Indonesia’s Colonial Legacy and Challenges for the Global South

摘要：The Global South and Southeast Asia Forum was initiated by the Global South Network. My invitation as a speaker was co-signed by t

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Indonesia’s Colonial Legacy

and the Challenges for the Global South

✪ Max Lane

ISEAS-Yusof Ishak Institute

I’m not a citizen of the Global South. This realization hit me when I sat in the conference room of the University of Indonesia on June 11. The room was filled with delegates from the People’s Republic of China and almost all of Southeast Asia - certainly including Indonesia itself. As the only Caucasian from the Global North in attendance (genetically mixed Scottish-Viking), my position felt odd.

The Global South and Southeast Asia Forum was initiated by the Global South Network. My invitation as a speaker was co-signed by the Faculty of Social and Political Sciences (FISIP) University of Indonesia, Communication University of China, and Beijing Longway Economic and Social Research Foundation. The discussion is centered on the economic cooperation of the Global South countries - not just a discourse, but has been manifested in the form of the Brazil, Russia, India, China, and South Africa (BRICS) group that Indonesia has now joined. Although the nature of its orientation is not yet clear.

My status as a Senior Visiting Fellow at the ISEAS-Yusof Ishak Institute in Singapore explains why I was listed as a participant from there. However, the view I conveyed was not the view of my institution but was born from the observation of Indonesian politics and economics since the 1970s. Ironic perhaps: a Caucasian from a Singapore think-tank talks about Indonesia.

The spirit of this conference was clear: to respond to the awakening of the Global South consciousness, both in the former colonies and in the societies of the Western colonial countries themselves. While many hope for some kind of a multi-polar world, the world is actually increasingly bipolar, not multipolar: divided between the oppressed Global South and the US-led Global North which dominates the world through giant corporations and institutions such as the World Bank, IMF, and ADB.

Then where is Indonesia’s position? Is Indonesia really part of the Global South? The essence of the Global South is structural poverty. In my presentation, I emphasized: both Indonesia and China are essentially poor countries. Without understanding the reality of structural poverty and dependence, it is impossible for us to read global dynamics. This is not just a geographical division, but a division between the exploited and the exploitors.

Let’s take a look at the raw numbers. Indonesia’s GDP per capita (2022): $5,000 vs US ($76,000), Netherlands ($56,000), Australia ($65,000). Net worth per adult: Indonesia ($17,350) vs US ($551,347), Netherlands ($352,814). The former colonial country has a median wealth 183 times that of former colonies like Indonesia.

The bitter fact: despite being rich in natural resources, Indonesia remains poor due to a lack of capital and technological capacity to process its natural resources. Among the Global South, only China is relatively advanced in the manufacturing sector of its own means of production (Department A in Marx’s Das Kapital). Domestic manufacture of the actual means of productions (machine tools and so forth) is already around 30~40% and China aims for 70%+ self-sufficiency in high-end machine tools by 2030, although breakthroughs in areas like ultra-precision grinding and 5-axis CNC controllers are still needed. From early in its economic planning, China prioritised increasing its capacity to manufacture its own means of production, accelerating this process in the early 2000s.

The Global North still monopolizes the ability to create new types of productive technologies, even though their systems are fraught with internal contradictions. The US’s domestic production of actual means of production is around 60% or more.

Acknowledging the structural poverty and dependence of Indonesia is important. Without honest confession, it will never be possible to ask: why is Indonesia so poor and backward? And this question is the most crucial, because without understanding the causes of poverty and backwardness, the solution will not be found.

▍ Why is Indonesia Poor?

So why is Indonesia poor? The first and most decisive reason was the economic, political and cultural dominance of the colonial powers for almost 300 years in the archipelago. This domination did not always take the form of direct colonization, as happened in the 20th century, but nevertheless European colonial powers, especially the Netherlands, dominated all fields of social development since the 16th century. This is not the place to review the 300-year history, we just need to examine the economic situation in the Dutch East Indies in the 1930s, before the Second World War. Before I talk about that situation, I invite the reader to remember the WW2 and how gigantic and almost “infinite” the industrial capabilities of the colonial colonizers, especially the United States, Britain, Germany and Japan, were. Weapons of war from aircraft carriers, submarines, fighter-bombers to millions of jeeps, trucks, panzers and others and hundreds of billions of rounds of ammunition and global production of bombs and artillery ammunition likely range from 35 to 45 million tons.

And in Indonesia at the same time? Dutch colonialism never built a single modern factory. The largest factories were for grinding sugarcane stalks and tobacco leaves. A report compiled by Peter Sitsen of the Department of Industrial Affairs in Batavia in 1941 entitled Industrial Development of the Netherlands Indies shows how only 324,210 people in a population of 69,435,000 were involved in “industry” – basically almost zero. In addition, the average size of this workplace was 58 workers: so, they were workshops, not factories. In another part of this report, which gives data for 1941, it is stated that there was a smaller total of workers, namely 146,771, earning an average annual income of 318 guilders, hardly zero in fact.

In other words, there was no industry: “Industrial Development” was a complete misnomer. Workshop manufacture was dominant. It is worth remembering Marx’s distinction between manufacture (and its improvement) on the one hand and industrialisation on the other. Improving manufacture involves increasing tools that makes the individual worker more productive, industrialisation is the introduction of machinery that actually replaces human labour. Even at the level of manufacture, the Netherlands Indies in 1941 was pathetically undeveloped.

After almost four years of war against the re-invading Dutch colonial army, and in order to bring the armed conflict between Republic and Dutch colonial forces to and as quickly as possible, in 1949 the Republican leadership made a number of concessions. These included adopting a federal structure for Indonesia allowing the Dutch scope to continue influence in some regions; allowing Dutch capital to resume ownership and control of all the enterprises they controlled under colonial rule as well as agree to continuing Dutch control over western Papua pending further negotiations. Further the Republican leadership accepted the Dutch assertion that the colonial government of the Netherlands East Indies was in debt to the government of Netherlands itself and agreed the new government of Indonesia to pay off that debt. So, on day one after the Dutch military and state apparatus left Indonesia, the country owed 4.3 billion guilders (about USD 130 billion today) to the Netherlands as a result of the 1949 Round Table Conference. After paying 3.5 billion guilders, in August 1956, the government of Ali Sastroamidjojo suspended the payment. In 1966, the Suharto government continued and completed the payments.

So, on day one after the war to defeat the colonial return ended, the new Indonesia had no real manufacturing capacity and was already in debt. But that was not all. The Dutch left almost nothing of developmental worth behind because, in fact, that had taken so much wealth out of the country to invest in the development of its own country. Over just the sixty years before the Japanese invasion of Indonesia, between 1880 and 1940, researcher the late Alec Gordon, calculated that 56,900,000,000 guilders was repatriated back to The Netherlands by various means. In today’s purchasing power this amounts to over six billion dollars (USD 6,192,502,273). This was more than one year of The Netherlands’ Gross National Product at that time.

So, Indonesia had no significant manufacture, no accumulated capital as it was all in The Netherlands and a huge debt on day one.

But not only that. At the most, only 10-12% of children in the Netherlands Indies went to primary school. At the same time, of course, in the Netherlands such schooling was compulsory with almost 100% attendance there. At the time of independence, Indonesia was also primarily a village country with very few towns with a population of over 20000 people.

At the time of full independence, both the government and the Indonesian people, facing the second half of the 20th century in a world dominated by all the former colonial countries, as a country without industry at all, no capital, no real school system, almost no cities, and with a large foreign debt. The lack of any industry meant that it did not have any capacity to create and accumulate capital.

It is clear that the main reason Indonesia is still poor is the legacy of colonialism. This is the fate of the entire Global South and is the basis of unity of consciousness among most of the countries of the Global South.

There is a second cause. The Indonesian national revolution was primarily an anti-colonial revolution. The extent to which it can be said to have experienced a social revolution is limited as there was no overturning of the ownership of the means of production, including no collectivisation of land ownership. Firstly, as noted above one concession made by the Indonesian leadership to the Dutch was that Dutch capital could keep everything had owned before the revolution. Although there was no substantial industry, the Dutch resumed control over all mines and plantations, and also shipping companies as well as banking and export-import firms. Colonial capital private ownership of major sections of the whole modern economy continued. Major investments were still being determined by Dutch capital’s needs for profit not national development priorities.

Almost immediately after independence, the left-wing of Indonesian politics, including the Communist Party of Indonesia (PKI) and the Indonesian National Party (PNI) began campaigning for the cancellation of the debt, the inclusion of West Papua in Indonesia and the nationalisation of all Dutch enterprises. The looming threat of nationalisation meant that investment in the Dutch owned plantations and mines was slow. Then in 1956~1957, after being occupied by unionised workers, the Indonesian parliament nationalised all Dutch enterprises. From that moment, most of the modern economy was in state hands. However, these enterprises were at a low level of production, the new managements were inexperienced or corrupt, industrial conflict continued within many of them and the process was taking place in a period of civil war and political volatility.

The campaign for the nationalisation of the Dutch enterprises was just one aspect of a struggle unfolding within Indonesia to complete the national revolution by carrying out a social revolution. Apart from demanding the nationalisation of imperialist country enterprises (Dutch, British, Belgium), the left-wing also demanded land reform (distribution of land from the rich to the poor) and other socialist reforms. This campaign was led by PKI and a growing left-wing in the PNI and supported by President Sukarno. However, the PKI and other socialist forces were not able to be brought into the government for fear of provoking a coup d’état by anti-Left sections of the military.

Thus, without industry, capital, its economy dominated by colonial business and then under corrupt nationalised management, with no school system and burdened with a large debt, the first 15 years after Independence were much consumed by a struggle within the country over its future: sovereign socialist or integration into the imperialist global economy.

▍Contradiction Resolved by Force from Above: Colonial Legacy Not Addressed

After 15 years of fighting, 1950~1965, over the future of an independent Indonesia, a new government, the New Order government, was established, which decided to stop Indonesia’s resistance to being integrated into the world of former colonizers, which President Sukarno called The Old Established Forces (Oldefos) in 1962. Sukarno has played a key role, along with the leaders of India and China, in organising the 1955 Bandung Asia Africa Conference, which initiated a process of seeking greater solidarity among Third World countries in these two continents.

The Suharto government decided to integrate the Indonesian economy into a global economic structure dominated by the former colonial powers. In June, 1967, an Indonesian delegation led by Finance Minister Frans Seda met in Switzerland with CEOs of many Multinational Corporations from Western countries to discuss the future of the economy. This was followed by the establishment of the Intergovernmental Group of Indonesia. This group comprised the IMF and the World Bank, and was attended by almost all Western governments, including the old colonial power, The Netherlands. The IGGI meets annually in the Netherlands to determine how much debt will be given to Indonesia for the following year.

From hosting the 1955 Asian-African Conference advocating cooperation between former colonial countries and the originator of the concept of New Emerging Forces, Indonesia became integrated in the global economy under the supervision of IGGI, which ironically met in the Netherlands. Indeed, in 1992, after a dispute with the Netherlands, IGGI changed its name to the Consultative Group on Indonesia and met in Paris, but its function was to allocate debt and oversee Indonesia’s economic policies. After Suharto fell, the CGI was never seen again. With the policies taken by the government at the time of the Asian Financial crisis, under the supervision of the IMF, the process of integrated into the imperialist dominated global system had been completed enough so that a CGI is no longer needed.

The source of Indonesia’s economic backwardness is the legacy of colonialism that left it in a state of industrial and capital poverty in the face of the dominance of former colonial countries. Then during the New Order government, over 32 years, the attitude was to try to grow an economy by accepting its fate as a conquered economy. Of course, since the 1970s, especially since the oil boom of 1975~1985, Indonesia’s manufacturing sector has grown larger than before, remembering that it was growing from a dismally low base. But the character of Indonesia’s economy as a conquered economy is still dominant.

First, the number of workers working in small businesses using low-productivity technology is still above 90%. Most of the workers are casual, seasonal or part-time. According to a recent report released by the CELIOS Institute, 80% of these workers have an income below the official minimum wage. This data reminds me of the Stivens’ data in 1941. Indeed, although Indonesia’s economy is much larger than in 1941 and now there are large factories that assemble cars and others, the fundamental characteristics are the same. In 1932, Sukarno himself in his long article Swadeshi and Mass Action in Indonesia provided complete data to illustrate that under Dutch colonialism economic life was dominated by a situation where nothing was small. The situation is the same now.

The small size of the vast majority Indonesian enterprises is one manifestation is this smallness. The low GDP per capita is another. The official minimum wage, which 80% of workers don’t receive, is also small. The official poverty line of Rp 609,000 per month or Rp 2.9 million per household of 4.7 people is also unbelievably tiny. Most of these small figures, however, directly show the poverty in daily life. GDP per capita does more than that: it also exhibits the poverty of wealth that is available for development, as that USD 4,000 per year has to provide immediate sustenance for life as well as fund development.

I think one focus can also more starkly reveal the structural poverty of an economy as a whole. Here, I return again to Marx’s emphasis on the need for a proper balance between the manufacture of the means of production and the manufacture of goods (and we might add services.) Marx wrote, for example: “The aggregate value of the means of production needed in Department II must equal the sum of variable capital and surplus-value produced in Department I.” Put simply, you cannot keep expanding the production of goods that society needs or wants, without the adequate investment in creating and manufacturing the machines that make goods, in conjunction with labour, of course.

Distinguishing between overall production output and output in the means of production itself is crucial. Being clear on this distinction, also helps understand the weakness of what is sometimes called “import substitution industrialisation”, a fundamental policy implemented by Indonesia immediately after the change of government. Import Substitution Industrialization (ISI) is an economic policy aimed at reducing a country’s reliance on imported goods by promoting domestic production of industrialized products. In Indonesia this policy did not really substitute importing with domestic production but substituted importing finished goods with improving factories, i.e. importing means of production. The country remained dependent in importing.

In America, the investment per capita in producing the means of production figure is $3,800~$4,200; in the Netherlands $3,200~$3,600; in China $1,200~$1,500 (but for 1 billion and 400 million people) and in Indonesia only $250~$350 per capita. It is not surprising that Indonesia remains extremely dependent in importing means of production, being able to manufacture within Indonesia only the lowest level of machinery. China produces90% of its machine tools domestically, including high-end models. Indonesia’s production is limited basically to conventional lathes, and also is limited in numbers. The stark comparison is also reflected in differences in investment in research and development. China invests $2 billion a year, where Indonesia invests probably less than $100 million.

▍Origins of the Differences

In 1950, both China and Indonesia were in a drastically weakened state. In February, 1949, Mao Zedong stated: “China has been in war for years, its economy has been devastated, and the people are living in misery.” In his book The Chinese Economy: Transitions and Growth by Barry Naughton (2007) “In 1950, China was one of the poorest countries in the world, its economy shattered by years of civil war and foreign invasion, with an overwhelmingly agrarian society where industrial capacity was negligible and per capita income languished at levels comparable to the poorest parts of Africa." I have already elaborated above the colonial legacy that Indonesia faced.

So, the difference in the levels of development between the two countries cannot be explained by significantly differing developmental starting points. In 1950, both countries were in a devastated state.

In the Global South the most advanced industrial capability is in the PRC. So, what is its secret? Of course, answering that question is impossible in just one or two sentences. But one thing is clear. The PRC only opened its doors to foreign investment in the 1970s, a quarter of a century after its national and social revolution. In those 25 years, the country had strengthened its ability to draw up an economic development plan and, more importantly, and be disciplined in carrying out the plan. When mistakes in planning or implementation were made, they could be identified and studied. Foreign investment is allowed to enter under strict monitoring, not called in as the foundation for its development.

There is, also, a fundamental difference in the kind of thinking that emerged in China as compared to Indonesia, especially after 1965. I have never been able to find in any English language Chinese originating material explicitly referencing the need for a proportional balance between Marx’s Department A and Department B. I suspect I just haven’t looked hard enough and I would be surprised if it is not there in Chinese language material. However, there is a very clear difference in conceptual language manifested in the consistent and persistent use of the term “productive forces”. The decision to prioritise the manufacture of means of production – the machines that you will use to make machines as well as the machines that you will use to produce goods – is clearly understood as the core of developing the capacity to produce domestically as much as possible and as strategically as possible of the means of production as you can.

National Economies, the Global South and the Internationalisation of the Socialisation of Production

But now in 2025, Indonesia already has been implementing its current economic strategy for over half a century. Is there a way out from being a conquered economy? This is a big question, and I don’t pretend to have the answer or answers. There are two major issues that I do wish to raise.

First, if a basic part of Indonesia’s conquered economy is its inability to produce domestically any significant amount of the means of production it needs, then what particular means of production should it choose to develop (assuming it could generate the finances domestically to do so)? How does it make such a decision in a world where the capacity to supply the needs for means of production may already be being met by other producers, including China?Furthermore, many actual production processes are no longer based in one country, as the production and supply chain has become multi-country for many products. Where does a country such as Indonesia without such a capacity start?

These kinds of issues make us ask the question: how does the relationship between departments A and B work in a global economy still operating in an imperialist framework? Is it enough anymore to try to make plan development purely on a national basis? Ideally, of course, this would be best done through global scale cooperation between nations, i.e. internationally. But the imperialist world pits the predatory Global Noth countries against the countries of the Global South. It is struggle to even achieve minimal mutually beneficial relationships. On top of that, the capitalist nature of the global economy as a whole can also pit one Global South country against another in commercial cooperation.

Perhaps, as part of the process of weakening the aggressive containment of the Global South by the Global North, will require more and more Global South countries to see the Global South itself as a key economic regional unit which can collectively plan a division of labour among themselves. Can China, for example, propose to aid, outside market mechanisms, a country like Indonesia develop some specific means of production manufacturing capacities. I think China already has some small projects like this, for example, with Ethiopia. Of course, to have a real impact such designs and projects would need to be on a large scale across many countries.

As many countries and observers in the Global South and those in solidarity with the Global South in the Global North argue, cooperation between the Global South is increasingly important. Actual collective planning would be crucial. And this is where the second, and quite huge issue, arises. Optimal cooperation among countries, especially involving actual planning, definitely requires the state to have full control over the country’s wealth so that it is able to seriously implement a plan. But this raises a major political question? First, who is in power over the country itself: is it society itself through whatever representative political mechanisms or just a handful of elites? Only a minority of Global South countries have socialist or semi-socialist governments. It is also clear, from what China, as well as Cuba and Venezuela are still facing, serious moves towards lessening dependence will be met with hostility from imperialism Only a country where society as a whole, or more-or-less as whole, wields sovereignty over its economy can face up to such hostility. Elite dominated states cannot. While this is the case, whatever cooperation is possible, although now doubt useful, will not be of optimal benefit and may, in the end, not at all be adequate to change the global economy in the necessary way.

Every substantial advance among the Global South will be an advance. But truly, the world is in need of international cooperation, dissolving the current bipolar divided world, between oppressor and oppressed nations. To end a system of such concentrated predatory power – this imperialism – transformational change must take place in the imperialist countries themselves. So here is another question: when will the people of the countries of the Global North realize the injustice of imperialism and bring their country to a different era of democratic cooperation with the peoples of the Global South?

— CONTENTS —

2025. Special Issue

▍Editor’s Note

Intellectual Awakening of the Global South：Opening Speech at the Global South and Southeast Asia Forum

Yang Ping

▍Conceptualizing The Global South

Knowledge Decolonization and the Autonomous Development of the Global South: Summary of the Global South and Southeast Asia Forum

Longway Foundation

Constructing Southern Theories in the Post-Neoliberal Era

Qin Beichen, Jing Jun

The Southern Problem and Beyond

Yin Zhiguang