The background of modern economic transformation

An explanation

This chapter is an essay rather than an analysis, designed to link the historical discussion of the previous chapter to the series of more detailed treatments of particular aspects of possible "endangerment" in part II. It draws on a large literature, and especially on a few good summaries of parts of that literature. It is, in consequence, lightly referenced. It attempts to cover, in a few pages, the transformation of two countries, and of a specific region that forms part of these two countries, through the most important period in their modern history. ¹

The political evolution of the region

The Japanese army and navy conquered all of the Malay Peninsula and Borneo, and the surrounding region, between December 1941 and March 1942 and, except that they were ejected from Sabah and eastern Kalimantan in the last months of the war, remained in possession until August 1945. A Republic of Indonesia was declared in that month, but the Dutch attempted to extinguish it and did not withdraw until 1949; the constitution of the present unitary republic was drawn up in 1950. The Peninsula and Singapore were reoccupied by the British without opposition, but some areas remained in the effective control of the communist-dominated, anti-Japanese resistance forces, which embarked on a general insurrection in 1948 (Stubbs, 1989). This insurrection gained some ground until 1951 and, though its area of control was thereafter quickly reduced, the rebellion sputtered on in a diminishing number of forested and forest-fringe areas until the 1980s. The Peninsula became independent as the Federation of Malaya in 1957. Singapore - until then still quasi-colonial - joined this federation in 1963 but was unilaterally excised to total independence in 1965. The pre-war private regimes were not permitted to return to Sarawak and Sabah, and the two states became British colonies until, at the same time as Singapore, they were federated with the Peninsula in 1963 to form Malaysia. Brunei refused to join and became independent, in effect immediately but formally only in 1984. The Sukarno regime that ruled Indonesia in the early 1960s challenged the new Malaysia, and a low-key war, fought mainly along the border between Sarawak and West Kalimantan, lasted until shortly after Sukarno was toppled from power in the aftermath of the 1965 coup in Indonesia. It was not, therefore, until the late 1960s that postcolonial turmoil finally gave way to peace and order in the two new countries, ushering in the period of state-guided capitalism that has dominated the whole subsequent pattern of development.

The pattern of insecurity between 1945 and 1969

The main locales of violent action after the 1945 campaign in northeastern Borneo were in Java, western Peninsular Malaysia, and Sumatra - outside the region with which we are mainly concerned. The Malaysian rebellion began in 1948 and enjoyed considerable success in its early years, until 1950 when the boom created by the Korean war both gave the government additional resources and removed the main causes of popular discontent (Stubbs, 1989). Quite large parts of the eastern Peninsula were dominated by the communist rebels until the mid-1950s, and some even later.

Extensive areas of Borneo were also caught up in the insecurity of these years. Wartime repression by the Japanese, and guerilla action against them, were particularly violent in West Kalimantan, where many thousands were killed. In South and East Kalimantan an intense struggle against return of the Dutch began in late 1945, and this mainly Banjarese guerilla movement was organized by 1948 within the structure of the new republican army. The Dayaks were more scared of the Malay Banjarese than of the Dutch, and kept out of this conflict, which ended with independence in 1949. Later, in the mid

1950s, some groups of Muslims in South Kalimantan revolted in favour of an Islamic state, and their rebellion did not peter out until 1963 (Miles, 1976). A similar revolt on the part of the powerful Ngaju Dayaks for autonomy and separation from Islamic South Kalimantan led to the eventual formation of the separate province of Central Kalimantan and the creation of a new capital, Palangkaraya. Although not on the scale of the anti-centralist risings of the 1950s in eastern Indonesia, Sulawesi, and Sumatra, the violence in southeastern Kalimantan greatly disrupted normal life and led to substantial movement into the towns.

When the British territories in Borneo were in the process of being attached to a federal Malaysia in the early 1960s, there was a brief and abortive revolt by a North Kalimantan National Army in Brunei and adjacent areas of Sarawak and Sabah, certainly with Indonesian support. This was followed by the 1962-1965 "confrontation" miniwar (Konfrontasi) between Indonesia and the new Malaysia, and there was an associated but ideologically separate insurrection among mainly Chinese communists in western Sarawak. After settlement between Indonesia and Malaysia the communists were hunted down on both sides of the border. Dayaks in West Kalimantan, who had stood aside from the earlier conflict, then rose against the Chinese and some other groups; several thousand were killed and up to 50,000 of those who had survived the Japanese fled to the coast (Jenkins, 1978). In East Kalimantan there was only sporadic guerilla fighting against the Dutch, and some violence during the Konfrontasi period. The Dayaks again remained neutral. Borneo's other sensitive border, with the Philippines, never became the scene of military conflict, only of diplomatic hostility. There have, however, been occasional incidents more in the nature of piracy on the coast of Sabah, to which the Philippines has been reluctant to relinquish its historical claim, even into the 1990s.

Breaking out from the colonial economies

The classic colonial economies of Indonesia and Malaysia in the 1930s were, notwithstanding the political turmoil, soon re-established in the late 1940s, and in both countries endured some years beyond independence. The "cold war" and especially the Korean war of 1950-1953, with its accompanying boom in raw material prices, were of major assistance in this process. Both mining and plantation economies flourished again in all areas not directly affected by war fare and insurrection, and there were also sharp increases in wages and private business incomes. When this period came to an end in the 1950s new policies were required, but the two countries were, at that time, under regimes of very different philosophy. Under Sukarno, Indonesia sought to follow socialist and nationalist paths, nationalizing all Dutch enterprises in 1958 and discouraging all other foreign business except the petroleum industry. Exports suffered severely. Chronic balance-of-payments problems and hyperinflation were ineffectually addressed by various forms of state intervention; by the time of the 1965 coup the economy was in a state of collapse, both internationally and internally. In some parts of the country there was famine during these years Through all this, however, the charismatic Sukarno retained his great popularity. His replacement, after defeat of a communist coup in which his personal role remains unclear, did not come easily. Many thousands were killed, and the critically important, Chinese-controlled commercial sector suffered severe damage before the army-backed "New Order" regime of Suharto became firmly established by 1967.

Under its post-1951 colonial rulers, and under the first national leaders of the independent state after 1957, Malaya, and later Malaysia, followed a consistent set of policies operating a wide-open, free-enterprise economy in which ownership and control remained overwhelmingly in foreign hands. Even before independence, however, this was supplemented by interventionist policies aimed particularly at upgrading the economic position of the majority Malay population group, at that time still overwhelmingly rural. Export orientation has been a consistent theme in Malaysia, a brief flirtation with import-substitution industrialization only excepted. The interventionism, begun in the mid-1950s, was designed also to increase the output of cash crops, and it took the particular forms of financing rubber research and replanting and setting up the Federal Land Development Authority (FELDA) to clear and plant large areas of forest, then settle them with landless and near-landless peasants from the impoverished rice and rubber villages. In this and other ways, government set out to create new national capital in an economy that suffered such severe losses through profit and income repatriation that it too was threatened with balance-of-payments problems, notwithstanding the enormous success of its exports. However, an essentially unenterprising manufacturing sector remained overwhelmingly in Chinese hands, and formal urban employment grew only slowly. As rural Malays began to migrate to the cities in large numbers, they therefore found only menial and unrewarding employment in a growing "informal" tertiary sector. This fed resentment that was transferred into the political arena, and the resulting explosion of racial violence in May 1969 was as important an event in Malaysian history as was the September 1965 coup in Indonesia. Both led to new policies that enormously accelerated the pace of transformation.