Free Market Furies

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

By Amy Chua, Doubleday, 340 pages, $26.00

Amy Chua's new book is not likely to receive a warm reception at the Department of State, the World Bank or the International Monetary Fund. For more than a decade, the received wisdom in those precincts has held that free markets and rapid democratization represent the one and only legitimate path to economic development. Turning the Washington Consensus on its head, Chua contends that the simultaneous introduction of unfettered free markets and rudimentary democracy can lead to disaster in countries where small "market-dominant minorities" control a disproportionate share of the nation's wealth and arouse the vengeance of resentful majorities.

Chua's critique is all the more damning because she is not a flower-child, anti-globalization firebrand out to denounce the establishment. A former Wall Street lawyer, she's currently a professor at Yale Law School and a self-described proponent of free markets. Unlike such celebrants of the global economy as New York Times columnist Thomas Friedman, or those on the left who reflexively denounce globalization, Chua makes a nuanced but formidable argument about the potential dangers of the free-market version of democratic capitalism in the developing world.

To begin with, Chua suggests that the concept of "free-market democracy" underlying current development programs is an oxymoron. In many Third World countries, she argues, "Markets concentrate wealth, often spectacular wealth, in the hands of the market-dominant minority, while democracy increases the political power of the impoverished majority." Under the old order of crony capitalism, market-dominant minorities bought protection from corrupt, indigenous dictators such as Gen. Suharto in Indonesia. But now, Chua says, minority elites such as the Chinese in Indonesia (who make up 3 percent of the population but control 70 percent of the private sector), Indians in Kenya, Lebanese in Sierra Leone, Jews in post-Soviet Russia and whites in Zimbabwe are at the mercy of populist nationalist leaders. Under these circumstances, Chua warns, combining free markets and democracy can become "an engine of potentially catastrophic ethnonationalism" as "opportunistic vote-seeking politicians" arouse "a frustrated 'indigenous' majority ... against a resented, wealthy ethnic minority." In the worst cases, the Chinese in Indonesia, white farmers in Zimbabwe and Tutsis in Rwanda have become the targets of ethnic violence, property confiscations and even genocide.

Some of Chua's anecdotal case studies provide strong support for her argument. She notes that after Suharto's downfall in Indonesia, Chinese shops were torched, more than 150 women were gang-raped and Chinese capital fled Indonesia. Her account of Hutu power in Rwanda is also compelling. "Many Westerners ... insist that the horrors of Rwanda had nothing to do with democracy," writes Chua. "But the fact remains that a majority of the Rwandan people supported, indeed personally conducted, the unspeakable atrocities committed in 1994." The will of the resentful Hutu majority, she argues, ultimately manifested itself in the form of genocide against market-dominant Tutsis.

Other cases Chua cites, however, are more complex than she makes them out to be. Is democracy really the explanation for Zimbabwe's problems? Although Zimbabwe's black majority has a hypothetical stake in President Robert Mugabe's program of land confiscation and redistribution, blacks themselves have suffered the most under Mugabe's autocratic rule and would have likely ousted him in the March 2002 elections had it not been for massive fraud. And Chua's application of her market-dominance theory to the former Yugoslavia is even less persuasive. Though Serbs made up the largest share (36 percent) of the Yugoslav population and were less wealthy than the Croats and Slovenes, Chua does not explain why the comparatively poor Bosnian Muslims and Kosovar Albanians bore the brunt of then-President Slobodan Milosevic's genocidal fury.

Chua's theory becomes still more tenuous when she generalizes it to specific regions and then to the entire world. She argues that Israel represents a regional market-dominant minority in the Middle East and that the United States occupies the same role on the global stage, thereby drawing the ire of poorer regional and global majorities. Although Israel's economy indisputably leads the region and the U.S. economy overshadows the world, it's a stretch to argue that anti-Zionism and anti-Americanism are byproducts of the same kind of ethnic envy directed against market-dominant minorities in Indonesia or Rwanda. Moreover, there is no global democratic polity through which these angry masses could express their will. Chua's theory is more convincing when applied to individual countries rather than the world at large. And her excessive reliance on anecdotal cases begs for a more systematic, statistical analysis of democracy's dangers in countries with market-dominant minorities.

As some critics have pointed out, many of the market-dominant minorities mentioned in World on Fire have existed for a long time; they did not develop as a result of the recent explosion of global commerce. But Chua may well be right that the simultaneous arrival of unfettered laissez-faire markets and the most rudimentary form of majoritarian democracy (without constitutional safeguards or minority protections) has further concentrated wealth in market-dominant groups while exacerbating majority ethnic resentments. Even if the pattern isn't universal, Chua has identified a major risk of the current free-market orthodoxy.

Chua's policy prescriptions include support for Malaysian- and South African-style affirmative-action programs, which, unlike parallel Western policies assisting minorities, spread benefits to disadvantaged ethnic majorities. She also calls for genuine, liberal democracy with protections for minority rights. Though Chua does not offer a comprehensive solution for the ills of global capitalism and occasionally overreaches in applying her argument, World on Fire deserves to be widely read. It is a welcome antidote to the recycled mantras of the market-cheering right and the tired rhetoric of the anti-globalization left.