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UBC Theses and Dissertations

The overseas Chinese and the economic underdevelopment of Indonesia Chen, Christopher 1997

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T H E O V E R S E A S C H I N E S E A N D T H E E C O N O M I C U N D E R D E V E L O P M E N T O F I N D O N E S I A by C H R I S T O P H E R C H E N B.A., The University of British Columbia, 1994 A T H E S I S S U B M I T T E D I N P A R T I A L F U L F I L L M E N T O F T H E R E Q U I R E M E N T S F O R T H E D E G R E E O F M A S T E R O F A R T S in T H E F A C U L T Y O F G R A D U A T E S T U D I E S Department of History We accept this thesis as conforming to the required standard T H E U N I V E R S I T Y O F B R I T I S H C O L U M B I A April 1997 © Christopher Chen, 1997 11 ABSTRACT This thesis will attempt to clarify the reasons why the Indonesian economy did not progress from an import-substitution orientation to a more advanced state of export-orientation during the oil boom periods of the Suharto era (mid 1970's to early 1980's). The paper will be a departure from Western research methods of analyzing political and economic secondary sources by using Chinese and Southeast Asian Chinese sources instead. I have drawn upon the theories of noted Western scholars and attempt to explain how their theories on the subject are incomplete and Western-biased. I will attempt to show how Chinese sources may lead to a conclusion that, contrary to popular belief, the Chinese family ethic may in fact be an inhibitor to economic development. I have chosen private big businesses in Indonesia exclusively as I believe them to be the best examples of active economic actors in that nation during that period. The paper will be divided up into an introductory section which will state the purpose of the paper, the methods of research and will also feature introductories to basic models of developing economies and Indonesian conglomerates. Chapter two will contain the prevalent theories on government protection and involvement in the Indonesian economy. This will draw upon the secondary Western source materials available on the subject and highlight examples of bureaucratic interference. Chapter three will feature the Chinese sources on the cultural aspects of the Indonesian Chinese economy, describing such notions of assimilation and cultural traits. This will show how Chinese private enterprise and business strategy may be influenced by the family ethic which many believe to be the strength of overseas Chinese entrepreneurialship. The Chinese sources I have used may in fact indicate otherwise. T A B L E O F C O N T E N T S Page Abstract i i Table of Contents i i i I N T R O D U C T I O N 1 Introduction to Developing Economies 9 Introduction to Indonesian Conglomerates 15 C H A P T E R O N E : G O V E R N M E N T P R O T E C T I O N 20 Protection in the Oil Industry and Manufacturing 28 C H A P T E R T W O : T H E C U L T U R A L - E C O N O M I C ISSUE 39 Family and Business 52 C O N C L U S I O N 61 G L O S S A R Y 64 C I T A T I O N S 66 B I B L I O G R A P H Y 70 1 INTRODUCTION In Indonesia, the analysis of Chinese private enterprise has shown that, contrary to other Southeast Asian Chinese business communities, there is evidence that the existence of a Chinese work ethic has had an adverse effect on the economic development of that nation. During the Suharto era, there are Chinese sources, particularly from mainland Chinese literature, that state that the cultural issue and family ethics are inhibitors to the economic competitiveness of Indonesia in the period from 1972 onwards, the time period marked by the first of the oil booms. This paper is an attempt to clarify the roles of the Chinese using those literatures. In past secondary sources, all the Chinese of Southeast Asia have tended to have been identified together without differentiation of cultures and political environment. The Chinese have always been a small minority in Indonesia and, as history has shown, like overseas Chinese communities in other Southeast Asian nations, they dominate the indigenous economy of the nation they have made their home. This was a result of many factors including favouritism by the old colonial masters, residential segregation, benefits of a separate educational background, and a system of networks that is still today the subject of controversy. That it was an interaction of national-international factors that the Chinese took responsibility for was the cause for recovery, however limited in the degree of recovery from the second world war, is not being debated in this essay although the methods of economic recovery are still highly questionable. As a result, Suharto's government had created a business climate that proved to be 2 mtimidating to all enterprises active in that nation, foreign or otherwise. Even control of the economy itself is debatable, some say that government influence over the economy in terms of monopolies, bureaucratic obstacles, or extreme graft and corruption has allowed the government economic mastery. However, it is common belief that the true actors in the economy were the Chinese, and this is the point of view I have adopted for this essay. Enterprise in Indonesia remained in the hands of the Indonesian Chinese, who often had to work in conjunction with their nemesis, the State, in order to operate. The existence of state enterprises such as the huge oil company, Pertamina, and the role of the army as industrial managers also provide issues of debate. This paper will not be an analysis of to what extent control of what sector of the economy is run by which power group, but rather how each group takes part in a system of patronage and an analysis of the methods of recovery especially during and after the oil booms of the late-1970's early 1980's in the domestic sphere. The amount of foreign aid and loans during this period were not as influential in terms of amount of revenue earned by the oil booms. I believe there to be an inherent paradox found in the analysis of the Indonesian business elite, the study of the Indonesian overseas Chinese has shown that within the framework of ethnic and economic history, a contradiction has arisen. This contradiction came about when comparing the works of Yoshihara Kunio and of Ruth McVey. Yoshihara Kunio describes in his book, The Rise of Ersatz Capitalism, the often-debated notion of "ersatz capitalism'. (1) This theory describes the rise of Southeast Asia's capitalist strength in terms of a grand mirage, spectacular but insubstantial. This business world 3 defies the evolutionary ideals of what "true1 capitalism should be, for it claims that businessmen are not the actors in the dynamic Southeast Asian economy, but rather the bureaucrats and landowners. Economic growth itself is not a result of the business class, but rather of alien accomplishment, and the business elites are nothing more than parasites or agents of foreign multinationals. This discourse led to the rise of the term "rent-seekers', or better yet, those called "bureaucratic rent seekers' (2), in which local business elites openly seek out the patronage of the government in order to insure stability if not outright support and backing. It is difficult to determine between taking advantage of control of a resource without productive investment, a notable trait of rent-seeking, as opposed to capitalism proper. (3) Ruth McVey raises the idea of the "cosmopolitan behaviour' of Chinese business activity (4), which states that the Chinese behaved as intermediaries between Western and foreign big business and their local economies, as opposed to being mere agents for neo-colonialism. And in this role of intermediaries, they attracted the Japanese who needed interlocutors when re-establishing their roles in Southeast Asia after the war, which therefore strengthened their own continuing domination of local economies. But in this framework, the Indonesian Chinese business elite does not fit very well. As societal "pariahs', they relied upon themselves to protect their interests and also could not turn to the local government for help when economic shortfalls arouse. (5) But did they turn to outside forces, either other Southeast Asian Chinese nationals or western MNCs for economic support? The Chinese had to learn both the knowledge of modern trade and 4 manufacturing techniques, and the local market, in order to compete successfully against their Chinese contemporaries. While this may have been true for other Southeast Asian Chinese, the Indonesian Chinese never had a strong grasp of the technological knowledge that could have been at their disposal nor did they choose to interact with other Southeast Asian Chinese nationals in the links of guan xi (relationships or networks) (6) In this lies the paradox: that despite the Chinese "cosmopolitan1 behaviour that one can accredit as a main reason for overseas Chinese business success, the Chinese in Indonesia went against this internationalist and outward-looking trend and turned inwards. As Richard Robison points out, since 1973, the Indonesian Chinese business elite, although controlling the domestic economy in much the same way as their counterparts in other Southeast Asia nations, went against the grain by not becoming the leading edge of a capitalist class seeking to break out of the constraints of an Import Substitution Industrialising (ISI) economy. Instead, they became inward-looking, dependent on protection, remaining in the ISI stage of capital development, and not expanding into the more developed and competitive stage of an Export Orientated Industrialising (EOI) economy. (7). The general trend for Southeast Asian huaqiao (overseas Chinese) was for them to take advantage of their unique position in the Asian market, their ability of being able to connect with other Southeast Asian Chinese or of the Chinese nationals of East Asia, by taking advantage of their guanxi (relations). The popular belief being Chinese prefer dealing with other Chinese when compared to foreigners of different ethnic stock in a 5 given situation rang true in a business sense. The Chinese did have the ability to take advantage of "seeing oneself or "seeing a relative' in what may be a perfect stranger. However, in Indonesia, an almost insular business atmosphere pervaded foreign investment and trade, and the reasons for this may be both political and cultural. (8) Why the Indonesian Chinese chose not to open up during the 70's and early 80's, when their economy was suitable to do so is still a subject for debate. I propose to argue that the Yoshihara thesis about "ersatz capitalism' obscures as much as it explains, and why the McVey thesis is also inaccurate in its generalisation of all Southeast Asian Chinese as being "dynamic'. Not only do the theories contradict each other, they leave a large issue untouched in their analysis of economy and politics, that of culture. As the other factors of why this happened must be analysed to understand how Indonesia could play an economic role in the Southeast Asian region. In this essay, I want to associate culture with identity. The nature of Chinese identity and culture in Indonesian politics and history can perhaps explain why the Indonesian economy never evolved into a higher stage. It is a departure from western theorists such as Robison, Mackie and Maclntyre to say that culture can help explain economic development, but the theories that have led Asian historians to believe that culture and politics may be inseparable may too lead to a similar conclusion about the link between culture and economics. This essay utilises source materials from mainland China, of where there are several academics currently drawing the link between culture and economy. Western and Indonesian such as the Bulletin of Indonesian Economic Studies and Prisma have focused 6 exclusively on the political-economic environment of Indonesia as a determinant for economic strategy among the Chinese enterprises, but I have also included these as well for the sections on government protection. Inhibitors of big business are not exclusively politically caused but can also be the result of cultural tradition such as family or relationship structures and strategies, as this essay will try to introduce. I would like to first clarify what definition of "culture' I will be using for this essay before I go further. I have chosen the common ground between the pattern theory of Kroeber and the social structure theory of Radclife-Browne. Kroeber's pattern theory states that culture consists of patterns, explicit and implicit, of and for behaviour acquired and transmitted by symbols, constimting the distinctive achievements of human groups (a notion E.B. Tylor ignores). The essential core of culture consists of traditional (i.e., historically derived and selected) ideas and attached values. Culture systems may also be considered elements of further action on the other. Radcliffe-Browne's idea of the social structure theory states that each structural system is a functional unity in which all the component parts contribute in a harmonious way to its existence and continuity. To test this hypothesis all kinds of social phenomenon - morals, law, ritual, religion, government, economy, education, languages - need to be studied "not in abstraction or isolation, but in their direct and indirect relations to social structure", i.e., with reference to the way in which they depend upon, or affect social relations between persons or groups of persons. Radcliffe-Browne includes culture as a component to the system of social structure in the sense that both kin terms and social usages defining socially approved behaviour 7 between relations are brought together into a single system organised by structural principles. Although history is considered essential for understanding how a system came to be organised the way, the functioning and the morphology of the culture system can be understood without reference to its history. For this paper, however, the history of a society is too strong a determinant to be considered ignorable. For this reason, I found Kroeber to be more suitable for he states that the kinship system of a given group is also part of a cultural pattern but is historically defined and has some functional significance. Its relation to social institutions and to other aspects of culture is not causal or accidental but is rather the relation of one culture pattern to other culture patterns which have become historically associated and defined. This history cannot be ignored and culture is an ongoing interaction between dissimilar systems. (9) This interaction is in itself changing due to conscious decisions of internal societal organisations, resulting in a psychological reaction among the participants, encompassing geography, language, tradition, and history in a pursuit of identity. (10) This paper will be divided into subheadings and chapters, each one leading on to the next notion. The first subsection "Developing Economies' will give an introductory background as to what methods developing nations have used to become more competitive and will show Indonesia has been left behind in what is regarded as a "preliminary stage' of development when compared to more advanced nations who started with roughly the same levels of despondency, or in Japan's case, far worse. The second subheading "Indonesian Conglomerates' is another introductory background that 8 will round down the type of enterprises under analysis in this essay and will explain which are relevant to this paper. I have chosen big business for although small to medium scale enterprises are themselves dynamic actors, capitalist development has been the most marked in the realms of the large corporations when compared to their smaller contemporaries. I will also touch briefly on state enterprises later in the paper, most notable, Pertamina the oil company, for although this company is not run by the Chinese, it is a good counterbalance to the Chinese private firms. This type of comparison will serve to offer a better perspective on who the central actors are in the Indonesian economy and who maintains the system of patronage. The chapter "Government Protection' provides the background of the "rent-seeker' and "crony-capitalist' terminology of Yoshihara Kunio and will show how incomplete his arguments are when compared to the historical background of the Indonesian oil industry and manufacturing sector. It will also focus on how the system of "rent-seeking' has manifested through time, particularly in the face of overseas competition and foreign influence. The last chapter "The Cultural Issue' will draw upon mainland Chinese source documents and explain the link between family and business and how the two interact when it comes to business strategy. Most westerners would say that family priorities in business are a benefit, leading to strong organisation, clear identifiable goals, and strong business relationships and continuity of business acumen. However, this paper will attempt to present a different argument, it will draw upon the ideas of Chinese 9 entrepreneurs in Asia themselves and sources from the People's Republic of China that believe family priorities have an adverse effect. DEVELOPING ECONOMIES - an introduction In order to understand the stages of development in Asian nations that had to rebuild their domestic economies after the war or after colonialism, the roles of ISI and EOI economies must be defined. In the post World War II period, the leaders of other Asian economies came to the conclusions that ISI, while effective for the initial stages of rebuilding after a devastating war, was not effective on a more competitive basis. Indonesia itself limited imports shortly after independence. The wealth accumulated by the overseas Chinese after independence from the Dutch was vast, establishing their profits on overseas trade. Although the Chinese had suffered greatly during the Second World War, they were the first to economically recover and create a new societal niche for themselves by establishing for themselves the role of the merchants. But Indonesia's government, like many other post-colonial nations, feared neo-colonialism and closed off her gateways and limited that form of income substantially. The scale of trade withered compared to what could be earned domestically, as was soon discovered. The Chinese management of overseas trade had been curtailed by the government representation of indigenous Indonesians. (12) There are several factors that have played the central role in the relative success of those nations that did make the transition (to be more specific, the Four Little Dragons -Singapore, Taiwan, Singapore and Hong Kong). Firstly, transformation coincided with a 10 restructuring of the global economy (the so-called new international division of labour -NIDL) which was conducive to the relocation of some manufacturing industries and the beginnings of export-oriented production based on low-wage labour. Secondly, transformation was characterised by the emergence of a strong domestic capitalist class and domestic corporate groups who provided the focal points for production and export.(12) Thirdly, there was availability to Japanese investment and technology. The proximity of Japan and the shared Asian heritage and pre-WWII relations made this accessibility easier for them than other nations. These nations also shared a lack of raw materials that forced these nations to be informational accumulative in economic behaviour. (13) The last major factor was the destruction of the old order, either the fall of the colonialist powers or the advent of social engineers occurred, this undermined the traditional power-holding elites of those nations and helped to imbue a sense of political and economic urgency as the idea of a threat, say communist China, was ever present. And the lessons learned from WWII were not forgotten, that the Americans won due to economic strength was not lost on the new governments. The urgency also arose from the fact that their nations were resource-poor and had burgeoning populations. They realised they could not be self-sufficient and knew that they had to export manufactured goods in order to pay for food imports and raw materials needed to survive. (14) Those four nations found that ISI constrained the continuing development of capitalist development as the domestic market became saturated and balance of payments problems began to emerge. Continued capitalist expansion then required the 11 development of an export manufacturing sector to complement the existing import-substitution structures. (15) At the same time, however, the political relations between state and capital, which had been largely built by the "rent-seekers', began to come into conflict with the needs of capital for effective long-term state co-ordination of the entry into world markets. One major exception to this rule was in South Korea, where the chaebol (Korean conglomerates) continued to be awarded licenses and contracts by currying favour with the government. For example, Hyundai founder Chung Ju Yung maintained his close relationship with the presidency of Park Chong-hee. After 1961, he rebuilt a war-destroyed bridge in Seoul for a token won, and gained national shipbuilding rights because of presidential favour. (16) The saturation of the domestic market in the context of a rapidly developing market in Indonesia can be compared with the rise of the Japanese export-oriented economy centuries before. At that time, the Japanese economy was dependent on the consumer power of a very small elite, the feudal lord class. The economy, though growing, was dependent on their consumption and patronage, and did not gear itself to the masses, who at the time were peasants prohibited from product consumption by law. This allowed the economy to remain limited and able to control production at comfortable levels and kept competition basic. The merchants engaged in this were kept safe from Western economic penetration despite full knowing their markets were saturated with domestically produced goods created by import-substitution methods. (17) In post-war Indonesia, the case is similar in that only a small class can truly act as mass 12 consumers, that of a slowly blossoming middle and upper class. The mass of the population are peasants without the earning ability to maintain any real sort of modern consumer behaviour. This comparison of modern Indonesia to early modern Japan is also relevant in that Japan learned that the capital gained from foreign exports limits the entry of foreign capital due to the perception by the government that the dependence on foreign capital is no longer dire. This keeps the imbalance of international payments to a minimum level. Despite knowing this, Sukarno's Indonesia did not expand into an export orientation in their manufacturing and petroleum-based sectors on a more competitive basis. Oil exports made up a primary source of revenue but the manufacturing sectors did not grow at the same extent as did the oil industry. One can easily see how the economic chaos the country was going through when Suharto took power was also a key factor. The country was bankrupt, hyperinflation rampant and the country's state-dominated industrial base at a standstill. Suharto invited a group of Western-trained economists based at the University of Indonesia to propose advice on how to best salvage the economy. The economists were outward-looking and market-oriented, a sharp turnaround from the statist orientation which characterise Indonesia's economic policy. (18) The immediate priority of the advisors was to stabilise the economy and secure economic assistance and foreign investment. These liberal reforms reflected an orientation of the technocrats themselves and of the conditions demanded by their western creditors in return for the rescheduling of the country's heavy debts and the negotiation of new 13 loans. There was also a state-led attempt at Industrialization to be done primarily by private sector investment. This market-oriented outlook did not last for long, There was a popular political backlash from both the right and left against the liberalisation of economic policy and the active encouragement of foreign investment. The government was accused of "selling out' to foreign economic interests and a sharp rise in nationalistic sentiment occurred. There was even an anti-foreign riot against the visit of Japanese Prime Minister Tanaka in 1974. However, the reforms put forth by the Western economists were not cancelled entirely, it was after all a source of income, and their only possible replacement was to raise taxes. The other major development was the first oil boom. The huge surge in revenue removed many of the policy constraints on the government and the worst of the economic chaos left behind by Sukarno was cured. The oil boom dampened the government's willingness to entertain unpopular liberal economic policy. As long as high world prices for oil continued, the Indonesian protectionist trade regime could continue. But after the oil boom, the government was faced with the undesirable policy of partial liberalisation of commodity trade (as opposed to completely removing the disincentives of export production in the existing trade regime to encourage acceleration in non-oil exports). The government reluctantly chose to do carry out this policy, despite misgivings, in order to bolster a sagging export market. (19) The resurgence in nationalist and interventionist ideas in policy-making circles led to the regulations on foreign investment being tightened. Trade and industry policy was 14 redirected as the country set off an ISI-intensive drive. With the revenue from oil taxes, the government began mvesting widely in state enterprises and basic infrastructure in a bid to develop an integrated industrial base. For example, Pertamina, the state oil company, grew with the new revenue and this allowed the government to gain more control over sectors dependent on oil and through more taxes. Little incentive at all was offered to encourage EOI. Protection for the local market was even nurtured behind extensive trade protection barriers. And after the initial resurgence of state-led economic nationalism, the policy orientation developed a political momentum on its own. The inflow of oil revenues created new power bases for the advancement of nationalist and statist ideas within the policy-making structure. Pertamina, the Department of Industry, the State Investment Board, and the Department of Research and Technology all expanded their influence and power bases. (20) It was not until 1989 when liberal policies and reforms were pushed again as a result of a new economic downturn. By 1983, large Indonesian manufacturers suffered from a variety of factors that made it difficult for them to operate internationally - relatively high unit labour costs despite low wages, due to a low level of skills and poor management which was compounded by bureaucratic regulation. And it was up to labour intensive manufacturers to make a substantial contribution to the growth of a non-oil export market. The existence of an export certificate scheme that businesses must apply for added a further burden, and the "counter-purchase' policy in which foreigners wishing to 15 engage in public sector projects had to guarantee to purchase Indonesian exports equal to the import component of the project did nothing for exports. (21) INDONESIAN CONGLOMERATES - an introduction As a reminder, this paper focuses on the large conglomerates of Indonesia, those companies large enough to be able to compete against foreign multinationals. Medium to small companies, although they vastly outnumber the conglomerates, are of a different corporate culture and would require insights of a different kind. In fact, it was the small and medium companies who were truly making the inroads to a outward-looking market after the oil boom years. These companies were the ones who can be regarded as pioneers in investment into mainland China. The large Indonesian conglomerates themselves come in many varieties but each is an actor in the system of patronage, and in fact, some are a result of the patronage system. As a contrast to private enterprise, the state enterprises were unable to become effective actors in the Indonesian domestic economy, much less actors globally. To clarify, when one considers Pertamina (the state oil company): it is apparent this company has ties to overseas banks, but this company represents the interests of Indonesia alone and has no world-wide holdings to the same extent that Royal Dutch Shell or Exxon would have. Pertamina does not have the same global presence. Many of these companies were run by military officers, of whom managed their companies like small kingdoms, hoarding profits earned as though they were personal fiefs or treasuries. Many were beyond the reach of the law as their military connections gave them an almost official 16 exemption. (22) These enterprises maintained a low efficiency rating, unable to satisfy the massive population of the nation in almost all the necessary infrastructure services of cornmunications, utilities, and transport. Even during the oil boom years, the corruption of the state enterprises from 1978 to 1984 caused almost a quadrupling in national losses. (23) In the history of the development of the Chinese-run conglomerates, their configurations can be divided into the following categories: 1) State Owned Conglomerates - this type was established by the state through formally set up state firms or their subsidiaries. 2) Bureaucratic Capitalist Conglomerates - these are private sector firms set up by former officials or relatives of officials. 3) "Crony Capitalist' Conglomerates - this term is used in connection with those firms formed on the basis of special licensing, or protection provided to friends of officials in an unfair or biased manner. 4) Genuine Private Sector Conglomerates - these developed on their own or had been inherited from businessmen during the colonial or Sukarno periods. They have gained success through creativity and innovation and, in the long run, will prove stronger than the crony or bureaucratic forms and lastly: 5) Combined Conglomerates - joint or co-operative ventures between the four types listed above, of whom it is difficult to label into a particular category for they are indeed often mixed up, for example Eka Tjipta Wijaya's Sinar Mas Group went into business with Ibnu Sutowo, the founder of Pertamina, the state oil company. Sinar Mas also went into a joint venture with the Salim Group. These complex interrelationships make it very difficult to assess the exact source of wealth of individual conglomerates. (24) iv But in regard to the largest conglomerates (Bureaucratic and "crony'), it perhaps is not fair to question their ability to follow in the footsteps of other developing Asian nations, who took their own models from Japan. Did Indonesian conglomerates have to follow the Japanese model of going from ISI to EOI? They had a chance during the 1970's, during the oil boom and shortly after. They certainly cannot now in terms of being able to compete effectively. Should they have tried? At the time, in a structuralist approach, at the height of Liem Sioe Liong's (Sudono Salim, founder and owner of the Salim Group, Indonesia's largest conglomerate) which has the licenses for the majority of the clove cigarette (kretek) market) generation, perhaps, but their opportunities seemed to have past. Liem Sioe Liong himself was of peranahm (long-standing Chinese) stock, and is of the generation that had experienced the Second World War firsthand. However, there is evidence that other nations impeded Indonesia's advances towards becoming an exporting power. For example, in January 1981, Indonesia had a trade dispute with the United Kingdom which had as its roots an Agreement on Trade in Textile Products with the EEC signed in September 1979. In view of the EEC negotiators, it was to be based on the assumption that the base for Indonesian exports to the EEC would be at the same negligible level of 1977-78. Indonesia denied that it had accepted any such base and argues that in 1977-78, their textile export market had not yet even got off the ground and that after the exports had started, a mechanism should have been made to work out annual increases. But by 1980, nearly 3 million articles of clothing were imported into Britain. The United Kingdom responded with an absolute ban and 18 appealed to the EEC for legal protection. The EEC upheld the 1979 Agreement, claiming Indonesia grossly exceeded its quota. (25) The ability of competitiveness that lies within Indonesia is also tempered by high inflation overseas and the periodic weakening of the rupiah in terms of the currencies of trading partners. (26) The conglomerates of Indonesia have several attributes that mark them differently from their counterparts of other Southeast Asian nations. Summarised briefly here and described in detail further in the paper, these attributes also may help to explain several of the unique economic nuances that seem to afflict the Indonesian economy: 1) the "bureaucratism1 of the Indonesian economy. As a historical background, when Suharto's New Order was underway, massive amounts of capital were needed. However, the amounts provided by foreign nations such as Japan and the United States were simply not enough to sustain the development plans. As the economy became more unstable, Suharto turned to the ethnic Chinese of Indonesia and in effect created a new system of patronage that resulted in a mutual parasitism where the government required Chinese capital and the Chinese required government protection and patronage in order to secure their investments from the government itself; (20) and 2) monopolisation and capital isolation. In this, a company such as the Astra Group of William Suryadjaja (Xie Jianlong), which had the manufacturing licences for car companies such as BMW and Toyota, had 42.09 % control of car production, while the Salim Group held another 30.25 %. (28) The Astra and Salim Group's presence in the automobile market represent an impressive control over product for which Indonesia is not even renown for engaging in, even more 19 impressive and perhaps more disturbing is the kretek (clove cigarette) market, in which the Chinese controlled over 80 % despite the fact that the product was created by indigenous entrepreneurs who feel a certain resentment due to that fact. Capital isolation occurred when many of the Chinese enterprises intimately "hired1 banks for their insurance and loans. Although a company such as the Salim Group may utilise foreign banks for venture capital, it is also common for companies to establish their own banks for internal needs; (29) and 3) the unusual methods taken by the government for economic assimilation of the Chinese entrepreneurs, of which occurred in several stages and extents but had the effect of diminishing the ethnic gaps of the economy. This can be found in all Southeast Asian nations but the circumstances in which it took place in Indonesia, its struggle and voluntary/involuntary implementation, are unique. This assimilation will be covered later but the issue it created brought a deluge of larger cultural issues. 2Q C H A P T E R O N E : G O V E R N M E N T P R O T E C T I O N In export orientation industrialisation, a well developed domestic production base must already be established. The foundation of an effective EOI system is the ability to not rely on one product and one product only. Thus many "banana republics' are left vulnerable to fluctuations of world prices. True EOI economies realise that after the initial exportation of a first product, stagnation, saturation or a rise in competition of the product is inevitable. The ability to move onto a new product is what keeps an EOI economy alive. A product based on technology is the most versatile, as the technology itself can lead into other forms through improvement and innovation, creating an outwards fan pattern that sustains itself. The necessary levels of technology for improving the capabilities for export orientation exist in Indonesia, but there lies a large discrepancy in those who can apply the technology effectively towards expansion and see the potential of the technology itself and those who merely buy the technology from other countries and simply use it for manufacturing and production. The Indonesian business class can be accused of the latter. There were no true technology-driven innovators in the Indonesian elites. The Indonesian Chinese were adept at being financiers but lacked the technological understanding that is usually found in a more developed economy. Technological capability is the ability to make effective use of technology, and technological effort is the conscious effort to use technological information to choose, assimilate and adapt or create other technologies. Technology is thus the translation of 21 technical theory into practice technological knowledge maintained by the ability to understand all of it, but Indonesia is guilty of a process known as technology transfer, which involves the transfer of proprietary and non-proprietary technology through various ways such as licensing from foreign companies and joint ventures. In this process, technological knowledge is partly or wholly undertaken by foreigners instead of nationals. This implies that technology transfer is a substitute for indigenous mastery, capability, or the effort put in to fully utilising technological knowledge. (1) This leads to the assumption that in Indonesia, technology transfer retarded the industrialisation process as it does not allow the notions of where the industry can go in the future with the technology at hand. In Indonesia, this can be proven by taking examples of long standing Indonesian Chinese businessmen such as Sudono Salim/Liem Sioe Liong, Bob Hasan or William Suryajaya. With the Salim and Astra Group, both conglomerates' products are marketed only in Indonesia. These men can be described as producers, but not innovators, and their business and fiscal plans have, in the past, been described as being short-term. One reason for this lack of initiative is that the overseas Chinese desire the status quo, they have grown comfortable under the Suharto regime under whose leadership they have developed a symbiotic relationship. It is true that Indonesian businessmen have had a more precarious past and a harder struggle towards pre-eminence than Sino-Thai businessmen. The reason is that for many of their counterparts in other Southeast Asian 22 nations, ethnic origins and identity no longer figure a large part in their lives such as in Thailand. (2) It is already well-known that the prosperity of the Chinese businessmen in the Suharto regime is attributed to their political connections as cukong to the New Order power holders. The term ^cukong' itself came about in the 1970's to denote a close relationship between a Chinese who knew how to raise money and an Indonesian official who could provide protection and influence. This is the "rent seeking1 phenomenon Yoshihara was referring to. During the early years of the Suharto regime, the government budget was inadequate to fund more than a small part of the routine expenditures of the armed forces and regional civilian administration. Unconventional finances had to be raised at both national and local levels. To address this, Chinese financiers were approached who were offered protection from government harassment and access to scarce goods, banks, credit and government contracts. This was compounded in the later 1970's when government officials entered the field of high finance themselves such as, most notably, members of Suharto's family. The Sistem Cukong, as it became known, had five characteristics: 1) a "bureaucratic tinge1 to their wealth, as every single entrepreneurial group had military or bureaucratic involvement; 2) a growing monopolisation; 3) a growing financial independence; 4) a growing nationalist sentiment that led towards greater political activity; and 5) a high degree of mutual investment and mutual support among those huaqiao entrepreneurs involved. (3) 2 3 After the oil boom of 1973/74, the term cukong was heard less frequently, as the relationship between government and minority businessman waned. The newly raised capital lessened both sides' activity from this patronage racket, but it did not end the system. It was still good policy for the Chinese to be on the good side of the military, still the highest class in the pecking order, and it was still good policy for bureaucrats to have allies in business in case of a career change. (4) Indonesian economists themselves favoured government planning and regulation of industries along the lines introduced by the colonial government. However, they have placed greater importance on the maintenance of existing enterprises against competition from new producers and foreign competition than did their colonial predecessors. Two reasons are that they sought to preserve and increase the role of indigenous-owned firms in the face of domestic Chinese and foreigners; and they also considered that free competition between large foreign companies and small domestic ones to be "unfair' (5) The notion of government protection itself deserves to be analysed before the more abstract issue of ethnic identity can be addressed. Government protection naturally conjures up the opposite notion of a business independent of government involvement. However, this is impossible in Indonesia, particularly in the oil industry. Protection, therefore, must be maintained in all levels of business in order to safeguard Indonesian businesses from both internal and external pressures. The term "independence' cannot imply noninvolvement from the government and it also cannot mean the ability to 24 compete against foreign companies (if they chose to compete) without government protection; (6) The concept of protection itself has changed within the last 25 years. As the term cukong simultaneously became less used, the patterns of political patronage which involved the Chinese business elite changed. Whereas in the past, the earlier Chinese had sought "palace1 and high bureaucratic personal support, the younger elites turned to institutional connections and policies. (7) For example, it was preferable and more direct to draw support from the Ministry of Agriculture or Industrial Development, or from Kadin, the Indonesian Chamber of Commerce. Yoshihara Kunio's term "rent-seekers' is perhaps not all that inappropriate here. His usage of the "rent-seeker1 or "crony-capitalist1 terminologies for the Philippines is meant to cover those who try to establish government connections for business advantages. They are essentially seeking opportunities to become the recipients of government-confered rent by taking advantage of the when the government disposes its resources, offers protection or issues authorisation for certain types of activities it regulates. The Chinese see themselves as the natural benefactors, as opposed to foreign businessmen, of whom they feel do not deserve the benefits. Thus, "rent' is defined as the difference between the market value of a government "favour1 and what the recipient pays to the government and/or privately to his benefactors in the government (is he does not pay at all, the entire market value is rent, or more, precisely, economic rent) (8) 25 It is often difficult to say who was the instigator of such a case of "palace rent-seekers' involving Suharto's family, for when the president's son or half-brothers themselves dabble in business, one is hard pressed to say it is the initiative of the Chinese. Indeed, the problem of who exactly were the instigators of this system is very unclear as the historiography of the subject has shown. With the transition to industrial capitalism and the emergence of a larger bourgeoisie in the New Order, the expected challenge to state power never occurred. In fact, state power was reinforced. The new accumulation of state capital was derived from oil revenue and foreign loans, which were channelled through the state. It was state managers who had the power to allocate these resources and prioritise whatever they saw fit. The private business elite had no choice but to be dependent. The institutional apparatus for investing and allocating this wealth was in the hands of the state who then also had power over the banking system and, through near monopolies of the resources, over the resource combines such as Pertamina (oil), Krakatau (steel) and P L N (electricity). In many ways, however, the government is also dependent upon these massive huaqiao companies and not exclusively vice-versa, and maintains this system of patronage not only for control but also for convenience and acceptance of reality. The overseas Chinese practically control the indigenous economy. They had grown from merely 84 large companies and enterprises before the 1960's (which still controlled 30 % of the economic output) to 194 during the 1960's (70 % of output). By the 1980's, there were more 26 than 300 large enterprise organisations in the works and had effectively gained an ethnic monopoly over the economy. (9) Economic autonomy has meant that those who controlled public office have also been able to control the allocation of resources and access. The nature of this authority has been legitimised in the state ideology which stresses the organic nature of society and the role of officials as pursuing the "common good' and "national interest1 over the forces of particularly, vested interest i.e., the interests of the Chinese capitalists. Again, this turns the ethnic identity issue into an economic and almost moral issue. (10) Control of the source of patronage and investment capital has been reinforced with effective corporatist political institutions established to co-opt, confine, and contain the political and ideological activities of social forces. But since 1983, the amount of social control has lessened. Structural pressures have served to undermine the power of the bureaucrats. Cases of known corruption, such as funds being channelled into dubious enterprises by bureaucrats, rocked the state and formed new notions of accountability (11) But perhaps the most important factor is the fact that bureaucrats, from the highest to the lowest level were changing their social character. The families of officials became more involved in business based upon their political grip on rents. Their dependency on the rent system may cause them a vulnerability by causing them to lose their grip on social control entirely as their grip on rents evaporates as their political terms of office ends. (12) Another factor is the unwillingness of the government to deal seriously with politically unpalatable but 27 important issues. This has allowed the power of Nongovernment Organisations (NGO) to grow considerably. This allows expertise and expansion to surface without the claws of government in such areas such as legal aid, human rights, environmental matters, community development and social research. The government passes up the foreign aid garnered in such fields by choosing to ignore them. (13) Yoshihara Kunio has claimed that dictatorships are the most fertile ground for bureaucratic or monarchical "rent-seekers', for there are no effective checks in the use of political power under that system. The government can dispose of economic resources under its control or intervene in the economy with impunity. (14) This, however, implies a greater shift in the balance of influence, suggesting that the capitalists are far more dependent than the government. However, this may not be true in Indonesia where government "cronies' tend to involve themselves in commerce as perhaps a form of political insurance. The instigators of such a parasitic system may have been the Chinese capitalists, but the continuation of dependency lies within the interests of the bureaucrats. Suharto, in addition, has never held absolute power, but rather shares his political power with other military leaders. To be certain, he holds the largest "fief (the presidency), but the generals too have their own "fiefs' (ministries and regions). But their ability to fill the ranks and positions of the government bureaucracy has ensured their political survival and thus allows the military to create an environment for skewered political aims and open to bureaucratic (and legal) graft. 28 Protection in the Oil Industry and Manufacturing Yoshihara Kunio attributes the domination of this type of "rent-seeking1 in Indonesia due to the availability of oil revenue and more fundamentally that the Chinese are not very well integrated into indigenous society. Regarding the oil issue, it is apparent that protectionism did not deteriorate in any form, but rather transformed itself to reflect and adapt to market trends. Again, this is in reference to the decline of the palace entrepreneurs who looked to personal connections and the rise of the current entrepreneurs who were inclined to seek institutional connections and policies. There were two oil booms in Indonesia, both of which are the focus for the time period of this essay. The first (1973-74) changed the balance of payments and created a surge in government expenditures. In 1979, the second oil boom again provided Indonesia with another bonanza of foreign resources, but this boom lasted only until 1981. (15) The oil booms had four major effects: they generated rapid economic growth, which spilled over into rising domestic demand for manufactures; they emboldened the government to force the pace of industrialization through extensive investments in many-large capital intensive resource-based activities such as oil refining, fertiliser, petrochemicals, and cement; they engendered a "lazy1 policy regime in which vested producer interests were able to exploit nationalist sentiment opposed to liberal economic order (as stated previously) to capture the government's trade and protection policy. (16) 29 In effect, the oil boom .had reversed a more active economic policy that had been pushed in the early Sukarno years. There had been some foresight into what would become a weakness of Indonesia's export capabilities. This foresight had resulted in the near-creation of a three components policy: 1) the diversification of products to reduce the dependency on the export of raw materials; 2) the opening of the economy to increase equalisation; 3) the reduction of the foreign and Chinese influence in industry and an increase in pribumi (indigenous Indonesian) influence. (17) However, the system of "cronyism' had already established its roots within the business community and any such reforms would have been near impossible to establish. To keep the amount of capital gained in perspective in a nation like Indonesia, scaled by her population, every extra billion dollars meant an increase of only $ 7 Australian in annual per capita income. And even this modest gain never filtered down since domestic absorption was not increased. One of the paradoxes felt shortly by 1979 was that although there had been substantial improvements in national product in terms of trade, the devaluation-induced inflation that occurred due to the oil windfall decreased the real purchasing power of a wide section of the population. (18) The inflow of oil revenues from 1973 to 1982 also had removed any serious need for efforts to promote domestic financial development. Finance was abundant, either from domestic sources or from foreign institutions willing to lend to Indonesian on the basis of expected future earnings derived either directly or indirectly from oil. Instead, the main concerns of the government was to control the urge by capitalists for domestic credit 30 expansion and to curb foreign borrowing. The domestic objective was addressed through the imposition of credit ceilings on each bank, which had the adverse effect of stunting the growth of the domestic banking system. But excess funds of banks, businesses and individuals were easily invested abroad. The limit on foreign borrowing directly affected the oil industry as Pertamina's appetite for foreign loans was quickly curbed. Other institutions were able to borrow abroad at banks in Singapore and Hong Kong. These new policies resulted in the shifting of the locus of much financial activity offshore. Domestic activity of financial institutions happening in conjunction with an oil boom, hardly grew at all relative to the GDP paradoxically. It also led to greater dependence on the government through the increasing reliance on state-owned banks serving state enterprises and on government-sponsored credit programmes known as "agents of development1. (19) This lack of growth was further worsened by the fact that the Indonesian government had instigated long-standing policies that prevented direct and easy investment by foreign nations, such as a seeming necessity to bypass excessive red tape through various ministries in order to secure a confirmation of security of investment. Another official barrier was a requirement to register with the government if one wanted to increase and improve one's own production capacities just in order to inform them. (20) It was not until 1983 that the government started to pursue a policy of financial reform to stimulate growth and improve the efficiency of the domestic financial system. These reforms were to remove the credit ceilings and force the central bank to devise new 31 indirect instruments of monetary policy. The commercial banking system was liberalised, at the expense of the government banks and the foreign-owned banks. Experimentation occurred in the methods of influencing the supply of money, interest rates and foreign exchange movements. But perhaps most striking of all, experimentation led to the market-based operation of the financial system, but with restrictions on entry for new banks. These reforms were a reaction to the late-1970's and early 1980's, when Indonesia was hit by a recession which caused a fall in exports and oil revenue and a slowdown in domestic development. This itself was the result in a slowdown in the world economy, which was disastrous to a vulnerable Indonesia. However, the fault is not limited to outside factors but there were many internal reasons as well, such as being far too dependent on exporting petrol and like products that would suffer the most in a shift in the market, particularly in 1983. (21) In 1982, still about 80 % of export receipts and over 65 % of non-aid central government revenues came from the oil sector. (22) As of 1982 and continuing down to the late 1980's, the export of petrol and other natural resource products was reduced by more than half from 16,421 to 7,681 million US$ by 1987. However, the export growth of non-resource based products did not expand enough to minimise the shortfall caused by the shrinkage of petroleum exports. From 1983, exports did not even double in these products, as they only rose from 5,005 in 1983 to 8,580 million US$ in 1987. Agricultural products did dismally in the 80's, falling from 34 % to 23.5 % of the export market. (23) The entire growth of the export market was slow 32 between 1967 to 1990 when compared to the other Southeast Asian nations. This was alarming considering Indonesia had been considered the fifth largest debtor nation in the world by the 1980's. (24) In 1988-90, more financial reform occurred, this time to solve the entry problem, to simulate the development of domestic money and venture capital, which served to alleviate the lessening amount of foreign capital entering Indonesia, particularly from the United States and Japan, whose share of investment in Indonesia went down 10 % from 1975-1985. (25) There was also a promotion of new types of financial institutions and capital markets and instruments. These reforms were all focused in a way to ensure that the new services provided would be provided in a framework of a fair and competitive market environment. In such a framework, it was easier for new enterprises to launch themselves and there was a larger degree of impartiality in investment allocation by financial institutions. The banking system and credit system had been modernised, but the allocation of resources was still controlled by an elite autonomous of financial reform. (26) There are two factors why the rise of institutional and policy connections became popular in the oil service industry. First, the second generation, born predominantly in the 1940's, have a comparative advantage in professional competence. They won their first contracts in the immediate post-Sukarno era not only because of their military connections but also because they were among the few technically-trained graduates of Indonesia's best universities or had foreign degrees. They brought in foreign expertise 3 3 and technology through the formation of subsidiaries. By the mid-80's, they had gained sufficient access to domestic and foreign financing, technical and management expertise, arid had amassed enough experience and reputation that they needed less personal patronage than their predecessors. A second factor hindering reliance in a single patron Was that the amount and individual sources of protection varied with changes in the Indonesian government personnel responsible for the oil sector and in demand by the international oil market. The leadership of the oil procurement decision-making bodies - Pertamina, Migas, BKPM, and Sekneg - had changed several times since the 1970's. Shrinking demand in the international market caused partial withdrawal of protection in the later 1970's and in 1983/84. When protection increased, members of this generation born in the 1940's were not the recipients. Instead, a younger generation were given the contracts, who, much to the disappointment of government financial leaders, lacked their predecessors' management expertise. This forced the 1940's generation to develop new contacts and diversify. A third factor is that despite the professionalism of the Indonesian oil industry, which by far is Indonesia's strongest industrial power, is the fact that it is still comparably small by global standards and underdeveloped. Protectionism itself can be called a creation of fear of international competition. (27) Perhaps a better example of industrial protectionism and bureaucratic capitalism is found in the manufacturing sector. Manufacturing is related to the oil boom for the new revenue generated by the boom resulted in the squeeze of non-oil tradable goods 34 activities. (28) When the newly-created industries of resource-based activities and the nationalist push towards industrial conservatism began to decline after 1981, many of the large industrial projects which had been pushed aside during the oil boom came back on line. However, the avoidance of manufacturing for such a long time had taken its toll. The sector was many years behind what it should have been and nowhere near competitive against the other nations of Southeast Asia. Indonesia was denied industrial expertise and a strong capital goods sector. Indonesia did not follow the typical "East Asian' model of export-oriented, labour-intensive growth due to the country's much stronger natural resource endowment, the oil boom and a regime of army control through to 1985. Instead, its growth was primarily due to the existence of a triangle of dependence. Two dependent groups vie for the support of the final arbiter, the president. This theory has an assumption of the ultimacy of power of the presidency over the more specialised rninistries and the existence of three factions in conflict as opposed to one faction composed of the Indonesian business class. First, there are the technocrats, comprising a group of officials in the Department of Finance who tend to favour a market-oriented regime. Secondly there are those who might be termed the "nationalists' located in key ministries (such as Industry and Trade) and the powerful State Secretariat, together with vocal components of the press, who favour regulation, protection and import substitution. A crude view of this group might be that it has been captured by vested producer interests. But this failed to recognise the deep mistrust of a laissez-faire philosophy in 35 many influential quarters of Indonesia, borne out of colonial experience, the vestiges of pre-1965 ideology, and misgivings at the extent of non-pribumi (mainly Chinese) domination of much of the modern sector of the economy. This points to the favouring of ISI on behalf of the priyayi (indigenous) Indonesians as opposed to the peranakan Chinese (peranakan referring to long-standing Chinese living in Indonesia whose ancestors immigrated before independence as opposed to totok, who can be considered those who immigrated after independence). The third group is an amorphous one, featuring elements of the first two but is distinguished by its advocacy of a bold and adventurous strategy emphasising government support for large technology-intensive projects designed to overcome the nation's perceived "backwardness'. This movement has been associated with key personalities as opposed to political lobby groups. For example, Pertamina's founder Ibnu Sutowo and the then Minister of Research and Technology Dr. Habibie. These men derived their power from strong presidential connections, which allowed them to bypass lower ministries, and this facilitated generous financial support for their projects. It was not until the 1980's that the second group lost ground on influence. But in spite of any reforms, many of the undesirable features of an anti-EOI scheme persist. Half of the non-oil manufacturing sector is covered by nontariff barriers (NTBs), up to 55 % of tradable goods output in 1990 (29). Average protection rates for non-oil manufacturing remained very high. Manufacturing as a whole is protected at the expense of agriculture, and export-competing sectors are penalised as compared to import-competing activities. 36 Many of the industries which receive high protection are activities in which Indonesia does not possess a high comparable advantage (such as engineering and capital goods activities). But other industries in which Indonesia has the capacity to be internationally competitive, especially the resource based activities, receive negative protection. Import-competing activities are greatly assisted at the expense of exports. The effects are obvious. The resort to NTBs and the wide variations of protection have created a highly politicised, rent-seeking entrepreneurial environment, in which connections are more important than talent. (30) The oil boom affected the manufacturing sector by providing government interest and investment into enterprises and projects, but it also diminished interest in foreign capital and restricted foreign investment. But with regard to the companies that prospered, most notably the peranakan Chinese companies, these companies are generally less-capital intensive than foreign multinationals operating in Indonesia. They are labour-intensive, low-skill, low-technology in nature. Examples are food processing, garments, leather products, furniture, wood products, printing and publishing, rubber products, ceramics and other miscellaneous manufactures. All of these products could be imported if so chosen, but are all produced domestically in an ISI scheme. High technology products such as computers and communications are left to foreign multinationals in setting up and then left prey to nationalisation and subsequent selling into the domestic market. (31) These products are also produced by smaller companies barely above the cottage-industry level, but they utilise over 60 % of the work force. 37 There are, as explained earlier, the existence of "megacorporations1 such as Liem Sioe Liong's Salim Group and William Suryajaya's Astra Group. Did these corporations make a difference in the fundamental ability of Indonesia to compete and enter the EOI phase of development? The answer seems to be "no1. As to whether these megacorporations matter in terms of a modernising economy, the answer is again "no1, at least in terms of economics. Politically, the answer may be vyes'. To enter into an EOI phase, a company must be able to successfully compete with foreign firms, including the Korean chaebol and the huge Japanese groups. The Indonesian companies simply did not have the competitive ability on the same scale. In addition, the domestic stock market should have an ameliorating effect on the trend towards concentration, although capitalisation is still small and holdings are not widely diffused. To compete effectively, conglomerates must have marketing know-how, be able to internalise technology, and be able to negotiate with foreign partners from a position of strength. Indonesia's corporations possess none of these attributes. To make things worse, the prominence of huge companies owned and controlled exclusively by the Chinese poses a political problem for the government. Asset redistribution is clumsy, arbitrary, and ineffective and does not lead to equitable goals, and the political imperative for the government to demonstrate ^pro-pribumi' policies hurts the economy time and again. (32) However, it must be remembered that the companies in question are of sufficient size to compete in the first place. Although these companies are the minority compared to 38 the small and medium sized corporations run by the overseas Chinese, it is of the large conglomerates that this paper is focusing on. 39 CHAPTER TWO: THE CULTURAL-ECONOMIC ISSUE It is at the heart of culture where one finds the natural animosity that develops in an economy that is ethnically divided. While it is fair to say that the claims that the Indonesian Crunese effectively control the Indonesian economy is an "objective fact1 (1), there exists a bias against the Chinese who have achieved their superior position in both the government and the popular culture discourse. Natural occurring unequal distribution of wealth is compounded by a history of colonialism under the Dutch. This has led to a distortion of perceptions against them, and this is worsened by a notable pretentious squandering of excessive wealth on the part of the Chinese. The isolated attitudes of the Chinese themselves towards their administrators, attitudes of being marginalized and left to pursue commercial activities and yet at the same time being exploited for their manpower, were created during the Dutch colonial period and prevailed into the post-war modern age. And in addition, the administrative continuance of the marginalization of the Chinese on a cultural level is perpetuated by the government and by the local indigenous. (2) The Second World War furthered the rift between ethnic classes as it created a clear distinction in the differences between the indigenous and Chinese and what was expected of their roles in society under the Japanese. It is unclear whether the rift was created for the sake of separating social classes or by race but in Indonesia, it was impossible to make 40 a clear differentiation between the two. This separation further fed the rift between the two so as by the end of the war, consensus was impossible without forced acceptance. (3) The jealousy felt by the indigenous population and its consequences are perhaps best exemplified in the statements by the President of the National Bank: "Looking past the capital market and trade, although there may be 18 000 000 Indonesian citizens able to accept that only 106 key companies get richer and richer while indigenous companies themselves do not improve at all, this type of societal differences has already developed racial suspicion and jealousy, which steadily progresses towards civil unrest', and by the Secretary for the Ministry of State Tn nation building, the greatest consideration on a National (Construction) Plan are societal differences. This problem exists in every society; in the citizenry, the largest manifestation is the economic difference. And in a two-society economy, problems are unavoidable. In fact, this could result in "two societies". History has shown that societal unequal distribution of wealth leads to governmental weakness, which may eventually lead to political instability and security problems'. (4) In defining the ethnic differences the overseas Chinese and the Indonesian government perceive of each other, there must be clear definition of what types of differences exist in Indonesia that lead to economic exclusion. It is fair to say that identities are premised upon a perception of commonality - a commonality based on the most part on regional, national or continental origins and heritage, or on historical divisions, religion or physical appearance. (5) 41 O n the other hand, ethnic identity may also be just a peripheral cause for a conflict that has come to the fore with the growing gaps in the economy. With this in mind, culture is the topical issue, as the question of to what extent are the ethnic differences the primary factor for economics (or for politics, in that matter)? In Indonesia, generational differences causes rifts in identity, but not so much as to divide the Chinese into opposing camps of acceptance of governmental exclusion. Those of Liem Sioe Liong's generation, those of peranakan background, are particularly the most "strongest1 identifying themselves as native Indonesians but also have the most experience of persecution. Those younger, who have led lives comparatively more comfortably than their predecessors, have a naturally different world outlook. O n the other hand, there exist arguments to the contrary, that the younger generations identify with Indonesia more strongly than their predecessors. (6) In Indonesia, for example, although Chinese festivities are maintained, they are lessening in frequency, and this coincides with a growth in the Islamic and Christian faiths among Chinese, among whom Buddhism still remains the dominant faith. Not exclusive to Indonesia, more and more Chinese have gone from the notion of "leaves falling back down to their roots' to "wherever the leaves fall is where they flourish', a poetic way of believing that formerly, Chinese believed that if born Chinese, then to die Chinese was natural. But this was superseded by the thought that wherever the Chinese have taken root, they create new lives for themselves with families and occupations without ties to "what exactly makes them Chinese', such as blood relations. 42 Blood relations themselves were frowned upon, as they fail to allow freedom of choice unlike an artificial concept such as nationality. (7) Regarding the notion of "tradition1 itself, to many overseas Chinese, tradition tends to be seen as nothing more than an attitude that has not been allowed to be neglected, but also renewed time and again. Perhaps to describe tradition as a conservative reaction to changes in liberalising social attitudes by emphasising ancestral identity is not altogether inappropriate. (8) One stark example of a generational difference is in the levels of education available. People of Liem Sioe Liong's generation lacked formal adequate education (even though he greatly succeeded in business). On the other hand, the businessmen who will inherit these enterprises eventually will have a better level of education than the founders of the family-run conglomerates, who tend also to keep the business in the family through intermarriage of key families. (9) There is a growing interest among scholars such as Mely Tan in studies on the younger generation of ethnic Chinese. The younger generation, many of whom have become Protestant or Catholics, have lost the meanings associated with traditional Crtinese customs and festivals. Basic changes stem from their experience of history. They are people who have been born or grown up since the beginning of the New Order 27 years ago. They never experienced the colonial regime, when the population was systematically divided by race; the Japanese occupation, when all ethnic Chinese were treated as one group; the revolution, when they were accused of collaborating with the Dutch, nor the controversy about integration and assimilation during the Sukarno era. As 43 a result, they feel more confident about their identities as Indonesians. It is in this new generation that a renewed taste for consciousness, which to the antipathy of the nonChinese or even those of older generations, manifests in new mottoes of "go public1 and "expose yourself, while traditional malu (humble) feelings are contained and repressed. It is this new attitude which has garnered so much attention. (10) Yet they do not feel completely accepted by the ethnic pribumi. There is even a growing awareness of those Chinese who never reached success and found making ends meet difficult (11) The last perception of the rifts among Indonesian Chinese has recently come into debate after one has come to understand what exactly is Indonesian Chinese culture. Yang Qiguang states that Indonesian huaqiao culture is in essence a stance against a culture of independent nationalism. A stance opposed to indigenous power, foreign Chinese power, and Western power. This sort of culture can even be described as a type of colonialist culture, a culture created as a defensive psychology for an obvious minority. (12) This culture of opposition itself took two forms within the Chinese that can be divided by generation, those older who have a more "local' perspective and those younger who have a more "Western1 perspective. The "Western1 perspective is an outgrowth of the conflict between traditional Chinese and indigenous culture, arising from both sides as a possible solution or area of mediation but initially satisfying neither. Moreso, this "westernization' took as its original form the religions of Islam and 44 Clrristianity as an alternative to Buddhism or Confucianism. (13) This "westernization' was to later grow as a focus of modernisation. In Indonesia, it is difficult to separate economics and ethnic identity when dealing with the overseas Chinese, seeing how the Indonesian economy is divided on ethnic terms, despite government policy trying to do otherwise. However, there is a perceived "Chinese problem' (masalah Cina) in the popular culture of Indonesia today. The best example of how this problem is perceived in an economic as well as a cultural light was when Siswono Judo Husodo, the State Minister for People's Housing in 1991, listed the "nine sins' of the ethnic Chinese. 1) they live exclusively in their own area 2) in recruiting workers, some companies have a preference for people of Chinese origin. This second "sin' is of particular importance in that it notes one of the fundamental truths of the large conglomerates - they tend to be labour intensive, not capital intensive. There is an argument that one of the reasons Asian nations have been able to develop so quickly is an ability to exploit themselves. 3) some companies discriminate in salary in favour of ethnic Chinese workers 4) there are some, who, in their business relations and in their behaviour towards clients, discriminate between ethnic Chinese and ethnic Indonesians 5) they do not show social solidarity and togetherness with ethnic Indonesians in their neighbourhood 6) there are those whose sense of national identity is still very weak, and who treat Indonesia solely as a place to live and earn a living, rather than a nationality or homeland 7) there are those who in their daily life still speak Chinese and who adhere to their traditions, and do not even know Indonesian customs, and who make no effort to speak Indonesian well. 8) there are those who view their Indonesian citizenship as a legality only 9) there are those who feel superior towards other population groups. (14) To be fair, Siswono does not generalise these traits to embrace all Chinese. He qualified his statements by saying "some Chinese1, or "there are those' or "there are some'. 45 He does not ignore the generational differences, or the popular terminology that divides the ethnic Chinese into peranakan and totok. But these "sins' were written by a Cabinet Minister while he was in office, which gives them an almost official weight. But what is being questioned here is the sincerity and the willingness of the ethnic Chinese to assimilate, that is, to abandon their cultural traits and traditions and, eventually, to disappear as a distinct cultural ethnic identity. This brings up the problem of assimilation (pembauran), but what is more important in this paper is the concept of "economic assimilation', or as it is called today, "economic partnership'. This involves economic equity among not just social classes, as is usually the case in other countries, but etlinicities in Indonesia's case. (15) If the issue of assimilation (or lack thereof) has had any relevant effects, it has served to make the large conglomerates look more parasitic and controversial than previous. The notion of assimilation, paradoxically, led to more problems than solutions due to the opposition it encountered as official policy. Without such as policy, anti-government sentiment (or apathy) would not have existed to the extent it did. The Chinese distanced themselves from any nationalist sentiment that forbade them the maintenance of their traditional Chinese rites and celebrations that are a given in any overseas Chinese community, no matter how strongly Sinicized the community is. Then there is the problem of those who were never naturalised Indonesian citizens but who prospered economically. (16) Regarding economic assimilation, it was suggested that Chinese firms that had attained over 50 % of a market share of their respective product . 46 that sold exclusively in Indonesia should be considered indigenous. (17) There exists an argument stating that assimilation was successful but only on outside appearances. To the extent that education, family names, and business registrations were incorporated, the policy of assimilation did not truly bind together the Chinese and indigenous societies. The abolition of Chinese education, newspapers, etc. led to the gradual disintegration of Chinese cultural concepts and Chinese thought while Indonesian and foreign cultural concepts became stronger. The two societies were forced together into an arranged marriage, but the two societies have grown further apart in terms of commonalities and the desire to seek that common ground. (18) Assimilation itself was an outgrowth of nationalism and nation-building that Indonesia experienced after the Second World War. This type of assimilation was absent of any natural occurring elements of societal evolution, such as the natural passage of 0 time. (19) But because of the striking differences in history and tradition between the indigenous and the Chinese, the policy would cause obvious problems. The first of which is a point the Indonesian government officially admitted: that Indonesia is a country of many minorities such as Baraks, Balinese, Madurans, Minangkabau, Bugis, and the Chinese are yet another such minority, according to Indonesian law. Any type of assimilation would have to be voluntary in effect, as the law protects any minority from retaining their culture. This is exemplified in the national slogan: "Unity through diversity1. (20) 4 7 The Indonesian Chinese do see themselves as Chinese, as they have made numerous financial contributions towards cultural institutions to maintain and cultivate local Indonesian culture, but only in the face of an "other', that of the local indigenous population, otherwise, internationally they regard themselves as wholly Indonesian. Their contributions, however, showed a willingness to accept their host country as their own, with feelings of nationalist responsibility. (21) By 1990, as a poll by Cai Renlong indicates, the identification with their host country was quite concrete, to the point where the original ethnicity seemed almost forgotten or ignored: (out of 129 Chinese interviewed) Mastered Chinese language 1) fluently spoke and read Chinese 5.42 % 2) understood some " 35.65 % 3) knew a little, one or two phrases 38.75 % 4) not at all 20.15% Feelings Towards Republic of Indonesia 1) officially their home 93.79 % 2) second homeland 2.32 % 3) a place of trade and business 1.55 % 4) attitude unclear 2.32 % (22) Although this is the latter generation here under analysis, this does point to a lessening and withdrawal of Chinese culture in the ethnic Chinese over all, although whether this is simply from a natural gradual acceptance of indigenous culture or if it stems from practical application and forced adaptation is still left unclear. However, as a trend, the overseas Chinese of Southeast Asia have been playing a larger role in local politics in their respective nations as their populations grow larger, particularly when issues such as 48 residency and citizenship are at stake, so when there is a belief that one must go beyond the economic sphere, the need to do so will overcome ethnic insecurity. (23) Forced adaptation came to a head when President Suharto emphasised the principles of Pancasila (the five principles of independence and unity) that Sukarno had created after the end of World War II. For "the sake of unity, educating the many minorities with a new political consciousness, and establishing a spirit of voluntarism1 in the people (24), a system of mass education was undertaken to bridge the many ethnicities of the nation. However, in actual fact, there was little of an "education1 existing, it was more of a political invasion when compared to a real education campaign. But it did accomplish the strengthening of active political support of the huaqiao and their assimilation. The height of voluntary government participation occurred when the overseas Chinese enterprises took the goals of pancasila to heart to the extent that 400 private enterprises voluntarily met to consider just how to act on the five principles. They eventually came up with the notion of a foundation that would represent their pancasila contribution. Gaining Suharto's acceptance and support, the foundation was called Yayasan Prasetiya Mulia, officially created on May 19,1980. (25) However, whatever gains the overseas Chinese had made in making themselves more societally acceptable was quelled by 1992 when accusations arose that the Chinese enterprises, indeed, the Yayasan foundation itself, had become little more than a cartel, or even worse, a monopoly of industry that excluded native participation. (26) The reasons for this seemed to have been 49 societally-based as opposed to having any real economic base. In addition, to what extent did the ethnic Chinese really believe in the principles of pcmcasilal At the time of the creation of the Yayasan foundation, the basis of Chinese co-operation seemed not to be the true support of the ideals of the republic but rather the support of the powers that be. Constructive co-operation remained elusive as voluntary cohesiveness was not truly self-asserted for the Chinese role in the spheres of politics and economics did not truly extend beyond their parochial camp. (27) It was apparent by the 1980's that Chinese culture had reached an unusual era. There existed an active promotion of Chinese culture in Southeast Asia during the active pursuit of relations with mainland China, but the goal of the promotion itself served the interests of Clvinese business. It became very popular knowledge that the active pursuit of Chinese Confucian culture was seen to be a factor of success. Many Southeast Asian nations relaxed their suppression on Chinese traditions, and while Indonesia was not one of them, the realisation of the supposed benefits of Confucian culture was not lost to the business class. (28) Francois Raillon outlines the conventional views that these local entrepreneurs are not genuine, that images of affluence are only a delusion of consumptive wealth, without substance, and wholly dependent on cronyism, a sure sign of insecurity. In James Gad's Behind the Myth: Business, Money and Power in Southeast Asia, they are condescendingly labelled as DUPPIES (Directly Unproductive Profit-Seeking Entrepreneurs), mythical business people practising rentier capitalism and thriving on 50 favouritism. No real play of market forces and free enterprise is admitted. Raillon also includes the aforementioned Yoshihara Kunio book, and notes that Yoshihara himself forgets the Japanese state itself, in its formative Meiji years, acted as a capitalist-breeding machine who gave away enticing favours regularly. Lastly, Raillon notes Robison's point of view that while capitalism was present, capitalists were nowhere in sight. (29) The Indonesian business class can be called "infant capitalists' still maintaining a close, umbilical relationship with the government but also demonstrating growing initiative and capital accumulation capability. But being under the umbrella of protection for so long, they were unable to cope with foreign competition when they were first exposed in and around 1984. It is perhaps not fair to blame the government at this time, for it was the state who encouraged the growth of exports with wide-ranging deregulation policies, despite their long history of protective and affirmative policies of capital accumulation. (30) Deregulation itself was not truly an abandonment of government support, rather a system of voluntary sponsorship was installed. At any rate, protest against the extension of liberal ethics and laissez-faire was strong among them. Genuine supporters of market forces were few and weak. Nobody really wanted an end to state intervention. At the individual level, everyone was against state-meddling into private affairs, but all for it when the domestic market was threatened by newcomers as was evident when Sogo from Japan wanted entry into a reserved market and was protested by every national distributor. It is well-known that the Indonesian Chinese business class was not willing to play a political role, but perhaps it is 51 fair to say that this unwillingness only extends to foreign noneconomic notions of democracy and human rights, for they indeed do want to play a role in government, not only as a referee but also as a law maker, to have the rules of the game more clearly defined. (31) There is a notional framework in sociology that different societies will produce different "recipes' for economic behaviour. And this is certainly true, for there is no such thing as one true course of capitalism. Different indigenous elements can create different combinations of the capitalist method yet still maintaining the same goal. Culture plays a large part of industrial strategy, as historical experience has created a set of norms most overseas Chinese business cultures and management ideologies abide by: 1) an upbringing within a powerful system of Confucian socialisation that instils Confucian virtues such as familism, filial piety and diligence. 2) an experience of refugees, either in the present generation or via family tradition 3) an experience of oppression, as evident in many Southeast and East Asian states. These historical experiences, in turn, lead to three resultant themes: Paternalism, personalism and insecurity. The first is the ethic of familism, the second is the perceived need for trust beyond that of official law and into that of personal relationships. The third usually refers to the amount of insecurity of family groups competing against each other in a background of totalitarian decadence and inefficient productive systems. (32) Dealing with insecurity, for above all other factors the business elite of Indonesia can ascribe itself to fall into this predicament, insecurity can best be described as defensiveness at the level of the self. Social insecurity leads to a capitalist and education 52 drive. At the level of relationships and kin, insecurity is best described as mistrust of a minimally integrated society lacking traditions of institutional trust such as law. But at the level of organisation, insecurity manifests itself as the inhibition of managerial professionalism and the continuation of family businesses, repression of organisational talent and market specialisation. These three elements are a result of nonrational power and control combined with benevolent autocracy and personalistic relations at the top level where power equals ownership. Industrial strategy is coloured by the corporate circumstances of the maintenance of family prosperity, low-risk, dependence on non-belongers, so as placing limits on marketing, technical and management skills. (33) The concept of expansion is allowable in guidelines that fall within the knowledge and inclinations of paterfamilias. This leads to an inherent historically-influenced cultural limitation on industrial growth due to an aversion of entering any enterprise where the risk of losing power is perceived to outweigh the opportunity cost. Family and Business Culturally speaking, the Chinese business elite in all Southeast Asian nations (except for Singapore) must face three realities. First of all, the Chinese business community is a distinct and formidable resource base, a source of reliable business information, an efficient market place for capital enterprises and a social organisation structured to encourage and facilitate business activities. Sometimes this could be 53 manifested in lower bank loan rates for Chinese than for indigenous businessmen, such as in Vietnam. (34) The second reality for Chinese business elites is that they must look outside the Chinese business community for business opportunities, for their own ethnic community usually is only a minority compared to the indigenous population. The third business reality is that when the Chinese businessmen goes outside their own community to exploit these opportunities, they must operate in an environment which places no premium on their Chinese identity. In fact, they must expect a distinct preference for their non-Chinese competitors not only with respect to the official policies of the government but also with respect to the non-Chinese market they intend to serve. (35) The amount of risk involved in being marketable to the indigenous population can run very high in times of political turmoil, as temporarily-rising feelings of nationalist sentiment emphasise the ethnic-economic issue. There are those that believe the Chinese methods of business strategy and management practice were disadvantageous when compared to the Western model, for this has an assumption that Asians would want to imitate the Western model, which they did not. But cultural differences can determine management strategy and business practices when, for example, they both agree on the existence of face (the distinction of face compared with Western self-esteem is that self-esteem is the Individual's view of themselves1, while face is the individual's assessment of how others see.them). The notion 5 4 of face leads to large power distances (a strong hierarchical orientation) and collectivism (a group focus) as face is identified by an external party close to the first-person. (36) Culture can be linked to business practices in a chart: FROM CHINESE CULTURE TO CHINESE MANAGERIAL SYSTEM: CULTURAL VALUES AND NORMS: psychological need structure interpersonal norms social relationship patterns CHINESE PARADIGMS: causality (situational without absolutes) probability (fatalism) time (non-linear and repetitive) self (individual inseparable from social context) morality (shame as opposed to guilt) MANAGERIAL ACTIVITIES: planning leading organising control CHINESE MANAGERIAL SYSTEM: planning ] control systems organisational set-up personnel policies leadership styles policy-making (37) There is an inherent link between the maintenance of family control in business and the ability of the Chinese firm to evolve in the marketplace. The desire or the lack of desire to expand and take risks (either in competitive terms or in terms of investments) has its roots in the placement of business priorities in the same vein as family priorities, that is, perpetuation and longevity. Having family priorities as a key factor in business strategy has allowed several distinct phenomenon to occur in Chinese enterprises. The most glaring is that Chinese 55 businesses have grown to become multinationals while still yielding family control. This goes against Alfred Chandler's model of family management that states that once firms have reached a certain size, professional salaried managers are necessary to successfully steer the company. While family-run firms have obvious disadvantages, such as a reduced pool of talent in management and adverse effects on employee morale, this can be overcome by focusing on key managerial functions so the limited pool of talent is not expected to excel in all aspects of management. (38) This can lead to a type of fractionalization similar to other Asian combines where subdivisions become responsible for themselves but not to each other in the long run. (39) One case example that can be found in Indonesia is the Astra Group of William Suryajaya, who said himself: vThe key factor in whatever I have achieved is that I always knew my weakness. I am not an administrator.1 By 1983, his management structure consisted as follows: 1) a Board of Commissioners, with himself as Chairman and founder, his wife Lily as treasurer, his children Edward, Joyce, and Judith as the entrepreneurial decision makers, and one outsider, Paul Lapian, rounding out the Board. 2) a Management Group headed by his brother Benjamin, and 3) a team of Dutch administration executives who act as consultants to the Board and Management Group. (40) Cai Renlong states that this placing of the family first above the national goals (whatever they may be, be they the principles of Pancasila or Pembauran) is inherent and a result of a history of cultural segregation. However, the marked cultural differences 56 between the overseas Chinese enterprises have the additional and, obvious effect of unifying the Chinese together, thereby perpetuating the situation. But to the advantage of the Indonesian government, their position in society forces them to kowtow almost complete loyalty to the government and cede grand contributions and sacrifices to the state. (41) Albeit there are those who do such actions voluntarily in the name of nationalism, as stated before, but the numbers of those who place themselves in government subordination has never been clarified. Family priorities as business strategy can help explain the stative mode of the Indonesian economy but it is not all-encompassing, as many Chinese firms in other Southeast Asian nations did not withdraw to the same extent as the Indonesian firms. With this in mind, one must look at the fundamentals of the Indonesian overseas Chinese enterprises to reveal the particular factor that marks them different from their international contemporaries. Interestingly enough, the notion of family priorities in economics can even be found in the Indonesian 1945 Constitution, paragraph 33: "Economic affairs are to be organised as a joint effort based on family principles' (Perekonomian disusun sebagai usaha bersama berdasar asas kekeluargaari) (42) It seems the particular factor is the already-mentioned link between Chinese enterprises and military and government bureaucrats, as well as links with enterprises run by indigenous businessmen. These links by the indigenous may manifest in attaining management positions in the Chinese companies, thereby making loans from the government bank much easier to obtain as well as government approval in a cultural 57 context, as these companies are seen to be playing their part for unity. Because of these connections, ironically, accusations of monopolism became active by the 1990's, particularly from the Indonesian government itself. (43) Another factor is the rising competition from local indigenous businesses, the only players who could possibly create such a real environment of competition as foreign enterprises were not allowed to gain a foothold in Indonesia. They opposed the bureaucratic favouritism towards loans, engineering projects, and monopolism over production. They pushed for government policies that would, if not favour their businesses, instead at least create a more balanced and fair environment. This situation is made more ironic when one considers that the Indonesian government allowed favouritism in order to help the economy along, but in fact alienated yet another large segment of the population. These indigenous businesses, in order to maintain their economic interest and poli-economic development, united into local chambers of commerce and indigenous enterprise foundations, both of which represented the interests of ethnic Indonesian businesses exclusively, excluding membership of Chinese in their constitutions. This aroused a great deal of resentment in the Chinese community, who then voluntarily chose not to take any part of any functions sponsored by these new associations. The most telling instance occurred in 1990 when the Chambers of Commerce held a meeting of the heads of finance. The Secretary to the Minister of the Interior, the Minister for Industry and Economy and various other notables attended, but no Chinese 58 representatives were present. This aroused a particular resentment against the Chinese by the nrinistries who had attended, claiming that "the Chinese embarrassed their government1. (44) This latter-day obvious dislike for them has re-inforced their isolation in what should be an era of liberalisation. If the argument among Asian economic historians is that family priorities are symbiotic with business priorities, this assumes that culture and economy are linked by the rather simplistic notion that Asians, particularly the Chinese, regard family as culture, or at least family as the foundation of their ethnic identity. The arguments supporting this are vast, as are the arguments protesting it. What is true, however, is the existence of the Confucian influence on family, but what is unproved is the effect Confucian filial devotion has on economics. The idea that a cultural complex of relationships (the family) could operate in an economic power structure should be seen not as a resistance to the power of the government or the system of patronage but rather as a method of subverting it, a method of self-protection that has grown out of a history of marginalization and a desire to disassociate themselves from the state. Family priorities can transcend state policy or market forces only if the actors feel a heightened state of insecurity, as the relationships of a family can transcend through time. In intellectual discourse, the idea of the family includes universal humanism which itself is separate from the spheres of economics and politics. (45) This humanism allows the concept of the family to prioritise its own interests over more abstract and alien societal values such as nationalism, patriotism or even the 59 greater good. Family interests lay within a safety threshold where the alien influences of government or outside society do not intrude. This is the same logic that allows Chinese in other nations, even within the People's Republic, to engage in familial and personal forms of economic relationships that occur beyond the scope and realms of state and politics. The idea of a relational construction of persons sees as its foundation the "dyadic' function of "there is something of me in you, and of you in me1 as a cultural law. (46) However, admittedly, the main flaw with the family idea is that it ignores the role of the individual unless the individual sees themselves as nothing more than a role in society, graded by status and the judgements of others. If one were to compare the Indonesian Chinese with their Malaysian and Thai contemporaries, the Indonesians share many of the same characteristics that mark Southeast Asian capitalists. During the 70's, they all maintained a "clan-mentality' in their enterprises, taking the natural preference for keeping business within the ethnicity to a further level by keeping it within the family. Enterprises were not only run by family management but all responsibilities of business strategy were family oriented. The Salim Group of Indonesia, the Kuok Group of Malaysia, and the OAC Bank of Singapore were all comparable examples. (47) These companies also share other characteristics: they all maintain a web of subdivisions that themselves manage smaller enterprises. Many use the framework of several connected organisations, one of which would be a bank that could be used a 60 central nucleus to ease the process of loans. The major overseas Chinese banks of Singapore would be key examples of this case. Many use banks and the larger enterprises as the leadership core sharing power, such as the Salim Group. And lastly, many use the largest of the subdivisions themselves as the core of the conglomerate. (48) However, although there is a large element of familism in the Southeast Asian capitalist class, there is also a growing influence of "Westernization1 entering the mindset and business strategies of these conglomerates, the result of a growing number of western-educated business elites. The familism decreased in the more modernised nations where western education had penetrated more thoroughly. (49) But at the time of the oil booms, this amount of modernisation had not yet appeared in Indonesia and it has still not yet taken a large hold comparable to that of Malaysia or Singapore although "Westernization1 already had its roots in Indonesia with the increased following of Islam and Christianity among the ethnic Chinese. (50) 61 CONCLUSION The notion that the indigenous Chinese may have an adverse effect on the local economy of Indonesia by reason of family priorities is one reason of many why the Indonesian economy and society never reached the same levels of success as its Southeast Asian neighbours despite the advantage of a large natural resource base. This notion of family ethics as an inhibitor does not provide an answer why in the 1970's-80's Indonesia was not able to compete with other developing nations in an export orientation; but it perhaps provides a reason why Indonesia chose not to. Risk in business is often regarded as a normal occurrence, a normal barrier to what would otherwise be a simple transaction between economic actors, but family ethics may present risk as being far more. Risk may in fact be the sole factor when far more than the enterprise is in danger. The family, social structure and culture may also involved in some perceived threat. At this level of tension, a business decision may not be such a simplified affair of the gamble between profit or loss, but may involve the survival of freedom or of the people itself. The heightened levels of cultural insecurity among the overseas Chinese has created such a dilemma that it perhaps does explain the low levels of development. A calculated risk in the form of a business venture has to consider the ramifications for family longevity as well as the projected business gains or losses. If the risk is considered too great, if for example, the risk may involve a government crackdown or a heightened level of bureaucratic involvement and graft, then the risk may logically be perceived as not worth the opportunity cost. 6 2 The Chinese may be seen as operating outside the environment of politics and society within Indonesia. But this is hard to justify when one analyses the amount of bureaucratic activity and corrupt government involvement inside Chinese enterprises. But perhaps it is safer to say that the Chinese, on a psychological level, attempt to maintain their own sense of indigenous behaviour by using what they perceive to be their cultural strengths, the family and the family ethic, as the foundations for economic strategy. However, this explanation should best be a compliment to the political and economic explanations already given by Western scholars such as Robison, McVey and Mackie. It was in fact a combination of internal and international factors that limited the degree of economic strength. The Indonesian government, with its environment of parasitism, set the foundations of an entrepreneurial spirit that could not operate without a high degree of government interference and corruption. Issues I have not touched on in this essay to a large extent, military involvement and state enterprises, further reveal the amount of unjust business practices and bureaucratic obstacles that hinders not only local Chinese entrepreneurs but also the abilities of foreign enterprises to invest in Indonesia. Yoshihara Kunio's notion of ersatz capitalism and the idea of the "dynamic' Chinese entrepreneur of McVey were never complete in their assumptions of the subversion of "capitalism proper', that the business climate was never more than "bureaucratic rent-seeking' or "hustling your relations' (as "uncosmopolitan' as that sounds). Indeed, the idea that the overseas Chinese in Indonesia lived up to the 63 stereotype of remaining true to their sense of guan xi in forming a strong business acumen is today being debated when the overseas Chinese of North America are being scrutinised as to whether or not they have remained true to guan xz-dependent business practices. Hopefully, the secondary source materials from China wi l l offer a different perspective on the economic environment within which the huaqiao have to operate. Culture may not provide any quantitative answers but it does utilise history and society to try to explain an economy that could be considered unusual if corruption and bureaucratism were not so rampant in the region. 64 asas Astra Group berdasar cukong (Sistem Cukong) ekonomi EOI guan xi huaqiao ISI Kadin keluarga Krakatau kretek malu masalah Cina/ Tionghoa menyusun pancasila G L O S S A R Y principles, foundation A large private conglomerate headed by the Indonesian Chinese William Suryajaya (Xie Jianlong) to base; to found A term popularized in the 1970's to denote the system of relationships between a successful Chinese capitalist and an Indonesian government official who could provide protection and influence economy; perekonomi - economic Export Orientation Industrialization relationships; networks overseas Chinese; synonomous with huayi or haiwai huaren Import Substitution Industrialization The Indonesian Chamber of Commerce family; kekeluargaan - of the family; familial The Indonesian steel monopoly clove cigarettes, accounts for over 90 % of all cigarette sales in Indonesia; invented by an indigenous Indonesian, Nitisemito, but market control is now held by overseas Chinese with such brands as Gudang Garam and Bentoel humble; ashamed; shy The 'Chinese problem'; Cina - Chinese, Tionghoa - Chinese, but with less of a racist connotation than Cina; Tiongkok - China to arrange; to organize; disusun - organized, arranged The five foundations of Indonesian independence created in 1945: nationalism, internationalism, democracy, social justice, belief in one God; operates as the official ideology of Indonesia and as a unifier for different ethnicities of the nation pembauran assimilation peranakan Pertamina pribumi 'locally born foreigner'; Chinese born and raised in Indonesia; may also refer to long-residing Chinese residents The Indonesian state oil company Indigenous Indonesians; this may refer to Javanese, Bataks, Minangkabau, Balinese, Bugis, Torajans, Sundanese, etc., those non-Chinese priyayi The Indonesian landed gentry/aristocracy; the upper class in modern terms PLN Salim Group Sinar Mas totok usahct bersama Yayasan Prasetiya Mulia The Indonesian state electric company A large private conglomerate headed by the Indonesian Chinese Liem Sioe Liong (Sudono Salim) A large private conglomerate headed by the Indonesian Chinese Eka Tjipta Wijaya "foreign-born'; refers to those Chinese who settled in Indonesia within recent history, eg., post-World War II joint efforts An economic foundation created on May 19, 1980 that represented the voluntary pancasila contributions of 400 Chinese enterprises E N D N O T E S Introductions 1. Yoshihara Kunio, The Rise of Ersatz Capitalism, Singapore, Oxford University Press, 1988 2. Ibid, 68 3. Ruth McVey, 'Materialization of the Southeast Asian Entrepreneur', in Ruth McVey, ed. Southeast Asian Capitalists, Ithaca, Studies on Southeast Asia, 1992, p.8 4. Ibid, 21 5. Ibid, 20 6. Ibid, 21 7. Richard Robison, 'Industrialization and the Economic and Political Development of Capital: The Case of Indonesia', in Ruth McVey, ed. Southeast Asian Capitalists, 1992, p.81 8. Xie Ruide, "Duizuo Huaren Gongzuo deyixie Kanfa', Huaqiao yuHuaren, no.2,1989, November, Guangdong Huaqiao Yanjiuhui, p.38 9. International Encyclopaedia of the Social Sciences, vol.3, 1968, MacMillan Company and the Free Press, pp.528-535 10. Yang Qiguang,' Yinni Huaren Wenhua Yanjiu zhi Fansi', Dongnanya Yanjiu, no.2, 1988, Jinan University, p.66 11. Wen Beiyan, 'Dongnanya Geguo dui Huaqiao Huaren de Zhengce yu Qiaowu Gongzuo', Huaqiao yu Huaren, no.3, March 1989, pp.58-59 12. Robison, 'Industrialization...', 66 13. Ezra Vogel, The Four Little Dragons, Harvard University Press, London, 1991, p.90 14. Ibid, 86-87 15. Robison, 'Industrialization...', 68 16. Rahul Jacob, 'Business: the Uplifting Saga of Asia Inc.', Time, Oct-Dec 1996, p.53 17. Shinya Sugiyama, Japan's Industrialization in the World Economy, Athlone Press, London, 1988, p.75 18. Andrew Maclntyre, 'Politics and the Reorientation of Economic Policy in Indonesia', in Andrew Maclntyre, ed. The Dynamics of Economic Policy Reform in Southeast Asia and the South Pacific, Singapore, Oxford University Press, 1992, p. 140 19. Anne Booth, The Oil Boom and After: Indonesian Economic Policy and Performance in the Soeharto Era, Singapore, Oxford University Press, 1992, p.25 20. Maclntyre, op.cit, 142-143 21. H.W. Arndt, 'Survey of Recent Developments', Bulletin of Indonesian Economic Studies, vol.xix, no.2, August 1983, Australian National University, Canberra, pp.21-22 22. Huang Dinglan, "Yinni Guoguan Qiye de Gaige', Nanyans Wenti Yanjiu, January 1994, Nanyang Yanjiusuo, p.77 23. Ibid, 77-78 24. Christianto Wibisono, Peranan Ekonomi Masyarakat Tionghoa: Perspektif Indonesia, Informasi: Data Bisnis Indonesia, Jakarta, 1994, pp.282-283 25. Derek Healey, 'Survey of Recent Developments, Bulletin of Indonesian Economic Studies, vol.xvii, no.l, March 1981, AUS, Canberra, pp.20-22 26. Ibid, 20 27. Deng Renlang, "Lun Dangdai Yinni Huaren Caituan', Oiaoshi Xuebao, nos. 1-2, 1989, Guangdong Huaqiao Lishi Xuehui, p.60 28. Ibid, 61 29. Ibid, 62 Chapter One: Government Protection 1. Thee Kian Wie, 'Technology Transfer in the Manufacturing Industry', in Hadi Soesastro, ed.. Technological Challenge in the Asia-Pacific Economy, Allen and Unwin, London, 1990, p.202 2. Jamie Mackie, 'Changing Patterns of Big Business, in Ruth McVey, ed, Southeast Asian Capitalists, Ithaca, Studies on Southeast Asia, 1992, p. 177 3. Wen Guangyi, "Zhanhou Yinni Huaren Jingji Huodongzhi Bianqian', Dongnanya Xuekan, no.2, November 1994, Sun Yatsen University, p.34 4. Ibid., 34 5. Robert Rice, 'The Origins of Basic Ideas and their Impact on "New Order" Policies', Bulletin of Indonesian Studies, vol.xix, no.2, August 1983, AUS, Canberra, p.66 6. Jean Aden, 'Entrepreneurship and Protection', in Ruth McVey, ed., Southeast Asian Capitalists, p.94 7. Wen Guangyi, op.cit.. 35 8. Yoshihara, op.cit., 68 9. Feng Yang,' Yinni Huaren Qiye Jituan yu Hezuoshe', Nanyans Wenti Yanjiu, no. 1, January 1992, Nanyang Yanjiusuo, p.53 10. Richard Robison, 'The Middle Class and the Bourgeoisie in Indonesia', in Richard Robison, ed., The New Rich of Asia, London, Routledge, 1996, p.82 11. Ibid., 83 12. Ibid., 83 13. Ibid., 84 14. Yoshihara, op.cit., 86 15. Peter McCauley, 'Survey of Recent Developments', Bulletin of Indonesian Economic _Studies,vol.xix, no.l, April 1983, AUS, Canberra, p.,2 16. Hal Hill, 'Manufacturing Industry', in Anne Booth, ed., The Oil Boom and After: Indonesian Economic Policy in the Soeharto Era, Singapore, Oxford University Press, pp.204-205 17. Sritua Arief,' Perjalanan Nasionalisme Ekonomi Indonesia: Sebuah Tinjuan Kritis, Prisma, no.2, Februari 1991, Jakarta, p.7 18. Phyllis Rossendale, 'Survey of Recent Developments, Bulletin of Indonesian Economic Studies, vol.xvi, no.l, March 1980, AUS, Canberra, p.29 19. David F. Cole, 'Financial Development in Indonesia', in Anne Booth, ed., The Oil Boom and After: Indonesian Economic Policy in the Soeharto Era, p.78 20. Lin Mei,' Yinni Yinjin Waitou yu Fazhan Jingji de Chengjiu', Nanyang Wenti Yanjiu, no.3, July 1992, Nanyang Yanjiusuo, p.30 21. Huang Dinglan,' Yinni Bashi Niandai Jingji Fazhan Qutan Nanyang Wenti Yanjiu, no.3, July 1991, Nanyang Yanjiusuo, p.59 22. McCauley, op.cit., 2 23. Lin Mei, op.cit, 29 24. Ibid., 29 25. Huang Dinglan, 'Bashi...', 60 26. Ibid., 61 27. Aden, op.cit. 100-101 28. Hill, op.cit.. 205 29. Ibid., 225-227 30. Ibid., 227-229 31. Ibid., 233 32. Ibid., 234 Chapter Two: The Cultural-Economic Issue 1. Feng Yang, op.cit., 54 2. Cai Renlong, 'Yinni Huaren Qiyejia Jijinhui Wenti', Nanyans Wenti Yanjiu, no.l, January 1994, Nanyang Yanjiusuo, p.30 3. Yan Qinghuang, 'Cong Lishi de Jiaodukan Haiwai Huaren de Shehui Gaige', Huaqiao Huaren Lishi Yanjiu, # 3 - 1989, Zhongguo Huaqiao Lishi Xuehui, p.l 4. Feng Yang, op.cit., 54 5. Tariq Modood, Changing Ethnic Identities, London, Policies Studies Institute, 1994, p. 101 6. Huang Kunzhang, 'Zhanhou Yindunixiya Huaren Shehui de Yanbian', Huaqiao Huaren Lishi Yanjiu, no.l, 1989, Zhongguo Lishi Xuehui, p.7 7. Ibid., 7-8 8. Jiang Yongxing,' Cong Yige Huayijia de Fazhan Kan Huaqiao Huaren de yiban Tedian', Dongnanya Yanjiu, no.4, 1989, Jinan University, p.31 9. Wibisono. op.cit.. 284-285 10. Francois Raillon, 'How to Become a National Entrepreneur, the Rise of Indonesian Capitalists,' Archipel, numero 41, 1991, Paris, p.90 11. Mely G. Tan, 'The Ethnic Chinese in Indonesia: Issues and Implications', in Leo Suryadinata, ed.. Southeast Asian Chinese, Singapore, Times Academic Press, 1995, pp.23-25 12. Yang Qiguang, op.cit., 73 13. Ibid., 72 14. Tan, op.cit, 17 15. Ibid., 18-19 16. Zhou Nanj ing,' Yi ge Indunixiyaren de Huaren Tonghua Guan', Huaqiao Huaren Lishi Yanjiu, no.4, 1988, p.41 17. Ibid., 41 18. Huang Yunjing, Zhanhou Yinni Huawen Jiaoyuyu Yinni Huaren Tonghua', Dongnanya Xuekan, no. 13, December 1994, Sun Yatsen University, p.42 19. Wen Beiyan, 'Shixi Yinni dui Huaren de Zhengce', Dongnanya Yanjiu, no.4, 1987, Jinan University, p. 101 20. Ibid., 101 21. Cai Renlong, 'Shiyan Yinni Huaqiao, Huaren de Rentong Zhuanxiang', Nanyang Wenti Yanjiu, no.3, July 1991, p.5 22. Ibid., 6 23. Yan Qinghuang, op.cit., 6 24. Cai Renlong,' Yinni Huaren...',28 25. Ibid., 29 26. Ibid., 30 27. Mochtar Pabottingi, 'Indonesia: Historicizing the New Order's Legitimacy Dilemma', in Muthiah Alagappa, ed.. Political Legitimacy in Southeast Asia, Stanford, Stanford University Press, 1995, p.225 28. Wu Ruizhang, 'DongnanyaDiqu Huawen JiaoyuXueshu YantaohuiZongshu', Jiaoyu Yanjiu, no.6, 1996, Zhongyang Jiaoyu Kexue Yanjiusuo, p.20 29. Raillon. op.cit., 91 30. Ibid., 93 31. Wu Ruizhang, op.cit, 22 32. S. Gordon Redding, Weak Organisations and Strong Linkages: Management Ideology and Chinese Family Business Networks', in Gary Hamilton, ed. Business Networks and EconomicDevelopment in East and Southeast Asia, Hong Kong, Centre of Asian Studies, 1991, pp.31-34 33. Ibid, 35-36 34. Victor Simpao Limlingan, The Overseas Chinese in ASEAN: Business Strategies and Management Practices, Vita Development Corporation, Manila, 1986, p.68 35. Ibid, 70 36. Ibid, 133-135 37. Ibid, 134 38. Ibid, 145 39. Wang Qin, "Lun Dongnanya Huaren Qiye Jituan de Fazhan Tedian', Nanyang Wenti Yanjiu, no.l, January 1995, Nanyang Yanjiusuo, p. 12 40. Limlingan, ogxit, 148-149 41. Cai Renlong, "YinniHuaren..:, 28-29 42. Rice, op.cit, 61 43. Cai Renlong, 'Yinni Huaren..:, 31 44. Ibid, 32 45. Mei-hui Yang, Gifts Favours and Banquets, Ithaca, Cornell University Press, 1994, p. 193 46. Mei-hui Yang 192, and Yang Qiguang 67 47. Wang Qin, op.cit, 12 48. Ibid, 12 49. Ibid, 12 50. Yang Qiguang, op.cit, 72 BIBLIOGRAPHY Western Sources 1. Aden, Jean, "Entrepreneurship and Protection', in Ruth McVey, ed.. Southeast Asian Capitalists, Ithaca, Studies on Southeast Asia, 1992 2. Arndt, H.W, 'Survey of Recent Developments', Bulletin of Indonesian Economic Studies, Australian National University, Canberra, vol.xix, no.2, August 1983 3. Booth, Anne, The Oil Boom and After: Indonesian Economic Policy and Performance in the Soeharto Era, Singapore, Oxford University Press, 1992 4. 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