blame Islam for the relative poverty of Muslim nations. But as Zlatica Hoke reports, a number of researchers find that religion has very little to do with it.

Many religions tend to treat poverty as a virtue. “Blessed are you who are poor, for yours is the kingdom of God,” says the Bible. Buddhism extols the mendicant monk, free of economic concerns and devoted to a life of contemplation. Islam bans lending money for profit and prescribes sharing one’s wealth with the poor.

But many religious denominations also value the rewards of hard work, for example Protestants, says David Rodier, Professor of Religion at American University in Washington: “One of the things that happened for instance in Christianity, with the time of the Protestant Reformation, was a new religious ideal that to be a religious person was to function productively in society in whatever role you had socially -- whether it was a merchant, a farmer or somebody who made things. These were considered to be religious activities.”

Professor Rodier notes that most Christian and Jewish groups have adapted their religious teachings to allow for economic development. But, he says, Muslims have not.

“With Islam you have the same problem that both medieval Christianity and much earlier Judaism had -- that there are particular laws derived from the religion and that have economic effect,” says Professor Rodier. “And one that all three, Judaism and Christianity and Islam, shared was a rule against loaning money for interest.”

The Islamic law of Sharia continues to ban lending money with interest and the accumulation of wealth, which other major religions have accepted. Some analysts contend that this kind of religious interference hampers economic growth. Middle East analyst Robert Spencer, author of the book Onward Muslim Soldiers, says Islam is less compatible with capitalism than the world’s other major religions.

“Islamic economies around the world today are to a great extent still based on socialist principles, aiming at maintaining the equality of men and eliminating too much disparity between the rich and the poor,” says Robert Spencer. “And, of course, this is done by means of centralized economies which tend to inhibit growth.”

Robert Spencer adds that inadequate education is another impediment to economic growth in many Muslim countries: “There is in the Islamic educational systems throughout, such an emphasis on religious principles and theology that you have less of a developed curriculum in general for subjects that would make for real economic advantage.”

Most schools, according to Robert Spencer, focus on religion and Islamic traditions while neglecting science, computer technology, mathematics and other subjects useful in modern economies. He says discouraging or even prohibiting women from entering the work force further cripples Islamic economies. But, he adds, Muslim countries with more secular laws have done better.

“It cuts along political lines pretty clearly that you have places like Turkey and even Iraq and Syria that are or have been relatively secular compared to others and in terms of their internal economic development, they’ve generally been better off,” says Mr. Spencer.

But many economists argue that religion has little or no influence on economic development. Marcus Noland, of the Institute for International Economics in Washington, is the author of a new study on religion, culture and economic performance. He says statistical analysis shows that Islam has no adverse impact on a country’s economy. It may even promote economic growth.

“Number one, there are periods of history in which the Muslim world did quite well relative to the non-Muslim world,” says Marcus Noland. “They grew more rapidly and so on. So the fact that at some times the Muslim world seems to have done better and at other times the non-Muslim world seems to have done better would suggest that it is not as simple as just something like religion.”

Political economist Marcus Noland states that Islamic banking practices, while often quoted as having a negative impact on economic growth, actually work as well as western banks.

“Typically what they will do is take an equity stake in the enterprise or in the project that they are loaning money to,” says Mr. Noland. “And so contracts will be specified somewhat differently because the Islamic banks will not charge interest. But nevertheless, capital is lent and capital goes to projects that seem to have high rates of economic return. At the end of the day, most scholars who have examined this carefully have not concluded that these uniquely Islamic financial practices have a decisive impact on economic development.”

Some regions with large Muslim populations are doing well economically. Malaysia and even Indonesia, despite some setbacks and political turmoil, are good examples, says Marcus Noland.

“Malaysia is an interesting country. It is multiethnic. It is multiracial. It is multi-religion, although Islam is constitutionally enshrined in Malaysia as the state religion. Malaysia is one of the great development stories. Over the last generation or so, it has gone from being a relatively poor primary-product producing country, specializing in producing natural rubber, tin and some other commodities to being a very important country in the world electronics market and so on, with rapidly rising incomes,” says Mr. Noland.

“One could also argue,” he adds, “that Indonesia, which is after all the largest Muslim country in the world -- despite its recent problems – has done quite well also over the last 30 or 40 years.”

Marcus Noland agrees with most observers who say that inadequate education, especially for women, is a problem in the Islamic world. But he adds that it is not due to religious beliefs. “There is nothing in the Koran,” he says, “that would discourage the desire to learn.” Good quality education is lacking in many developing regions, he says, and the problem is especially acute in parts of the Muslim world.

Mr. Noland says the real reasons for below-average economic performance in some Islamic countries can be found in their fiscal policies and other non-religious challenges to economic development and prosperity.

“If you look at the policies that these governments are pursuing, they don’t look that bad relative to other developing countries,” argues Mr. Noland. “But there are some pretty fundamental political and institutional weaknesses, such as the respect for and protection of property rights that have hampered their growth and development.” Marcus Noland says rapid population growth is perhaps the biggest problem facing predominantly Muslim countries today: “If one looks across the Middle East today, one is really struck by how young these populations are, how many of the people are under the age of 15 or 20. And what that means is that for the next couple of decades the economies of the Middle East are going to have to grow very rapidly in order to generate enough jobs and employment for all these new people entering the labor force.”

The study by Mr. Noland’s Institute for International Economics concludes that conventional economic analysis better explains economic performance of predominantly Muslim countries than does the sociology of religion.