The Rise of Islamic Capitalism Why the New Muslim Middle Class Is the Key to Defeating Extremism

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  • Copyright: 2010-06-08
  • Publisher: Free Press

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Renowned Middle East expert Vali Nasr's bestsellingThe Shia Revivalprofoundly transformed the debate about the Iraq War by unveiling how the Sunni-Shia rift was driving the insurgency. Now, inForces of Fortune, Nasr presents a paradigm-changing revelation that will transform the understanding of the Muslim world at large. He reveals that there is a vital but unseen rising force in the Islamic world -- a new business-minded middle class -- that is building a vibrant new Muslim world economy and that holds the key to winning the cold war against Iran and extremists.His groundbreaking analysis will utterly rewrite the wisdom about how the West can best contend with the threat of Islamic extremism, as well as about what we can expect from the Muslim world in the future. The great battle for the soul of Iran, the Arab world, Pakistan, and the entire region will be fought not over religion, Nasr reveals, but over business and capitalism.With a deft combination of historical narrative and eye-opening contemporary on-the-ground reporting from his constant trips to the region, Nasr takes us behind the news, so dominated by the struggle against extremists and the Taliban, to introduce a Muslim world we've not seen; a Muslim world in which the balance of power is being reshaped by an upwardly mobile middle class of entrepreneurs, investors, professionals, and avid consumers -- who can tip the scales away from extremist belligerence. His insights into the true situations in Iran, Pakistan, Afghanistan, and the crucial bright spots of Dubai and Turkey provide a whole new way of thinking about the troubles and prospects in the region.Drawing on his in-depth knowledge of the Muslim world's tortured history, he offers a powerful reassessment of why both extremism and anti-Americanism took hold in the region -- not because of an inevitable "clash of cultures" or the nature of Islam, but because of the failure of this kind of authentic middle class to develop in the nineteenth and twentieth centuries, largely due to the insidious effects first of colonialism and then of top-down dictatorial regimes, often supported by the West. He then shows that the devoutly Islamic yet highly modern Muslims of what he calls the "critical middle" -- in Iran, Pakistan, Turkey, and the stealth force behind the extraordinary growth of aggressively capitalist Dubai -- are finally the middle class the region has desperately needed. They are building a whole new economy -- as the middle classes did in both India and China -- and their distinctive blending of Islam and capitalism is the key to bringing about lasting reform and to defeating fundamentalism. They are people in the region the West can andmustdo business with.Forces of Fortuneoffers a transformative understanding of the Muslim world and its possible future that is sure to spark lively debate and to play a vital role in bringing about a sea change in thinking about the conflict with Islam.

Author Biography

Born in Iran, Vali Nasr is a professor of international relations at the Fletcher School of Law and Diplomacy of Tufts University, an adjunct senior fellow at the Council on Foreign Relations, and a senior fellow of The Dubai Initiative at Harvard University's John F. Kennedy School of Government. His book The Shia Revival was a New York Times bestseller. He has contributed to The New York Times, The Washington Post, and Time and appeared on Anderson Cooper 360, The Situation Room, Fareed Zakana GPS. Today, and Charlie Rose.

Table of Contents

The Power of Commercep. 1
The World According to Dubaip. 28
Iran's Predicamentp. 50
The Tragic Failures of Secularismp. 85
The Great Islamic Revolutionp. 116
The True Course of Fundamentalismp. 145
The Prophets of Changep. 176
Pakistan's Horror and Hopep. 203
The Turkish Modelp. 232
Winning The Futurep. 252
Notesp. 265
Acknowledgmentsp. 293
Indexp. 295
Table of Contents provided by Ingram. All Rights Reserved.



all happened quickly. The Muslim world changed dramatically in the short thirty-two
months that separated the Ayatollah Khomeini?s return to Iran on February 1,
1979, and the assassination of Anwar Sadat in Cairo on October 6, 1981. During that
time of remarkable upheaval the forces of Islamic revolution seized Iran; Pakistan
proclaimed itself an Islamic state; the Soviet Union touched off a jihad by invading
Afghanistan; and Egyptian president Anwar Sadat was assassinated by radical
fundamentalists. Since those fateful years, many more violent revolts, deadly
clashes, terror attacks, and bloody suppressions have followed, along with deepening
conservative Islamic attitudes and anti-Americanism across a vast swath of countries
from North Africa to Southeast Asia. Extremism has come of age in this cauldron,
giving rise to al-Qaeda, and its cult of violence and dark vision of the

In the face of all of this tumult, and in response to
the rise of terrorism, America?s most abiding objective in the Middle East
since 1979 has been to contain and defeat Islamic fundamentalism. That object has
determined how America sorts its allies from its adversaries, which fights it has
taken on, and whether in pursuing its interests it will champion reform, promote
democracy, or look to dictators and military solutions. It has also led America
perilously close to reducing everything in the Middle East to the fight against
fundamentalism, and to seeing every expression of Islam as a threat. The U.S.
leadership has seen the fundamentalist challenge largely as a new kind of cold war.
That sort of clarity can
be a great help, but it can also grossly oversimplify, obscuring vital aspects of
the situations within countries and regions that provide opportunities for improving

Looking at the Middle East as it is
today?caught in the web of violent conflicts, seething with anger and
anti-Americanism, and vulnerable to extremist ideas?it is difficult to have
hope for the future. But, however difficult, that is just what we must do. In his
perceptive bookThe Age of the Unthinkable, the
strategist Joshua Cooper Ramo argues that by intensely focusing on that which is
before us, we miss important trends?some barely detectable?that will
shape the future.1The paradigms that dominate today may
matter little tomorrow. We will do ourselves a disservice if we think of our future
with the Muslim world only in terms of today?s conflicts. These conflicts are
serious, and we must prevail in them, but we should also recognize that there are
other forces at work in the Muslim world and they too deserve our
attention?they may ultimately matter more to us.

the case regarding the paradox of Iran, a brutish theocracy lording over a restless
population that is also a rising power with ambitions to match its glorious ancient
history, and a keen sense of purpose honed by decades of confrontation with the
West. An examination of the ironies of Iranian power, and the fault lines within the
country?on display in the recent presidential election?offer a
particularly revealing starting point for rethinking the true challenges, and
prospects, in transforming relations with the Muslim world. Iran?s
saber-rattling, and the Bush administration?s hard-line stance?now being
softened by the Obama administration?have diverted attention from important
truths that belie the received wisdom regarding the Iranian threat, and those truths
speak volumes about opportunities around the wider region.

recent history of Iran?s relations with the West is surely deeply
troubling.2Iran?s revolution empowered a
particularly uncompromising brand of Islam that has turned anti-Americanism into an
article of faith in much of the Muslim world, and Iran?s rulers have steadily
supported terrorism with money, training, and weaponry. Iran also now openly seeks
great-power status and is building a nuclear program. Making matters worse in recent years was the more
antagonistic approach to dealing with Iran that was adopted by the Bush
administration, and the badly managed prosecution of the wars in Iraq and

For much of the past three decades, the United
States and Iran were locked in a stalemate, with no diplomatic relations, but also
not much in the way of direct confrontation. America was content to isolate Iran as
much as possible while waiting for the clerical regime to succumb to perceived
inevitable internal pressures for change. In the wake of 9/11 that approach changed.
The Bush administration believed it could nudge history along. Veterans of Reagan
era cold war politics?the so-called neoconservative hawks who gathered around
Vice President Dick Cheney and Secretary of Defense Donald Rumsfeld?drew
confidence from what they perceived as the U.S. role in helping to toss communism
onto the ash heap of history. They believed the toppling of Saddam Hussein and the
rise of a reasonably stable, democratic new Iraq next door to Iran would stir
Iranians into revolt and sufficiently unnerve the country?s clerical rulers to
provide that opening. The bitter irony was that when American troops showed up in
Iraq, the grip of Iran?s ruling clerics was strengthened.

By breaking the Taliban regime in Afghanistan in late 2001, toppling
Saddam, and then uprooting Baathism in Iraq, the United States removed local rivals
that had contained Iranian power to its east and west. Since the Shah?s time
and more so after the Islamic Revolution, Saddam?s military had been the main
barrier to Iran?s expansionist aims. Today there is no indigenous military
force in the Persian Gulf region capable of containing Iran. What?s more, in
the political vacuum that followed Saddam?s fall, Shia Iran quickly extended
its reach into the predominantly Shia lands of southern Iraq. Many of Iraq?s
new leaders had spent years of exile in Iran and relied on Iranian support during
the dark years of Saddam?s rule. It was no coincidence that Iran was the first
of Iraq?s neighbors to recognize its new government and to encourage Iraqis to
participate in the political order established by the United States. Now Iran runs
extensive intelligence and political networks that give the Islamic Republic
influence at every level of Iraq?s bureaucracy, clerical and tribal establishments, and security
agencies?impacting election results, the flow of trade, and the tempo of

Iranian leaders are keenly aware of how their
regional influence has grown since 2001, and especially since 2003.3Former
president Muhammad Khatami, the onetime great hope of the reformers in Iran,
captured this sentiment when I asked him in 2007 about how he assessed Iran?s
place in the region. ?Regardless of where the United States changes
regimes,? he observed, ?it is our friends who will come to
power.?4True enough, Tehran has more impact on
Arab politics?especially in the critical zones of Iraq, Lebanon, and
Palestine?than it did ten years ago. Not only does Iran?s influence in
Iraq far exceed that of any Arab government, but since the war between Hezbollah and
Israel in the summer of 2006, Iran has gained more say in Lebanon?s domestic
politics as well?pushing for Hezbollah?s interests and constricting
politicians favored by the United States or Iran?s Arab rivals. The clerical
regime has also kept up, if not jacked up, its meddling in Palestinian politics
through its support for the extremists of Palestinian Islamic Jihad and Hamas, as
well as cultivating ties with Syria. By excoriating Israel and taking advantage of
Arab frustration with the lack of progress in the peace process, Iran seems to curry
more favor these days on the Arab street than the tired old Arab dictatorships in
charge. So it is that Iran?s Supreme Leader confidently boasted that no
problem can be solved in the Middle East without Iran?s consent and

Iran?s hubris was fueled by soaring oil prices in
2007 and the first three quarters of 2008, which eventually topped out at close to
$150 a barrel. Flush with petrodollars, Iran?s rulers were confident they
could afford their shopping spree for influence in the Palestinian Territories,
Lebanon, and Iraq by supplying their allies and clients with funds,
weapons?including rockets and missiles?and training. There is worry
across the Middle East that all this activity will only increase if Iran goes
nuclear. Then Tehran will have little fear of reprisal for its boldly aggressive
policies, which is one reason why a host of Arab nations now contemplate nuclear
programs of their own to temper Iran?s surging

Talk of military action against Iran was rife in the Bush
administration throughout 2007 and 2008, but the United States had too much on its
plate in Iraq and Afghanistan, not to mention the deepening political crisis in
Pakistan, to take any such step. All of this seems to indicate that Iran has become
a juggernaut. But as the recent upheaval shows, the reality is more

For the West, the most often used measure of
Iran?s regional influence is the flow of arms and influence from Tehran to its
allies and clients. In order to gauge how much weight Iran is throwing around,
America looks to metrics such as those above about the dollar amount Tehran promises
Hamas, the volume of weapons it smuggles to Hezbollah, and the numbers of those
trained in terrorist tactics by the Iranian Revolutionary Guards? shadowy Quds
Brigade. There is plenty of this activity to alarm America and its Arab allies, and
worse, those ties are becoming stronger. If Iran goes nuclear there is no telling
what havoc might be wreaked by means of Iran?s minions. There is no denying,
then, that Iran?s hard power and influence have been growing. But viewing
Iranian power from that angle alone makes it look more inevitable and ominous than
it really is.

Economics has more to do with determining the
pecking order in the Middle East than the region?s miasmic tumult of feuds,
wars, and saber rattlings would lead one to believe. The Middle East is not just a
zone of clashing extremist ideas and zealous terrorist armies. It is also a place of
struggling and thriving economies, where new classes and business elites are
elbowing their way higher in the power structures of many countries, changing
religious, social, and political life on the way. Other contenders for great-power
status in recent memory, Brazil, China, or India, all rose to prominence not on the
back of hard power but as economic stars driving growth in the regions around them.
That is not the case with Iran. Iran is not going the way of the so-called BRICs (to
use the somewhat misleading acronym that lumps petro-dependent Russia in with the
more diversified economies of Brazil, India, and China). Iran?s economy is the
151st most isolated in the world (that is out of 160) and sixteenth most isolated in
the Middle East (out of seventeen). Iran?s drive for regional power lacks an
economic underpinning. And that makes gauging Iran?s regional power a tricky
business. Hard power is not its most effective means to greater

Iran has most influence where it does most trade;
where that influence is backed by economic and business relations. While Iran has
deep ties to Lebanon?s Hezbollah and a long-running alliance with Syria, its
most certain sphere of influence is far closer to home, in an arc that runs from
Central Asia in the north and east down through western Afghanistan and on into the
Persian Gulf and southern Iraq to the south and west. ?When you go to Central
Asia these days? remarksThe Atlantic
?s Robert Kaplan, ?you feel you are in greater
Iran.?5It is in this arc where Iran does most
of its regional business, selling agricultural products, electricity (a big-ticket
item in this air-conditioning-hungry region), natural gas, and even manufactured

The trade between Iran and the five Central Asian
?stans was worth well over $1 billion in 2008 (up from $580 million in 2001).
The Iranian rial changes hands there as easily as local currencies. Counting the
unaccounted for cross-border trade, Iran does about the same amount of business with
Afghanistan (up astronomically from a paltry $52 million in 2001). Trade with Iraq
topped $4 billion in 2008 and with the United Arab Emirates reached $14
billion?a figure that doesnotinclude all
the black-market trading that goes on across the Gulf. In fact, Iran has such a
vital interest in this trade that the regime has created banking and financial ties
and invested infrastructure projects in these countries ranging from roads,
railways, and piers to pipelines and electricity pylons. Businesses of all kinds
have grown in these countries on the back of this trade.

In so
many ways, Iran is well qualified to become a true economic powerhouse driving wider
growth in the region. Its nearly 70 million people give it a population about the
same size as Turkey?s. It has vast oil and gas reserves, plus a strong
industrial base by regional standards. Labor is cheap but the literacy rate is high,
over 75 percent. As the country?s thriving art scene and internationally
acclaimed movie industry
suggest, Iranians are also far better plugged into world culture than is the norm in
the region.

Iranians are Web- and mobile-savvy (Persian is the
world?s third most widely used language online, the country boasts the most
bloggers per capita anywhere in the world, and almost two-thirds of the
country?some 48 million people?are mobile phone users). They are also
technically adept: The country?s leading technical school, Sharif University
of Science and Technology in Tehran, turns out world-class engineers and scientists.
Stanford regularly admits Sharif alumni into its graduate programs in engineering,
and according to one Stanford professor and former department chair, ?Sharif
now has one of the best undergraduate electrical-engineering programs in the

This sort of
human-capital development can make Iran a player in the competitive global economy.
The degree of ingenuity and skill already present is attested to, ironically, by the
nuclear program, which is run by homegrown experts. Iran?s rulers even like to
claim?despite great skepticism in most Western quarters?that the nuclear
drive and rocket program will be Iran?s ticket to economic
globalization?s cutting edge.7And it is not just splitting atoms that
is supposed to catapult Iran into global status, the country is also investing in
space research and biotechnology. Research outfit Iran Cord Blood Bank, created in
2003 with the Supreme Leader?s blessing, has committed $2.5 billion to human
embryonic stem cell research to help cure a range of ailments from heart disease to
multiple sclerosis.8The initiative has surged ahead taking
advantage of the fact that a fetus is not considered a human in Islamic law before
the end of the first trimester of a pregnancy.

In a more
down-to-earth vein, Tehran mayor and former Revolutionary Guards commander Muhammad
Baqer Qalibaf talks of development in terms of economic reform, private sector
growth, and globalization. When he ran for president in 2005, he fashioned himself
as the Islamic Republic?s version of the maverick state-builder and founder of
the Pahlavi monarchy, Reza Shah, turning heads with his colorful feel-good campaign
posters that promised growth and prosperity. The same themes crop up routinely in Qalibaf?s
speeches and interviews as the can-do mayor of Tehran.

hopeful talk from the higher-ups falls flat, though, before the reality of an Iran
where inflation is running at double digits and about a quarter of the workforce is
jobless. The problem is not a lack of enterprise or fundamental potential. Iran has
a dynamic private sector and the middle class to go with it. The economist Djavad
Saleh-Isfahani estimates that around half of Iran?s population of 70 million
is middle class or above?counting their possessions, disposable income, level
of education, and family size?with the kind of social attitudes that are
needed to support robust consumption habits and modernizing change.9The
problem is that Iran?s private sector is shackled by a corrupt and inefficient
state that dominates 80 percent of the economy. The state grew to its current size
after the revolution by devouring large parts of the private
sector?nationalizing businesses, banks, and industries. It prioritizes
spending on the poor above achieving economic growth, and therefore sees no problem
in stifling entrepreneurship with red tape, starving businesses of resources, and
taxing them dry. It is top-down centralized economic management at its

When it comes to the economy, Iran is not a regional
leader but a regional laggard, dawdling in the soggy bottomlands of suffocating
statism. This economic stagnation was a powerful driver of the vehement opposition
to Ahmadinejad in the recent election. The thing to watch in Iran over the next few
years is the private sector and the middle class tied to it?the same class
that in the aftermath of the June 2009 election led millions to ask ?where is
my vote?? The great battle for the soul of Iran?and for the soul of the
region as a whole?will be fought not over religion but over business and
capitalism. At issue will be whether the state will free the economy and let this
dynamic society reach its full potential.

The deeper truth
about Iran?s power is that playing the anti-American and pro-Palestinian cards
is not going to bring Iran lasting influence. As a senior Iranian official once told
me, ?When push comes to shove, the Palestinians will be the first to turn on
Iran.? Iran will not be able to truly dominate the region if it does not do a better
job of developing its economic clout. Great-power status presupposes economic
leadership, and that Iran is not currently providing. This is the key to
Iran?s quest for nuclear capability; the Iranian rulers think they need the
threat of nuclear aggression or retaliation in order to forestall Western pressure
for regime change and to intimidate neighbors, but even more important to punch
above their weight. After all, Iran?s GDP is about the same as that of
Massachusetts. It spends only $6 billion a year on its military. That is less than a
third of Saudi Arabia?s military expenditure of $21 billion a year, and close
to half of Turkey or Israel?s annual military spending.10Before
the revolution, Iran?s military expenditure was as high as 18 percent of GDP;
today it is a paltry 3 percent. How can a country with an economy the size of
Massachusetts and the lowest military expenditure in its neighborhood take on the
United States and claim great-power status? The answer in Tehran is that only
nuclear capability will address Iran?s glaring economic and military deficits.
And if Iranians had any doubts that nuclear capability will raise their stock,
America?s near obsession with the issue over the past six years has convinced

But even with nuclear capability, the kind of status
that Iran covets will elude it. Both India and Pakistan started down the nuclear
path in the 1970s, but only one of them emerged as a regional great power in the
1990s. It was not nukes that turned India into a rising power, but rather its
economic growth rate, newfound friendliness to free markets, and ability to
integrate into the global economy. Iran today rallies the alienated and rouses the
dispossessed, but those seeking progress and prosperity have to look elsewhere for
inspiration. If Iran wants to be a great power, it will have to further nurture its
economy so that it serves as the engine of growth for the region that it could be.
That would mean bringing itself into concert with a vital economic transformation
underway all around the region?the rise of a new middle class that is the key
to more fully integrating the Middle East into the global economy, and to the
building of better relations with the West. It is to this rise of a new middle class
that leaders in the United States and around the West should turn attention?to
fuel its potential?rather than allowing the chimerical power of fundamentalism to dictate so
much of the approach to the region.

The great irony of the
fundamentalist threat is that the two years from 1979 to 1981 in which Islamic
fundamentalism shook the world and terrified the West were also its high point of
power. That is not to say, of course, that after fundamentalism won Iran, turned
Pakistan, and destabilized Egypt it just died out; fundamentalists are too vocal,
active, well organized, and well funded for that. Fundamentalism most definitely
remains a worry, and its extremist edge a serious threat. Extremism that has been
festering in the innards of Pakistan?s society is surging, laying claim to
vast swaths of its territory, and those extremist forces are waging a two-pronged
war against not only foreign troops but the governments of both Afghanistan and
Pakistan. The thought of nuclear-armed Pakistan, with its 175-million-plus
population?deeply divided along ethnic lines, and with a troubled economy and
weak government?unraveling before the extremist onslaught is unnerving to say
the least. A failed Pakistan in the clutches of extremism or plunged into civil war,
and with no safeguards locking down its nuclear arsenal, would be deeply
destabilizing for the region and the world.

The larger truth
about fundamentalism?s drive to power, though, is that since 1980 it has
toppled no more dominoes. The Taliban visited horror on Afghanistan, but this
rag-tag army of religious zealots and tribal warriors amounted to no more than an
incomplete insurgency in a broken corner of the Muslim world?an antique
badland even before decades of war ravaged it. There have been no additional Irans,
and the prospect that another Islamic state will arise?whether through
peaceful means or violent ones?has been steadily declining.

The West must remain vigilant against fundamentalism, but that should not
stop Western policymakers and publics from seeing the ?whole picture? in
the Middle East, and a vital truth of the region is that the fundamentalist strain
of Islam is not practiced by the vast majority of the population, and isnoton the rise. What is true is that since 1980, a
broader wave of Islamic resurgence has swept across the Middle East, and
fundamentalism has surfed that wave rather than fueling it. The Islamic resurgence is much larger,
deeper, and more complex. The vast majority of Muslims are moderate and pragmatic
when it comes to religion, balancing law and piety with a healthy dose of mystical
practices and folk religion.

It is not fundamentalism that
accounts for the ubiquity of Islamic influence across the region today; rather it is
the other way around: Widespread Islamic fervor?which can, but does not have
to, take on a fundamentalist form?has allowed fundamentalism to survive past
its prime. It would of course be foolish to ignore fundamentalism and the extremists
associated with it, but it is also imprudent to consider fundamentalism the end-all
and be-all of what we need to know about Islam and the Middle East. It is time that
we take a good look at the vitality of the energetic blending of Islamic piety and
capitalist fervor that is flourishing in many pockets around the region.

In November 2006, when Pope Benedict XVI visited Turkey,
he made a stop at the seventeenth-century Blue Mosque, so called for the more than
twenty thousand handcrafted cobalt-blue Iznik tiles that adorn its interior. A
testament to Ottoman grandeur, the great mosque is an architectural marvel of
unrivaled beauty. At one point, the gently strolling pontiff stopped and looked up
at a large black tableau with ornate white calligraphy, etched into an arch at the
mosque?s main exit, and asked his guide what the flowing script said. They
were the words of the Prophet, he was told: ?A merchant is the beloved of
God? (al-kasib habiballah).

Benedict?s visit to Turkey was historic, his first to a Muslim
country. It was also a hastily organized damage-control mission. Two months earlier,
His Holiness had caused a furor when, in a speech in his German homeland, he had
evoked the criticisms of Islam made by fourteenth-century Byzantine emperor Manuel
II Paleologus, who led the empire during its last days, as the Ottoman Turks
steadily encroached on its power, eventually seizing Constantinople. Manuel had
written a ?Refutation of Islam,? in which he argued that Islam was an
irrational religion,
an evil falsehood that had been spread by the sword.11Making
the reference worse was the fact that Manuel, in his desperate efforts to obtain
support for the fight against the Turks, had made an alliance with the pope in Rome.
By quoting Manuel, the current pope seemed to be saying that Islam was essentially
driven by jihad and was at odds with Western values?not only Christian values,
but those of modernity altogether.

How ironic, then, that on
that day at the Blue Mosque, the pope discovered that for centuries, the last words
worshippers read when leaving the mosque were a call to commerce. Not only was
commerce important to the seventeenth-century Muslim world, it is even more
important to that world today. Washington is certainly not entirely unaware of this.
The United States has been supporting economic reform and business initiatives in
the Muslim world, but with too much focus on working with government planners and
the top-level business elite. Change will not come from this upper crust?it
has too much invested in the status quo and depends too heavily on the state. It is
business with small ?b? that should hold our attention.

All across the region, a whole new economy is rising, mixing local values
with surging consumption and building ever richer ties to the global economy, and
this trend is not only every bit as powerful and important as the threat of
fundamentalism, it is more so.12

In the spring of
2009, I met in Dubai with a group of Middle Eastern businessmen. Only a short time
earlier, the little emirate had been swept to dizzying heights of wealth and
prosperity, and these businessmen had done quite well for themselves. Now the
discussion was more somber, focused not surprisingly on the global financial crisis.
After much talk about failing banks and falling real estate prices, I asked the
group how they were responding.

?Money is flying to
Beirut,? one of them explained. ?Everyone is putting what they can in
Lebanese banks.?

Lebanese banks?

Why were these very savvy businessmen prepared to trust their substantial assets
and investments to banks in a country with a reputation for war and instability?the
Hezbollah-land that so worries the West? Were they making a political statement with
their money, sending a further message to the West about their willingness to
support their cause even in a time of financial trouble? Or was I missing their
point altogether?

?Why Lebanon?? I finally asked

?Well, the interest rate is much higher in
Lebanon than here,? one answered, while another pointed out what was already
obvious to the rest of the group: ?Lebanese banks sit outside the global
financial system. They have no toxic assets to worry about. Nor are they threatened
with collapse or government takeover, as are banks in New York and

Why had I needed to be reminded that capitalism
is alive and thriving in the Middle East? There are signs of it everywhere, from the
actions of these businessmen to protect their assets to the staggering rate at which
shopping malls and modern retail establishments of all kinds have gone up in the
Muslim world, and not just in Kuala Lumpur or Dubai, where one sees extravagant
Rodeo Drive?style malls. In war-torn Beirut and fundamentalist-dominated
Tehran, glitzy malls are filled on holidays with shoppers eager to buy the latest
electronics or fashionable home furnishings.

This capitalist
flowering has had clearly definable cultural ramifications as well. A quick glance
at rooftops in any Arab city will leave little room for doubt that satellite
television has mesmerized the Arab world, to the chagrin of its dictators and their
censors. There are some 280 channels to choose from, and the more popular ones, such
as al-Jazeera or al-Arabiya, claim viewership in the tens of millions. It is also on
these airwaves that some of the most interesting religious debates take place.
Clerics are not the only ones who draw the big audiences. They must now compete with
a new breed of televangelists, who preach modernity-and business-friendly

Internet use too is steadily growing. About 40 percent
of Iran?s population surfs the Web, with the ranks of first-timers swelling
constantly, as opinion and information flow briskly into and out of social
networking websites and chat rooms, and then get further interpreted on blogs. Even
clerics maintain active websites, blogs, and Facebook pages, and have Twitter followings.
Those two social networking sites took over the presidential campaign of 2009,
upending traditional media to make way for new political dynamics in the country.
The government has tried its hand at restricting and censoring the Net, but it is
King Canute ordering back the tide. And even if the hard-line ayatollahs and their
minions could strangle the Internet, what would they do about the explosion of cell
phones and mobile texting? In 2000, fewer than a million Iranians had a cell phone.
Now some 48 million?about two-thirds of the country?have one. Even
people too poor to obtain a regular mobile subscription can buy cheap prepaid phones
to start talking and texting. And it is not just Iran: Next door in war-ravaged
Afghanistan, the close of 2008 found eight million mobile phones in use?about
one quarter of the population. Pakistan?s numbers are even more impressive; in
2008, 78 million were using mobile phones; up from a mere 750,000 in

A vital characteristic of this flourishing capitalism is
that it goes so much hand in hand with the resurgence of traditional Islamic belief.
All over the Middle East, piety is shaping consumption. Those who live by Islam also
demand Islamic goods; not justhalalfood and
headscarves, but Islamic housing, haute couture, banking, education, entertainment,
media, consumer goods (such as Europe-based alternatives to Coke and Pepsi, Mecca
Cola and Qibla Cola), and even vacations?Islamic cruises are a growth industry
in Turkey, and the governor of Najaf in southern Iraq has been thinking of ways to
market pilgrimage vacation packages in order to coax some of the million-plus
Iranians who visit the sacred sites in his city every year into staying longer and
spending more. Some offerings mix the taste for Islam with that for globalization,
as, for example, The Caprice, a luxury hotel with a distinctly French name that
caters to the Islamically conscious vacationing on Turkey?s western

This upwardly mobile class consumes Islam as much as
practicing it, demanding the same sorts of life-enhancing goods and services as
middle classes everywhere. Their preference that those goods have an Islamic flavor
makes Islam big business. A booming economic sector around the region is catering to
this exploding demand, and these rising Islamic consumers comprise as much as a sixth of
humanity, spread across a vast expanse from Morocco to Malaysia, with notable
toeholds from Detroit to D?sseldorf and S?o Paulo to

Americans are easily dazzled by the size of
China?s economy, the speed of its growth, and the room it has to expand. In
recent years, India?s economy has also made remarkable strides. Thinking of
the notional ?Muslim-world economy? provides an interesting basis for
comparison. The global Muslim population of a billion-plus is about the same size as
both India and China?s populations. In 2008 the GDP of the economies of five
of the largest countries in and around the Middle East?Egypt, Iran, Pakistan,
Saudi Arabia, and Turkey, with a combined population of 420 million?was $3.3
trillion, the same size as that of India, which has three times the

The bottom line is: A billion consumers have
clout. Across economies as diverse as those of Mali, Dubai, and Indonesia?and
outside the Muslim-majority countries, in the Muslim diasporas?the demand for
Islamic goods and services is strong and growing, and it has already created waves
in global markets. This is perhaps best demonstrated by the boom in Islamic finance,
which is doing good work in further integrating the economies of the Muslim world
and the global economy.

For Americans,
seeing the words ?Islamic? and ?finance? in the same
sentence tends to conjure up worries about terrorism.13The
need to identify and cut off terrorists? money flows is entirely legitimate,
but ?Islamic finance? has nothing to do with funding extremism or
violence; rather the term refers to banking and other financial services?such
as insurance, mutual funds, equities, bonds, credit cards, and even
derivatives?that are compatible with shariah rules and regulations. Shariah
requires neither collecting nor paying interest on bank deposits or loans, and in
the case of bonds, limiting the amount of debt a company takes on in issuing bonds
to the value of assets on its books. Islamic finance also means avoiding investment
in ventures that may violate the shariah, such as businesses that serve alcohol,
involve gambling,
produce devices that can promote immorality, or in some cases, even the use of
mannequins or bareheaded women in advertising.14

In place of charging
interest, Islamic finance relies on forming partnerships that demand that borrowers,
lenders, and investors jointly take an equity position in business ventures, sharing
in the risk and reward of those investments.15The
whole thing works better in theory than in practice, and Islamic financiers have had
to develop entrepreneurial ways of working around these restrictions to make the
system work. For instance, car dealerships will simply add the amount they would
make in interest for a loan to the cost of a car, and offer buyers a deferred
payment schedule.

Although Islamic finance remains a
fledgling, niche market in the vast global financial-services industry, it has
lately been growing at the rate of 15 to 20 percent per year.16The
American consulting firm McKinsey & Co. estimates that by 2010, assets held by
Islamic financial houses will total $1 trillion, a fivefold growth in five
years.17The Western ratings agency Standard and
Poor estimates that these assets could ultimately grow to as much as $4
trillion.18The 2008 global financial crisis may
in fact give a good boost to these numbers as more Muslims may decide to pull their
money from traditional investments for the perceived security of the Islamic

There are some three hundred Islamic banks and
investment firms operating in more than seventy-five countries. By the end of 2006,
some 218 shariah-compliant mutual funds were managing an estimated $14 billion.19Iran
accounts for the most shariah-compliant assets ($155 billion in 2007), followed by
Saudi Arabia and Malaysia ($69 and $65 billion each) and then Kuwait and U.A.E. ($38
and $35 billion each).20These banks oversee banking services
totaling close to $500 billion and an Islamic bond market worth $82 billion?a
mere one-tenth of one percent of the global bond market, but expanding fast. The
total investment in these bonds grew by an eye-popping 250 percent in 2006, and
growth continued even with the global financial downturn.21

Three large Middle
Eastern players dominate Islamic finance: the Faysal Group, al-Baraka, and the
Kuwait Finance House. The most active hub for Islamic finance has for many years been Kuala
Lumpur?where Southeast Asia?s boom in the 1990s charted the way for the
integration of Muslim Malaysia and Indonesia into the global economy?but Dubai
and Bahrain now account for a growing share of the market. All of them now warily
anticipate competition from the larger financial centers of London, Tokyo, Hong
Kong, and Singapore.

As an indication of how this form of
financing can serve to build ties between the Middle East and global economy, many
global financial brands such as HSBC, Deutsche Bank, Barclays, Credit Suisse,
Citigroup, and the UK?s Black Rock are getting into the game. They are
targeting a growing market of Muslims in the West for retail banking as well as more
lucrative upscale financial services, such as private banking and wealth management,
and looking to gain growing shares of the booming Islamic-bond market. Deutsche
Bank, Barclays Capital, and BNP Paribas are now among the world?s top five
issuers of Islamic bonds. The equity markets in the West are also joining in. Dow
Jones has indexes for both Islamic bonds and Islamic investment funds.22
Research and analysis into Islamic finance is also going on at Moody?s and
Reuters, and the premier annual gathering of experts on the subject takes place at
Harvard University?s Forum on Islamic Finance.

London in
particular has set its sights on becoming a major center for Islamic finance. The
city saw its first Islamic bank open in 2004, and since then two more have opened
and a fourth is on the way. The London stock market issued its first Islamic bond in
2007, and is well on its way to expanding into the sovereign Islamic-bond market.
Competition is spurring legal reform and the creation of new regulatory mechanisms
designed to encourage Islamic financial activity. So far that competition has
favored Dubai, whose relatively hands-off regulatory environment is the most
attractive to investors and borrowers, but there is no denying that increasingly
Islamic finance is going global.

Arab Islamic banks are
setting up shop in Europe and Southeast Asia, and European and Southeast Asian banks
are providing Islamic banking in the Persian Gulf. Banks such as Saudi
Arabia?s al-Rajhi or Kuwait Financial House have been building branches across
the Muslim world and
competing with local Islamic banks such as the Dubai Islamic Bank or the Islamic
Bank of Jordan, or the Islamic arm of local mainstream banks or global financial
outfits like HSBC or Citigroup. Smaller markets are converging into one global
market ruled by the same regulations and standards, which mix Western business
practices with Islamic ones, all enforced by Islamic scholars and shariah-compliance
boards. Malaysia has tried to enforce standards by creating the National Shariah
Board, and there is a broader international effort aimed at creating common
standards is in the works at Bahrain?s Accounting and Auditing Organization
for Islamic Financial Institutions.23

Islamic scholars
on lucrative retainers with financial institutions, some in America, help design new
Islamic financial products?and even help bend the rules to sell finance to
shariah-conscious customers.24One particularly influential one is
Yusuf DeLorenzo, an American convert from Brooklyn. In addition to advising twenty
global financial institutions and a few Muslim countries, the dapper sheikh is the
chief shariah officer (rhymes with chief financial officer) at Shariah Capital, a
Connecticut-based Islamic hedge fund. Meanwhile, many of these customers come from
Turkey, Indonesia, and North Africa, where the religiously conscious middle class is

When in 2006 the Dubai Port Authority acquired
British Peninsular and Oriental Steam Navigation (which managed a number of U.S.
ports), some in the United States pointed to the $3.5 billion Islamic bond that had
financed the deal as proof of a threat to U.S. security.25
Islamic bonds were then unknown to most Americans, and the mere mention of Islam
with relation to financing was enough to ring alarm bells. Yet a number of American
companies had already dipped their toes into these waters. In 2004, the Texas-based
oil group East Cameron Partners became the first American company to issue Islamic
bonds.26Recently, Ford Motor Company?s $848
million sale of Aston-Martin to the Kuwait-based Islamic bank Investment Dar
required Islamic financing. Caribou Coffee, America?s largest specialty coffee
chain after Starbucks, is owned by a shariah-compliant private-equity firm based in
Bahrain.27In Europe, British developers have
financed the multibillion-dollar purchase of London?s historic Chelsea Barracks
complex with Islamic bonds,28while in 2004, the German provincial
government of Saxony-Anhalt became the first non-Muslim sovereign entity to do so,
raising 100 million Euros in the process.29France, China, Japan, and Thailand are
all poised to follow.

Key to understanding the growth of
Islamic finance, and the insight it offers into the up-and-coming mind-set of so
many Muslims, is that it evolved due to the demands of average customers. Some
observers ascribe the spectacular growth of the last few years to the oil boom, and
the flow back to the region of an estimated $800 billion belonging to Muslims made
nervous by post-9/11 financial regulations intended to clamp down on the laundering
of money to fund terrorism. Surely those cash flows have greatly accelerated growth,
but consider that this money that had been stashed away in America, Britain, or
Switzerland before 9/11 could, when it ?came home,? just as easily have
gone into regular banks and investment funds in the Middle East, which are
plentiful. The directing of so much money into Islamic finance suggests a strong
specific demand for this brand of the blending of capitalism and Islam.

Indeed shariah compliance has attracted many Muslims to investing who had
previously shunned formal markets. One can think of Islamic finance in its early
days as somewhat akin to microfinance, meaning the provision of small loans to those
shunned by traditional bankers because of low income and little or no collateral to
offer. When Bangladesh?s Grameen Bank pioneered the idea, the intent was not
so much to make profits but to lift people out of poverty. But over the past decade,
microfinance has evolved into big business, with large banks and investment funds
competing over what the business strategist C. K. Prahalad calls ?the fortune
at the bottom of the pyramid.?30

microcredit, Islamic finance was a response to a moral imperative: to fulfill a
demand for loans by those who wanted their business to be in compliance with the
shariah. The largest Islamic financial institution, Saudi Arabia?s al-Rajhi
Bank, started operations as a small firm providing the interest-free equivalent of
modest loans, and it grew largely by bringing in new, piously interest-averse
investors. Whereas in
1978, savings accounted for only 10 percent of all deposits in Saudi Arabia,31thanks
to Islamic banking, that number had grown to 53 percent by 2007.32In
2008 the three Islamic banks in the kingdom accounted for 45 percent of all
bank-credit facilities, and al-Rajhi now has more branches?many located away
from major cities?than any other bank in the kingdom, boasting an impressive
$15 billion in deposits.33So popular was the opportunity to bank
in this fashion that when Kuwait Finance House, now one of the world?s largest
Islamic banks and the holder of its country?s largest single deposit pool,
opened its doors, it attracted so many customers that it met the deposit goal for
its whole first year within thirty days.34

There is no
question that Islamic finance is now benefiting from an advantage in attracting
deposits and investments from the growing weal that the top of society, and in the
government, in prospering Southeast Asia and the oil-rich Persian Gulf. Financiers
in the West know very well about the kind of wealth that floats around at the top
levels of these societies, especially the huge reserves of cash in government
coffers and sovereign wealth funds?investment funds run by the government,
with government money. But the growing ranks of newly cash rich individuals in the
Muslim world, who come not from the traditional elite but from the rising classes,
are strong consumers of Islamic finance too.

counterparts in Europe and the United States are also fans. Accenture, a global
consulting company, estimates that demand among Muslims in Europe will drive the
next phase of the growth. Half of all Muslim middle-class savings in the world
belong to Muslims who live in the West.35American Muslims are more likely than
their coreligionists in Europe or the Muslim-majority countries to enjoy
middle-class status. According to Zogby polls, a majority of U.S. Muslims are
educated and earn more than $50,000 a year. Pent-up demand among middle-class
American Muslims has already made Islamic finance an instant success in Chicago. No
sooner had that city?s Devon Bank begun looking into the feasibility of
Islamic banking in 2002 than local Muslims came to it in droves looking for
shariah-compliant home mortgages and car loans.36
Islamic finance will likely soon be as ubiquitous in the West as in the Muslim world, and if Islamic
finance?s market share were to reflect the Muslim?s 20 percent share of
world population, then shariah-compliant finance will be growing at a spectacular
pace for some time.

Islamic finance is also attractive to many
women who generate, own, inherit, or manage wealth, but who find themselves
inhibited by law or custom from dealing with the mixed-sex environment of regular
financial institutions. ?Ladies only? banks have been a growth industry.
Coutts, a private bank based in London, has been doing a brisk business in private
banking services for wealthy Persian Gulf female residents.37The
air of propriety surrounding shariah-compliant finance is attractive to women. There
are fewer stigmas associated with walking into an Islamic bank or investing through
Islamic investment arms without male supervision. To cater to this growing market,
Islamic banks have been educating women in finance. The Kuwait Finance House, for
example, holds classes for women. Islamic finance firms are also hiring more women
than do regular banks. A third of financial-sector employees in Bahrain and
two-fifths of those in Kuwait, for example, are women.

All of
this is not to say that Islamic finance will in any way become dominant in the
global economy, not by a very long shot. Limitations will rein in the growth of this
business. Islam?s ban on speculation, for example, means that transactions
must be based on tangible assets, which makes it easy to do business in commodities
and real estate, but much trickier to innovate financial products. Islamic finance
could run out of assets to sustain its growth, and even short of that it may
overemphasize investment in certain assets, such as real estate or retail, thereby
increasing the risk of losses. The business may also suffer from squabbles over just
what is properly Islamic. The Islamic bond market took a tumble?and along with
it the value of properties funded by Islamic bonds?when in 2008 a group of
clerics in Bahrain declared that most Islamic bonds are not Islamic because they
fail to shift the ownership of collateral to bond holders. Without that transfer,
they argued, a financial transaction isn?t based on tangible assets and is
therefore not Islamic.38

The cost of that
religious ruling was high and the evidence that clerics can send the market tumbling
was disconcerting to many investors. The question is also open whether Islamic
finance can keep growing by tap-dancing around the matter of interest rates.
Profit-sharing instruments, or other work-arounds such as providing indirect car
loans, are relatively inefficient, incurring higher costs in putting deals together.
Islamic finance will need more innovation of clever strategies if it is to continue
to grow market share by comparison to traditional finance. A great deal of money is
being poured into research and development of schemes, but it?s hard to know
whether those efforts will yield results.

Given ample demand
and all the windfall oil cash sluicing around the Middle East, Islamic finance will
likely continue to ride high despite its inefficiencies, but it will eventually hit
a glass ceiling. Nonetheless it has already become a notable part of global
financial trade, and most important for our purposes here, it will serve as a
vehicle for integrating the Muslim economy ever more into the world

All this emphasis on morals in finance may not seem
economically rational, but taking stock of the global financial crisis of 2008,
there is something to be said for ethics in finance. Islamic financiers now brag
that their ethics steered them away from the risky ventures that have caused so much
havoc, and will make them more attractive to investors going forward.40
Indonesia?s President Susilo Bambang Yudhoyono recently told a gathering of
Islamic bankers in Jakarta that they must educate the West in the merits of their

The reason,
though, that all of this economic vitality around the blending of Islam and
capitalism is so important for the West to take note of is that it reveals so much
about the nature of the new middle class that is driving this growth, and is in turn
growing ever larger and more influential. Some members of this new middle class are
the children of the oldhaute bourgeoisie, their
families tied to large, venerable industries and the type of state patronage that
the West is familiar with. But a far larger percentage?and here is the
key?comes from the provincial and lower social classes. These sons and
daughters of the poor and the provinces who have made the jump to the middle class
have done so by
accepting the requirements of modern economies and latching on to the economic
realities that define modernism. They have embraced the rules of the market,
responding to its incentives, and are guided in their decisions by the desire to
serve their economic interests. So energetic is their commitment to the capitalist
credo that their activities now account for most of the real economic growth in the
region. The consumerism of the general population is largely the result of their
handiwork.42Ambitious and resourceful, they fill
the ranks of the professionals, the entrepreneurs, the corporate businessmen, and
the traders. It is they who have established for the next generation a new economic
model of the good life here on Earth.

The interests that this
economy is creating, and the ties with the global community that it is forging,
offer ample opportunities for engaging this ?critical middle? that has
come to be the center of gravity in one Muslim-majority society after another. In
coming years, that middle is only going to get bigger, and richer: In 2007, GDP grew
at an annual rate of around 6.1 percent in the Muslim countries of Southeast Asia
(Indonesia and Malaysia) and the Arab countries of the Persian Gulf rim (followed by
robust but slightly lower rates in Egypt, Pakistan, and Turkey). Europe and the
United States, by comparison, grew at around 2.2 percent that year. In 1970, only 4
percent of the professionals in Malaysia were Muslim; today, that figure is closer
to 40 percent. Since 1970, Malaysia has emerged as a success story of globalization,
one of the largest exporters of electronic goods to the United States and an
integral part of the global supply chain for the computer and electronics
industries. Globalization and rising middle classes with big wallets?and a
continuing interest in living as observant Muslims?have gone hand in

The crucial aspect of this ?critical middle?
that is difficult for those in the West to grasp is that for this population, Islam
is a powerful supporter of the drive to modernity. The great majority of Muslims
think that Islam improves their lives. They want heaven later, and wealth in the
meantime?and think that handling the latter well can help lead to the former.
As Pope Benedict learned at the Blue Mosque, Islamic piety is not only about things that the West
fears; it is also about things that the West appreciates. This distinctive blending
of Islamic values and economic vitality is a crucial development in the Muslim world
that should shape our approach to building better relations with the

Will the Muslim businessmen of the coming century lead
a capitalist revolution much as Protestant burghers did in Holland four centuries
ago? We do not know yet, but it is possible. The mayor of the booming town of
Kayseri in central Turkey, where many of the so-called Islamically conscious
?Anatolian Tigers? come from, thinks so. ?I had read Weber,?
he says, referring to the German sociologist who first credited Calvinist ethic for
the rise of capitalism. The idea of ?how Calvinists work hard, save money and
then reinvest it into business? seems, he continued, ?very similar to
what was happening in Kayseri.?43Reflecting on the words of the Prophet
hanging in the Blue Mosque, the mayor of Hacilar, a deeply religious little boom
town not too far from Kayseri, explained the business activity around him saying
?opening a factory in Islam is a sort of prayer.?44If
there is going to be genuine capitalism in the Middle East, in the broad sense of
the term as experienced by the West?where individuals working through markets
account for growth and prosperity?it will come from these pious businessmen
and not from state-led initiatives and the state-sponsored economic elites
associated with them who have for much too long ruled the Middle Eastern

If European history is any guide only this robust
breed of capitalism will bring true modernizing change to the Muslim world. The
modern world was invented by children of the Reformation, but it was not their
puritanical and intolerant faith that transformed the world?far from
it?but rather trade and commerce that took hold in unlikely backward corners
of Europe like Scotland, home to the early Industrial Revolution and the likes of
Adam Smith, David Hume, and Sir Walter Scott.45

If the Middle East is to
be properly integrated into the global economy, turn to democracy, give women their
rights, embrace values that transcend cultural divides, and keep extremism at bay,
then it too will have to be transformed by the capitalist revolution. The most
decisive battle for the future in the region will not be the one over
which, as we shall see, the tide has already turned against extremism. Nor will it
be the growing battle over political rights, as hopeful as that is. The key struggle
that will pave the way for the decisive defeat of extremism and to social
liberalization will be the battle to free the markets. If that battle is won by
private-sector business leaders and the rising middle class tied to them, then
progress with political rights will follow.

Even in Iran, the
potential for opening, and an economically led entry into the world community, is
strong. As the election protests vividly revealed Iran has a dynamic civil society.
Women?s right activists, students, labor unionists, journalists, bloggers,
artists, and intellectuals have made up the backbone of the struggle for reform and
continue valiantly to resist oppression, bad laws, and arbitrary rule, and their
voices could be heard loudly and clearly during the election. During the presidency
of the reformist Muhammad Khatami between 1997 and 2005, they seemed to hold the
promise of being able to liberate Iran from theocratic oppression and set it on
course for true democracy. That campaign and the effort to elect the reform
candidate Hossein Moussavi faltered, for reasons that we will explore further later,
but those who launched those movements are still around, and they still believe in
freedom. The civil society that they represent grew in tandem with the private
sector, relying on its economic health to energize demands for rights. For that
energy to nudge Iran decisively in the direction of change and openness,
private-sector dynamism must be reignited.

When China opened
to the world, human rights and political reform were hardly the goals Communist
leaders had in mind. In fact, booming China all too often seemed to feel that its
success made it free to ignore outside pressures to yield to its dissidents, change
its laws, or move in the direction of pluralism and democracy. Whatever change came
to China in the form of gradual legal reform and greater civil society activism owed
much to pressure from investors and traders. Deepening ties with global business
forced China to change many laws and practices?to adopt what the American
geostrategic writer Thomas P. M. Barnett calls the transparent modern ?rule
sets? of the world?s developed and well-integrated
?core.?46None of the changes that China
made?often in response to embarrassing crises like scares over the SARS virus
and tainted toothpaste and pet-food exports?was explicitly political in
nature. Yet they represented significant progress nonetheless.

A legal system and bureaucracy forced to change in one area becomes more receptive
to change in other areas as well. Fueling the activities of the Middle East?s
rising middle class, and working to bring the economies of the region more fully
into the web of globalization, can push the status quo to the tipping point where
national leaders have no choice but to embrace change and try to make the most of
it. That is the key first step toward liberalization of the political systems. The
road to human rights, social freedoms, and democracy runs through business growth
and economic progress.

If we were to ponder how change in Iran
can change the Middle East (as it did once before in 1979), and how the specter of a
rising Iran could guide the region around it in a new direction we would have to
conclude that things will go right when developments inside Iran align with the main
trend that is afoot in the region. The strong interests of the West are in seeing
Iran line up with, not against, the logic of economic change; to yield to a rising
business sector and a new middle class that would change politics and religion and
then amplify the same trend in the Arab world. But we are not going to be able to
help Iranians get there, or leaders in the other critical nations of the region,
until economics becomes as important to our thinking about policy as hard power. It
is time to think less about

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