Amy Chua Interview: Conversations with History; Institute of International Studies, UC Berkeley

The Myths of Globalization: Markets, Democracy and Ethnic Hatred: Conversation with Amy Chua, Professor of Law, Yale, and author, *World on Fire*; January 22, 2004, by Harry Kreisler
Photo by Jane Scherr

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Markets and Democracy

Let's talk about this idea that at one level is so simple and so obvious that nobody had put it all together with the sweep of both history and geography that you have done. What do you mean by an "ethnic-dominant minority"? We touched a little on this already. But once you have that concept, help us understand what it is and how it was shaped in your own mind.

The concept I used in the book -- it's a bit of a mouthful -- is a market-dominant minority. By this term I mean an ethnic minority, or ethnic minorities, who, along with foreign investors, can be expected to economically dominate the poor, indigenous majorities around them, at least in the near to mid-term future. I'm not talking about ethnic stereotypes -- in the United States, we worry a lot about ethnic stereotypes. I'm talking about something more serious, because I'm talking about actual, starkly disproportionate control of the economy by an ethnic group.

So, first of all, it's not just the Chinese; although the Chinese are publicly the most well-known market-dominant minority. The Chinese are 3 percent of the population in Indonesia, a larger population in Malaysia; they're about 10 percent of the population in Thailand. But they are extremely economically dominant throughout Southeast Asia.

Other examples include Indians throughout the countries of East Africa -- Kenya, Tanzania, Uganda. The Lebanese in the countries of West Africa, exactly the same position, very small in numbers, 1 percent, 2 percent, and yet they control such a disproportionate amount of the corporate and commercial sector. Other examples are Whites in Zimbabwe, Whites in South Africa, Whites in countries like Bolivia, Ecuador, Guatemala. Although, again, in a more complicated sense in Latin America. Less well-known examples of African groups (the Ibo in Nigeria, the Kikuyu in Kenya), the Croatians in the former Yugoslavia, Jews in post-communist Russia. All of these groups came under free-market policies, the kind that we were pushing in the nineties and eighties, to dominate the economies in which they live to a startling extent.

The thesis is, very simply, that most non-Western countries have social and ethnic structures totally different from what we have in the West. In particular, in the numerous non-Western countries that have a market-dominant ethnic minority, markets and democracy basically benefit not just different people or different classes, but different ethnic groups, creating an explosive situation that we just aren't familiar with here. Markets will tend to leave to the economic dominance of this small ethnic minority, whether it's the Indians in Kenya or the Chinese in Indonesia.

At the same time, overnight democracy will empower the poor, indigenous majority. What happens is that under those circumstances, democracy doesn't do what we expect it to do -- that is, reinforce markets. [Instead,] democracy leads to the emergence of manipulative politicians and demagogues who find that the best way to get votes is by scapegoating the minorities. They say, "The reason we're all poor here in Indonesia is because the Chinese are stealing all the wealth, so let's have Indonesia for Indonesians," or Serbia for Serbs, or Zimbabwe for Zimbabweans. "Let's take back the economy." So in this case, markets and democracy are not mutually reinforcing. Markets benefit one ethnic group, democracy empowers a different ethnic majority, and the result is a lot of instability.

In a moment we'll talk about how this goes against the conventional wisdom of American power in the world, or as some are now calling it, the American empire. But before we do that, I want to get from you a better sense of why these particular groups tend to benefit most. What you're suggesting is they were positioned before globalization hit in a powerful way of the nineties. There are different reasons, different explanations for that, right?

That's the most important part of it, that there are different reasons for the market dominance of different groups. This is why I think these topics shouldn't be taboo. Often, it seems it's so difficult to talk about ethnic minorities who disproportionately do well economically. But the reason it shouldn't be taboo is because by market dominance, I'm not talking about any kind of inherent, biological superiority.

So, there are different answers. Some groups achieve market dominance because of colonial oppression or apartheid. So, for example, Whites in South Africa: if a small minority, like the Whites in South Africa, Zimbabwe, and Namibia, uses military power in a police state to relegate the majority to inferior education and apartheid conditions for a hundred years, then that minority is going to be a market-dominant minority. When foreign investors come, they're going to want to work with this minority that has all the capital. It has all the experience, the education. But that's not necessarily because of any entrepreneurialism. It's because of colonial policies, or divide-and-conquer policies, so minorities become market-dominant for reasons having nothing to do with entrepreneurialism.

The harder cases to explain are the non-colonizer minorities like the Indians in East Africa, or the Lebanese in the Caribbean or West Africa, the Jews in many parts of the world, and the Chinese in many parts of the world. These are groups that often came to their new countries with nothing. They were immigrants. The Indians, brought to East Africa to work on the railroad, had nothing but a shirt on their back. And, yet, these groups in one or two generations came to dominate even the professions, or more, in particular, the private economy, the commercial sector -- retail, wholesale, corporations.

I don't answer this question in my book. I think it's a combination of reasons. I don't know if you want to call it culture/family networks; I think the way networks in all these groups work is very striking. It's clearly part of what explains their economic success.

One case that intrigued me was the case of the oligarchs in post-communist Russia. In that case, six of the seven oligarchs turn out to be Jewish. But in a way, it's a product of their having been excluded before, under the communist system.


Talk a little about that.

Well, that's one of the more controversial cases to write about. There are so many invidious ethnic stereotypes, and so much anti-Semitism, so it's a hard topic to discuss. You hear things like "Jews controlling the United States economy." I actually researched that and documented that that's false. The U.S. economy is not controlled by any ethnic minority, whether it's the Koreans or the Jews. It's just not true, if you look at the ten wealthiest Americans. Not so in the former Soviet Union. In the anarchic shift to capitalism in the early nineties, which, by the way, I think was ill-advised -- it was just a fast transition to cowboy capitalism; there were no anti-monopoly laws, no anti-insider trading laws -- but the result of that was that seven men, known as the oligarchs, came to control roughly 60 percent of Russia's incredible natural resource wealth: oil, nickel, the minerals.

I wasn't the first to document this. It came out in The New York Times magazine and a book called Sale of the Century, by Chrystia Freeland. But it was well known in the former Soviet Union. Six out of these seven men were Jewish, or at least of Jewish background. I did have a lot of research assistants who delved into this question of why; they were all students from Russia, many of them Jewish. The explanations are partly a result of exclusion. Many of these men, the oligarchs, wanted to go into the Soviet Academy of Sciences, but were excluded because of anti-Semitic reasons and ended up doing other things. Lots of them ended up being very active in the black markets during the Soviet era. Now, black market sounds negative, but, in fact, everybody loved the black markets during the communist era. It was the only place that officials and others could get shoes and consumer products. There were shortages everywhere. The black market during the Soviet era was essentially the only capitalism there was.

In fact, all of the oligarchs had practice in a private economy, in markets. Many of them translated those skills very successfully when suddenly, with perestroika, there was market liberalization. Before everybody even knew it was going on, they were privatizing, and it was a complicated process. But for whatever reasons, these men came to the fore, bought up a lot of the things that were for sale, got in touch with the foreign investors, and came to control a disproportionate amount of the economy.

That case fits sadly, very neatly into my thesis because you have this enormous transfer to markets -- not the kind of markets I think we should be promoting -- leading to these seven men controlling 60 percent of the natural resources.

But what does democracy do? Sadly, [democracy] and free speech led to the emergence of anti-Semitic political parties, politicians that were openly campaigning on, "Let's expel the Jews. Let's take back their property. The Jews are milking us dry." And that's a pattern that we saw in Indonesia around the same time; it's very interesting. Free market policies in the 1980s and 90s in Indonesia led to a situation where the country's tiny 3 percent Chinese minority controlled an astounding 70 percent of the private economy.

Democratization in 1998, which was hailed with euphoria in the United States -- I still remember everybody was so excited about democracy in Indonesia -- well, tragically, democracy produced a violent backlash against both the Chinese and against markets. Politicians in Indonesia fell over themselves campaigning on anti-Chinese platforms. You know, "Let's take back the economy." And right now, the Indonesian government has nationalized about $58 billion worth of ethnic Chinese assets. That's part of the reason that country is in such an economic crises.

Before this democratization occurs in many places, what you get is an alliance between the economically dominant minority and the ruling autocrat. You used the common term "crony capitalism."

Right. It's an interesting challenge: if you think of the worst cases of crony capitalism, you'll be surprised to find that almost every one involved a market-dominant ethnic minority. It's a very typical pattern for an indigenous dictator, say, Ferdinand Marcos in the Philippines. Ferdinand and Imelda were Filipinos, they were supposed to represent the majority, but instead, they went into a crony capitalist situation with their country's best entrepreneurs, who are Chinese. It was this little symbiotic relationship. The Marcoses said, "We'll let you make money as long as you kick back bribes and profit to us, and we won't have majority rule." That's what Suharto did in Indonesia. He had a tiny handful of Chinese cronies, who made a huge amount of money, and then kicked it back to him. That's what President Daniel Arap Moi did in Kenya. He had a very authoritarian little regime propped by a very small handful of Lebanese businessmen. The tragic thing about this is, it's a bomb waiting to explode. In Indonesia, you have 3 percent of the population in cahoots with this hated dictator, while the majority, the indigenous Indonesians, are just enraged and so resentful, and they feel that they don't have ownership of their country. These outsiders are milking it, and there's this horrible dictator.

So when you politically liberalize, you say it's democracy, [but] it's completely understandable, it's almost rational that they would vent their anger. This is what happened in Indonesia. Politicians speak for the people. They say, "It's time to take back our country." The terrible thing is that it doesn't happen often in a gradual, stable way. You know, "Let's vote in gradual redistributable policies." Instead: "Let's loot the country. Let's take back the stores." That's exactly what happened in 1998 -- 5,000 shops and homes of ethnic Chinese burned and looted on the eve of democratization; 2,000 people died and 150 Chinese women were gang-raped. The politicians started to campaign on anti-Chinese platforms. And the Chinese in Indonesia, the wealthiest, left the country, taking with them between $40- and $100 billion.

Again, that's the piece that the papers don't talk about. [They ask], "Why is Indonesia such a breeding ground for terrorists and extremist groups, and fundamentalist movements?" Well, partly, it's because you have underemployment or unemployment of roughly 40 million people, and that's because they're sitting on a kind of nationalized economy. And it happens over and over.

So I'm glad you asked the question, my thesis is not about blame. I'm not saying that ethnic conflict occurs because of free markets, or because of democracy, or because of globalization. I'm a very pro-globalization person, and I'm actually in favor or trying to bring markets and democracy to other countries around the world. But we have been exporting the wrong version of free market democracy. If I were to put the blame, I think it's ... You mentioned the crony-capitalist situations create these time bombs, so overnight democratization leads to this explosive venting. I think we need to pay attention to how we democratize and how we bring markets.

Let's talk about that in a minute and work that out. But one thing I want to ask you about, which is that you've talked about a structure that's in place across the board all over the world. Once democracy comes, political leaders, Milosevic or whoever, have an incentive -- really an incentive structure -- in place to mobilize the masses against this ethnic minority. We often want to look at these places and say, "What they've got is evil people," and turn it into a theological issue, as opposed to an issue of social and political analysis.

You're exactly right. I have no question in my mind that some of them may also be evil. But you're right. Once you start to see the pattern, you see that is a matter of incentives. Milosevic in the former Yugoslavia, in Serbia: Americans don't like to admit this, but he came to power in free and fair elections. He campaigned on an anti-Croatian, anti-everything-but-Serbia platform -- "Serbia for Serbs." And the Serbs, in light of all their history, which is very complex, voted for him. He won on a landslide victory. Now, this is not just the Serbs. The Croatians did the same thing. They had demagogues in Croatia, too. Tudjman campaigned on an anti-Serbian campaign. With Kazakstanis, that political campaign's slogan was, "Kazaks stand for the Kazaks." And in Rwanda, without suggesting that this is the only thing (it's not just about economics at all), but after years of colonialism and divide-and-conquer policies in Rwanda, the Tutsis were a 14 percent that had always been favored by the colonizers, and they for years had dominated the economy. Well, rapid political liberalization, which the West was pushing, often with the best of intentions, led to the empowerment of the 80 percent Hutu majority. And, sadly, that process led ... again, the democratization was all about slogans for, "Let's take back the country. It's Hutu power time. Let's get rid of these outsider Tutsis." It was not about economic policies and building coalitions. It was all about excluding this hated minority and taking back the country for the indigenous majority -- all very artificial.

You even point out in your book that the argument was weighed not to close down the Hutu radio stations because it was a matter of free speech. So what should be a functioning democracy becomes something else in this context.

Right. It becomes contorted. And that's right -- in the West, we value our free speech. I'm one of the biggest proponents of free speech. But in that circumstance, where you had ... again, if it's a question of blame, you have to point it to, partly, the colonizers. Right? The Belgians played divide-and-conquer. They favored the Tutsis. They were the overseers for the 80 percent Hutus.

So you have all these terrible historical dynamics all bottled up. And then suddenly it's, "We want to bring democracy and elections, and free speech." And yes, the radio stations were used by the Hutu power groups. They used the radio stations to say, "Kill your neighbors. Kill the Tutsis." And, sadly, that genocide was majority supported. A majority of the people in Rwanda were Hutus -- that's 80 percent of the population. And as Philip Gourevitch wrote beautifully and tragically in his book, "Neighbors killed neighbors. Doctors killed patients." It just degenerated. And part of that was this sudden political liberalization that the West promoted, with the best of intentions.

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