Crisis and Adaptation (1884–1890S)

CHAPTER THREE

CRISIS AND ADAPTATION (1884–1890S)

In 1870 the Cultivation System was officially abolished and private enterprise was allowed to operate more freely. However, tapping the wealth of the Indonesian archipelago proved difficult. The crisis of November 1884 had far reaching consequences for the business world of the Netherlands Indies, and involved some of the largest companies around such as Dorrepaal & Co. Business interests in Amsterdam – together with the NHM and DJB – intervened and prevented a full-fledged collapse of the private economic sector. The threatening credit crunch could only be solved by an overhaul of the customs regarding credit extension which came down to financing long-term investments by incurring short- term debts. The 1884 crisis exposed the shaky foundations of the private economy. Many firms were forced to adjust their business strategy accordingly. The ties between commerce and capital became better guarded. The comple- tion of this painful reorganization constituted a fundamental reassess- ment of the relationship between capital, commerce and agricultural enterprise. The crisis also affected the spending power of the indigenous population with great repercussions for the import side of the economy. Chinese and European enterprise with their mutual linkages suffered accordingly. Many Chinese tradesmen defaulted to the detriment of their predominantly European creditors.

Economic Policy and Political Expansion

The post-1870 liberal attitude governing economic policy would consti- tute the rather loose framework of entrepreneurial conduct until the economic crisis of the 1930s. In a political sense abstention was the official ideology behind Dutch colonial economic policy ever since 1841. Given the limited resources of the Dutch state, the country’s colonial posses- sions were to be confined to Java. Dutch settlements outside of Java – the so-called Outer Islands – were considered undesirable with costs

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outweighing the gains. Still, upon closer inspection a process of territorial expansion characterized the nineteenth century.1 Dutch expansion in the Indonesian archipelago proceeded in several phases.2 After the conclusion of the Java War (1825–1830), which left Dutch authority over the island undisputed, territorial ambitions slowly turned outward. The initial phase of expansion lasted until the early 1870s and saw Dutch presence extended to West Sumatra, Bali, Lombok, Makassar (South Sulawesi), the Minahasa (North Sulawesi), South Kalimantan, Deli (East Sumatra) and the island of Belitung (see Map 1). At this point, com- mercial policy prevailed over political authority and expensive military intervention remained limited. Dutch private capital became involved in the Outer Islands during the 1850s and 1860s upon receiving concessions for mining and estate agriculture from local rulers which were subse- quently endorsed by the colonial authorities. The second phase lasted from 1873 until 1896 and started with the out- break of the Aceh War in North Sumatra (Bossenbroek 2001; Van ‘t Veer 1969). Dutch colonial expansion became more determined, but overt military aggression did not extend much beyond Aceh. Expansion generally took the form of enforcing authority over territories that were claimed but not yet effectively controlled. Local economic and political interests frequently coincided to initiate (reluctant) colonial expansion (Fasseur 1979). Government economic policy fluctuated between restraint and intervention. Concessions, for instance, were authorized but could also be held up for years. Partly because the government could not guarantee the safety of men and property on remote sites, and partly because it antici- pated a more expensive local administrative apparatus once a concession was granted. The exploitation of the Outer Islands’ natural resources by private capital remained sluggish during this period which contrasted sharply with the situation in Java where private enterprise became fever- ishly active. With the escalation of the Aceh War in 1896 the third and final phase of Dutch colonial expansion commenced. The deployment of massive

1 The history of Dutch imperialism in the Indonesian archipelago has been the subject of several studies. The most important are à Campo (1992, 2002), Kuitenbrouwer (1985), Lindblad (1986, 1989a) and Locher-Scholten (1994a, 1994b). See for a concise overview of the debates concerning Dutch imperialism Lindblad’s contribution in Dick et al. 2002: 109–110. 2 The Historical Atlas of Indonesia by Cribb (2000) is an invaluable guide to the piece- meal process of Dutch territorial expansion. See especially Chapter 4, Paragraph ‘Conquest and Annexation’.