Free-market democracy is often a bad fit
July 31, 2003
Free-market democracy is the answer to many of the world's nagging ills, or so most Americans seem to assume. This belief undergirds U.S. policy toward Iraq, for example, as well as the official attitude toward many other developing nations.
But has the adoption of market economies and democracy always been a boon for developing countries? Yale law professor Amy Chua offers an emphatic "no" in her book World on Fire, whose subtitle explains her thesis: How Exporting Free Market Democracy Breeds Ethnic Hatred and Global Instability.
In the long run, Chua argues, nations will indeed be better off with modern political and economic institutions. But Americans need to understand that as global markets and universal suffrage expands, their short-term effects often include an upsurge of unexpected resentment and violence.
Chua was interviewed by Vincent Carroll, editor of the editorial pages.
Carroll: You argue that globalization has dangerous effects not understood by Americans.
Chua: Most people tend to assume that markets and democracy naturally go together, and that they will help sweep away ethnic conflict, religious zealotry and other ugly aspects of underdevelopment. And this makes perfect sense when you look at our country today. But other countries have totally different social and ethnic structures. And numerous non-Western countries have what I call a market-dominant ethnic minority. And in those countries, markets basically benefit particular ethnic groups, creating an explosive situation.
Let me illustrate with Indonesia. Free- market policies in the 1980s and 1990s led to a grotesque situation in which the country's tiny 3 percent Chinese minority controlled an astounding 70 percent of the private economy. The introduction of democracy in 1998, which was hailed with euphoria in the United States, produced a violent backlash against both markets and the Chinese. So 5,000 shops and homes of ethnic Chinese were burned and looted, 2,000 people died, 150 Chinese women were gang raped. Free and fair elections in the midst of all this led politicians to campaign on an anti-Chinese, scapegoat platform. These demagogic politicians, far from proposing sound economic policies, instead called for getting rid of the hated Chinese.
As a result, the wealthiest Chinese Indonesians left the country, taking with them between $40 billion and $100 billion, plunging that country into an economic crisis from which it's still not recovered.
Carroll: Could you take us on a quick tour of the world and give us some examples of market-dominant minorities?
Chua: The extent of economic dominance in these countries by minorities is often startling. I've mentioned the 3 percent Chinese in Indonesia but in Zimbabwe, for example, whites are only about 1 percent or 2 percent of the population, but up until at least very recently - before Robert Mugabe's land seizures - this 1 percent controlled about 70 percent of the country's best land and almost all of its commercial wealth.
In the Philippines - where my own family is from - the Chinese minority again are just about 1 percent of the population that controls as much as 60 percent of the private economy, including the country's four major airlines and almost all its banks and major conglomerates. Most recently the ethnic Chinese have literally taken over the economies of Rangoon and Mandalay in Burma; other examples include Indians in East Africa and in parts of the Caribbean, the Lebanese in West Africa and parts of the Caribbean, the Ibo in Nigeria, Kikuyus in Kenya, Croatians in the former Yugoslavia, Jews in post-communist Russia, whites in South Africa, whites in Bolivia. The list really goes on and on. It's important to point out that these groups can be dominant for very different reasons, ranging from superior entrepreneurial skills to a history of colonial oppression.
Carroll: What's your outlook for Iraq?
Chua: This is an interesting case. The idea was that once the Iraqis were liberated we would put in free-market policies, pro-oil policies, bring in foreign investors, put in the stock exchange and then have elections, and that together free markets and democracy would lift that country into strong economic growth and ethnic tensions would be swept away. In fact what you're seeing is very different. Iraq's ethnic dynamics are extremely complicated - not like post-Second World War Germany or Japan at all, which were strikingly ethnically homogeneous by the time 1945 came around.
Carroll: Let's move to Latin America. You note that explicit ethnic appeals by Indians to Indians have become increasingly common throughout the central Andean region, and you attribute these in part to globalization.
Chua: In the early '90s, people just assumed that globalization would spread capitalism and democracy and human rights and all of these positive liberal ideals but in fact what we've seen is the spread of illiberal ideologies and fundamentalism and identity politics and ethnic hatred and ethnic demagoguery. These things can cross borders, too, with just as much speed and intensity. One of the starkest examples is in Latin America, where globalization is facilitating the rise of a new consciousness of indigenous identity. Now, there's a good side to it, which is that long-subjugated populations are learning to take pride in their identity. But their leaders often whip up these sentiments in a dangerous, exclusionary way that targets the market-dominant minority and which are very anti-market and anti-foreign investment. You've seen this rhetoric in countries ranging from Bolivia to Ecuador.
Carroll: Two of the most appalling instances of genocide since the Holocaust - in Africa and the former Yugoslavia - occurred in the 1990s. You have an interesting thesis for why.
Chua: It's important to point out that in both Rwanda and Yugoslavia the genocides involved many factors, so I'm absolutely not suggesting that I have a single explanation for either. But it is very striking that in both cases the targets of the ethnic cleansing were a small, disproportionately wealthy, market-dominant ethnic minority.
In Rwanda the Tutsis represented a 14 percent minority that had economically and periodically dominated the majority for a century. And what happened is that by the time democracy rolls around, democracy would mean an opportunity for revenge for the Hutu majority.
The genocide was not just majority supported but in many cases majority executed, with ordinary Hutus killing off Tutsis who were portrayed as outsiders in the country, stealing the nation's wealth and identity.
In the case of the former Yugoslavia it's even more complicated but, generally speaking, the northern groups - that is, the Slovenes and the Croats - were always historically more successful economically. Slobodan Milosevic came to power in free elections by campaigning on a Serbia-for-Serbs platform.
There's one very telling line that I mention in my book where Milosevic says during a rally of Serbs, "If we don't know how to work well or to do business, at least we know how to fight well!" This was his way to reassert the Serbian identity. One of his deputies said they should kill Croats with rusty spoons because it will hurt more.
The Serbian people voted for him based upon such vicious slogans. It's an example of how ethnic cleansing supported by a majority of the people was facilitated by democracy. Democracy allowed a majority to target a disproportionately wealthy, market-dominant minority.
Carroll: But these countries are better off with these minorities than they would be without them.
Chua: Absolutely. This is one of the great ironies. Most of these market-dominant minorities basically represent those countries' major economic engines. I mean these are groups that have generated the vast part of economic growth that these countries have seen generation after generation. Yet, if you ask anybody on the streets in Southeast Asia, they will say that the Chinese are leeches sucking out the wealth of the nation. Although with half- grudging admiration they will often admit that these groups are good at business.
I think there might be positive policy implications to these ambivalent attitudes. These are groups that really offer so much to these countries and yet they're often viewed as selfish outsiders. I propose that they project themselves as part of the country by making very visible contributions back to the economy. Economic growth is often very intangible; people don't know who's really responsible for it. But I suggest, for example, that groups like the Chinese should do things like build local hospitals or contribute to local schools - very affirmative symbolic gestures of generosity.
Carroll: You're very critical of the sort of economic and political institutions the American government the IMF and the World Bank try to export. You say they export a kind of laissez-faire capitalism that hasn't been practiced anywhere in the West for long time as well as a form of democracy that evolved in the West only after several generations.
Chua: I'm actually in favor of globalization and I'm looking for ways to help sustain it by identifying its most dangerous aspects. But there are many different versions of free-market democracy and I do think that we have been exporting the wrong one. In fact I think we've been promoting a kind of caricature of free-market democracy - a bareknuckled brand of capitalism that Western counties abandoned long ago. Meanwhile, the U.S. government in particular has been pressing developing countries to implement immediate elections with universal suffrage. And this is simply not the path of democratization that any Western country took; we don't like to admit it, but in all of the Western countries we basically prevented the poor from voting for generations. There were property qualifications, not to mention restrictions on the suffrage for minorities and women.
Carroll: But many countries don't have the internal wealth to create a redistribution system that might cushion the effects of capitalism.
Chua: Right. And there are pervasive problems of bureaucratic corruption and untrustworthy, weak institutions. That why I try to be realistic by advocating faster ways of trying to give the poor majorities of the world a feeling of having a stake in a market economy.
Carroll: Give an example.
Chua: One is what you might call affirmative action programs for the majority, such as South Africa and Malaysia are trying. They say, for example, that every time we privatize we have to make sure that Malays own at least, say, 30 percent of the entity or the Chinese would control everything. They're doing the same thing in South Africa today. There are a lot of problems with these programs, of course. There are definitely efficiency costs, but in my view the stability that they promise to promote far outweighs the cost.
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