Markets, Democracy, and Ethnicity : Toward a New Paradigm for Law and Development

American legal professionals today are helping to restructure the fundamental institutions of the developing world to an extent unprecedented since decolonization. This restructuring, in both its practice and its theory, has been driven by two principal goals: marketization and democratization. But there is one constitutive element of developing societies that today's interventions repeatedly overlook. Entrenched ethnic divisions permeate most developing countries, and these divisions bear a distinctive and potentially subversive relationship to the project of marketization and democratization. By contrast to developed nations, most developing countries have one or more economically dominant ethnic minorities coexisting with an impoverished "indigenous" majority. Under certain conditions, the presence of an economically dominant minority will introduce a fundamental tension between markets and democracy. This will be the case whenever the economically dominant minority is also market dominant--meaning that it tends to be economically dominant under market conditions. In developing countries with a market dominant minority, markets and democracy will tend to favor different ethnic groups. Markets will benefit the market dominant minority, while democracy will increase the power of the relatively impoverished majority. In these circumstances, the combined pursuit of markets and democracy will produce a very charged and unstable situation. This article offers a model to explore the consequences of pursuing markets and democracy under these conditions. The sobering thrust of the model is that in many developing countries, marketization and democratization will likely lead to one of three outcomes: (i) an ethnically fueled antimarket backlash; (ii)actions aimed at eliminating the market dominant minority; or (iii) a retreat from democracy. In case studies of South Africa, Kazakhstan, and Vietnam, the article explores the question of what reforms, legal and nonlegal, would lead to the long-term success of markets and democracy in the developing world