Chua, Amy L.

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Global Capitalism and Nationalist Backlash:The Link Between Markets and EthnicityAmy L. Chua*Over the last decade or so, lawyers and legal academics have been calledupon to help restructure the fundamental institutions of the developing worldto an extent unprecedented since decolonization after the Second World War.This restructuring of economic, political, and legal institutions has beendriven by two principal goals: marketization and democratization. In fact,these two forces, markets and democracy, have come to be seen as globalsolutions to the intransigent problem of development.'But there is another force, much older and often darker, that plays anequally elemental role in shaping the societies of the developing world (andfor that matter, the developed world): the force of ethnicity, or ethnic hatred.2To date, there has been almost no systematic study of the interplay amongthese three forces: markets, democracy, and ethnicity. It is this interplay thathas defined my academic project for the last several years.3Here, I will focus on one piece of that interplay: the link between marketsand ethnicity. My thesis is that throughout the developing world, free marketpolicies have historically and repeatedly reinforced the economic dominanceof certain resented ethnic minorities ("internal foreigners"). As a result,market-oriented policies have triggered ethnically charged-and thereforeextremely potent-nationalist movements, which eventually succeed inbringing about a return to policies of nationalization. 4As an aside, I want to stress that the prevalence and visibility ofeconomically dominant minorities in developing countries sharplydistinguishes the problems of ethnic conflict in the developing and developedworlds. While some ethnic minorities in the United States have outperformed* Professor of Law, Duke University.1. See, e.g., JOSEPH E. STIGLITZ, WHITHER SOCIALISM? 1-3 (1995); LESTER THUROW, THE FUTUREOF CAPITALISM 1-5 (1996); THE WORLD BANK GROUP, LEARNING FROM THE PAST, EMBRACING THEFUTURE 10-13 (1994); ROBERTO MANGABEIRA UNGER, DEMOCRACY REALIZED 3 (1998).2. See generally, e.g., TED ROBERT GURR & BARBARA HARFF, ETHNIC CONFLICT IN WORLDPOLITICS (1994); DONALD L. HOROWITZ, ETHNIC GROUPS IN CONFLICT 3-4, 6 (1985).3. I explore this interplay at much greater length elsewhere. See Amy L. Chua, Markets,Democracy, and Ethnicity: Toward a New Paradigm for Law and Development, 108 YALE L.J. 1(1998).4. See Amy L. Chua, The Privatization-Nationalization Cycle: The Link Between Markets andEthnicity in Developing Countries, 95 COLUM. L. REV. 223 (1995).TRANSNATIONAL LAW & CONTEMPORARY PROBLEMSother ethnic minorities 5-and by some measures have outperformed the"white" majority6-the United States economy is not dominated by any ethnicminority. On the contrary, the core ethnic problem in the United States is onethat pits an economically and politically dominant white majority againsteconomically and politically weaker ethnic minorities." Hence the calls for,and now backlash against, market-"correcting' affirmative action policies forblack and hispanic minorities. 8 In stark contrast, economic power in mostdeveloping countries is disproportionately concentrated in the hands of anethnically-identifiable minority (again, a foreigner within).9 This is astructural distinction that critical race theorists need to confront as they lookoutside of the United States to the post-colonial world.IWith that introduction, I would like to draw attention to a phenomenonin the developing world that has been largely overlooked by the architects oftoday's marketization programs. This phenomenon is the existence of ahistorical cycle, found throughout the developing world, in which countrieshave oscillated back and forth between pro-market regimes and anti-marketregimes for as long as they have been independent. 10 For purposes of thisessay, I will focus on the countries of Latin America and Southeast Asia.As an illustration, consider the history of Mexico. In Mexico,independence in the late nineteenth century was followed by a long period ofeconomic liberalism: that is, private property regimes generally accompaniedby the vigorous promotion of capital investment and, in particular, an5. See, e.g., David Brand, The New Whiz Kids: Why Asian Americans are Doing So Well and WhatIt Costs Them, TIME, Aug. 31, 1987, at 42.6. As of 1995, the median household income in the United States is $32,960 for whites, $19,533for blacks, $22,886 for Hispanics, and $38,347 for Asian/Pacific Islanders. See 472 BUREAU OFTHE CENSUS, U.S. DEP'T OF COMMERCE, STATISTICAL ABSTRACT OF THE UNITED STATES 1995(1995). The percentage of households in the above categories with monetary incomes above$100,000 are 6.3%, 1.9%, 2.3%, and 9% respectively. See id. There is obvious artificiality inreferring to "whites" as an ethnic group in a country such as the United States. Cf. IAN HANEYLOPEZ, WHITE BY LAW: THE LEGAL CONSTRUCTION OF RACE xiv (1996) (noting that "white" refersto a "fluid, unstable category which gains meaning only through social relations and thatencompasses a profoundly diverse set of persons").7. See Erik Hurst et al., The Wealth Dynamics of American Families, 1984-1994, in 1 BROOKINGSPAPERS ON ECONOMIC ACTIVITY 267, 293, 295 fig.3, 306-9, 307 tbl.19, 308 tbl.20 (1998); see alsoMELVIN L. OLIVER & THOMAS M. SHAPIRO, BLACK WEALTH, WHITE WEALTH: A NEWPERSPECTIVE ON RACIAL INEQUALITY 1-2, 5, 7 (1995).8. See, e.g., William Claiborne, Affirmative Action Ban is Upheld; California PropositionConstitutionally Valid, WASH. POST, Apr. 9, 1997, at Al; Anne Laurent, The Great Divide: Fear,Anger and Resentment in the Federal Diversity Crusade, NAT'L J., Apr. 1996, at 12.9. See Chua, supra note 4, at 21-26.10. See Chua, supra note 5.[Vol. 9: 17GLOBAL CAPITALIsMAND NATIONALISTBACKLASHopenness to foreign capital and influence." This period of laissez-faire wasfollowed by the Mexican Revolution, which culminated with PresidentCardenas' nationalization of the railroad and oil industries in the 1930s. 12This period of nationalization was in turn superseded by another periodof free enterprise, from 1940-1958, in which many of the industriespreviously nationalized-for example, the petroleum and sulphurindustries-and foreign investment was once again vigorously courted. Thisperiod of privatization was followed by another round of nationalization andstatist policies from 1958-1983. The current period is one of economicliberalization in Mexico, in which foreign investment laws are again beingrapidly amended to bring foreign capital into the same key sectors:petroleum, mining, communications, transportation, and utilities.13 A similarpattern of market policies and backlash holds throughout Latin America, andSoutheast Asia (although in Southeast Asia one sees fewer oscillationsbecause those countries achieved independence much later).14Recognizing this cyclical phenomenon raises a host of questions thatlawyers and economists designing today's marketization programs are notaddressing. For example, what are the pressures that have repeatedly causeddeveloping countries to return to nationalization? 5 Have the relevantconditions, both internal and international, changed? Or, are today'sprivatized and liberalized market regimes subject to the same kind ofbacklash that has occurred so many times before? I address these questionsnext.IIWhy have there been privatization-nationalization cycles in LatinAmerica and Southeast Asia? Part of the answer is fairly obvious. In the past,free-market, pro-foreigner regimes in the developing world have repeatedlybenefited foreign investors far more than the local populations. In fact,during past periods of economic liberalization, the vast majority of Mexicans,Peruvians, Indonesians, or Malays experienced little or no benefits from aliberalized market.' 6 As a result, politicians, often themselves from the eliteclass, found that they could mobilize populist support for themselves byplaying on these anti-foreigner sentiments. And in fact, in one case after11. See id.12. See id. at 228-32.13. See id. at 238-56.14. For empirical support for this claim of cyclicality, see generally id.15. That developing countries repeatedly return to nationalization is particularly intriguinggiven the dismal record (under any number of economic measures) of nationalization regimes inthe developing world. See Chua, supra note 4, at 51.16. See id.Spring 1999]TRANSNATIONAL LAW & CONTEMPORARY PROBLEMSanother, leaders in the developing world came to power on explicitly anti-foreigner, anti-imperialist, anti-market platforms. This was true of Peron inArgentina, Vargas in Brazil, Batile y Ord6fiez in Uruguay, Allende in Chile,Sukarno in Indonesia, and U Nu in Burma (now Myanmar), among others. 17But that is only part of the explanation. A parallel dynamic internal todeveloping countries has also played a crucial role. 18 Free-market policies inthe developing world, including privatization and liberalized foreigninvestment regimes, have tended to disproportionately benefit not onlyWestern foreigners, but also certain resented "internal foreigners," vis-a-visthe rest of population.Who are these "internal foreigners?" In Southeast Asia, I am referringprincipally to the Chinese, known as the "Jews of the Orient."'9 In countriessuch as Indonesia, Malaysia, the Philippines, Thailand, and Vietnam, duringfree market periods, the Chinese minority, who generally make up thecommercial class in these countries, tend to prosper disproportionately. 20 Instark contrast, the predominantly rural "indigenous" majorities in thesecountries remain largely impoverished.The Chinese are not the only economically dominant minority in Asia. InBurma, as well as in East Africa and in the Caribbean, historically it was theIndian minority who tended under market conditions to be economicallydominant relative to the indigenous majority.21 In Sri Lanka, the CeylonTamils, an "outsider" minority historically more educated, prosperous, and"advanced" than the Sinhalese majority, dominated both the economic andpolitical spheres until the mid-1950s. 22 "Market-dominant" minorities-ethnic minorities whose economic dominance will not be dispelled but rathermaintained or even reinforced in the near to mid-term future by market-17. See Chua, supra note 5, at 265.18. Note that much of the critical work in the development area has focused on the relationshipof post-colonial states to their former colonial oppressors. I am focusing now on domesticdynamics.19. This term is said to have been coined by Thailand's King Vajiravudh. See WALTER F. VELLA,CHAIYO! KING VAJIRAVUDH AND THE DEVELOPMENT OF THAI NATIONALISM 194-95 (1978).20. In countries like Indonesia or the Philippines, the Chinese constitute only 2-3% of thepopulation but reportedly control up to 70% of the private economy, under any number ofindicators. Up-to-date, hard data in this area are scarce. Nevertheless, the available researchconfirms the continuing economic dominance of the Chinese throughout Southeast Asia. SeeChua, supra note 4, at 22; see also A Taxing Dilemma, ASIAWEEK, Oct. 20, 1993, at 53 (citing aSakura Bank-Nomura Research Institute study indicating that in 1991 ethnic Chinese inIndonesia and the Philippines respectively comprised 3.5% and 2% of the population, butcommanded 73% and 50% of those countries' listed equity).21. See Chua, supra note 4, at 23-24.22. See id. at 23.[Vol. 9:17GLOBAL CAPITALISMAND NATIONALISTBACKLASHoriented reforms-are often found at the regional level as well.23 In Bombay,capital of the Indian state of Maharashtra, the "clever and very hardworking"south Indian minority traditionally dominated the powerful private sectorvis-A-vis the Maharashtrians. 24 Similarly, in the state of Assam, Bengaliimmigrants (now roughly forty percent of the population) historicallydominated commerce and the professions vis-A-vis the indigenousAssamese. 25 The list goes on.26Consequently, throughout Southeast Asia, movements against themarket-in favor of restrictive trade and investment policies, nationalization,and redistribution-have historically been far more expressions of ethnicnationalism than of Marxism or socialism. Unlike the experience of theformer Soviet Union or China, anti-market programs in Southeast Asia have(without the exception of Vietnam) never sought to eliminate the institutionof private property, nor to eradicate all economic classes. On the contrary,such programs have left the market system more or less intact outside of thenationalized industries. In other words, anti-market reactions in SoutheastAsia have principally been attempts by certain self-proclaimed "indigenous"groups to reclaim resources and economic power from other groups identifiedas "foreigners." These foreigners include not only Western "imperialist"foreigners, but also the "foreigners within."27For example, in Burma, General Ne Win's nationalization of over 15,000enterprises in the 1960s and 1970s targeted not only Westerners but Indianproprietors (many of whose families had lived for generations in Burma).28Intense violence against the Indian minority accompanied thosenationalizations. 29 Similarly, in Indonesia, President Sukarno's sweepingnationalizations in the 1950s and 1960s were directed not just at the Dutchbut also, very explicitly, at the country's Chinese minority.3 0 In fact, throughnationalization and other measures of economic nationalism, Sukarno"indigenized" much of Indonesia's financial, mining, import-export, rice,23. Not all economically dominant minorities are market dominant. I discuss the phenomenon ofmarket dominance elsewhere, both generally, see id. at 29-33, and specifically in the context ofKazakhstan and Vietnam, see id. at 86-88, 101-2.24. See id. at 23.25. See id.26. See id. at 21-26.27. See generally Chua, supra note 4.28. See id. at 253, 270.29. See id. at 253, 270.30. See id. at 253, 270.Spring 1999]TRANSNATIONAL LAW & CONTEMPORARY PROBLEMSbatik, and modern industrial sectors-all formerly dominated by Chinese andEuropeans. 31These examples are typical. If one looks at history, it is clear that ethnicnationalism-not socialism-has repeatedly been the driving force behindanti-market movements in Southeast Asia.Let me turn now to Latin America. Obviously the social structure inLatin America is very different from that in Southeast Asia. For example,whereas in Southeast Asia economic and political power are divorced-the"indigenous" majority holds political power, while an ethnic minority holdseconomic power-the dynamic is different in Latin America. In LatinAmerica, political and economic power have historically been concentrated inthe same hands.32Nevertheless, what has been happening in Latin America is directlyanalogous to the dynamic in Southeast Asia. It is true that in Latin America,unlike Southeast Asia, one does not find discrete ethnic groups (for example,Malays, Chinese, and Indians) living and working separately from eachother. But you do have what sociologists have long recognized as a"pigmentocracy": that is, a social spectrum, with taller, lighter-skinned,Spanish-blooded aristocrats at one end; shorter, darker, Indian-bloodedmasses at the other end, and a good deal of "passing" in between. 33As a result, in many Latin American societies a significant degree ofoverlap exists between class conflict and ethnicity.34 Just as in SoutheastAsia, during periods of economic liberalization, a small, ethnically-definablegroup-here, the Spanish-blooded, Caucasian elite-tends to prosperdisproportionately. And again, during periods of nationalization and anti-market reaction, this group comes to be depicted as a "foreigner within," andnationalizations are directed not just at Western foreigners-but at theinternal foreigner as well. 35Indeed, nationalization movements in Latin America have repeatedlypresented themselves in just such ethnically-tinged, nationalist terms. Forinstance, the revolutionary movement in Mexico at the beginning of thiscentury was an explicitly nationalist movement with an explicitly ethnicdimension: Indian blood was glorified as the mark of a true Mexican.31. See id. at 269.32. See id. at 272.33. See Chua, supra note 4, at 271-74.34. "[This overlap] is quite stark in countries with significant Indian populations-for example,Bolivia, Mexico, Peru, and most Central American countries-and much more muted inrelatively "Europeanized" countries such as Argentina, Chile, Uruguay, and Venezuela, whichhave smaller (and in some cases, negligible) Indian populations and which saw 'enormous waves'of immigrants from Europe early this century." Chua, supra note 4, at 25 n.118 (citationsomitted).35. See Chua, supra note 5, at 276-79.[Vol. 9:17GLOBAL CAPITALISM AND NATIONALISTBACKLASHMoreover, Cardenas' nationalizations targeted not just Yankees up north-but also internal foreigners as well: the white landowners with their links toforeign capital and their European cultural pretensions. 36 Similarly, in Peruand Bolivia, nationalization programs in the early part of this century wereaccompanied by slogans like "the only true Peru is Indian Peru" and "theland to the Indians, the mines to the state."3 7To summarize, in country after country in Southeast Asia and LatinAmerica, liberal, market-oriented policies have distributed their benefitsdisproportionately to Western foreigners and to certain resented internalforeigners. As a result, these market policies have fueled backlash reactionsculminating in the return of xenophobic, anti-market economic programs.IIITo return to the present, the real question is whether there is a dangerthat such backlash and cycling could happen again. I think the answer isclearly yes. In my view, the privatizing politicians of the developing worldand their Western partners and policy advisors are paying insufficientattention to history. They are not focusing enough on whether today'ssophisticated market innovations are fundamentally different, from adistributional and ethnodistributional point of view, from the past marketregimes. Are today's international asset securitizations andtelecommunications privatizations structurally any more advantageous todeveloping country majorities than yesterday's mining concessions? Now, likeEnrique Carrasco, I do not believe that the solution is to scrap the market.Instead, today's economic liberalizations and market innovations, to beeffective, lasting and sustainable, must focus in a way that they never haveon the problems of distribution, nationalism, and ethnicity in the post-colonial world.36. See id. at 276-77.37. Frederick Pike, The Problem of Identity and National Destiny in Peru and Argentina, inLATIN AMERICAN HISTORY 182 (Frederick Pike ed., 1969); MAGNUS MORNER, THE ANDEAN PAST205 (1985).Spring 1999]

Global Capitalism and Nationalist Backlash: The Link Between Markets and Ethnicity

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Global Capitalism and Nationalist Backlash: The Link Between Markets and Ethnicity

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