Capitalism Key to Fighting Muslim Extremism

Eight years after 9/11, many in the West still think of Islam as a threat. Islamic extremists are seen as brainwashed robots, and the rest of Muslims as only a step behind in their blind acceptance of what their leaders preach. But this view misses a larger point: Islamic extremism is the direct result not of a problem with doctrine but of sclerotic, overregulated economies that stifle entrepreneurship; isolate people from the global economy; and deprive them of jobs, services, and hope for a brighter future. And there is a glimmer of good news: all this can change. Indeed, it already is. Recent years have seen the tentative emergence of a middle class throughout the Muslim world. And this capitalist trend, if encouraged by the West, offers the single best hope for combating Islamic extremism worldwide.

Consider the problem first. For too long, standards of living have been falling in many parts of the Muslim world. Populations are getting younger, putting more pressure on weak growth rates. By one estimate, the Arab world alone will have to create 100 million new jobs by 2020 to meet the surging demand, and the prospects don't look good. Unemployment is growing, and those lucky enough to have jobs must endure menial, demeaning work. Social mobility is too rare, and extremism thrives on anger and hopelessness. Radical Islam promises despondent youngsters the kind of meaning they can't find in their daily lives. As one Pakistani father of a would-be jihadi told me recently, "Let [my son] be martyred. There is nothing for him here. He has no future. At least if he dies in jihad he will bring honor to his family."

Underneath this gloom, however, one can glimpse sparks of change. Economic reform in Turkey, Dubai, and Malaysia, and even the modest loosening of government control in places such as Egypt, the West Bank, and Pakistan have begun allowing space—though rarely enough space—for commerce and global trade. Local entrepreneurs and businessmen have begun to take advantage of these changes.

The result is the birth of a small but growing middle class. In the 1960s, on average no more than a third of the populations of large Muslim countries such as Turkey, Iran, or Pakistan lived in cities, and by most estimates no more than 6 percent of the populations counted as middle class. Today, around two thirds of the populations of those countries live in urban areas, and on average, twice as many count as middle class. If you define the group as those who have a regular income and formal employment with a steady salary and benefits, and who can afford to devote a third of their income to discretionary spending, the middle class now amounts to around 15 percent of the population of Pakistan and twice that in Turkey. The numbers are even higher if you broaden the definition to include those who have adopted modern family values, especially the desire to have fewer children and to invest in their advancement. One estimate puts as many as 60 percent of Iranians in, or ready to enter, that group.

The signs of this emerging middle class and the capitalist surge it's helping to drive can be found everywhere in the Muslim world, even war-torn Beirut and fundamentalist Tehran. While the overall picture in these countries looks grim, an economic renaissance has tentatively begun. Between 2002 and 2008, real GDP in the Middle East and North Africa grew by 3.7 percent, up from 3 percent in the previous decade.

This matters for one key reason: middle-class capitalists represent the best hope for the advancement of their societies—and the most potent weapon for combating extremism. While it's true that the 9/11 attackers were middle class (as have been many other terrorists), what matters is whether or not the middle class as a whole supports extremism. The problem in the Muslim world until now has been that the tiny middle class has had few ties to free markets and has depended on state salaries and entitlements. The growth of local capitalism—and integration with the world economy—could help change that.

Already these forces are having an impact. The recent election controversy in Iran can be seen as a struggle by its rising middle class to protect its economic interests against President Mahmoud Ahmadinejad, a populist who has sought to increase state domination of the economy. Turkey, meanwhile, has already arrived at the future; it is a successful Muslim democracy fully integrated into the global economy.

The same pattern will replicate itself elsewhere. One and a half billion consumers have clout, and as they move up the economic ladder, they demand a blending of traditional and moderate Islam with the opportunities and material benefits of liberal capitalism. They want distinctly Islamic goods: not just halal food and headscarves, but Islamic housing, haute couture, banking, education, entertainment, media, and consumer goods.

This demand has already created waves in global markets, best demonstrated by the boom in Islamic finance (financial services that abide by Islamic rules forbidding the collection and payment of interest). The growth of such services is tying the Muslim world more closely to the global economy. Although it remains a niche market—there are currently some 300 Islamic banks and investment firms operating in more than 75 countries, overseeing banking services totaling close to $500 billion and an Islamic bond market worth $82 billion, a mere one 10th of 1 percent of the global bond market—some estimate that the assets of this sector will grow to as much as $4 trillion by 2015. This trend might look, at first glance, like an attempt to defy the global economy. But what it really represents is an attempt to join it on terms that make sense to Muslims, that combine capitalism with piety.

Some members of this new middle class are the children of the old bureaucracy, but a far larger percentage comes from the provinces and from lower social classes. These sons and daughters of the rural poor have made the jump to the middle class by accepting the requirements of modern economics. Many are devout, but their wealth and aspirations put them squarely at odds with extremism. After all, with wealth comes conspicuous consumption, liberal social and political values, and a vested interest in engaging the world. This does not mean there will be no more middle-class Muslim terrorists. But terrorism as a whole will stop resonating with a truly integrated Muslim middle class—a process similar to what occurred in Latin America in the 1990s. Those with a stake in commerce and trade will not subscribe to destructive ideas that endanger their futures. The alienation and rage many Muslims feel toward the West is a product of historical grievances but has been great-ly aggravated by their exclusion from the global economy. Were that to change, many Muslims would begin looking forward rather than backward. The rise of this "critical middle" is a trend every bit as powerful and important as extremism. And it holds the key to changing the hearts and minds of the Muslim world once and for all.

It's too soon to say whether Muslim businessmen in Lahore, Tehran, or Cairo will lead a full-fledged capitalist revolution akin to that spearheaded by Protestant burghers in Holland four centuries ago. But European history does suggest that only such actors and the robust breed of capitalism they embrace have a chance of truly modernizing the Muslim world. The modern capitalist West was invented by children of the Reformation, but it was not their puritanical faith that transformed things. It was, rather, their newfound belief in trade and commerce, which took hold in Europe's backwaters like Scotland and gave birth to Adam Smith and David Hume. Similarly today, the agents who will vanquish Muslim extremism will not be secular dictators, enlightened clerics, or liberal reformers but entrepreneurs and businessmen.

This truth has obvious implications for Western governments. Values gain currency when they serve the economic and social interests of the people, and they shape states' behavior when those who hold them gain power. If moderate, capitalist values have not yet been fully embraced in Muslim lands, that's not because of the fundamental nature of Islam, but because the commercial class leading the process is still too small. Helping that bourgeoisie to grow and dominate its societies is the best way of making sure the right values take root.

So what should Washington and its allies do? The first answer is trade. The West has committed much in blood and treasure to protecting its interests in the greater Middle East, yet it does very little real business with the region (apart from Turkey). If you don't count oil and weapons sales, U.S. trade with the whole Arab world amounts to barely a fraction of its trade with Latin America, Eastern Europe, or India. The United States now has free-trade deals with Jordan and Morocco, and Europe is considering an economic partnership with the Arab countries of the Mediterranean rim. These are positive steps, but there are still far too few Arab-made goods on Western shelves.

Trying to reform someone else's religion is a fool's game, and when it comes to nation building, the West's record is spotty. But if there is one thing America and its allies are good at, it is unleashing the transformative power of business. To encourage the middle-class Muslim revolution, therefore, the West should help free Muslim economies from the clutches of state control. Local governments must be pressured to submit to the rule of law, to accept constitutional checks and balances, to open their economies to direct foreign investment, trade, and the free flow of goods and resources, and to reduce regulation. Developed countries should push for fewer and smaller state-run enterprises, reduced public sectors, and fewer people on government payrolls. The West, in return, should open its markets to products from the Muslim world and ensure that the money it pours into the region goes to support the right kind of change.

This won't turn the tide in just a few years. The Muslim world suffers from too many problems. But change is possible, so long as the rich world builds strong ties with the "critical middle" and helps it prosper. The great historical process that changed the West has just begun in the greater Middle East. The United States and Europe must help it along, to ensure that they're standing on the right side of history as it evolves.

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