The Law and Bioeconomics of Ethnic Cooperation and Conflict in Plural Societies of Southeast Asia: a Theory of Chinese Merchant Success

Overseas Chinese dominate merchant roles in the economies of Southeast Asia. Chinese merchant success has generated envy and hatred by indigenous populations, resulting in episodes of racial violence toward the Chinese. In order to understand the economic basis of inter-ethnic conflict and violence, it is necessary to understand the economic basis of success of Chinese merchants in Southeast Asia. The paper presents an economic theory of Chinese middleman success. Central to the theory is the idea that the Confucian code of ethics which emphasize the importance of mutual aid/reciprocity among kinsmen, fellow-villagers and those speaking the same dialect, enabled the Chinese to cooperate among members of their own dialect group to form a club-like ethnically homogeneous middleman group (EHMG) for the provision of infrastructure, essential for middleman entrepreneurship. Chinese merchants embedded in the EHMG were able to economize on transaction costs, and this gave them a differential advantage to out-compete other ethnic groups to appropriate merchant roles. The EHMG functions also as a 'cultural transmission unit' transmitting Confucian ethics to future generations of Chinese middlemen, hence maintaining Chinese merchant roles over time. The paper draws on some key concepts in the New Institutional Economics literature as well as modern evolutionary biology.