Ethnically Homogenous Elites in Developing Countries
Posted: 17 Dec 2001
In the New Institutional Economics literature, the existence of economically dominant ethnic minorities seems to be treated as a mere symptom of the more fundamental problem of institutional underdevelopment - a symptom likely to disappear once institutional reforms designed to facilitate free contracting by private actors are adopted. By contrast, in recent writings Amy Chua has argued that in many contexts reforms of this sort are likely to perpetuate or even increase the economic dominance of certain ethnic minorities. She goes on to argues that this dominance exists in tension with democratization as, under certain conditions, it will provoke, maintain or exacerbate intense ethnoeconomic resentment among the disadvantaged majority. In Chua's view this suggests the need to adopt policies that address the economic, political and ideological roots of the tension between markets and democracy.
This Article critically examines both the positive and the normative components of the claims put forward by Chua and proponents of the New Institutional Economics. The Article endorses Chua's claim that this phenomenon might persist under free market conditions. A number of factors might serve to perpetuate disparities in entrepreneurship under free market conditions, including: differences in preferences or abilities, invidious discrimination (either in favour of or against the minority group), differential endowments of social capital, or increasing returns to scale in production. Moreover, in part because some of these factors are inter-related, ethnic disparities in entrepreneurship may be a self-reinforcing phenomenon. Therefore, deficiencies in formal institutions are not the sole, and may not even be the primary, reason why economically dominant ethnic minorities have been and will continue to be observed in developing countries.
The balance of the Article assesses whether attempting to alter the ethnic composition of a developing society's entrepreneurial class can be justified on the basis of economic efficiency, distributive justice or the desire to avoid ethnic conflict. If ethnic disparities can be attributed to mistaken beliefs about groups' productive abilities, poor legal institutions, or the absence of physical infrastructure, some form of corrective state action might be efficient. However, it will be inefficient to remove disparities in entrepreneurship that are attributable to significant differences in productive abilities and preferences. It is also unclear whether social justice demands a focus on the elimination of ethnic disparities in entrepreneurship. Opportunities to engage in entrepreneurship should not be regarded as valuable in and of themselves, but rather because they represent opportunities to increase individuals' wealth and autonomy. Finally, it is unclear whether there is a causal connection between dominance in entrepreneurial activities per se and levels of inter-ethnic conflict. For all these reasons, policymakers in developing countries with ethnically homogeneous elites should generally refrain from focusing on disparities in entrepreneurship and instead strive to reduce disparities (ethnic and otherwise) in access to a broader range of economic opportunities.
Keywords: Ethnic conflict
JEL Classification: O15, O20
Suggested Citation: Suggested Citation