A History of Wealth and Poverty: Why a Few Nations are Rich and Many Poor, by John P. Powelson.


The Middle East Today

No substantial change has occurred in the institutions of power, paternalism, and the legitimacy of violence in the Middle East over the centuries. Instead, the major changes have involved the organizations and the rulers. A possible exception may be the historic agreements between Israel and the Palestine Liberation Organization in 1993-94. But one happening does not make an institution, so one must wait to see how these pacts influence the behavior of all groups in both societies.

In 1991, when President Saddam Hussein of Iraq torched the oil fields in Kuwait despite his claim that it was a province of his own country, unleashing an oil slick intended to damage Saudi Arabia's water supply, he was following a tradition of centuries. In the eighth century, enemies would cut the main line of an irrigation system to reduce a people to tributary status. [1] After the ninth century, nomads "organized themselves into a confederacy which seems to have been inspired by the radical religious Shia propaganda [and] raided both Syria and Iraq, made pilgrimage routes unsafe, and even plundered the Holy Places of the Hejaz." [2] By the eleventh century, "a strong religious element [was] attracted to frontier war zones by the Muslim tradition of the jihad, or holy war." [3] War and the exorbitant taxation to finance it were factors in the decline of the Byzantine Empire. [4]

In the Middle Ages, similar institutions of power, paternalism, and legitimate violence existed almost everywhere, including northwestern Europe and Japan. Before the fifteenth century war was general. European cities played "dirty tricks" on each other to steal trade. The Crusades were the jihads of Christian Europe. Japan underwent its period of the warring country in the sixteenth century.

However, differences between Europe/Japan and the Middle East, already incipient in the thirteenth century, became more pronounced after the sixteenth. Chronic war ceased in Japan under the Tokugawa shoguns in the seventeenth century; it stopped in England after the Wars of the Roses in the fifteenth century and on the Continent after the devastating wars of religion and French-Habsburg wars in the seventeenth. [5] Here are a few possible reasons why chronic warfare has continued historically in the Middle East:

  • First, invading warriors from Asia (Turks, Mongols, Timur) despoiled the Middle East for centuries after they no longer menaced western Europe.
  • Second, disputes between nomads and settled populations, mostly over land, continued in the Middle East long after western Europeans had settled into the localities where they remain today.
  • Third, as the Ottoman Empire came to predominate in Anatolia and the Arabian peninsula, subject populations became geographically separated from their overlords, were classified into a strict hierarchy, and were forced to pay tribute through intermediaries (janissaries, sipahis, other military landholders). They were in no position to bargain or to make vertical alliances to exert leverage. Slavery remained a major source of labor longer than it did in Europe.
  • Fourth, the peoples of the Middle East remained conscious of their identities as clans and tribes while the peoples in Europe were associating themselves with nation states. Even today, President Hafiz al-Assad of Syria surrounds himself only by his own tribe, the Alawites; President Saddam Hussein of Iraq trusts only his close relatives; and the Emir of Kuwait and king of Saudi Arabia admit only their families, albeit extended, to public office.
  • Fifth, rulers in the Middle East continue to exercise a paternalistic style toward their subjects. King Fahd of Saudi Arabia conducts majlis, or open sessions, in which any subject may make any petition. Often these petitions, involving money, are granted. In this way the subjects remain directly dependent upon their lords, much as in medieval Europe and Japan, instead of upon an impersonal economy.

Lambton illustrates the fourth and fifth points for Iran:

The country is still largely administered on a personal basis. The rise of one group is liable to result in a change of officials right through the administration, often followed by a working off of old scores and personal vendettas. . . . The struggle between the various groups and interests is the keynote of Persian society, and . . . power and money are ends in themselves. . . .

The position is further aggravated by the rivalry between factions, which has been a characteristic feature of Persian life throughout history, and has contributed in no small measure to the country's misfortunes (italics mine). [6]

All these forces have militated against the development of contracts, commercial law, advanced systems of credit, and the other institutions of durable economic development. That these unfavorable conditions continue today is illustrated by the following snippets from recent events (in alphabetical order by country).


Iranians are deeply divided on fundamental structure, not simply on current policies. One faction "expresses the hope that economic growth can be nurtured with international cooperation and free enterprise." [7] But this group is overwhelmed by Shi'ite religious forces, who favor economic planning — although what type is not clear — and strongly oppose intercourse with the outside "Godless" world.

[To the mullahs] Western ways were decadent, suspect, threatening. . . . Perhaps the most virulent display of this hostility was the campaign by the "makhtabi" that began last winter to purge Western-educated technocrats from the Government. Makhtabi means, roughly, "doctrinaire" and was used to indicate a fierce Islamic piety. [8]


Iraq, too, is deeply divided — into tribes, clans, religions, and peoples. Political divergences are based on tribe, clan, and religion, not (as in Japan and the West) on policies. The Kurds in the North have been in rebellion, either open or suppressed, for decades. Evidence of the annihilation of Kurdish villages and torture of their people may be sufficient to bring genocide charges against the Iraqi president, Saddam Hussein. [9] The Shi'ites in the South have opposed the minority Sunni government in Baghdad. That government is sustained by force, brutality, and fear: "The Iraqi President sits at the center of a web of power so carefully spun that a twitch at the periphery triggers a swift and deadly strike. Around him are only those with whom he has blood ties — of relationship or shared killings." [10]


More than 90 percent of Israel's land area is owned by the state. The state bureaucracy reaches into every corner of Israeli life, administering a complex web of prerogatives, subsidies, protections, trade barriers and the like that stifle individual initiative and creativity. Because of capital controls and the economic dominance of nationalized banks, capital allocation is woefully inefficient. With the myriad permits required, merely building a house can be at least a two-year project, which sharply boosts the cost. The government designates who can grow what fruit and woe to the individual who owns more than three lemon trees without special permission. Even the size and shape of doughnuts baked for Purim are specified by the government. [11]

Because of its diversified origins, Israel does not fit easily into the Middle Eastern mold. The antecedents of its government — parliamentary democracy — are European, as are its economic institutions, such as banking and commercial law. So also is its tradition of openness: Israelis may speak their minds without fear; they may leave the country if they wish. Like other Middle Eastern countries, however, Israel is rent into factions: Sephardim (Jews from the Middle East, North Africa, and Spain), Ashkenazim (Jews from northern Europe), and Arabs. Like other Middle Eastern countries, Israelis live in fear for their personal security; their economy is heavily burdened by military expenditures; and industries and land are largely owned by the state.

The dispute over land is another discordant force. "At the core of the argument is the disagreement between Palestinians who insist that land ownership is a function of possession and Israelis who determine ownership using laws left over from the Jordanian and Ottoman eras." [12] In this quotation, the two sides do not start with an impartial law, previously formed, as the source of judgment. Instead, they choose the law that most sustains their predispositions. A single dispute may determine or overrule institutions such as law.

Up to the historic agreement of September 13, 1993, between Israel and the Palestine Liberation Organization, this problem was not resolved (and still is not). Mistrust — belief that the other side would not honor its commitments — and even hatred and vengeance were the strongest barriers in a situation where economic positive-sum moves would otherwise abound. As this book goes to press, Jericho and the Gaza strip are handed over to PLO administration. Repeated violence and assassinations threaten, however.

Future historians will question why the agreement should have occurred in 1993, and not at the end of Israel's war of independence in 1949. Had each been willing to compromise then, vast human suffering and economic losses would have been avoided. Part of the answer must be that in 1949 and thereafter, each side overestimated its likelihood of winning. But surely there is more. Claiming the land was, to each, a religious duty, to be upheld regardless of cost or consequence. This kind of religious stand — which is also found in France of the sixteenth century, in Germany of the seventeenth, in Northern Ireland today, and in many other places and times — is part of the power and confrontation ethics. Power, whether religious or not, is valued more highly than material wealth, even than life. Still, why did each "give up" in 1993, and not in 1983 or 1973 or some other date?

United States pressure may have played a part. Acting in the tradition forged over centuries in Europe, the United States combined diplomacy, bribery (foreign aid), and war (with Iraq) to press Middle Easterners toward the bargaining table. But even if this were a main cause, the question remains: Why 1993? The reason probably is that only in 1993 had each side reached the survival crisis. For the Palestine Liberation Organization, "what had once been one of the richest liberation movements in history appeared on the verge of collapse." [13] Disputes among the Arab countries had disillusioned erstwhile supporters, in particular the Saud family, and sources of finance dried up. Without these, the PLO could no longer finance schools, hospitals, and other amenities in occupied territories, so its grass roots support withered. Only by turning to Israel could it avoid decimation by rival groups. For Israel, annual increases in GDP per capita had declined from almost 5 percent (1968-78) to about 1.25 percent (1980-93). [14] Much of that product was dissipated on the military, and government finance was in shambles. Costs of the occupation of the West Bank and Gaza were growing enormously; the intifada (six years of rock-throwing attacks by Palestinians) showed no sign of abating; the kibbutzim were failing; and, in the mind of the government, collapse was imminent. If the pact does not hold, surely another survival crisis is not far off.

The pact is hardly unique to history. Indeed, it is just one instance of what has been repeated throughout the world: a major political event, whose side-effects will enhance economic development. The agreement was made only when two would-be monopolists (in this case over land) finally became aware that they could no longer survive without a compromise. If the pact is effective, the economic development of Israel, Jordan, and the West Bank will be promoted.

But if that happens, development will be the serendipitous result, not the object. Durable economic development, wherever it has been initiated, is the serendipitous result of seemingly disconnected events. This pact alone will not ensure durable economic development in the Middle East. Other Middle Eastern countries must feel the survival crisis first. Only after many additional negotiations and compromises will an institution be formed, if it is at all.


A country once noted for its capacity to accommodate sharply divergent political and religious cleavages, Lebanon in the past 15 years has become a microcosm of virtually every tendency for conflict within the strife-torn Middle East. [15]

The recently ended civil war evokes two observations. First, Lebanon's economic development became absorbed into the troubles of the surrounding community. [16] One part has been occupied by Israel and the other dominated by Syria. Second, the earlier compromise between Christians and Muslims, who shared the government, constituted a clean-cut cleavage, not the complex ties of an interlocking society. Once again, the confrontation ethic and communication chasm have replaced contract and compromise, laying bare how precarious even decades of peace and prosperity may be.

Saudi Arabia

Unlike Iran, Iraq, and Syria — whose governments survive by threat and violence — the Saudis have bought the support of their people with petrodollars and paternalism. Theirs is command development extravagantly financed. "Cost is no object. The Government pays Saudi farmers more than three times the world price for wheat. The Government also picks up the tab for machines, fertilizer and irrigation pumps and supplies no-interest loans of up to $6 million. Moreover, the natural gas used to generate electricity on the farms is free." [17] Material progress has been forced by the government, not built up by the actions and agreements of a business class or farmers. [18]

The extended families play the reverse role of investment banks in the West. Instead of acquiring capital for one venture by selling security issues to many capitalists, they disperse the funds of one capitalist into many ventures.

[E]ach Saudi is conscious of belonging to a family, clan or tribe whose prestige and wealth he shares by virtue of his name. If his connections are tribal he can, through the tribe's elders or chiefs, make direct contact with the king and tap the considerable government and personal subsidies. . . .

Put crudely, it is fairly easy for the Government of the kingdom to buy off its citizens through the mechanism of the extended family — and the Al-Saud do this consciously. [19]

The stability of the Saudi system, however, has depended on two forces, neither of them secure. The first is continued oil revenue. The second is that the all-powerful family will not be successfully challenged by some outsider. Not only did the president of Iraq try to challenge it in 1990, but also there are factions within Saudi Arabia which, attracted by the power and the wealth, might pull down the family Saud.

Since 1980, moreover, Saudi Arabia's prospects have varied from uncertain to waning. The volume of petroleum exports decreased to an index of 27.4 in 1985 (1980=100) before it rose erratically to 75.5 in 1991. [20] Monetary reserves fell from $23,746 million to $11,903 million during the same period. The current account of the balance of payments, which had topped at a strong positive $23,025 million in 1975, went to a deficit of $4,107 million in 1990. GDP (1985 prices) declined by an average of 0.36 percent per year from 1980 to 1991, while population increased by 3.55 percent per year, for a drop in GDP per capita of 3.81 percent per year. Problems with Islamic fundamental militants have disrupted government, universities, and the legal profession. [21] The Saudis have decreased their aid to other Islamic countries, and it may be for economic as well as political reasons that they cut off the Palestine Liberation Organization. It is too early to say that the survival crisis has hit Saudi Arabia, but there are signs.


Even today, a bold economic historian might predict that Syria would lead the Middle East in economic development. "For centuries, Syria was the crossroads of ancient trading routes. As a result, Syrians were sophisticated traders and cultured artisans who saw themselves as the heart of a larger Arab world." [22] The Syrian economy is probably the most liberal and Westernized of all the Middle East.

Yet Syria remains a poor country. No economic innovation, no new technology, scant capital formation, emanates from Syria. This paralysis is most likely explained by the brutalization of all who, by their initiative or incipient power, might be perceived as threats to the rulers.

Because of the atmosphere of pervasive insecurity, anyone who is anyone in Syria has his own team of bodyguards. These men prey on the populace at large, stopping cars and breaking into homes with impunity. . . . From 1980 through 1982, it was routine for the Defense Brigades and the Special Forces to seal off towns or quarters of cities and comb through the areas house by house; looting and rape were common. Anyone deemed suspect could be put up against the wall and shot, along with his family. [23]

Syrian tanks are methodically leveling vast areas of Hama, the nation's fifth largest city, as they continue to battle rebels led by Muslim fundamentalists. . . . Tanks backed by artillery and as many as 12,000 troops, Baath party militiamen and plainclothes intelligence officers have reduced much of the ancient part of the city to rubble. . . . [24]

One explanation of this attack might be that the government was simply putting down a rebellion. But another, more sinister, is that this military overkill was intended for revenge and to instill fear. It is reminiscent of the Mongols who annihilated cities that resisted them or the Romans who destroyed Carthage in 146 BCE, sowing salt over the land so it would never again be productive.


Beginning with the reforms of Kemal Ataturk after World War I, the democratic organizations of Turkey, both economic and political, have been tightly controlled by the state. [25] The struggle between left-wing reformers and proponents of "order," including a military government from 1979 to 1982, has foreclosed nationwide negotiations about either institutions or policy.

Although the democratic constitution of 1982 was approved overwhelmingly in a ballot, it was not the result of participation or compromise among popular groups. Torture in Turkish prisons is reported frequently, [26] along with periodic violence by and against Kurds and Armenians. [27] Freedom of speech is frequently infringed. [28] Encumbered by political disputes and without the mellowing of policy through interest groups, the economy is languishing, and inflation is periodically severe.

Why the Middle East?

Because of the abundance of land and nomadism; because of the many invasions; because of conquering and subjection; because of their geographical location amid the international trade routes — for all these reasons Middle Eastern societies have not encountered the survival crisis that affected northwestern Europe and Japan. That crisis, however, may be beginning in Israel, Palestine, and Saudi Arabia today. These countries are not close enough to Europe to absorb economic development by reflection. The only development they can try is by command.

Oil, believed by some to be the "answer" to Middle East development, will delay it instead. The ability of European parliaments and estates in the Middle Ages to withhold funding for wars diminished the greed of princes for power and helped turn wars from endemic into periodic. But so long as rulers have a direct source of funding, uncontrolled by any other group, their power is unabated. This is what oil has done to the Middle East countries that are sufficiently "blessed" to have it. While it may finance some economic development, this advantage is outweighed by the uneconomic decisions, extravagance, lack of accountability, and the wars that power-cum-finance makes possible.

Oil and land are merely the manifestations of Middle Eastern problems, whose deeper causes lie in the confrontational society, the absence of pluralism and hence of the possibility of vertical alliances, and deficiency in institutions of trust.


  1. Peisker 1964:327.
  2. Lewis 1988:33.
  3. Lewis 1988:34.
  4. Lewis 1988:127.
  5. Wars happened from time to time thereafter, but they were hardly chronic.
  6. Lambton 1953:264-65.
  7. Ibrahim, Youssef M., "Clerics and Politics: Why There Are No 'Moderates' in Iran," New York Times, 2/26/89.
  8. Kifner, John, "Iran: Khomeini Seems to Be Force that is Holding the Regime Together," New York Times, 9/6/81.
  9. The accumulated evidence for genocide is outlined in Miller, Judith, "Iraq Accused: A Case of Genocide," New York Times Magazine, 1/3/93.
  10. Horowitz, Tony, and Brooks, Geraldine, "Wielding Power: Family Ties and Fear Keep Saddam Hussein in Firm Control of Iraq," Wall Street Journal, 1/27/90.
  11. Melloan, George, "Israel's Economic Malaise Clouds 'Aliyah' Hopes," Wall Street Journal, 3/5/90.
  12. Chartrand, Sabra, "Who Owns the Land, Arab or Settler?," New York Times, 4/8/89.
  13. Marcus, Amy Dockser, "Israel and PLO Agree to Mutual Recognition in a Historic Accord," Wall Street Journal, September 10, 1993.
  14. Calculated from International Monetary Fund, International Financial Statistics Yearbook, 1992 and August 1993.
  15. Banks 1990:369.
  16. In Chapter 21 we will discover that this is a common occurrence in the histories of small states.
  17. Martin, Douglas, "Plowing Those Petrodollars into Farming," New York Times, 1/24/82.
  18. Martin, Douglas, "Saudi Arabia's New Capitalism," New York Times, 2/21/82.
  19. Lacey, Robert, "How Stable Are the Saudis?" New York Times Magazine, 11/8/81.
  20. All data in this paragraph are taken or calculated from International Monetary Fund, International Financial Statistics Yearbook, 1993, and August 1993.
  21. Ibrahim in New York Times, 5/13/93.
  22. House, Karen Elliot, "Assad's Formula: Syria, Stern at Home and Abroad, Leaves Economy Fairly Free," Wall Street Journal, 12/29/88.
  23. Reed, Stanley, "Syria's Assad: His Power and His Plan," New York Times Magazine, 2/19/84.
  24. Kipfner, John, "Syria is Levelling its Rebelling City," New York Times, 2/21/82.
  25. Banks 1990:652.
  26. Laber, Jeri, "Human Rights in Turkey: Is the Glass Half Empty or Half Full?" New York Times, 7/13/84; News report (author not mentioned), "Study Says Torture in Turkish Jails Continues," New York Times, 3/30/86; Kamm, Henry, "Change in Turkey Clouded by Trials," New York Times, 8/10/86; Laber, Jeri, "Cruel and Unusual Punishment," New York Review, 7/20/89.
  27. Dionne, E.J., Jr., "Armenian Terrorism: A Bitter History of Frustration and a Tangle of Motives," New York Times, 8/1/83; Haberman, Clyde, "For Turkey and Kurds, Fragile Reconciliation," New York Times, 11/3/89.
  28. Howe, Marvine, "Turkey Moves to Tighten Curbs on Newspapers" and "Turkey Enacts New Press Curbs," New York Times, 8/29/83 and 11/13/83, respectively.

Copyright © 1994 by the University of Michigan. First published in the USA by the University of Michigan Press, 1994.

Published on the World Wide Web by The Quaker Economist with permission from the University of Michigan Press, 2005.

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