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  At the same time, ethnic identity is rarely constructed out of thin air. Subjective perceptions of identity often depend on more “objective” traits assigned to individuals based on, for example, perceived morphological characteristics, language differences, or ancestry. Try telling black and white Zimbabweans that they are only imagining their ethnic differences—that “ethnicity is a social construct”—and they’ll at least agree on one thing: that you’re not being helpful. Much more concretely relevant is the reality that there is roughly zero intermarriage between blacks and whites in Zimbabwe, just as there is virtually no intermarriage between Chinese and Malays in Malaysia or between Arabs and Israelis in the Middle East. That ethnicity can be at once an artifact of human imagination and rooted in the darkest recesses of history—fluid and manipulable yet important enough to kill for—is what makes ethnic conflict so terrifyingly difficult to understand and contain.

  There are a number of misunderstandings about my thesis that I frequently encounter. I will do my best to dispel some of them here by making clear what I am not arguing. First, this book is not proposing a universal theory applicable to every developing country. There are certainly developing countries without market-dominant minorities: China and Argentina are two major examples. Second, I am not arguing that ethnic conflict arises only in the presence of a market-dominant minority. There are countless instances of ethnic hatred directed at economically oppressed groups. Last, I am emphatically not attempting to pin the blame for any particular case of ethnic violence—whether the mass killings perpetuated by all sides in the former Yugoslavia or the attack on America—on economic resentment, on markets, on democracy, on globalization, or on any other single cause. Numerous overlapping factors and complex dynamics, such as religion, historical enmities, territorial disputes, or a particular nation’s foreign policy, are always in play.

  The point, rather, is this. In the numerous countries around the world that have pervasive poverty and a market-dominant minority, democracy and markets—at least in the form in which they are currently being promoted—can proceed only in deep tension with each other. In such conditions, the combined pursuit of free markets and democratization has repeatedly catalyzed ethnic conflict in highly predictable ways, with catastrophic consequences, including genocidal violence and the subversion of markets and democracy themselves. This has been the sobering lesson of globalization over the last twenty years.

  Part One of this book discusses the economic impact of globalization. Contrary to what its proponents assume, free markets outside the West do not spread wealth evenly and enrich entire developing societies. Instead, they tend to concentrate glaring wealth in the hands of an “outsider” minority, generating ethnic envy and hatred among frustrated, impoverished majorities.

  What happens when democracy is added to this volatile mixture? Part Two addresses the political consequences of globalization. In countries with a market-dominant minority, democratization, rather than reinforcing the market’s efficiency and wealth-producing effects, leads to powerful ethnonationalist, anti-market pressures and routinely results in confiscation, instability, authoritarian backlash, and violence.

  Part Three discusses the phenomena of market-dominant minorities and ethnonationalism in the West, past and present. It also addresses the future: What should be done about the explosive instability that market-dominant minorities inject into the pursuit of free market democracy? I suggest that the United States should not be exporting markets in the unrestrained, laissez-faire form that the West itself has repudiated, just as it should not be promoting unrestrained, overnight majority rule—a form of democracy that the West has repudiated. Ultimately, however, I argue that the best hope for democratic capitalism in the non-Western world lies with market-dominant minorities themselves.

  PART ONE

  THE ECONOMIC IMPACT

  OF GLOBALIZATION

  Since the creation of Microsoft, the software industry has produced the largest crop of billionaires and multibillionaires in American history. Now imagine that all these billionaires were ethnic Chinese, and that Chinese-Americans, although just 2 percent of the population, also controlled Time Warner, General Electric, Chase Manhattan, United Airlines, Exxon Mobil, and the rest of America’s largest corporations and banks, plus Rockefeller Center and two-thirds of the country’s prime real estate. Then imagine that the roughly 75 percent of the U.S. population who consider themselves “white” were dirt poor, owned no land, and, as a group, had experienced no upward mobility as far back as anyone can remember.

  If you can picture this, you will have approximated the core social dynamic that characterizes much of the non-Western world. Throughout South and Southeast Asia, Africa, the Caribbean and the West Indies, much of Latin America, and parts of Eastern Europe and the former Soviet Union, free markets have led to the rapid accumulation of massive, often shocking wealth by members of an “outsider” or “nonindigenous” ethnic minority.

  Americans don’t hate Bill Gates, even though he has owned as much as 40 percent of the American population put together.1 They don’t feel cheated or exploited by him, or that he has humiliated Americans by making billions “on their soil.” Not so in societies with a market-dominant minority. In these societies, class and ethnicity overlap in a particularly dangerous way. The extremely wealthy stick out—whether because of their origins, skin color, religion, language, or “blood ties”—from the impoverished masses around them, and they are seen by these majorities as belonging to a different ethnicity or people—as “outsiders” who look different, speak differently, or as Fiji’s nationalist leader George Speight recently said of his country’s market-dominant Indian minority, “smell different.”2

  When the U.S. Department of Justice sued Microsoft, accusing it of engaging in monopolistic practices to try to destroy its competitors, Americans did not want to lynch Bill Gates or strip him of his assets or even take him down a few notches. On the contrary, polls found that most Americans wanted the government to leave Gates alone, so that he could “get back to making bucks.”3 But in the numerous non-Western countries with a market-dominant minority, the plutocrats are ethnic outsiders. And while Bill Gates does not generate mass ethnic resentment in the United States, Indian tycoons in Uganda, Eritrean businessmen in Ethiopia, and Jewish oligarchs in Russia do.

  Most Americans—whether ordinary citizens, commentators on globalization, or policymakers—are unaware of this problem. As a result, we have been confidently exporting free market capitalism to the rest of the world, oblivious to the ethnic hatred and instability we are systematically helping to breed.

  Today’s global economy did not appear overnight, but to a large extent represents the triumph of five decades of American foreign policy. After the Second World War, and consciously to promote capitalism and contain Communism, America drove the creation of the World Bank, the International Monetary Fund (IMF), the Organization for Economic Cooperation and Development, and the free trade organization, GATT. In the 1960s the U.S. Agency for International Development and private organizations like the Ford Foundation poured millions into “modernization” projects aimed at bringing economic and legal progress to the developing world through the export of capitalist institutions. With the collapse of the former Soviet Union in 1989, capitalism was seen around the world as triumphant and inexorable. In the developing countries of Africa, Asia, and Latin America, the IMF and World Bank pushed through privatization programs and foreign investment and trade liberalization by conditioning desperately needed loans on these market reforms.

  As of the late nineties, more than eighty developing and post-socialist countries were privatizing. Pro-market tax codes, investment codes, and securities laws, often drafted by American lawyers and academics, proliferated from Peru to Bulgaria to Vietnam. By 1996, Kazakhstan alone had adopted over 130 market-friendly laws. In Argentina, President Carlos Menem passed a flurry of pro-capitalism laws on an “emergency” basis. Stock exchanges—some hand
-operated—appeared everywhere, including in Mozambique and Swaziland.4

  In the new millennium, globalization and the worldwide spread of free markets continue to accelerate, with America at the helm. At the same time it is now possible to look back and begin to assess what the economic impact of globalization has been, not just in the United States, but around the world. As the next four chapters will show, the disturbing reality is that global markets, even if marginally “lifting all boats,” have consistently intensified the extraordinary economic dominance of certain “outsider” minorities, fueling virulent ethnic envy and hatred among the impoverished majorities around them.

  CHAPTER 1

  Rubies and Rice Paddies

  Chinese Minority Dominance

  in Southeast Asia

  In Burma,*tattoos are traditionally used to protect against snakebite. In 1930 and again in 1938, enraged Burmans applied these tattoos to achieve invulnerability against bullets and then proceeded to slaughter Indians in an orgy of violence. Even monks were said to have participated. At the time, Indians, along with British colonialists, were a starkly economically dominant ethnic minority in Burma and the object of mass antipathy. Killing Indians was an act simultaneously of revenge and nationalist pride among a long-downtrodden people. As a contemporary observer put it, “The average Burman on the street felt that at least once he had proved his superiority over the Indian.”1

  Today there is only a small community of Indians left in Burma. Hundreds of thousands fled in the sixties, in response to another wave of ethnic violence. But a new market-dominant minority has taken their place, far wealthier than the Indians ever were.

  Markets, Junta Style, and the Chinese Takeover

  Burma has one of the most repugnant military governments in the world—the State Law and Order Restoration Council, or SLORC,** which seized power in September 1988 after gunning down thousands of unarmed demonstrators. SLORC held multiparty elections in 1990, but then refused to honor the landslide victory of 1991 Nobel Peace laureate Aung San Suu Kyi, placing her instead under house arrest and earning the widespread hatred of the Burmese people.2

  From its inception, SLORC has been aggressively pro-market. Reversing three decades of disastrous, socialist central planning, SLORC in 1989 launched “the Burmese way to capitalism.” Apart from enriching corrupt SLORC generals, who are all ethnic Burmans, the ensuing decade of marketization brought virtually no benefits to the indigenous population, the vast majority of whom still engage in traditional agriculture. One group, however, has benefited tremendously.

  Since Burma’s shift to a market-oriented, open-door economy, both Rangoon, the modern capital, and Mandalay, the ancient City of Gems and royal seat of the last two Burmese kings, have been taken over by ethnic Chinese. Some of these Chinese are from families that have lived in Burma for generations. Like the Indians but to a lesser extent, the Chinese were disproportionately wealthy during the colonial period (1886–1948), which was characterized by essentially laissez-faire policies superimposed on Burma’s traditional rural economy. Although much of their wealth was confiscated during the socialist era (1962–88), the Chinese remained active in Burma’s black markets and, in a few cases, opium trafficking.

  In Burma’s new market economy, the Sino-Burmese minority have been transformed almost overnight into a garishly prosperous business community. In addition, tens of thousands of poor but entrepreneurial immigrants from China, sweeping down from nearby Yunnan, have bought up the identity papers of dead Burmans for as little as three hundred dollars, becoming Burmese nationals overnight. Today, ethnic Chinese Burmese—looking uncomfortable in longyis, the traditional Burmese unisex sarongs—own nearly all of Mandalay’s shops, hotels, restaurants, and prime commercial and residential real estate. The same is more or less true in Rangoon. Only a tiny, dying handful of Burman-owned establishments (mainly printing houses and cheroot factories) are left, dwarfed by the Chinese-built and Chinese-owned high-rise buildings around them.

  Typical of Southeast Asia, the Chinese dominate Burmese commerce at every level of society. Massive joint ventures—such as the Shangri-La Hotel deal between Lo Hsing-han, the Sino-Burmese chairman of the Asia World conglomerate, and Sino-Malaysian tycoon Robert Kuok—have turned Mandalay and Rangoon into booming hubs for mainland Chinese and Southeast Asian Chinese business networks. (Non-Burmese Chinese investors are easy to spot. They’re the ones not in longyis but in cowboy boots and sunglasses, walking around with bottles of Johnny Walker Red.) At the humbler end of the spectrum, Chinese hawkers make an excellent living selling cheap bicycle tires from China—often more than thirty thousand tires a month—for rickshaws in Burma. Nor is Chinese dominance only an urban phenomenon. After two years of severe flooding in southern China, large numbers of Chinese farmers—over a million, some estimate—poured into northern Burma. These new Burmese “citizens” now grow rice on the cleared hill country they have taken over. Entire Chinese villages have sprung up in this way.3

  With the United States boycotting Burma on human rights grounds, globalization for Burma has had a disproportionately Chinese face, although the presence of French and German foreign investors can be felt as well. “Name a large infrastructure project anywhere in Myanmar these days and there is a strong possibility it will be in the hands of Chinese contractors,” observed The Economist a few years ago. “Chinese engineers are working on improvements to the highway from Mandalay to Yangon. Chinese companies are developing the railway line from Mandalay to Myitkyina, near the Chinese border, and the line from Mandalay to the capital. With the help of chain gangs from Myanmar’s prisons, they are also building a line from Ye to Tavoy in Myanmar’s far south-east. . . . Against international competition, Chinese contractors have won the contract to build a big bridge across the Chindwin river. Other Chinese ventures range from a new international airport for Mandalay to housing for the armed forces and 30 irrigation dams. It was the Chinese, in association with Siemens, who last year installed a ground satellite station serving the capital.”4

  The Chinese in Burma dominate not only legitimate trade and business but also more sordid black market activities. Indeed, the line between licit and illicit commercial activity in Burma, as in many developing countries, is often vague. Some of the country’s most influential businessmen are former—possibly current—drug kingpins. “Drug traffickers who once spent their days leading mule trains down jungle paths are now leading lights in Burma’s new market economy,” lamented former U.S. secretary of state Madeline Albright a few years ago.5

  Burma-born, ethnic Chinese tycoon Lo Hsing-han, for example, was an infamous opium warlord in the 1960s, thought to be responsible for much of the heroin that wound up in American veins. According to Burma scholar Bertil Lintner, Lo started off in his native Kokang Province as a lieutenant to the pistol-toting lesbian opium queen, Olive Yang. In 1989, Lo cut a deal with SLORC, persuading fellow ethnic warlords to accept a cease-fire with the junta in exchange for valuable timber and mineral concessions. Today, Lo’s “Asia World” commercial empire includes a container shipping business, Rangoon port buildings, and tollbooths on the resurfaced Burma Road. Lo insists that he is now a legitimate businessman. “Since the market economy appeared in Myanmar,” he explains, “it is easier to earn money trading vehicles on the Chinese border.”6 Whether or not Lo is clean—and most Western officials believe otherwise—Burma’s “Chinese underworld” remains as dominant in drug traffic and money laundering as Chinese merchants are in Mandalay’s booming, lawful markets.

  Chinese Plutocrats, Burman Misery

  Ever since SLORC embraced markets, Burma has been hemorrhaging natural resources, especially teak, jade, and rubies. Apart from SLORC generals, the beneficiaries have been almost exclusively ethnic Chinese and a handful of hill tribe smugglers.

  Burma’s forests hold more than 70 percent of the world’s teak. The Burmese teak is a magnificent tree, sometimes reaching 150 feet, with opposing egg-shaped leaves and clusters of whi
te flowers. Its timber is dark, heavy, oily, of unusual strength and durability. Long the wood of Burmese royalty, immortalized by Rudyard Kipling (“Elephints a-pilin’ teak / In the sludgy, squdgy creek, / Where the silence ’ung that ’eavy you was ’arf afraid to speak! / On the road to Mandalay . . .”), teak today is America’s wood of choice for boat decking and salad bowls.

  For over a decade now, Burma’s hill tribes, particularly the Shan, have been selling enormous quantities of teak to Chinese buyers at fire-sale prices. Technically these sales are contraband, violating SLORC’s official monopoly on timber exports. In reality, SLORC generals struck a deal with hill tribe insurgents a decade ago, granting them economic freedom in exchange for a cease-fire. As a result, since 1989, convoys of trucks loaded with teak logs—sometimes over ten feet in diameter, from trees hundreds of years old—travel daily, snaking along the mountainous old Burma Road across the border into China’s Yunnan Province.

  Meanwhile, SLORC’s official timber policy has been aggressive globally-oriented marketization under government concessions. Insisting that teak logging will facilitate Burma’s economic development, SLORC has invited the full support of the private sector in promoting “forestry” (i.e., deforestation), even exempting forestry exports from commercial tax. Along with European and Chinese foreign investors, most of SLORC’s business partners are Sino-Burmese tycoons who have close ties to Thai Chinese logging companies. Leading industrialist “May Flower” Kyaw Win, born to a poor Chinese family in the Northern Shan State, is a prominent example. Since moving into the timber business in 1990, Kyaw Win—also the managing director of Yangon Airlines and often spotted with top-ranking generals—has become one of the wealthiest men in Burma.7