Ethnically differentiated societies are often regarded as dysfunctional, with poor economic performance and a high risk of violent civil conflict. I argue that this is not well founded. I distinguish between "dominance", in which one group constitutes a majority, and "fractionalization", in which there are many small groups. In terms of overall economic performance, I show that both theoretically and empirically, fractionalization is normally unproblematic in democracies, although it can be d...