Sunday, March 09, 2003

The New York Times, December 2, 2002 [Op Ed]

Power to the Privileged

A general strike in Venezuela, the fourth-largest exporter of oil to the United States, has contributed to a rise in oil prices in the last month. But the strike, which began on Dec. 2 and has resulted in a drastic decline in the country's oil production, was not initiated by left-wing labor unions, as many Americans may think. In fact, it was instigated by Venezuela's wealthy business elite.

Underlying this crisis lies a central paradox of globalization, and of United States foreign policy: the combination of laissez-faire capitalism and free elections can create political and economic instability.

Venezuela is only the most recent illustration. President Hugo Chavez was democratically elected in 1998 in a landslide victory, a result reconfirmed in a vote in 2000. Since taking office, however, Mr. Chavez has presided over an increasingly chaotic economy - a chaos not always, though sometimes, of his own making. The strikes currently crippling Venezuela's economy, for example, are largely the work of business interests that are intensely opposed to Mr. Chavez because of his threats of nationalization and his attempts to seize control of the oil sector.

There is also an ethnic dimension to Venezuela's crisis. Along with roughly 80 percent of Venezuela's population, Mr. Chavez is a "pardo" - a term with both class and ethnic overtones that refers loosely to brown-skinned people of Amerindian or African ancestry. But Venezuela's economy has always been controlled by a tiny minority of cosmopolitan whites, or "mantuanos," the Venezuelan term for persons with European features and pretensions. Not surprisingly, foreign investors deal almost exclusively with members of the well-educated, English-speaking mantuano class.

Venezuela's problems are part of a much larger global phenomenon - pervasive outside the West yet almost never acknowledged - of market-dominant minorities: ethnic minorities who, for widely varying reasons, tend under market conditions to dominate economically the indigenous majorities around them. (Chinese in Indonesia, whites in Zimbabwe and Indians in Kenya are other examples.)

Market-dominant minorities are the Achilles' heel of free-market democracy. In countries with a market-dominant minority, markets and democracy favor not just different people, or different classes, but different ethnic groups. Markets - even if marginally lifting all boats - concentrate wealth in the hands of the market-dominant minority, while democracy increases the political power of the impoverished majority. Under such circumstances, the pursuit of free-market democracy often becomes an engine of ethnic nationalism, pitting a frustrated indigenous majority, easily aroused by demagogic politicians, against a resented, wealthy ethnic minority.

This confrontation is playing out in Venezuela today. In 1998, Mr. Chavez swept to electoral victory by attacking Venezuela's "rotten" white elites, calling himself "the Indian from Barinas" and arousing into impassioned political consciousness Venezuela's impoverished pardos.

After taking power, Mr. Chavez disbanded the "worm-eaten" mantuano-dominated Congress and Supreme Court. He suspended privatization, vowed to dismantle Venezuela's plantation system, and decreed scores of laws intended to soften what he called "savage capitalism." Predictably, all this had a devastating effect on Venezuela's economy.

The coup against Mr. Chavez last April was a classic effort by a market-dominant minority to retaliate against a democratically elected (if also blundering) government threatening its wealth and power. The interim president, Pedro Carmona Estanga, was a wealthy white businessman. Union representatives were excluded from positions of authority. To the dismay of the United States government, which initially hailed the coup as a victory for democracy, the high-handed actions of the Carmona regime, combined with Mr. Chavez's still-strong support among Venezuela's poor majority, returned Mr. Chavez to power with stunning speed.

What should the United States do now about Venezuela? Candor would be a good start. If we genuinely support democracy in developing countries, we cannot endorse coups, even pro-capitalist ones, against democratically elected presidents. Moreover, if global markets are to be sustainable, ways must be found to spread their benefits beyond a handful of market-dominant minorities and their foreign investor partners. Otherwise, markets and democracy will continue to clash, destabilizing economies and exacerbating ethnic conflict throughout the world.

Amy Chua, professor of law at Yale, is author of "World on Fire: How Exporting Free Market Democracy Breeds Ethnic Hatred and Global Instability.''