by Amy Chua
The Chinese-Friendly Dictatorships
of General Suharto and Ferdinand Marcos
Take, for example, General Suharto’s Chinese-friendly autocracy in Indonesia. Suharto seized power militarily in 1965, bringing to an end the “Guided Democracy” of his predecessor Sukarno, whose economic policies—including the nationalization and “indigenization” of major industries—had produced economic stagnation and widespread bankruptcies. Although in disgrace today, Suharto was for years the darling of the World Bank, the IMF, and Western investors. From early on, Suharto—a barely educated career soldier—placed his trust in foreign and foreign-trained economists, mainly from Harvard or the University of California at Berkeley. Starting in the seventies and accelerating through the eighties and nineties, Suharto embraced economic liberalization and other pro-market policies to encourage foreign investment and rapid economic growth. (Mobil Oil’s massive liquefied natural gas plant in Aceh, for example, was built in the seventies.) Almost by definition, this meant that Suharto needed the help of his country’s Chinese business community, who were the only ones in the country with the capital and entrepreneurial skills needed to jump-start the economy.
Suharto and the Indonesian Chinese had a nice thing going while it lasted. Just 3 percent of the population, the Chinese—like the Lebanese in Sierra Leone—were a classic vulnerable minority, the recurrent targets of popular anti-Chinese violence. In good autocratic fashion, Suharto protected the Chinese politically. He suppressed anti-Chinese labor movements, like the one in North Sumatra in 1994 that turned into a bloody riot against Chinese Indonesians. He extinguished all forms of anti-Chinese dissent and press, even jailing a prominent Jakarta journalist who published an anti-Chinese article. And he quashed, usually through armed force, political opposition of all types, including Islamic militants, Communists, and anti-Chinese political organizations. At the same time, Suharto granted the entrepreneurial Chinese the “freedom to make money,” affirmatively directing lucrative business opportunities to a select few of them.8
In exchange, the Indonesian Chinese, with their business expertise and international connections, returned these favors, both by serving as “miracle workers” for the country’s economic growth and by multiplying exponentially the personal fortune of the Suharto family. In the late 1990s the Suharto family was worth $16 billion according to Forbes, and twice that much according to an estimate attributed to the CIA. Despite their massive business holdings, Suharto and his children had poor entrepreneurial skills, and their lavish lifestyles were heavily dependent on Chinese billionaire cronies like Bob Hasan and Liem Sioe Liong. Through much of the eighties and nineties, no one outside of his family—not even high-ranking cabinet ministers—was closer to Suharto than these two men, who spent hours every week, golfing with the president, planning their joint investments. Most of these investments were channeled through so-called yayasans: supposedly charitable organizations that, because of their “non-profit” nature, were conveniently exempted from both taxes and auditing.9
Throughout his autocratic rule, Suharto called on his Chinese cronies to finance his pet projects, public as well as personal. Thus, at the president’s request, Indonesian Chinese businessmen reportedly covered over $400 million in foreign exchange losses of the Bank Duta, which was indirectly owned by Suharto. As another favor to Suharto, they bailed out Indonesia’s petrochemical industry after it collapsed. Suharto’s Chinese cronies also financed a glowing biography of the president, bankrolled the Taman Mini theme park monorail on behalf of Suharto’s wife, and accepted Suharto’s children as “business partners.”10
Using capital initially accumulated through Chinese cronies, Suharto’s family grew increasingly rapacious through the 1990s. While the vast majority of Indonesians remained in chronic poverty, and with 14 million at one point unemployed, Suharto’s children swept up business interests in television, radio, newspapers, airlines, banks, power plants, satellite communications, and toll roads. They brazenly set up monopolies while liberalizing the economy in ways that devastated the nation’s poorest. Their shady web of businesses extended to dozens of countries, including Uzbekistan, Sudan, and Guinea-Bissau. Many of the Suharto family’s projects—like the one conceived by Tommy Suharto, the general’s wealthiest, flashiest son, to manufacture an Indonesia national car called Timor—were vanity-driven, colossal economic failures.11
As in Sierra Leone, this state of affairs led to tremendous, long-suppressed hostility among Indonesia’s impoverished, largely Muslim pribumi majority. Suharto was aware of this hostility. Toward the end of his rule he began to distance himself from the Chinese, publicly castigating them for their “greed” and warning them of the dangers of ethnic unrest. At the same time, Suharto, in something of an about-face, began wooing influential Muslim intellectuals and religious leaders in an attempt to bolster popular support for himself. But he was too late. The intense fusion of anti-Suharto and anti-Chinese hatred exploded in the Indonesian riots of 1998, in which ordinary middle-class Indonesians participated in the mass looting and destruction of Chinese property. “It was like Christmas,” one woman said, after hearing her neighbors trade stories about the various appliances they had carried out from burning Chinese stores.12 Less festive were the hundreds of charred corpses lying in the rubble that had been commercial Jakarta.
Along with the Suharto regime, the most notorious case of crony capitalism in recent history is that of Ferdinand and Imelda Marcos in the Philippines. “He was head of government; she was head of state. It was a conjugal dictatorship,” Raymond Bonner once put it.13 In this instance, however, the backlash against democracy was even starker.
In the initial years following independence in 1946, the Philippines had relatively robust democratic elections, at least by developing-world standards. (Because of the country’s extreme income disparities, vote-buying has always been common in the Philippines.) The Philippines also had relatively liberal free market policies. As a result, by the 1950s the market dominance of the Chinese was glaring: Every nook and cranny of the retail industry was owned and controlled by ethnic Chinese, many of whom had just arrived from mainland China.
Predictably, democracy in the face of pervasive Filipino poverty and disproportionate Chinese prosperity led to powerful anti-market, anti-Chinese movements, of precisely the kind described in chapter 5. In 1953, Ramon Magsaysay swept to landslide victory in the country’s first presidential elections, championing “Filipinization” and promising to “wrest” the country’s retail sector from Chinese hands. During this period, anti-Chinese sentiment was a constant theme of Filipino politics, and the entire Chinese-dominated food-grain industry was nationalized in the name of the “true” Filipino people. Moreover, exclusionary laws made it difficult and extremely costly for ethnic Chinese to acquire Filipino citizenship. As a result, because of their “foreigner” status, most Chinese were prohibited from participating in the professions and subjected to onerous economic restrictions.14
Ferdinand Marcos radically changed all this. Reliable sources report that Marcos was the illegitimate son of a Chinese lawyer, who mysteriously funded his education and political career. Among other puzzles, this would explain why Marcos throughout his life insisted that he was the direct descendant of the famous Chinese pirate Li Ma-hong.15 In any event, Marcos during his presidency shifted the Philippines from majority-supported, anti-Chinese policies to pro-Chinese but autocratic policies.
Democratically elected in 1965, Marcos placed the entire Philippines under martial law in 1972 on the pretext of protecting the Philippines from the threat of a Communist takeover—a threat now widely acknowledged to have been a Marcos fabrication. A series of terrorist attacks, including the bombing of department stores, private companies, waterworks, even government buildings, all turned out to have been masterminded by Marcos himself, part of an elaborate plan to justify his imposition of one-man rule.16 After declaring martial law, Marcos liberalized the economy and kicked into high-gea
r autocratic crony capitalism.
Using funds from the World Bank, IMF, and U.S. government, Marcos suppressed all political opposition, shutting down the Manila Chronicle and other major newspapers, jailing rival politicians like Eugenio Lopez and Benigno “Ninoy” Aquino, and terminating the Philippines Congress altogether. At the same time, Marcos granted a tiny handful of cronies—some Filipino, some Chinese—massive coconut, sugar, and tobacco monopolies, attacking in the process the wealth and power of the country’s agrarian elite who had for generations dominated Philippine politics. Those who suffered most from Marcos’s crony capitalism were the 95 percent impoverished ethnic Filipino majority. The dozen or so people who became the most obscenely wealthy—Ferdinand and Imelda themselves, Marcos’s resilient defense minister Juan Ponce Enrile, Marcos’s fraternity brother Roberto Benedicto, Danding Cojuangco, and Imelda’s brothers and sisters—“weren’t entrepreneurs,” writes Bonner. “They were money leeches.”17 The exception is surely Cojuangco, descendant of a nineteenth-century Chinese immigrant and a remarkably talented, if pathologically corrupt, businessman, who is still one of the Philippines’ richest men.
As for the country’s predominantly ethnic Chinese business community, this group flourished under the Marcos dictatorship. One of Marcos’s first acts as autocrat was to enact a new constitution in 1973 facilitating access to Philippine citizenship for all Filipino Chinese who wanted it. This change in the law opened up a host of economic opportunities for the Chinese, many of whom shot to second- and third-tier tycoon status. There was of course a price: The Marcoses had to be paid off, constantly and handsomely. Imelda Marcos made herself a “silent partner” in every major corporation, almost all of which were owned by Filipino Chinese. At first she demanded a 10 percent equity interest in all businesses. Later she made it 25 percent. In addition, the Commissions of Customs would pay an annual visit to businessmen, typically Chinese, collecting $500,000 “birthday presents” for Imelda. If someone declined, his visa would suddenly be invalidated.18
Still, once the Chinese realized that the Marcoses wished only to redistribute wealth to themselves and not to the poor, the Chinese rejoiced and stock prices began steadily to climb. Despite the Marcos’s gouging, the market was basically intact, and the market-dominant Chinese were freer than they ever had been—a 10 percent levy is far better than outright confiscation—to make their fortunes.
Indeed, many Filipino Chinese who knew Marcos remain surprisingly loyal to him. He was an intelligent, in many ways simple, even ascetic man, they say, who ate a plain bowl of Chinese porridge every morning. Marcos was corrupted and ultimately destroyed, they insist, by Imelda, who by all accounts was stupid, ruthless, insatiably greedy, and driven by a terrible inferiority complex. (Among a long list of Imelda’s failures, she once dated the now-martyred Ninoy Aquino, but he dumped her for the shorter, far wealthier Cory.) “I cannot stand this woman,” Henry Kissinger once said of Imelda, despite her desperate attempts to court him.
Stupid or not, through her parasitic relationship with the entrepreneurial Chinese, not to mention extortion, bribery, and direct raiding of the public treasury, Imelda was declared “one of the ten richest women in the world” by Cosmopolitan magazine in 1975, her photograph appearing along with those of Queen Elizabeth of England and Christina Onassis Andreadis. On a one-day shopping spree in New York City, Imelda spent $2 million on jewelry. According to Bonner, “A platinum and emerald bracelet with diamonds from Bulgari alone cost $1,150,000. She also paid $330,000 for a necklace with a ruby, emeralds, and diamonds; $300,000 for a ring with heart-shaped emeralds, and diamonds; $78,000 for eighteen-carat gold ear clips with diamonds; $300,000 for a pendant with canary diamonds, rubies, and emeralds on a gold chain.”19
Imelda did not only have a large shoe-and-jewelry collection. She was also a minor art collector. Although her taste was not widely respected, she spent some $40 million on works (largely fakes, as it would turn out) from around the world. In addition, she had a small collection of private aircraft: She liked to travel with an entourage of four jets, sometimes one just for her luggage. She also collected real estate. In September 1981, Imelda bought the Crown Building on Fifth Avenue in New York for $51 million. Five months later she bought the Herald Center for $60 million.20
During this period the Filipino Chinese as a group grew wealthier too, although they remained at Imelda and Ferdinand’s mercy right up to the very end. On the eve of the “People Power” revolution in 1986 that finally toppled his dictatorship, and shortly before he fled the Philippines, Marcos demanded that a Chinese businessman fork over, in cash, 60 percent of the company’s equity. Not long before, then–vice president George Bush visited the Philippines and told Marcos: “We love your commitment to democratic principles.”21
Crony Capitalism in Kenya
Backlashes against democracy, friendly to a market-dominant minority, can also be found in East Africa. Many Kenyans, for example, would argue that their country is being milked by such an alliance today. Kenya’s tiny Indian minority has always been keenly aware of its political vulnerability. In the years leading up to independence, a number of influential Indians overtly sided with the colonial authorities, opposing black majority rule. Once black African leadership became a certainty, however, Kenyan Indians changed strategies. In the country’s first democratic elections in 1963, Indian business interests were the largest domestic campaign contributors to Jomo Kenyatta, who became the country’s first president.
In 1967, then–vice president (now president) Daniel Arap Moi warned Africans at a political rally to “beware of bad Asians.” He advised African businessmen to protect themselves from their “unscrupulous” Asian counterparts, who either had to reform or “otherwise they can pack up their bags and go.” But once president, Moi found that he too needed Indian capital and entrepreneurialism—especially if he were to go after Kikuyu big business in the interests of his own Kalenjin constituency. Starting around 1978, in a complete (but predictable) about-turn, Moi entered into a symbiotic alliance with a handful of wealthy Indian businessmen. Moi protected the Indian minority politically, granting them relative economic freedom while affirmatively directing lucrative opportunities to a select few of them. In exchange, his Indian “business partners” generated vast amounts of wealth, compensating Moi and his cronies royally and allowing Moi to pursue his pro-Kalenjin agenda.22
Today, Moi and his cohorts jointly own extensive businesses with major Kenyan Indian families. At the same time, Kenya has retreated a long way from democracy, with Moi, like so many other African leaders, suppressing the media and political opposition, engaging in outright theft, and perpetuating himself as the country’s indefinite one-man ruler. Unfortunately for Kenya’s tiny Indian community—the majority of whom are middle- and upper-middle-class entrepreneurs who have received no favors from Moi other than economic freedom—the willingness of a handful of Indian tycoons to act as front men for Moi has generated tremendous, barely suppressed anti-Indian hostility. This hostility periodically explodes in the form of vicious ethnic riots, such as the one in 1982 in which mass anti-Indian looting and violence swept through not just Nairobi but other major urban centers. Today, because of Moi’s flagrant cronyism, anti-Indian hatred is as or more virulent than it was in 1982.
Beyond Crony Capitalism:
Political Rule by Market-Dominant Minorities
Crony capitalism typically involves a corrupt arrangement between an indigenous autocrat and a market-dominant minority. But there are more extreme versions of the antidemocratic backlash. In some cases, a market-dominant minority itself seizes power.
A classic case is apartheid South Africa, where for generations a small white minority, backed by a police state, ruled the country and enriched itself on the backs of a disenfranchised, exploited black majority. Similar dynamics obtained in Namibia and Rhodesia (now Zimbabwe). Other examples are Rwanda and Burundi under Tutsi military rule. In all these cases an ethnic minority used
military force and often truculent state repression to ensure its own economic and political dominance over subordinate majorities.
A variation on this theme existed throughout Latin America during the colonial period, and a muted version of it arguably still exists in parts of the region today. In Latin America, as in the countries of southern Africa, colonizing Europeans and their descendants seized the best land, often either killing the indigenous majorities around them or turning them into servile laborers. The oppression of the Amerindians was justified by, indeed seemed perfectly natural in light of, a deep belief in white superiority, particularly fashionable in Europe in the nineteenth century. Notwithstanding frequent revolutionary upheavals, enormous ethnic intermixing, and the rise of a pro-mestizo ideology, economic and political power in the region have remained largely concentrated in the hands of a small, “white,” and to a certain extent hereditary elite.
In Bolivia, for example—where in the 1950s the revolutionary president Victor Paz Estenssoro extended universal suffrage and free education to Amerindians and conducted genuine, significant land reform—political power was never truly transferred to the country’s impoverished, largely illiterate indigenous majority. (Estenssoro himself was from a wealthy landowning family and had a privileged education studying law and economics.)23 The same is true of Ecuador, Guatemala, and Peru, where indigenous peoples represent a majority or near-majority of the population. Democracy in Latin America has historically been more formal than actual; elections notwithstanding, party control and political power have nearly always remained in the hands of the European-blooded, educated, cosmopolitan elite.
Moreover, money has a way of reasserting itself, especially in chronically poor countries. With the exception of Cuba, none of the Latin American or Caribbean countries ever became socialist economies. Within a few decades after the early wave of nationalizations, all the countries of Latin America swung back to free market, pro-foreign-investment regimes. From Mexico to Venezuela, from Bolivia to Brazil, elite leaders—sometimes from the military, sometimes from the landowning class—aggressively reprivatized land, industry, mines, oil, and railroads, generating economic growth while reinforcing the power of the market-dominant “white” minority.