World on Fire


World on Fire
By Amy Chua
William Heinemann, London 2003
ISBN 0-434-01220-3

The positive side of globalisation is the emergence of global communications, for example Internet and satellite TV, providing a low cost gateway to information sources and news that could only have been dreamed off a few decades ago. Economists may also argue that the free market based on liberalisation of trade, deregulation of previously public sector owned industries and capital flows is a net benefit, creating efficient markets through competition.

Amy Chua examines the darker side:" Globalisation generates not only new opportunities and hopes, but also new social desires, stresses, insecurities and frustrations. The spread of global markets in recent decades have been distributed extremely unequally, both across and within countries. Today, the richest 1 percent of the world's population own as much as the poorest 57%. Half of the world's population lives on less than 2 dollars a day; more than a billion people live on less than one dollar a day. Meanwhile, the top 20 percent of those living in high-income countries account for 86 percent of all of the world's private consumption expenditures".

"Back in the early nineties," she writes, "I believed that the proceeds of privatization, as a World Bank official put it, would go to roads, 'potable water, sewerage, hospitals, and education to the poor.' Like many in the 1990s, however, I was viewing emerging market privatization through a rose-colored lens". Later, she adds, "Even assuming that free market democracy is the optimal end point for most non-Western countries, in the short run markets and democracy are themselves part of the problem." In practice, the markets have been manipulated, and the democracy is of a cosmetic variety only.

The real beneficiaries have been the 'market-dominant minorities', the author's term to describe the new privileged elites of global capitalism. In support of her thesis Amy Chua examines the dominance of Chinese businesses in Southeast Asia - she herself is a Chinese-Filipino - the Lebanese in West Africa, the white European originating elite in Brazil, and in particular detail, the rise of the 'oligarchs' in post-communist Russia. She also makes the interesting assertion that such market-dominant minorities resist democratisation because it is inimical to their interests. It is an analysis that brings to mind Milovan Djilas, who in his seminal 'The New Class' written in the late 50s showed that though Communism made the claim of establishing a just and egalitarian social system, in reality a small number of unscrupulous people were grabbing the spoils and privileges. This disparity between theory and practice was the undoing of Communism; similarly the US-led new world order contains within it an unresolved contradiction.

Her chapter on the Russian oligarchs has the politically incorrect subtitle 'The Jewish Billionaires of Post-Communist Russia' because, she notes, "six out of seven of Russia's wealthiest tycoons are Jewish". It requires courage to make such an observation, even from a Harvard law professor with a Jewish husband - the latter a biographical detail inserted rather wisely in the chapter. Professor Chua describes the difficulty she faced in discussing her observations with colleagues: "In the spring of 2000, a professor whom I'll call Jerry White was furiously trying to finish an article on the debacle of Russian privatisation. Jerry and his co-authors had served as legal advisers to the Russian Government during the country's mass privatisation process in the late 1990s. The article described how Russia's pro-market reforms had gone horribly awry. Instead of dispersing ownership and creating functioning markets, these reforms had allowed a small group of industrialists and bankers to plunder Russia, turning themselves almost overnight into the billionaire owners of Russia's crown jewels while the country spiralled into chaos and lawlessness. It seemed to me that most of the key players in the privatisation of Russia were Jewish. 'Oh, no,' Jerry replied instantly. 'I don't think so.' 'Are you sure?' I pressed him. 'If you look at their names…'. 'You can't tell anything from names,' Jerry snapped, clearly not wanting to discuss the topic any further".

Amy Chua explains: "The six Jewish businessmen most frequently called oligarchs are Roman Abramovich, Pyotr Aven, Boris Berezkovy, Mikhail Friedman, Vladimir Gusinksy and Mikhail Khodorkovsky. Together, these men came over the course of the 1990s to wield mind-boggling political and economic influence. The height of their oligarchic influence was reached in 1996, when the Yeltsin government hung on the verge of political and financial collapse. Among other problems, Yeltsin had suffered a heart attack; his approval ratings hovered between 5 and 8 percent; the Russian treasury was strapped for cash; and in the parliamentary elections the Communists and Vladimir Zhirinovsky's extreme nationalists had captured two-thirds of the seats of the lower house, paralyzing the government. Already wealthy by that time, the oligarchs collectively put forth the so-called 'loans-for-shares' deal - now notorious, but at the time grudgingly endorsed by Western advisors and Russian economists as well as England's 'The Economist'. Essentially, the oligarchs offered loans and political support to the government in exchange for majority shares - at a fraction of their potential market value - in the behemoths of the Russian economy, a half dozen massive enterprises breathtakingly rich in nickel, gold and oil deposits….with Yeltsin's victory, the loans-for-shares deal was finalized, catapulting the oligarchs from a small group of millionaires to a small group of billionaires. A few years later the oligarchs 'guaranteed' that Vladimir Putin, like Yeltsin before him, would get elected in Russia's 2000 presidential election".

Take the case of Mikhail Khodorkovsky. He had served as deputy chief of Komsomol, the Communist Youth League and "from the outset enjoyed the patronage of senior Soviet-era government officials". At the time the monetary system operated two kinds of currency - cash and non-cash credits known as 'beznalichye'. Khodorkovsky converted cash credits into dollars, imported scarce personal computers and sold them for non-cash credits before beginning the profit cycle again. In 1989 he created Bank Menatep with $100,000 of authorized capital. After 1990, Khodorkovsky served as economic advisor to the prime minister of the Russian Federation - a role he apparently had no trouble playing while continuing to run Menatep. When Boris Yeltsin began selling state assets in a desperate attempt to kick-start the economy, Khodorkovsky's bank jumped in to organize the auction of Yukos Oil. To nobody's surprise, Khordorkovsky was able to buy 45% of the shares at a bargain price of $159m and soon controlled a company exporting one-fifth of Russia's oil. Within a few years Yukos was worth $30bn.

Amy Chua explains the emergence of such wealth and power within one ethnic group as the outcome of an early involvement in the black market, connections, dabbling in the quasi-clandestine private enterprise before glasnost, and a willingness to take short-cuts: "We all have done things that we would not like to tell our children", she quotes one of the oligarchs. Amy Chua notes that "after his Menetap Bank collapsed in 1998, Khodorkovsky transferred its good assets to a different entity, leaving its creditors empty-handed. A court-appointed manager was unable to trace the transactions, as a truck carrying most of Menatep Bank's records mysteriously drove off a bridge into the Dybna River".

Since the publication of 'World on Fire', Khodorkovsky has been jailed for nine years for tax evasion and fraud (June 2005). As the Private Eye acidly noted, 'Khodorkovsky stole Yukos from the state, now the state is stealing it back. It may not be capitalism - but for Russians it might just be justice". State prosecutors filing the case of tax evasion brought attention to other murky dealings - some Yukon executives even had "blood" on their hands. Mystery surrounds the death of the British lawyer Stephen Curtis, who was Khodorkovsky's 'keeper of secrets', in a helicopter crash in April 2004. A Moscow court has issued an arrest warrant for Leonid Nevzlin, a key shareholder in Yukos, who has fled to Israel.

Amy Chua concludes her account on the Russian oligarch's by stating that "the chaotic, post-perestroika transition to markets has generated starkly concentrated and visible Jewish wealth, bringing to the surface tremendous ethnic resentment and hostility among the 'indigenous' Russian majority".

The author is to be commended for her intellectual honesty and for pursuing interesting connections between global capitalism/economic liberalisation and the aggrandisement of power by an ethnic minority, but the causal links remain weak. In the case of Russia it may have something to do with earlier role models - a generation before Khodorkovsky there was the notorious Armand Hammer, a tycoon and con-man who linked together Russian family ties, oil (for Yukos read Occidental Petroleum), murky deals and Israel. Or in South East Asia, the economic power of the Chinese was in no small part because of a deeply ingrained work ethic: Dr. Mahathir bin Mohamad, in his famous tract 'The Malay Dilemma' observed that "[W]hatever the Malays could do, the Chinese could do better … before long the industrious and determined immigrants had displaced Malays in petty trading and all branches of skilled work." Amy Chua cites the massacre of the Tutsis at the hands of the Hutus in Rwanda as an example of a backlash against a market-dominant minority. However can the analysis be complete without delving into the French role in the tragedy?

Her more interesting insight is that where there is a market-dominant minority, it will work to sabotage democracy. This identifies a tension between US's espousal of free markets on the one hand, and its rhetoric for the introduction of democracy in authoritarian countries on the other. The very sections of society that are benefiting from US-encouraged global capitalism will resist democratisation. Taking the case of Latin America, Amy Chua notes, "what these [European-blooded] elites decidedly don't want from democracy is to have property rights and economic policies suddenly determined by their country's poorly educated, impoverished Indian-blooded majorities… nor is it clear that democratization of the Arab states would be in Israel's best interests. In Egypt for example, rapid democratization might well bring to power a regime much more hostile to Israel than Hosni Mobarek's autocratic military rule". She notes that "majority rule in many countries outside the west could indeed produce anti-market, ethnically violent outcomes".

It is disappointing that given her candour elsewhere Chua does not really face up to the canker in the apple: how can a greedy capitalist culture marked by scandals such as Enron within the US itself be something fit for export? Why is a policy of protectionism and domestic subsidy practiced by the US and European countries, but denied to others? Moreover she compromises on the issue of democratisation, suggesting full-scale democracy should be moderated: "the United States should not promote unrestrained, overnight majority rule…In the West the primary restraints on the excesses of majority rule take the form of constitutional safeguards - minority protections and guarantees against arbitrary government confiscations. But as with the Western style welfare state, Western style constitutional safeguards may not be realistic or adequate outside the West". Why ever not? Isn't India's Supreme Court doing the very thing at the moment in its rulings relating to felonies by the BJP government of Gujarat? Her's is a prescription that smacks of "you're not ready for democracy, not yet". If 'democracy' was substituted by 'self-rule', then this is exactly what the colonialists used to say yesteryear. Readers interested in a more substantive criticism of global capitalism and the US's new world order would find much useful information in an amazing magazine published in Penang, Malaysia by the Third World Network, the monthly 'Third World Resurgence'.

M. A. Sherif
June 2005

Further Reading:
Third World Resurgence, published monthly by Third World Network, 121-S Jalan Utama, 10450 Penang, Malaysia. Email twnet@po.jaring.my