The Emergence of a National Economy:
An Economic History of Indonesia, 1800-2000

Howard Dick, Vincent J.H. Houben, J. Thomas Lindblad + Thee Kian Wie

University of Hawaii Press 2002
A book review by Danny Yee © 2002
An excellent synthetic overview of modern Indonesian economic history, The Emergence of a National Economy will appeal not just to narrow specialists, but to anyone curious about the economic background to Indonesian politics and history — and perhaps to outsiders with an interest in comparative economic history. Each of the seven chapters has a single author, but the result is definitely a unified book, not a collection of papers: the themes that run through it are those of globalisation, state-formation, and economic integration.

Dick's opening chapter is an overview of the integration of the Indonesian archipelago into a national economy. He sketches an economic geography of the archipelago, then describes its core and periphery, and the changing patterns of foreign and interisland trade.

"Economic integration is more complex than political integration. ... [T]he emergence of an integrated national economy was a slow evolutionary process, not directly affected by the transfer of sovereignty, ... the structure of a national economy came into being only during the New Order."

There is little data on the pre-modern economies of the Indonesian archipelago, but Houben considers the evidence (much of it debated) for economic specialisation, commercial networks, monetisation, urbanisation, and economic regulation. There was a dense market network from the 13th through 17th centuries, connecting "open economies, which experienced a high degree of commercialisation during periods of growth", and "the core of insular Southeast Asia was heavily influenced by ... [an] early wave of globalisation". There are debates about a decline from the mid-17th century, but Houben suggests that "Indonesia around 1800 may ... be seen as a set of local economies that were, at least in part, quite vigorous and for the time quite modern".

Two chapters cover the 19th century, treating Java and the Outer Islands separately. In Java, modern state formation began around 1810, with Napoleonic reform in Holland and the British interregnum. Against a backdrop of rapid population growth, economic policies included land taxation, forced production of crops in the state-run Cultivation System, and a move to private enterprise hiring free labour. Growth in the Western sector was helped by external investment and technology transfer; it relied heavily on intermediaries, in particular the Javanese elite and Chinese. There was also growth in the indigenous sector, especially in the non-agricultural sector, with improved transport and increased monetisation. If "take-off" was not realised for another 75 years, nevertheless "Java's 19th-century transformation laid much of the foundations for the future Indonesian nation and national economy".

At the beginning of the 19th century the Outer Islands were integrated into a broader Malay economic region, and those links persisted, with Singapore rather than Batavia as the major entrepot for most of the century. But the extension of colonial control over the Outer Islands proceeded steadily, if slowly, and economic links to Java increased. There was also expansion in exports, which reached beyond Southeast Asia towards global trade networks.

"New directions for the future were charted: away from the Malay sphere, towards the Java sphere, and also towards the sphere of the world economy."

Three chapters cover the 20th century. The first three decades saw the expansion of the colonial state, both in its extension of control over the whole archipelago and in the size of its bureaucracy. The Dutch Ethical Policy had limited success in improving living standards, but laissez-faire economic policy brought export-led expansion, globalisation, and a relative decline in trade with the Netherlands. There was increasing economic integration, but regional and sectoral differences remained profound: Java saw intensification of rice production, but also diversification; in the Outer Islands smallholders took to cash crops such as rubber; and the Western segment focused on "export production, mining and services". There was also increasing segmentation along racial and ethnic lines.

The middle of the century brought the Depression and competition from Japanese imports; it also saw protection and import substitution, increasing industrialisation, and a shift from East Java and Surabaya to West Java and Jakarta.

"Had the Japanese invasion not eliminated Dutch political and economic power, it is plausible that in the 1940s the Netherlands Indies could have begun the kind of sustained industrial expansion that eventually occurred in the 1970s. In that event Indonesia — and Java in particular — would have led Southeast Asia's industrialisation."
Dick sees the period after the Japanese occupation and the independence struggle falling naturally into two phases. An era of rehabilitation and party politics from 1950 to 1959 was followed by stagnation and macroeconomic chaos from 1959 to 1966, with economics subordinated to political concerns (for example in a complex system of exchange controls).

There were crises at the beginning and end, but the Suharto era was dominated by a long period of economic growth. Thee Kian Wie divides it into three periods: 1966 to 1973, with stabilisation and liberalisation; 1973 to 1982, with the oil boom and government intervention; and 1983 to 1996, with deregulation, renewed liberalisation, and export-led growth. He also looks at particular sectors and issues: at agriculture and industry, at social welfare, inequality and environmental issues, and at the course, origins and impact of the 1997 crisis.

August 2002

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%T The Emergence of a National Economy
%S An Economic History of Indonesia, 1800-2000
%A Dick, Howard
%A Houben, Vincent J.H.
%A Lindblad, J. Thomas
%A Thee Kian Wie
%I University of Hawaii Press
%D 2002
%O hardcover, bibliography, index
%G ISBN 1865086657
%P xvii,286pp