We start today a four part article on the development of capitalism in Indonesia. In Part One we see how the original Dutch East Indies colony, that was later to become Indonesia, played an important role in capitalist accumulation for the nascent Dutch bourgeoisie, the first to actually carry out a bourgeois revolution in Europe.
“The materialist conception of history starts from the proposition that the production of the means to support human life and, next to production, the exchange of things produced, is the basis of all social structure; that in every society that has appeared in history, the manner in which wealth is distributed and society divided into classes or orders is dependent upon what is produced, how it is produced, and how the products are exchanged. From this point of view, the final causes of all social changes and political revolutions are to be sought, not in men's brains, not in men's better insights into eternal truth and justice, but in changes in the modes of production and exchange. They are to be sought, not in the philosophy, but in the economics of each particular epoch.” (Engels, Anti-Duhring)
Indonesian history, and the social changes within it, cannot be fully comprehended without looking into the economic changes that it has gone through in every stage. The history of Indonesia is one which is closely linked with the development of capitalism since its birth in the 16th century. Therefore to understand capitalism in Indonesia as it is now, we have to go back as far as the beginning of Dutch colonization. In general, we can divide Indonesia’s historical stages as follow: Dutch colonization (1600-1945), national independence struggle (1945-49), the Old Order (1949-1965), the New Order (1965-1998), and the 1998 Reformasi and its aftermath (1998-current).
Indonesia and Dutch Colonization
Up until the early twentieth century, there was no Indonesia in the present day sense. What we had was a group of islands between the Indian sub-continent and Australia which were loosely united by the bond of the Dutch colonialism. The word “Indonesia” was first used around 1850 by British scholars who proposed it as a geographical designation, but not as a nation-state designation. It is only in the early 1920s that the name Indonesia gained a political meaning. Prior to that, the region that encompasses Indonesia was referred to as Dutch East Indies.
Since the colonization of Indonesia by the Dutch, its fate has been linked to the world development of capitalism. It is therefore instructive to use this period as the starting point of our analysis. The 350-year rule of the Dutch over Indonesia can be divided into these economic stages:
- V.O.C [Dutch United East Indian Company] period (1600-1800)
- The period of “Confusion” and “Uncertainty”: (1800-1830)
- The Cultivation System (Cultuurstelsel) (1830-1870)
- The Liberal period (1870-1900)
- The Ethical years (1900-1930)
- The Great Depression (1930-1940)
The periodisation within this sequence frequently coincides with administrative, social, and political changes, both in Indonesia and the Netherlands, and the whole world. Hence, it is impossible to study the social, economic and political development of Indonesia separate from those of Dutch, and Europe as well. The breakout of revolutions in Europe (Dutch Revolt, English Revolution, French Revolution, and later the Russian Revolution) changed the course of history in Indonesia.
Indonesia and Dutch Revolution
The history of the colonization of Indonesia is a history of capitalist imperialist exploitation. Even more important to understand is that the colonization of Indonesia was the first one conducted by the bourgeoisie. Not recognized and neglected by most Marxists, the first bourgeois revolution took place in the Netherlands and not in Britain. The Dutch Revolt of the 16th century (1568-1609) is probably the most neglected of the “classical” bourgeois revolutions. Although Marx and Engels only made a small number of scattered remarks on the Dutch revolt, it is clear that they recognized it as one of the essential moments in the historic rise of the bourgeoisie. In 1848, Marx wrote: “The model for the revolution of 1789 (at least in Europe) was only the revolution of 1648 [English]; that for the revolution of 1648 only the revolt of the Netherlands against Spain [Dutch Revolt].”1
Again in the first volume of Capital, Marx wrote:
“The history of Dutch colonial administration – and Holland was the model capitalist nation of the seventeenth century – ‘is one of the most extraordinary relations of treachery, bribery, massacre, and meanness.’ Nothing is more characteristics than their system of stealing men, to get slaves for Java. The men stealers were trained for this purpose. The thief, the interpreter, and the seller, were the chief agents in this trade, native princes the chief sellers. The young people stolen, were thrown into the secret dungeons of Celebes, until they were ready for sending to the slave-ships. ... Wherever they set foot, devastation and depopulation followed. Banjuwangi, a province of Java, in 1750 numbered over 80,000 inhabitants, in 1811 only 18,000. Sweet commerce!”2 [Emphasis added].
Marx described that “the beginning of the conquest and looting of East Indies ... signalized the rosy dawn of the era of capitalist production. These idyllic proceedings are the chief momentum of primitive accumulation.”3
Wresting Asiatic trade from the hands of Spain and Portugal who had ruled the seas for more than a century required a huge financial undertaking. How could Holland with fewer than a million inhabitants at that time manage to find the necessary capital? The solution involved a new concept of business organization: the joint-stock company, and it is here that modern capitalism first find its earliest application.
A Dutch historian, George Masselman, wrote:
“The medieval economy had little need for capital as is exemplified by the merchant guilds, who stifled private initiative and competition. The rising Dutch took a different view: they were avid for as much trade as possible... The only thing that could hold a merchant back was lack of capital. He could, of course, associate himself with others and engage in joint venture; or he could persuade outsiders to put up the money, offering them a corresponding share of the profits.”4
This is indeed the forerunner of a modern capitalist joint-stock company. A striking example of this is the VOC (Vereenigde Oost-Indische Compagnie or United East Indian Company) which was formed in 1602 with a capital of about 6.5 million guilders.5
The VOC was established when the Dutch government granted it a monopoly to carry out colonial activities in Asia. It was the first multinational joint-stock company that issued public stock. Upon its creation, the VOC established the first stock exchange in the world, the Amsterdam Stock Exchange, for dealings in its printed stocks and bonds. It possessed quasi-governmental powers as it was able to wage war, negotiate treaties, coin money, and establish colonies.
Effectively, the East Indies for two centuries were not colonized by the Dutch Republic but by a joint-stock company, the VOC. It is indicative that during that period the indigenous population of the East Indies referred to their oppressor as the “kompeni” (taken from the VOC name, Compagnie). For the next two centuries, the VOC became the most important trading company in Europe. It established a monopoly in spice trade, mainly pepper, cinnamon, and clove. During its first 90 years, the Company paid an average cash dividend of 18.7% every year.6
The Dutch Revolt marked the historic rise of the bourgeoisie and the colonization of the East Indies by the VOC was the basis of the primitive accumulation of capital of what can be considered the first bourgeois society. The result of this is obvious. Holland was in the 17th century the most advanced country in Europe. Marx wrote in Capital: “Holland, which first fully developed the colonial system, in 1648 stood already in the acme of its commercial greatness ... The total capital of the [Dutch] Republic was probably more important than that of all the rest of Europe put together.”7
The VOC entered into a period of decline in 1692 and finally dissolved in 1798. The Dutch Republic assumed the financial debt of the company, 134 million guilders, provided that the Company relinquished all its possessions in the Indies. In this manner, the Dutch Republic acquired in 1798 a colonial empire in Asia.8
The decline of the VOC was the manifestation of the decline of the Dutch Republic in the 18th century. It was as Marx wrote: “The history of the decline of Holland as the ruling commercial nation is the history of the subordination of merchants' capital to industrial capital.”9 In the 18th century, Holland had to cede its hegemonic position to England. “By the beginning of the 18th century the Dutch manufactures were far outstripped. Holland had ceased to be the nation preponderant in commerce and industry.”10 However, its role as money trader remained important until the 19th century, where it lent a great sum of capital to England. The capital that it had accumulated through trading served as the basis of the rising manufacturing industry in England, as Marx wrote: “One of its main lines of business, therefore, from 1701-1776, is the lending out of enormous amounts of capital, especially to its great rival England. The same thing is going on today between England and the United States. A great deal of capital, which appears today in the United States without any certificate of birth, was yesterday, in England, the capitalised blood of children.”11 Hence the Dutch brief meteoric rise as a merchant capitalist country in the 17th century was the basis for the rise of industrial capitalist country, notably England.
The Years of “Confusion” and “Uncertainty” (1800-1830)
The Great French Revolution of 1789 threw the whole of Europe into great turmoil. The whole population of the Dutch Republic was infected with the spirit of the French Revolution, and in 1795 a popular revolution broke out that proclaimed the short-lived Batavian Republic (1795-1806). During this short period, the spirit of the French Revolution also infected the colonial policy with many ideas, based on free enterprise and liberalism, intending to bring the spirit of liberté, égalité, fraternité to the native population in the Dutch East Indies. However, all the talks and schemes of enlightening the native, of bringing reason to the primitive East Indies, was nothing but an “idealized kingdom of bourgeoisie”.
The Batavian Republic ended when Napoleon Bonaparte installed his cousin, Louis Bonaparte, as the King of Holland in 1806. In 1815, Napoleon fell and Netherlands regained its freedom. England, who held possession of the East Indies under Raffles in 1811, returned it to the Netherlands in 1815.
In this period of confusion and uncertainties, colonial administration gradually shifted to more and more incorporation of the local ruling elites into the Dutch administration. Whereas in the past, during the VOC rule, local ruling elites were left to rule their subjects as they liked, under the pretense of protecting the natives from the arbitrary treatment (of building a society of law and order) a more strict state machinery was implemented in the Dutch East Indies whereby local rulers were effectively paid and appointed employees of the colonial government. The village (desa) government, vergadering (a conference of local officers), the principle of “like ruling like” (incorporating a local ruling class into the government), all these were fashioned accordingly to the economic needs as the subsequent Cultivation System required a strong government.
The Cultivation System
After the Java War of 1825-1830 that ended in the surrender of the Mataram kingdom, which marked the complete conquest of Java, the Dutch introduced a system of forced cultivation. Different from the earlier transaction system of spices, the forced Cultivation System, where the colonial government organized a planned system of cash-crop production for export, led to the evolution of the plantation industry that shaped the history of Indonesia as an exporter of raw produces for the next century. From being the source of raw produce for merchant capitalism, the East Indies was to gradually become the source of raw produce for industrial capitalism.
The Cultivation System – a system where the Dutch forced Indonesian peasants to raise cash crops for export – was a system that provided the basis for the economic progress in the Netherlands. This system was a classic piece of colonial exploitation, with the main aim to increase forcibly agricultural yields (primarily on the island of Java) for the benefit of the Dutch treasury. It was an outstanding success from the point of view of Dutch capitalism, producing massive quantities of tropical export goods whose sale in Europe propped up Holland. With coffee and sugar as the main crops, the whole period of the Cultivation System made a total of 300 million guilders from 1840-59.
|Others (Indigo, chochienal, cinnamon, pepper, tea, tobbaco)||13653||5610||3299|
The Dutch capitalists were not interested at all in advancing the productive capacity of agriculture. The colonial authorities provided very little in way of capital investment, with virtually no improvement in the techniques of production and manufacture.
Peasants were forced to trudge many kilometers from their villages to the coffee cultivation site, and sometimes had to leave their villages for months at a time for coffee service, living in rough temporary shelters near the coffee plantation areas. For sugar plantation, the farmers were forced to convert their rice paddies (and irrigation channels and dykes) to sugar cane fields. The peasants were required to not only prepare the field, plant and tend the crops, but also to harvest it and transport it to the factory (carrying the produce on their shoulders because of lack of vehicles and animals, and poor road conditions), and labour at the factory.
The Cultivation System also levied huge amounts of labour from the peasants for the construction of infrastructures deemed necessary for the operation of the Cultivation System, including, but not limited to, road and bridge building for crop transportation, improvement of port facilities, the construction of offices, residences for officials and factories and warehouses for the produce, the building of dams and irrigation channels, and even defense fortification.13
The exploitation of this system was almost unprecedented in the history of Dutch occupation. One senior official asserted that under the Cultivation System peasants were required to perform as much as four or five times the amount of labour customarily demanded before 1830.14 Most peasants had to work more than 150 days a year on the crop. The crop payments that the peasants received were very meagre and they were levied heavy taxes. The Governor General at that time (1845-1851), Jan Jacob Rochussen, estimated in 1857 that about two-thirds of crop payments returned to the Government through taxes of various kind.15 Capitalism in the Netherlands and Europe literally emerged through the sweat and blood of millions of peasants in the East Indies.
The sugar industry was developed by the Dutch colonial government with the help of Dutch private “contractors” and with the agency of priyayi, village heads (lurah), and the local elites. The pace of the sugar revenue (see Table 1) is enough to point out the rapid development of this industry and how it affected the subsequent period. Sugar fabriek (factories) had become a ubiquitous feature of the rural scene. Around 100 European-owned factories produced in excess of 130,000 tons of sugar annually. The cane was grown by more than 100,000 peasant households working some 12,000 hectares of land.16
The Liberal Period (1870-1900)
The Cultivation System provided the basis for the subsequent so-called Liberal economic period. During the previous period, the government injected a massive amount of capital into building cash-crop plantations and its facilities, mainly sugar and coffee, and also to ensure the supply of cheap labour through enforced labour. The Cultivation system was very profitable. However, the government-run Cultivation system was ridden with nepotism, as government contractors, private planters, import-export houses, and Dutch civil servants came to be closely linked through family ties. This provoked the ire of Dutch capitalists (and other foreign capitalists) who were outside this Java clique, and who saw the lucrative nature of this business and wanted a piece of it. This was the true reason why the Cultivation System was stopped in 1870, not because of the moral concerns that the Dutch imperialists had over the misery that the Indonesian peasants suffered due to this exploitative system. We can see this clearly in the export values post-Cultivation System period, where it increased even at a faster rate and signified nothing but a more ruthless exploitation over the people of the Dutch East Indies.
Much of the jump in the export values and productivity was due to the improvement of technology which permitted more rapid transport and more efficient processing. Some would argue that the Liberal period was less exploitative than the Cultivation system because the peasants were treated relatively more humanely while allowing an increase in their productivity. However, Marxists are not petty moralists. We see exploitation in terms of the surplus value that the capitalist extracts from workers and peasants, not simply from the extent of daily misery they experience. Although, to be sure, the misery that the peasants and workers in the East Indies experienced under Dutch rule was despicable and revolting. Thus, in this sense, the exploitation of the people of the East Indies was even more rampant during the Liberal period as the statistics show.
|Period (annual average)||Sugar||Coffee||Tobacco||Rubber||Petroleum||Total**|
* Export data from islands of Java and Madura. Colonial government records for the entire Dutch East Indies territory only started in 1874. Before that date, information only exists for Java and Madura.
** Total export value includes other products such as spices, rice, tea, indigo, copper, tin, etc.
With the abolition of the Cultivation System – marked by the passing of the Sugar Act of 1870 – the main actor in the development of the plantation industry shifted more to private enterprises and external capital. Private and venture capitalists made their way into the Dutch East Indies’ plantation industry. By 1925, there were 121 sugar manufacturing enterprises (suikerondernemingen) operating in the Dutch East Indies, and the total number of sugar mills (suikerfabrieken) owned or managed by these enterprises was 195.18
In 1896, the alliance within the sugar industry was strengthened with the creation of the General Syndicate of Sugar Mill Owners in Netherlands India (Algemeene Syndicaat van Suikerfabricanten in Nederlandsch Indie) that included almost all sugar manufacturing enterprises in the colony. Thus, within the sugar plantation industry in the Dutch East Indies we are seeing here the evolution of capitalism from free competition to cartel capitalism. Let’s see what Lenin wrote about this process in his masterpiece Imperialism: The Highest Stage of Capitalism:
“The principal stages in the history of monopolies are the following: (1) 1860-70, the highest stage, the apex of development of free competition; monopoly is in the barely discernible, embryonic stage. (2) After the crisis of 1873, a lengthy period of development of cartels; but they are still the exception. They are not yet durable. They are still a transitory phenomenon. (3) The boom at the end of the nineteenth century and the crisis of 1900-03. Cartels become one of the foundations of the whole of economic life. Capitalism has been transformed into imperialism.”19
Most of the enterprises operating in the East Indies were organized as joint-stock companies, where the majority were affiliated with a unique financial institution called the cultuurbanken, finance capital set up to provide capital investment in the plantation industry in the Dutch East Indies. The predominance of financial capital is the general characteristic of capitalism at this particular stage, where “the ownership of capital is separated from the application of capital to production, that money capital is separated from industrial or productive capital, and that the rentier who lives entirely on income obtained from money capital, is separated from the entrepreneur and from all who are directly concerned in the management of capital. Imperialism, or the domination of finance capital, is that highest stage of capitalism in which this separation reaches vast proportions.”21
At the same time, we also see the oil and rubber industries making an inroad into islands outside Java in the early 1870s. The expansion of Dutch control over the Outer islands coinciding with the interest of the private plantations of tobacco, rubber, tea, coffee, and coconut in parts of Borneo, Sulawesi, and South Sumatra; but the major site for plantation activity outside Java was the East Coast of Sumatra, which changed from an almost endless jungle in the 1860s to one of the world’s premiere estate sites in the 1920s.
Up to the 1870s, 80 to 90% of the total export value from the Dutch East Indies went to the Netherlands.22 This is the result of the Cultivation System where the Dutch government sought to expand Javanese export production and reoriented it exclusively towards the Netherlands. Production and export in the colony was under strict government control. With the end of the Cultivation system where the main actors in developing plantation industry shifted more and more to the private enterprises, and also with the tariff liberalization, the export share to the Netherlands dropped markedly while intra-Asian exports rose. By the beginning of the 20th century, the export share to the Netherlands dropped to 30% while in the same period the export share to Asia (mainly to Singapore, followed by China/Hong Kong, India, and Japan.) increased from 13% in the early 1870s to 47% by 1908.23 As an entry-port for free trade, Singapore trans-shipped most of the Dutch East Indies exports landing on its dock to final destinations elsewhere, mainly to the USA.
The rapid development of the plantation industry moved in tandem with the advancement of the colonial dominion over the Southeast Asian region by the British (in Malaya and Burma), France (Indochina: Vietnam, Laos, Cambodia), US (Philippines), and Dutch (Indonesia). Improvement in transportation and communication between Southeast Asia and Europe also contributed to this development, particularly the opening of the Suez Canal in 1869 and the laying of submarine cables for telegraphic telecommunication between Europe and Asia in the 1860s and 1870s.
Southeast Asia’s modern colonial economy achieved unprecedented growth between the 1870s through to the 1920s, coinciding with the period of capitalist boom. After complete colonial rule had been secured in the region, the European powers (Britain, France, the Netherlands, US) consolidated the two pillars of the economy, namely, plantation industry in the so-called Insular Southeast Asia (Indonesia, Malaysia, and Philippines), and rice producing regions in Mainland Southeast Asia (the Mekong in French Indochina, the Chao Phraya in Thailand, and the Ayeyardwady in British Burma) that provided rice staple to Insular Southeast Asia where rice was insufficient due to the encroaching plantation and increasing population. Suffice to say, this development was achieved under an international trade and financial system that revolved around Britain at that time.
The Ethical Period (1900-1930) and The Rise of Indonesian Nationalism
At the dawn of the 20th century, the moralists of the Dutch bourgeoisie had their conscience so disturbed with the pauperization of the native population due to Dutch colonial exploitation that they argued for an increasing of moral and material welfare of the Natives. However, the ethical policy was only an expression of an economic need, not because of the benevolent nature of the Dutch bourgeoisie.
The need to increasingly drain the natural resources of Indonesia for the rapacious appetite of booming capitalism in Europe and the US forced the oppressor to create the elementary basis for it. It could no longer rely solely on expatriates to run the colony with its ever expanding plantation industry, economy, and governance. More schools for the natives were built to train them to become railway workers, doctors, clerks, teachers, local administrators, etc. We are seeing in this the embryo of Indonesia intelligentsia and proletariat being created.
More on a world scale, this period is marked by World War One and the Great Depression. The defining feature of this period is the contraction of both import from and exports to the Netherlands and Britain, and the expansion of exports and imports with the US and Japan. This signified the decaying of British and Dutch capitalism and the emerging of the US and Japan as major powers.
As we see in Table 2 above, the export of rubber and petroleum surged during this period and reached their peaks in the mid 1920s, matching the rapacious demand for the booming automobile industry in the US. Sugar production also reached its golden age in the 1920s where Java was the third largest producer of sugar cane after Cuba and India24. However, behind the boom of rubber and sugar production loomed problems of overproduction which eventually induced a plunge in the world rubber and sugar prices. After the Great Depression, sugar ceased to be the key export commodity in Indonesia and was overtaken by rubber and petroleum. Rubber remained Indonesia’s key export commodity until the first half of the 1960s. Oil exports were the second export commodity after rubber but its share of total exports remained less than 20 percent, and it would not become prominent as an export commodity until the late 1960s. The shift from sugar to rubber as the country’s key export commodity also signified a shift in the centre for foreign exchange earnings from Java to the Outer Islands, mainly Sumatra, followed by Kalimantan.
Another defining feature of this period was the expansion of exports to the United States after the First World War, not only from the Dutch East Indies, but also from the plantation regions of the whole of Insular South East Asia (Philippines, Dutch East Indies, and Malaya). From the end of the First World War to the 1920s, the US share of total exports by value increased tremendously: in the Philippines it rose from 37% in 1913 to 75% in 1927, in Dutch East Indies from 2% in 1913 to 13% in 1920, and in Malaya from 14% in 1913 to 44% in 1927.25 During the same period, the region also increased imports from the US. This signifies a period of imperialist restructuring, where the US emerged as a new capitalist superpower and the old British Empire was declining.
The beginning of 20th century saw the rise of nationalism in most of the colonized world. On the one hand, the imperialist powers created a common market and carved out ‘artificial’ borders in the colonial world that never had such before, thus forcibly created the framework of nation states; on the other hand, a national identity was created amongst the colonized people through common struggle against the oppressors. The East Indies, with its 16,000 islands, 300 distinct ethnicities, and 740 languages and dialects – a heaven for anthropologist – was united by a common history of Dutch colonization. The first layer that articulated Indonesian nationalism was that of the young intellectuals who studied abroad and brought home with them the spirit of the French Revolution, of liberté, égalité, fraternité, of bourgeois-democratic revolution. The defeat of the Tsarist Russian armies by Japan also helped to dissolve the idea of an invincible Europe. Russia was considered to be a European power beaten by an Asian upcoming nation. Another idea that shook the world during that period was the Russian Revolution. In the middle of the Sturm und Drang of the Great War, a country that covers 1/6 of the earth carried out the first Proletariat Revolution and infected the whole world, including the colonized world, with its zeal and spirit. The Indonesian Communist Party (PKI) in the 1920s was the main force of nationalist struggle as it stood head and shoulders, politically and organizationally, above other nationalist elements. It brought together the struggle for national independence and socialism, until its demise in the 1926-27 uprising. By the time it re-emerged again, it had become a tool of the Stalinist bureaucracy and had separated the struggle for national independence and socialism with its two-stage theory.
[To be continued...]
12 R.E. Elson, “Peasant Poverty and Prosperity Under the Cultivation System in Java,” Indonesian Economic History in the Dutch Colonial Era, ed. Anne Booth, et al. (New Haven: Yale University Southeast Asia Studies, 1990) 26.
16 G.R. Knight “The Peasantry and the Cultivation of Sugar Cane in Nineteenth-century Java: A Study from Pekalongan Residency, 1830-1870,” Indonesian Economic History in the Dutch Colonial Era (New Haven: Yale University Southeast Asia Studies, 1990) 49.