Chua, Amy L.

English

Duke Law Scholarship Repository

MARKETS, DEMOCRACY, AND ETHNIC CONFLICTby Amy L. Chua"Because my area of research is somewhat untraditional, I thought I would begin by sayinga few words about the kind of work I do, and how it relates to the general theme of this year'sAnnual Meeting. As I'm sure you all know, over the last decade or so, Western lawyers andacademics have been called upon to help restructure the fundamental institutions of thedeveloping world to an extent unprecedented since decolonization after World War II. Thisrestructuring of economic, political and legal institutions has been driven by two principalgoals: marketization and democratization. Indeed, these two forces, markets and democracy,have come to be seen as global solutions to the intransigent problem of under-development.But there is another force, much older and often darker, that plays an equally elementalrole in shaping the societies of the developing world (and for that matter, the developedworld): the force of ethnicity, or ethnic hatred. To date, there has been almost no systematicstudy of the interplay among these three forces: markets, democracy, and ethnicity. It is thisinterplay that has defined my academic project for the last several years. And much of mylecture today will be based on a recent article of mine, "Markets, Democracy, and Ethnicity:Toward a New Paradigm for Law and Development."'The central point I want to make today is that, contrary to conventional wisdom, marketsand democracy may not be mutually reinforcing in the developing world. On the contrary, inmany developing countries, the combined pursuit of marketization and democratization willoften catalyze ethnic tensions in highly determinate and predictable ways, with potentiallyvery serious consequences, including the subversion of markets and democracy themselves.Now I'm going to lay out the specific arguments on which this thesis rests. I will start bydrawing your attention to a fundamental and pervasive feature of developing societies thatlawyers and legal academics-as well as institutions like the World Bank and the InternationalMonetary Fund-have almost uniformly disregarded. Most developing countries have one ormore ethnic minorities who, for widely varying reasons, historically have dominated econom-ically the "indigenous" majorities around them.These minorities, who may be economically dominant at the national or the regional level,have included the Chinese throughout Southeast Asia, Indians in East Africa and parts of theCaribbean, the Lebanese in West Africa and parts of the Caribbean, the Bamileke inCameroon, the Ibo in Nigeria, the Kikuyu in Kenya, the Tutsi in Rwanda, Russians (alongwith Germans, Ukrainians, and Koreans) in Central Asia (in the former Soviet Union), Whitesin South Africa, Whites in Zimbabwe, Tamils in Sri Lanka, Bengalis in Assam-the list goeson, quite strikingly, as I have documented. Moreover, a variation of the same phenomenonexists throughout much of pigmentocratic Latin America, where a minority of taller, lighter-skinned, Spanish-blooded aristocrats historically have economically dominated the shorter,darker, Indian-blooded majorities around them, with a certain amount of "passing" inbetween.2 Now, to be clear, by economic dominance, I am talking about not just vaguestereotypes but rather starkly disproportionate control of major sectors of the economy. So inIndonesia, for example, the Chinese during the Suharto regime made up roughly three percentof the population but controlled up to seventy percent of the private economy, under any* Professor of Law, Duke University, Durham, N.C.'Amy L. Chua, Markets, Democracy, and Ethnicity: Toward a New Paradigm forLaw and Development, 108YALE L.J. 1(1998).2 Seeid. at 26; Amy L. Chua, The Privatization-Nationalization Cycle: The LinkBetween Markets andEthnicityin Developing Countries, 95 COLUM. L. REv. 223 (1995).2 ASIL Proceedings, 1999number of measures.3 (That seventy percent figure has either dropped already or will bedropping soon, for reasons I'll explain.) Similarly, Whites in South Africa currently make uproughly fourteen percent of the population but own more than eighty-five percent of arableland and at least until very recently all of South Africa's largest conglomerates.4At this point, I want to make two observations. First, the prevalence and visibility ofeconomically dominant minorities in developing countries is a feature that starkly distin-guishes the developing world from the developed world. In countries such as the UnitedStates, although some ethnic minorities have outperformed others, the economy is notdominated by any ethnic minority (whatever you might hear about Koreans or Jews, they donot control seventy percent of the U.S. private economy). The same is true throughout theindustrialized West and, interestingly, in all of the so-called Asian Tigers (South Korea, Japan,Singapore and Taiwan): in all of these advanced economies, economically dominant minoritiesdo not exist.5Second, the reasons for economic dominance vary enormously. For example, someeconomically dominant minorities are former colonizers who used military force and thepowers of the state to ensure their own dominance (e.g., Russians in Kazakhstan; Whites inSouth Africa).6 By contrast, the economic dominance of noncolonizer minorities such as theChinese, Indians, and Lebanese cannot be explained in the same way. There are many theoriesthat seek to explain the economic success of such "middleman minority" groups, ranging fromcolonial divide-and-conquer policies to the importance of social networking. But for purposesof my analysis today, the critical question is whether a particular economically dominantminority, for whatever reason, is market dominant-meaning that its economic dominance willnot dissipate, but rather persist or even increase with market-oriented reforms.It is important to stress that not every economically dominant minority is marketdominant. The economic power of a given minority may be such that this power will erode ordisappear under market conditions. This might be case with Russians in Kazakhstan, forexample (to the extent that they owe their economic dominance principally to discriminatorytsarist or Soviet-era policies). But if a market-dominant minority is present in a given country,important consequences follow. Most crucially, the presence of a market-dominant minorityin a given developing country means that markets and democracy will not be mutuallyreinforcing. This is because in developing countries with a market-dominant minority, marketsand democracy will tend to benefit different ethnic groups: markets will (by definition) benefitthe market-dominant minority, while democratization will increase the power of the relativelyimpoverished majority.As a result, the combined pursuit of markets and democracy will produce an ethnicallycharged, highly unstable situation. In my Yale Law Journal article, I develop a model toexplore the likely consequences of pursuing markets and democracy in these circumstances.I argue that in countries satisfying certain specified conditions, including economic under-development and the presence ofa market-dominant minority, marketization and democratiza-tion will, respectively, produce highly determinate and potentially highly destructive ethno-economic and ethnopolitical consequences, along the following lines.3 See Leo Suryadinata, Indonesian Policies Toward the Chinese Minority Under the New Order, 16 ASIANSURV. 770,770 (1976); A TaxingDilemma, ASIAWEEK, Oct. 20, 1993, at 53 (citing a Sakura Bank-Nomura ResearchInstitute study).4 See Chua, supra note I, at 65; Gumisai Mutume, South Africa Development: Not Yet Growth With Equity,INTER PRESS SERV., July 17, 1996; Sudarsan Raghaven, Black Owners Take a Piece of a Major South African Firm,CHRISTIAN SCI. MONITOR, Sept. 16, 1996, at 7.5 See Chua, supra note 1, at 27-28.6 TED GuRR& BARBARA HARFF, ETHNIC CONFLICT IN WORLD POLITICS 24 (1994).Markets, Democracy, and Ethnic Conflict I Violence 3First, marketization-far from having the civilizing effect that Montesquieu envisioned-will tend instead to catalyze ethnic animosities, by maintaining or even exacerbating thedisproportionate wealth of the "outsider" minority and fomenting ethnic envy and hatredamong the impoverished majority.7Next, with democratization, this ethnoeconomic resentment will tend to be transformedinto a potent ethnonationalist movement, in part because politicians will have powerfulincentives to scapegoat the economically dominant minority and foment ethnic hatred.Characteristically the result of this process will be the emergence of an aroused ethnicallydefined majority who, perceiving markets as solely or principally benefiting the resentedminority, demands that the minority's economic dominance be put to an end, and the nation'swealth and identity reclaimed for its "true owners."8Once this dynamic is in play-pitting a democratically mobilized, impoverished, "indig-enous" majority against a resented, economically dominant, "outsider" minority-one of three(non-exclusive) outcomes becomes highly probable: (1) an antimarket backlash targeting themarket-dominant minority; (2) actions aimed at eliminating the market-dominant minority (forexample, through expulsion or atrocity); or (3) a pro-market retreat from democracy.The first outcome-an ethnically targeted antimarket reaction-has been extremelycommon in the developing world. Time and again, developing-world governments-bothauthoritarian and democratic-have tried to "correct" the problem of an economicallydominant minority by intervening in the market, either by nationalizing assets and industriescontrolled by the resented minority, or by imposing ethnically based restrictions oncommercial activity. Ethnically targeted nationalizations have occurred throughout SoutheastAsia and Latin America. 9 At the same time, ethnically based economic restrictions-forexample, restrictions on corporate ownership, licensing, employment opportunities andlandownership--have also been common, particularly in Asia and Africa. So, for example,after World War II, in Thailand, Chinese were excluded from twenty-seven occupations; inCambodia from eighteen.Historically, these ethnically targeted nationalizations and commercial restrictions havetypically backfired. A vivid illustration of this can be found in Indonesia's recent food crisis.Until May 1998, Indonesia's rice distribution network was dominated by ethnic Chinesetraders, who had a system that was quite effective, although certainly not free of corruptprofiteering. After Suharto's resignation, the government ofBacharuddin JusufHabibie, verymuch supported by majoritarian, anti-Chinese sentiment, canceled rice distribution contractswith hundreds of ethnic Chinese businessmen and awarded them instead to indigenousentrepreneurs, many of whom had little or no experience in the field.'0 The results weredisastrous, part of a food crisis in which tens of millions of Indonesians were reportedly eatingonly one meal a day." The new rice "cooperatives," run by the state, have been saturated withcorruption and inefficiency-and scandal: one official was accused in 1998 of trying tosmuggle 1,900 tons of rice to Malaysia while his own constituents were starving. Predictably,indigenous officials and businessmen have secretly resumed subcontracting work out toChinese traders. 2A second possible outcome of pursuing markets and democracy in the face of a resented"outsider" market-dominant minority (together with the other specified conditions) is elimi-'See Chua, supra note 1, at 37-41.'See id at 42-47.9 See Chua, The Privatization-Nationalization Cycle, supra note 2."'See The New Indonesia: The Business of Hatred, SYDNEY MORNING HERALD, Oct. 28, 1998."See Indonesia's Anguish, N.Y. TIMES, Oct. 16, 1998, at A26.12 See The New Indonesia, supra note 10.4 ASIL Proceedings, 1999nationism, which also has been a depressingly familiar occurrence in the Third World. Thereare numerous instances in which a self-proclaimed "indigenous" majority has tried toeliminate an economically dominant ethnic minority-whether by forced assimilation or byexpelling the minority (as Idi Amin did with Uganda's Indian and Pakistani community in1972, after first confiscating their assets), or finally by killing off the minority, through ethnicpogroms or genocide-the fate suffered by the Tutsi in the mid-1990s in Rwanda.13The third possibility is a retreat from democracy. This apro-market outcome. Here, ratherthan defer to the majority's demand for policies undercutting the economic dominance of theresented minority, the government of a developing country might instead seek to cultivate thatminority in defiance of the democratic will.This retreat from democracy can take a number of forms. First, the government may be"bought out" by the wealthy minority. Alternatively, the leader of a developing country mightwish to harness the market-dominant minority's skills and experience to fuel the country'seconomy, and toward that end might disband parliament, cancel elections, or take othermeasures suppressing political competition.'4 These two scenarios are not mutually exclusive,as General Suharto's market-oriented thirty-year autocracy in Indonesia illustrates. LikeFerdinand Marcos in the Philippines, Suharto had a symbiotic relationship with his country'sChinese business community. Throughout his rule, Suharto not only protected the Chinesepolitically but directed lucrative business opportunities to them.'5 The Chinese returned thesefavors, both by fueling the country's economy and by adding enormously to Suharto'spersonal wealth-to an extent that is now notorious.'6But as already noted above, these arrangements between Suharto and the ethnic Chineseprovoked massive, widespread resentment among thepribuni majority, where both antimarketreactions and even eliminationist impulses have been in play since May 1998.' 7 According tosome reports, many Indonesians say it would be worth losing ten years of growth to "get ridof the [Chinese] problem once and for all."' 8 Indeed the vicious anti-Chinese violence thaterupted after Suharto's resignation, together with state-condoned anti-Chinese rhetoric, dis-crimination, and confiscation, led many Sino-Indonesians to leave the country and prompteda massive flight of Chinese-controlled capital, estimated at $20-$40 billion. The Habibiegovernment's proposal for a "People's Economy" "involves the breaking up of Chinese-dominated enterprises and transferring them to the long-suffering masses using cooperativesand small- to medium-scale industries as receivers."' 9 It also includes the implementation ofMalaysia-style ethnically based preferences for indigenous Indonesians" which, as I havediscussed at length elsewhere, I actually favor despite obvious problems with such schemes.21Still more problematically, analysts are beginning to see-as I argue in my recent article22 -that the more democratic a country such as Indonesia becomes, the more likely it is that these13 See Chua, supra note 1, at 51-54.14 See id. at 54-56.15 See William Ascher, From Oil to Timber: The Political Economy of Off-Budget Development Financing InIndonesia, 65 INDON. 37, 53 (1998).'6 See id. at 54-55.17 See David Lamb, Terrorized Ethnic Chinese Still on Edge in Indonesia Southeast Asia, L.A. TIMES, Oct. 3,1998, at A4.1S Ravi Velloor, Fix Chinese Issue, Indonesia Told, NEW STRAITS TIMES, Oct. 10, 1998, at 2.'9 Abdul Razak Ahmad, People's Economy to the Rescue? NEW STRAITS TIMES (MALAYSIA), Dec. 21, 1998, at 6.See Tom McCawley Serang, A People's Economy, ASIAWEEK, Dec. 18, 1998, at 62.21 See Chua, supra note I, at 62-63, 77; Chua supra note 2, at 292-96.22 Chua, supra note 1.Markets, Democracy, and Ethnic Conflict I Violence 5antimarket and eliminationist impulses will be mobilized.' And let me repeat that the situationin Indonesia is just one example of a phenomenon that exists throughout the developing world.To conclude, international organizations such as the World Bank and the InternationalMonetary Fund, as well as lawyers and legal academics involved in the developing world,have not, in my view, focused enough on the historical, distributional, and particularly ethno-distributional dimensions of their work. Why this is so is itself fascinating. Legal practitionersprobably view ethnic tensions as lying far beyond the scope of their responsibility. Economists(and law-and-economics scholars) involved in market reforms also tend to treat ethnic conflictas beyond the scope of their analyses; although all behavior can be described as preference-maximizing in a tautological sense, the "preferences" and behaviors associated with ethnichatred escape the kind ofrationality assumed in most economic models. Human rights lawyersdo confront ethnic conflict, for example in context of war crimes. But because of thehumanitarian nature of their work, human rights lawyers tend to focus on groups that are bothpolitically and economically oppressed, and for this reason they too tend to overlook theproblem of economically dominant ethnic minorities. Finally, and more generally, Westemdiscomfort with potentially invidious ethnic generalizations may go a long way in explainingthe neglect of the ethnic dimensions of markets and democracy in the developing world.In any event, for whatever reason, today's dominant intemational policy approach in thedeveloping world regards ethnic conflict as just another aspect of underdevelopment, whichthe universal prescription of markets and democracy is supposed to cure. But this is apotentially fatal error. The ethnic dynamics of many post-socialist and developing countriesintroduce deep tensions into the very project of marketization and democratization, which, ifunaddressed, threaten to undermine the long-term success of the development project.23 See Velloor, supra note 18, at 2.

Markets, Democracy, and Ethnic Conflict

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Markets, Democracy, and Ethnic Conflict

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