Tales of cooperation and conflict: the economic colonial relationships in the Dutch East Indies

At the same time, some thousand miles eastwards, another, rather small, European country was struggling to uphold its position as a colonial superpower. After the collapse of the VOC, the Dutch state had acquired the VOC possessions (including huge amounts of land) and tried to put its deficit monetary situation in order. In this respect hard measures had to be taken and local farmers and petty traders had to comply with impositions and restrictions. Still, things in the Dutch-Indies were not the same as in South-Africa. Unlike the South-African whites, the Dutch colonial power was quick to acknowledge the undisputed position of the Chinese  (being the most populous Asian community  in the Dutch East Indies as were the Indians in South-Africa) in local and regional trade. As a result, in the same year in which Gandhi started to oppose the British colonial regime, Inspecteur der Cultures Fokko Fokkens carried out extensive research on the compulsory labour service and the organization of  Chinese governance. It should be noted that the appointment of Fokkens was quite remarkable, since Fokkens was very much committed to the well-being of the indigenous population. He represented a new way of thinking about the Dutch East Indies,  which would lead to the ethical policy of the last quarter of the 19th century. By entrusting this investigation into the hands of a man who had earned the title of ‘Javanenfriend’ the colonial power put itself in a rather vulnerable position. In September 1894 Fokkens completed his assignment, but it was not until April 1896 before his report ended up on the desk of the Minister of Colonies. Not to the surprise of those acquainted with the situation in the Dutch East Indies  the report showed how  the Chinese (and other Foreign Orientals) had gained a dominant position in the colony’s trading system, detrimental to the Javanese. Fokkens’ main recommendation of confining  the influence of these Foreign Orientals was at the same time uncontested as considered inappropriate. Did political motives prevent this report from publication, the Dutch colonial administration realized it had to change gear in its economic approach of its colony.

In his book ‘Dutch Commerce and Chinese Merchants in Java” Alexander Claver discerns three phases in the development of colonial economic policy in the 19th century: a trial and error period before 1830, government-led exploitation through the Cultivation system between 1830-1870 and a period of ‘laissez-faire liberalism’ (p.20) in the years after 1870.

After the British interregnum which lasted from 1806 until 1816 had come to an end, a period of economic experimentation commenced. It was decided that trade would constitute the main element in reforming the colony’s precarious financial situation. The shortage of cash money led to a rethinking of the economic framework: new institutions, such as the Nederlandsche Handel-maatschappij (NHM) en De Javasche Bank came into being. Furthermore, the Dutch administration started looking for new profitable crops that could bring the colony’s debt into balance. The proposals of J. Van den Bosch (Governor-General from 1830 till 1833) formed the basis of the Cultivation System. In this system the share of land reserved for taxation purposes was reduced. However, instead of rice for his own amenity  the Javanese peasant was summoned to cultivate profitable crops such as coffee and sugar. The Cultivation System was by no means revolutionary since it used traditional agricultural and administrative techniques while drawing its success from the availability of a huge labour force while people were confined to borders fixed by the colonial government. Not more than 200 years earlier some of these people had still used slash and burn techniques (this type of farming was locally known as ‘hoema’, ‘gaga’ or ‘tipar’)[i] .

The year 1870 marked the switch from this policy to a more liberal phase which offered more room for private enterprise. New laws, better infrastructural means and the availability of new land for cultivation by European (and later on Chinese) businessmen revived private entrepreneurship.  Tapping the wealth of the Indonesian archipelago proved altogether to remain difficult. As Alexander Claver indicates the crisis of November 1884 had far reaching consequences for all those involved in the trade in the Dutch East Indies. Even large companies did not survive unharmed. This crisis was provoked by reckless actions taken by traders and banks. Since market conditions were good and there was a strong demand for products from the Indonesian archipelago working capital was eagerly supplied by financial and trading firms. Ever higher loans were accepted, while credit focussed more and more on short-term paying. As a result companies growing one-year crops were given better conditions. Many firms offered the signature of their own head offices (or holding) as a guarantor, the so-called ‘pig on pork’ paper. In itself this should not be a problem as long as the enterprise formed only a small part of the assets of the holding. But if too many enterprises belonging to the same holding financed themselves in this way, danger was looming. When prices went down as a result from an oversupply of colonial goods as was the case in 1884, many firms could not break even. With prices of especially sugar at an unprecedented low turnover shrank and production costs could no longer be met.

In reaction to the crisis De Javasche Bank tightened its regulations for credit extension. The surplus of the collateral (property, usually goods that are to be used if a lender cannot repay a loan) was raised from 20% to 30% of the credit and the monitoring of the market was improved. The job of controller was created and an new set of instructions for this controller was drafted. By implementing the new regulations De Javasche Bank thought itself better equipped against future bankruptcies.

Since Chinese traders and businessmen have dominated trade and commerce in the Dutch East Indies, Claver gives much attention to their position. Examples of the good or bad fortune of Chinese merchants emerge throughout this book, while the relationship between the Dutch administration and the Chinese community is under tight scrutiny. Claver refers to the new position Chinese traders had acquired by the end of the 19th century. An official enquiry into the economic position of ‘Foreign Orientals’ in Java and Madura acknowledged their economic indispensability, but also spoke of their harmful presence.  Throughout the centuries the Chinese had become the dominant figures in revenue farming.  While in the Dutch East Indies the opium farm turned out to become the most successful revenue, this success also brought with it some serious downsides. The economic power the Chinese had seized, led to growing anti-Chinese feelings among Javanese and Dutch alike. As a consequence the attitude of the Dutch administration towards the Chinese became more and more negative. The Chinese response to the deteriorating economic and social circumstances was influenced by renewed interest in Chinese history  and culture and the rise of a more assertive Chinese generation. This led to a growing distance between the Chinese and the other players in the field, such as the Javanese and Indo-European community. The latter played a key-role in the demonization of the Chinese; newspapers such as De Telefoon offered much space for negative and even racist articles on the Chinese. At this point the Chinese started to mount their grievances, which led to the emergence of a nationalist attitude. In their struggle for economic, social and political prosperity the Chinese challenged the Dutch, who were slow to understand this new reality. Only a well-maintained boycott of Dutch enterprises by Chinese traders would open the eyes of the colonial administration. In May 1884 35 Chinese merchants pledged not to order anything from J.W. van den Brink, a Dutch import house who had refused to prolong an outstanding loan. Matters got more serious when some years later the Chinese decided on a boycott of the Handelsvereniging Amsterdam, the so-called HVA, by then the most important Dutch trading company in the colony. Although the HVA tried several ways to  counter the boycott it finally had to give in by selling its failing import business.

Stimulated by increasing demand within the colony and in the world at the beginning of the 20th century,  the Dutch East Indies witnessed rapid economic growth. Private business profited from the liberal trade regime with barely any tariffs or trade barriers to imports. Complementing each other, Dutch and Chinese commerce found itself at the heart of the system. This economic system,  defined by Clavers as a ‘laissez-faire’ policy would last until the crisis of the 1930s with one important exception. Around 1900 a new colonial policy which put more stress on state intervention in economic al and social life came into being. This so-called Ethical Policy saw progress as the only way to modernity. It aimed at advancing the indigenous people in different fields: education, health, finance,... It goes without speaking that this happened under Dutch tutelage with the motherland as first and only example.

The economic  perspectives after 1905 improved fast, but as the future would prove in fact too fast. Driven by competition and unable to resist the opportunities for profit, banks and trading companies supplied capital on questionable conditions. This situation did not seem harmful until the increase in production could no longer balance the falling prices of export products. From a business perspective –and this may well  be Clavers most important statement- the 1920s were far less positive than usually thought. Bankruptcy figures show that business fared much worse in the 1920s than in the next decade notwithstanding a better economic  environment. This paradox can be explained by the fact that the events in the late 1920s were a correction to the unbridled expansion of business after World War I. The collapse of the New York stock exchange at the end of 1929 inflicted the final blow to a system that had undermined itself. Only by the mid-1930s the economy of the Dutch East Indies started to show small signs of recovery. Different actions were taken, fraud was curbed, control on financial credibility was tightened up. To what extent these measures may have led to an improved business environment will never be revealed. In 1942 the Japanese occupation put an end to the Dutch colonial era.

When looking back on 150 years of trade by state-intervention, the difficulties and drawbacks one might wonder why the Dutch decided to continue the exploitation of such a vast country. It seems giving up was never considered, for after the collapse of the VOC the potential profit of the colony was never questioned. All people and parties concerned spoke out in favour of the continuation of colonial trade through state-intervention. As Claver has shown it never was an easy job!

[i] For more information about the history of Javanese (and in particular West-Javanese) agriculture in the 19th century, see Breman, J, Ed. 2011. Koloniaal profijt van onvrije arbeid, Amsterdam University Press.