Jurnal Ekonomi dan Bisnis Indonesia
Vol. 21, No. 4, 2006, 323 - 343
FROM DUTCH MERCANTILISM TO LIBERALISM:
INDONESIAN HISTORICAL PERSPECTIVE
Tri Widodo
Universitas Gadjah Mada
ABSTRAKSI
Paper ini membahas sejarah ekonomi Indonesia yang dapat dibagi menjadi beberapa
periode yaitu pre-kolonialisasi, intrusi Eropa, pendudukan Jepang dan masa
kemerdekaan. Negara Eropa yang paling mewarnai sejarah Indonesia adalah Belanda.
Paper ini menganalisis evolusi pendekatan ekonomi dan politis yang dilakukan Belanda
pada masa kolonialisasi di Indonesia kaitannya dengan sejarah pemikiran ekonomi di
Belanda. Paper ini memiliki beberapa kesimpulan. Pertama, hubungan internasional
Indonesia telah dilakukan jauh sebelum intrusi Eropa yang ditandai dengan perdagangan
internasional. Kerajaan-kerajaan Hindu, Budha dan Islam memainkan peranan penting
dalam perdagangan internasional pada masa sebelum intrusi Eropa. Kedua, era intrusi
Eropa khususnya Belanda dan masa kemerdekaan mewarnai sejarah perekonomian
Indonesia. Perspektif sejarah menunjukkan fakta bahwa terdapat hubungan kuat antara
politik dan kinerja perekonomian Indonesia. Hal tersebut ditunjukkan oleh pertumbuhan
GDP, volume perdagangan, harga ekspor dan pengeluaran pemerintah pada masa sistem
Tanam Paksa, Liberal, Politik Etis, Orde Lama dan Orde Baru. Ketiga, terdapat
hubungan erat antara perkembangan sejarah pemikiran ekonomi di Belanda dan
kebijakan-kebijakan masa kolonialisasi. Dalam kasus Indonesia, hal tersebut direfleksikan
dengan pembentukan Dutch East India Company- Vereenigde Oost-Indische Companie,
VOC- oleh Belanda (Indices Company oleh British Mercantilism), Sistem Tanam Paksa,
Politik Etis dan Liberal. Keempat dari perpektif sejarah ekonomi, Indonesia beberapa kali
kehilangan kesempatan (missed opportunity) untuk memiliki kinerja ekonomi yang baik
dikarenakan kondisi institusi dan politik.
Kata Kunci: Colonialism, Dutch Mercantilism, Cultivation System, Missed Opportunity.
The first enthusiasts judged a colonial adventure as they would have judged an
extremely favorable branch of foreign trade. A colony was to yield raw materials and
dispose of English manufactures, order, as the younger Hakluyt said, that ‘what in the
number of things to go out wrought, and to come in unwrought, there need not one poor
creature to steal, to starve, or to beg as they do.
-Richard
Pares
Jurnal Ekonomi & Bisnis Indonesia Oktober
324
INTRODUCTION
Indonesia
1
is one of countries stated in a
famous publication of the World Bank which
is titled ‘The East Asian Miracle: Economic
Growth and Public Policy’ in 1993. In the
publication, the countries consist of Hong
Kong, Indonesia, Japan, Korea, Malaysia,
Singapore, Taiwan and Thailand. The defining
characteristics of the ‘miracle’ were high
economic growth and reduced income
inequality. Although, Indonesia performed the
‘miracle’ during the 1980s and 1990s,
Indonesia had significant troubles after the
financial crisis in 1997. Rao (2001) writes a
book, which has longer time dimension than
the previous World Bank’s publication. It is
titled ‘East Asian Economies: the miracle, a
crisis and the future’. The ‘miracle’, crisis and
the post-crisis eras were only parts of the
economic history of Indonesia. It is important
to put a country in the long term historical
perspective.
Indonesia was a former colony of the some
European countries; therefore the economic
history of Indonesia might be closely related
with the history of economic thought in
Europe. The European country that had given
significant contributions in the economic
history of Indonesia was the Netherlands. This
country had ever occupied Indonesia for
around 350-years. The evolution of economic
thought, especially (Dutch) Mercantilism
2
, in
1
’The archipelago’ is sometime stated in this paper -
instead of Indonesia- to reflect the situation before the
Independence Day of Indonesia was established. The
name of Indonesia itself was coined by a British
geographer, James Richardson Logan, to depict the vast
archipelago of islands lying off the Indian subcontinent.
The word means ‘Indian Islands’ as the world Indo
originally comes from ‘Indian’ and nesia comes from
‘nesos’ the Greek word for ‘islands’ (Zuehllke, 2006).
2
The mercantilists were ‘Pamphleteers’ rather than a
school of thought (Reynolds, 2000). They emphasized
international trade as means of increasing the wealth
and power of nation, and, in particular, focused on the
balance of trade between nations. They have no
systematic, comprehensive, consistent treatise, no
leader, common method, or theory. Each ‘mercantilist’
sought advantage for a specific, trade, merchant, joint-
the Netherlands was more or less inquiringly
reflected in policies implemented in the
colony, Indonesia.
This paper aims to portray the economic
history of Indonesia in longer time dimension
and then to analyze the impact of the evolution
of economic thought in the Netherlands
especially upon the policies implemented in
the colony, Indonesia. Figure 1 shows real
Gross Domestic Product (GDP) per capita of
Indonesia 1880-2002. The GDP per capita was
relatively constant during the period 1880-
1900. There were significant increases of the
GDP per capita during the heyday of the
colonial export economy (1900-1942). There
was no data during the Japan occupation
(1942-45) and the war of independence (1945-
50). It became stagnant during period 1950-73
and increased significantly since 1973 before
hit by the financial crisis in 1997.
The rest of this paper is organized as
follows. Part 2 represents some elements of
Indonesian economic history. Part 3 describes
Indonesian economic history. Part 4 exhibits
relevance of history of economics: from Dutch
mercantilism to liberalism. Part 5 describes
some conclusions.
SOME ELEMENTS OF INDONESIAN
ECONOMIC HISTORY
Indonesia has some important elements of
the economic history i.e. ‘unity in diversity’,
‘missed opportunity economy’ and ‘state
formation’. First, ‘unity in diversity’ is one
important element of Indonesian economic
history because of the existence of wide range
cultural diversities such as local language,
religions (beliefs), social habits, values, etc.
The Indonesian culture diversities have been
stock company or social group. ‘Protectionism’ is often
seen as a primary characteristic of Mercantilism. The
main objective of Mercantilism was to increase the
power of the nation state. One of the important aspects
of national power or strength was wealth that was
equated with specie. The states that followed a policy of
Mercantilism tended to see trade, colonialism and
conquest as the primary ways of increasing wealth.
2006 Widodo
325
shaped by centuries of complex interactions
with the physical environment. Indonesia is a
huge archipelagic country extending 5,120
kilometers from east to west and 1,760
kilometers from north to south. It
encompasses 17,508 islands of which about
6,000 are inhabited (Zuehlke, 2006:8).
Figure 1. Gross Domestic Per Capita of Indonesia 1880-2003 GDP per Capita (1983=100)
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
18 80
86 92 98
0 4 19 10
16 22 28 34
19 40
46 52 58 64
19 70
76 82 88 94
20 00
GDP per Capita (1983=100)
Source: Maddison, (2003); For methodology and sources, see: van der Eng (2002) Author’s
calculation.
Source: University of Texas Libraries (2006)
Figure 2. The Islands and Archipelagos of Indonesia
Japanese Occupation Independence War
Old Order
New Order
Ditch Occupation
Liberal Ethic Politic
Pre War
Recovery
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326
Figure 2 shows islands and archipelagos of
Indonesia. There are five main islands
(Sumatra, Java, Kalimantan, Sulawesi, and
Irian Jaya), two major archipelagos (Nusa
Tenggara and the Maluku Islands), and about
sixty smaller archipelagos. Two of the islands
are shared with other nations; Kalimantan
(known in the colonial period as Borneo, the
world's third largest island) is shared with
Malaysia and Brunei, and Irian Jaya shares the
island of New Guinea with Papua New
Guinea. Indonesia is a heterogeneous nation
state in term of tribes, islands, populations,
religions, languages, cultures and so on. The
founding fathers of Indonesia realized that
logically the political problems arose from
such a heterogeneous nation state had negative
effects on the development of the national
economy. Therefore, they established a
national slogan Bhineka Tunggal Eka (‘unity
in diversity’). The most striking difference is
between densely populated Java, which has a
long tradition of politically and economically
dominating the sparsely populated Outer
Islands (Hill, 1989).
Second, Indonesia is sometimes called a
‘missed opportunities’ economy. Booth (1998)
wrote a book which is titled ‘The Indonesian
Economy in the Nineteenth and Twentieth
Century: A History of Missed Opportunities’.
In this book, Booth illustrates:”the economic
history of Indonesia with the somewhat
melancholy phrase a history of missed
opportunities”.
The ‘missed opportunities’ refers to the
fact that although Indonesia has abundant
natural resources and fabulous variety of
cultural tradition, the Indonesian economy has
been underperforming for large periods of
history. Figure 3 shows the real Gross
Domestic Product (GDP in 1983 prices) by
commodities or sectors of Indonesia in 1880-
2002.
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
1 88 0 1 88 5 1 89 0 1 89 5 1 90 0 1 90 5 1 91 0 1 91 5 1 92 0 1 92 5 1 93 0 1 93 5 1 94 0 1 94 5 1 95 0 1 95 5 1 96 0 1 96 5 1 97 0 1 97 5 1 98 0 1 98 5 1 99 0 1 99 5 2 00 0
years
(Billion Rupiahs)
Fo o d cro ps A nimal-husbandry Farm cas cro ps Estate Cro ps Fisheries
Fo resty M ining M anucaturing Utilities Co nstructio n
Trade Transpo rtatio n Financial services Ho using P ublic administratio n
Other services Oil and gas
Source: Maddison, (2003). For methodology and sources, see van der Eng (2002) Author’s
calculation.
Figure 3. Real GDP by Commodities/sectors 1880-2002
2006 Widodo
327
It is clear that since 1960s, oil and gas has
become the first rank in GDP. Therefore,
Indonesia is frequently called as an ‘oil
economy’. Some opportunities to get
favorable economic development and ongoing
modernization have been missed, for instance
Java in the late of nineteenth and Indonesia in
the late 1930s; in the early 1930s (Touwen,
2006) and in the oil boom era (1973-81). The
internal reasons might be from institutional or
political spheres (either after independence or
in the colonial times). In addition, the external
reasons might also affect the Indonesian
economy - such as the 1930s Depression.
Third, state formation can be seen as a
condition for an emerging national economy.
In Indonesia, this process started in the
nineteenth century – as the Dutch colony, ‘the
Netherlands Indies’– to present day as
Indonesia. ‘(Dutch) East Indies’ was used in
the seventeenth and eighteenth centuries. The
first come of the Dutch in Banten in 1596
might not be said as the starting point of
Dutch colonization. It is more realistic to say
that the Dutch colonization started in 1830,
when the Java war ended and the Dutch
introduced a bureaucratic, centralizing politic
in Java. From the mid-nine century onward,
the Dutch colonization did shape the borders
of the Indonesian nation state, even though it
also incorporated weaknesses in terms of
ethnic segmentation of economic roles,
unequal spatial distribution of power, and a
political system that was largely based on
oppression and violence (Touwen, 2006).
Legge (1964:2) illustrates the important of
understanding the state formation:
The key to an understanding of these
developments must be sought to some
extent in a study of the past. First, it is
necessary to see the nationalist revolution
itself in wider historical contact – in
dramatic terms of the rise and fall of
empires, of the emergence of the new
republics of Africa and Asia. In many
respects Indonesia’s experience is not
unique but is the product of our age. More
narrowly, however, to understand this one
particular country, and its present politics,
one must examine the deeper currents that
have contributed, over the centuries, to the
formation of Indonesian society.
INDONESIAN ECONOMIC HISTORY
It might be common to divide the
economic history of Indonesia into some main
historical parts: the pre-colonial (Hinduism,
Buddhism and Islam influences: kingdoms),
the European intrusion (Sixteenth to
Nineteenth centuries and Dutch empire in the
indices (1870-1942)), the Japanese occupation
and the period after the Independence Day.
1. The pre-colonial period
There were a number of prominent
kingdoms in the Indonesian archipelago
during the pre-colonial era. The kingdoms
were influenced by Indian (especially
Hinduism and Mahayana Buddhism) and
Islam civilization. Some big kingdoms
influenced by Indian civilization were
Sriwijaya, Mataram and Majapahit. South
Asian trading system brought Indian
civilization. From the 1
st
century up to the 7
th
century, the massive trade was done between
China and India, with Southeast Asia
providing only the ports in which to reload
supplies for ships traveling the maritime trade
route. Figure 4 shows the trade route of South
Asian trading system. Started from India
(usually Gujarat), the traders sailed down the
Malabar coast, the Coromandel coast to
Burma, then down to the Isthmus of Kra.
From the Isthmus of Kra they transported their
goods over land to Fu-nan (Cambodia), then to
Vietnam, until they reached their final
destination–China.
Jurnal Ekonomi & Bisnis Indonesia Oktober
328
Source: Hall (1985:22)
Figure 4. Trade Route of South Asian Trading System
Since the Indians dominated the trade
route, the spread of Indian religious ideas at
that time contributed Southeast Asian
kingdoms’ religions. During the early
centuries, elements of Indian civilization were
brought to Sumatra and Java, and encouraged
the emergence of centralized states and highly
organized societies. Although historical
records and archeological evidence are
obviously rare, it confirms that by the seventh
century the Indianized Kingdom of Sriwijaya,
centered in the Palembang area of eastern
Sumatra, established influential large areas of
Sumatra, western Java and much of the Malay
Peninsula. Dominating the Malacca and Sunda
Straits, the kingdom controlled the trade of
region and served as a mediator for Chinese,
Indonesian and Indian markets. The golden
age of Javanese Hindu-Buddhist kingdoms
was in the late thirteenth and fourteenth
centuries i.e. Majapahit era. The state of
Majapahit established an empire that spread
throughout much of the territory of modern
Indonesia. By the mid-fifteenth Majapahit’s
disintegration was happened due to the
succession crisis and the economic
competition of the Malay trading network that
focused on the state of Malaka (Malacca
3
),
whose rulers had adopted Islam.
The major drive to the spread of Islam
civilization was provided by Malaka, a rich
port city that dominated the Strait of Malacca
and controlled much of the archipelago’s trade
during the fifteenth. A territory of strong
allegiance founded in the early sixteenth
century at the western tip of Sumatra was the
state of Aceh. In eastern Indonesia, the island
states of Ternate, Tidore, Halmahera, Gowa
had Muslim sultans. In the early seventeenth
3
Some key element of Malacca’s success are a principal
centre for spices cloves (from the Moluccas, and
nutmeg and mace from the Banda Islands), and for
redistribution of Indian textiles, conducive culture for
trade (international community of traders and ruler’s
skill), Malacca’s conversion to Islam (majority of
traders were Moslems),
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century, the most powerful state in Central
Java was Mataram whose rulers cultivated
friendly relations with the Pesisir states,
especially Gresik.
2. The European Intrusion
2.1. Portuguese
The Portuguese were the first European to
come frequently to the archipelago. The
Portuguese exploration in Asian began with
Vasco da Gama’s voyage to India in 1497-99
continued through the first half of the
sixteenth century. These early European
explorers were mainly motivated by faith and
profit
4
. The Portuguese came to Indonesia to
monopolize the spices (nutmeg, mace and
cloves) trade of the eastern archipelago. The
spice was highly demanded by European
markets, but the trade had been dominated by
Muslim and Mediterranean city-state of
Venice. The Portuguese were minimally
involved in Java. Given Portugal’s small size,
small labor pool, limited resource, and its
routinely brutal treatment of indigenous
people, Portugal’s trading empire was short-
lived.
2.2. Dutch (The United East India Company,
1602-1795)
The first four-ship Dutch entered
Indonesian waters in 1596, visiting Banten on
the western tip of Java as well as north-coast
Javanese ports. The main aim was to get
profitable spices. Following the first-ship, then
there were ‘wild’ or unregulated voyages,
when several Dutch trading concerns sent out
ships to the archipelago. In 1602, however,
these companies merged to establish the
United East India Company (also known as
4
It is sometime abbreviated with the three goals (3G), i.e:
Gospel, Gold and Glory. Portugal was charged with
converting Asia to Christianity. It was noted that the
Portuguese goal of Christianizing Asia was
unsuccessful. East Timor was under controlled by the
Portuguese for three centuries surrounded by Dutch
colonialism.
the Dutch East India Company
5
, Vereenigde
Oost-Indische Companie, VOC (1602-1795))
under a charter issued by the Dutch
parliament, The Staten-Generaal. The
directors (the Heeren Zeventien) of the VOC
were motivated solely by profit. The VOC had
authority or power to build fortresses, wage
war, conclude treaties with indigenous rulers,
and administer justice to subject populations.
The VOC successful became a monopolist
of the spices trade – controlling output and
keeping non-VOC trader out of the islands.
Ambon had been seized from the Portuguese
in 1605. However, the British East India
Company, established in 1600, proved to be a
tenacious competitor. The Spanish were
forced out of Tidore and Ternate in 1663. The
Dutch burned the port of city of Palembang on
Sumatra, ancient site of Sriwijaya Empire, in
order to secure control the pepper trade in
1659.
During the eighteenth century, sugar and
coffee were the most important exported
products and Java became the most important
area, especially Batavia (modern: Jakarta).
Progressively, the VOC was able to take over
power from local rules and also productive
areas of Java. The VOC become aware with
the political situation of Java. The key to
Dutch commercial success was the security of
its base of operation at Batavia. The security
issue was related with the VOC in the internal
politics of Java. Previously, the earliest
governor general of VOC had not intended to
become involved in Java’s politics. They had
envisioned the company as primarily a
maritime power, consisting of a network of
forts ad heavily defended trading routes. But
5
The establishment of Dutch East India Company (VOC)
followed the establishment of the British (English) East
India Company in 1600. The British East India
Company was mainly a joint-stock company which was
granted an English Royal Charter by Elizabeth I on
December 31, 1600, with the intention of favoring trade
privileges in India. British and Dutch East India
companies were granted exclusive monopoly rights to
engage in trade to Asia.
Jurnal Ekonomi & Bisnis Indonesia Oktober
330
during the seventeenth century and especially
the eighteenth century, the Dutch found
themselves caught up in Java’s perennial
political instability. Defense of VOC interest
required the raising of armies and collection of
revenue from rulers and the general population
to pay for them.
The VOC bankruptcy was caused by some
factors. Not only nonstop wars on Java (the
first, second and third Javanese war of
succession (1704-19), (1719-23), and (1746-
55), respectively) but also the VOC’s own
greediness let to its collapse by the end of the
eighteenth century. Corruption, lack of capital
investment, and increasing competition from
England were also main factors of its
bankruptcy. In addition, war between the
Netherlands and Britain in 1780-84 also
prevented the VOC from shipping its goods.
The Netherlands was occupied by French
troops in 1795, and a French protectorate
established. The new government abolished
the VOC by allowing its carter to lapse in
1799. VOC territories become the property of
the Dutch government.
2.3. British (1811-16)
Lois Bonaparte, who had been established
as king of the Netherlands by his brother
Napoleon, assigned Herman Willem Daendels
as governor general of the Dutch possessions
in 1808. Daendels, inspired with the ideas of
the French Revolution, wanted to change the
Java’s ‘feudal’ political system and introduced
a comprehensive set of reforms. But in 1811, a
year after the Netherlands had been
incorporated into the French empire, the
British occupied Java. In August 1811, they
seized Batavia and a month later received
surrender of French forces.
Thomas Stamford Raffles was established
as the lieutenant governor of Java (1811-16)
and its dependencies by the British East India
Company in Calcutta (India). Raffles had done
comprehensive reforms. Many of his thoughts
were enlightened: abolition of forced labor
and fixed quotas for cash crops, peasant’s free
choice of which crops to grow, salaries for
government slaves.
2.4. Dutch return
At the beginning of the Napoleonic Wars,
the British government had promised the
Dutch Government that at the end of the war
occupied territories be returned to the
Netherlands. Over the objection of Raffles,
Dutch authority was reestablished 1816.
Therefore, in the beginning of nineteenth
century Indonesia faced not only changeover
of the company rule by Dutch government
rule but also the absolute transformation of
Java into a colonial society and the successful
extension of colonial rule to Sumatra and the
eastern archipelago. The modern state of
Indonesia is in real sense a nineteenth century
creation. It was during this century that most
of its boundaries were established and a
process of generally exploitative political,
military and economic integration started.
There some important issues need to
underlie in the Netherlands Indies Empire era
.i.e. Java War, Cultivation System (CS) in
Java, Dutch Expansion, and the Ethical policy.
The following paragraphs will briefly describe
the issues.
Java War
Some rules and actions taken by the Dutch
invited protest from local elites. In Java during
the VOC period, the Dutch depended on the
agreement of the Javanese aristocratic class,
which allowed them to rule them in an indirect
manner. The regent’s role of expropriating
cash crop from peasants to deliver to the VOC
gave them a comfortable income, since they
also continued to tax their subjects for rice and
labor. Variations on this pattern were found
throughout Java, with local adaptation. But the
reforms of Daendels and Rafles threatened this
arrangement. Moreover, the elite in Central
Java were humiliated by a British occupation
and partition of Yogyakarta in 1812. Many of
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the elite found themselves short of fund and
indebted as Dutch demands for tax revenues
expanded after 1816. The common people also
suffered from years of war, disruption and the
exploitation of Chinese farmers employed by
the British and the Dutch. It was not surprised
that the Dutch reforms were protested by local
aristocratic class. It created Java war of 1825-
300 constituted the last resistance of Javanese
aristocracy to Dutch rule. Its central figure
was Pangeran Diponegoro (1785-1855). The
Java war was not a modern anti-colonial
movement. Diponegoro and his followers
probably did not want to restore an idealized,
pre-colonial past. Nor did they envision an
independent, modern nation. Rather they
sought a Javanese’s heartland free of Dutch
rule.
The Java War gave considerable impetus
to a conservative trend in Dutch colonial
policy. Rather than reforming their regime in
the spirit of Daendels and Raffles, the Dutch
continued the old VOC system of indirect rule.
As it evolved during the nineteenth century,
the Dutch regime consisted of a hierarchy in
which the top levels were occupied by
European civil servants and a native
administration occupied the lower levels. The
latter was drawn from the priyayi class, an
aristocracy defined both by descent from
ancient Javanese royal families and by the
vocation of government service. The
centerpiece of the system was the bupati, or
regents. Java was divided into a number of
residencies, each headed by a Dutch chief
administrator; each of these was further
subdivided into a number of regencies that
were formally headed by a Javanese regent
assisted by a Dutch official. The regency was
subdivided into districts and subdistricts and
included several hundred villages. The states
of Surakarta and Yogyakarta remained outside
this system. However, both they and the local
regents lost any remnant of political
independence they had enjoyed before the
Java War. The sultanates played an important
cultural role as preservers of Java's traditional
courtly arts, but had little or no impact on
politics.
Cultivation System in Java (CS)
Starting in 1830, a set of policies known as
the Cultivation System (Cultuurstelsel CS)
was implemented as a means of covering the
high cost of colonial administration in Java
and bolstering the Netherlands' weak financial
condition following the Napoleonic Wars and
a civil war with Belgium, with which the
Dutch had united in 1815. Governor General
Johannes van den Bosch (served 1830-34), the
system's establisher, argued that the
Cultivation System would benefit both
colonizer and colonized. In fact, it brought the
Netherlands big profits, increased the
conspicuous consumption of the indigenous
elite, enriched European officials and Chinese
middlemen, but was a terrible burden for
Javanese villagers.
The Cultivation System in theory required
that participating villages grow export crops to
raise funds sufficient to meet their land-tax
commitment, which was based on rice
production. Export crops--the most profitable
being coffee, sugar, indigo, tea, cinnamon,
pepper, tobacco, cotton, silk, and cochineal--
were sold to the government at fixed prices. A
balance was supposed to be established
between rice production and export crops and
both the village and the colonial economy--
and the Netherlands--would enjoy the benefits.
Table 1 exhibits the financial result of the CS.
Jurnal Ekonomi & Bisnis Indonesia Oktober
332
Table 1. The Financial Results of the Cultivation System, 1840-1849 (in thousands of guilders in
current value)
Period
Products
Coffee Sugar Indigo Pepper, Tea Total Net Profit
1840-1844 40.278 8.218 7.3836 647 39.341
1845-1849 24.548 4.136 7.726 1.725 35.057
Source: Fasseur (1975:20)
In practice, however, as some historians
have pointed out, there was not a "system."
Wide local and regional variations in applying
van den Bosch's theory occurred and, instead,
colonial exploitation took place. The growth
of export crops became compulsory. The
crops themselves were shipped to the
Netherlands by the Netherlands Trading
Company ( Netherlandsche Handel-
Maaschappij, NHM established in 1824),
which held a monopoly over Cultivation
System trade until 1872, and Amsterdam
regained its seventeenth-century status as the
primary European market for tropical
products. Table 2 exhibits the estimates of
total profits during the CS. Profits from the
system constituted between 19 and 32 percent
of the Netherlands' state revenues between the
1830s and 1860. These profits erased the
colonial government's deficits, retired old
VOC debts, financed the building of the
Netherlands state railroad, funded the
compensation of slaveholders after the
abolition of slavery in the colony of Suriname,
and paid for Dutch expansion into Sumatra
and the eastern archipelago. The success
attributed to the Cultivation System inspired a
Briton, aptly named James William Bayley
Money, to publish a book entitled Java, or,
How to Manage a Colony in 1861.
During the early 1860s, a liberal Dutch
government began dismantling the Cultivation
System, abolishing government monopolies
over spices, indigo, tea, tobacco, and
cochineal (the spice monopoly had been in
effect since the early seventeenth century). In
1870 the Sugar Law provided for government
withdrawal from sugar cultivation over twelve
years, beginning in 1878. The Agrarian Law
also passed in 1870, enabled foreigners to
lease land from the government for as long as
seventy-five years, opening Java up to foreign
private enterprise. These developments
marked the gradual replacement of the
Cultivation System and the beginning of an
era of relatively free trade, although
compulsory cultivation of coffee continued
until 1917.
Table 2. The Financial Results of the Cultivation System, 1840-1849 (in thousands of guilders in
current value)
Variables 1831-40 1841-50 1851-60 1861-70
Gross revenues of sale of colonial products 227.0 473.9 652.7 641.8
Cost of transport etc (NHM) 88.0 165.4 138.7 114.7
Sum of expenses 59.2 175.1 275.3 276.6
Total net profit* 150.6 215.6 289.4 276.7
Source: Van Zanden & Van Riel (2000:223) in Touwen (2006)
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333
Dutch Expansion
British occupation of the archipelago
during the Napoleonic Wars and the Java War
seriously weakened Dutch authority outside of
Java. Pirates flourished in the power vacuum,
making Indonesian waters among the most
dangerous in the world. In the 1840s, the
British established a presence in northern
Kalimantan (North Borneo), where James
Brooke made himself the first "White Rajah"
of Sarawak. Alarmed by such developments,
the Dutch initiated policies of colonial
expansion in the Outer Islands, which brought
all the land area of modern Indonesia, with the
exception of Portuguese Timor, under their
control. Dutch expansion started with
Sumatra. By 1823 the eastern part of Sumatra
island, including Palembang, was controlled
by the Dutch. Some wars surfaced such as the
Padri War (1821-38) in the Minangkabau
region. Between the 1870s and the end of the
century, colonial troops also defeated the
fierce Batak ethnic group, living north of the
Minangkabau, and the colonial government
encouraged the people to convert to
Christianity.
The Ethical Policy
Both the VOC and the Netherlands Indies
states after 1816 focused mainly on
commercial trade and profit. Nevertheless,
opinion in the Netherlands was changing. In
1899 a liberal lawyer named Conrad Theodoor
van Deventer publisher a controversial essay,
“A Debt of Honor,” the Dutch journal De
Gids. He argued that the Netherlands had a
moral responsibility to return to the colony all
the profits that had been made form the sale of
cash crops. When a liberal government was
elected in 1901, these ideas become the basis
for what was known as the Ethical Policy. It
covered improvement in agriculture, espe-
cially irrigation, expansion of educational
opportunities for population as a whole and
the settlement of villagers from overpopulated
Java onto some of the Outer Islands
(transmigration program). By the late 1920s,
the colonial government seemed to have
moved a long way from idealistic commit-
ments of the Ethical Policy. Attitudes
hardened in the face of growing Indonesian
demands for independence.
The period of 1900-1942 was the heyday
of the colonial export economy. After 1870
private sectors were promoted but the exports
of raw materials experienced significant
momentum after 1900. Coffee, tobacco, sugar,
pepper and the old export products were
increasingly supplemented with the highly
profitable exports of petroleum, rubber, copra,
palm oil and fibers.
Table 3. Annual Average Growth in Economic Key Indicator, 1830-1990
Periods Years
GDP per
Capita
Export
Volume
Export
Price
Government
Expenditure
Cultivation
System
1830-1840 n.a 13.5 5.0 8.5
1840-1848 n.a 1.5 -4.5 Very low
1849-1873 n.a. 1.5 1.5 2.6
Liberal Period 1873-1900 Very low 3.1 -1.9 2.3
Ethical Period 1901-1928 1.7 5.8 17.4 4.1
Great Depression 1929-1934 -3.4 -3.9 -19.7 0.4
Prewar Recovery 1934-1940 2.5 2.2 7.8 3.4
Old Order 1950-1965 1.0 0.8 -2.1 1.8
New Order 1966-1990 4.4 5.4 11.6 10.6
Source: Booth (1998:18)
Jurnal Ekonomi & Bisnis Indonesia Oktober
334
Table 3 shows the annual average growth
in economic key indicator 1830-1990. During
Ethical period, the annual growths of export
volume and export price were higher
compared to the other periods. Agricultural
exports were cultivated both in large-scale
European agricultural plantation and by
indigenous smallholder. The momentum of
profitable exports led to a broad expansion of
further economic development in the
archipelago for example, constructing the road
system, railroad system (in Java and Sumatra),
port system, establishing shipping line – royal
packet boat company (Koninklijke Paketvaart-
Maatschappij, KPM), and subsidizing
shipping line into remote corner of the vast
archipelago, etc.
3. The Japanese Occupation (1942-45)
To support Japan's invasion of North
China, which had begun in July 1937, Japan
required a lot of petroleum, scrap iron and
other raw materials. Previously, such kind of
row materials had to import from foreign
sources. The Japanese occupied the
archipelago, Indonesia, in order to secure its
rich natural resources. German occupation of
the Netherlands in May 1940 led to Japan's
demand that the Netherlands Indies
government supply it with fixed quantities of
vital natural resources, especially oil.
Although their motives were largely
acquisitive, the Japanese justified their
occupation in terms of Japan's role as, in the
words of a 1942 slogan, ‘Nipon Pemimpin
Asia, Nipon Pelindung Asia, Nipon Cahaya
Asia’ (The leader of Asia, the protector of
Asia, the light of Asia). The most crucial
legacy of the occupation was the opportunities
it gave for Javanese and other Indonesians to
participant in modern politics, administration
and the military. That gave valuable
experiences and inspirations for the next step
of Indonesian independence. In his paper,
Dick (2003: p5) mentions the positive points
of Japanese occupation in terms of
encouraging nationalism which was important
for the independence:
Although only three and half years in
duration, the Japanese occupation (1992-
45) marked the turning point in Indo-
nesia’s 20
th
century history by creating
new political and social possibilities
(Anderson 1972). Above all, it gave breath
to the struggling nationalist movement and
infused it with the oxygen of Japanese
ultra-nationalism through relentless
propaganda and more accessible primary
and secondary education. At this critical
movement, the democratic impulse was
stifled by an even more vigorous and
malign authoritarianism and the colonial
system.
4. After The Independence
On 17
th
of August, 1945, two nationalists
Soekarno and Mohamad Hatta proclaimed the
independent Republic of Indonesia with
Soekarno as president and Hatta as vice
president. Allied forces (mostly British and
British Indian troops) did not arrive until six
weeks later, by which time the republic had
begun to establish itself and nationalist pride
had flourished.
Indonesia as a new country has been in the
process of choosing of appropriate economic
and political system. Dick (2003) notes that
Indonesia’s 20
th
century can be broken down
into the following periods of political and
economic change. Table 4 exhibits the
classification with that political and/or
economic development in italics.
2006 Widodo
335
Table 4. The Periods of Political and Economic Change in Indonesia in 20
th
Century
Year Politics Economics
1901-20 Ethical Era Expansion and boom
1920-30 Reaction Expansion (after 1923)
1930-42 Repression Depression and Recovery
1942-45 Occupation Catastrophic decline
1945-49 Revolution Uneven recovery
1950-57 Parliamentary Democracy Rehabilitation
1957-66 Guided democracy (1959) Stagnation and decline
1966-73 Modest reform Economic Recovery
1974-98 Repression Rapid development
1998- Democratization Crisis and stagnation
Source: Dick (2003)
4.1. Old Order
4.1.1. Parliamentary Democracy
Indonesia was lastly independent and
formally unified. Nevertheless, the society
remained deeply divided by ethnic, regional,
class, and religious differences. Its unitary
political system, as defined by a provisional
constitution adopted by the legislature on
August 14, 1950, was a parliamentary
democracy: governments were responsible to
a unicameral House of Representatives elected
directly by the people. Soekarno became
president under the new system. His powers,
however, were drastically reduced compared
with those prescribed in the 1945 constitution.
There was little in the various cultures of
Indonesia or their historical experience to
prepare Indonesians for democracy. In
colonization era, the Dutch had done
practically nothing to prepare the colony for
self-government. In addition, the Japanese had
espoused an authoritarian state, based on
collectivist and ethnic nationalist ideas, and
these ideas found a ready reception in leaders
like Soekarno. Powerful Islamic and leftist
currents were also far from democratic.
Conditions were exacerbated by economic
disruption, the wartime and postwar
devastation of vital industries, unabated
population growth, and resultant food
shortages. By the mid-1950s, the country's
prospects for democratization were indeed
grim.
Despite the holding of democratic election
in 1955, the years following the struggle for
independence were characterized by economic
and political problem such as regional
dissidence, military-civilian conflict,
attempted assassinations and coup d'état and
economic stagnation. The system of
parliamentary democracy had lost credibility
because of frequent changes of cabinet, their
inability to resolve intractable political and
economic problems, and worsening corruption
but it still worked according to an agreed set
of rules and there was no obvious alternative
(Dick, 2003).
4.1.2. Guided Democracy
A period of Guided Democracy was
announced in 1959 because Soekarno had long
been impatient with party politics. He
suggested in a speech on October 28, 1956,
that they be discarded. Soon after, he
introduced the concept of Guided Democracy.
Although the concept was new in name, its
various themes had been part of the president's
thinking since before the war. In the first years
of independence, his freedom of action had
been limited by parliamentary institutions. But
on March 14, 1957, the liberal phase of
Jurnal Ekonomi & Bisnis Indonesia Oktober
336
Indonesian history was brought to an end with
Soekarno's proclamation of martial law. In an
unstable and ultimately catastrophic coalition
with the army and the PKI, he sought to rescue
the fragile unity of the archipelago.
In September 1963, Soekarno proclaimed
himself president-for-life and presided over a
political system in which the civilian
nationalist leadership, much of the Islamic
leadership, the large Indonesian Communist
Party (Partai Komunis Indonesia, PKI) and
the army were all at odds. This tense and
hostile atmosphere was broken on September
30, 1965, whit what appears to have been an
attempted PKI coup against the Soekarno
government. The coup was failed. On March
11, 1966, power was transferred from
Soekarno to a high-ranking army officer,
Soeharto. The PKI was formally banned the
following day. Soeharto became the acting
president on March 12, 1967, and the New
Order era began.
4.2. New Order
Like Soekarno's Guided Democracy, the
New Order under Soeharto was authoritarian,
but it was more successful bringing stability to
the nation. Apart from rejection of left-ism,
probably the single greatest discontinuity
between the Soekarno and Soeharto eras was
economic policy. Soekarno abused Indonesia's
economy, undertaking ambitious building
projects, nationalizing foreign enterprises, and
refusing to undertake austerity measures
recommended by foreign donors, because such
measures would have weakened his support
among the masses. Soeharto used the
economy for political ends, but initiated a
generally orderly process of development
supported by large infusions of foreign aid and
investment. Unlike Guided Democracy, their
economic achievements were enormous and
the well-being of the majority of Indonesian
undeniably improved.
Helped considerably by oil revenues after
the quadrupling of prices during the 1973
global "oil shock," Indonesia emerged from
low to modest prosperity. The development of
new, high-yield varieties of rice and
government incentive programs enabled the
nation to become largely self-sufficient in this
staple crop. In most areas of the archipelago,
standards of nutrition and public health
improved substantially.
Oil revenues were vital for the Soeharto
regime because they provided it with
resources to compensate groups whose
cooperation was essential for political
stability. Government projects and programs
expanded impressively. Table 5 shows how
policy directions of Indonesia were very much
affected by international shocks, especially oil
price. The oil boom (1973-81) led to a
fundamental revision of industrial policy
objectives. In the case of trade liberalization in
Indonesia, we strongly agree with statement of
supporter of deregulation: ‘good times mean
bad policies; bad times mean good policies’.
During the oil-boom period, the Indonesian
government followed an inward oriented i.e.
state-directed industrialization or import
substitution.
The state’s heavy involvement in banking
and industry, especially the petroleum and
natural gas sectors, worked against
competition and encouraged corruption on a
large scale. Heavy-handed political control
and propagandizing of a national ideology
(Pancasila) may have aided stability, but also
did not prepare the nation for a modern
political existence. A modernizing, educated,
and better-off middle class grew, but gained
little or no political clout; poverty was
reduced, but some particularly severe pocket
appeared to be intractable. When a financial
crisis hit in 1997, the New Order lost the
economic justification that had guaranteed
much of its public support, and there was
widespread call for Soeharto to step down. He
resigned on May 21, 1998 little more thatn
two months after being elected for his seventh
terms as president.
2006 Widodo
337
Table 5. External Shocks and Policy Direction
Period
Change in External
Environment
External
Policy Direction
Macroeconomic
Policy
Trade and Industrial
Policy
Government
Regulation
1974-81 Oil boom Sharp increase in oil
prices 1973; non-oil
commodity boom
1975-79; second oil
price increase
Maintenance of
macroeconomic
stability, although some
inflation from lack of
sterilization of oil
revenue
Growing inward
orientation (increasing
import substitution)
Increasing share of
public investment and
state owned enterprise
1982-85 First
external shocks
Decline in oil prices;
decline in commodity
prices
Macroeconomic
stabilization; fiscal
austerity, devaluation
and tight monetary
policy
Strongly inward
oriented; proliferation
of non-tariff barriers
Continued reliance on
State Owned Enterprise
(SOE) and regulation of
market economy
1986-88 Second
external shocks
Sharp decline in oil
prices and continued
decline in primary
commodity prices;
shocks on external
debt due to yen
appreciation
Continued
macroeconomic
stabilization;
devaluation; tight
monetary policy and
balance budget
Shift to outward
orientation
Deregulation of
customs and imports,
relaxation of
investment regulations,
reduced reliance of
SOE and public
investment
1988-92 Non-oil led
economic recovery
Stable oil prices,
further decline in
prices of primary
commodity
Maintenance of
macroeconomic
stability
Further shift to
outward oriented
economy
Deregulation extended
to investment, finance
and other areas initial
steps towards SOE
reform
1993-96 Continued
deregulation and
some ambivalence
Stable oil prices, some
increase in commodity
prices, increased
competition from other
developing countries
Maintenance of
macroeconomic
stability; increased
flexibility of exchange
rate and other
instrument to assist
monetary policy
Continued emphasis
on exports, but some
deviations to import
substitution
(petrochem.) and local
content (automotive)
Continued deregulation,
improvement in
financial sector
supervision, substantive
FDI deregulation
1997 – present
Asian Economic
Crisis, Commitment
to IMF International
and Multiregional
commitments like
AFTA, APEC and
WTO
Sharp increase in oil
price
Macroeconomic
recovery
Deeper integration and
accelerating trade
liberalization,
Elimination of non-
tariff measure for
agricultural product
and measures to
protect national car
scheme, Removing all
import license (for
example: the national
logistic agency,
BULOG), open
competition on rice
import,
Continued deregulation,
improvement in
financial sector
supervision, substantive
FDI deregulation
Source: mainly adopted from Pangestu & Stephenson (1996) with some additional information from: Vansetty et
al.(2005), Aswicahyono & Pangestu (2000), Amiti & Konings (2005), Basri (2001).
Jurnal Ekonomi & Bisnis Indonesia Oktober
338
4.3. From 1998 to Present
Soeharto was succeeded by Bacharudin
Jusuf Habibie who sought first to resolve the
East Timor situation and begin a new and
more open electoral process. In 1999,
following Indonesia first freely contested
parliamentary election since 1955,
Abdurrahman Wahid, well-known as both a
progressive intellectual and as leader of
Indonesia`s largest Muslim organization
(Nadlatul Ulama, NU) became president. His
quirky and often uncompromising leadership
style, and question about his competency and
his health, brought him increasing opposition
and eventually serious threats of
impeachment. He was dismissed from office
in July 2001 in favor of Megawati
Soekarnoputri, his vice president and head of
the Indonesia Democratic Party of Struggle
(PDI-P). Megawati, Soekarno`s eldest
daughter, was decisively defeated in the
September 2004 presidential runoff election
by the Democratic Party candidate, retired
general Susilo Bambang Yudhoyono.
Yudhoyono was sworn in as president in
October 2004 for the next five years.
Indonesian economy hit by crisis in 1997.
The Indonesian economy now still suffer from
severe economic development problems
following the crisis and substantial political
reforms after the stepped down of President
Sueharto in 1998. Since the late 1990s,
companies have remained wary of investing in
Indonesia and an increasing number of
manufactures have relocated outside the
country because of security issue,
deteriorating infrastructure, substantial
corruption, high interest rate and increasing
labor cost. Figure 5 exhibits trend of domestic
and foreign investment value approvals
(billion Rp, foreign investment is converted by
current exchange rate) 1967/1968 - April
2003. The value of investment covers new
project, expansion; and change status and
excludes oil and gas, non-bank financial
institution, insurance and leasing. It increased
sharply for period 1988-1997 and then it
decreased after economic crisis 1997. It
continued to decline in 2001 and 2002 after
regional autonomy was implemented.
0
50000
100000
150000
200000
250000
300000
350000
1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003
Year
(bilions Rp)
DDI FDI
Source: BKPM, (2003) Author’s calculation
Figure 5. Trend of Domestic Direct Investment (DDI) and Foreign Direct Investment (FDI)
Regional Autonomy
and decentralization
Financial
Crisis
Financial/Banking
Deregulation
2006 Widodo
339
The 1997-1998 economic downturns hurt
Indonesia more deeply and for a longer time
than other Southeast Asian nations. In 2003
the government terminated its loan program
with the international Monetary Fund (IMF)
because of its reluctance to continue imple-
menting unpopular economic restrictions.
However, there are positive economic signs in
steady domestic consumption, a strengthened
currency, and successful small and medium
business enterprises.
RELEVANCE OF ECONOMIC
THOUGHT: FROM DUTCH
MERCANTILISM TO LIBERALISM
The Dutch had given significant
contributions in the Indonesian economic
history during 350 years of occupation. On the
importance of the rise of the Dutch in
Indonesia, Dick et al (2002:3) notes: “The
colonial state with its Napoleonic pedigree
was arguably the most fateful technology
transfer between Europe and the archipelago”.
It was the effective way of the colonial state
that made a transformation of the economic
activity of the region trough the establishment
infrastructures, creating better centralized
administration and the mass mobilization of
local labor for the production of export-
oriented products.
By looking through the annals of colonial
policy, one might see that mercantilist
governments aided colonialism by providing
militarily assistance to support the colonial
infrastructure in exchange for a share of profit.
In addition to protecting colonial
entrepreneurs, governments often played an
active role by suppressing forms of production
that could harm the home economy. For
example, the Dutch government, in early
eighteenth century, began the practice of
destroying the surplus spices, that is, the
portion of the supply that might depress prices
below the point that would maximize their
return. The true revolution of mercantilist
thought was the increased demand for a
unilateral monopoly. The motive for unilateral
monopoly was clear enough – the ‘laissez-
faire’ economist Jean-Baptiste Say justified
monopoly on the grounds that it served as an
inducement for the establishment of trade in
such a risky and volatile environment. The
Dutch government founded the VOC, which
was granted exclusive monopoly rights to
engage in trade to Asia.
In parallel with the rapid development of
European and commercial, military
organization and technology in the
seventeenth century, naval power and local
alliances enabled the Portuguese and then the
Dutch and British to perform increasing
control over trading activities in Southeast
Asia. It was a gradual process by which the
European intrusion proceed from free trade
(rivalry amongst the Europeans) to
monopolistic trade and only eventually to
occupation and territorial invasion. This
process was taken by the Dutch between 1602
and 1789 through the Netherlands East India
Company (VOC). The VOC used an
unprecedented military capacity to the conduct
of its trade. Direct conflict with local states
and attempts to control local production as
well as trade, increasingly made the VOC
from merchant to landlord (Dixon, 1991:61).
The VOC over-extended the capacity of the
company as expenses in administration and
military campaigning rose. Between 1795 and
1800 the VOC was bankrupted and all of its
colonial processions were taken over by the
Dutch government. The new colonial state
started.
Taking over the control by the Dutch
government gave rise to a centralized and
focused approach to economic development.
There were different approaches conducted by
VOC and the Dutch government. The VOC
had been an expansive, region-wide trading
entity in contrast the Dutch government
become much more concerned about how to
exploit effectively the resources of the specific
territory. In that time the fertile land Java
Island was the specific territory. Therefore, the
Jurnal Ekonomi & Bisnis Indonesia Oktober
340
Dutch government applied Cultivation System
(Cultuurstelse, or CS). In spite of the fact that
debates about the merits of free trade become
very remarkable in the Netherlands, it was
decided that the state would directly ensure
that production on Java would be directed in
generating revenue for the home country.
Under the Culturstelse the farming peasant
population of Java would be required to
produce exported commodities such as coffee,
indigo and sugar. The government would buy
the crops at an officially fixed price. The crops
delivered to the government must be
equivalent of one fifth of the value of the
farmer’s production. The commodities
purchased on Java were transported on Dutch
ship and sold by auction in the Netherlands by
a semi-private trading company which he
King was a major shareholder. It was a well-
sealed mercantile arrangement. During the
period of 1832-52, income from the colony
was almost 19% of total income of the
Netherlands and during the 1860-66 one third
of the Netherlands’ state revenue was created
through the Culturstelse (Fasseur, 1992).
The Culturestelse was finished in 1870
with the passing of the Agrarian Law, and the
period that followed until 1930 is quite
referred to as the liberal period. There were
several reasons for that i.e. growing influence
of economic and political liberalism in the
Netherlands; growing strength of the Dutch
industrial and financial bourgeoisie and the
general ascendancy of Adam Smith’s ideas in
many parts of Europe at that time (Ridings
2004). Robinson (1986) argues (in Ridings
2004):
Beginning in the mid-nineteenth century,
the mercantile nature of the colonial
economic presence was transformed into
an increasingly capitalist enterprise….. To
secure an entry for private capital, the
Dutch bourgeoisie fist had to dismantle the
state mercantile monopoly.
After the abolition of the CS, there was a
change in business paradigm from state
intervention and organization of production
toward free trade enterprise. It was argued that
the extensive state involvement had been a
transitional arrangement and that the CS itself
had just been a step toward a more liberal,
market-driven economy. The practical result
was that the state-run culture system was
superseded by the spread f corporate
plantations. This transition to a free market
economy was observed by Geertz (1963) as a
state hand-over to the Dutch merchants since
they ‘did not create, as they later came to
claim, the Netherlands East Indies estate
economy. They bought it-and rather cheaply
considering the social costs of its production.
Private investment supported by banking
interests expanded agricultural plantation
production to the Outer Islands, and also
developed much expanded irrigation, railways,
port facilities, and processing capacity. It
created, according to Geertz, ‘a compre-
hensive agro-industrial structure practically
unmatched for complexity, efficiency and
scale anywhere in the world. The colonial
state supported this development with the
provision of infrastructures but the agricultural
economy had become a state-facilitated
private concern.
CONCLUSIONS
Before the intrusion of European countries,
the archipelago (modern: Indonesia) had
international relation (trade activities),
especially in the kingdom or empire era. The
Hinduism-Buddhism and Islam kingdoms
played important international trade. The
kingdoms tried to influence each other and it
was conducted frequently by doing a war. The
eras of pre-colonization; colonization and the
independence have colorized the Indonesian
economic history. The historical perspective
shows that there have been relationships
between politic and economic performances.
Those can be seen from the growth of GDP,
export volume, export price and government
expenditure in Cultivation system, Liberal,
Ethical, Old Order and New Order periods.
2006 Widodo
341
There was a close relationship between the
development (history) of economic thought in
Europe especially the Dutch and the policy
implemented during the colonization era. In
the case of colony Indonesia, it was reflected
by the establishment of VOC by the Dutch
(British Indices Company in British
Mercantilism), Cultivation System, Ethic
politic, and Liberalism. In the case of the
Dutch, the mercantilists in the 17
th
and 18
th
century were quite supportive on the issue of
holding an unilateral monopoly on a country,
they often disapproved of one singular
commercial entity holding titular rights to
trade with another country. Mercantilist
thought was primarily focused on the goal of
advancing one’s country and did not
necessarily reflect undue devotion to capitalist
policies.
In the future, Indonesia needs to fight the
label ‘missed opportunity economy’ by
implementing good governance in natural
resources and cultural tradition management.
During colonization era, Indonesia missed the
opportunity to have high economic
performance in the late 1930s and in the early
1930s. It might be acceptable situation under
the colonization government. However in the
independence era, Indonesia missed
opportunity to have high economic
performance financed by ‘oil boom’ (1973-
81). Bad governance (institutional or political
spheres) in managing the opportunity of ‘oil
boom’ had created other problems in
following years such as: protectionism in
international trade, infant industry, cronyism,
conglomeration, corruption and nepotism in
the New Order era. The same opportunity
might not rise in the future. Sharp increase in
international oil price (oil boom) currently in
the middle of 2005-2006 did not give an
‘opportunity’ for Indonesia to have high
economic performances. In contrast, it had
created new social and economic problems
such subsidies, distribution, compensation and
so on. Opportunity is becoming threats to our
economy.
Indonesian economic history has shown
that the New Order government followed
‘good condition means bad policy, bad
condition means good policy’. Oil boom
(1973-81) had given huge amount of
government revenues which –to some extent
were misallocated. Good condition (in term of
government revenue) had encouraged the
implementation of inward looking policies
(bad policies: international trade restriction,
protection infant industry, undesired capital
intensive industry, state owned enterprise
intervention, etc.). Currently, Indonesia has
got healthy situations such as legitimated
government, regional autonomy, international
liberalization, recovery from the economic
crisis, political stability, etc. Now, Indonesia
must wait for ‘another opportunity’ and then
must prove ‘good condition means good
policies’.
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