Modern Economic Challenges to Middle Eastern Empires
Economics were a major factor in the international relations of Middle Eastern empires in the eighteenth and particularly nineteenth centuries. Most Muslim empires were dependent on tax revenue as their main source of income — they taxed trade, agriculture, and transportation. Yet changes in their economic situation, particularly increasing exposure to economic pressure from European powers, began to cut into this tax base. This occurred through the gradual loss of taxable land, combined with an increased need for revenue to subsidize modernization projects like retraining the army. This process started slowly in the latter part of the 1700s, accelerating over the course of the next century. But the Muslim states were facing other financial challenges also.
One came in the area of trade. European traders were often granted preferential terms of trade in order to encourage them to do business in the Empire. Over time, these traders began to accumulate benefits that allowed them to undercut local merchants, gaining a larger share of business. These benefits included lower rates of taxation or exemption from taxes on imports or transportation, and in some cases exemption from the laws of the country they traded in. This was compounded by trade inequality that increased as Europe underwent the Industrial Revolution; as Europe increased its production of manufactured goods, it sold them to the world for profit. Muslim empires found themselves selling the raw materials of production (cotton, silk, etc.) cheaply to Europe, which turned them into processed goods that were sold back to the Middle East for higher prices.
As the financial situation of Middle Eastern empires worsened, they resorted to short-term fixes for their money problems, such as granting European companies the right to the development and marketing of certain commodities or the development and operation of key infrastructure, like railroads. Under the terms of these agreements, Middle Eastern governments would receive a lump-sum payment for something like the right to build a railroad line, and in return a European company was given all or most of the profit from the railroad for a long period of time, during which the Middle Eastern government received little or no additional money, either from the railroad company or from taxes associated with the railroad. When these methods weren’t enough, the governments began to take out loans from European bankers. The long-term result in most cases was that the governments in question had to declare bankruptcy and give over certain elements of their economy to European control in order to pay off foreign debt.
“Affairs in Foreign Lands; France and the Egyptian Conference. The Functions of the Caisse de la Dette Publique – France determined to enforce the English contract.” The New York Times, June, 18, 1884. Link to resource (accessed April 30, 2010).
Economic history of the Ottoman Empire. Wikipedia. Link to resource (accessed April 30, 2010).
Map: Rise and Fall of the Ottoman Empire 1300-1923. Wikimedia Commons. Link to resource (accessed April 30, 2010).
A. Holly Shissler
Associate Professor of Ottoman and Modern Turkish History, University of Chicago
Erin L. Glade
Ph.D. candidate, University of Chicago
1. What were the long-term effects of economic exploitation of the Middle East during the Industrial Revolution and how were these countries excluded from participating in the process directly?
2. How did the changing financial and economic situation impact the social structure of the countries in question?
3. What power did loans give Western interests over Middle Eastern governments? Do loans continue to affect power dynamics in the Middle East? What has changed? What is similar?