The Paradox of Free Market Democracy

Indonesia and the Problems Facing Neoliberal Reform

June 07, 2000


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Emerging Markets

This paper will situate the recent problems in Indonesia in a more general framework that I will call the paradox of free-market democracy. The basic thesis I will advance is as follows. In Indonesia, as in many developing countries, class and ethnicity overlap in a distinctive and potentially explosive way: namely, in the form of a starkly economically dominant ethnic minority -- here, the Sino-Indonesians. In such circumstances, contrary to conventional wisdom, markets and democracy may not be mutually reinforcing. On the contrary, the combined pursuit of marketization and democratization in Indonesia may catalyze ethnic tensions in highly determinate and predictable ways, with potentially very serious consequences, including the subversion of markets and democracy themselves. The principal challenge for neoliberal reform inIndonesia will be to find institutions capable of grappling with the problems of rapid democratization in the face of pervasive poverty, ethnic division, and an historically resented, market-dominant "outsider" minority.