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

Contrary to conventional wisdom, markets and democracy - at least in the raw form in which they have been promoted for the last 25 years - may not be mutually reinforcing in many developing countries. The reason for this has to do with the phenomenon of market-dominant minorities (MDMs): ethnic minorities who, along with foreign investors, can be expected under free market conditions to economically dominate the "indigenous" majorities around them, at least in the near to midterm future. Examples of MDMs include the Chinese throughout Southeast Asia, Indians throughout East Africa, the Lebanese in West Africa, Ibo in Nigeria, Bamileke in Cameroon, Tutsi in Rwanda, Kikuyu in Kenya, Whites in South Africa, Whites in Zimbabwe, Croatians in the former Yugoslavia, Jews in post-Communist Russia, Tamils in Sri Lanka - the list goes on. Reasons for market-dominance vary widely, ranging from entrepreneurialism to a history of apartheid or colonial oppression. The extent of market-dominance is typically startling. In the Philippines, for example, the 1% Chinese control as much as 60% of the private economy. In countries with an MDM, markets and democracy will tend to favor different ethnic groups. Markets magnify the glaringly disproportionate wealth of the MDM, generating great reservoirs of ethnic envy and resentment (even if "all boats are lifted"), while democracy increases the political power of the impoverished "indigenous" majority. In such circumstances - where the rich are not just rich, but are viewed as belonging to a resented "outsider" ethnic group - the pursuit of free market democracy becomes an engine of potentially catastrophic ethnonationalism, pitting a poor "indigenous" majority, easily aroused by opportunistic vote-seeking politicians, against the MDM. The result is an ethnically combustible situation that will typically lead to one of three kinds of backlash: (1) a backlash against markets (e.g., through ethnically targeted confiscation or nationalization); (2) a backlash against democracy by forces favorable to the MDM (e.g., through crony capitalism); or (3) a violent backlash against the MDM itself (e.g., through expulsion or ethnic cleansing).