Trustees of Princeton University

Authoritarian States, Capital-Owning Classes, and the Politics of Newly Industrializing

Countries: The Case of Indonesia
Author(s): Richard Robison
Source: World Politics, Vol. 41, No. 1 (Oct., 1988), pp. 52-74
Published by: Cambridge University Press
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AUTHORITARIAN STATES,
CAPITAL-OWNING CLASSES, AND
THE POLITICS OF NEWLY
INDUSTRIALIZING COUNTRIES:
The Case ofIndonesia
By RICHARD ROBISON

INTRODUCTION

IN

the 23 yearssince the military-dominated

governmentof President
Suharto seized power in Indonesia, the economy has been transformedfromone based predominantlyupon the exportof primaryagricultural products, pettytrading,and commodityproduction to one
with a rapidly developing industrialbase. While agriculturedeclined
from53.9 percentof GDP to 26.4 percentbetween1967 and 1983, mining (including oil) increased from2.7 percentto I9.4 percent,and manufacturefrom7.3 percentto 12.5 percent.'Nurturedby an authoritarian
regime,a substantialcapital-owningclass has also emerged; the process
has provided an insightinto the complexityof relationshipsbetweenauthoritarianregimesand capital-owningclasses in new industrialeconomies and the natureof the tensionsthatthreatentheserelationships.Although this paper will focus upon the ways in which the Indonesian
regime provided the conditionsfor the developmentof industrialcapitalism and the social power of the capital-owningclasses, my analysis
will take place in the contextof theoreticaldebates about authoritarian
states,capitalistindustrialization,and the emergenceof a bourgeoisiein
newly industrializingcountries.2In particular,it will examine two questions:
World Bank, Indonesia:PoliciesforGrowthand Employment
(Jakarta:I985), I85-86.
Ellen Kay Trimberger,Revolution
fromAbove:MilitaryBureaucratsand Developmentin
Japan, Turkey,Egyptand Peru (New Brunswick,N.J.: Transaction Books, I978); Nora
Hamilton, The Limits of State Autonomy:Post-Revolutionary
Mexico (Princeton:Princeton
UniversityPress, i982); AlfredStepan,ed., Authoritarian
Brazil (New Haven: Yale UniversityPress, 1973); David Collier,ed., The New Authoritarianism
in Latin America(Princeton:
PrincetonUniversityPress,I979); Colin Leys, "Capital Accumulation,Class Formationand
Dependency-the Significanceof the Kenyan Case," The SocialistRegister(1978), 24I-66;

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POLITICS

OF NICS: INDONESIA

53

i. How can we explainthe policiesof the statetowardthe capitalowningclasseswhensocialpowerincivilsocietyis separatedfrompolitical

dominanceoverthestateapparatus-i.e.,whenthe rulingclassdoes not
ruleand thestateapparatusis in thehandsofitsown officials?3
2. Is the authoritarian
regimeand state-centered
capitalistindustrializationa new and enduringformor a phenomenon
oftheperiodof transitionfromfeudalor colonialto industrial
in whichthestateprosociety,
videsthepoliticaland economicconditionsforlate industrialization
and
theprotection
foran emergingbutfragilecapital-owning
class?Does the
authoritarian
regimeembodycharacteristics
which,at a certainstage,becomebothunnecessary
to and a constraint
on theexpansionof industrial
capitalismand the emergingcapital-owningclasses? Do the capitalowningclasses,afterincubation
byauthoritarian
regimes,
outgrowthem?

STATE AND CLASS

Authoritarianregimes have played a prominentand pivotal role in

late capitalistindustrialization;examples are Germany,Japan,and Eastern Europe in the late i9th and early 20th centuriesas well as the more
recentcases of Argentina,Mexico, Brazil, Uruguay,Chile, and the rising
industrialsuperstarsof Asia: South Korea, Taiwan, and Singapore. In
each of these cases, authoritarianregimesserved vital politicaland economic functions.They ended the dominantpoliticaland social power of
an entrenchedbut disintegratingfeudal order and provided the emerging capital-owningand middle classes with protectionfrom workingclass and peasant-basedreformistand revolutionaryforces.In theirparamount economic roles,theyoftensupplied the essentialinvestmentfor
economicinfrastructure
and heavyindustry,developingbankingsystems
and generatinggrowth throughpolicies of economic and in some cases
mil taryexpansion.4
In the recentAsian cases in particular,the regimeswere instrumental
in the growthof private,domesticcapital-owningclasses; theywere responsiblefortariffprotection,trademonopolies,cheap credit,public utilDietrichRueschemeyer
and PeterB. Evans, "The Stateand Economic Transformation:Towards an Analysisof the ConditionsUnderlyingEffectiveIntervention,"in Peter B. Evans,
Dietrich Rueschemeyer,and Theda Skocpol, eds., Bringingthe StateBack In (Cambridge:
Cambridge UniversityPress, I985), 44-77; Richard Robison,Indonesia:The Rise of Capital
(Sydney:Allen & Unwin, i986).
3 Fred Block, "The Ruling Class Does Not Rule: Notes on the Marxist Theory of the
State,"SocialistRevolution33 (May-JuneI977), 6-28.
4 Alexander Gerschenkron,
EconomicBackwardness
in HistoricalPerspective
(Cambridge:
The Belknap Pressof Harvard UniversityPress,i962); P. N. Rodenstein-Rodan,"Problems
of Industrializationof Eastern and SoutheasternEurope," in A. N. Agarwala and S. P.
Singh, eds., The Economicsof Underdevelopment
(Oxford: Oxford UniversityPress, I958),
245-55;
Trimberger(fn.2).

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54

WORLD POLITICS

extensivestateeducation
ities,statecontractsforsupplyand construction,
systems,and disciplined low-wage labor.5 In Latin America-despite
greaterfluctuationin the historicaldevelopmentof state policy toward
the capital-owning classes, which saw periods of nationalistprotection
alternatewith periodsof supportforthe upper,oftenforeign-dominated,
bourgeoisie-Huntington's observation of twenty years ago remains
generallyaccurate: "They [the military]become the guardians of the existingmiddle-class order.... theirhistoricalrole is to open the door to
the middle class and close it on the lower class."6
Explaining the role of the authoritarianstatein industrializingsocieties has been more difficultthan recognizingit. Althoughthereis a wide
range of material on the subject, this paper will not be concernedwith
the more voluntaristanalyses that concentrateon statepower as primarilya functionof institutionbuilding; rather,it will examine those approaches that explicitlyfocus upon the problem of the relationshipbetween state power and social power. These approaches may be broadly
divided into threemajor but overlappingschoolsof thought:instrumentalist,structuralist,and state-centered.Because I will be analyzing the
Indonesian experience in termsof these threeschools,some briefexplanation is required.
The instrumentalist
approach seeks to explain the stateand itspolicies
in terms of its subordinationto instrumentalcontrolby the dominant
of memsocial forces-whether throughclass-basedparties,recruitment
bers of the dominant class into the state apparatus, or the ideological
hegemonyof the ruling class.7In the case of Indonesia, significantnumbers of political and bureaucraticpower holders are also statemanagers
of capital or substantialprivateowners of capital. However, any attempt
to explain the militaryregime purely in such termspresentsreal problems because of the institutionalautonomyof the state,the weakness of
political institutionsexternal to the state apparatus, and the poorly developed and defined class structuresthat existed in at least the initial
stage of state formation.
5 FredericC. Deyo, ed., The PoliticalEconomyoftheNew AsianIndustrialism
(Ithaca, N.Y.:
Cornell UniversityPress, I987); Nigel Harris, The End ofthe ThirdWorld,NewlyIndustrializing Countriesand the Decline of an Ideology (Harmondsworth,U.K.: Penguin, i986);
Stephan Haggard, "The Newly IndustrializingCountries in the InternationalSystem,"
Clive Hamilton,"CapitalistIndustrializationin East
WorldPolitics38 (Januaryi986),343-70;
AliceAmsAsia's Four LittleTigers,"Journalof Contemporary
Asia I3 (No. I, 1983),35-73;
den, "The State and Taiwan's Economic Development,"in Evans et al. (fn.2), 78-I06.
6 Samuel P. Huntington,
PoliticalOrderin ChangingSocieties(New Haven: Yale University
Press, i968), 222.
7Nicos Poulantzas and Ralph Miliband,"The Problem of the CapitalistState," in Robin
Blackburn,ed., Ideologyin Social Science(Glasgow: Fontana, I972), 238-64.

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POLITICS OF NICS: INDONESIA

55

Structuralistapproaches that recognize the relativeautonomyof the

stateare more useful; autonomyis constrained,not by instrumentalcontrol,but by limitsand imperativesplaced upon stateaction throughthe
very structuresof societyand economy. According to the structuralist
position the state cannot, in the long term,contradictthe logic of the
economic systemor override the interestsof the dominant class.8The
capital-owningclasses have power, not in a formalpolitical sense, but
because they are the key to investment,production, and economic
growth,and are essential to the economic survival of the societyas a
whole.9Their dominance is embedded in the verystructureof the prevailing social and economic system.Consequently,the state is forcedto
intervene,by legislatingand investingin troubled sectors,in order to
mediate and resolvepoliticaland economiccrisesthatthreatenthehealth
of the systemas a whole.Io Although structuralismavoids many of the
approaches,it containsa mechadifficultiesinherentin instrumentalist
nisticand deterministtendencythat underestimatesthe significanceof
strugglesat the political level, both withinand between capital and the
state,which play a formidablerole in shaping power.
In Indonesia, the stateand its officialsconstitutea coherentand identifiablepolitical force of considerable autonomy and dominance. Here
the state-centeredapproaches of writerslike Skocpol, Trimberger,and
Block are most useful-precisely because they recognize coherentand
specificinterestssuch as maintenanceof power and revenue bases, and
strategicand militaryobjectives.The statecan thereforebe analyzed as
a separatefactorin the struggleforpower and controlover policy,which
can (and does, when necessary)contravenethe interestsof the dominant
class. Whether it is successfulor not depends largelyupon the conjunctureof stateaction and the configurationof social and economic power,
thusbringingus back to the ultimateconditioningrole of structuralfactors.At thislevel,we must also considerthe politicalrole of social forces.
In Indonesia,a pact of dominationhad been forgedbetweenthe politicobureaucratswho dominate the stateapparatus and the leading elements
of the capital-owningclasses based upon a complex conjunctureof interests.In timesof stress,however,fissureshave appeared in thisalliance as
the interestsof the statehave come into conflictwith thoseof important
8 Martin Carnoy, The Stateand Political Theory(Princeton:PrincetonUniversityPress,
I984), 89-I27, 250-54.
9 Block (fn. 3); Fred Block, "Beyond Relative Autonomy:State Managers as Historical

Subjects,"in Ralph Milibandand JohnSaville,eds.,SocialistRegister(London: Merlin Press,

1980), 227-42.
- Carnoy (fn. 8), 25I-55;

Martin'sPress,I973).

JamesO'Connor, The Fiscal Crisisof theState (New York: St.

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WORLD POLITICS

56

segmentsof capital,and as thesesegmentsthemselveshave struggledfor

politicaladvantage.
AUTHORITARIAN

REGIMES

AS A TRANSITIONAL

PHENOMENON

The second question to be considered is that of the relationshipbetween authoritarianstatesand specificstages of industrialdevelopment.
Writers such as Gerschenkron,Moore, and, more recently,O'Donnell
between liberal democraticpoliticalsystemsand
have noted the affinity
phases of capitalistdevelopmentcharacterizedby the freemovementof
goods, labor, and capital. Similarly,thereis an affinity
between authoritarian regimes and late industrializationinvolvinginvestmentin heavy
industry.",In the lattercase, authoritarianregimesare the resultof pacts
of domination between the larger bourgeoisie and the military.Such
pacts are broughtabout in order to resolve politicalcrises (i.e., popular
and revolutionarychallenges) and economic crises emerging from the
systemof importsubstitutionindustrialization;theyalso impose the discipline and controlneeded fora progressionto large-scaleinvestmentin
heavy industry.Pre-World War I Germany and Japan are traditional
examples of the marriage of heavy industryand authoritarianrule;
O'Donnell and othershave also applied thismodel to situationsin Asia
and Latin America.12
Recent events in Brazil, Uruguay, Argentina,South Korea, and the
Philippines indicate, however, that authoritarianregimes are making
significantretreats.As Stepan remarks,referringto Latin America:
Bureaucratic authoritarianregimes are still with us, but if the i96os was
the decade of the exhaustion of the early stage of import-substituting
industrialization and parliamentarydemocracy in the southern cone, the
i980s
appear to hold the promise of the "exhaustion" of the BA regime.'3
Several reasons for a retreat from authoritarian rule are suggested by

the prevailingtheories.First,the phase of industrialdeepening is being

replaced by a phase of export-orientedindustrializationand greaterintegrationinto the internationaldivisionof labor,making the sortof ecoJamesR. Kurth,"The PoliticalConsequences of the ProductCycle: IndustrialHistory
and PoliticalOutcomes,"International
Organization33 (Winter 1979), I-34.
12Guillermo O'Donnell, "Reflectionson the Patternsof Changes in the BureaucraticAuthoritarianState,"Latin AmericanResearchReview I2 (Winter I978), 3-38; Collier, ed. (fn.
2); Hyug Baeg Im, "The Rise of BureaucraticAuthoritarianism
in South Korea," World
Politics39 (JanuaryI987), 23I-57; William Crowther,"PhilippineAuthoritarianism
and the
International Economy," Comparative Politics i8 (April i986), 339-56; Fermin D. Adriano,

"A Critique of the BureaucraticAuthoritarianThesis: The Case of the Philippines,"Journal

of ContemporaryAsia

I4

(No. 4, 1984), 459-84.

AlfredStepan,"State Power and the Strengthof Civil Societyin the SouthernCone of

Latin America," in Evans et al. (fn.2), 3I7-46.
'3

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POLITICS OF NICS: INDONESIA

57

nomic and social regulationand controlprovided by authoritarianregimes irrelevantand counterproductive.Second, the ruptureof the pact
of dominationas a consequence of thegrowingsocial and politicalpower
of the capital-owningand middle classes has resultedin a direct challenge to the regime.Third, the ruptureof the pact of dominationhas, by
its fragmentationand increasinginternalconflict,weakened the social
basis of authoritarianrule.
While the shiftsof power in South Korea, Thailand, and Brazil were
of civil societyand, in particular,to the
partlyrelatedto a strengthening
power of the capital-owningclasses,this was not the case in the Philippines and Argentina,where the new civiliangovernmentsare struggling
to build social and politicalpower bases of substance.'4
Other differencesin experienceare demonstratedby specificcases: in
Brazil, the capital-owningand middle classes pushed fora returnto democracy; in Chile, a historicallysubstantialmiddle and capital-owning
class continuesto give its supportto the Pinochet regime.The authoriand pursued natarianstatein Indonesia has exercisedpower arbitrarily
tionalisteconomic policies; the regimesof Singapore,South Korea, and
Chile have been highlyregularized,and theireconomic nationalismis
circumscribed.The point illustratedhere is that,while politicalsystems
may be conditioned by the internationalcontextin which theyoperate
or the stage of industrializationover which theypreside,the precisenatureof regimesis the outcome of a specifichistoryof social and political
conflict.'
The retreatof authoritarianismover the past decade can only partly
be explained by challenges from an increasinglypowerful and wellorganized civil society.A more pervasivefactorin the recentweakening
of thepositionof authoritarianregimesin industrializingeconomiesmay
be found in theirinabilityto handle the growingeconomic crisesof the
i980s: debt,inflation,
growingbalance-of-payments
deficits,fiscalcrises,
These are important
declininginvestment,and decaying infrastructure.
reasons behind the rush to hand over power in Latin America and to
hand over economic responsibility
to the privatesectorin Indonesia,Malaysia, and Singapore.'6 In such cases, the ideology and institutionsof
'4Kevin Hewison, "National Interestsand Economic Downturn: Thailand," in Richard
Robison,Kevin Hewison, and RichardHiggott,eds.,SoutheastAsia in the ig8os: The Politics
ofEconomicCrisis(Sydney:Allen & Unwin, i987), 52-79; 5. K. Jayasuriya,
"The Politicsof
Economic Policyin the PhilippinesDuring the Marcos Era," ibid.,8o-i I2; Stepan (fn. I3).
5 RhysJenkins,
"Divisions Over the InternationalDivision of Labour," Capital and Class
22 (Spring I984), 28-57.6 GarryRodan, "The Rise of Singapore'sSecond IndustrialRevolution"in Robison et al.
(fn. I4), I49-76; JomoKwame Sundarum,"Economic Crisis and Policy Response in Malaysia, ibid., I3-48.

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WORLD POLITICS

58

authoritarianismare likelyto be in hibernationratherthan in eclipse.

The political impactof economic crisishas been particularlysevereon
authoritarianregimes,and it is here thatwe may be able to identifysome
general inadequacies of such regimesas long-termpoliticalvehicles for
industrialization.As O'Donnell and othershave observed,thelegitimacy
of regimes is largely based upon their capacity to deliver economic
growth; when this evaporates, so do most of the reasons for allies to
remain loyal.'7Ferdinand Marcos is a primeexample of a rulerdeserted
by externaland domestic allies as economic collapse deepened. O'Donnell explains this tendencyas a product of the inherentinabilityof authoritarianregimesto build into the politicalsystemthe mediationsbetween the various factionsof the capital-owningclasses and between
capital and labor that are necessaryto hold the systemtogetherwhen
economic conditionsdeteriorate.
The options,however,are not simply"authoritarianism"or "democracy." Authoritarianregimestake a varietyof formsand preside over a
wide range of economic policies and political alliances. The growing
forced
power of a bourgeoisieand the greatercomplexityand flexibility
upon the stateby a need to accommodatethe internationaleconomymay
resultin a shiftfroma simple,narrowlybased, and autonomous regime
to one thatis more complex and regularized,and yetless independentof
market and dominant social forces.This is what is happening in Indonesia.
THE

INDONESIAN

CASE

Indonesia has experienced authoritarianrule since 1960, a major

counterrevolutionin i965, and an oil boom in the I970s, followedbya
dramaticcollapse in oil pricesin the I980s. These eventshave been combined with wild swings in economic policy and a constantprocess of
economic strugglewithinand between the stateand the capital-owning
classes. As a consequence, Indonesia offersan importantinsightinto the
politics of capitalist industrializationand the relationshipbetween the
authoritarianstateand the capital-owningclasses.
LIBERAL

DEMOCRACY,

COUNTERREVOLUTION:

AUTHORITARIAN

POPULISM

AND

I949-I965

In I949, Indonesia's new republicangovernmentinheriteda commodity-basedexport economy already in serious decline. With the eliminaI7 GuillermoO'Donnell, "Tensions in the Bureaucratic-Authoritarian
Stateand the Questionof Democracy,"in Collier (fn.2), 285-318.

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POLITICS OF NICS: INDONESIA

59

tion of the colonialregime,the dominantDutch capitalistgroupsin

estateswereno longerguaranteed
banking,trade,and plantation
protectionin theinternational
marketplace
and privilegedaccessto land and
labor withinIndonesia.A rapidlygrowingvacuumwas readyto be
filled.
The domesticcapital-owning
classeswerelargelyconcentrated
in the
pettytradingand small-scale
commodity
production
sectors;theyhardly
constituted
a promising
basisfora strongbourgeoisieand capitalistindustrialization.
Because of theirdivisionintoindigenousand Chinese
theirpoliticalpotentialwas seriously
elements,
blunted.The indigenous
group tended to be Muslim-oriented
and stronglyanti-Chinese;althoughit had provedable,fromtimeto time,to forcegovernments
to
introducead hoc protective
it enjoyedlittlesympathy
legislation,
from
stateand partyofficials
drawnfromthebureaucratic
middleclasseswho
werewaryofright-wing
Muslimsentiments.'8
The Chinese,on theother
hand,were more successfulin buildingcorporate,
trading,and credit
buttheywereunableto playa formal,
networks,
publicpoliticalrole.
At thepoliticallevel,noneofthefragmented
partiesoftheI950s had
developedfroma strongsocialbase,and nonecouldbe regardedas reptheinterests
of thecapital-owning
classin anycoherentway.
resenting
to developsupportof theindigeVariousgovernments
had attempted
and monopoliesin theimnous pettycapitalists
byoffering
protection
intochaosand
portsector,but theseexperiments
usuallydisintegrated
A few largerdomesticgroupswere based on accessto licorruption.
censes,monopolies,and concessionsprovidedby politicalpatrons,but
tiedtotrade;noneprovidedthecutting
theyremainedalmostexclusively
investment
thateconomicplannershopedfor.'9
edge forindustrial
Undertheguidanceof Industry
MinisterSumitro,an industrial
plan
was formulated
thatassumedand intendeda significant
degreeof priThe factthatnonewas forthcoming
vateparticipation.20
indicatedthat
could be made by importing,
and thatprivatedomestic
greaterprofits
capitalhad neithertheresourcesnorthecorporateorganization
necessary forlarge-scale,long-termindustrialinvestment.
Thus, the state
cametooccupythecenterstageofdomesticcapitalownership
bydefault
ratherthanbydesign.
Robison(fn.2), 57-62.
9 J. Sutter,Indonesianisasi:
Politicsin a ChangingEconomy,1940-55 (Ithaca, N.Y.: Data
Paper No. 36 [4 vols.],Departmentof Far EasternStudies,Cornell University,1959), 101735.
K. D. Thomas and J. Panglaykim,Indonesia-the Effectsof Past Policiesand President
Suharto'sPlan for the Future(Melbourne: CommitteeforEconomic Development of Australia,I973), 49-52.
.8

20

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WORLD POLITICS

60

When the governmentconfiscatedDutch corporateassets in I957-58,

only a few ended up in privatehands. The tradingand plantationcompanies were largely appropriatedby the militaryas sources of revenue.
Furthermore,there was a widespread feelingthat privateand, particularly,indigenous capital had provenitselfincapable of playinga responsible and effectiveeconomic role: if Indonesia was to industrialize,the
statehad to take the lead.21
The vacuum of power at both the social and the politicallevel and the
resultingentropythroughoutthe I950s culminatedin a politicalrevolution fromabove, led by Sukarno with the supportof themilitary.Parliamentary governmentwas supplemented by an authoritarianregime,
populistin styleand corporatistin structure.However, thechaos was not
over. Sukarno's political authorityrested upon a highly personalized
brand of patronageand charismaticpopulism thathad neitheran organizational nor a social base to sustain it. Continuing and deepening economic crisisand politicalconflictled to a militarytakeoverin i965, and
to the eliminationof both Sukarno and the growing Communist Party
(PKD).
The militarytakeover resolved two crises.First, it settleda struggle
for power between the militaryand the PKI, the two cohesive political
forcesthathad emerged fromthe period of politicaldisorder.Second, it
reconstitutedthe path of capitalistdevelopmentby bringingback international capital, the crucial and hithertomissing ingredientneeded to
clear up the crisisof investmentand debt.
When the New Order came to power,the capital-owningclasses were
at low ebb. Since the nationalizationsof I957-58, foreigninvestmenthad
been limitedto the oil and mineralssector,where it operatedunder production-sharingagreementswith the government.With the exception
of relativelyfew domestic business groups that held lucrative trade
monopolies, the bulk of domestic private capital remained locked into
small-scale trade and manufacture.As the Sukarno regimeencountered
deepening economic crisis,even these groups were hard hit by surging
inflation,lack of foreignexchange,and a collapsinginfrastructure.
The New Order inheriteda large, ramblingstate-ownedsector,for
the most part located in trade and agriculture.Although the Sukarno
governmenthad attemptedto use state corporationsto develop an industrial base in manufacturing,including cement, steel, automobiles,
shipbuilding, fertilizers,and engineering,these ventures had for the
most part been rendered moribund by incompetentand corruptman21

Ibid.,56-59-

22

Robison(fn.2), 80-85.

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POLITICS OF NICS: INDONESIA

61

agement,inflation,and a shortageof investmentfundsand foreignexchange forimportof technologyand spares.23

ECONOMIC REHABILITATIONANDTHE EARLY STAGEOF IMPORTSUBSTITUTIONMANUFACTURE:i965 TO THE MID-I970s

Although the land- and capital-owningclasses and the salaried and

professionalmiddle classes supported the new regime of General Suharto,theywere quickly disabused of any expectationthat theywould
participatein government.The military,and selected civilian bureaucrats,rapidly assumed control of the state apparatus. They reinforced
authoritarianrule bytheconsolidationof corporatistinstitutions
and ideologies. The ideologues of the New Order attemptedto legitimize the
regimeby arguing thata period of authoritarianrule, and hence, objective,scientific,
and decisive policy-makingwas necessaryto build an industrialbase forthe economy and provide the preconditionsfor future
democraticgovernment.24
Economic and industrialpolicywas hammered out in i966 and i967
by a team of technocratsappointed by Suharto to rehabilitatethe bankrupteconomy,solve thefiscalcrisisand enable investmentto begin again.
The reschedulingof Indonesia's debts and negotiatingof new loans
made possible the resumption of commodity imports and thereby
broughtdown runawayinflation.It also ended the desperateshortageof
inputsthat was stranglingdomesticproduction.In returnfor the assistance of internationalcreditors,Indonesia's new leaders agreed to end
thenationalistpoliciesof state-ledindustrializationand to encourage private investmentin theconsumer-goodsand agriculturalsectors.Further,
theyagreed to drafta new foreigninvestmentlaw that provided relief
fromtaxationand otherincentivesforforeigninvestors.This was not a
move toward free-marketpolicies, but toward import substitutionindustrializationbehind substantialtariffbarriersin the hope and with the
intentionthatprivatedomesticand foreigninvestorswould replace state
corporations.25

Such policieswere branded-by nationalistand radical criticsalikeas a selloutto foreigncapital and a victoryof the internationalbourgeoisie over an attemptto achieve economic autonomy. The technocrats,
23 Robison(fn.2), 7I-79;

Thomas and Panglaykim(fn.20), 56-75.

24Ken Ward, "Indonesia's Modernization:Ideologyand Practice,"in Rex Mortimer,ed.,

Modernization(Sydney:Angus & RobShowcaseState: The Illusionof Indonesia'sAccelerated

and Modernization
ertson,I973), 67-82; Ali Moertopo,The Acceleration
of35 Years'Development(Jakarta:Centre for Strategicand InternationalStudies, I973): Harold Crouch, The
Armyand PoliticsofIndonesia(Ithaca,N.Y.: Cornell UniversityPress,I978).
25 Thomas and Panglaykim(fn.20), I00-I44.

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62

WORLD POLITICS

mostofwhomhad beentrainedin theUnitedStates,werechargedwith

beingagentsof imperialist
ideologiesand withimplementing
policies
thatwould crushdomesticcapitaland allow dominationby multinationalcorporations
and theWorldBank.26
In fact,theadoptionofthese
policieswas a consequenceofdomesticconsiderations.
Afterthepolitical
defeatof Sukarnoand of thePKI, thenew rulerssoughtan economic
withtheinterests
strategy
compatible
ofthedominantpoliticaland social
whichwouldat thesametimeaddressthefiscalcrisisfacedbythe
forces,
Indonesianstateand a moregeneralcrisisofinvestment.
Domesticcapital,bothstateand private,was clearlyunableto providetheenginefor
investment
and growththatwas so desperately
needed.In themeantime,
inflation
and thebalance-of-payments
and revenuecrisesrequiredurgentinputsoffundsthatcouldonlybe suppliedfromabroad.27
It is notcorrectto saythatdomesticcapitalin generalwas sacrificed
toforeign
interests.
True,thedomestic,
Muslim-oriented
pettybourgeoisiecontinuedon itspathofgradualdeclinein tradeand small-scale
manufacture.The politicalorganizations
thatrepresented
itsinterests
were
ignoredby thestate,whichinsteadsponsoreditsown businessorganization,Kadin,underthedirectorship
ofmilitary
businessmen.28
In fact,
domesticinvestment
betweeni965 and I975; by I975
grewsubstantially
itfurnished
around50 percentoftotalnon-oilinvestment.29
Overhalfof
thiswas providedby the state,but a significant
developmentwas the
emergenceof a largenumberof privatecorporations
enjoyingpolitical
patronage;theywerelocatednotonlyin trade,but in manufacturing,
and transport.
forestry,
property,
Politicalpatronageand stateprotection
affordedprivilegedaccessto
statebankcredit,forestry
trade
and manufacturing
concessions,
monopolies,officialdistributorships
of basicfoodstuffs,
and statecontracts
for
The bulkof thesenew corporategroupswere
supplyand construction.
theirdirectors
Chinese-owned;
had had longassociations
generally
with
themilitary,
forarmycommandsand individualgenactingas financiers
erals,and de factomanagersforcorporations
owned by the military.
Several indigenouscapitalistsalso emerged,not fromthe traditional
Muslimpettybourgeoisie,
butfromthehigherechelonsof theciviland
bureaucracies.30
military
26 Rex Mortimer,"Indonesia: Growth or
Development?" in Mortimer(fn. 24); Bruce
Glassburner,"Political Economy and the SuhartoRegime,"BulletinofIndonesianEconomic
Studies14 (November 1978), 24-5127 Robison (fn.2), 131-42.
28
Ibid., 323-27Ingrid Palmer, The IndonesianEconomySince 1965 (London: Cass, 1978), II I.
3" Robison (fn.2), 131-75.
29

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POLITICS

OF NICS: INDONESIA

63

INDUSTRIAL DEEPENING AND ECONOMIC NATIONALISM:

POLICY FROM THE MID-I970S

TO THE EARLY i980s

Startingin theearly I970s, thegovernmentbegan to shiftitsindustrial

strategy toward the goal of creating an integrated industrial base embracingcapital-and intermediate-goodssectorsin addition to the established consumer-goodsmanufactures.
State corporationssuch as Pertaminaand Krakatau Steel led the way
in making extensiveinvestmentsin petrochemicals,fertilizers,
steel,and
metal engineering.These were complementedby massive state investments in infrastructure,
particularlytransportand communications.
Substantialbenefitsaccrued fordomesticprivatecapital fromthispolicy
because the bulk of governmentspendinginvolvedthe purchaseof techand plant.Althoughinternational
nologyand provisionof infrastructure
corporationssecured most of the contractsfor supply and construction,
domestic corporationswere given access to the limit of their capacity.
The positionof the latterwas reinforcedby policies that mandated the
exclusionof foreigninvestorsfromsectorsin which domesticcapital had
the capacity to operate, or by the requirementto take domestic jointventure partners.Large private domestic corporate groups flourished
during thisperiod,aided furtherby the generalbuoyancycreatedby the
injectionof oil moneyinto the Indonesian economy.
Why was such a change in thedirectionof industrialpolicytaken and,
in view of the degree to which it benefitedthe new domestic corporate
manufacturers,what role did the latterplay in the developmentof the
new policy?
The idea of an integratedindustrialbase for Indonesia was not new.
It underlaythepoliciesof ProfessorSumitroin the 1950s and of Sukarno
in the i960s. The creationof a capital- and intermediate-goodssectors
was conceived,not only to end economic dependence,but to allow strategicautonomy.In the early I970s, General Ali Moertopo embodied the
strategicaspect in the conceptof "national resilience.' Since i965, the
architectsof Indonesia's industrialpolicies Ibnu Sutowo, Soehartoyo,
Soehoed, Hartato,Ginanjar,and Habibie-have all argued the meritsof
protectionand heavystateinvestmentin major industrialprojects.Without the base of capital-and intermediate-goods
productionand the backward and forwardlinkages offeredby integratedcircuitsof industrial
and self-generating
industrializationwas, in
production,self-sustaining
theiropinion,not possible.32Such views were implementedin policy as
3'Moertopo (fn.24).
B. J. Habibie, "Industrialisasi,Transformasi,Teknologi dan Pempbangunan Bangsa
[Industrialization,transformation,
technologyand national development]Prisma (No. i,
32

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64

WORLD POLITICS

a resultoftheboomin staterevenuesand foreign

earningsgeneratedby
oil. The corporate
taxon oil grewfromRp. 344 billionin 1973/74 to Rp.
8,627 billion in i98i/82 (from35.6 to 70.6 percentof total revenue).

The ideologicalcommitment
to industrial
deepeningalso enhanced
thefinancialbase,economicpower,and patronageofthemajorbureaucratsand statemanagersofcapitalbecauseitwas theywhoappropriated
theauthority
to directinvestment,
allocatecontracts,
and grantimport
monopolies.Policiesof industrial
deepeningand stateregulation
thereintothepoliticalinterests
of thebureaucrats
forebecameintegrated
of
theNew Order.
BetweenI975 and i985, theroleof privatecapitalin therapidstateled industrialization
of Indonesiavarieddramatically.
The declining,
Muslim-oriented
small-business
sectorcontinuedto slidedespiteitsstriIn themonthsbeforetheanti-Japanese
dentpoliticalresistance.
student
and newspapers
riotsof I974, associations
Muslim-oriented
representing
indigenoussmall capital had conducteda public and virulentantito halttheirdeteriorating
foreign,anti-Chinese
campaignin an effort
the
in
in
After
riots
position.
Jakarta JanuaryI974, severalprotective
fordomesticand indigenouscapital,includmeasureswereintroduced
thatforeigners
takeindigenousjoint-venture
ing therequirement
partners;suchrequirements,
however,
generally
provedtobe ineffectual
and
poorlyimplemented.33
continuedto dominatein theoil and minForeigncapitalinvestment
eral sector,but declinedin the non-oilsectorbetweenI977 and i985.
Foreigncorporate
spokesmen
puttheblameon controls
uponthesectors
in which theywere permittedto invest,joint-venture
requirements,
and bureaucratic
over-regulation
bygovernment,
corruption,
incompetence.34
BecausetheIndonesiangovernment
had accessto hugeamounts
of oil moneythatmade it less relianton foreignsourcesof funding,it
couldnow affordto imposestringent
on foreigninvestors.
requirements
withthe phenomenalgrowthof major doThis situationcontrasts
mesticcorporategroups.Led byLiem Sioe Liong,WillemSoerjadjaja,
Tan SiongKe, Bob Hasan, HendraRahardja,Ciputra,and variousSuhartofamilyinterests
includingthe Bimantaragroup,thesecorporate
1986), 42-54; A. R. Soehoed, "Japanand the Developmentof the IndonesianManufacturing
Sector,"IndonesianQuarterly9 (October i98I), 2-I9. Ginanjar's views are best illustratedin
the newspaperinterview,"PenyebabEkonomi Biaya Tinggi Tidak Bisa Langsung pada ProKomteksi"[The cause of the high-costeconomycannotbe directlyattributedto protection],
pas, August 24, i985, pp. I and I2.
33Robison (fn.2), i64-69.
34Jakarta
Post,August 5, i986, p. 7; August i8, i986, p. 7; August 22, i986, p. 4; August
28, i986, pp. I, 7.

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POLITICS OF NICS: INDONESIA

65

groups extended theirindustrialactivities invariablyin joint ventures

with foreignpartners into auto manufacture,tires,batteries,components,cement,electronics,into the engineeringsectorsthatgrew around
the oil industry,and into the manufactureof steel.Businessgroups with
strongpoliticalconnections,includingLiem, Bob Hasan, and the Suhartos' Bimantara group, secured controlof the importof technologyand
raw materials.35
The emergenceof thesegroups would not have been possible without
state policies that strictlyregulatedthe penetrationof foreigncapital to
allow a domesticdominance in certainareas such as foodstuffs,
import
and domesticdistribution,
logging,plywood,and cement.Controlledaccess was permittedto the technology-and capital-intensivesectorswhere
domestic capital needed foreign technology,organization, and skills.
Some domesticgroups would not have grown so rapidlywithoutprivileged permissionto form monopolies,or without concessions,licenses,
and credit made available by political patrons in a heavily regulated
economy.
These policies of protectionand subsidywere not imposed upon the
stateby a politicallycohesiveand powerfulbourgeoisie.Class action was
politicallydifficultbecause the dominant element of the emerging domesticcorporategiantswas Chinese, and thereforenot accorded a legitimate public role in Indonesian politics.Instead,the politicalstrengthof
capital in thisperiod derivedfroma combinationof nationalistideologies
and alliances of individual capitalistswith specificcentersof politicobureaucraticpower. Highly profitableclient corporategroups gave the
politico-bureaucratic
power centersaccess to revenues for political and
personal needs, as well as entryto the world of corporatecapitalism as
shareholdersand investors.Increasing numbers of officialsand their
families secured equity in client corporations,mostly Chinese-owned,
and establishedtrade monopolies. Because theywere able to determine
the flow of patronagein a heavilystate-controlledeconomy,theycould
virtuallyguaranteehuge profitsat the corporatelevel. With the blurring
of the boundarybetweenpoliticalpower and bureaucraticauthority,an
increasingfusion of politico-bureaucraticpower and corporate capital
ownership had developed, which constitutedone of the driving forces
behind the growthof privatedomesticcapital in thisperiod.
35Robison (fn. 2), 27I-372;
Paul Handley, "Coming to the Defence of the Family Business,"Far EasternEconomicReview,May 22, i986, pp. 40-42; StevenJonesand Raphael Pura,
"Power and Privilegein Indonesia,"Asian Wall StreetJournal,November24, 1986, pp. I, 8;
November25, i986, pp. i, 9; November26, i986, pp. i, 6.

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WORLD POLITICS

66
COLLAPSE

OF OIL

BETWEEN

PRICES

CAPITAL

AND THE EMERGENCE

OF CONTRADICTIONS

AND STATE

Surging oil prices and the consequent boom in state revenues in the
decade startingin the early 1970S enabled the state to financean ambitious program of industrialization,built around large projects,for production of capital and intermediategoods. In i982, however,oil prices
declined from$38 to $28 per barrel,and in early i986 theycollapsed to
back to $i8. This price collapse
$12 beforeclimbing slowlyand fitfully
had a dramatic effectupon Indonesia's foreignearningsand state reveThe Indonesian governmentwas
nues, both of which went into deficit.36
no longer able to underwritethe industrializationprogram; indeed, it
was forcedto look around fora non-oil domestictax base.
The oil price collapse resulted in a transformationof the economic
environmentin which political conflicterupted over economic policy.
Within the capital-owningclasses,influenceshiftedfromthe major domesticcorporategroups dependentupon stateprotectionand regulation
to internationalcorporationswith an interestin maximizing the freeinternationalmovement of capital. At the same time, major differences
developed betweendownstreamproducers,upstreamproducers,and importersof industrialinputs.Most important,therewas a shiftin the relationshipbetween stateand capital,and a weakening of the positionof
the politico-bureaucrats.
Domestic manufacturerssufferedin the i980s not only because the
decline in state investmentmeant fewer contractsand orders,but also
because a general world recessiondampened demand both domestically
Domestic companies began to operate below capacand internationally.
of
investmentproduced decline in the privatesecThe
decline
state
ity.
tor; preciselyat the time when the statelooked to domesticprivatecapital to take up a greatershare of the burden of investment,37the latter
was less able to do so. Indeed, the statewas forcedto come to the rescue
of one of the largestindustrialconglomerates,Liem Sioe Liong's Indocement,and to relieveitof theincreasingburdensof servicingU.S. dollar
debts when its domesticoutput and the value of the rupiah were both
falling.The state purchased 33 percentof Indocement and made cheap
Ross Muir, "Survey of Recent Developments,"Bulletinof IndonesianEconomicStudies
(August I986), I-27.
37" 'Pri,' 'Non Pri' dan InvestasiRp. 62, 500,000,000,000"
['Indigenous,''non-indigenous'
and the investmentof Rp. 67.5 trillion]Tempo,March 31, i984, pp. 66, 67; "Mendorong
Swasta ke Mana?" [Where is privatebusinessbeing pushed to?], Tempo,February25, i984,
pp. 68-73.
36

I2

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POLITICS OF NICS: INDONESIA

67

statecreditavailable,enablingthefirmto replaceexpensivedollardebts
withcheaprupiahones.38
werethedivergent
interests
oftheupstreamproducMostsignificant
on theone hand,
ers of capitaland intermediate
goods and importers
and on the other,downstream
producersof consumergoods forboth
markets.As theeconomicsqueeze intensidomesticand international
fied,downstreamproducersarguedthatexpensiveinputsraisedtheir
and theydemandedthe rightto purchaseon the
costsof production,
and subsidizeddomesticupstreamproopenmarket.Becauseprotected
ducerswould be unableto competewithforeignimportsif tariffs
and
quotaswereremoved,suchpressurewas a threatto thestate'splansto
industrial
base.The demandswerealso a threatto
developan integrated
theextensive
systemofimportmonopoliesthatembracedthefullrange
of importedinputsand was controlled
by alliancesof politico-bureauclients,includingtheSuhartofamily.
cratsand theircorporate
was forcedto accedeto someofthedemandsof the
The government
but bedownstream
producers-notbecauseof theirpoliticalstrength,
cause of theneed to developa viablesectorof non-oil(and preferably
manufactured)
exports.Despitelow wages,manufactured
exportshad
due mainlyto highinputcosts
beenlimitedbyhighcostsofproduction,
and charges.The government
inefficiencies
introduced
and bureaucratic
the
number
of import
in
and
October
reforms May
i986, reducing
downstream
some
monopoliesand permitting
producersto circumvent
of the importmonopoliesby independently
importinginputswhere
thesewere requiredforexportproductionand not availabledomestically.39The reformcontaineda second threatto the major domesticcorporate groups,namelythe concessionsofferedto foreigninvestors.The
numberof sectorspreviouslyclosed to foreigninvestmentwas drastically
reduced,and requirementsforthe transferof equityto domesticpartners
were relaxed. Foreign companies were permittedto borrow from domestic banks and to engage in domesticdistribution;tariffswere lowered across a wide range of sectors.
The struggleover policyand the shifttoward a less protectednational
economy more closely integratedinto the world economy was clearly
deficitsbrought
conditionedby fiscalpressuresand balance-of-payments

38 "Pembelian Saham P. T. IndocementBukan untukMembantuDana"

[The purchaseof
sharesin P. T. Indocementis not intendedto assistit financially],
Kompas,August I4, i985,
p. I; "Bubarkan Perusahaan Negara yang Tidak Miliki Potensi" [Dissolve stateenterprises
withoutpotential],SinarHarapan, August22, i985, p. 2.
39Muir (fn.36), i8-26.

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WORLD POLITICS

68

aboutby theoil crisis.At thesame time,therewas a veryrealpolitical

in whichseveralmajor forcesand interests
dimensionto the conflict,
wereinvolved,as follows:
i.

Forces acting generally in defense of policies of state-led industrial

deepening.
a. Military and civil bureaucrats. Because of their political and economic position,theyhad the abilityto appropriatethe resourcesand
authorityof the state apparatus,and increasinglycombined political
power, bureaucraticauthority,and capital ownership. Since considerable power and revenue is derived fromthe allocation of licenses,
monopolies, and concessionswithina complex systemof state regulation, the erosion of this state controlweakened the position of the
politico-bureaucrats.
b. Economic policy makers within the state apparatus with a political
and ideological commitmentto creatinga broad industrialbase for
Indonesia, integratingcapital, consumer, and intermediategoods.
Over the past twentyyears,thesehave included managers of the most
importantstatecorporationsand ministersin charge of such strategic
economic portfoliosas Industry,Research and Technology, and the
Capital InvestmentBoard.
c. Private and state-ownedcapital in the upstream sector.The bulk of
these enterprisesare state-owned: Krakatau (steel), Pertamina (oil
and petrochemicals),PAL (shipbuilding),and numerous other projects in metal processing,cement,engineering,and chemicals. Private
capital has moved increasinglyinto such industriesas cement, plastics, tin plate, cold-rolled steel, pharmaceutical raw materials, and
auto engines. Few of these industrieswould survive a removal of
protectionand subsidy.
d. Importersof industrialinputsof bothintermediateand capital goods.
Because theseinputsare invariablyheld as monopolies,importersare
able to operate withoutcompetitionin Indonesia. Some importmonopolies are tied to domesticproduction,as already noted in the case
of cold-rolledsteel (Liem Sioe Liong), and plasticsand tin plate (Bob
Hasan). Opening up the importmarket and removing monopolies
would spell disasterforthe traders.Dominant among these importers is the Bimantara group,comprisingmembersof the Suharto family.

2.

Forces operating to reduce state economic control and to open up the

market.
a. Economic planners within the World Bank and various Indonesian
planning bodies and universitieswho argue for deregulation and
movement into industriesthat hold a comparative advantage. They
themselvesdo not hold politicalpower,but have had policysuccesses
because economic conditions have made it increasinglydifficultfor
the stateto continue to financeits nationalistindustrialpolicies.
b. Internationalcapital, which-although complex and characterized
by numerous internaldivisionsand conflictsof interest-has increas-

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POLITICS

OF NICS: INDONESIA

69

inglypressedforderegulation
oftheeconomyand theregularization
ofthestateapparatus.The attractiveness
ofdirectforeign
capitalinvestmentand the influenceof its demandsgrowsas the domestic
capacityto generateinvestment
decreases.The positionof foreign
capitalis also strengthened
as Indonesia'saccelerating
foreigndebt
requiresincreasing
accessto foreign
loans.
c. Domesticdownstream
producersforcedto purchasetheirmanufacturedinputsat inflatedprices,eitherfromimportmonopolyholders
or fromprotectedand subsidized,but inefficient,
domesticfirms.
These producers
arealso hardesthitbyrecentcurrency
devaluations.
Their commitment
to thefreemanrket
is selective,
however,and we
mustassumethattheywould opposefreeentryof consumergoods
intoIndonesia.
For fiveyears,the struggleover economic policy has been one of the
most public and controversialaspects of Indonesian political life. The
level of passion and sensitivity
can be gauged by the factthatone of the
largestand mostinfluentialnewspapersin Indonesia,SinarHarapan, was
banned partlyin response to a storythat the governmentwas set to
abolish all non-tariff
importbarriers.
Finding themselvesfavoredby the new economic situation,advocates
of deregulation,including the World Bank and domestic economists
such as ProfessorSumitro,the influentialand respectedformerIndustry
and Trade Minister,have become increasinglyvocal in calling for dismantlingof the large protectedindustriesand a shiftin policy toward
export-orientedproductionbased on comparativeadvantage.4oPerhaps
the most dramatic step by the governmentwas its decision, in i985, to
take the responsibilityfor assessmentof import duties away from the
notoriouslycorruptCustoms Department and employ a Swiss survey
companyforthis task.41This decree was a directassault on the basis of
the politico-bureaucrats'power and a measure of the urgency with
which the governmentwas approaching the question of reducing the
costsand increasingthe competitivenessof industrialexports.
The whole issue of corruptionrepresentsa key factorin the changing
relationsbetween state and capital. Officialcorruptionmay have made
possible the monopolies and privilegesthat have enabled the major do4 Soemitro Djojohashikusumo, "Kebijakan Perdagang an dan PerindustrianTidak
Sejalan dengan Kebijaksanaan Pemerintah"(Trade and industrialpolicyis not in line with
governmentstrategies]Kompas, August 23, i985, pp. I, I2; Richard Robison, "After the
Goldrush: The Politicsof Economic Restructuring
in Indonesia in the i98os," in Robison et
al. (fn. I4), 16-5 I; AnthonyRowley,"Economic Schizophrenia,"Far EasternEconomicReview,Septemberio, i987, pp. 70-76.
4- Sjahrir,"Privitasasimenuju Efisiensir"
[Privatizationleading to efficiency]
Prisma(No.
7, i985), I4-22; Howard Dick, "Surveyof RecentDevelopments,"BulletinofIndonesianEconomicStudies23 (December I985), I0-I2.

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WORLD POLITICS

70

to emerge,butitsnegativeaspectsin terms
mesticprivatecorporations
now pose an increasing
of productioncostsand politicaluncertainty
theexportmarentering
producers
problem,especiallyfordownstream
economicand social
a farmoresignificant
ket.The latternow represent
forcethantheydid sometwentyyearsago whentheNew Ordercame
was Rp. 57I
to power.In I974-75, grossprivatedomesticinvestment
billion;in 1980-81, Rp. 5,584 billion was invested by private domestic
were heavilyinWhile the largestcorporateconcentrations
capital.42
of conthemanufacture
and importing,
volvedin upstreamproduction
sumergoodsforthedomesticmarketbylargeand smallproducershad
in line withthe substantial
generalratesof ecogrownexponentially
nomic growthin the I970s.

have
manufacturers
Over the pasttwo years,domesticdownstream
corruption
not
of
official
only
critical,
and publicly
becomeincreasingly
so
and upstreamproducerswho contribute
and theimportmonopolists
muchto thehighcostof inputs,buttowardthepoliciesthatunderpin
industrialbase. Criticshave
of a national,integrated
the development
the
figures.One is SukamdaniGitarsarjono,
includedsomeinfluential
presenthead of Kadin and publisherof Indonesia'smajorfinancialpain
withthe palace and major interests
per,who has close connections
the
Anotheris Probosutejo,
and construction.
hotels,cement,property,
who has extensive
holdingsin trade,plastics,propbrother,
President's
and automobiles.
construction,
glass,
chemicals,
erty,poultry,
base forthepoliticaldevelopPerhapsthemostcohesiveinstitutional
is Kadin,theIndonesianChamberofCommerce.
mentoftheseinterests
Kadin has
of thoseelementsof businessthatconstitute
The intention
inordertobringtheirinfluinstitution
beentodevelopitas a corporatist
ofpower.43
structures
enceto bearin a concerted
waywithintheexisting
Businesshas notcalledfora changein thepoliticalsystemitself(which
byworkersand peasants),
mighthaveopenedthedoorto participation
In i987, Kadin
butratherfora formalnichewithintheexistingsystem.
bethe
of
channel
of
communication
accorded status sole
was officially
and business.This enhancedstatuswillundoubtedly
tweengovernment
its positionwithinthe businesscommunityand provide
strengthen
policymakingin a more
forbusinessto influence
greateropportunities
way;butitis a two-edgedswordwhichmay
directand institutionalized
channelbywhichthe
Kadin'spositionas an institutional
also consolidate
mayimposeitscontroloverbusiness.
government
ideas and the economicand
The resilienceof economicnationalist
42

World Bank (fn. i), i8o.

43BuletinKadin Indonesia,August I5, i986.

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POLITICS OF NICS: INDONESIA

71

political strengthof the domesticupstreamproducershas proven to be

considerable,however.As notedearlier,Capital InvestmentBoard Chief
Ginanjar, Research and Technology Minister Habibie, and Industry
MinisterHartato continueto presentstrongdefensesof the existingpolicies of industrialization,arguingthatfree-tradepolicieslead to dependence and stagnation.Self-sustainingand self-generating
growth,theyargue, requirescompleteindustrialcircuitsable to generatebackward and
forwardlinkages; thesecan onlybe achieved by financingand protecting
large industrialprojects,particularlyin capital and intermediategoods.
Habibie's high-techinvestmentprojects in aircraft,ship-building,and
armamentshave remainedrelativelyuntouched.
In a concretesense, however, the strengthof the existingindustrial
strategiesand relationshipsbetweenthe stateand capital is embedded in
thepoliticaland economicinterestsof themajor statemanagers,the large
domesticcorporatecapitalists,and the state politico-bureaucrats.Huge
assetsare tied up in industrialprojectsthatcannotbe realized and transferredinto other,export-orientedindustries.A change of policy therefore constitutesa direct threat to the underpinningsof the politicaleconomic alliance thatdominatesIndonesia. These interestsin the militaryand the stateapparatus can onlybe shaken or dislodged by a major
and continuingfiscalcrisis.
It is thereforenot surprisingthat the state has postponed and abandoned major industrialprojectsonly with the greatestreluctance,and
has continuedto fund key areas of investmentin the capital- and intermediate-goodssectorsdespite the fiscalpressuresand the increasingreliance on foreignloans.
STRUCTURAL CHANGE AND AUTHORITARIANISM

Under Suharto,relationsbetween stateand capital have been characterized by the emergenceof a pact of domination among the politicobureaucratswho controlthe stateapparatus,an upper bourgeoisieof major domesticclientcorporategroups,and thoseelementsof international
corporatecapital thatare integralto the state'sindustrialstrategy:the oil
companiesand themanufacturinginvestors.This pact has been founded
on policiesof highlyregulated,nationalistpoliciesof state-ledindustrialization that place the levers of economic power firmlyin the hands of
and guaranteetheeconomicpositionof domestic
thepolitico-bureaucrats
corporateclients.
The pact of dominationhas been bound togetheras well as threatened
by a complex of elements.Perhaps the crucial factorin understanding

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WORLD POLITICS

72

thedynamics
ofthesedevelopments
is thecoherent
identity
and interests
ofthepolitico-bureaucrats
an identity
thatis toocomplexto
themselves,
allow themto be categorizedsimplyas eithera stateclassor a political
As officials
ofthestate,theyhavea vestedinterest
elite.44
in securingthe
politicaland economicviabilityof the stateapparatus most impora revenuebase and thecontinuing
economicgrowthnecessary
tantly,
to
legitimizetheregime.As a governing
elitewieldingdomination
overthe
stateapparatus,theyare concernedwithsecuringtheirown economic
and politicalviability.
They therefore
requireaccessto extrabudgetary
fundingthatcan be obtainedeitherbydirectly
statepower
appropriating
or byentering
and resources
allianceswithindividualcapitalists.
As state
withthegeneralprocessofcapmanagersofcapital,theyare concerned
ital accumulationand theprotection
of theircorporatepositionwithin
theeconomy.As individuals,
and factions
thathold trademofamilies,
incorporations,
nopoliesand ownsharesor partnerships
theyhavea class
in capitalaccumulation
and thecontroloflabor.
interest
an exchangeoffunds
Alliancewithmajorcorporate
groups(involving
forconcessions,
ormonopolies)
or shareholding
hasconstituted
contracts,
betweencapitaland
theinstitutional
basisof thesymbiotic
relationship
Becauseoftheirdependenceon statepatronage,
thepolitico-bureaucrats.
intothestate'sbroadindusclientcorporate
groupsare easilyintegrated
trialstrategies:
theybecome,in one sense,anotherarmofthestate.Poland industrial
iciesof economicnationalism
deepeningnotonlyreflect
of politico-bureaucrats
the ideologicalcommitment
to nationalselfbutreinforce
thepowerof thepactof domination
reliantdevelopment,
in thecomplexnetworkofcontroland regulations
and
byentrenchment
forpatronageand monopoly.
theconsequentopportunity
In themid-ig8os,thepolitico-bureaucrats
and theircorporateclients
were nevertheless
confrontedby significant
structuraland political
threatsto theirpositionand to thepactofdomination,
as well as to the
the
autonomyaffordedthestateapparatusby oil revenuesthroughout
I970S

and early i980s.

The collapseof oil pricescreatedan urgentrequirement

forthedevelopmentof non-oilexportearningsand domesticrevenuesources.
withthefocuson basicindustries,
This need was in directconflict
high
productioncosts,and poorexportperformance
thathad becomean inofstate-led
industrial
thesystemof
tegralpartofthestrategy
deepening,
44 C. Meillassoux,"A Class Analysisof the BureaucraticProcess in Mali," Journalof DevelopmentStudies6 (JanuaryI970), 97-I0;
Samir Amin, Unequal Development(Hassocks,
U.K.: Harvester,I976), 23-30, 52, 53, 372-74; I. Shivji,Class Struggles
in Tanzania (London:
Heinemann, I976).

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POLITICS OF NICS: INDONESIA

73

and theprotection
ofclientcorporate
state-allocated
monopolies,
groups.
The collapseof oil pricesand thegeneralrecessionalso producedtenwithinthecapital-owning
sionsand conflicts
classes:betweenthe protectedclientgroupsand thoseexcludedfromthemonopoliesand state
betweendomesticand international
contracts,
and between
capitalists,
upstreamand downstream
producers.The rapidlyincreasingnational
debt and relianceon foreignsourcesof loan and investment
capital
businesswas now in a morefavorableposition
meantthatinternational
and politicalpressures
to dictateterms.The structural
unleashedon the
statehave had an impacton threeareas: themode of politico-bureauofthestateapparatus,
thepervasivestateregulation
craticdomination
of
ofintegrated
and thestrategy
nationalindustrialization.
In
theeconomy,
of the state
otherwords,thepressuresare mountingforregularization
of theeconomy:a tantalizingcombination
apparatusand deregulation
at thepoliticalleveland liberalism
at theeconomic.
ofauthoritarianism
The stateis notin a positionto resistthesepressures
fully,as indicated
intoPertaminaand theJakarta
introduced
CustomsSerbythereforms
oflicenses,importmonopolies,
and tariff
structures
vice,and thesystem
between April i985 and December

i987,

as well as the deregulationof

thebankingsystem.
What has happenedis thatthehighlyregulatedand protectedstateat variancewiththeneedsof
led economyof theoil era is increasingly
in thenewinternational
divisionoflabor,wherethe
capitalists
operating
freeoperationof marketforcesand the freemovementof capitalare
the Indonesianstatecannot
Withoutadequate oil reserves,
priorities.
and the natureof Indonesianauavoid beingdrawnintothissystem,
is beginning
to changeaccordingly.
thoritarianism
Clearly,thestate'sautonomy
and itspowertodetermine
thestructure
of capitalownershipand investment
throughregulation
and allocation
ofresources
has beendiminished,
as has thepowerofofficials
to appropriatetheauthority
and resources
ofpublicoffice.The pactofdominationestablished
betweenthepolitico-bureaucrats
and leadingdomestic
corporategroupshas also been breachedwiththeprocessof economic
and theretreat
deregulation
frompoliciesofindustrial
deepening.These
transformations
have been achievedas a consequencenot of political
butof structural
struggle,
pressures
upon theIndonesianeconomythat
favortheinterests
ofinternational
capital,downstream
domesticproducers,and domesticprivatebankers.Neitherthecapital-owning
classesas
a wholenoranyoftheirfactions
are able to imposeinstitutional,
instrumentaldominanceoverthe stateapparatus.They remainfragmented
and politically
disorganizedwhiletheirleadingelements,Chineseand

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74

WORLD POLITICS

foreign,are excluded fromformal,class-based,politicalactivity.Indeed,

even domestic criticsof the regimeand its policies do not suggestdemocratic reform;rather,theyare promotinga more formalaccommodation of theirinterestswithinthe existingauthoritarianstructures.This is
a position consistentwith relative political weakness, continuing economic dependence on the state,and the fearof opening the door to popular participation.

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