By: Imad A. Ahmad.
Minaret of Freedom Institute, 4323 Rosedale Avenue
Bethesda, Maryland 20814, (301) 656-4717
4. LIMITS ON THE DOMAIN OF THE PUBLIC SECTOR
The Islamic societies' experiments with government involvement in economic activity track with its gradual downfall. In the time of Umar the state contented itself with matters of defense, the judicial system, weights and measures, and such major public works as irrigation canals which were paid for by the kharâj and `ushr user fees. None of the righteous caliphs sought to engage the state in competition with the private sector, let alone to monopolize any part of it. Umar's involvement in land distribution was aimed at decentralization and the prevention of the rise of a feudalistic system. Even charges that Uthman's administration favored certain groups and individuals comes under the category of corruption rather than monopoly. State intervention in the economy became an increasing problem as the centuries rolled on, however.
In the Umayyad dynasty, Umar II felt that state participation in commerce is a form of unintended abuse of trust: "I am of the view that the ruler should not trade. It is (also) not lawful for the officer to trade in the area of his office (fî sultanihî...), because when he involves himself in trade he inadvertently misuses his office in his interest and to the detriment of others, even if he does not like to do so" (Uz-Zaman 1981, p. 94). He did, however, intervene in cases where the costs of risks were falling to the state: "As I considered over it I found that gain in mining was but particular (khâs) but its harm was general (`âm) so stop people from working in mines" (Ibid.)
After the fall of the Abbasids, the government was not so scrupulous. The devastating effects of the government's intervention into the Egyptian sugar industry has been well-documented by Ashtor (1976, 1981). The rise of the hitherto unknown sugar industry in the Middle East is a testimony to the economic dynamism of Islam and its openness to technical innovation both from the scientific and economic side. The Egyptian sugar industry began its boom in the 11th century:
The sugar industry in Egypt and Syria under the Fatimids had a capitalistic character. The complicated methods of refining the juice of the sugar cane could only be employed in big factories. ... Rich and enterprising industrialists had to make costly efforts to improve methods, the expected profits being the stimulus. Sugar production also enjoyed freedom of enterprise. The attempt to monopolize it made by the odd and whimsical al-Hakim was not repeated" (Ashtor 1976, pp. 199-200).
In the second half of the thirteenth century the number of Egyptian sugar factories boomed as the Mamluk amirs, lured by the demonstrated high profitability, broke with earlier Muslim law and practice to compete against the private entrepreneurs (Ashtor 1981, p. 99ff). In our summary of Ashtor's analysis (Ahmad 1993 a,b) we have shown in sufficient detail how such expansion of the public sector into the sugar industry led to its downfall, to be replaced by Western producers.
The declining economies caused declining demand. The shift in sources of sugar for Italy can be seen in the tariff records. Early fifteenth century Venetian documents show a shift in the point of origin of molasses for Italy from Egypt to Palermo (Ibid., p. 113). Although the relative abundance of water power for mills in Europe played a factor, the role of government is more significant:
The system of government as it had been developed in the Middle East created conditions that were unfavorable to technological innovations. The feudal lords did not retain their fiefs in perpetuity; since changes were frequently made, they had little interest in building new factories. The musâdara system was a sword of Damocles poised over the heads of all the rich or near rich. The mukûs, commercial taxes, were another check to technological development.... Technological progress also depended, to a certain degree, on the structure of industry. Owing to the large share of government in the sugar industry, there was a lack of competition, a tendency towards corruption in the monopolized industries, and a lack of incentive for innovations. (Ibid., p. 119)
Ashtor implicates demographic trends in the downfall of the Egyptian sugar industry (Ibid., p. 120), but governmental policies also affect demographic trends. The increasingly feudalistic land tenure structures had an adverse affect on population patterns. Nizam al-Mulk, in the Book of Politics states that "the peasants, having been impoverished by heavy taxation and extortion, are ruined and dispersed." (See Ashtor 1976).
At the beginning of the fifteenth century most of the monopolized industries (sugar, soap, paper, silk and other fabrics, glass) collapsed. "[A]l-Makrizi writes that after 1404 people were compelled to dress themselves in the woolen stuffs imported by European merchants" (Ibid., p. 307). The role of government factories in the technological decline of Near Eastern industry is unmistakable. With cheaper sources for raw materials (in part produced on the royal estates), the "sultans and amirs used their power to curtail the activities of their competitors by taxation or by the establishment of monopolies. ... The royal factories themselves were ruined by corrupt managers whose maladministration induced the sultans in the course of time to abolish the tiraz system altogether. Industrial production sank to the level of small workshops which could not afford long and costly experiments" (Ibid., p. 308-309).
According to Ibn Khaldun, shipbuilding skills had declined to the point that "in case of need the governments must have recourse to foreign help" (Ibid.). As Muslim skills in, for example, silver inlay vanished, Venetians picked it up from Syrian Jews.
The decline of wheat was a landmark. It had been the staple, but with the arrival of the last decade of the fifteenth century, millet and dhura bread were being consumed in Cairo and barley in Damascus--even by the governor and the princes (Ibid.). With the breakdown and flight to the cities there came thousands of unemployed paupers, victimized by diseases--chronic and epidemic. Desperate, they provided a recruitment pool for warring factions and rebels. "The lowest stratum of this class were the so-called harafish, beggars who were to be found near the mosques and elsewhere and who were allied to certain groups of dervishes" (Ibid., p. 320). Skilled workers were in better shape only because there was such a shortage of them. The petty bourgeois, however, "were impoverished by the fiscal policy of the Mamluk government" (Ibid.).
In addition to the burdens of trade taxes there were numerous other extortions. We have already mentioned the tarh, which compelled merchants to buy overpriced products from their government competitors. Such measures were periodically abolished and then resurrected. Muslim jurisprudence did not allow for price-fixing outside times of emergency, but the Mamluks fixed prices when it suited their interests (Ibid.).
At the same time land-tenure changes gave rise to a feudalist system placing the bourgeois in an inferior position. The legal scholars were also made subservienbt to the state through government appointments to judgeships or teaching positions at schools endowed by the Mamluks, inducing collaboration (Ibid., p. 284). Using a practice resurrected in current-day Egypt, the government avoided responding to the theologians' protests against the governmental extortions, by instead wooing them by such measures as "promulgating decrees against the Christians and Jews" (Ibid., p. 285) Thus an intellectual aristocracy of judges and professors appointed by the government arose. The disfavored classes engaged in mob riots, but no organized revolutionary movement. "[A]ll classes of society were imbued with a spirit of rigid orthodoxy which made a social revolution allied to sectarian tendencies unthinkable" (Ibid., p. 322). Yet, the co-option of the religious scholars pre-empted any jihâd against the oppressive regime.
Despite the consequent favorable balance of payments due to the change of trade routes discussed in the preceding section, and continuing supply of Sudanese gold, "the economy of the Mamluk kingdom crumbled in the second half of the fifteenth century" (Ibid,, p.327). "The flourishing economy of the Near East had been ruined by the rapacious military, and its great civilizing achievements had been destroyed through inability to adopt new methods of production and new ways of life" (Ibid,, p. 331). The economic breakdown led to the political and military collapse. Reasons for breakdown: decay of Egyptian industry; extravagant luxury of the ruling class; hoarding of money (a consequence of musâdara?); and military spending. At the same time Portuguese were expanding and in the second half of the 15th c. Their seizure of "great quantities of Sudanese gold" was felt in Cairo (Ibid., p. 329-330).
Ibn Khaldun analyzed and denounced government competition with the private sector as a means of revenue enhancement. He titles a section of the Muqaddimah "Commercial activity on the part of the ruler is harmful to his subjects and to the tax revenue" (Ibid., p. 93). He elaborates that the ruler has an unfair advantages in (1) using state wealth in competition with private resources; (2) having taxing authority; (3) having ability to force purchases at above market prices; (4) intimidating competition and suppliers to force selling below market (Ibid., p. 94). The consequent "financial difficulties and loss of profit ... takes away all incentive to effort, thus ruining the fiscal (structure)" (Ibid., p. 95). With the merchants and farmers driven out of business, tax revenues dry up and the government has undermined its best source of revenue.
Furthermore, (the trading of the ruler) may cause the destruction of civilization and, through [it] the destruction of the dynasty. When the subjects can no longer make their capital larger through agriculture and commerce, it will decrease and disappear as a result of expenditures. This will ruin their situation. This should be understood. (Ibid., p. 95)
Muslim states which wish to see an industrial revolution should pursue a policy that permits the private sector to engage in any and all halâl pursuits. The primary role the Muslim state is the establishment of justice. Arbitration is better suited to this goal that regulation and licensing. While there are some infrastructure tasks that can be expeditiously handled by the state without jeopardizing or contradicting its primary task, they are few in number and increasing them constitutes a slippery slope to economic failure.
