Economics Versus 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.