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Does government involvement in the economy promote ethnic peace, or does it contribute to ethnic violence? Two theories, grievances and opportunity, suggest that government involvement in the economy reduces ethnic violence. We present an alternative security-based logic that focuses on the role of economic rents in political competition. Our theory of insecurity predicts that free market economies reduce violent ethnic conflict by reducing fear and insecurity. We present statistical analyses, using data from the Minorities at Risk project and the Index of Economic Freedom, showing that government involvement in the economy increases ethnic rebellion. Our results suggest that the overall size of the public sector is less important than government interference with the market allocation mechanism. We conclude by discussing the policy implications of our findings.