In May 1998, Indonesian mobs swarmed the streets of Jakarta, looting and torching over 5,000 ethnic Chinese shops and homes. One hundred fifty Chinese women were gang-raped, and more than 2,000 people died. In the months that followed, anti-Chinese hate mongering and violence spread throughout Indonesia’s cities. The explosion of rage can be traced to an unlikely source: the unrestrained combination of democracy and free markets—the very prescription wealthy democracies have promoted for healing the ills of underdevelopment. How did things go so wrong?
A version of this article appeared in the August 2003 issue of Harvard Business Review.