The Indonesia-China-Paradox: Indonesia's Variant of Capitalism, Its Embedding and Its Contrast to China
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Goethe University Frankfurt, Germany Faculty of Social Science (FB03) Institute of Political Science Professorship for International Relations and International Political Economy Final dissertation for the reward of a Magister Artium Degree (M.A.). Topic: The Indonesia-China-Paradox: Indonesia's Variant of Capitalism, its Embedding and its Contrast to China. written under the supervision of Prof. Dr. Andreas Nölke & Prof. Dr. Heike Holbig by Dennis Fromm Frankfurt am Main, Germany Filing Date April 2012 Content List INTRODUCTION 1. RESEARCH DESIGN 1.1. Initial Question 1.2. Methodology 1.3. Latest State of the Art 1.4. Relevance 2. THE POLITICAL ECONOMY OF INDONESIA 2.1. Paradoxes, Contradictions and Dialectics 2.2. Varieties of Capitalism according to Ten Brink 2.3. The Indonesian Variant of Capitalism 2.3.1. A Name for the Indonesian Capitalism I 2.3.2. Indonesian State Capitalism 2.3.3. Domestic Exploitation and Javanese Cultural Imperialism 2.3.4. Capitalism of a Failing State? 2.3.5. Special public-private Partnerships 2.3.6. Macro and Micro Economic Policies of Indonesia 2.3.7. Monetary and Financial Relations 2.3.8. Banking Sector and Capital Markets 2.3.9. Neo-Liberal or Neo-Traditional. From a Basket Case to a Special Case 2.3.10. Mechanisms of Social Sanction in Indonesian Bureaucracy 2.3.11. A Name for the Indonesian Capitalism II 2.3.12. Labour Relations in Indonesian Corporatism 2.3.13. Indonesia's Economy in International Contexts 2.3.14. The Failure of Exportism 2.3.15. Another Curse: Global Over-Accumulation and Foreign Investment 2.3.16. Conclusion: The Indonesian Variant of Capitalism 2.4. A dialectic Variant? Dismantling a Paradox 3. THE CRYSTALLISATION OF THE INDONESIAN VARIANT IN THE LIGHT OF TWO MODERNISATIONS 3.1. Expanding Ten Brink's Conception 3.2. The Underpinning of Capitalist Systems 3.3. Embedding in Variants of Modernisation 3.4. Lineages of Modernisation in China and Indonesia I 3.5. Lineages of Modernisation in China and Indonesia II 3.6. China's Modern Caesura: The Cultural Revolution 3.7. The Indonesian Way: Defensive Modernisation instead of Cultural Revolutions 3.8. An interrupted Cultural Revolution? 3.9. Political Participation 3.10. Workers and their Participation in Political Economic Modernisations 3.11. 1976-1978: The Years around the Chinese Turning Point in Comparative Perspective 3.12. A New Mataram. Indonesia's Modernisation from an Ideological Point of View 3.13. Economic Modernisation embedded in Pancasila 3.14. The Great Transformation, the Great Cultural Revolution and a Partial Modernisation 4. CONCLUSION 4.1. Prospects 5. ANNEX I ABBREVIATIONS, EXPLANATIONS & FOREIGN VOCABULARY II DEFINITIONS III TIMELINE OF INDONESIA IV LIST OF LITERATURE V SUMMARY IN GERMAN LANGUAGE VI DECLARATION OF ACADEMIC HONESTY VII CURRICULUM VITAE VIII ACKNOWLEDGEMENTS The Indonesia-China-Paradox Introduction When comparing the economic performance of China1 and Indonesia, people are likely to suggest that one is trying to compare apples and oranges. In 2011, a massive gap still remains between the quantitative and qualitative development of the two biggest states in the Asia-Pacific region. Indonesia has been on the borderline between a developing country and an emerging nation for decades, whereas China is undoubtedly the next superpower, an economic giant on a global scale- in a position which the world has perhaps never seen before. Nevertheless, there is well-grounded motivation for comparison. Indonesia and China are drifting apart, but this widening gap is unprecedented in modern economic history. Apart from Japan, no other Asian country could rival the average Indonesian economic growth rates between 1800 until 19302. Even three decades ago, between 1970 and 1978, Indonesia's short-term prospects for economic development still exceeded China's. The Indonesian GDP overtook China's GDP in total3, and was about one third higher than it had been in China in 1978.4 China, at that time, was facing a problematic economic situation. Utopian politics like the “Great Leap Forward” and the “Great Cultural” Revolution” were considered to have set China's economy back by an estimated ten years5, at a time when Indonesia was beginning to harvest the first fruits, the apples and oranges, of a promising economic policy. The former Dutch colony, Indonesia, was impressing the world with the creation of a stable nation, comprising of various ethnicities spread over about 17,000 islands, accompanied by average Growth Rates of 8% per annum.6 Indonesia's economy seemed to be returning to the times, when they had contributed two thirds of their colonial masters 1 For reasons of readability, the term „China“ is used instead of the correct „People's Republic of China“ in the following. 2 p.22 in: Van der Eng: Indonesia's Growth Experience in the 20th century. 3 Until the mid 1990s, Indonesia's GDP was constantly higher than the Chinese GDP. Source: United Nations Statistics Division, GDP at Current Prices (USD), URL: http://data.un.org/Data.aspx? d=SNAAMA8f=grID%3A101%3BcurrID53AUSD%3pcFlag%3A1 4 United Nations Statistics Division, GDP at Current Prices (USD), URL: http://data.un.org/Data.aspx? d=SNAAMA8f=grID%3A101%3BcurrID53AUSD%3pcFlag%3A1 5 p.236 in: Bianco: Das moderne Asien. 6 p.151 in: Van der Meulen/ Rodgers/Yana: Indonesia's Macroeconomic and Trade Performance. 1 The Indonesia-China-Paradox state revenues.7 To times when the fourth biggest country in the world8 was undoubtedly a key region in the world economy, an area of economic importance. However, the next economic giant, which in the 1970s seemed to be following closely in the footsteps of Japan and Korea in its development, suddenly fell asleep9 and still has not completely woken up. Chapter 1 Research Design 1.1. Initial Question This drifting-apart in the development of Indonesia and China within only three decades is paradoxical from several points of view. It seems paradoxical, especially given the heritage of socialist modernisation in China and the fact that Indonesia followed a strategy approved by economic experts from centre economies. The initial question therefore is the following: Why is the Indonesian economic growth not able to keep up with China any more?10 In reference to the paradox, this question includes a set of sub-questions. Is it paradoxical that a country whose first phase of modernisation followed radical socialist principles and changed structures of society radically, is more successful economically than a country whose government conducted politics with the presumption that economic modernisation would be followed by a modernisation of society? Or is this in fact not paradoxical but follows a rational pattern? And if so, how do these rationalities, connected with certain variants of 7 p.70-72 in: Furnivall: Netherlands India. A study of Plural Economy. 8 p.1404 in: World and Its Peoples: Indonesia and East Timor. 9 Bagoglu, Indonesiens Planer hoffen auf Standortverlagerungen. URL: http://www.gtai.de/fdb- SE,MKT201007278008,Google.html 10 The focus on answering this question clearly is on analysing Indonesia's political economy. Moreover, it should be mentioned the terms of “success“ and “development“ inevitably have a normative connotation. 2 The Indonesia-China-Paradox capitalism, support or impede economic development? 1.2. Methodology The set of initial questions is on the borderline of development economics and economic sociology. This M.A. dissertation will try to combine two approaches in order to find answers to them. The first part will discuss an Indonesian Variant of Capitalism (VoC)11. This approach was chosen because VoCs offer a basis for the contrasting of two economies. In detail, this approach shall be applied through a transformation of a VoC-concept developed by Tobias Ten Brink, who analysed China's capitalism in order to explain the Chinese economic performance.12 The model he uses is not identical to the one provided by Hall and Soskice, which had been created as an answer to the assumption of liberal capitalism as an universally exclusive claim to salvation.13 Like other academics of his generation, Ten Brink expands the original VoC concept to get rid of the distinction of economies either resembling “Liberal Market Economies” (LMEs) or “Coordinated Market Economies” (CMEs)14 to allow more variants, which reflect reality more suitably. This motivation emerged especially with the economic ascension of the often differently structured, rapidly catching-up, BRICS-states15, above all China. To explain China, Ten Brink explored the specifics of the Chinese capitalist system. A specific combination of five levels of political economy leads to a market-liberal, competition-driven state-capitalism as a unique variant of capitalism.16 Apart from transforming the idea that Indonesia cannot be explained with standard models either, 11 The spelling VoC is chosen instead of VOC in capital letters because “VOC“ is more commonly for the „Dutch East India Company“ (Verenijgte Oostindische Compagnie) in literature about Indonesia. 12 Ten Brink: Strukturmerkmale des chinesischen Kapitalismus 13 Comp. p.201 in: Hodgson: Varieties of Capitalism and Varieties of Economic Theory. For the term „Exclusive Claim to Salvation“, see the section in the annex „Abbreviations & Explanations & Foreign Vocabulary“. 14 p.32 in: Hörisch: Corporate-Governance-Politik in der Bundesrepublik Deutschland, Großbritannien und der Schweiz im Vergleich. 15 Abbreviation for “Brasil, Russia, India, China, South-Africa”. Comp. Wasserrab: Aus BRIC wird BRICS. URL: http://www.dw.de/dw/article/0,,14983228,00.html 16 p.3/ p.41 in: Ten Brink 3 The Indonesia-China-Paradox and its specifics need to be de-constructed explicitly, the reliance on Ten Brink's concept has another advantage for answering the initial set of questions. With the help of contrasting Ten Brink's Chinese variant with the Indonesian variant of capitalism, mechanisms which could have favoured the divergence are identified.