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Amy Chua
Yale Law School
JURIST Guest Columnist

After the fall of the Berlin Wall, a consensus emerged, not only in the West but to a considerable extent around the world. Markets and democracy, working hand in hand, would transform the world into a community of modernized, peace-loving nations. In the process, ethnic hatred, religious zealotry, and other backward aspects of underdevelopment would be swept away.

But just the opposite has happened. Since 1989, we have seen the proliferation of ethnic conflict, the rise of militant Islam, confiscations, expulsions, calls for renationalization, and two genocides of magnitudes unprecedented since the Nazi Holocaust. Why?

Part of the answer has to do with a phenomenon pervasive outside the West yet rarely acknowledged, indeed often viewed as taboo that turns free market democracy into an engine of ethnic conflagration. The phenomenon I refer to is that of market-dominant minorities: ethnic minorities who, along with foreign investors, can be expected under market conditions to economically dominate the indigenous majorities around them, at least in the near to midterm future.

Market-dominant minorities can be found in every corner of the world. The Chinese are a market-dominant minority throughout Southeast Asia. In the Philippines, ethnic Chinese, only 1% percent of the population, control as much as 60% of the private economy. More recently, in Burma, ethnic Chinese have literally taken over the economies of Mandalay and Rangoon. Whites are a market-dominant minority in South Africa and Zimbabwe and, in a more complicated sense, in Brazil, Ecuador, Guatemala, and much of Latin America. Indians are a market-dominant minority in East Africa, as are Lebanese in West Africa. Ibo are a market-dominant minority in Nigeria. Croats were a market-dominant minority in the former Yugoslavia. And Jews are almost certainly a market-dominant minority in post-Communist Russia. It is critical to stress that groups can be market-dominant for widely varying reasons, ranging from entrepreneurialism to a history of apartheid or colonial oppression. If, as with Whites in South Africa, a minority uses force to relegate the majority to inferior education and inhumane conditions for over a century, that minority is likely to be market-dominant and this has nothing to do with culture.

Market-dominant minorities are the Achilles Heel of free market democracy. In countries with a market-dominant minority, markets and democracy favor not just different people, or different classes, but different ethnic groups. Markets even if marginally lifting all boats concentrate glaring wealth in the hands of the market-dominant minority, while democracy increases the political power of the impoverished majority. In these circumstances, the pursuit of free market democracy often becomes an engine of ethnonationalism, pitting a frustrated indigenous majority, easily aroused by opportunistic, vote-seeking politicians, against a resented, wealthy ethnic minority.

Indonesia provides a vivid illustration. Free market policies in the eighties and nineties led to a situation in which the country s tiny 3% Chinese minority controlled an astounding 70% of the private economy. In absolute terms, the average incomes of the indigenous pribumi majority actually increased as a result of market-generated growth but these improvements were overwhelmed by the majority s continuing poverty and by the hated minority s extraordinary economic success at every level of society.

The introduction of democracy in 1998 hailed with euphoria in the U.S. produced a violent backlash. 5000 shops and homes of ethnic Chinese were burned and looted, 2000 people died, and 150 ethnic Chinese women were gang-raped. Free and fair elections in the midst of all this naturally gave rise to ethnic scapegoating by demagogic politicians, along with calls for confiscation and a People's Economy that would return Indonesia s wealth to the pribumi majority, the country s true owners. The wealthiest Chinese left the country, along with some $40 to $100 billion of Chinese-controlled capital, plunging the country into an economic crisis from which it still has not recovered.

Today, the Indonesian government sits on roughly $58 billion worth of industrial assets from over 200 companies, almost all formerly owned by Chinese tycoons. For several years now, these nationalized companies have simply stagnated while the country descends further into frustrated poverty. The main reason they have not been reprivatized is because virtually all of the potential buyers are ethnic Chinese or foreign investors, and the government is paralyzed by fear that sales to such groups will trigger another violent backlash.

Indonesia is just one of many examples. In country after country outside the West from Ecuador to Kenya, from Russia to Sierra Leone laissez-faire markets have magnified the often stunning wealth of an outsider minority, generating great reservoirs of ethnic envy and resentment among the impoverished indigenous majority. In turn, democracy, by increasing the political voice and power of the indigenous majority, has fostered the emergence of demagogues like Zimbabwe's Mugabe, Serbia's Milosevic, Russia's Zyuganov, and Rwanda's Hutu Power leaders who opportunistically whip up mass hatred against the resented minority, demanding that the nation s wealth be returned to the true owners of the nation. As a result, markets and democracy at least in the raw, unrestrained forms in which they are currently being promoted have repeatedly led not to peace and prosperity, but to ethnic confiscation, authoritarian backlash, and mass killing.

Meanwhile, an analogous dynamic is playing out at the global level. Americans are not an ethnic minority (although we are a national origin minority, a close cousin). Nor is there democracy at the global level. Nevertheless, Americans today are everywhere perceived as the world's market-dominant minority, wielding wildly disproportionate economic power relative to our size and numbers. Partly for this reason, we have become the object of mass, popular, demagogue-fueled resentment and hatred of the same kind that is directed at so many other market-dominant minorities around the world.

What is the solution? I am all in favor of promoting both markets and democracy globally. But there are many different versions of free market democracy, and I think we have been promoting the wrong one. There is no Western nation today with anything close to a laissez-faire system. Yet for the last 20 years, we ve been urging poor countries around the world to adopt a bare-knuckled brand of capitalism that the U.S. and Europe abandoned long ago. Similarly, since 1989, the U.S. government has been pressing developing countries to implement immediate elections with universal suffrage. But democracy in the West is hardly just unrestrained majority rule - it's also about minority protections, property protections, constitutionalism, and human rights. Much more is needed than simply shipping out ballot boxes for elections which of course brought people like Slobodan Milosevic to power.

Amy Chua is Professor of Law at Yale University. Her new book World on Fire: How Exporting Free Market Democracy Breeds Ethnic Hatred and Global Instability is published by Doubleday.

February 13, 2003


JURIST Guest Columnist Amy Chua is a professor of law at Yale University, where she teaches globalization, ethnic conflict and international business transactions, among other courses. She previously was visiting professor of law at New York University, Stanford, Columbia and Duke, an associate of the New York law firm of Cleary, Gottlieb, Steen & Hamilton, and law clerk to the chief judge of the U.S. Court of Appeals for the Washington, D.C., circuit. She is a graduate of Harvard College and Harvard Law School, where she was executive editor of the Harvard Law Review.