World on Fire: How Exporting Free Market Democracy Breeds Ethnic Hatred and Global Instability
by Amy Chua
Amy Chua is a Fillipino law professor at Yale who writes about the economic ownership complexities in developing countries around the world. She explains (with specific details) how in most developing countries that an “outside” (usually foreign, but not always) ethnic minority currently controls most (80%+) of the economy. Their wealth has grown substantially as developing countries have promoted their countries to embrace free markets. In many cases the current governments are essentially brazenly corrupt and are “cronies” for these billionaire ethnic minorities. When the people vote in a new populist gov’t, generally it is centered around ethnic hatred towards the dominant minority as a key issue. Often this new gov’t nationalizes many of the assets of the dominant minority resulting in colossal economic decline due to the poor suitability of gov’t bureaucrats running significant businesses and the flight of foreign capital associated with the expected (and guaranteed to follow) corruption and inefficiency. Then once the economy has collapsed, the incumbent gov’t either gets booted out by an authoritarian regime who promises “order” or the incumbent gov’t re-invites the dominant minority into a corruption partnership to fix the economy. In all of these cases, the indigenous majority populace is simply ignored (at best) or made worse off as resources are redirected towards fixing the newest self-inflicted economic crisis. So, the cycle continues with most of the internally generated income (mineral resources, manufacturing, etc.) and external income (grants, loans) continuing to be concentrated in a hands of the few.
I think the main argument of the book is that the west/developed nations have been naïve in thinking that when we advocate for “free markets” AND capitalism. We should expect that these changes/reforms will unleash the resulting cycles of unintended consequences and boom/bust cycles as these nations “unwind” from their pre-democratic systems. The current power/wealth brokers are very entrenched and will resist changes which don’t benefit them. When you read the history about the early days of the relatively wealthy USA, there are strong swings by populist masses against various different policies (e.g. changes in taxation, setting up central bank, raising a standing army, etc.) which had many starts and stops as they went through the political process. Some people argue that George Washington (masterminded by Alexander Hamilton behind the scenes) overstepped constitutional authority in setting up the financial system of the USA which we so appreciate today. [I just read Chernow’s recent biography on Alexander Hamilton, so the data is fresh in my mind.] So, sometimes, a non-fully democractic process is required to “do the right thing” for the long-term.
The conclusion … simply expecting a relatively quick and “painless” conversion of a nation to a free-market system is just unreality. This doesn’t mean we shouldn’t still advocate for this ultimate result, but that we need to advocate for paced change with realistic expectations.