A minority opinion on the returns of free trade and free votes

World on Fire
September 10, 2004

Amy Chua takes an Augustinian view of markets and democracy. In the long run they "may well offer the best... hope... [but] in the short run they are part of the problem... the global spread of markets and democracy is a principal, aggravating cause of group hatred and ethnic violence".

The phrase she uses to illustrate her thesis is "market-dominated minorities": ethnic minorities with economic power such as the Chinese in Southeast Asia, the whites in South Africa and Latin America or the Ibos in Nigeria. The tensions inherent in such societies are, she claims, magnified by the spread of globalisation that reinforces market returns for the minority and by normal democratic procedures such as enfranchisement and elections.

In support of this, and partly to show how national idiosyncrasies do not displace her argument, she provides case studies of where marketisation has enriched minorities (Russia, Mexico), where democratisation has caused a backlash against minorities (Indonesia, Zimbabwe) and where majority rule has in turn resulted in a backlash by the threatened minority (the Philippines, Kenya). Her chief concern is the risk of genocide, civil war and unrest. She sees few signs of true integration in developing countries with ethnic minorities - her optimism about Thailand may not survive a second edition.

One may possibly interpret Chua's criticisms as being not of markets or democracy in principle but of the "actually existing" markets and democracies prevalent in a non-Western world without institutions of economic adjustment, safety nets, equality under the law or protection of minorities. Indeed, this type of critique was central to Joseph Stiglitz's argument in Whither Socialism? and Globalisation and its Discontents , in order to show that the "big-bang" marketisation of Russia was bound to fail because capitalism and markets need institutions to function properly. In a somewhat complementary but more pessimistic way, Chua argues that Western institutions of democracy followed from established property rights and that it is naive to suppose such institutions will be available if dominant minorities are threatened.

Chua wrestles effortfully with democracy, toying with the ideas of Samuel Huntington, Robert Kaplan and others, who claim that democracy depends on a secure middle class and established property rights. In the end she disagrees, but not too strongly, and suggests that new forms of government may be necessary to "slow down and stabilise" democratisation. Rather surprisingly, her illustration of the latter process is China, even though she argues that China has no ethnically dominant minority. And she is silent on the ability of democracy to prevent catastrophes, as Amartya Sen has argued in respect of famines.

So what should be done? This is the most undeveloped aspect of Chua's book -which is disappointing, coming as it does after the wealth of worldwide case studies of conflict. Chua considers how to contain market dominance by ethnic minorities. Given that the causes of minority dominance are poorly understood, it is hard for her to be specific. She favours the creation of social safety nets, tax and transfer programmes and dispersed ownership programmes while admitting that they are unlikely to be easily implementable.

She is rather more enthusiastic about affirmative action programmes, which "would be awkward for the International Monetary Fund to overturn in the name of markets"; and she appears to support making international development assistance conditional on such steps. She reviews the experience of the "new economic policy" in Malaysia quite sympathetically, but she equivocates over similar policies in South Africa.

With 80 per cent of land and nearly all the mines in white hands, South Africa is a classic case of ethnic minority power. The African National Congress Government faces a huge challenge to steer a path between markets and intervention and to create enough jobs to maintain political stability.

Recent attempts at black empowerment have resulted in international mining interests alerting shareholders to the risk of reduced stock returns. You might think Chua would support the ANC's attempts at affirmative action, but she is worried by it - about land redistribution being only a response to demonstrations and about black empowerment being aimed simply at ending the white domination of mining.

Sometimes it is hard to know exactly what Chua believes about trade and markets. She cites statistics that trade reduces absolute poverty, but when it comes to the Middle East and Arab states (where no case of an ethnic minority exists), she says that "marketisation would produce only marginal benefits for the great mass of Arab poor... free trade agreements... cannot in the short term alter the pervasive illiteracy, corruption and Third World conditions prevailing throughout the Arab states".

Perhaps - but market access and access to world capital is surely of some importance to development.

It can be equally hard to divine Chua's views on democracy. She is anxious to argue that local variants of democracy may be superior to the Western form. But her concern for democracy seems instrumental rather than indicative of pluralism; for example, in her comments on Morocco and Jordan, she notes that the "kings are much more modern and Western-oriented than the populations over which they rule". This gives an interesting perspective on Chua's thinking, but it is not really relevant to her thesis on ethnic minorities.

Chua's writing may often be compelling, but one longs for evidence for her many assertions. What to make of the claim that "market-dominant minorities - with their disproportionate capital, skills, business networks and control over the modern economy - drive global capitalism"? Since Chua excludes Europe, Japan and the US, along with China, from countries with market-dominated minorities, it is hard to see how she can be correct.

Similar problems of verification arise with the statement that "universal suffrage is being implemented on a massive scale, almost overnight". And even if universal suffrage is widespread, it does not follow that it grants voters the political power to challenge elites, as Chua argues. A recent poll for the United Nations Development Programme showed that a majority of Latin Americans would prefer to live under an authoritarian government if it improved their standard of living. It seems that it is not enfranchisement per se that creates difficulties for ethnic minorities.

Chua's second thesis, that globalisation reinforces ethnic minority rule, can surely be tested statistically rather than reported in case studies.

Has income inequality risen more in countries that have such minorities than in those that do not, but in which the trade and market histories are similar? And are there no cases of ethnically dominant minorities whose position has been usurped by markets? (Northern Ireland Protestants come to mind.) A statistical treatment of the issues would be a rewarding follow-up to the questions provoked by this book.

Some books provide answers, others only questions. Amy Chua's tends towards the latter kind, but World on Fire is no less stimulating for this.

Ciaran Driver is professor of economics, Imperial College London.

World on Fire: How Exporting Free Market Democracy Breeds Ethnic Hatred and Global Instability

Author - Amy Chua
Publisher - Arrow
Pages - 346
Price - £7.99
ISBN - 0 09 945504 8

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