The Origins of Free Trade in Arab Countries Bashar H. Malkawi
The Origins of Free Trade in Arab Countries
Bashar Malkawi
The wealth of nations, according to Adam Smith, is derived from specialization and trade. Nations can gain economically from specializing in production and trading the surplus produce. Specialization and trading in surplus produce would generate multiplier effects, known as the doctrine of mutual gains from trade, in the form of increased national income, higher consumption, and an improved standard of living. British political economist David Ricardo expounded, in his 1817 publication of Principles of Political Economy and Taxation, by stating that specialization and trade were based on comparative advantage (relative costs) rather than primarily on absolute advantage (production costs) as had been thought earlier.See JAGDISH BHAGWATI, POLITICAL ECONOMY AND INTERNATIONAL ECONOMICS 3-34 (Douglas A. Irwin ed., 1991)
In parallel, it is a source of pride that Ibn Khaldun (1332-1406 C.E), Adam Smith of the Arabs and the great Islamic sociologist-cum-economist, was among the pioneers who analyzed the economic problem scientifically and tried to resolve it. However, if he had discussed the ideas in a separate treatise rather than in a scattered manner, among many other subjects in his masterpiece Al-Ibar, he could have been recognized as the father of free trade.See Abdol Soofi, Economics of Ibn Khaldun Revisited, 27:2 HIST. OF POL. ECON. 387, 391-400 (1995)
Ibn Khaldun also called for specialization. For example, if a tailor has the skill necessary for his job, he has neither the necessary skills nor the time to be a carpenter or builder. Even assuming that he could be skilled in crafts, he would not be efficient in both of them at the same level. Specialization and social organization of labor would allocate resources to their most efficient uses. This leads to a surplus of production which can be used for trade. Therefore, international division of labor can also be applied for trade among countries. The basis of trade is to make a profit by producing goods at a lower price and selling them at a higher price. Profits could be accrued by supplying goods to other countries where demand for these goods is greater than in the home country.See Syed Farid Alatas, Introduction to the Political Economy of Ibn Khaldun, Vol. XLV No. 4, The ISLAMIC Q. 307, 320 (Fourth Quarter 2001)
In the old great civilizations, as well as in the early Islamic state, trade served economic and non-economic ends. It served as a mechanism for economic welfare and social communication. Trade agreements have their resonance in the past. For example, an agreement between king of Egypt and Babylonia held that any traveler passing through Egypt had to pay certain duties, whether voluntarily or otherwise.
A watershed event in international trade occurred with the repeal of the British Corn Laws of 1846 and the conclusion of Cobden-Chevalier trade agreement between Britain and France in 1860.CHERYL SCHONHARDT-BAILEY, FREE TRADE: THE REPEAL OF THE CORN LAWS XIV (1996). See also ANDREW MARRISON, FREE TRADE AND ITS RECEPTION 1815-1960, VOL. I 37-43, 70-74, 173 (1998). This was followed by a series of free trade agreements between European countries. However, the mushrooming of free trade did not last long enough after the repeal of these laws. Countries in Europe engaged in tariff wars.
On the other hand, in the East, the Arab countries, as one integrated unit, fell under the rule of the Ottoman Empire for nearly four centuries. The Ottoman Empire adopted a semi-free trade policy by allowing imports into the empire but letting nothing out. This created a persistent balance of trade deficit. The reasons for such a trade policy lie in the misinterpreted religious and economic beliefs prevalent in the empire. See CHARLES ISSAWI, AN ECONOMIC HISTORY OF THE MIDDLE EAST AND NORTH AFRICA 18 (1982).
Egypt, a state of great importance in the larger Ottoman Empire, rendered itself as a special case in the Ottoman Empire’s trade policy. Since Egypt is state in the empire, any international trade agreement signed by the Ottomans is applied automatically everywhere in the empire. However, Muhammad Ali of Egypt adopted a mercantile policy. He wanted to build up an independent military “Egyptian Empire” from the Ottoman Empire. Thus, it was important for his self-interest to have a favorable balance of trade.
Bashar Malkawi
The wealth of nations, according to Adam Smith, is derived from specialization and trade. Nations can gain economically from specializing in production and trading the surplus produce. Specialization and trading in surplus produce would generate multiplier effects, known as the doctrine of mutual gains from trade, in the form of increased national income, higher consumption, and an improved standard of living. British political economist David Ricardo expounded, in his 1817 publication of Principles of Political Economy and Taxation, by stating that specialization and trade were based on comparative advantage (relative costs) rather than primarily on absolute advantage (production costs) as had been thought earlier.See JAGDISH BHAGWATI, POLITICAL ECONOMY AND INTERNATIONAL ECONOMICS 3-34 (Douglas A. Irwin ed., 1991)
In parallel, it is a source of pride that Ibn Khaldun (1332-1406 C.E), Adam Smith of the Arabs and the great Islamic sociologist-cum-economist, was among the pioneers who analyzed the economic problem scientifically and tried to resolve it. However, if he had discussed the ideas in a separate treatise rather than in a scattered manner, among many other subjects in his masterpiece Al-Ibar, he could have been recognized as the father of free trade.See Abdol Soofi, Economics of Ibn Khaldun Revisited, 27:2 HIST. OF POL. ECON. 387, 391-400 (1995)
Ibn Khaldun also called for specialization. For example, if a tailor has the skill necessary for his job, he has neither the necessary skills nor the time to be a carpenter or builder. Even assuming that he could be skilled in crafts, he would not be efficient in both of them at the same level. Specialization and social organization of labor would allocate resources to their most efficient uses. This leads to a surplus of production which can be used for trade. Therefore, international division of labor can also be applied for trade among countries. The basis of trade is to make a profit by producing goods at a lower price and selling them at a higher price. Profits could be accrued by supplying goods to other countries where demand for these goods is greater than in the home country.See Syed Farid Alatas, Introduction to the Political Economy of Ibn Khaldun, Vol. XLV No. 4, The ISLAMIC Q. 307, 320 (Fourth Quarter 2001)
In the old great civilizations, as well as in the early Islamic state, trade served economic and non-economic ends. It served as a mechanism for economic welfare and social communication. Trade agreements have their resonance in the past. For example, an agreement between king of Egypt and Babylonia held that any traveler passing through Egypt had to pay certain duties, whether voluntarily or otherwise.
A watershed event in international trade occurred with the repeal of the British Corn Laws of 1846 and the conclusion of Cobden-Chevalier trade agreement between Britain and France in 1860.CHERYL SCHONHARDT-BAILEY, FREE TRADE: THE REPEAL OF THE CORN LAWS XIV (1996). See also ANDREW MARRISON, FREE TRADE AND ITS RECEPTION 1815-1960, VOL. I 37-43, 70-74, 173 (1998). This was followed by a series of free trade agreements between European countries. However, the mushrooming of free trade did not last long enough after the repeal of these laws. Countries in Europe engaged in tariff wars.
On the other hand, in the East, the Arab countries, as one integrated unit, fell under the rule of the Ottoman Empire for nearly four centuries. The Ottoman Empire adopted a semi-free trade policy by allowing imports into the empire but letting nothing out. This created a persistent balance of trade deficit. The reasons for such a trade policy lie in the misinterpreted religious and economic beliefs prevalent in the empire. See CHARLES ISSAWI, AN ECONOMIC HISTORY OF THE MIDDLE EAST AND NORTH AFRICA 18 (1982).
Egypt, a state of great importance in the larger Ottoman Empire, rendered itself as a special case in the Ottoman Empire’s trade policy. Since Egypt is state in the empire, any international trade agreement signed by the Ottomans is applied automatically everywhere in the empire. However, Muhammad Ali of Egypt adopted a mercantile policy. He wanted to build up an independent military “Egyptian Empire” from the Ottoman Empire. Thus, it was important for his self-interest to have a favorable balance of trade.
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