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Shadows in the forest : Japan and the politics of timber in Southeast Asia Dauvergne, Peter 1995

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SHADOWS IN THE FOREST:JAPAN AND THE POLITICS OF TIMBER IN SOUTHEAST ASIAbyPETER DAUVERGNEB.A., Carleton University, 1987M.A., Carleton University, 1991A THESIS SUBMITTED IN PARTIAL FULFILMENT OFTHE REQUIREMENTS FOR THE DEGREE OFDOCTOR OF PHILOSOPHYinTHE FACULTY OF GRADUATE STUDIES(Department of Political Science)We accept this thesis as conformingto t required st ndarTHE UNIVEROITJuly 1995© Peter Dauvergne, 1995In presenting this thesis in partial fulfilment of the requirements for an advanceddegree at the University of British Columbia, I agree that the Library shall make itfreely available for reference and study. I further agree that permission for extensivecopying of this thesis for scholarly purposes may be granted by the head of mydepartment or by his or her representatives, It is understood that copying orpublication of this thesis for financial gain shall not be allowed without my writtenpermission.(Signature)______________________Department of Political ScienceThe University of British ColumbiaVancouver, CanadaDate July 26, 1995DE-6 (2/88)SHADOWS IN THE FOREST:JAPAN AND THE POLITICS OF TIMBER IN SOUTHEAST ASIAABSTRACTThis dissertation creates two new theoretical tools to analyzeconnections between politics and environmental change. The firstsection develops the concept of Northern ‘shadow ecologies’ tounderstand the environmental impact of a Northern state on Southernresource management. A Northern shadow ecology is the aggregateenvironmental impact of government aid and loans; corporateinvestment and technology transfers; and trade, includingpurchasing practices, consumption, export and consumer prices, andimport tariffs. After outlining Japan’s shadow ecology, the nextpart constructs an analytical lens to uncover salient Southernpolitical causes of timber mismanagement. This spotlights modernpatron-client links between Southern officials and privateoperators that debilitate state capacity to implement resourcepolicies.Using these analytical tools, and building on extensiveprimary sources and more than 100 in-depth interviews, theremainder of the thesis examines the two most important factorsdriving commercial timber mismanagement in Indonesia, BorneoMalaysia, and the Philippines: pervasive patron-client ties betweenSoutheast Asian officials and timber operators; and the residualand immediate environmental impact of Japan. In a continualiistruggle to retain power in societies with fragmented socialcontrol, Southeast Asian state leaders build potent patron-clientnetworks that syphon state funds, distort policies, and underminesupervision of state implementors. In this setting, the state isoften unable to enforce timber management rules as implementors --in exchange for gifts, money, or security - - ignore or assistdestructive and illegal loggers, smugglers, and tax evaders.Japan’s shadow ecology has expedited timber mismanagement, andleft deep environmental scars that impede current efforts toimprove timber management. Post-1990 Japanese government andcorporate policy changes to integrate environmental concerns havemarginally improved forestry ODA, and contributed to tokencorporate conservation projects. As well, there is now lessJapanese investment, technology, and credit linked to logging. Butmassive timber purchases from unsustainable sources, wastefulconsumption, timber prices that ignore environmental and socialcosts, import barriers that deplete Southern revenues, and theresidual impact of past Japanese practices continue to acceleratedestructive logging in Southeast Asia.Sustainable tropical timber management will requirefundamental changes to Japan’s shadow ecology. It is alsoimperative to confront Southern political forces drivingdeforestation. While reforms will certainly face formidable --perhaps insurmountable -- political and economic barriers, unlessthe world community tackles these issues, the remaining primaryforests of Southeast Asia will soon perish.iiiTABLE OF CONTENTSABSTRACT iiTABLE OF CONTENTS ivLIST OF FIGURES viiiACKNOWLEDGEMENTS ixChapter OneNORTHERN SHADOW ECOLOGIESINTRODUCTION 1RATIONALE FOR THE EMPIRICAL CASE STUDIES 4RESEARCH PARAMETERS 6POLITICAL ECOLOGY STUDIES OF SOUTH-NORTH RELATIONS 10NORTHERN SHADOW ECOLOGIES 11ODA, GOVERNMENT LOANS, TECHNOLOGY AND THE ENVIRONMENT 15MUlTINATIONAL CORPORATIONS AND THE ENVIRONMENT 18TRADE AND THE ENVIRONMENT 19A. Consumption 21B. Price 22C. Southern Export Restrictions 25D. Northern Tariffs and Import Restrictions 26CONCLUSION 28Chapter TwoJAPAN’S SHADOW ECOLOGYINTRODUCTION 30ENVIRONMENTAL IMPACT OF JAPANESE ODA AND GOVERNMENTLOANS 32ENVIRONMENTAL AID 40BATTLES OVER ENVIRONMENTAL AID 42THE OECF, THE EXIM BANK, JICA, AND THE ENVIRONMENT 46ENVIRONMENTAL IMPACT OF JAPANESE CORPORATIONS 52GREENING CORPORATE JAPAN 56CONCLUSION 62Chapter ThreeA MODEL OF RESOURCE MANAGEMENT IN CLIENTELIST STATESINTRODUCTION 65PATRON-CLIENT MODEL OF ASSOCIATION 66ADVANTAGES OF PATRON-CLIENT ANALYSIS 69MODERN PATRON-CLIENT RELATIONS IN SOUTHEAST ASIA 75NEO-PATRIMONIAL STUDIES 79STRONG SOCIETIES AND WEAK STATES 82CLIENTELIST STATES AND POLICY 89PATRON-CLIENT RELATIONS AND SYSTEMIC ‘CORRUPTION’ 92LEADERS AND LOW STATE CAPACITY 93PATRON-CLIENT TIES AND STATE IMPLEMENTORS 95CONCLUSION 97ivChapter FourJAPAN, PATRON-CLIENT POLITICS,AND THE MISMANAGEMENT OF INDONESIAN TIMBERINTRODUCTION 100TRADITIONAL AND MODERN PATRON-CLIENT RELATIONS ININDONESIA 103PATRON-CLIENT TIES AND THE INDONESIAN STATE 107CHINESE BUSINESS CLIENTS 115MILITARY 117BUREAUCRACY 120JAPAN AND PATRON-CLIENT RELATIONS 122SOCIETAL STRUCTURE AND POLICY IMPLEMENTATION 123PATRON-CLIENT POLITICS AND TIMBER MANAGEMENT ININDONESIA 125Background 125POLITICIANS, PATRONAGE, AND CHINESE TIMBER CLIENTS . . . 128MILITARY LEADERS AND TIMBER 131FORESTRY POLICIES AND PATRON-CLIENT POLITICS 133A. Logging Rules and Concession Distribution . . . 133B. Licence Fees, Royalty Policies, and TimberTaxes 140C. Foreign Investment Policies 143D. Processing Policies 145E. Conservation, Reforestation, and TimberPlantations 151F. Plantations and the Pulp and Paper Industry . . 153STATE ATTEMPTS TO IMPROVE TIMBER MANAGEMENT 156JAPANESE INVESTMENT AND TECHNOLOGY TRANSFERS 160JAPANESE ODA AND TIMBER MANAGEMENT 169TRADE: APKINDO, NIPPINDO, AND THE BATTLE FOR JAPAN’SPLYWOOD MARKET 171JAPANESE TARIFF BARRIERS 177CONCLUSION 178Chapter FiveJAPAN, CLIENTELISM AND DEFORESTATION IN BORNEO MALAYSIAINTRODUCTION 185PATRON-CLIENT RELATIONS IN BORNEO MALAYSIA 187PATRON-CLIENT POLITICS AND TIMBER IN BORNEO MALAYSIA . . 195Background 195STATE PATRONAGE AND TIMBER IN SABAH 201POLITICAL LEADERS, PATRONAGE, AND TIMBER IN SARAWAK . 206PUBLIC OPPOSITION AND PATRON-CLIENT POLITICS IN BORNEOMALAYSIA 212ROLE OF FORMAL INSTITUTIONS, REGULATIONS, AND POLICIES . 215A. Background 215B. Logging Guidelines in Borneo Malaysia 217C. Tax and Royalty Policies 220D. Political Concessionaires, Chinese Clients, andSub-contracting 223VE. Log Export Restrictions and ProcessingPolicies 227F. Conservation, Reforestation, TimberPlantations 233G. Recent Attempts To Improve Timber Management . 235JAPANESE ODA IN BORNEO MALAYSIA 242JAPANESE CORPORATE INVESTMENT IN BORNEO MALAYSIA’ STIMBER INDUSTRY 245JAPANESE COMPANIES AND CONSERVATION IN BORNEO MALAYSIA. 249JAPANESE TIMBER PURCHASES FROM BORNEO MALAYSIA 252JAPAN, TARIFF BARRIERS, LOG PRICES, AND SUSTAINABLEMANAGEMENT 256CONCLUSION 257Chapter SixJAPAN, PATRON-CLIENT POLITICS,AND THE COLLAPSE OF THE PHILIPPINE TIMBER INDUSTRYINTRODUCTIONTRADITIONAL AND MODERN PATRON-CLIENT RELATIONSPATRON-CLIENT RELATIONS (1898-1972)MARCOS AS SUPREME PATRON (1972-19 86)PATRON-CLIENTELISM AND THE FALL OF MARCOSPATRON-CLIENT NETWORKS AND PATRONAGE SINCE 1986PATRONS AND TIMBERFORESTRY POLICIES AND PATRON-CLIENT POLITICSA. BackgroundB. Timber Concessionaires and Legal LoggingC. Illegal LoggingD. SmugglingE. Tax and Royalty EvasionF. Log Export Restrictions, Logging Bans,Processing PoliciesG. Local Power and Forest Management .H. Conservation, Reforestation, and TimberPlantationsTHE PHILIPPINES AND JAPAN’S SHADOW ECOLOGYA. Japanese Investment and TechnologyB. Japanese TradeC. Japanese Forestry and ‘Environmental Aid’CONCLUSION: A LOOK TO THE YEAR 2000ConclusionJAPAN’S ECOLOGICAL SHADOW OF TIMBER IN SOUTHEAST ASIAINTRODUCTIONJAPANESE TECHNICAL ASSISTANCE, GRANTS, LOANS ANDTROPICAL FORESTSJAPANESE ENVIRONMENTAL AID AND TROPICAL FORESTS . .JAPANESE CORPORATE INVESTMENT AND TECHNOLOGY TRANSFERSJAPAN’S TIMBER TRADE IN SOUTHEAST ASIAA. Japanese Corporate Purchasing Practices . .and• . . 263• . • . 267• . . . 271• . . . 273278• . . . 279284290• . . 290• . • 293298305307and309311312315316319322327333335341342344344viB. Export and Consumer Prices, Consumption, and LowState Revenue 350C. Indonesian Plywood Exports and Japanese ImportBarriers 351JAPANESE ENVIRONMENTAL GUIDELINES AND THE TIMBER TRADE . 353JAPAN AND SOUTHEAST ASIAN TIMBER MANAGEMENT:RECOMMENDATIONS 358A. Reform Japanese Aid 358B. Trade: Corporate Purchasing Practices 360C. Trade: Import Restrictions 362D. Trade: Purchases, Import Volumes, Prices, andConsumption 364LESSONS FOR NORTH-SOUTH INTERACTION AND ENVIRONMENTALMANAGEMENT 367ACRONYMS ND INDIGENOUS TERMS 371BIBLIOGRAPHY 374NEWSPAPERS ND MAGAZINES CONSULTED 411INTERVIEWS 413A. INDONESIA 413B. JAPAN 414C. PENINSULAR MALAYSIA 415D. PHILIPPINES 415E. SABAH, MALAYS IA . 416F. SARAWAK, MALAYSIA 422viiLIST OF FIGURESFigure 1. Japanese Log Imports From SE Asia 349viiiACKNOWLEDGEMENTSThis dissertation was supported by generous funds from anAlcan Fellowship in Japanese Studies (1991-92) and an Eco-ResearchDoctoral Fellowship (1992-95), a cross-disciplinary award from theSocial Sciences and Humanities Research Council of Canada, theNatural Sciences and Engineering Research Council of Canada, andthe Medical Research Council of Canada. A 1994 Canada-ASEAN CentreTravel Grant supplied crucial financial assistance for research inSoutheast Asia, and the Institute of Social Science, University ofTokyo, provided subsidized housing and institutional support forresearch in Tokyo.I am deeply indebted to my dissertation supervisor, ProfessorIvan L. Head. Considering the interdisciplinary range of myresearch, I was exceedingly fortunate to find any advisor-- letalone one with his breadth of knowledge. His careful edits andthoughtful suggestions were invaluable. Using kindness and tact,he somehow managed to push me to revise and revise and revise. . .yetremarkably I never felt despondent. I am also indebted toProfessor Diane K. Mauzy for her kind and skilled guidance throughthe diverse Southeast Asian political systems and dense literatureon patron-client theory. She has been - - in only the best sense ofthe word-- my patron, defending my interests and promoting mycareer. In return, she received only the thankless task ofploughing through lengthy chapters. I am also grateful toProfessor Brian Job for his generous support and expert advice. Aswell, I want to thank my external examiners, Professor John R.Wood, Professor han Vert±nsky, and Dr. Arthur Hanson for theirvaluable input. Finally, I am indebted to numerous peoplethroughout Southeast Asia and Japan whose ideas and data are thebackbone of this thesis.This project would have been impossible without theintellectual and emotional support of my entire family. My wife,Cayte, was indefatigably patient and loving, even on the days Iwanted to quit, the days I was too distracted to listen, the daysI was too tired to drag myself out of bed and soothe our cryingson. Through all this she was my toughest editor and my bestfriend. My son Duncan -- although he denies responsibility for anyerrors -- had perhaps the greatest influence on my work. Before hecould even walk, he volunteered to be my research assistant inTokyo. After he learned to walk, his help became indispensable ashe strategically shuffled and hid key documents, and studiouslyshredded any irrelevant or misleading information. He was,however, far more than an able researcher-- every day hedemonstrated that life is much more than one myopic dissertation.Without this perspective, I would still be at my computer,mesmerized by the vision that I would write a great work, insteadof mired in the humbling world of diapers and messy drafts.ixChapter OneNORTHERN SHADOW ECOLOGIESAnnual tropical deforestation is around 17 million hectares.’Despite incremental improvements, illegal and legal logging remaina key cause of deforestation in Southeast Asia. Asian governmentstarget the year 2000 for sustainable management of tropical timber.There is almost no hope of reaching this goal. Primary rainforests continue to be cut and sustainable yields remain as elusiveas ever.2 There are both direct agents and indirect forcescontributing to rapid, careless, short-sighted extraction. WhileSouthern state managers and timber operators play direct roles,Northern money, consumption, technology, and trade practices arecrucial factors supporting and driving mismanagement. Theseindirect Northern forces cast an oppressive shadow that constrainsSouthern decisions, provides incentives for quick profits, andaccelerates the process of deforestation.This dissertation concentrates on the most important Northernforce behind logging mismanagement in Southeast Asia -- Japan --and the central Southern factor -- politics and policyimplementation. I argue that current and past Japanese government‘Food and Agriculture Organization (FAO) data in NationalScience Teachers Association, World Resources 1992-93. A Guide tothe Global Environment (Washington: National Science TeachersAssociation, 1992), p.118. Deforestation is defined as thecomplete loss of the original forest eco-system.2Little has apparently changed since the International TropicalTimber Organization estimated in 1989 that less than one percent oftropical timber is managed at sustainable yields.1policies, corporate practices, and trade combine to act as acatalyst driving commercial timber mismanagement in Indonesia, theBorneo Malaysian states of Sabah and Sarawak, and the Philippines.3These policies and practices limit state decisions, provideincentives for destructive extraction, and support unsustainabletimber export rates. In recent years, the Japanese government andmajor corporations claim that significant moves have been made tointegrate overseas environmental concerns. I examine the newEnvironment Law, and policy changes at key ministries, the aid andloan agencies, and general trading companies. I show that thesepolicies -- while providing marginal contributions to conservationand reforestation -- have conspicuous flaws: wording is vague,there are few enforcement mechanisms, and sanctions are unclear.Seen in light of the consequences of Japan’s historical practices,and of contemporary problems, these efforts are essentiallycosmetic. More disturbingly, they create a smokescreen thatobscures the more important consequences of wasteful Japaneseconsumption, export and consumer prices that ignore environmentalcosts, import tariffs that syphon Southern revenues, log purchasesfrom unsustainable sources, and the residual environmental effectsof past practices.Japan’s impact on Southeast Asian timber management can easilybe exaggerated or oversimplified and must be understood in thecontext of Southeast Asian politics. To uncover the salient3For simplicity, the term Southeast Asia refers primarily tomy case studies. Notably, I do not examine Thailand since Japan hashad a smaller role in driving extensive deforestation in Thailand.2domestic causes of timber mismanagement, I develop an analyticallens that focuses on the links between patron-client relations andpolicy implementation. I argue that Southeast Asian leaders -- ina constant struggle to retain power in societies with fragmentedsocial control -- build powerful patron-client networks and allowmaterial-based patron-client ties to flourish at all levels of thestate and society. These pervasive clientelist ties -- oftensustained by timber profits-- distort policies, deplete staterevenues, obscure responsibility, channel profits to anunaccountable elite, and undermine supervision of stateimplementors. In this context, the state is too weak to respond tothe environmental crisis in forestry, and to control destructivetimber operators, illegal loggers, smugglers, and tax evaders.Understanding Japan’s impact on timber management in thissetting leads to some important conclusions. Higher internationalprices for tropical timber, greater Southern timber revenues,revised Overseas Development Assistance (ODA), compensation forpast practices, and increased environmental investment, while intheory essential for sustainable logging, will not automaticallyimprove timber management. Increased Southern revenue may simplyadd to the wealth of a small elite, or to investments outside ofthe forestry sector, and do little to improve management. In thecontext of Southeast Asian politics, higher prices could evenincrease incentives to mine the forests and make quick money.Sustainable management will require the world community to confrontSouthern political forces that disable state policy implementation,3undercut state revenue, and drive mismanagement. Unfortunately,there are few optimistic signs. Japanese corporations continue tothrive in the political setting of Southeast Asia, importing vasttracts of remarkably cheap timber from unsustainable sources. Withpowerful business, military, bureaucratic, and political patron-client networks fuelled by timber, states unable or unwilling tohalt the ensuing destruction, and Japan accelerating the process,it is hardly surprising to find rampant deforestation.RATIONALE FOR THE CASE STUDIESComparing the impact of Japan on tropical timber management inIndonesia, Borneo Malaysia, and the Philippines is logical forseveral reasons. From the 1950s to the beginning of the 1990s,these three areas supplied around 90 percent of Japan’s tropicallog imports from Southeast Asia. They have also been the majorhardwood exporters of Southeast Asia, accounting for over half ofworld exports; meanwhile, since the 1960s, Japan has consistentlyremained the world’s largest importer of tropical timber, todayconsuming nearly one-third of the world total.4 As a result,Japanese government and corporate practices have had significantenvironmental and economic consequences for Southeast Asian timbermanagement.Focusing on areas with similar cultural backgrounds and4japan consumes more than Belgium, Denmark, France, WestGermany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal,Spain, and the United Kingdom put together. Kenton Miller andLaura Tangley, Trees of Life: Saving Tropical Forests and TheirBiological Wealth (Boston: Beacon Press, 1991), p.30.4similar historical, political, and economic ties to Japan reducesthe number of divergent variables surrounding my analysis,therefore making it easier to generalize and evaluate whetherJapanese practices are changing. There have been marginalimprovements to Japanese forestry aid and some token corporateconservation projects. As well, there are now fewer tropicallogging investments and technology transfers. But Japan’s basicpattern is consistent: to facilitate rapid, destructive cuttingtechniques; support unsustainable timber production; maximize high-quality log imports at the lowest possible price; protect Japaneseplywood processors that feed on cheap tropical logs; and syphonSouthern revenues essential for sustainable management. Ascommercial forests inevitably disappear, or when Southerngovernments sever supply lines, Japanese trading companies havesimply moved to new sources. This pattern has been remarkablyconsistent. At present, as imports from Borneo Malaysia drop,Japanese companies are moving to Papua New Guinea and the SolomonIslands. Japanese companies are also preparing for the worldwidecollapse of tropical timber supplies, developing techniques tosubstitute softwood from places like Russia, New Zealand, China,Canada, and the United States.These cases also reveal notable differences in theenvironmental and economic impact of Japan depending on thereactions of Southeast Asian governments. In the Philippines,taking advantage of greedy elites and inadequate state supervision,Japanese companies purchased massive volumes of logs to supply5domestic plywood processors. By the time the Philippine governmentbanned log exports in 1986, the commercial timber industry hadcollapsed. In sharp contrast, as multinational companies financedand accelerated destructive logging in Indonesia, the Indonesiangovernment gradually banned log exports in the first half of the1980s, severed most foreign timber investments, and provided strongincentives to process logs locally. As a result, Indonesia becamethe world’s dominant tropical plywood producer. Japan now importsa significant quantity of Indonesian plywood, forcing many Japaneseplywood processors out of business. In Sabah and Sarawak, Japanesetraders again funded and supported log export operations similar tothose that devastated the Philippines. In 1993, after the nearexhaustion of valuable commercial timber, the Sabah governmentbanned log exports, attempting to establish a processing industrysimilar to Indonesia’s. Sarawak is now the main source forJapanese tropical logs. Sarawak has also imposed some restrictionson log exports, but unlike Indonesia, the Philippines, or Sabah,government leaders perceive Japanese log purchases as beneficialand there are no plans to ban exports.RESEARCH PARAMETERSThe boggling array of factors that influence Southeast Asiantimber management and the potential for endless diversions hasforced me to focus my research. I concentrate on commerciallogging in primary and secondary forests, and to a lesser extent on6the management of plantations.5 Reaching sustainable timberproduction, reducing destructive logging, and protecting primaryforests are my main environmental concerns;6 my primary economicconcern is maximizing the amount of money invested in sustainableSouthern timber management. Without denying their importance forsustainable tropical forestry, only passing references are made toland use rights, indigenous rights, swidden farming, and social andcommunity forestry. Addressing these issues would make my projecttoo unwieldy and divert attention from my central concern, theimpact of Japan and Southern politics on commercial timbermanagement.I also do not address Japanese contributions to multilateralinstitutions. Although these are undoubtedly important-- Japan isthe biggest contributor to the Asian Development Bank (ADB), the5Logging in Southeast Asia is a critical agent behinddeforestation. Logging of primary forests -- which createssecondary forests-- routinely causes degradation. (Degradation isdefined as a partial change to a forest eco-system that reduces itseconomic, biological, or environmental value.) In some cases,loggers clear-cut forests, although this is generally limited toareas designated for agriculture or large-scale developmentprojects (e.g. hydroelectric dams). Logging is usually the firststep in a process that leads to deforestation: by establishingroads that provide access to slash-and-burn farmers; by leavingdebris and creating open spaces that make secondary forestssusceptible to fires; and by decreasing the economic value of theforest, providing incentives to convert logged areas to other landuses.6Sustainable timber production is defined as doing nothing thatwill “irreversibly reduce the potential of the forest to producemarketable timber.” Duncan Poore, “The Sustainable Management ofTropical Forest: the Issues,” in Duncan Poore, ed., No TimberWithout Trees: Sustainability in the Tropical Forest. A Study forITTO. (London: Earthscan Publications Ltd., 1989), p.5. Pooreexplains this concept in detail.7second largest to the International Monetary Fund and the WorldBank, and strongly backs organizations like the InternationalTropical Timber Organization (ITTO) -- it is exceedingly difficultto determine the extent to which Japanese money shapes the policiesand practices of these organizations.7 Reluctantly, to avoiddiluting an understanding of Japan’s bilateral impact on timbermanagement, I also do not delve into the role of related pressurescreated by Southern debt, though this hovers in the background.While foreign debts undeniably create incentives to exportresources to meet payments,8 it is quite difficult to isolate andanalyze Japan’s contribution to these debts. It is equallydifficult to determine the role this then has on the management ofone resource. Also lingering in the background, but not directlyanalyzed, is the importance of population growth, poverty, non-forestry policies, low status of environmental concerns in thebureaucratic hierarchy, as well as the impact of otherindustrialized countries, international financial organizations,and world pressure to ‘develop’. These factors are certainlyimportant. But directly tackling them would push my work toward7The ADB is sometimes portrayed as being under Japan’s thumb.Yet it is simplistic to equate Bank policies with Japaneseinterests. According to a Bank official, Japan does not shapepolicy; rather, the Japanese government has ‘piggy-backed’intellectually on the policies of the Bank. Interview, Senior ADBofficial, Manila, 31 January and 4 February 1994. Similar commentswere made about Japan’s influence over the ITTO. Interview, ITTOofficial, Tokyo, 6 April 1994.8See for example, Patricia Adams, Odious Debts: loose lending,corruption, and the Third World’s environmental legacy (Toronto:Earthscan Canada, 1991); and Susan George, The Debt Boomerang: HowThird World Debt Harms Us All (London: Pluto Press, 1992).S-ground already well covered by other writers and deflect me fromthe largely unexplored terrain of the environmental impact ofbilateral South-North relations on the commercial management of oneSouthern resource.Other authors point to the power of the North to shaperesource management in the South; yet, most resort to general,sometimes glib, connections. A precise assessment is difficult,demanding extensive background on Southern political settings andNorthern policies. Chapter Two describes recent changes toJapanese corporate and government policies that shape Southernresource management. Chapter Three builds a comparative framework-- the patron-client model modified to give more focus on the stateand policy implementation -- to analyze the connections betweendomestic politics and resource management in Southeast Asia.Chapters Four to Six outline the politics of timber management inIndonesia, Borneo Malaysia, and the Philippines with particularattention to Japan. The Philippine chapter begins the ascent tothe conclusion and sketches the key Southern political factorsdriving timber mismanagement in Southeast Asia. Building on theseempirical studies, and in the context of recent Japanese policies,the conclusion assesses the impact of Japan on Southeast Asiantimber management and explores possible reforms to reshape theenvironmental impact of Japanese aid, investment, and trade. Tomaintain focus throughout this project, I concentrate mainly onpolitical factors, contributing to the emerging sub-field of9political ecology.9POLITICAL ECOLOGY STUDIES OF SOUTH-WORTH RELATIONSAcademics concerned with natural resource managementincreasingly see political forces as critical factors drivingenvironmental degradation. Political ecology studies broadlyexamine connections between politics and environmental change.These studies are diverse, addressing a range of issues, dealingwith local, national, and international politics, and reaching avariety of conclusions. Specific political features examinedinclude: local -- often indigenous-- conflict over access to landand water; Southern policies, practices, and elite corruption;Northern ODA, multinational corporations (MNC5) and trade;interstate war; Southern debt and pressures by multilateralfinancial and technical organizations; capitalism and itsaccompanying world system; and complex combinations of thesevariables 10A neglected area of political ecology studies is the peaceful9This helps fill a gap in the literature on forestrymanagement. Until recently, scholars have focused on technical oreconomic factors behind logging mismanagement with relativelylittle attention to political fdrces. Furthermore, internationalforums and publications have avoided sensitive discussions ofpolitical connections.‘°Raymond L. Bryant, Political Ecology: An emerging researchagenda in Third-World studies,” Political Geography 11 (January1992), pp.12-36 reviews this literature. For a specific example ofa political ecology framework, see Nancy Lee Peluso, “The PoliticalEcology of Extraction and Extractive Reserves in East Kalimantan,Indonesia,” Development and Change 23, no. 4 (October, 1992),pp.49-74.10interaction between states.” One reason is the difficulty ofisolating and clarifying important Northern factors that shaperesource management in the South. There is a danger ofexaggerating or oversimplifying the impact of the North asvariables are removed from the context of the world capitalistsystem and Southern political settings. There is also a risk ofincluding too many aspects, diluting or diverting attention frommore important factors. To spotlight the most important elementsof bilateral Northern influence on Southern resource management, Idevelop the concept of Northern shadow ecologies.NORTHERN SHADOW ECOLOGIESThe genesis of the term ‘shadow ecology’ comes from theargument that economically powerful industrialized countriesdraw upon the ecological capital of all othernations to provide food for their populations,energy and materials for their economies, andeven land, air, and water to assimilate theirwaste by-products. This ecological capital,which may be found thousands of miles from theregions in which it is used, forms the ‘shadowecology’ of an economy. ... In essence, theecological shadow of a country is theenvironmental resources it draws from othercountries and the global commons.’2“See Ibid., p.16.12Jim MacNeill, Peiter Winsemius, and Taizo Yakushiji, BeyondInterdependence: The Meshing of the World’s Economy and the Earth’sEcology (Oxford: Oxford University Press, 1991), pp.58-59. Theauthors argue that “oceans, the atmosphere (climate), and other‘commons’ also form part of this shadow ecology.” Ibid., p.58.However, because of the complexity of this topic, and since myempirical data relates to forestry, I will not examine aspectsconnected to the global commons but will limit my discussion tofactors that directly relate to interstate relations.11As the authors note, a country like Japan, which has a limitedresource base, has developed an extensive shadow ecology to supportrapid industrial growth. Unfortunately, this idea is not examinedin detail. The goal in the following section is simple: todelineate clear definitional boundaries to boost the heuristicpower of the term shadow ecology.Environmental resources include water, trees, minerals, soil,and air. Yet shadow ecologies are more than the number of treesand minerals consumed, the amount of soil removed, and the extentof water and air polluted. To fully understand the importance ofa Northern shadow ecology, it is imperative to go beyond merelycounting the amount consumed or destroyed and examine the pricepaid and the impact on resource management. Given time, money andknowledge, many environmental resources -- certainly conimercialtimber -- can be managed as a sustainable economic asset.Accepting this assumption, a Northern country that consumesenormous quantities without paying and without restoring degradedareas draws far more environmental resources than another countryconsuming the same amount, yet paying high prices for resourcesfrom sustainable sources, and providing technical and financialsupport. to facilitate better management. For this reason, the termshadow ecology embraces the amount consumed, the price paid, thesource of the resource, and the effect of ODA, government loans,corporate investment, technology transfers, and trade policies onresource management. In other words, a Northern shadow ecology isthe aggregate environmental impact on the management of a Southern12resource of three sets of factors: government assistance, includingODA and loans; corporate investment and technology transfers; andtrade, including corporate purchasing practices, export andconsumer prices, amount and ‘type’ of consumption, and importbarriers. Japan’s ‘ecological shadow of timber’ in Southeast Asiais the aggregate environmental impact of these factors on tropicaltimber management.Some caveats and boundaries further refine this definition.First, actions of Southern governments, or international financialpressures can aggravate or alleviate shadow ecologies. To createa balanced perspective, it is imperative to view a shadow ecologyin the context of Southern politics, and keep in mind the role ofthe world capitalist system in shaping attitudes and practices.Second, an ecological shadow is a result of both intended andunintended consequences of Northern government, corporate and bankactions. It is not a result of a guided or conscious plan. Thisis especially relevant for Japan where the decision making processis fragmented - what Karl van Wolferen calls a “truncatedpyramid.”13 It is, however, still possible to control theconsequences. Public and private policies in both developed anddeveloping countries can significantly alter the impact of aNorthern shadow ecology on resource management in the South.Third, the term shadow ecology implies a two way dependence.A country like Japan relies on Southern raw materials, while the‘3See Karel van Wolferen, The Enigma of Japanese Power: Peopleand Politics in a Stateless Nation (New York: Macmillan LondonLimited, 1989)13South relies on Northern markets, technology, aid and investment.This moves “beyond interdependence” in its limited economic sense,and suggests a “meshing of the world’s economy and the earth’secology.”4 The relationship, however, is asymmetrical sinceenvironmental change more immediately affects the South. Economicand ecological interdependence suggests an inevitable impact ofeconomic activity in the North on the environment of the South and,furthermore, an inevitable impact of environmental change in theSouth on the economies of the North.’5 Accepting this assumption,it makes sense to conceive of shadow ecologies on a continuum wheresustainable activity falls on one end and environmental destructionfalls on the other end. The logical task for policy makers, then,is not to eliminate shadow ecologies but to minimize and counteractany negative consequences. Ideally, sustainable activity wouldinvolve South-North interaction that encourages mutual andequitable development, while environmental change is sustainable.Fourth, shadow ecologies change intensity and composition.The relative importance of various components depends on the statesinvolved, environmental attitudes and values, the resource sector,and the historical period. For example, the relative importance offactors (such as ODA/loans, consumption, corporate investment, ortrade practices) and the cumulative impact of Japan’s shadow‘4Maurice Strong, Introduction to MacNeill, Winsemius, andYakushiji, Beyond Interdependence, p.v.‘5See Ivan L. Head, On A Hinge Of History: The MutualVulnerability of South and North (Toronto: University of TorontoPress, 1991)14ecology in the Philippines in 1975 is different from Indonesia in1993. Finally, economic growth entails environmental costs.Historically, shadow ecologies have transferred environmental coststo the South of economic growth in the North. Yet, it is importantnot to oversimplify and exaggerate. Northern ODA, investment,technology, and trade are certainly important factors shapingenvironmental management in the South. But these are only part ofthe explanation, their importance varies depending on the context,and they can simultaneously have both negative and positiveimplications for management. Although South-North interaction hashad many destructive consequences in the past, a complete breakwould not assure sustainable practices. Northern money,information, technology and training-- modified to fit Southernknowledge, experience, and conditions-- is the only practicalroute to sustainable management.’6 For background and furtherclarity, the next section examines some of the theoretical debatesregarding the environmental impact of ODA, Northern technology,corporate investment, and trade on Southern resource management.ODA, GOVERNMENT LOANS, TECHNOLOGY AND TIlE ENVIRONMENTThe environmental impact of ODA (grants, technical assistance,and concessional loans) and government loans not qualifying as ODA,‘6This is generally accepted by the South. Northern assistance-- especially technology transfers on noncommercial terms-- hasbeen a priority for developing countries during internationalenvironmental negotiations. Gareth Porter and Janet Welsh Brown,Global Environmental Politics (Boulder: Westview Press, 1991),p.129.15have been extensively examined in recent years.’7 The media,nongovernmental organizations (NGOs), and environmentalists havescrutinized mega-development projects financed by multilateral andbilateral aid which create sensational environmental change.Popular interest in such schemes is further aroused by stories ofcorruption, connections to Northern corporations, and destructionof aboriginal cultures. Academic work has also looked closely atthe links between environmental destruction and poorly conceivedaid and loan priorities and projects, badly designed and managedNorthern aid agencies, and strategic use of aid and loans topromote Northern business.18 Some scholars, however, are waryabout the connections made between ODA and environmental change.According to William Adams, while clearly a factor, “it remains anopen question. . . as to how much influence aid agencies actually haveon the nature and course of development projects. The power of aiddonors is often exaggerated, and of course varies a great deal.”9Moreover, it is important not to discount ongoing changes to aidpolicies as environmental awareness grows, and aid is ‘greened’ 20‘7Much of this research was sparked by the World Commission onEnvironment and Development, Our Common Future (Oxford: OxfordUniversity Press, 1987)18For example, Teresa Hayter, Exploited Earth: Britain’s Aidand the Environment (London: Earthscan Publications, 1989).‘9Wjlliam M. Adams, Green Development: Environment andSustainability in the Third World (London: Routledge, 1990), p.166quoted in Bryant, p.16.20Bryant, “Political Ecology,” p.16. See Czech Conroy andMiles Litvinoff, eds., The Greening of Aid: Sustainable Livelihoodsin Practice (London: Earthscan, 1988). Conroy and Litvinoffprovide thirty-four cases of aid projects with positive16Assessing the environmental impact of ODA and nonconcessionallending is clearly difficult, and its importance debatable. Thereis a tendency -- especially in government publications -- to assumeall reforestation or environmental technologies are beneficial.There is an equally dubious tendency among NGOs andenvironmentalists to label all Northern aid as a capitalist ploy toexploit the natural resources of the South. Since Northern moneyhas the potential for both negative impacts-- as when funding ill-conceived dams, roads, and equipment purchases-- and positiveimpacts-- as when funding conservation and environmental education-- it is necessary to weigh each situation carefully, avoidsimplistic condemnations, and consider its importance relative tothe overall environmental problems.Technological transfers-- by Northern governments through ODAor loans, or by MNCs as part of investment-- can potentiallyalleviate environmental problems by, for example, replacinginefficient processing facilities and reducing pressure on aresource.21 But technology can also create havoc by acceleratingextraction and production before effective plans and policies areenvironmental consequences.21Numerous influential studies argue that the diffusion ofenvironmentally sound technology is critical for Southernsustainable development. For example, see World Commission onEnvironment and Development, Our Common Future, p.87; and LindaStarke, Signs of Hope: Working Towards Our Common Future (Oxford:Oxford University Press, 1990), p.165.17in place.22 Martin Khor Kok Peng, director of the Third WorldNetwork, argues that “the importation of inappropriate Northerntechnologies has progressively destroyed the more ecologicalindigenous production systems in the south, besides simplydestroying natural resources.”23 As with aid and loans, technologyis a double-edged sword and the environmental consequences Iust beweighed carefully.MULTINATIONAL CORPORATIONS AND THE ENVIRONMENTAccording to Nazli ChOucri, all theories of multinationalcorporations, including international relations studies inpolitical science, “ignore the impacts of corporate activities onthe natural environment and on ecological balances.” Thesetheories seem to assume “private investments and actions crossingborders are neutral relative to environmental, ecological, oratmospheric impacts.” Of course, many less ‘theoretical’ studies22For a general discussion of the relationship betweentechnology and the environment, see Amitav Rath and Brent HerbertCopley, Green Technologies for Development: Transfer, Trade andCooperation (Ottawa: International Development Research Centre[IDRCI , 1993)23Martin Khor Kok Peng, “North-south relations revisited inlight of UNCED,” Briefing Paper for UNCED, no. 8, 1991, p.6. Fora critique of the environmental impact of Northern technologytransfers, see Ecologist, “Mainstream Solutions,” Ecologist 22, no.4 (July/August 1992), pp.187-192.24Nazl± Choucri, “Multinational Corporations and the GlobalEnvironment,” in Global Accord: Environmental Challenges andInternational Responses (Cambridge: MIT Press, 1993), p.220.18have examined the links between MLTCs and environmental change.25Yet this gap in the MNC literature is indicative of a superficialunderstanding of the connections between environmental change andcorporate investment and practices.MC investors often create incentives and the means for rapidexploitation of Southern resources. These firms also invest littlein environmental projects such as reforestation, which have lowprofit margins, long-term returns, and high risks. As well,multinational companies purchase enormous quantities of remarkablycheap natural resources from unsustainable sources. Driven bythese investment and purchasing practices, Southern partners ignorelong-term management principles and quickly deplete resourcestocks. In the 1980s, MNCs became more conscious of environmentalissues. There is, however, little evidence of concrete changes tomultinational behaviour in the South.26TRADE AND THE ENVIRONMENTWorld trade swamps the financial flows of debt and aid.Annual world trade in goods is US$3.5 trillion; includingcommercial services it reaches US$4.3 trillion. In comparison,total annual ODA is only US$55 billion, while Southern debt service25For example, see the articles in Charles S. Pearson, ed.,Multinational Corporations, Environment, and the Third World:Business Matters (Durham: Duke University Press, 1987).26Roger D. Stone and Eve Hamilton, Global Economics and theEnvironment (New York: Council on Foreign Relations Press, 1991),pp.42-43.19stands at US$130 billion.27 After an initial spurt in the 1970s,then a lull in the 1980s, there has been an explosion of writing inthe 1990s on the links between trade and environmentalmanagement.28 Hal Kane argues that trade is essentially “takingproducts made by using the environment, or taking the environmentitself, and sending it off to other countries.”29 Understood inthis way, trade inevitably creates environmental change. Yetchange itself is not a problem; even sustainable developmentrequires change. What is crucial is the impact of trade onresource management -- whether it contributes to sustainability orirreparable change. This discussion must be approached cautiously:the arguments linking trade to the environment are complex and“there are few absolutes.”3° Four key trade issues that shapeSouthern resource management -- consumption, price, export27Charles Arden-Clarke, “An Action Agenda for Trade PolicyReform to Support Sustainable Development: A United NationsConference on Environment and Development Follow-up,” in DurwoodZaelke, Paul Orbuch, and Robert F. Housman, eds. Trade and theEnvironment: Law Economics and Policy (Washington: Island Press,1993), p.72.28For background, see Tom Wathen, “A Guide to Trade and theEnvironment,” pp.3-22 and Charles Pearson, “The Trade andEnvironment Nexus: What is New Since ‘72?” pp.23-32 in Zaelke,Orbuch, and Housman, eds., Trade and the Environment, and PatrickLow, “International Trade and the Environment: An Overview,” pp.1-14 and Judith Dean, “Trade and the Environment: A Survey of theLiterature,” pp.15-28, in Patrick Low, ed., International Trade andthe Environment (New York: World Bank, 1992).29Ha1 Kane, “Managing Through Prices, Managing Despite Prices,”in Zaelke, Orbuch, and Housman, eds., Trade and the Environment,p.58.30Zaelke, Orbuch, and Housman, eds., Trade and the Environment,p.xiv.20restrictions, and import barriers -- are particularly contentious.A. ConsumptionFor classical economists, rising consumption (demand) is a keyelement for economic growth. This assumes consumption is good:more food, more televisions, more luxurious homes and cars, alllead to greater prosperity and happiness. This ingrained view isincreasingly being challenged, especially as the disparitycontinues to grow between rich Northern consumers and destituteSouthern survivors. Cities are now polluted by swarms of vehicles;dumps are full of old appliances; rivers, lakes, and oceans aresaturated with waste and chemicals; deserts are expanding andforests disappearing. As environmental problems spread,‘environmental economists’ have begun to question conventionaleconomic indicators and analysis. They argue that economic growthand resources are finite; it is therefore essential todifferentiate between quality consumption and the quantityconsumed. ‘Wasteful’ consumption such as excessive packaging,three car families, or disposable tropical wood productscontributes to mounds of garbage, pollution, and loss ofbiodiversity. ‘Conscientious’ consumption can ‘save’ resourceswhich can be transferred to food, housing, medical facilities,education, and improved resource management in the South. In thisview, shifting the pattern of world consumption from one of ‘blind’consumption to ‘conscientious’ consumption is necessary for21equitable and sustainable development.3’B. PriceConsumption and price are inseparable: lower prices encouragehigher consumption while higher prices tend to lower consumption.Conventional economists argue that free markets create a naturalequilibrium between supply and demand that generates a ‘fair’price. Yet, according to environmental economists, free marketsfail “to properly value the services that the environmentprovides.”32 Prices paid by Northern consumers do not reflectenvironmental or social costs. Primary rain forest timber isparticularly underpriced.33 By treating the commons as a freegood, the market “‘externalizes,’ or transfers to the broadercommunity, the costs of resource depletion. . .in the form of damagesto ecosystems.” As a result, “today’s trade patterns contain amassive transfer of the environmental costs of world GNP to the31For a discussion of the links between Northern consumption ofluxury goods and Southern environmental degradation and humansuffering, see Martin Khor Kok Peng, “The global environmentcrisis: a Third World perspective,” Briefing Paper for UNCED, no.5, 1991; Jyoti Parikh and Kirit Parikh, “Consumption patterns: thedriving force of environmental stress,” Bombay, Indira GandhiInstitute of Development Research, 1991, in NGONET 0795, computerdatabase of the Alternative Conference at UNCED, Rio de Janerio,1992; and Bunker Roy, “Population or Over-Consumption: Which isDestroying the World?” India, SWRC, 1992, in NGONET 1251.32Kane, “Managing Through Prices,” p.60.33While perhaps extreme, the Center for Science and Environmentin New Delhi estimates a mature tree in India is worth US$50,000.Alan Them Durning, “Let’s Put a Proper Price on Trees,”International Herald Tribune, 3 February 1994.22resource-based economies of developing countries.”34Low resource prices, along with poor revenue capture andsubsidies by Southern governments,35 encourage even greaterextraction to earn foreign exchange, and preclude investment insustainable production. Furthermore, “underpricing. . .naturalresources encourages wasteful and environmentally destructivepatterns of consumption throughout the world.”36 For a realisticchance of sustainable management, it is necessary to maintainstable world commodity prices,37 and ‘internalize’ the cost oftraded resources-- that is, generate a price, perhaps throughtrade measures, sufficient to support the added expense of careful,long-term management and account for losses connected to inevitableecological changes .34MacNeill, Winsemius, and Yakushiji, Beyond Interdependence,p.37 and p.21. For more detail, see Stewart Hudson, “Trade,Environment and the Pursuit of Sustainable Development,” in Low,ed., International Trade, pp.55-64.35For a discussion of the links between Southern subsidies andresource depletion, see Edward B. Barbier, Joanne C. Burgess, andAnil Markandya, “The Economics of Tropical Deforestation,” Arnbio20, no.2 (April, 1991), p.55.36Charles Arden-Clarke, “South-North Terms of Trade:Environmental Protection and Sustainable Development,”International Environmental Affairs 4, no. 2 (Spring 1992), p.124.37See chapter three, “The Role of the International Economy,”World Commission on Environment and Development, Our Common Future.38See Arden-Clarke, “South-North Terms of Trade,” pp.122-137.For a strong critique of ‘environmental economics’ -- especiallythe disregard for values and rights-- see Ecologist, “MainstreamSolutions,” pp.173-179. In my view, pointing to the need forprices to internalize environmental costs is not a monstrous visionreducing people and culture to money -- rather, it accepts the factthat money is necessary to implement policies to protect theenvironment.23To combat ideological blinders behind policies of ever-higherproduction and economic growth, there is a “world-wide effort. . .toexplore the possibility of modifying the conventional economicaccounts in order that they may better reflect environmental andnatural resource degradation. Robert Repetto argues that“failing to allow for depreciation of natural resource stocks whenthey are depleted or degraded disguises the sacrifice of futureconsumption, overstates income and capital formation, and justifiespolicies that waste natural resources in the name of economicgrowth.”4° By expressing environmental losses in monetary terms,economic statistics - - touted by many governments as proof of theircompetence -- can be corrected to reflect environmentaldegradation. Presumably, this will provide strong incentives toimprove management as governments strive to maximize these neweconomic indicators. While technically difficult, the mostinnovative attempts to revise economic accounting include “thecosts of environmental degradation and resource depletion occurringoutside the country but related to consumption within the country”-- for example, when resources are imported “at a price below the39Phil±ppine Department of Environment and Natural Resources,The Philippine Natural Resources Accounting Project: ExecutiveSummary (Manila: Department of Environment and Natural Resources,1991), p.1.40Robert Repetto, Promoting Environmentally Sound EconomicProgress: What the North Can Do (Washington: World ResourcesInstitute, 1990),p.3.24costs of their sustainable exploitation.”4’ Ignoring theseoverseas environmental costs inflates the estimate of annualincreases in gross domestic product.C. Southern Export RestrictionsThe environmental impact of Southern restrictions on resourceexports is confusing and the empirical evidence ambiguous. Puttingaside the possibility of a complete break in South-North tradeties, there are three basic scenarios: no restrictions, a ban onunprocessed exports, and partial restrictions on unprocessedexports. Free market advocates argue that bans or partialrestrictions reduce competition and foreign demand, lower prices,entrench domestic political interests and contribute to over-exploitation of natural resources. A free market leads to economicgrowth and provides sufficient income for effective management. Atthe other extreme, many advocates of a ban on unprocessed exportsargue that free markets do not account for environmental and socialcosts and contribute to the South remaining underdeveloped anddependent on Northern markets and manufacturing. To add value andbreak this dependency, it is essential to promote trade inprocessed products. While temporary economic and environmentalsetbacks may occur, processing generates jobs, adds value,diversifies the economy, and creates incentives to sustain the41Roefie Hueting, Peter Bosch, and Bart de Boer, Methodologyfor the Calculation of Sustainable National Income (Switzerland:WWF International, 1992), p.5. The authors use the term‘environmental burden’ to measure the impact of consumption onoverseas resource depletion and environmental change.25resource in the long term. Recognizing the management problems ofa free market and of export bans, some analysts see partialrestrictions on unprocessed exports as the best of both worlds--keep some foreign demand and competition to maintain higher prices,yet still promote processing for economic development, moreemployment, and long-term management incentives.This theoretical debate seems unresolvable. There aremanagement benefits and drawbacks of free markets, exportrestrictions, and processing. It is common for environmentaliststo call for export bans on unprocessed resources to enhanceenvironmental protection. Undeniably, countries with unrestrictedresource exports have serious management problems. Yet, settingaside long-term economic considerations, it is also clear thateither full or partial Southern restrictions on unprocessed naturalresource exports and incentives to promote finished exports do notimmediately improve management. In short, whether processed, semi-processed or unprocessed resources are exported does not have adecisive impact on management. The quantity of exports, the exportand consumer prices, the source of the resource, and enforcement ofstate regulations are far more important.D. Northern Tariffs and Import RestrictionsNorthern tariffs can reduce timber consumption and raiseNorthern consumer prices. In theory, if Northern governmentstransferred tariff revenues to the South, or if special tariffswere imposed on timber from unsustainable concessions, then import26charges could promote sustainable management. But this has neveroccurred in practice. Instead, Northern tariffs -- which commonlyescalate with the degree of finishing -- have syphoned Southernrevenues, undermined local processors, and prevented Southerneconomies from diversifying. Instead of protecting Southernenvironments, Northern tariffs have contributed to over-exploitation and mismanagement.Unilateral Northern import bans and quotas can protectendangered species and quickly reduce consumption. In theory,import restrictions on resources produced from unsustainablesources and open markets for resources produced from sustainableareas could enhance management. But in practice, Northernimporters do not distinguish between the source of resources. Forthis reason, import barriers are crude instruments that easilymisfire. Without compensation, Northern import restrictions cancreate economic hardship in the South. These can lower Southernresource prices and decrease the economic value of resource stocks.As well, Northern import restrictions may only reduce consumptiontemporarily as new markets absorb the slack. In the case oftropical timber, a study for the ITTO concludes that there is aneed to “improve rather than restrict access to import markets fortropical timber products.” The report argues that “by adding valueto forestry operations, the trade in tropical timber products couldact as an incentive to sustainable production forest management--provided that the appropriate domestic forest management policies27and regulations are also implemented by producer countries.”42CONCLUS IONIn sum, a Northern ecological shadow takes the form of theresources drawn from the global eco-system. More precisely, forbilateral South-North interaction, it is the cumulativeenvironmental impact of aid, technology, corporations, and trade onthe management of a Southern resource. The intensity of shadowecologies and the relative impact of different components is shapedby Northern policies and practices, Southern responses (such asexport or investment restrictions), the value of the resource, andthe historical period. To date, South-North economic andecological interdependence has supported massive purchases ofSouthern resources from unsustainable sources and at prices thatignore environmental and social costs. This must change. Acomplete break is not a viable political or economic solution.Instead, careful manipulation of shadow ecologies is essential forsustainable resource management. Northern ODA, loans, technologytransfers, and corporate investment must focus on alleviatingenvironmental problems. Even more essential, corporations musteventually limit resource purchases to sustainable sources,consumer prices must rise high enough to slash wastefulconsumption, and sufficient revenue must be returned to the South42Edward B. Barbier et. al., “The Economic Linkages Between TheInternational Trade in Tropical Timber and The SustainableManagement of Tropical Forests,” Final Report. ITTO Activity PCM(XI)/4, 19 March 1993, p.iv and p.v.28to support sustainable management. Having outlined the broadtheoretical debate over the environmental implications of bilateralSouth-North interaction, I now turn to look specifically at Japan’sshadow ecology.29Chapter TwoJAPAN’S SHADOW ECOLOGYTo provide a foundation for understanding the impact ofJapan’s shadow ecology on timber management in Southeast Asia, Ioutline major features and criticisms of Japanese governmenteconomic assistance, corporate practices, and trade. Since shadowecologies can be moulded by policy, I highlight recent moves by thegovernment and trading companies to integrate environmentalconcerns. I argue that the 1993 Environment Law, the newenvironmental guidelines at the aid agencies, and the‘environmental aid’ program-- while contributing to incrementalincreases in funding, research, and technical assistance forenvironmental projects-- have conspicuous problems. TheEnvironment Law and ODA guidelines are vague, the procedures forenvironmental reviews are unclear and convoluted, and there are noenforcement mechanisms or penalties. Environmental aid ispartially a reclassification of traditional aid projects, such aswater and sewage systems, and does not increase environmentalfunding as much as it appears at first glance. Moreover, this aidis primarily inthe form of loans. Bureaucratic turf battles havealso undermined the effectiveness of environmental aid. TheMinistry of International Trade and Industry (MITI) has partiallyhijacked this aid program to justify and support corporateenvironmental technology exports. Meanwhile, the EnvironmentAgency has minimal input into the management and distribution of30this aid while the Forestry Agency has shown little interest. Inthis setting, only a small amount of environmental aid supportsforest conservation, reforestation, and improving tropical loggingtechniques.While government policies to improve the environmentalmanagement of overseas projects have clear defects, and thoughthere is a tendency to exaggerate accomplishments, the discrepancybetween public bluster and policy substance is even greater in thebusiness world. Intense criticism of overseas environmentalpractices ignited a public relations counter-attack by Japanesecorporations in the 1990s. This has translated into a few showcaseprojects and a flood of grandiose claims of a new environmentalawareness. Yet there is a wide gap between these claims andconcrete procedures, mechanisms, and flow of money.More perturbingly, government and corporate efforts to improveoverseas environmental policies focus on peripheral effects ofJapan’s shadow ecology. There are few genuine efforts to tacklethe key issues of ‘wasteful’ consumption, low purchase and consumerprices, or import barriers that deplete Southern state revenueessential for sustainable management. Although there are scatteredstatements that trade has significant environmental consequences,there are no comprehensive policies, or even consistent positions.These public statements appear designed to appease world anddomestic critics of overseas environmental practices. In private,most Japanese government and business leaders downplay the impactof trade, invariably diverting the conversation to the efforts to31improve ODA or the showcase projects of the major tradingcompanies.This chapter begins with essential background on Japanese aidand loans. It outlines basic problems with ODA, particularlyadministrative barriers to integrating environmental concerns. Ithen evaluate recent efforts to improve ODA and loans, includingthe environmental aid program, environmental guidelines andassessments, and the new Environment Law. I examine the roles ofMITI, the Foreign Ministry, the Finance Ministry, the EnvironmentAgency, the Forestry Agency and the ODA implementing agencies. Thesecond half provides background on corporate Japan and evaluatespost-1990 efforts to develop environmental guidelines.ENVIRONMENTAL IMPACT OF JAPANESE ODA AND GOVERNMENT LOANSJapan’s aid program began in the l950s as reparation paymentsto Southeast Asia. During the 1960s, it was designed to promoteJapanese exports; in the 1970s, particularly after the 1973 ciishock, aid became part of efforts to secure natural resources; inthe l980s, in addition to its economic role, aid emerged more as atool of foreign policy, as part of ‘comprehensive security.’1Today, in terms of quantity, Japan is an aid superpower,1Robert M. Orr, Jr. and Bruce M. Koppel, “A Donor ofConsequence: Japan as a Foreign Aid Power,” pp.2-3, in Bruce Koppeland Robert M. Orr Jr., eds., Japan’s Foreign Aid: Power and Policyin a New Era (Boulder: Westview Press, 1993). On changes toJapanese aid in the late l980s, see “Beware the helping hand,” TheEconomist, 15 July 1989, pp.12-14. For a succinct summary of theevolution of Japanese aid, see William L. Brooks and Robert M. Orr,Jr., “Japan’s Foreign Economic Assistance,” Asian Survey 25, no. 3(March 1985), pp.322-340.32H HiCtHi(DJIIHCDH ():ipJ‘dU)CDOiLiHç1U)H-HoDP’j-HHi0w‘-< or-IdCD(flIU)CI)H-tfl H pCDrI-tnH 0 1xjH°tI),rtII 00Hi0 c-txiH CD Ho HiH,0Cr0ot-HiIl(Qp.:iiiIxjCDH1:1H- NP)H0N-H HiiCI-CDPrto<1 CDCDI-CDHoH-Q10H-<HCDCr(ClIICDH-U)(2oCDoHjCl)Hr-4Cl)LxirU)0•.U)0•H-H-io0l1JH-H0r(Q::yCDHCDo00çi0CrU)-pi Cr H-ci) HCr1xjHPHqCDd0CDJLxiiiiiflrtCDFjH-U)—iiCD•11) II Cr H 0 H pi H H ii U) H pJ q uj ii CD U) CD 0 Li H ii H w pi (I) ci Cl) H H a-, H- H H H 0 ii=000CDCDiiiiH-H-PJHIiiiH0LMiH-H qP)t:;1rt:urt0d‘t5JHiiU)HCDIio1L1iI-hQQP)H-‘H-H1CD:pjU)Or-riiH-CDw0iiU)HPhCDQcoP’I—, HCri--CDCDOCDH-CDCl)H.H-HLQU)‘H-CDU)CD•oiiHi’• qq0P’IP’CDPJPJPiiiiHt1)U)ii CD HP’ çt 0 0 Hi0 II H 0 Ii 0 H CD p.) CD CD Li P.) H- H 0 ii H I- H LJ‘—‘-HiMiCtH-r’c-ICDH-PPiCD5II<IIH‘dH-CDH-CDLP30P3U)CD‘<HHCrU)CrH-CDiiCDH-P)OpCl)P3p3iiCrMi•.CrCDoWCrIiHH-H-H--C/2HiiiiCDH-CDHU)U)ICrHIH.!—Ik-P3CDHiP’HCDCrWCrH 0CDCDiiHr-gU)orrH-0 iiiiiiiiH-U)q(0CDU)H-0a-,r-tbUiciHoCDMi‘-<iiIILioCrCDMi<CD i(DrrCDl30CDCrCD00LiCrP3CriicrH-0H-jH-10H-HH-HiiiU)H-CDMiCDH-iiCDH-HMiH-p.IiP.)H-CrCDCr (DU)P3H-P3HIiHiHHuiiCrU)U)CD0HCDCDU)HH‘<CrHH-CDCDi-iiI-CDpjCDH-CDU)iiH-Cr0c-I-P.)P300P30IIII<hLiIiU)CrCDk<CDCDU)>ciCr0International Cooperation Agency (JICA), which started in 1962 asthe Overseas Technical Cooperation Agency to administer grants andtechnical assistance.6 The OECF is officially attached to the EPA,although it is strongly influenced by the Finance Ministry. InFY1992 OECF loans comprised around half of total Japanese ODA,(around 10 percent of world ODA); approximately 51.5 percent ofthis sum went to Southeast Asian countries.7 Annual OECFdevelopment financing is equivalent to “the lending of the AsianDevelopment Bank, the Inter-American Development Bank, and theAfrican Development Bank combined.”8 These loans have relativelyhigh interest rates and tend to fund large infrastructureprojects.9 JICA is controlled mainly by the Ministry of ForeignAffairs. However, MITI, or any ministry channelling its aid fundsthrough JICA, including the Ministry of Agriculture, Fisheries, andForestry, has influence over JICA projects.’°6For a description of JICA, see Robert M. Orr Jr., TheEmergence of Japan’s Foreign Aid Power (New York: ColumbiaUniversity Press, 1990), pp.47-SO, for the OECF, pp.45-47.7OECF, OECF Annual Report 1993 (Tokyo, OECF, 1993), p.3 andp.37. From 1961 to the end of March 1993, Indonesia, Thailand, thePhilippines, and Malaysia absorbed 40.9 percent of OECF loans.Ibid., p.37.8Richard Forrest and Yuta Harago, Japan’s Official DevelopmentAssistance (ODA) and Tropical Forests (Gland, Switzerland: WWFInternational, 1990), p.8.9Although officially in FY1990 31.5 percent of bilateral aidfunded infrastructure projects, Hiroshi Kanda claims it is actuallyaround half. Hiroshi Kanda, “A Big Lie: Japan’s ODA andEnvironmental Policy,” AMPO Japan-Asia quarterly Review 23, no. 3(1992), p.42.10For background on JICA activities, see JICA, For The FutureOf The Earth (Tokyo: JICA, 1992).34The Export-Import (EXIM) Bank of Japan provides project loans,and export, import, and investment credits to foreign governmentsand corporations and to Japanese businesses and trading companiesthat do not qualify for ODA loans.” It is officially under thecontrol of the Finance Ministry, although MITI has significantinput. In FY1992 the Bank made US$16.5 billion worth ofcommitments; at the end of the fiscal year, outstanding loansreached US$71.4 billion, the highest in the history of the Bank.’2The EXIM Bank is designed to “facilitate Japan’s economicinterchange with foreign countries through the provision of a widerange of financial services to supplement and encourage financingby commercial banks and other financial institutions in Japan.” Acentral priority is the “development and import into Japan ofnatural resources. 13Like other donors, Japan’s lending policies and decisionmaking process have general problems that contribute todifficulties in evaluating and incorporating environmental11The distinction between OECF aid loans and EXIM loans is inmany ways purely definitional-- a small change in OECD DevelopmentAssistance Committee (DAC) guidelines could easily eliminate alarge percentage of OECF ‘aid’ and swell EXIM ‘loans’. For thisreason EXIM loans-- though not officially part of ODA -- canlogically be considered alongside a discussion of governmentoverseas economic assistance. For a description of DAC guidelinesfor economic assistance qualifying as ODA, see Orr and Koppel, “ADonor of Consequence,” p.16, footnote 3.‘2EXIM Bank of Japan, The Export-Import Bank of Japan: AnnualReport 1993 (Tokyo: EXIM Bank, 1993), p.8.‘3EXIM Bank of Japan, Guide To The Export-Import Bank of Japan(Tokyo: EXIM Bank of Japan, February 1994), p.1.35 Vconcerns.’4 The greatest obstacles to improving ODA areadministrative fragmentation and an emphasis on increasing quantityover clear goals and policies.’5 Battles between MITI (fightingfor business interests), Finance (stressing fiscal responsibility),and Foreign Affairs (promoting foreign policy objectives) createadministrative paralysis, dilute policies, and foster ad hocsolutions.’6 There is also little coordination between JICA andthe OECF.’7 One OECF official claimed: “We get better cooperationwith USAID [U.S. Agency for International Development] than we dowith JICA.”8 Efforts to tackle environmental concerns are furtherweakened by already over-worked staff responsible for increasinglylarge aid budgets.19 There are also few staff with environmental‘4it should be emphasized that “few of the problems theJapanese development program faces are unique.” Alan S. Miller,and Curtis Moore, Japan And The Global Environment (Maryland:Center for Global Change, University of Maryland, 1991), p.20.‘5During interviews in 1994, environment-oriented aidbureaucrats at the OECF and JICA expressed frustration with theomnipresent administrative obstacles. For a critique of ODAadministration, see chapter three in Alan Rix, Japan’s Foreign AidChallenge: Policy reform and aid leadership (London: Routledge,1993); for aid policy, see chapter four.‘6The weakest central actor - the EPA- generally remainsneutral or sides with the Finance Ministry. Orr and Koppel, “ADonor of Consequence,” p.6. The role of these actors is discussedby Toru Yanagihara and Anne Emig, “An Overview of Japan’s ForeignAid,” in Islam, ed., Yen For Development, pp.53-58.‘7interview, Forestry consultant, Japan Overseas ForestryConsultants Association (JOFCA) and USAID, 3 February 1994.‘8Quoted in Orr, The Emergence of Japan’s Foreign Aid Power,p.50.‘9”In 1990 each ODA administrator in Japan was responsible foran average of US$6.35 million in funds -- far more than aid staffin any other nation.” Richard Forrest, “Japanese Aid and the36whJLzJPJJLxlLxiCD(Dcl<ftPiftHCDH-1UhhH-HM)OHC)fti-iH-C(DH-HC(DWMCl)WLC)CDMft(DftCDCDt1Cj)•.Cl)CDH’dHZJftWoM‘D1jH--f’H-piCCDcSQLjCD‘d )xjJCDCH1QCD‘HMCMWPcP-MpM(DCCDMW1i’ ftH;tl-k<H-qP).PP3 H JHP‘rt()1JrFWCCDIftMCD-.Cl)-(DH-CDri-HWcmL’i.0-.HWH-H-pj(.QCp.-°H-qCl)°iCDHft..C)j ftijQW.MO2H-CDHW,HiftjCDMi’<HCMHiCD‘‘1FxjCDH—1H-PJQHMftftxjp.p.CD)QH H-ACC(DCDMiMP)WWCCDCDCDftCDMrJ C ii CD C)) (t q CD (1) CD H p. pi p. (t CD Lxi H ii C CD ftLxidCJui‘‘tiCl)Hft(I)C)I-CL)MCCC)I-PiCCCCDCDCC<<CHft<MC)H-MPJIIC)ftH-bH-Cl)H-ftC<ftftPiH-C39)CDIIHC)H-I-’H-9)U)Cftft‘1CCl)H-p.H-CCWCp.p.IICDftH(ClCl)9)ftCDftCl)CDH-H3Cl)Cl)9)U)ftp.CDMiftCDH-bC)HCDH9)C)qP.sU]HiCDftH-CMiCi)H‘dCpiCD0IIpoCDft‘ftH-Hl)H-9)LxiU)p.‘<9)H-p.CDCl)CDCHCDH-IIH-C)H-•CDCLCDCDU)MCDCDCDCIIp.CDCDCDIC9)CDp.C)‘-“U)C9)H-<C)ftç-t9)CDC)Cl)CDCCIIqH-j-‘1p.I-<iiC1W‘.<‘dHiH-Hp.MIftCD[1PCD9)CCDCDU)Ct’30.pCDCDp.HCDCHiHiH-MiHC)H-Cl)CU)ftCDMiH<C‘xjCl)CDHMftCDHH-—9)H-iiCl)Cp.C)qftMCMftMiU)HiC.QMiCDH-9)CDC9)9)CDCftft9)Hft‘<CDU)QCDCDft—çIiP.sHiHCDCDC)CD‘ZSftCDCDMH-MiH-CDCDqbCD9)pMU)C3CDHH-HU)•CHU)ft(.C)H=HCDC--CC)H-CDr’H-CDCiPHftpiCftCDftC)CMCD<Cl)p5HiHCi)(tWH-ftp.Mip.HCl)CD—9)CHCl)CMCDCDH.sCDftftCC)Cl)HCDCDH•-Cl)-)CDIftCDCC)CDCD‘dCDCcMCi)CD9)CDHMCD3HftH-CIIH-HH-Ct’JCDCDHCDMgcPCDHH-<CDCl)ftCDçuU)CDp.MftftC)qCl)9)CCDU)CL)‘<Cl)CDH:ig9)H-U)H-ftq(_)HH-H-U)HCl)MiCDH-L’CDC)CH-CDp.Mig‘1‘dCHU)MCHCDHCCDC)CDHiH-C9)iiCHiCl)9)CU)Y‘r9)CD-CDCD(0H-i-ftH.HMCDU)U)ftC)H-9)9)CC9)ft09)9)HftH-IIC9)CD9)Ci)3‘1Hp.CD‘1II‘1HftU)CCDCDp.p.‘<CDCDp.ftCD:iU)half of all ODA, more than any other country. With the rapidappreciation of the yen over the last 20 years, these loans haveoften been costly, and have contributed to pressures on Southerngovernments, especially in Asia, to exploit natural resources toservice their debts. In addition to the stress on lending, criticshave pointed to poor pre-and-post-project evaluations,25 corruptionand incompetence, inappropriate technology transfers,26 thedrawbacks of a ‘request-based’ system,27 aid tied to corporateinterests,28 an emphasis on large-scale development schemes overcommunity based projects, and a lack of cooperation with NGO5.29Analysts have been especially critical of the impact of aid ontropical forests.240rr and Koppel, “A Donor of Consequence,” p.3.25Forrest, “Japanese Aid and the Environment,” pp.29-30.26JICA technology transfers are often far too advanced. Twofactors make this difficult to overcome: Japanese technicians aremore comfortable with advanced equipment; and developing countriesoften insist on the most advanced equipment. Interview, Office ofOverseas Environmental Cooperation, Environment Agency, Tokyo, 5April 1994.270rr and Koppel argue that ‘request based’ aid has “leftJapanese firms open to charges of manipulating requests moreconducive to corporate rather than recipient interests.” Orr andKoppel, “A Donor of Consequence,” p.9. As well, it “falls prey tothe desires of ruling elites in developing countries who requestlarge-scale, ultramodern ‘showcase’ projects often irrelevant tothe greatest needs of the people.” Forrest and Harago, Japan’sOfficial Development Assistance, p.12.28See Forrest, “Japanese Aid and the Environment,” pp.26-27.29For a general critique, see Mera Koichi, “Problems in the AidProgram,” Japan Echo 16, no. 1 (1989), pp.13-18, an abridgedtranslation of “ODA wa ‘senshinkoku kurabu no sankahi’ de wa nai,”Economic Today (Summer 1988), pp.88-97.38In recent years, as attitudes change and world and domesticscrutiny intensifies, the Japanese government has tried to tacklesome of the problems with its ODA. Although serious weaknessesremain, incremental changes are occurring. According to Alan Rix,although, “reform and innovation in policy have not moved as fastas changes to public presentation of policy” there are micro-leveladjustments “in the management and operation of aid f lows.”30 Inaddition, there has been some movement toward greater transparency,more involvement of NGOs,3’ larger grants, more attention to basichuman needs, and less overtly tied aid.32 JICA now accepts theneed for ‘institution building’, ‘participatory development’, andmore careful allocation of grants to avoid past problems ofbuilding facilities that remain empty, or sending equipment that isnever used.33 The Japanese government has also developed anenvironmental aid program, and environmental guidelines anddepartments at JICA, the OECF, and the EXIM Bank.30Rix, Japan’s Foreign Aid, p.190 and p.8. He examines thesechanges throughout his book.31While funding for NGOs has increased slightly, compared tothe overall aid budget, it is still “minuscule”. David Potter,“Assessing Japan’s Environmental Aid Policy,” Pacific Affairs 67(Summer 1994), p.203.32Although officially much of Japanese aid has been untied,informal ties to business are still widespread, especially to yenloans. Orr and Koppel, “A Donor of Consequence,” p.10; and Koichi,“Problems in the Aid Program,” p.14.33lnterview, Senior JICA official, Tokyo, 12 April 1994.39ENVIRONMENTAL AIDAmong ODA donors, there is no consistent definition ofenvironmental assistance. The Japanese Foreign Ministry defines itas “assistance conducive to the resolution of environmentalproblems” including “the improvement of the living environment,forestry conservation and afforestation, disaster reduction,pollution control, the conservation of the natural environment(including the conservation of biological diversity) and theprotection of the ozone layer.”34 In 1989, Japan announced anenvironmental aid target of 300 billion yen over the next threeyears. To encourage requests for this aid, teams from JICA, theOECF, Foreign Affairs, MITI, the Forestry Agency, and theEnvironment Agency went on environmental missions, including one toSoutheast Asia.35 This environmental aid target was exceeded bymore than 100 billion yen. For FY1992, 16.9 percent of total ODAwas defined as environmental aid.36 Not all of this totalrepresents ‘new’ funds for environmental protection. Environmentalaid has been partially derived by reclassifying “infrastructuredevelopment” or “irrigation and flood control” to ‘environmental34Japanese Ministry of Foreign Affairs, Japan’s ODA 1993,p.175. Japan’s environmental aid policy-- based on declarationsat the 1989 Paris Summit and the 1991 London Summit -- is outlinedin Ibid., pp.l76-19l.35Forrest and Harago, Japan’s Official Development Assistance,p.13.36Japanese Ministry of Foreign Affairs, Japan’s ODA 1993, Table11-22, p.180.40projects’ So far around half of environmental aid has fundedimprovements to urban water and sewage systems.38 As a result,about 70 percent of this aid has been in the form of loans.39Environmental concerns gained momentum in Japan during 1992.An Economic Council advisory subcommittee to the Prime Ministercalled for better ODA guidelines to promote environmentalconservation.40 In June, Cabinet approved an ODA Charter; thefirst Principle declares that “environmental conservation anddevelopment should be pursued in tandem. ,,41 At the UN Conferenceon Environment and Development, Japan promised 900 to 1000 billionyen of environmental aid over the next five years, the largest byany country.42 In early 1993, the Japanese government announced itwould expand environmental aid to the ASEAN countries.43 InNovember 1993, the Japanese Diet passed the New Basic Law on the37Potter, “Assessing Japan’s,” p.206. Also, Interview, Friendsof the Earth, Tokyo, 25 May 1994.38Louise do Rosario, “Green at the edges,” FEER, 12 March 1992,p.39.39Japanese Ministry of Foreign Affairs, Japan’s ODA 1993,p.178. Considering the links between Southern debt andenvironmental problems, it is debatable whether any loan should belabelled ‘environmental aid’.40”ODA should be used to guard the environment, panel says,”The Japan Times, 27 May 1992, p.7.41OECF, OECF Annual Report 1993, p.18.42Shigeaki Fujisaki, “Environmental Issues in DevelopingCountries and the Role of ODA,” Japan Review of InternationalAffairs 7, no. 1 (Winter 1993) , p.75.43Asahi Shimbun, 17 January 1993, in Potter, “AssessingJapan’s,” p.201.41Environment. The law explicitly addresses environmental links toODA. Section one, article 35, reads:The State, in implementing international cooperation,shall make efforts to consider global environmentalconservation etc. in the areas where its internationalcooperation is implemented.BATTLES OVER ENVIRONMENTAL AIDTypical of Japan’s ODA administration, as funding and interesthave risen, “‘green’ aid has become the subject of intensecompetition among various ministries involved in foreignassistance.”45 In a struggle over environmental turf, ForeignAffairs and MITI have become strong supporters of environmentalaid. The Foreign Ministry allocated 4 billion yen in FY1992 tofinance international organizations involved in environmentalprograms. As noted earlier, however, the bulk of the Ministry’sinfluence is through JICA.MITI has aggressively staked out an environmental mandate.MITI’s Environmental Policy Division emphasizes technologicalsolutions and corporate technology exports to tackle globalwarming, and promote energy conservation and alternative energyGovernment of Japan, The Basic Environment Law, Law No. 91,1993, effective 19 November 1993. For an overview of the new law,see Hidefumi Imura, “Japan’s Environmental Balancing Act:Accommodating Sustained Development,” Asian Survey 34, no. 4 (April1994), pp.355-368.45Louise do Rosario, “Green at the edges,” FEER, 12 March 1992,p.39.42sources.46 ‘New Earth 21’, a MITI backed proposal to theinternational community, calls for the development and “world-widediffusion of environmentally sound technologies.”47 Specific MITIprojects all aim at a technological fix for global environmentalproblems. The International Centre For Environmental TechnologyTransfer (ICETT) -- a non-profit organization under MITIjurisdiction and with local government, academic and industryparticipation -- was established in 1991 to transfer Japanesepollution technology to developing countries.48 In the same year,MITI announced its Green Aid Plan. In FY1992, Green Aid providedaround 2.7 billion yen to support technological efforts to reducewater and air pollution, and improve waste treatment, recycling,and energy conservation in the South.49 The Research Institute ofInnovative Technology for the Earth (RITE) -- a foundationadministered by MITI -- supports a joint industry, academic, andgovernment research facility completed in 1993 to studyenvironmental technologies, particularly for energy conservationand global warming.50 In 1993, MITI and the Agency of Industrial46lnterview, MITI official, Environmental Policy Division,Tokyo, 27 April 1994.47M1T1, “The New Earth 21,” internal document, supplied by aMITI official, April 1994.48ICETT (Yokkaichi, Japan: International Centre ForEnvironmental Technology Transfer, June 1993).49M1T1, “Green Aid Plan,” internal document, supplied by a MITIofficial, April 1994.50For background, see RITE (Tokyo: Research Institute ofInnovative Technology for the Earth, March 1992).43Science and Technology amalgamated three existing projects, formingthe New Sunshine Program “to develop innovative technology tocreate sustainable growth while solving energy and environmentalissues. 1151The Environment Agency -- historically a weak player inongoing bureaucratic struggles, especially over ODA -- has hadlittle input into overseas issues. There are some signs this maybe changing.52 Despite having no official mandate to imposeoverseas environmental guidelines or control environmental aid, theEnvironment Agency established a Global Environment division in1990. This division tries to encourage overseas Japanese companiesto consider environmental factors; it is also directly involved insome JICA projects.53 In addition, as part of global efforts toreevaluate economic accounting, Environment Agency researchers aretrying to measure in monetary terms the effects of “economicactivities on foreign countries and the global environment,and. . . the impacts of global environmental change on domestic51MrrI, and the Agency of Industrial Science and Technology.New Sunshine Program (Tokyo: New Sunshine Program PromotionHeadquarters, 1993), p.4.52These signs must be examined warily since, for favourablepublicity, it is sometimes useful for the more powerful ministriesto make it look like the Environment Agency is involved indecisions, perhaps even at the helm. Interview, Friends of theEarth, Tokyo, 25 May 1994.53lnterview, Office of Overseas Environmental Cooperation,Environment Agency, Tokyo, 5 April 1994.44economic activity.”54 Another possible sign of growing influenceis the 36 percent increase in the Environment Agency’s aid budgetin FY1991,55 though it is still one of the smallest. Perhaps moresignificantly, Environment Agency officials claim that, despitebeing quite critical of ODA environmental reviews, informalinfluence is beginning to develop. There is also a possibility theNew Basic Environment Law will reinforce, perhaps even promote,Environment Agency input.56 Not all trends, however, solidify thegrowing influence of the Environment Agency. As the environmentalspark ignited by the 1992 UNCED Conference fades, momentum has beenlost in the Japanese Diet to make the Environment Agency a fullministry. More importantly, funding and personnel are still toolimited for consistent influence.57The Forestry Agency is quite conservative and has been lesseager to dive into the fray for environmental aid.58 In 1990 the54Tsuneyuki Morita, “Environmental and Natural ResourceAccounting in Japan,” CIDIE Workshop on Environmental and NaturalResource Accounting, UNEP Headquarters, Nairobi, 1992, p.2. TheEconomic Planning Agency and the Ministry of Agriculture, Forestryand Fisheries are also studying resource accounting. Ibid., p.1.55Rix, Japan’s Foreign Aid, p.125.56lnterview with one of the drafters of the New BasicEnvironment Law, Environment Agency, Global Environment Department,Tokyo, 9 June 1994. Also see ICunitoshi Sakurai, “Japan’s NewGovernment and Official Development Assistance,” INTEP Newsletter,no. 3 (October, 1993), p.157Based on several interviews, Global Environment Department,Environment Agency, Tokyo, 9 June 1994.58According to one source, it is a defensive, inflexible Agencylinked closely to the major trading companies. Interview, Friendsof the Earth, Tokyo, 25 May 1994.45Agency published a position paper on tropical forests calling forlarge-scale tree plantations, more cooperation with NGOs, andtimber purchases from sustainable sources.59 Strangely,considering these kinds of reports tend to be full of fluff, itdoes not emphasize protecting biodiversity and primary forests orseriously consider the implications of tropical timber consumption.Instead, it advocates exporting Japanese forestry expertise,stimulating consumption, and expanding trade in timber.6°THE OECF, THE EXIM B2NK, JICA, AND THE ENVIRONMENTThe OECF, JICA, and the EXIM Bank have all developedenvironmental departments and guidelines since the late 1980s. TheOECF now has “an environment advisor, an Environment Committee anda senior manager in charge of environmental problems.”61 In 1989,the OECF established environmental guidelines to encourageenvironmentally sound Southern loan requests, and provide the OECFwith criteria to evaluate applications.62 Generally, before anofficial request is made, a Japanese fact finding mission is sentto evaluate the feasibility of Southern proposals. At this stage,59While these are all positive proposals (although plantationsmust be managed with great care), as we will see in later chapters,the Forestry Agency has not actively pursued these goals.60My summary is based on Forrest and Harago, Japan’s OfficialDevelopment Assistance, pp.10-11.61Rix, Japan’s Foreign Aid, p.125.62lnterview, OECF Environment and Social Development Division,Tokyo, 11 April 1994. Also see OECF, OECF Environmental Guidelines(Tokyo: OECF, 1989). For a review of OECF environmental projects,see OECF, OECF and The Environment (Tokyo: OECF, 1993).46based on a check list, OECF officials apparently encourageprospective borrowers to consider environmental factors. Accordingto an OECF official, as a result of this process, actual loanapplications are rarely rejected for environmental reasons.63OECF environmental guidelines could certainly be strengthened.Forrest argues that these guidelines “seem to be no more than avague menu of items which should be considered, rather thanconditions required to ensure environmental damage will not resultbefore OECF provides funding.”TM Rix notes that the “environmentis just one aspect of OECF appraisal of projects, and no strictimpact statement is required.”65 Indicative of the weakenvironmental review process is one of the six main items forassessing applications, the lame question: “Is there sufficientenvironmental consideration in the project?”66 Also indicative isthe lack of any revision to the original guidelines, despite themollifying, and now somewhat embarrassing note in the preface ofthe 1989 OECF Environmental Guidelines: “This is a first version,63lnterview, OECF official, Tokyo, 11 April 1994. There arecases of the OECF suspending a project after severe criticism byenvironmentalists and NGOs, although these suspensions were notbased on violations of OECF environmental guidelines. Examplesinclude the Sardar Sardovar dam project in India (1990), theMindanao geo-thermal power project in the Philippines (1991), andthe US$80 million loan for the Calaca II power plant in Luzon(1992). Potter, “Assessing Japan’s,” p.202.64Forrest and Harago, Japan’s Official Development Assistance,P.S.65Rix, Japan’s Foreign Aid, pp.125-6 Evaluated fromOperational Guidance on OECF Loans, March, 1991, Tokyo, p.19.66Quoted in Rix, Japan’s Foreign Aid, p.126.47and we plan to make such improvements as prove necessary, with aview to making them more comprehensive and effective.”67The EXIM Bank first developed environmental guidelines in1989; these were updated and made more stringent in late 1991.Little is known about these guidelines. They are confidential;even the Ministry of Finance has not seen a copy.68 In theory, theBank as a whole reviews environmental guidelines. In each loandepartment there is a senior official responsible for assessingenvironmental aspects. However, for many applications -- such asimporting aircraft technology -- there is no environmentalassessment since the proposal is not deemed to have anyenvironmental implications. Though rare, if an application hasobvious environmental problems it is rejected.69 When anapplication has unclear environmental implications, it is referredto the Environmental Affairs Section.From April 1993 to April 1994, the Environmental AffairsSection reviewed about a dozen applications, one relating to67As of April 1994, no revisions had been published.68lnterview, Senior official, Environment Section, EXIM Bank,Tokyo, 11 April 1994. The Ministry of Finance has shown littleinterest in environmental issues. According to one source,officials are “arrogant and authoritarian” and unlike the otherministries, there is not even a superficial attempt to bother withpublic relations. Interview, Friends of the Earth, Tokyo, 25 May1994.69Revealingly, I was unable to obtain statistics on the numberof applications rejected at this stage. Though unverifiable, anEXIM official claimed that loan applications are almost neverturned down since, if Bank officials consider the projectenvironmentally unsound, the loan is quietly, informally rejected;the applicant then formally withdraws the request to save face.48logging in Sarawak. None of these was rejected. Instead,conditions were set. According to a Bank official in theEnvironment Section, if these conditions are violated, then theBank can force early repayment of the loan. In addition, there isan informal understanding that it would be difficult to receivefuture loans.70 Besides these apparent environmental checks, theBank claims that it now lends more money to improve environmentalmanagement. But without access to confidential Bank records, it isimpossible to assess comprehensively the environmental guidelines,the review process, or the environmental loans. Secret rules, weakpenalties, vague lines of accountability, and few, if any, examplesof applications rejected for environmental reasons all suggest theBank’s environmental record has serious shortcomings. Anintuitive, precursory assessment is that the Bank is more concernedwith avoiding environmental scandals and public embarrassment thanwith genuine reviews of loan applications.7’While OECF and EXIM Bank environmental guidelines appearlargely cosmetic, more concrete, though incremental changes haveoccurred at JICA. In 1989, JICA established an Environment Sectionof the Planning Department. Based on OECD Development AssistanceCommittee recommendations, in 1990 JICA introduced environmental70lnterview, Senior official, Environment Section, EXIM Bank,Tokyo, 11 April 1994.7’One indication is the rationale for reviewing the loggingproject in Sarawak. A central concern was the publicity andscrutiny given to logging in Sarawak, not specific problems withthe loan proposal. Interview, Senior official, EnvironmentSection, EXIM Bank, Tokyo, 11 April 1994.49guidelines for development initiatives including dams, agriculturalestates, and forestry projects. Since then JICA has tried toincorporate more environmental factors into grants and technicalassistance; conserving primary tropical forests and rehabilitatingsecondary forests have apparently been a major focus of theseefforts.72 In FY1992, 17.4 billion yen, or 13.5 percent of totalJICA expenditures, went to the environmental sector, up from 8.1billion yen in 1988. These funds trained 722 people in Japan, sent129 experts overseas, and supported 67 development studies and 47technical cooperation projects. In the same year, environmentalspecialists reviewed 108 projects.73Despite more support for environmental projects, and plausibleattempts to incorporate environmental factors into decision making,there are serious problems with implementing environmentalguidelines. The Environment Section, along with a regionaldivision of the Planning Department, determine whether a projectrequires an environmental Impact Assessment (EIA). If necessary,one of JICA’s sector-based departments -- such as forestry -- thenidentifies the scope of the assessment. The actual EIA is handledby a team of private consultants and JICA officials who often havelittle experience with environmental or tropical forestrymanagement. The environmental guidelines are “non-bindingreference materials,” and are optional at all stages of the72lnterview, Senior JICA official, Tokyo, 12 April 1994.73Hiroshi Enomoto, JICA, Division of the Environment,“Environmental Cooperation and The Japan International CooperationAgency,” INTEP Newsletter, no. 4 (February 1994), pp.6-7.50process. Details on specific projects are confidential and thereis no post-project evaluation of environmental changes.Furthermore, environmental reviews do not consider alternatives tothe proposed project and give little consideration to indirectsocial and environmental implications.74 Specific problems withJICA’s environmental guidelines and procedures are exacerbated bythe fragmented ODA administration. The OECF and JICA have notconsolidated environmental guidelines and do not coordinateenvironmental reviews. As a result, standards may change as aproject progresses.75 This problem is unlikely to be resolvedsoon. Environmental guidelines and aid plans vary acrossministries, and despite the new Environmental Law, there is littlechance of developing a unified environmental aid policy.Problems with environmental planning at JICA and superficialchanges at the OECF and EXIM Bank lead Hiroshi Kanda to panenvironmental aid. He argues “there is no remarkable differencebetween ‘Environment ODA’ and ‘regular ODA.’ They both tend tosupport Japanese industry and Japanese economic aims.”76 Thisseems too harsh. It would be naive to assume the new rhetoricequals improved practices; but it is equally facile to assume thesenew policies have no practical effects. Environmental aid, policychanges at MITI and Foreign Affairs, and decisions by JICA, thesummary of Forrest and Harago, Japan’s Official DevelopmentAssistance, pp.6-7.75Potter, “Assessing Japan’s,” p.2O8.76ICanda, “A Big Lie,” p.45.51OECF, and the EXIM Bank to create environmental committees andsections, and to revise guidelines, indicate, at a minimum, arecognition of a need to be more sensitive to environmentalconcerns, at least in public statements. Evaluating the extent ofconcrete changes-- rather than paper ones -- is far from easy. Aswill be seen in later chapters, there have been marginalimprovements to Japanese forestry aid and loan projects inSoutheast Asia, although these changes are certainly far behind thepolicy rhetoric. The gap between glossy policy declarations andsubstantive procedural changes is even greater f or Japanesecorporations.ENVIRONMENTAL IMPACT OF JAPANESE CORPORATIONSTogether Japanese government and corporate financial flows tothe South are the largest in the world. In 1987, Japanese privateinvestment, commercial loans, and official aid amounted to US$22.5billion, a quarter of all Northern financing in the South.77 Thedistinction between the environmental impact of government andprivate economic activity is rather artificial, especially in Japanwhere there are close personal links between bureaucratic,political and business elites. Like other Northern donors,Japanese aid is tied closely to corporate investment and trade.78One structural reason is the custom of senior aid officials77Forrest, “Japanese Aid and the Environment,” p.24.78This is a key theme of the articles in Koppel and Orr, eds.Japan’s Foreign Aid.52retiring “to lead aid consulting associations and companies workingto gain ODA contracts.”79 In the cases of the Philippines,Indonesia and Malaysia, ODA has “lowered the cost” of Japanesecorporate investment “by providing essential infrastructure forhost economies.”8° Strategically allocated ODA has contributed toSoutheast Asia being a crucial zone of investment, led by gianttrading companies.The label ‘trading company’ (sogo shosha) is somewhatmisleading. For the ‘big six’ -- Itochu, Mitsui, Marubeni,Sumitomo, Mitsubishi, and Nissho Iwai-- trade is only a portion oftheir activities.8’ These are complex conglomerates and all meet“the criteria set by international specialist literature formultinational or transnational concerns.”82 In many cases, atrading company is the ‘core’ or the ‘command centre’ of a powerfulindustrial group. These “spiders at the centre of Japan’s globaleconomic web. . .are intermediaries for about half the country’s79Forrest, “Japanese Aid and the Environment,” p.26.80Wendy Dobson, Japan in East Asia: Trading and InvestmentStrategies (Singapore: Institute of Southeast Asian Studies, 1993),p.67.811n terms of sales, these were the six largest companies inAsia in 1993. “The Asiaweek 1000,” Asiaweek, 23 November 1994,p.50. For recent background on these corporations, see SamJameson, “Trading Companies Power Tokyo’s Economic Expansion,”Daily Yomiuri (Los Angeles Times World Report), 11 June 1994, p.8A.82Max Eli, translation by Michael Capone, Tristam CarringtonWindo, and Charles Foot, Japan Inc.: Global strategies of Japanesetrading corporations (London: McGraw-Hill Book Company, 1990),p.103.53exports and two-thirds of its imports.”83 These companies haveimpressive con-irnunication and information systems at theirdisposal. They have sales and procurement networks invirtually every country in the world and they organizethird-country trade. [They] also play an important rolein exploiting raw material resources in other countries.They control large segments of national distribution,operate banks and lending institutions, develop newtechnologies and create new industrial sectors.84Trading companies perform vital functions. They purchase anddistribute almost every imaginable good, provide information (insome cases ‘better than the CIA’), act as ‘quasi banks’, invest injoint ventures, and transport and market raw materials.85 ForJapanese business empires, trading companies provide stableresource stocks, and sometimes take short-term losses to helpabsorb fluctuations in currency exchanges and resource supplies.This does not translate, however, into stable Southern prices sincetrading companies “themselves provoke speculative moves ininternational commodity markets, which they later smooth down inJapan.”86 According to L. B. Krause and S. Sekiguchi, tradingcompanies “follow-the-leader.” “If one company, thinking a productis in short supply, makes anticipatory purchases, the others willfollow suit, causing an excess of quantity requirements, rapidescalation in prices, and market instability; ultimately, the83”Japanese trading companies: the web rips,” The Economist, 8August 1992, p.68.Max, Japan Inc., p.103.85Ibid., pp.107-113.86Francois Nectoux, and Yoichi Kuroda, Timber From The SouthSeas: An Analysis of Japan’s Tropical Environmental Impact (Gland,Switzerland: World Wildlife Fund International, 1990), p.64.54excess must be sold back into the market, causing a collapse inprice. “Trading companies and their subsidiaries extract, transport,import, distribute, process, and market Southern natural resources.They provide money and technology to start projects, and a stablebuyer to support rapid extraction. As part of a wider corporatestrategy, these companies emphasize a steady flow of hugequantities at low profit margins. According to Francois Nectouxand Yoichi Kuroda, as a result, “rather than concentrating on long-term -- or even short-term-- returns of high value products,[trading companies] are often prepared to use the ‘grab it and run’strategy. ,,88 Understandably, these economic powerhouses createdeep environmental reverberations.Besides a few showcase projects, multinational corporationsaround the world have shown little practical interest in supportingor funding environmental conservation.89 Japanese companies are noexception, focusing instead on exporting environmental technologydeveloped to tackle pervasive pollution in the early 1970s.° MITI87L. B. Krause and S. Sekiguchi, “Japan in the World Economy,”in H. Patrick and H. Rosovsky, eds., Asia New Giant; How theJapanese Economy Works (Washington: The Brookings Institute, 1976),quoted in Nectoux and Kuroda, Timber From The South, p.64.88Nectoux and Kuroda, Timber, p.64.89Choucri, “Multinational Corporations,” p.212.90For a discussion of Japanese government policies and businessefforts to tackle industrial pollution in the 1970s, see PeterDauvergne, “Japanese Domestic Environmental Policy Making: AnExamination of the Role of the Liberal Democratic Party.” M.A.Research Essay, Ottawa, Carleton University, Department ofPolitical Science, 1991.55predicts overseas environmental protection will become a lucrativebusiness and vigorously backs these corporate efforts. While thereis strong government support for environmental technology exports,there is little, if any, pressure on Japanese companies to monitorthe environmental effects of general technology transfers.MITI, Keidanren (Federation of Economic Organizations), andthe most powerful companies have become increasingly worried aboutJapan’s corporate image as environmentalists and NGOs depictJapanese companies as ‘eco-outlaws.’ To counter mounting criticismof corporate environmental practices, the Japanese government,Keidanren, and the trading companies have launched a major campaignto ‘green’ corporate Japan.GREENING CORPORATE JAPANAs environmental criticism mounted in the 1980s and earlyl990s, Keidanren and key trading companies counter-attacked,creating new environmental sections, guidelines, conservationprojects, and public relations brochures. In late 1990, Keidanrenorganized a ‘1% Club’, and requested member firms and individualsto donate “one percent of their annual income to support sociallybeneficial activities.”9’ In 1991, Keidanren proclaimed a GlobalEnvironmental Charter. A year later, a Keidanren poii claimed that70 percent of companies “had already used the charter to strengthen91Yoichi Nakamura, “The Ecobusiness Logic,” MPO Japan-AsiaQuarterly Review 23, no. 3 (1992), p.56. Also see Tomoya Inyaku,“A Step Forward? Debt-for-Nature Swaps,” ANPO Japan-Asia QuarterlyReview 23, no. 3 (1992), pp.48.56their ability to tackle environmental issues.”92 However, even ifthis optimistic claim is accepted, the Charter has clearweaknesses, making its ability to ‘strengthen’ anything debatable.While it contains commendable principles, the wording is oftenvague and irresolute.93 More importantly, there is no specificenforcement mechanism. According to a Keidanren official, theguidelines are designed to encourage companies to consider overseasenvironmental factors; while compliance is ‘expected’, it is notmandatory, and leeway is provided.94 In 1994, Keidanren reiteratedits environmental stance, calling on Japanese companies “to work toprotect the global environment” as part of “corporateresponsibility. However, despite these lofty principles,without any means to monitor and enforce regulations, many Japaneseobservers see the Charter as little more than a public relationsploy.9692Keidanren, Towards Preservation of the Global Environment,Tentative Translation (Tokyo: Keidanren, 27 May 1992), p.1. MITIhas also encouraged businesses to “formulate voluntary plans on theenvironment.” MITI, “Voluntary Plans for the Environment,” 12October 1992, internal document, supplied by a MITI official, April1994, p.2.93See Keidanren, Keidanren Global Environment Charter (Tokyo:Keidanren, April 1991).94lnterview, Global Environment Department, Keidanren, Tokyo,7 April 1994.95Keidanren, “Keidanren Policy and Activities for 1994,”Internal document. Tentative Translation (Tokyo: Keidanren, 4January 1994), p.3.96Many Japanese academics, NGO representatives, and evengovernment insiders are quite critical of the Charter. Interviews,Tokyo, April to July 1994. Besides developing the Charter in 1992,Keidanren also established the Nature Conservation Fund to finance57Since the early 1990s, Japan’s six largest trading companieshave established environmental sections. These are remarkablysimilar and cooperate closely, perhaps to increase communicationand maximize resources, perhaps, more cynically, to minimizecompetition and avoid a costly race to be the most ‘environmentallyfriendly’. Mitsubishi’s Environmental Affairs Department istypical. According to a spokesman, it has three aims: to raise theenvironmental consciousness of employees; to contribute toenvironmental projects in developing countries; and to shareJapanese knowledge and experience of environmental protection whilebeing careful to sell appropriate technology.97 All of theenvironmental departments have developed environmental guidelines,though like the Keidanren Charter there is far more flowerylanguage than concrete procedures.98 Besides these guidelines, thelargest trading companies have modestly increased funding forenvironmental projects in the South and for research in Japaneseuniversities. Some trading companies have also institutedenvironmental reviews. For example, at Itochu the GlobalEnvironment Department evaluates a proposal when there is concernnature conservation projects, particularly in tropical rainforests. Though commendable, the amount distributed is stillrelatively small. In its first year, the Fund supplied 100 millionyen to projects in Palau, Sulawesi, Tanzania, Ecuador and Vietnam.Keidanren, “Keidanren Nature Conservation Fund Makes First Pledgeto Conservation Projects,” internal document (Tokyo: Keidanren,undated, acquired by the author April 1994).This Department was created in 1990. Interview, MitsubishiCorporation, Environmental Affairs Department, Tokyo, 5 April 1994.98For example, see Marubeni, “Guidelines on GlobalEnvironmental Issues,” internal document (Tokyo: Marubeni, 1991)58it may harm the environment. However, the process and criteria arevague and there is no reliable evidence that proposals are everrejected on environmental grounds.99 Starting in FY1994, Marubeniplans to conduct an annual review of the environmental impact ofits business activities,100 although like Itochu, the criteria andprocess are opaque.A vital function of the new environment departments is toimprove corporate images. According to corporate representatives,Japan’s wealth, powerful public relations sections of Western M[\TCs,the tendency among the international community to avoid criticizingdeveloping states, and a Japanese cultural proclivity to acceptcriticism have all contributed to an unbalanced, simplistic, eveninaccurate picture of the environmental record of Japanesecorporations)0’ One example is a 1993 New York Timesadvertisement by the Rainforest Action Network that claimsMitsubishi is destroying tropical forests and calls for a boycottof their products.’°2 Through a worldwide publicity campaign,meetings with NGOs, distributing information packages, and99A spokesman was unable to provide a single example of aproject rejected for environmental reasons. Interview, Departmentof Global Environment, Itochu Corporation, Tokyo, 12 April 1994.For details on Itochu’s environmental guidelines and theenvironmental management and assessment system, see Itochu. “GlobalEnvironment Problem and Itochu Corporation,” internal document(Tokyo: Department of Global Environment, 30 November 1993).‘°°Marubeni, Marubeni Corporation: Annual Report 1993 (Tokyo:Marubeni, 1993), p.35.‘°‘This point was most cogently made by an official atKeidanren, Tokyo, 7 April 1994.102New York Times, Monday, 10 May 1993.59responding to letters, the trading companies are trying tocounteract what they consider unjustified and outrageousallegations 1O3Japanese companies have generally avoided investment orresearch in reforestation since primary forests have providedimmediate and abundant high-quality tropical logs whilereforestation is expensive, demands long-term commitments andplanning, and profits are unpredictable. Nevertheless, the effortto improve Japan’s corporate environmental image -- coupled withsome government financial and technical support -- has produced afew small reforestation projects.’°4 There is also some supportfor research in tropical reforestation. In 1991, nine privateenterprises, in conjunction with the Ministry of Agriculture,Forestry and Fisheries, established the Research Association forReforestation of Tropical Forest (RETROF) with a five-year mandate.RETROF receives half its funding from private companies and halffrom the government. It coordinates, reviews, and advises specificcorporate projects.’°5 It is designed to transfer Japaneseknowledge and technology to tropical reforestation projects,‘°3Based on interviews at the Environment Departments ofMitsubishi, Marubeni, Nissho Iwal, Sumitomo, and Itochu, Tokyo,April-June, 1994. Also see Nissho-Iwai, “Environment 21: NisshoIwai Corp,” internal document (Tokyo: Environmental 21 Division,Nissho-Iwai, 12 February 1991).‘°4There are government plans to increase assistance for largescale reforestation in degraded areas. Government of Japan,National Action Plan for Agenda 21, internal document supplied bya MITI official (Tokyo: Government of Japan, January 1994), p.62‘°5lnterv±ews, Senior officials, RETROF, Tokyo, 27 April 1994.60especially for developing mixed species plantations.106 Despitetoken corporate conservation projects and research on tropicalreforestation, as we will see in later chapters, the impact ofJapanese corporate research and investment in reforestation --driven more by a desire to generate favourable publicity than by adesire to support sustainable commercial timber operations-- islimited.The Japanese government has been criticized for ignoring, oreven encouraging, destructive corporate environmental practices.The new Environment Law addresses the role of the government inmonitoring the impact on the environment of overseas corporations.Article 35, section 2 states:The State shall make efforts to take necessary measures e.g.providing information to corporations, so that thecorporations can properly consider global environmentalconservation etc. in the areas outside Japan where thesecorporations conduct their businesses.’07The impact of this article is not yet clear. The Environment Lawhas no enforcement clause, and the example of “providinginformation to corporations” is weak. At a minimum, it sends asignal to corporations to pay attention to environmental factors.At a maximum, it could provide a future means to requirecorporations to follow stricter overseas environmentala‘°6RETROF, “Research Association For Reforestation of TropicalForest,” internal document (Tokyo: RETROF, October 1991).107Government of Japan, The Basic Environment Law, Law No. 91,1993, Government of Japan, effective 19 November 1993.61regulations.’°8 But this seems unlikely. Moreover, even if theJapanese government starts to monitor and regulate corporations, itwould still leave untouched the critical impact of wastefulconsumption, low consumer and export prices, import barriers, andthe residual consequences of past practices.’°9CONCLUS IONIn sum, the new Environment Law, the creation of environmentalguidelines and departments for loan and aid agencies, andenvironmental aid demonstrate that the Japanese governmentrecognizes the need to address overseas environmental problems.Yet there is more rhetoric than substance. The new law, and OECF,EXIM Bank, and JICA guidelines are vague and non-binding.Environmental reviews are poorly coordinated, and there are noenforcement mechanisms, transparent procedures, or concretepenalties. As well, environmental aid is not clearly defined. Aportion is merely a reclassification of convntional projectsrather than a substantial reallocation of funds. As a result, sofar the bulk has been in yen loans and primarily funded water andsewage systems. Overseas environmental assistance is furtherundermined by a fractured administration dominated by economic‘°8lnterview with one of the drafters of the New BasicEnvironment Law, Environment Agency, Global Environment Department,Tokyo, 9 June 1994.‘°9The Japanese government and trading companies havesporadically mentioned the importance of these factors for tropicaltimber management. But, as the final chapter demonstrates, theseare superficial gestures with little practical impact on SoutheastAsia’s forests.62interests. Despite marginal increases in input, the EnvironmentAgency, while an earnest supporter of better overseas environmentalguidelines, still has relatively little influence. The ForestryAgency has not aggressively tackled environmental issues, andinstead cautiously promotes tree plantations, a transfer ofsilvicultural expertise, and expanded trade and consumption.Meanwhile, MITI has staked out environmental turf to promotetechnology transfers and business initiatives. Given this context,it is not surprising that even though Japan relies heavily onnatural resource imports, conservation, reforestation, and resourcemanagement are peripheral to government overseas environmentalpolicies.Beginning in the early 1990s, the private sector, led byKeidanren and the major trading companies, counter-attackeddomestic and world environmental critics, producing a deluge offlowery policy statements, corporate brochures, and publicadvertisements. Although a tiny amount of money has shifted toenvironmental research and showcase projects, these cosmeticpolicies contain few concrete mechanisms or sanctions to controloverseas environmental impacts. Finally, while new government andcorporate environmental policies only provide marginal benefits forSouthern resource management, they serve an inauspicious function,creating a diversionary smokescreen that obscures the far moreimportant consequences of Japanese wasteful consumption, low pricesfor raw materials, unsustainable purchasing practices, importbarriers, and the residual effects of past practices. During 199463discussions, government and business leaders pushed conversationsaway from these crucial factors and toward the content of the newenvironment law, the ‘comprehensive’ environmental guidelines, the‘extensive’ investments in environmental projects, the‘influential’ environmental departments, and perhaps mostconsistently, Japan’s ‘impressive’ environmental aid. In short,the rhetoric enveloping Japanese overseas activities undeniablyshifted in the early l990s; but the accompanying policies are toodiluted, inconsistent, and marginal to alter the nucleus of Japan’sshadow ecology, and only minor, peripheral changes have occurred.Before turning to a specific analysis of the impact of Japan’sshadow ecology on timber management in the Philippines, Indonesia,and Borneo Malaysia, the next chapter outlines a framework tounderstand the politics of resource management in Southeast Asia.64Chapter ThreeA MODEL OF RESOURCE MANAGEMENT IN CLIENTELIST STATESThe allocation and management of natural resources indeveloping countries has gained increased attention in the lastdecade as worldwide scarcity and environmental catastrophe loom.Forestry management and the causes of tropical deforestation havereceived particular attention as loss of these trees has beenlinked to siltation, erosion, flooding, and most ominously, globalwarming. Most explanations of forestry problems have focused ontechnical or economic factors, the content of specific policies,the role of international organizations and finance,’ and theimpact of poverty and population growth. Surprisingly littleattention has been given to the role of domestic political forcesin the South, even though in many situations this appears to be akey factor.2‘As noted in chapter one, while scholars have analyzed linksbetween multilateral financial institutions and forestrymismanagement, there has been little attention given to theenvironmental impact of peaceful interaction between two states.Small portions of this chapter are from Peter Dauvergne, “Patronclient Politics and Natural Resource Allocation and Management inthe Third World: A Case Study of the Timber Industry In TheMalaysian States of Sabah and Sarawak,” Unpublished Course Paper,Department of Political Science, University of British Columbia,1992.Environmentalists sometimes point to political corruption asa key factor in resource mismanagement. But this has generallytaken the form of accusations, without any reference to concretepolitical conditions or societal arrangements in these countries.Until recently, politics has been ignored in much of the academicanalysis on environmental change. This is discussed by MichaelRedclift, Sustainable Development: Exploring the Contradictions(London: Methuen, 1987); and Adams, Green Development. One65By paying more attention to the nature of the state and topolicy implementation, this chapter builds on the patron-clientmodel to understand links between Southern politics and resourcemanagement. I argue that ‘modern’ patron-client networks interactwith political executives, bureaucracies, courts, and militaries tolower Southeast Asian state capacity to enforce resourceregulations. The first part of this chapter sketches the mainfeatures and analytical advantages of a patron-client framework.Then, after outlining the evolution of patron-client ties inSoutheast Asia, I borrow ideas from Joel Migdal’s work on statesociety relations to explain how these modern relations underminestate capacity. This creates a model of resource management inclientelist states.PATRON-CLIENT MODEL OF ASSOCIATIONThe patron-client model was initially developed byanthropologists to explain traditional village-level, dyadic powerrelations. The anthropological patron-client model is a personalexchange relationship between two persons with unequal status,power or resources. The higher ranked person provides protectionand benefits (often material) to a lower ranked person in exchangefor loyalty and assistance, including personal services. Althoughthe client usually benefits less than the patron, this reciprocitydistinguishes patron-client relations from relations of pureexception is Piers Blaikie, The Political Economy of Soil Erosionin Developing Countries (New York: Longrnan, 1985).66PLIJHH—:‘tIrtUI-C)I-ciUHCl)dQC)WctCDOHQPJOCDCDH--QCDCDCl)H-0‘DHrtQ1Cl)C)CDCl)H(QC1cifrhCDH-i—JCi)H-t-’CDH-hCl)Cl)CDH-FdCl)(IOC)‘.D(DQI-H--Cl)ciCDc-FH0CDC)QC)H-HCDHjpj0H-C)IIC)H-H-CDhHOHH-SC)H-ciHCl)Cl0ci0I.<lH-p1CDHJICl)‘-<H-U)ciC)HciCDCDciC-FH-HCl)H-CDi-P)HCDCl)l-FdCDCl)H-CDCtC)Ci)0Ct‘ti(1)0H-CDCDH-ciHd3ciCDHp)CDCl)-IIciC)0Cl)Cl)H-CDH-Cl)CDciP)H-Cl)H-<LQCDCD.<ClCDH-iCDC)CDU)HU)HHH-CDC)CDwCl)-U)•ciCDU)CDU)HCDMiHici—CDQH‘-HClCFH-HMMCDCD-H-U)ciH-ciI-li‘<CD0OCI)ct(00H-CDi-c-FCl)C)H-jCDic-tCFH-c-IIi<hHCDF-hP)U)0CDU)<CD-Cl)HCD,U)H-c-FH-••H<H-C)C)CDClci_CDç-t•Cl)ciH-c-Fpc-Fcici1HCD’<0(Dc-Hp.HCD(Cll-,0-ciCDPH-0Ht;:,i•jp.0ciCDHU)0Cl)p.IClJCDp.HHHI1CD0H-HIHHCtHCl)C)(.QH-Cl)p.HH•H-wU)CJ)p)ciCDCDU).p.HClCDp.Cl)CDHP).()CliicH-<HcF:cig)HHU)dMiCDciCl’ciClCDCDCl)CD(QHCliiCl)C)H8Cl1CDClH--rCDHiiciCp.CliCl)CDCDCDHHCl)C1(1)1HMiCD-CDp.CDCD0dCD-.Cl)1-tiH-H-(1)H-CDc-FCDCl)P)N-Pc-FU)H-iC)p)Ctp)Hn‘-:3bCPH-H<:3CDClc-P)ci0°CDciCl)Cl)IrjH H-H()C1c-CDH-Cl)0CDi.<1Cl)brrCl)0ClCl)Cl)CDp.CDH-11P)HHHCDHFlHi:3FlU)P)C)H-ciqlHHCDH-CDbciCDHHCDClHr-Cl)H-CCDCl)CDCDH-H-ciCl)H-H-sH-ciC)ci0CDI.QClCDiMi0FlCl)0ciCDciHciiCl)fl0:3HCl)FlHU)ciCDCl)ciCD-Cl)<FlICl)H-H-CDdH--0Cl)FlFlFl3HH-H-ClCDIH-HHH-(l)b0CDCD:3(0(0<0CDciU)ciHp.Cl)Hic-FH-HciCD-•U)FlciHiH-ciCDHFlHH-CD-CDH-HiH-Cl)iU)CDciFlCDCDCl)ciH-H--H-U)H-wCDII-HH-CDCl)M,•i—]CDCDH-0Cl0ci1<1Cl)H-@iC)Cl)ClMiFlCl)3F-hCl)H-CrciciH(.QICDU)0iCl)U)(DCD<CDCl)C)ciU)H-Cl)000-M-Cl’-<HU)CD0p.-IQCDCDH0MiHiway of understanding client action is to view their strategies as“interest-maximizing rather than risk-minimizing.”7 In otherwords, clients enter into patron-client relationships because it isthe most efficient and effective means to improve their socioeconomic position.Building dyadic alliances is relatively easy since “itinvolves the simple trading of favours and not the more difficulttask of furthering collective goals.”8 With clients eager toimprove their lifestyle, patrons eager to increase their power, andalliances fairly easy to form, large groups develop based on dyadicpatron-client exchange (sometimes called clientelism) . Politicalscientists in the 1960s and l970s extrapolated the anthropologicalmodel to understand these groups. A patron-client cluster is apatron’s immediate following, perhaps twenty to thirty people. Apatron-client pyramid comprises not only a patron’s direct clientsbut as well the immediate following of these clients. (It isassumed that one person can be both a client and a patron.) Apatron-client network is a web of patron-client pyramids linkedtogether by a common patron. Alliances of patron-client clusters,pyramids, or networks can create factions.9“Political Clientelism In Japan: The Case of “S”, Asian Survey 28(April 1988), pp.471-483. Cheng argues that the Japanesebureaucracy contains significant patron-client relations despitethe security and prosperity of Japanese bureaucrats.7jean C. 0±, “Communism and Clientelism: Rural Politics inChina,” World Politics 37, no. 2 (January 1985), p.263.8Landé, “The Dyadic Basis of Clientelism,” p.xv.9j. Scott, “Patron-Client Politics,” pp.96-97.68Extrapolating dyadic patron-client relations to these largerconcepts has been criticized for over-stretching a micro-levelmodel to understand macro-level phenomena.’0 It is in fact quitedifficult, if not impossible, to ‘find’ and accurately describe thedyadic components of patron-client political structures. Toovercome this problem, rather than taking on the laborious task ofdetermining the specific composition of patron-client clusters,pyramids, and networks, it is more useful to focus on informal,personal, reciprocal, and asymmetrical “patterns of interaction andexchange.” Emphasizing a specific type of exchange relationshiprather than structure accepts that these ties can vary in theirintensity, duration, and type of resources involved. Althoughexpanding a micro-level model has unavoidable risks, there are anumber of advantages, especially for understanding political forcesthat shape natural resource management in the South.ADVANTAGES OF PATRON-CLIENT ANALYSISThe patron-client model is not a grand theory capable ofexplaining everything -- rather, as a middle-range perspective, it‘°See Robert Kaufman, “The Patron-Client Concept and Macro-Politics: Prospects and Problems,” Comparative Studies in Societyand History 16, no. 1 (June 1974), pp.284-308.“S.N. Eisenstadt and Luis Roniger, “The Study of Patron-ClientRelations and Recent Developments in Sociological Theory,” in S.N.Eisenstadt and Rene Lemarchand, eds. Political Clientelism,Patronage and Development (London: Sage Publications, 1981), p.276.Also see Eisenstadt and Lemarchand, “Introduction,” in Ibid., p.2.69is confined to one particular set of political relationships.12This allows greater detail and nuance for analyzing how domesticpolitics shape natural resource use than is possible, for example,with world system theory or dependency frameworks.’3 According toChristopher Clapham, it is “one of a number of middle-rangeconcepts through which the possibility of a comparative socialscience may -- however dimly and elusively-- be glimpsed.”4The patron-client model enables the analyst to move beyondformal institutions, groups and policies and towards informal powerrelations, fluid associations and personal exchange. This helpsaccount for dynamic and sudden change and for political systemscharacterized “by a lack of clear dividing lines between politicalgroups and a great deal of shifting and switching among peripheralgroup members.”5 It also overcomes problems of many economicstudies of natural resource management in the South that stressimpersonal market-based exchange. As well, it helps explain why a‘2For a discussion of the trend toward, and merits of, middle-range theory, see Howard J. Wiarda, “Toward the Future: Old and NewDirections in Comparative Politics,” in Howard J. Wiarda, ed. NewDirections in Comrarative Politics, revised ed. (Boulder: WestviewPress, 1991), pp.221-250.‘3The eminent scholar of world system theory is InimanuelWallerstein. See Irnmanuel Wallerstein, The Modern World System (NewYork: Academic Press, 1976). For an overview of the dependencyapproach, see Tony Smith, “The Dependency Approach,” in Wiarda,ed., New Directions, revised ed., pp.118-130.‘4Christopher Clapham, “Clientelism and the state,” inChristopher Clapham, ed., Private Patronage and Public Power:Political Clientelism in the Modern State (London: Frances Pinter,1982), p.30.‘5Landé, “The Dyadic Basis of Clientelism,” p.xix.70bureaucrat’s power can be based more on personal connections thanon a formal position or why a political party may resemble anuncoordinated gathering of powerful leaders and their loyalfollowers.’6 Many political models are constrained by their focuson formal, institutional arrangements, and are unable to explainprocesses that occur outside this framework.17 This can be aserious limitation since, as James Scott notes, “bureaucraticpolitical parties in Southeast Asia are often thoroughly penetratedby informal patron-client networks that underlie the formalstructure of authority.”8 By focusing on informal rather thanformal relations, important insights can be gained intodistribution patterns, including appointments to bureaucraticpositions, awarding of government contracts, and allocation ofstate revenues. Formal structures, however, cannot be ignored whenexamining patron-client relations. At the very least, “formalstructures are relevant to patron-client systems, if only becausethey provide the critical resources necessary to build and sustainsuch a system.”9Patron-client analysis accounts for the importance oftraditional relations of power and concepts of legitimacy andauthority. It provides continuity with the past and considersindigenous values and beliefs as well as contemporary variations.‘6J. Scott, ItpatronCljent Politics,” p.92.7Structural-functionalism is especially prone to this problem.‘8J. Scott, “Patron-Client Politics,” p.92.‘9Kaufman, “The Patron-Client Concept,” p.301.71Rene Lemarchand argues that since the patron-client model “cutsacross both ‘traditional’ and ‘modern’ referents”, it has a“heuristic value generally missing from the conceptual arsenal ofeither ‘modern’ or ‘traditional’ polities, [and] it directsattention to processes of adjustment between traditional and modernpatterns of behaviour, expectations, and normative orientations topolitics which might otherwise go unnoticed.”2° Traditional powerarrangements and concepts of authority provide ‘modern’ patron-client links, which would in many countries be viewed as simplecorruption, with a certain degree of legitimacy. Corruptionentails a legal violation which is perceived as illegitimate by thecommunity and thus contributes to a loss of authority. Patron-client exchange may sometimes violate formal law, but its roots intradition mean that even when it is labelled ‘corruption’, there isnot necessarily any loss of authority. In fact, ignoring patronageduties may even contribute to a greater loss of legitimacy andauthority than violating formal laws.Patron-client analysis accounts for vertical links from urbanto rural areas which cut across class, ethnicity, language andreligious differences. Membership is based on ties to the leaderand is specific to each link; it is not based on shared horizontalties among followers. Models that isolate ethnic, religious orclass groups have difficulty explaining intra-group politics andcooperation between segments of different groups. For natural20Rene Lemarchand, “Political Clientelism and Ethnicity inTropical Africa: Competing Solidarities in Nation Building,”merican Political Science Review 66, no. 1 (March 1972), p.68.72resource issues such as timber, patron-client analysis points tothe important cross-cutting ties between central financing,ownership and control, and local contractors, managers, andworkers. As well, in countries with competitive elections, a focuson patron-client politics directs attention to a partial verticalredistribution of natural resource profits as central party members‘buy’ rural votes.2’ Of course, not all patterns of politicalbehaviour are reducible to patron-client relations.22 Ethnicity,class, religion, language, nationalism, party ideology, andcentral-regional relations are just some of the other factors thatexist alongside patron-client links. Depending on the timing,situation, and specific context, the impact of patron-clientrelations will vary. However, focusing on patron-client ties isparticularly useful for understanding logging in Southeast Asiasince these have historically been, and continue to be, thedominant force shaping timber allocation and management.Finally, the patron-client model is especially useful forunderstanding cooperation between individuals and groups in timesof peace and stability. (In contrast, class or ethnic-based modelshave generally been limited to analyzing conflict.) It effectivelyexplains the emergence, transformation and continuance of groupswhose membership is not based on shared horizontal characteristicsbut where people are linked vertically, sharing few common21Anthony Hall, “Patron-Client Relations: Concepts and Terms,”in Schmidt, et al., eds., Friends, Followers and Factions, p.512.22Lemarchand rightly stresses this point, Lemarchand,“Political Clientelism,” pp.68-90.73characteristics, often of different status, and perhaps not evenknowing each other since the common link is personal ties to theleader. The emphasis on cooperation, however, does not preclude anunderstanding of conflict. Robert Kaufman notes that while“patron-client exchange is premised on hierarchical distributionsof power and resources, the concept simultaneously allows for (andat times suggests) the possibility of intense conflict betweennarrowly based, shifting patron-client clusters and pyramids.”23The concept of factions is particularly valuable for analyzingconflict between patron-client units, or conflict within, forexample, an ethnic group.Despite these advantages, for much of the 1980s and earlyl990s, relatively little has been written on patron-clientrelations.25 As patron-client ties evolve -- and some arguedissipate -- many comparative politics specialists have turned to23Kaufman, “The Patron-Client Concept,” p.286.24Jean-Francois Medard, “The underdeveloped state in tropicalAfrica: Political clientelism or neo-patr±monialism?” in Clapham,ed., Private Patronage, p.168.25There are a few recent studies. For example, see JonathanFox, “The Difficult Transition From Clientelism To Citizenship,”World Politics 46 (January 1994), pp.151-184; the collection ofarticles in Luis Roniger and Ayse Gunes-Ayata, eds. Democracy.Clientelism and Civil Society (Boulder: Lynne Rienner Publishers,1994), pp.1-18; Carlene J. Edie, Democracy by Default: Dependencyand Clientelism in Jamaica (London: Lynne Rienner Publishers,1991); Robert Gay, “Community Organization and Clientelist Politicsin Contemporary Brazil: A Case Study from Suburban Rio de Janeiro,”International Journal of Urban and Regional Research 14 (December1990), pp.648-666; Eliphas Mukonoweshuro, “Ethnicity, Class andClientelism in Sierra Leone Politics: A Methodological Critique,”Plural Societies 20 (September 1990), pp.65-91; and Cheng,“Political Clientelism in Japan,” pp.471-483.74other analytic tools. Yet, these relations are still a key featureof many Southern states. Luis Roniger writes: “While it would beabsurd to predict that certain types of relationships --friendship, for instance-- would disappear following development,this has been the main argument regarding clientelism (in bothcases, it would seem more reasonable to expect changes in structurerather than their natural demise) In Southeast Asia, patron-client ties remain extensive, though there are important structuraldifferences between ‘traditional’ and ‘modern’ relations.MODERN PATRON-CLIENT RELATIONS IN SOUTHEAST ASIATraditional patron-client relations in Southeast Asia havebeen altered by evolving economic, social and politicalcircumstances, especially during the shift from colonialism toindependence. Traditional relations were generally characterizedby highly affective ties based on kinship, village, orneighbourhood bonds. A patron typically relied on personal skills,wealth (largely through private control of local resources), andsometimes connections to more powerful patrons. Loyalty,obligation, honour and non-material rewards supplemented materialexchanges. These ties involved face-to-face contact and multiplekinds of exchange.Colonialism, the spread of market capitalism in the twentiethcentury, urbanization, and the growth of the state over the last26Lu±s Roniger, Hierarchy and Trust in Modern Mexico and Brazil(New York: Praeger, 1990), p.xiii75fifty years or so have contributed to important changes to patron-client relations. Exploiting political power to accumulate wealthhas a long tradition in insular Southeast Asia. Monarchs taxedpeasants and controlled commerce, using these funds to reward loyalfollowers. Colonialism and global economic links greatly increasedthe economic power and scope of the state, making it a key sourceof patronage. After independence states continued to expand. Incountries like the Philippines, as the size of the state increased,“access to the state machinery became more important than ever forthe creation of wealth.”28 As a result, the state became a keysource of material incentives to bind modern patron-client ties,including funds, licences, and career opportunities. Stateofficials have also been absorbed by patron-client networks,ignoring state rules in exchange for presents, bribes, or someother particularistic concession. This extensive state patronagehas fostered larger and larger patron-client networks in SoutheastAsia. As Gordon Means notes, the state “provides the institutionalframework for the extension of patron-client networks beyond theimmediate circle of individual loyalties and friendships.”2927James Rush, The Last Tree: Reclaiming the Environment inTropical Asia (New York: The Asia Society, 1991), pp.30-32.28Paul D. Hutchcroft, “Oligarchs and Cronies in the PhilippineState: The Politics of Patrimonial Plunder,” World Politics 42(April 1991), p.423.29Gordon P. Means, Malaysian Politics: The Second Generation(Singapore: Oxford University Press, 1991), pp.298-99. In thecontext of Malaysia, Means claims that: “By the time of Dr.Mahathir, the patronage system had not only grown enormously, butit included many intermediate layers of middlemen in a moreextensive and institutional system of rewarding loyalty and76Patron-client exchange is now more specific and less personal.Patrons are less likely to maintain regular contact with a clientand more likely to exchange tangible goods, such as a licence fora ‘political contribution.’ As a result, modern patron-clientrelations are also based less on loyalty, obligation and honour.3°Instead, patronage is a crucial means of building ‘loyal’ followers(at least temporarily). This is reinforced by immigration anddomestic migration to large cities and towns that has producedlarge numbers of people who are most efficiently turned into‘loyal’ followers using material incentives. For this reasonpolitical patrons often need to provide money, gifts, andgovernment jobs to build power and maintain prestige andlegitimacy. In areas with competitive elections this has beenencouraged further as patron-client relations have become “closelylinked to the national [or state] level with jobs, cash, and pettyfavours flowing down the network, and votes or support flowingupward.”3’ These trends contributed by the 1970s to “acomparatively large ‘fairweather’ periphery, a comparatively smallcore following, and a less ‘constant’ patron as well.”32political support.” Ibid., p.305.30Foreign corporations often supply a key ingredient for modernpatron-client ties: money-- but foreign business executives,including the Japanese, are generally not directly involved inpatron-client exchange relations.3’Scott, “Patron-Client Politics,” p.105. Scott does note,however, that “in the midst of this change, old style patronsthrive.” Ibid.32Ibid., p.107.77Patron-client connections have become increasingly unstable asthe size of patron-client networks has grown, as personal contacthas decreased, as clients have lost their sense of obligation, andas the number of ‘fairweather’ followers has increased. Thisinstability is natural since “those on the periphery of the patron-client network become alienated and are cross-pressured betweentheir pursuit of immediate but meagre benefits (in relation toother more favoured clients) and their aspirations for improvedopportunities with a new winning coalition.”33 Despite thesechanges, the personal and asymmetrical nature of exchange, the lackof formal-legal contracts or institutional ties, and the reciprocalexpectations make modern patron-client exchange significantlydifferent from market exchange.34 These exchange relations are adominant characteristic of the societies of Southeast Asia. Aspatron-client structures evolve, and with the increase in the sizeand power of Southern states over the last 50 years or so, it isessential to understand the consequences of these clientelistsocieties on the state. Neo-patrimonial studies are one attempt to33Means, Malaysian Politics, p.317. The inherent instabilityof modern ties makes it virtually impossible to categorize andspecify the membership of different patron-client networks-- amonumental task even in ideal circumstances-- since thesecontinually dissolve and realign as patrons die or lose control ofkey resources.34mis is a broad generalization. A more detailed descriptionof modern patron-client relations in Indonesia, Malaysia, and thePhilippines is provided in chapters four to six. For background ontraditional patron-client relations in Southeast Asia, see S.N.Eisenstadt and Luis Roniger, Patrons, clients and friends:Interpersonal relations and the structure of trust in society(Cambridge: Cambridge University Press, 1984), Indonesia, pp.122-127, and the Philippines, pp.127-130.78give more attention to the links between the state, patronage, andpatron- client networks.NEO- PATRIMONIAL STUDIESNeo-patrimonial studies are rooted in Max Weber’s analysis oftraditional authority where the distinction between public andprivate is obscured -- there is neither one objective law for allnor a principle of bureaucratic impartiality. Instead, decisionsare based on “personal connections, favours, promises, andprivileges.”35 Jean-Francois Medard bluntly declares, in apatrimonial state, “politics becomes a kind of business with twomodes of exchange: connections and money. The state is a pie thatevery one wants to eat.”36 Although focusing more on a singleruler, neo-patrimonialism points to many of the same features aspatron-clientelism-- including informal relations, particularism,and instrumental exchange.37 For example, Paul Hutchcroft’s neopatrimonial analysis of natural resource exploitation in thePhilippines focuses on changes to patron-client relations as access35Max Weber, Economy and Society, ed. Guenther Roth and ClausWittich (New York: Bedminster Press, 1968), vol. 3, p.1041, quotedin Hutchcroft, “Oligarchs and Cronies,” p.415.36Medard, “The underdeveloped state,” p.170.37See Harold Crouch, “Patrimonialism and Military Rule inIndonesia,” World Politics 31 (July 1979), pp.571-87. Neopatrimonialism is similar to the model of a bureaucratic polity.For example, see F.W. Riggs, Thailand: The Modernization of aBureaucratic Polity (Honolulu: East-West Center Press, 1966); andJ.L.S. Girling, The Bureaucratic Polity in Modernizing Societies,Occasional Paper No. 64 (Singapore: The Institute of SoutheastAsian Studies, 1981)79to the state has become increasingly important for collecting anddistributing patronage. In the Philippines, this has created astate where key bureaucratic o:fficials and political leaders(especially Ferdinand Marcos and family) plundered the naturalresources for personal gain.3 Nec—patrimonial analysis isparticularly valuable in pointing to the dominance of intrastatefactional competition over substantive policy debates indetermining the distribution of natural resources. The differencebetween the patron-client model and the neo-patrimonial model islargely a matter of emphasis,39 and patron-client analysis can bestrengthened by the empirical findings and conceptual conclusionsof nec-patrimonial studies.Yet despite the similarity to patron-clientelism, a neopatrimonial framework has certain drawbacks for analyzing resourcemanagement in Southeast Asia. The model tends to overestimate thedominance of the state and neglect significant societal constraintsto state management.4° Nec-patrimonial studies emphasize centralelites, and often point to a ‘super-patron’ as a key source ofmismanagement. Actors further down the causal chain-- such as38See Hutchcroft, “Oligarchs and Cronies,” pp.414-450.39Bruce Gale, Politics and Public Enterprise in Malaysia (ICualaLumpur: Eastern Universities Press Sdn. Bhd., 1981), pp.4-10.40Neo-patrimonial studies have accurately pointed to thepervasive links between political and military patrons and businessclients as a key feature of Southeast Asian politics and animportant means for societal groups to share in the spoils ofoffice. But there have been no major nec-patrimonial studies thatexamine how these links shape state capacity to enforce rules andlaws.80contractors, sub-contractors, and middle-level administrators --are often neglected. On the other hand, the patron-client modelspotlights multiple levels of interaction yet still places primaryresponsibility with the most powerful elites.41 Neo-patrimonialstudies also downplay the role of urban-rural links, instrumentalexchange that occurs outside of the state, and the impact ofsocietal structure and social resistance on state directives,policies and goals. As a result, a neo-patrimonial framework hasdifficulty explaining the resilience of pervasive patronage inabsence of, or after the fall of, a ‘super-patron’ 42 Neopatrimonial studies, however, do have the analytical advantage ofclose attention to the state as a source of patronage. To shiftthe focus of the patron-client model more to the role of statepatronage, and to gain a better understanding of the consequencesof pervasive patron-clientelism on the nature of the stateitself,43 I now turn to the theoretical work of Joel Migdal.41Michael Dove persuasively argues that elites must be heldresponsible for the destruction of tropical rain forests, even ifmany actors are involved in the actual process. Michael R. Dove,“Marketing the Rainforest: ‘Green’ Panacea or Red Herring?” Hawaii:East-West Center, No. 13, May 1994, pp.1-8.42To help dodge this problem Hutchcroft uses the term“patrimonial features.” See Hutchcroft, “Oligarchs and Cronies,”pp.414-417.431t is commonly accepted in the literature on state-societyrelations in Southeast Asia that state patrons channel extensivepatronage to individuals and groups in society. This is seen asthe main route for societal input into otherwise strong states.See Dwight Y. King, “Indonesia’s New Order as a BureaucraticAuthoritarian Regime: What Difference Does It Make? in BenedictAnderson and Audrey Kahin, eds., Interpreting Indonesian Politics:Thirteen Contributions To The Debate. Interim Reports Series,Publication No. 62 (New York: Cornell University, 1982), p.113; and81PiMiU)PiPCDH-CDH—S0CDP)0ZCtCDCD0(1)H-<CDU)p3CDCD00HCDC)CDP)C)U)LHCDC)C)2)I-iHiP)H-Hi2’Cr2)U)P)H-CrOCril2)U)H-CrpiCrCr0HH-CD0CrU)tYCI)U)CDhCDCrCDCDH-JH-I-CDH-iII2’0H-H-CrCrP)H-CrCDCrCD2)C)1CrCD0HrtX0HH-i-JP)p,H-F-’0H-k<CDCDHCDU)2)U)00H-<3CDH-HH-CDrtNH-iCDHIIHiI-ti:iU)‘1<‘-0IQCtCDIQU)DCrU)CDCDP.,CD2)P’U)C)Cr1H-tOH-i..C)HPiCD-CD-‘2)Ct0(P)C)2J:QDCDHiCrU)HCDU)CD0CrHHP)H-H‘—U)QOH-2)CDCDH-L’l—HU)2)—H-•‘.3CDCDci-2)HC)t5H-CDI-ICrHHCDHHk<H-0:CrU)Ctt-2)[xjCrCDCl)H--QCDH-CD‘dci-H-HCrCDH.H-CrCr00H-t-t2)U)jICrHCr00iC)HCDC)2)2)CD-‘1CDH°CDp,CrIICDCrP‘P)U)Cl)ICDC)HU)CrC)HHiH-MCD0piU)p)CrCrN-.CrCDk<2)H-Lxi2)CDC)CDcCDdCDU)CDpjCD2)PC)CrCrCr-‘CrH-H-0HCrC)C4CDCDHiCDPi2)H-CD0Cr2’DiioCrCD2’Cl)U)-Q0-HHH-HcICDk<Cr02’2)pCrU)0rtHiH-HiU)H-HCrCrCDH-CD-N2’I2’tYH0<CrHU)2)C)Cr2)HCD----Cr2)CDH-2)CL)H-0CrQH-Cr02)CrC)H-HiH-H-H-CDHCr00HCD2)C)2)Hf)HpJI.C)CDHi2’H-CDCDIiCrCDHCl)2)ICrH0H-Cr.U)CDIH-C)C)C)HCr2)0H-CrC)H-loCDH-0P0.H-CtCD0CDCl)H-H-CDC)U)Hi2)CrCDH-CrH-HiCDCDCr—0DC)HCDU)H-dH-iU)2)Cl)“0CrCD0CDCr0C)pjCDCrCrdoCDU)-CrHH-2)Crii0Ci)CDH-C)CrCrH-0CD0‘CDCrCrCDiiU)C)P)2)It1diDH2’2’H-U)H-ti2’CDCDCDHHrJCrCrCDC)2)Ii-H-uiiIiU)0CrCrH-H-HCDU)iiH-H-H-H-Cr0Iiu,HCDHCrH-U)2)CDCrCrH-CrHH-U)H-(.QH-2)HiH0t-QCDCr°Cl)IiC)01CrCrCr0HiP).QH-CD0H-2)‘-<CDCrCri1-CDCr2)U)HH-0CDHCDH-2)C)2)2)CrMiCDNCrpi2)2)Cr2)H-U)2)2)CDHdCrH-CrH-CDi2)2)CrOCrIiIH-p2)C)0HCDCrCrk<H-CD2)HH-0Cn<C)CDOCI)H-C)C)piCDU)2)CrH•OHOCDItoH-CD<CDCrCDU)CD0C)tiCI)ICrU)H-Ii0CrIiCr2)C)HCDU)<IiU)H-U)Cmli<0HCDiCrHC)H-CDCrH-H-H-CDCDH-2)I0CrCD2)U)(CDH-1H-CDCrCrCrI0Hk<U)-CDIi2)CrCrCD9)2)2)0C)CrU)Cr2)•U)—HiCD<-•U)-<0Cr1CDU)CDHH Cl) 0 CD CDC)(Q1HP1P1H3I-P1f-Ff-FP1Ci)0H-3çFCD0c-FQP1H-HHH•IICDCDP1p10H-CDCi)H-f-FC)f-FP1(0H-C)HH-CDHO1<(Ci<Cl)Ci)ctP1CDCi)f-FHfH0CDCDHCDCj)Cl)[CDCDHC’)(Hpjp1Cl)P1jH-H-f-I3df-FH-oc-C’)HP1CDrrCI)gH-f-I(i)p1OCDCl)f-ICi)HoCi)CDP1H-00jf-FC)c-i-HtI)CD(CiwiCD(CiP1H-H CDHP10H(CDCDH-f-FMP1°gCDw(CiP1IQH-P1HCDH-0pJ(CiP1l))IIfr’f-Ci)HQH-IHC)C)NP1CDCDpoH-0P1Hdf-Ii-jH-o(CiHf-F-CD0f-FHf-F<CD()CDP1CDCl)0CI)OCD-C)33H-Cl)oHf-FCi)CDH-Ci)f-F3H--‘-P<P1pc-F(DPjf-FjP1P1(CiHCD‘CD:iHCI)H-P1pNH0ctP1wCI)I-tf-If-FH-f-F0P1P1(Ci3(Ci-<Cl)00 H t3 H 0 H 0‘-P CD H-H-H-H‘-P P1-•. 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While the state is the most powerfulorganization in these “weblike” societies, the combined influenceand resistance of other social organizations is considerable. Forexample, in Sierra Leone, “no single chief can stand up to thestrength of the state’s leaders, but the sum total of all thechiefs’ quiet control in remote parts of the country can have acrippling effect on state leaders’ attempts to increase statecapabilities.” It is also important not to equate state capacitywith the ability to remove one “strongman.” According to Migdal,“individual strongmen may go, but the overall distribution ofsocial control may remain remarkably constant.”53Migdal builds from his model and develops a theory to explainwhy most Southern states are weak and a few are strong. Forparsimony, his model portrays the state as “a more or lessmonolithic organization, a single actor, without significantdifferentiation of parts.” As he develops his theory, however, herefines this view of the state by pointing to “situations ofaccommodation between parts of the state and social organizationswith opposing rules of the game.”54 Differentiating the statemakes it clear that executive decisions are distinct from stateoutput. Internal divisions and interaction with other socialorganizations alter the impact of a state so it is often different53Ibid., p.37, p.138, p.265.54Ibid., both quotes, p.182.85than the intent of the leaders. As we will see later, this has acritical impact on state capacity to implement policies.To facilitate melding Migdal’s ideas with patron-clientanalysis, it is useful to narrow some of his core ideas.55 Heargues that most states fall on the weak end of a strong-weakcontinuum. My study does not attempt to place the states ofSoutheast Asia on this continuum. While factors like poor tax androyalty collection, minimal reforestation, general disregard forregulations, widespread illegal logging, and smuggling all indicate‘weak’ states, they only point to low capacity in one policysector. The same states could have much greater control over, forexample, manufacturing. Migdal’s weak-strong continuum can berefined by developing continuums of individual state capacitydepending on different policy sectors.56 Logically, a weak statewill have the majority of its policy initiatives fall on the weakend of the continuum. Even here, however, there may be some casesof high state capacity. This makes sense since, depending on thepolicy area and the stakes, societal resistance to stateinitiatives and state determination to enforce its rules will vary.For example, environmental issues are generally a low priority for55Some interpretation and latitude is necessary when usingMigdal’s ideas, definitions, and concepts since I am studyingSouthern resource management while he focuses on social policy. Itry to maintain the spirit of his work, even though my emphasis issomewhat different.561n my view, this is a congruous addition to Migdal’s work.He argues states can be both strong and weak, depending on theactivity -- what he calls the “duality of states.” Migdal, StrongSocieties and Weak States, p.9.86states while environmental regulations are often quite threateningto nonstate organizations, particularly powerful businesses. As aresult, state capacity to enforce environmental regulations isfrequently low. On the other hand, state resolution to tackleforeign control over natural resources may be strong whileresistance from nonstate organizations may be minimal, or in someinstances, these organizations may even support the state.Therefore, a state may appear weak when tackling environmentalproblems yet seem strong when tackling foreign control.A second useful modification to Migdal’s model is to highlightdifferent societal organizations depending on the specific issue,problem, or state policy. This is logical since nonstateorganizations can pick areas of resistance while states havediverse, often contradictory goals, and must tackle a plethora ofissues and crises. Undeniably, even in the face of strongresistance from organizations in society, state actions havecritical consequences, though often these are unintended. This ishardly surprising. Compared to other social organizations stateshave huge budgets, complex bureaucracies, and powerful coercivetools. Yet societal organizations, while having far fewerfinancial and human resources than a state, can concentrate theiropposition, or seek alliances, sometimes even dominating sectionsof the state. For example, for a policy like affirmative action,the business community may be the decisive societal group opposingthe state. For timber in Southeast Asia, patron-client networksare the most important obstacle to state initiatives and the major87Cl)CD-3CtCDIHH-C)U)::y0IP)HH-CDH-CtCDH-CL)t.SHCtdi<HP)HU)PJCDCDCDHU)Ip.-Cl)U)HQU)—LIHCrCCD1...Ge•CD’1HO‘tiH-I-•CV)CtCDH HttJpj@H-HC)CDU)0-CDCDCD0HOn C)P)OPCDH rtP)H-QHO:rflP)CDOHHPinHH-—HCDC)P1(DU)H-CD HP)CDC)CHH-H-CT)CD CtqDP)CDCDJCl)U)2)I-ICFCDH-C)P2)2)CFCDCFCDI-h210HH2CL)2)rtHCl)HH-CtHCFç2)H-CrhCt0CDCDH-CD0CtC)C)H-0‘C)II•U)i-H-FJCDH-21H-H-21LQ-U)0CDçtCFpiCtH-C)U)H-CrCC)CDI))t-çt<HCr0HCDH-CD02)2)CtHCtU)CD•CDIpiH<CDoCD<U)CDc—F000‘-<Ct®U)HH-CDCDor-CDCDC)U)rFCD00HC)HHCDçrHC1CDCDCDCDH-CC)(C)H-orrCDCDP1-I-CDH-2)2)C)CtH-CDiCD00Cl)NH21CL)U)C)0CFU)I-H-CDCDCDCFC)(3piH‘dCFCL)CL)CDCF00-Ct0HH-CDiCDH-2)U)H CtH2)H-CC)H-H--CFHmH-U)HCl)CDI-hCL)iHCFH-Ct3CL)H-0ornCCDU)U)-CDQCtH-CFCl)CFCrCl)“<pj-i-CDH-CL)CDCl)H-U)-t•CDCL)j(j)MiCDhTCl)H-00H-H-CFCD0c°‘<çr2)H-C)2’CFCl)CDrjCFI-U)CDCFHHU)C)Cl)CD9)HU)CD9)CFI•H--9’$1H-2)-iH-H-H-IC)CtC)U)C)CrC)CDCFCFHCD-0CDI-0H-U)H-CD‘-crH-‘CI)CDC)P1PCD9jCF-CFC-tC)CDI-(1)tICt2)LCDHU)CDCDI—’U)H-CFC)CFH-0CD202)2)bCFU)U)CrCrICDCD‘CFCL)CFCDCFCD0broadly conceived as clientelist states.59 The following sectionlooks briefly at policy implementation in the South. Then, byborrowing and extrapolating Migdal’s key concepts, I build onpatron-client analysis to develop a model of natural resourcemanagement in clientelist states.CLIENTELIST STATES AND POLICYWhen discussing state control over resource policies, it isimportant to distinguish clearly between policy formation andpolicy implementation. In terms of policy development a state maydominate -- that is, there is little or minimal societal input.Yet this same state may be ‘weak’ in the sense of facing formidableobstacles to implementing state rules. For example, the Indonesianstate dominates policy formation but in some cases has greatdifficulty enforcing policy regulations and maintaining societalcompliance.60 The sharp contrast between state power to develop59Since state capacity and the impact of patron-client networkschanges across different policies, for this work the term‘clientelist state’ only refers to the management of naturalresources. For other policies, clientelist forces may be lesssignificant in shaping state capacity.60Since the New Order was established by General Suharto in themid-1960s, the state has become increasingly centralized and nowdominates policy formation. For this reason, most academic studiesportray the Indonesian state as dominating society. For a summary,see Maclntyre, Business and Politics, pp.6-21. Specific examplesinclude Benedict Anderson, “Old State, New Society: Indonesia’s NewOrder in Comparative Historical Perspective,” Journal of AsianStudies 42, no. 3 (May 1983), pp.477-496; Donald Emmerson,“Understanding the New Order: Bureaucratic Pluralism in Indonesia,”Asian Survey 23 (November 1983), pp.1220-1241; the bureaucratic-authoritarian model by King, “Indonesia’s New Order,” pp.104-117;and Karl Jackson, “Bureaucratic Polity: A Theoretical Framework forthe Analysis of Power and Communications in Indonesia,” in Karl89policies and the power to enforce policies has contributed to sharpdifferences between scholars who see Southern states as irrevocablyweak and those who see these states as strong.6’ It is alsoimportant to distinguish between the content and effects ofpolicies. Many comparative studies of Southern policies makedirect links between policy substance and the mismanagement ofnatural resources. These studies show that many Southern policieshave serious technical flaws that contribute to environmentaldegradation. They also demonstrate that the ability of thebureaucracy to develop policies is weakened by organizationaldifficulties and elite attitudes.62 But even though the content ofresource policies is undeniably important, a more immediate factorJackson and Lucien Pye, eds., Political Power and Communications inIndonesia (Berkeley: University of California Press, 1978). Thisconventional view has been challenged somewhat by Maclntyre’s 1990study which shows that, since the mid-1980s, business has gainedlimited input into developing legislation, regulations, andspecific policy measures. He does not, however, look closely atenforcement. As we will see in the next chapter, state dominationof the process of forming resource policy does not translate intoeffective implementation.6mTheoretical models that concentrate on the process of policydevelopment and decision making -- such as corporatism orbureaucratic authoritarianism-- tend to portray a strong state.For overviews, see Douglas A. Chalmers, “Corporatism andComparative Politics,” in Wiarda, ed., New Directions, pp.59-81;and John D. Martz, “Bureaucratic-Authoritarianism, Transitions toDemocracy, and the Political-Culture Dimension,” in Wiarda, ed.,New Directions, pp.199-220. In my view, these studies overestimatethe ability of Southern states to control the distribution andmanagement of natural resources.62For a discussion of how comparative politics theories couldstrengthen comparative studies of environmental policy making, seeSheldon Kamieniecki and Eliz Sanasarian, “Conducting ComparativeResearch on Environmental Policy,” Natural Resources Journal 30(Spring 1990), pp.321-339.90driving mismanagement is often the willingness and ability of thestate to implement policies.Northern states also have poor records for environmentalprotection and resource management, partially due to corporatelobbying and partially to the tendency for bureaucracies to bedominated by economic interests. Yet, unlike in the South, in mostcases, key battles to improve resource management occur within thestate -- battles over legislation, interpretation of policy, andbudget allocations. While Northern policies are certainly watereddown during implementation, societal compliance to stateregulations is much higher than in the South. For this reason, itis logical to dissect, analyze, and debate the nuances of Northernpolicies. But to do the same for Southern policies may simplydivert attention from the more immediate problem: enforcement andcompliance. This does not mean that resource management will bebetter in the North than in the South. But the core of the problemis likely to be different: in the North, policies dominated byeconomic concerns with weak environmental regulations; in theSouth, policies that are widely ignored.In the next section, I sketch a model to explain whyclientelist states of Southeast Asia are generally unable toenforce natural resource management rules. There are threeinterrelated reasons: the structure and norms of society supportinstitutionalized ‘corruption’; in order to survive, state leaders-- facing a web of patron-client relations -- sacrifice statecapacity to enforce resource regulations; and finally, with minimal91supervision, many middle and lower-level bureaucrats becomeinvolved in patron-client exchange, ignoring state rules in orderto make money, advance their careers, or create small patron-clientunits.PATRON-CLIENT RELATIONS ND SYSTEMIC ‘CORRUPTION’Like the patron-client model, Migdal provides a nuancedunderstanding of corruption. He points to societal structure andstate reactions as keys to understanding flagrant violations ofstate laws. He argues that “much of what is commonly calledcorruption is. . .behaviour according to dissenting rules,established by organizations other than the state.”63 Furthermore,“nepotism, cronyism, corruption, and arrogance” of state leaders ispartially a response to surviving in a setting of fragmented socialcontrol. Seen in this light, “corruption and arrogance are meresymptoms of a complex relationship between state leaders and localstrongmen.”64 In societies dominated by clientelism, patron-clientties permeate the state and nonstate organizations. Althoughmodern patron-client relations differ from older forms in terms ofstability and the nature of exchange, they are nevertheless alegitimate, accepted, even expected, part of the political process.While allegations of corruption, and pejorative labels such as‘crony’ are part of formal debate and are used to justify63Migdal, “A Model of State-Society Relations,” pp.54-55. Alsosee M±gdal, Strong Societies and Weak States, p.31.64Migdal, Strong Societies and Weak States, both quotes, p.138.92investigations, these prevalent practices flow from societalstructures and alternative rules of the game. They cannot bedismissed as simple ‘corruption.’ Focusing on specific cases of‘corruption’ highlights a symptom rather than the cause of poorimplementation. For this reason, campaigns in the Philippines,Malaysia, and Indonesia which have tried to stamp out ‘corruption’with token firings, fines and jail sentences have had littleimpact. Of course, not all state officials in clientelist statesare ‘corrupt’. Some bureaucrats, military officers, andpoliticians work diligently to enforce laws, improve regulations,and raise revenue, even without strict supervision.65 Formanagement of a resource like timber, however, these officials tendto be either outside patron-client networks or belong to networksbased on material incentives other than timber, though in somecases they are simply ‘loyal’ to the state.LEADERS AND LOW STATE CAPACITYIn the clientelist states of Southeast Asia, politicalstructures concentrate power among a small elite often motivated bypersonal gain. Top state leaders, including Presidents, PrimeMinisters, and Chief Ministers, are often powerful patrons. But atthe same time, leaders must manoeuvre in a societal web of patronclient relations. Confronted by strong resistance from nonstate65According to one critic of the Philippine state, an exampleis General Orlando Soriano. Marites Danguilan Vitug, The Politicsof Logging: Power From the Forest (Manila: Philippine Centre forInvestigative Journalism, 1993), pp.108-110.93organizations, and faced with potential threats from institutionswithin the state (often the military), state leaders, in order tosurvive, and to maintain societal stability, follow strategies thatundermine state capabilities -- what Migdal calls the ‘politics ofsurvival’ 66 To weaken challenges from sections of the state, topleaders remove and shuffle state agency elites. To maintain orincrease power, they appoint loyal followers, close friends, andfamily. As well, to preserve stability, they make nonmeritappointments to coopt powerful patrons, and ethnic, regional, andbusiness leaders outside the state. They also use nonmeritappointments to hinder independent power centres from developingwithin the state. These coopted elites are often allowed to getrich through ‘corruption’. This provides a means of control forstate leaders. If these ‘corrupt’ officials step out of line, theycan be charged and legally dismissed or jailed.These survival strategies by leaders undermine state capacity.Shuffling administrative heads and making nonmerit appointmentslower morale and loyalty to the state (as opposed to the leader),and weaken the ability and willingness to oppose local strongmen.67Surviving as leader involves maintaining an intricate balancebetween “restraining agencies sufficiently so they pose no threatto rulers while allowing sufficient organization so the agencies66A second characteristic of the ‘politics of survival’ is‘dirty tricks’ such as torture or ‘illegal’ imprisonment. SeeMigdal, Strong Societies and Weak States, pp.223-226.67Ibid., p.240.94can perform the tasks necessary for state and leader survival.”68This is often a difficult balance. As state capacity declines andthe state is unable to provide basic services, leaders loselegitimacy. To maintain control, leaders distribute even morepatronage. This dynamic-- state leaders using patronage tomaintain loyalty and patronage undermining state capacity to keepcitizens loyal -- can eventually spiral into a regime dominated by‘politics of plunder,’ as in the Philippines under Marcos. Whilethe survival strategies of leaders weaken state agencies at thetop, these actions also debilitate state implementation.PATRON-CLIENT TIES AND STATE IMPLEMENTORSEffective state implementors -- middle and lower-levelbureaucrats responsible for collecting taxes, monitoring projects,and enforcing rules -- are crucial for “determining whose authorityand rules will take hold in region after region, the state’s or thestrongmen’s.” Migdal hypothesizes that “the politics of survivallessens backing and threats of sanctions from supervisors, thusmaking the implementor more attentive to possible career costsinvolving strongmen and peer officials. The result is a furtherweakening of the state’s ability to make the rules governingpeople’s behaviour.”69 In the weakest states there is almost nocontrol of implementors; they will follow rules vastly differentfrom those outlined in laws and policies. With poor supervision of68Ibid., p.227.69Ibid., p.238, p.241.95middle and lower-level bureaucrats, implementation is largelyshaped by bargaining and deals between implementors, other stateand party officials, and strongmen outside the state.7° Inclientelist states, bureaucrats who actually attempt to imposestate rules must confront patron-client ties between stateofficials, local strongmen, and party officials, usually puttingtheir career at great risk. These patron-client ties contribute tosevere perversions in the use and distribution of state resources,and to state resources being used in ways that thwart state lawsand regulations 71As a result of poor supervision, and close ties between stateimplementors and patron-client networks, patrons sometimes capturesegments of clientelist states. These patrons place followers,friends, or family “in critical state posts to ensure allocation ofresources according to their own rules, rather than the rulespropounded in the official rhetoric, policy statements, andlegislation generated in the capital city or those put forth by astrong implementor.”72 These patron-client ties -- operating inthe middle and lower-levels of the military, bureaucracy, police,or courts -- contribute to widespread violations of state laws andregulations. State implementors such as customs officials,enforcement officers, concession monitors, permit issuers, ‘look70Migdal calls this the “Triangle of Accommodation.” Ibid.,p.249.71For a more general discussion, see Ibid., p.245, and p.141.72Ibid., p.256. Of course, for Migdal, all nonstateorganizations have the potential to capture a section of the state.96the other way’ in exchange for cash, gifts, career maintenance oradvancement. Combatting illegal or lucrative timber ‘mining’ isparticularly difficult since timber licences, concessions, andprofits have been a key, and in some cases, the main glue formodern patron-client ties in Southeast Asia. Weak enforcement isreinforced by attitudes that place little value on naturalresources. As a result, state rhetoric is generally misleading.Bureaucratic policies or official elite claims often oppose groupsover-exploiting resources. Yet in reality, some state agenciesaccommodate, assist, or even strengthen, the practices that destroynatural resources.CONCLUSIONIn sum, I posit a model of a state battling patron-clientnetworks for control over the rules of the game for the managementand allocation of natural resources. In the clientelist states ofSoutheast Asia, state leaders are confronted with pervasive,unstable, informal, material-based patron-client ties throughoutsociety. To survive in this fragmented society, leaders usepatronage to construct large patron-client followings and cooptother powerful patrons. These vertical links contribute tostability by extending the influence of state leaders to theoutlying areas, and by cutting across classes and ideologies.Paradoxically, while distributing patronage is a legitimate, evenexpected, part of building and maintaining power in Southeast Asia,it has disastrous consequences for state capacity. Extensive97nomnerit appointments undermine state morale, lower stateefficiency, contribute to a cynical view of state laws, and perhapsmost importantly, weaken supervision of state implementors.Implementors become integrated into patron-client units, receivingmoney or career advancements in exchange for ignoring management,tax, or customs regulations. In some cases, societal patronsmanage to capture parts of the state, placing family, friends andfollowers in strategic positions. This contributes to state assetsbeing used in ways inimical to state goals. It also makes itrelatively easy for these patrons to skirt, resist, even ignorestate policies. As a result, state resource management is dismal.There is little chance of quickly improving resource management inclientelist states. Pervasive patron-client ties throughoutsociety lead state leaders to undermine state capacity andsupervision in order to survive and maintain stability. Thealliances and agreements made between iniplementors and regionalpatrons and politicians then reinforce these patron-clientnetworks. This creates a circle which leaves little hope ofbreaking the pattern of poor implementation.73This modified patron-client model of resource management, bypaying close attention to the nature of the state, the power ofpatrons at the state helm, and policy implementation, gainsheuristic strength, while maintaining the advantages of focusing oninformal-personal exchange relations, traditional concepts of power73This argument is the same as Migdal, though he is referringgenerally to social fragmentation rather than to patron-clientrelations. See Ibid.98and legitimacy, cooperation between vertically-linked individualsat all levels of society, and fluid ad hoc groups. Looking throughthis lens in subsequent chapters reveals salient features of thetimber industry in Indonesia, Borneo Malaysia, and the Philippinesincluding: a distribution of timber profits which mainly benefitsthe state political and business elite; unsustainable patterns oftimber extraction and ineffective forestry management; formalpolicies and institutions weakened by informal practices andunstable ‘rules of the game’; feeble state enforcement of timberregulations; and logging concessions, licences, and profits thatlink state leaders and implementors to timber-based patron-clientnetworks. Each chapter has the same format. For background, Ibegin with a sketch of the evolution of patron-client relations.While emphasizing links between patron-client networks and thestate, I then examine timber policies, practices, and enforcementof regulations, revealing the key domestic causes of loggingmismanagement. This provides a context for a more accurateassessment of the environmental impact of evolving Japanese ODA andloans, corporate investment, technology transfers, and trade ontimber management in Southeast Asia.99Chapter FourJAPAN, PATRON-CLIENT POLITICS,AND THE MISMANAGEMENT OF INDONESIAN TIMBERIndonesia contains 10 percent of the world’s rain forests, andaround half of the remaining tropical forests of Asia. Theseremarkable forests contain “more species of plants and birds thanthe entire African continent.” The bulk of Indonesia’sdipterocarp timber is on the outer islands of ICalimantan, Sumatra,Sulawesi, and Irian Jaya.2 This valuable resource is rapidlydisappearing. Commercial logging is the most important factordriving deforestation, estimated at about one million hectares peryear.3 I argue that patron-client links between top politicians,military officers, bureaucrats and timber operators drivedestructive logging and undermine state capacity to manage theforests.4 Ties at the pinnacle of the state distort policies and‘Adam Schwarz, “Banking on Diversity,” FEER 28 October 1993,p.58.2Commercial trees in the Philippines, Sabah, Sarawak andIndonesia are mostly from the family dipterocarpaceae. InIndonesia, the common commercial name for this timber is meranti,and in the Philippines, lauan.3FAO data (average for 1982-90), in National Science TeachersAssociation, World Resources 1992-93, p.286. The World Bankrecently estimated annual deforestation at 1.1 million hectares.World Bank, Indonesia: Sustainable Development (Washington, 1993),p.7, cited Cohn MacAndrews, “Politics of the Environment inIndonesia, Asian Survey 34 (April 1994) , p.374.4For a more general analysis of the impact of Indonesianpolitical forces on deforestation, see Peter Dauvergne, “ThePolitics of Deforestation in Indonesia,” Pacific Affairs 66, no. 4(Winter 1993-94), pp.497-518.100weaken supervision of middle and lower-level state implementors.Many state implementors join or form timber-based patron-clientnetworks, ignoring timber regulations in exchange for money, gifts,or career advancements. In some cases, state bureaus are capturedby timber interests; instead of striving to implement stateguidelines, these state tentacles work in the interest of timbercompanies, perverting policies and debilitating state capacity toenforce logging regulations. At present, with timber profitsstoking the top, middle, and lower levels of the Indonesianclientelist state, timber companies are able to ignore selectivelogging rules and reforestation duties, extract enormous amounts ofillegal logs, and evade corporate taxes and royalties.While patron-client ties are a critical force drivingmismanagement, Northern shadow ecologies -- especially Japan’s --have accelerated unsustainable logging. With Japanese governmentsupport in the 1960s and 1970s, trading companies providedtechnology and funds for logging operations on Indonesia’s outerislands. To supply Japanese plywood plants, these tradingcompanies then imported huge quantities of the best logs. Many ofthese logs were used to make plywood panels to mould concrete,known in Japan as kon pane. Although Indonesian state and businesselites made quick money, Japan gained most of the economicbenefits. Meanwhile, Indonesia’s remote islands absorbedsubstantial environmental losses. Log prices were far belowreplacement or sustainable management costs. This is starklyrevealed by the common Japanese practice of discarding kon pane --101made from Indonesian trees that likely took a century or more togrow -- after being used only one or two times.In the early 1980s, the Indonesian govermtlent, angered by thelack of economic spin-of fs, banned log exports and providedincentives to develop plywood processing. This has changed Japan’sshadow ecology of timber in several key ways. Investment is nowmuch lower as most trading companies sold their shares or simplywithdrew in the late 1970s and early 1980s. There are also fewertechnology transfers since much of the equipment and infrastructurefor logging is in place. As well, ODA is linked less to commerciallogging operations, and now focuses on large-scale timberplantations, processing technology transfers, and to a lesserextent conservation and forest regeneration projects. Yet keycharacteristics of Japan’s shadow ecology -- low consumer prices,wasteful consumption, and import tariffs -- have remainedessentially unchanged. Whereas in the 1960s and 1970s Japanesecompanies purchased huge quantities of cheap logs and turned theminto disposable kon pane, today, after imposing onerous importduties, Japan consumes large amounts of cheap Indonesian plywood,again mostly as kon pane. While kon pane are now reused slightlymore than in the past, they are still a remarkably wasteful drainon tropical forests. In short, despite a decline in investment andtechnology transfers, and limited changes to ODA projects, Japan’sshadow ecology continues to expedite unsustainable timbermanagement.This chapter is divided into three parts. First, I outline102traditional Indonesian patron-client relations, explaining howthese have evolved in the twentieth century, and now shape the NewOrder government under President Suharto. Second, I analyze howextensive ‘modern’ ties between state patrons and business clientsdistort state timber policies and undercut state enforcement. Iexamine selective logging rules, the distribution of timberconcessions, tax and royalty regulations, reforestation andconservation policies, foreign investment guidelines, and policiesto promote plywood and pulp and paper mills. In the final section,I explore the impact of Japan’s shadow ecology on timber managementover the last three decades. I document changes to ODA projects,corporate investment, technology transfers and wood imports sincethe early 1980s. I then analyze the environmental and economicimpact of Indonesia’s log export ban nd the subsequent increase inJapanese plywood imports.TRADITIONAL AND MODERN PATRON-CLIENT RELATIONS IN INDONESIATraditional Javanese patron-client relations are dyadic,vertical, personal, unequal, and reciprocal.5 Patrons tend toinherit clients rather than building these ties based on personalachievements. These ties involve more than simply “exchangingrewards for services” and do not “involve calculation of immediate5Even though most of Indonesia’s commercial timber is on theouter islands, since the Javanese dominate state positions, I focuson Javanese patron-client relations. Due to lack of space andresources, I am forced to assume that patron-client ties are alsoa key feature of other ethnic groups in Indonesia.103personal interests by the follower.”6 Patrons are “expected toserve as provider, protector, educator, and source of values.. .Inturn, the follower is expected to reciprocate by volunteering hislabour, his vote, and in some cases even his life although theseobligations are seldom explicit either when incurred or calleddue.”7 Clients feel a strong sense of loyalty that transcendsmonetary debts and specific requests, and that can be passed downthrough generations. Patrons also feel a strong moral obligationto protect and support their clients. Finally, there is an “auraof absolutism” surrounding a traditional patron which contributesto reflexive obedience,8making these relations fairly predictableand stable.Traditional patron-client ties still exist in Indonesia,particularly in rural areas. However, colonialism, the gradualdominance of market exchange, the growth of the state and itsincreasing control over economic development, internal upheavals(such as the fight for independence and the 1965 coup attempt), andmigration from rural villages to large cities have shattered manytraditional ties. In most instances, these have reconfigured toform ‘modern’ patron-client links. Although both traditional and6Karl D. Jackson, “Urbanization and the Rise of Patron-ClientRelations: The Changing Quality of Interpersonal Communications inthe Neighbourhoods of Bandung and the Villages of West Java,” inJackson, and Pye, eds., Political Power and Communications, p.346.7Karl D. Jackson, “The Political Implications of Structure andCulture in Indonesia,” in Jackson and Pye, eds., Political Powerand Communications, p.34.8Jackson, “Urbanization,” p.349.104modern patron-client relations are known as bapak—anak buah(literally, father-children), there are important distinctions.Karl Jackson documents the difference in patron-client ties betweenvillagers, urbanites born in a village, and urbanites born in acity. He shows that as people migrate from villages, traditionalpatron-client relations dissolve. After relocating, new relationsdevelop as people struggle to improve their living standard. Thesemodern ties are rooted in traditional relations but are “morelimited, instrumental, opportunistic, specialized, achievement-based, and focused on the recent present rather than the distantpast.Compared to traditional relations, modern ties tend to haveweaker feelings of loyalty and obligation, although there is stilla “debt of moral obligation,” or hutang budi, “extending beyond thepurely monetary aspect of the debt.” In modern relations, however,“the lengths to which the individual will go to pay back hutangbudi are much more limited.” For modern links, a patron’s power isclosely related to “his own resources, official position, or hishold over specialized knowledge,” while “noble birth” or “goodfamily,” though still useful, are less important.1° As well,modern patron-client ties are far more likely to revolve aroundmaterial exchanges. Clients tend to calculate the costs and9lbid., p.344. My terminology differs slightly from Jackson.He calls ‘traditional patron-client relations,’ ‘traditionalauthority relations,’ and ‘modern patron-client relations,’ either‘patronage’ or simply ‘patron-client relations.’ Our meanings,however, are essentially identical.‘°Ibid., p.349, and p.350.105benefits of their participation. If better opportunities arise aclient may well abandon their patron and join another patronagenetwork. In some cases, clients attach themselves to more than onepatron, making it easier to change allegiances as political tidesshift. Patrons are also more willing to dispose of individualclients, particularly if the behaviour of a client is underminingthe power or prestige of the leader or the group as a whole. Forthis reason, modern ties last for shorter periods than traditionalties, and are unlikely to transfer across generations. Unlike intraditional villages, shifting patron-client networks create anuncertain and unpredictable atmosphere. Patrons can never beassured of a loyal following and clients can never be confident oftheir patron’s protection. This uncertainty is aggravated by theunwieldy size of many modern patron-client networks, by networksthat extend beyond organizational or geographic boundaries, and bypeople who migrated to cities as adults and are not well integratedinto patron-client units.”Despite these contrasts, modern and traditional patron-clientrelations have important similarities. In both, links are verticaland asymmetrical. A patron fuses together a heterogenous group ofindividuals with complementary abilities, with divergentideological beliefs, and with different ethnic and socialbackgrounds. As Jackson notes, a “truly powerful patron is one whohas the capacity to concentrate within his circle clients of“Jackson, “Urbanization,” passim, although see in particular,p.390.106varying intellectual, social, official, and financial resources,thus making this person the vital connecting link in the exchangepattern animating the circle.”2 A patron is clearly more powerfulthan any individual client, though successful patrons mustconscientiously maintain their client base. Modern patron-clientties also remain essentially personal, informal, andnoncontractual. Patrons supply clients with licences, jobs, andpolitical protection, or allow clients to ignore laws andregulations, in exchange for immediate or future gifts, money,loyalty, or support. Modern patrons are also expected to performsome traditional duties, including advice “on ideological,personal, religious, and mystical matters.”3PATRON-CLIENT TIES ND THE INDONESIAN STATEThe use of public office to reward clients has strong culturaland historical roots in Indonesia. State patronage was pervasivein the precolonial and colonial era.’4 After independence from theDutch, patronage expanded with the growth of the state --especially under Sukarno’s Guided Democracy (1958-65). As‘2Jackson, “Bureaucratic Polity,” p.3.‘3Ibid., p.14. For further details on traditional and modernpatron-client relations in Indonesia, see Karl D. Jackson,Traditional Authority. Islam, and Rebellion: A Study of IndonesianPolitical Behaviour (Berkeley: University of California Press,1980), especially Chapter 8.‘i assume that the values and customs of precolonial Indonesiahave important implications for current practices. For asupporting view, see Harry J. Benda, “Democracy in Indonesia,” inAnderson and Audrey, eds., Interpreting Indonesian Politics, pp.13-21.107G. McGuire and B. Hering note, “all ruling groups in Indonesia’shistory” have dispensed patronage. “Indeed the ability to do so isconsidered an example of one’s status and personal skill.”5Traditional village values and roles in Java, where leadersfunction as community patrons, have had important implications forthe behaviour of state administrators. It has meant that “for thevillager who rises to the level of district or subdistrict officertoday, traditionally accepted behaviour and values suddenly becomelegally corrupt behaviour and values.”6 As a result, the legaldefinition and cultural understanding of ‘corruption’ differ.’7Of course, not all political action and inaction in Indonesiacan be explained by the impact of patron-client relations.Religion can be an important factor. While 90 percent of thepopulation is officially Muslim, the deep cleavage between orthodox(santri) and syncretistic (abangan) Muslims can have explosiveimplications. There are also sharp differences within the orthodoxMuslim community. The ethnic and regional composition of Indonesia‘5G. McGuire and B. Hering, “The Indonesian Army: Harbingers ofProgress or Reactionary Predators?” in Christine Doran, ed.,Indonesian Politics: A Reader (North Queensland: James Cookuniversity, 1987), p.211.‘6Theodore M. Smith, “Corruption, Tradition, and Change,”Indonesia, no. 11 (April, 1971), pp.25-26.‘7This helps explain why anti-corruption campaigns generallyfail. Of course, as one would expect in any diverse society, someIndonesians - - especially university students - - are quite criticalof rampant legal violations.108is another significant factor that shapes political interaction.’8In a population of around 180 million, there are more than 300different ethnic groups and 250 languages spread across a plethoraof islands. Sixty percent of the population lives on Java, whichrepresents only 7 percent of the land. Yet the Javanese dominatetop political, military, and bureaucratic positions,’9 whileIndonesian-Chinese, who comprise only 5 percent of the population,control much of the business world.2° Certain cultural norms alsoshape political decisions. A respect for age and seniority, anemphasis on deference and self-control, and a desire for consensualdecision making contribute to policies that reflect elitepreferences. Elite attitudes also have important ramifications.Western-educated bureaucrats often have a decisive impact on thecontent of current policies, and are instrumental in developing theFive Year Plans (Repelita) . These technocrats tend to supportrapid economic growth at all costs. As a result, policies likeconservation, reforestation and environmental management are low‘8For a discussion of the impact of cultural cleavages onIndonesian politics, see Donald K. Enimerson, Indonesia’s Elite:Political Culture and Cultural Politics (Ithaca: Cornell UniversityPress, 1976)‘9For example, around 75 percent of key positions in themilitary are held by Javanese. Leo Suryadinata, MilitaryAscendency And Political Culture: A Study of Indonesia’s Golkar(Ohio: Ohio University Center for International Studies, 1989),p.1.20A 1989 survey showed that 163 of the top 200 Indonesian firmsare controlled by ethnic Chinese. Maclntyre, Business and Politics,p.263, footnote 19.109priorities 21Despite the obvious relevance of religion, ethnicity,language, regional diversity, culture, and attitudes forunderstanding Indonesian politics, focusing on patron-clientrelations reveals key features of the current Indonesian state.Patron-client relations permeate and tie together the politicalexecutive, the legislature, the military, the bureaucracy, thecourts, and the business community. At the apex of politics, thebattle for power is largely between “circles of high-rankingbureaucrats and military officers. . .held together by an elaboratesystem of personal ties and mutual obligations.” To some extentthese ‘circles’ are reinforced by family connections, friendships,ethnic backgrounds, religious views, and ideological positions.But the crucial glue is “patron-client bonds.”22The New Order-- established after Sukarno was ousted frompower in the mid-l960s-- is dominated by President Suharto (aformer General), underpinned by the army, and steered by thebureaucracy.23 The New Order government-- which arose partiallyas a reaction to the turmoil of the l950s and 1960s -- hasemphasized stability and national integration. President Suhartohas gradually consolidated and centralized control, by eliminating21For more detail on the impact of attitudes on forestrymanagement, see Dauvergne, “The Politics of Deforestation inIndonesia,” pp.506-507.22Jackson, “Bureaucratic Polity,” p.14.23For a general overview of the New Order, see Michael R.J.Vatikiotis, Indonesian Politics Under Suharto (London: Routledge,1993)110Communist party members, eradicating troublesome factions in themilitary, purging and streamlining the bureaucracy, placing strictcontrols on political parties, and sponsoring corporatiststructures to organize social and economic groups. Suhart.o’scontrol is reinforced by his authority to appoint cabinet membersand regional governors, to proclaim laws, and to control the armedservices. The People’s Consultative Assembly (MPR) -- which underthe 1945 Constitution is the highest authority and elects thePresident and Vice-President-- and the legislative House ofRepresentatives (DPR) provide some legitimacy but no substantivechecks on executive and bureaucratic decisions.24 The rulingGolkar party -- under the firm grip of Suharto and the military --controls the national and regional assemblies.25 The two mainopposition political parties -- the Partai Persatuan Pembangunanand the Partai Demokrasi Indonesia-- do not pose a seriouschallenge. The power of regional governments is limited by lack ofrevenues and close supervision from Jakarta.26 In the early 1980s,24See David McKendr±ck, “Indonesia in 1991, Growth, Privilegeand Rules,” Asian Survey 32, no. 2 (February 1992), p.108According to Maclntyre, DPR committees have some influence.Maclntyre, Business and Politics, pp.31-35. There are some signsthat the DPR is becoming more important. See John McBeth, “LoyalHouse: But Parliament is becoming more animated,” FEER, 8 September1994, pp.32-34.25For a study of Golkar, see D. Reeve, Golkar of Indonesia: anAlternative to the Party System (Singapore: Oxford UniversityPress, 1985)26Army personnel have not been placed at the village level.But these officials sometimes receive military training, and theirloyalty is monitored. Donald Enimerson, “The Bureaucracy inPolitical Context: Weakness in Strength,” in Pye and Jackson, eds.,Political Power, pp.103-104.111many provinces received up to 90 percent of their revenue fromcentral grants. Interest groups, the media, students, NGO5, andthe general public also have little input or influence on policyformulation.27 With firm control, in 1993, Suharto was easilyelected for a sixth five-year presidential terni.28Despite Suharto’s undeniable power, Indonesia is not a one-manstate. Suharto needs the support of influential military generalsand top bureaucrats. As Dwight King notes, “most observers wouldagree that Suharto’s leadership style has been deliberate,predictable and, above all, consultative. Key policy decisionsseem far more the product of a military-technocrat oligarchy thanthe discretion of a military dictator.”29 Although coercion hasbeen indisputably important, Suharto has maintained loyalty in partthrough judicious distribution of patronage. He has built apowerful group of followers, including key political, military,business, bureaucratic, and regional leaders. This patron-clientnetwork is the nucleus of power and the bastion for elitestability.Suharto’s family is at the centre of this network. Hisrelatives-- first his wife and half-brothers and now his six27Measures have been taken to control the political influenceof these groups. University student organizations were banned inthe late 1970s. The 1985 Law on Social Organizations (Ormas)severely restricts the activities of NGO5. The media is regularlycensored and many newspapers and magazines have been closed forbeing too critical of the government.28For details, see Henny Sender, “New Boys’ Challenge,” FEER,1 April 1993, pp.72-75.29King, “Indonesia’s New Order,” p.108.112children and their affiliated companies -- have received keygovernment licences, monopolistic contracts, and crucial access tothe corridors of power, enabling them to build substantialfortunes.3° Even state bank loans are often underpinned bypersonal connections, not by collateral or persuasive investmentproposals.31 Although President Suharto avoids any direct role inbusiness, according to one foreign businessman: “You cannot getinvolved in an important deal any more if you don’t bring in atleast one of the children.”32 An academic claims: “At least 80percent of major government projects go in some form to thePresident’s children or friends.”33 Suharto has also usedpatronage to placate and integrate potential rivals. As HaroldCrouch notes, after gaining control in the mid-1960s, “Suhartorewarded his key supporters handsomely; but he was careful not toantagonize unnecessarily those who had lost in the inter-groupstruggles: many losers were also compensated with appointments andopportunities.” As well, he has allowed key military andbureaucratic leaders to establish their own clientele, and has30See “In Suharto’s shadow,” Economist, 9 May 1992, pp.33-34;and Adam Schwarz, “All is relative,” FEER, 30 April 1992, pp.54-58.31lnterview, Environmental consultant, Bogor Indonesia, 24February 1994.32Adam Schwarz, “All is relative,” FEER, 30 April 1992, p.54.33Steven Erlanger, “For Suharto, His Heirs are Key to LifeAfter ‘93,” The New York Times International, 11 November 1990,p. Yll.34Crouch, “Patrimonialism,” p.578. Also see Herbert Feith,“Political Control, Class Formation and Legitimacy in Suharto’sIndonesia,” in Doran, ed., Indonesian Politics, pp.221-234.113permitted pervasive patron-client exchange at the middle and lowerlevels of the state. By partially redistributing the benefits ofrapid economic development and oil exports, these extensive patron-client networks have enhanced stability, created a powerful groupwith a vested interest in the status quo, and bolstered Suharto’slegitimacyTo some extent, the legitimacy of Indonesian state leaders isnot connected to obeying laws and procedures but to using theirposition to reward followers. As Jackson points out, “socialinjustice and corruption are felt only if a patron fails toredistribute his bounty among his clients or if the patron inadapting to market pressures abandons [his] diffuseresponsibilities.”36 For this reason, Suharto’s overt use ofpolitical power to enhance the fortunes of his clients, family andfriends has strengthened his grip rather than undermined his35Rapid economic growth and oil exports have been vital for thestability of the New Order. Crouch argues that with “huge sumsavailable for patronage distribution, the regime was in a positionto reward its supporters royally; at the same time it could makedissidence very costly for its critics.” Harold Crouch, The Armyand Politics in Indonesia, revised edition (Ithaca: CornellUniversity Press, 1988), p.355. writing in the early 1970s, W.F.Wertheim argued that under Suharto, patron-client relations wereeroding, especially at the lower levels of society. He predictedthat insurgency and revolution similar to China’s would occurunless the government implemented radical land reform. In my view,part of the reason for his inaccurate forecast is that patronclient links which cut across and weaken class ties have notdiminished but have flourished. For a discussion of Wertheim’swork, see Feith, “Political Control,” pp.229-231.36Jackson, “The Political Implications,” p.36.114legitimacy.37 This helps explain why Suharto is “undefensive abouthis position and the activities of his children” and why he “willeasily move from a conversation about macroeconomic policy to oneabout a contract or a regulation affecting” one of his followers.38This also helps explain why Suharto has not become directlyinvolved in business operations and has avoided lavish displays ofpersonal wealth. As was evident with Sukarno, this kind ofbehaviour is seen as irresponsible and ‘corrupt’ and contributes toa loss of legitimacy in the eyes of the ruling elite.CHINESE BUSINESS CLIENTSLinks between powerful state patrons (mainly Javanese) andIndonesian-Chinese business clients (cukongs) are a dominantfeature of the New Order.39 Compared to ties between Javanese,these connections are less likely to have strong bonds of loyaltyand honour and more likely to be held together by mutual need anda mutual desire to make money. Political and military patronssupply credit, contracts, licences, access, and protection while37Privately, some officials do criticize the extensive businesslinks to Suharto’s children. Donald IC. Emmerson, “Indonesia in1990: A Foreshadow Play,” Asian Survey 31 (February 1991), p.185.As well, orthodox Muslims have been critical of his close ties toChinese corporations.38Steven Erlanger, “For Suharto, His Heirs are Key to LifeAfter ‘93,” The New York Times International, 11 November 1990,p.Yll.39Richard Robison, “Toward A Class Analysis of the IndonesianMilitary Bureaucratic State,” Indonesia, no. 25 (April 1978),pp.17-39. For even greater detail, see Richard Robison, Indonesia:The Rise of Capital (Australia: Allen and Unwin Pty Ltd., 1986).115Chinese clients provide vital expertise and capital to operate abusiness.40 Chinese clients also provide crucial access to marketsand funds through Chinese contacts in Singapore and Hong Kong.Even though both sides clearly benefit, this relationship is notequal. Indonesian-Chinese are in a subordinate position and arevulnerable to political shifts and societal backlash. As ErnstUtrecht explains, “the cukong is a so-called ‘back-door broker,because often strong anti-Chinese sentiments within society haveprevented even Jakarta generals receiving Chinese businessassociates through the front-door of office or home.”4’ Althoughmost Indonesian-Chinese have been in Indonesia for generations,speak Indonesian, and even have Indonesian sounding names, there isstrong prejudice against this group. Despite the stability of theNew Order, there are clear signs of hostility and racism,especially against the increasingly visible and prosperous Chinesemiddle-class.42 Due to pervasive racism, according to Go GienTjwan, “today’s Indonesian society is not attractive enough formany Peranakan Chinese [people of Chinese ancestry born in40As attitudes change, and business is no longer perceived asa lower class activity, “a number of fairly large pribumi[indigenous or non-Chinese] Indonesian businesses have developed,particularly those with connections to the presidential family.”MacAndrews, “Politics,” p.372.41Ernst tjtrecht, “Indonesia’s Foreign Private Corporate System,Past and Present,” in Doran, ed., Indonesian Politics, p.184.42r examples are: the anti-Chinese focus of the 1974 riotsfollowing Japanese Prime Minister Tanaka’s visit to Jakarta; andthe Chinese pogroms in Central Java in 1980. Over the past sixyears, the Islamic revivalist movement has rekindled anti-Chinesefeelings. John McBeth, “Challenges of Progress,” FEER, 28 April1994, p.46.116Indonesia) to wholeheartedly become a participant in it.”43 Thesubordinate status and vulnerability of Indonesian-Chinese businessleaders is manifested in most wealthy Chinese channelling profitsoutside the country, not only to avoid royalties and taxes, butalso for personal security.Since Suharto consolidated and centralized control, patron-client networks at the top of the state have been fairly stable.But there is still a sense of uncertainty. Chinese businessclients are wary of sudden racial backlashes. The fall of Sukarnoand the purge of many of his followers is also an importantreminder of the tenuous nature of these ties. After Suharto stepsdown or dies in office, patron-client networks connected to hisreign may well be pushed aside or eliminated. For members ofpatron-client groups grazing on state coffers, especially Chineseclients, this creates a continual sense of unease despite thestability of the New Order.MILITARYThe military is the cornerstone of the New Order. Themilitary establishment maintains it should have a central politicalrole, and military officers hold key political, bureaucratic andcorporate posts. Yet the military does not dominate politicaldecisions. Suharto has been careful to appease and coopt powerful43Go Gien Tjwan, “The Chinese in Indonesia, Past and Present,”in Doran, ed., Indonesian Politics, p.93.44See Harold Crouch, “Generals and Business in Indonesia,”Pacific Affairs 48, no. 4 (Winter 1975-76), pp.519-540.117military generals. As well, to hinder alternative power centresfrom coalescing in the military, he has reorganized the armedservices, rotated regional commanders, and encouraged earlyretirements. As Donald Emmerson notes, “the price of outspokenindependence, several generals have discovered, is anambassadorship.”45 Suharto has also prevented the emergence ofpowerful military successors. Crouch argues that in the 1980s,“like the traditional Javanese sultans who kept rival groups ofcourtiers in balance, Suharto made sure that no single group ofofficers gained a position from which they could challenge his ruleand that no single, clear-cut candidate for the successionemerged. ,,46 As a result of this prudent management of themilitary, the New Order government “has become the master ratherthan the servant of the military establishment.”47Military links to local business grew in the early l950s ascivilian cabinets reduced the military budget. According to RuthMcVey, as the army’s income fell, “regional commanders began tomake deals with local business interests which enabled them to45Emmerson, “The Bureaucracy,” p.104.46Crouch, The Army and Politics, p.357.47jackson, “Bureaucratic Polity,” p.13. Also see UlfSundhaussen, “The Military: Structure, Procedures, and Effects onIndonesian Society,” in Jackson and Pye, eds., Political Power,pp.45-Si. In the last three years, the number of cabinet memberswith military background has declined, and now most of the 27provincial governors are civilians. One study showed that “from apeak of 25,000 in 1967, officers seconded to dwi-fungsi [dualfunction] positions had dropped to 13,000 in 1986 and to about9,500 by 1992.” John McBeth, “Challenges of Progress,” FEER, 28April 1994, p.46.118support their troops and preserve the loyalties of theirsubordinates. This gave them a financial base independent of thecentre.”48 Army interference and participation in businesscontinued to increase during the chaotic years of Guided Democracy.By the time Suharto and the army secured power in the mid-1960s,the weak economy and fragmented administration convinced the newgovernment that “it had little prospect of raising adequate fundsfor the armed forces through taxation.”49 To maintain a stable andloyal military, and to compensate for budget and personnelcutbacks, the New Order government has allowed, even encouraged,the old practices of military officers raising revenue throughbusiness connections and patron-client exchange.5° Patron-clientrelations within the military also have important consequences.The army hierarchy is split between managers who occupy keyadministrative posts or operate trading companies and fieldofficers who are responsible for security. These managers oftensupply money to field officers for protection, contributing to aneed for managers to become involved in ‘illegal’ activities.548Ruth McVey, “The Post-Revolutionary Transformation of theIndonesian Army Part I, Indonesia 11-12 (1971), pp.152-153, quotedin McGuire and Hering, “The Indonesian Army,” p.209.49Crouch, “Generals and Business in Indonesia,” p.523.501b±d., pp.523-524. As a result of this strategy, officershave prospered in the New Order far more than the lower ranks.Ernst Utrecht, The Indonesian Army (Townsv±lle, 1980), pp.100-101.For details on the military’s involvement in business, see Robison,Indonesia: The Rise of Capital, chapter 8.51Utrecht, The Indonesian Army, p.103.119BUREAUCRACYSuharto has purged and pared down the bureaucracy, increasedsalaries, and made administrators more active. To increase loyaltyand control, he has placed military officers in strategicpositions.52 By the mid-l980s, about sixty percent of seniorbureaucrats in Jakarta had military backgrounds.53 To underminecompeting political allegiances, Suharto used to requirebureaucrats to join Golkar. Despite Suharto’s moves to ‘backbone’the bureaucracy with loyal military officers and curtail politicalactivities, civilian bureaucrats have still had significantinfluence. Jackson claims that “the ideas of the civiliantechnocrats have probably had more impact on policy in Indonesiathan in almost any other country in the Third World.”54At all levels, the bureaucracy is perforated by patron-clientties.55 At the top, informal networks connect senior bureaucratsto powerful military officers, prominent politicians, and wealthybusiness leaders. At the middle and lower levels, patron-clientnetworks also operate within departments, between differentdepartments, and between departmental officials and powerfulpolitical, military, and business leaders. As a result, a52Emmerson, “The Bureaucracy,” pp.82-83, pp.90-91, p.100.53Colin MacAndrews, “The Structure of Government in Indonesia,”in Cohn MacAndrews, ed., Central Government and Local Developmentin Indonesia (Oxford: Oxford University Press, 1986), p.33.54jackson, “Bureaucratic Polity,” p.13.55See Loekman Soetrisno, “Patron-client relationships,” ReviewIndonesia, no. 98, 26 February 1994, p.18.120bureaucrat’s power and status are often not related to his or herposition, but to connections. According to McVey, “a powerfulpatron will have clients in several ministries or armed units; histrue strength as an official will depend on his personalconnections and the access his position provides to wealth.” Forthis reason, successful officials use “the economic possibilitiesof [their] position to the full.”56While the principal goal of intrabureaucratic patron-clientclusters and networks is to preserve or enhance power and wealth,these groups also have organizational and policy aims. Prevalentpatron-client ties do not always prevent organizationaleffectiveness. However, particularly when resources are scarce,personal interests tend to override organizational objectives --the financial collapse of the national oil company Pertamina andthe failure of the agency for rice stabilization (BULOG) are twowell known cases from the 1970s. In both instances, “the directorsof the agencies and the long chains of clients extending downwardfrom the directors’ closest confidants.. .prospered while theorganizational objectives.. .faltered.”57 The dominance ofparticularistic, rent-seeking aims of patron-client groups overorganizational objectives also contributed to the fall of Sukarno.56Ruth T. McVey, “The Beamtenstaat in Indonesia,” in Andersonand Kahin, eds., Interpreting Indonesian Politics, p.88.57jackson, “Bureaucratic Polity,” p.15. For details onPertamina, see Sundhaussen, “The Military,” pp.53-54; and Eirimerson,“The Bureaucracy in Political Context,” pp.112-116 For details onBULOG (Logistics Board), see Bruce Glassburner, “Indonesia’s NewEconomic Policy and Its Sociopolitical Implications,” in Jacksonand Pye, eds., Political Power, pp.147-149.121According to Jackson, “in almost all organizations at the close ofGuided Democracy there were no slack resources whatever, and thesatisfaction of personal or group objectives precluded theaccomplishment of almost all organizational ends.”58 WhilePertamina and the rice agency are exceptions, since the late 1960s,foreign investment and loans, massive exports of raw materials(especially oil), and manageable rates of inflation have providedthe “slack that has allowed less than optimally efficientorganizations to perform effectively.”59 Yet the New Orderbureaucracy is clearly more effective in some areas than in others.As we will see later, in the case of timber management, close tiesbetween patron-client networks and timber licences, concessions,and profits has debilitated the state’s ability to monitor andenforce management regulations.JAPAN AND PATRON-CLIENT RELATIONSWhile Japanese corporate executives sometimes bribe stateofficials, this is not in the context of long-term patron-clientexchange relations.6° According to Utrecht, Japanese investorsprefer to use Chinese brokers in Hong Kong and Singapore to avoid58Jackson, “Bureaucratic Polity, p.15.59Ibid., p.16. Crouch argues that foreign aid and investmentand rising oil prices have provided critical funding for massivestate patronage and regime stability. Crouch, “Patrimonialism,”pp.178-179.60For a discussion of Japanese corruption in Indonesia, seeYoko Kitazawa, “Japan-Indonesia Corruption,” AMPO 8, no. 1 (1976),part I and part II.122incredibly ‘corrupt’ Indonesian (especially non-Chinese)businessmen.61 Nevertheless, Japanese money has had a significantimpact on patron-client ties. Since the late 1960s, aid,investment, and resource purchases have supplied key funds to fuelubiquitous patron-client exchanges. According to a 1980 AMPOstudy, “Japanese capital promotes bribery and corruption inIndonesia and encourages the formation of a comprador bourgeoisiethat is in collusion with high government officials, the militaryand overseas Chinese.”62SOCIETAL STRUCTURE ND POLICY IMPLEMENTATIONModern and traditional patron-client ties in Indonesiadisperse power; society is not a pyramid where all power flows toa peak. Instead of a single pyramid, there are separatehierarchies in regions, provinces, and villages. Even at the‘bottom’ there are “complex pecking orders” and “a little powergoes a long way.”63 Society can be conceived in Migdal’s terms asa web of patron-client links or in Jackson’s terms as “an extremelycomplex molecule in which the different atoms have their separatenuclei and their circling electrons, but the bonds between theatoms can often be very weak and, indeed, many atoms have no bonds61utrecht, “Indonesia’s Foreign,” p.184.62MPO: Japan Asia Quarterly Review 12, Special Issue on“Japanese Transnational Enterprises in Indonesia,” no. 4, (1980),p.49.63Rush, The Last Tree, p.35.123between them at all.”64 This societal structure has importantimplications for policy implementation. While policy developmentis dominated by a small elite, subsequent rules must be filteredthrough multiple layers of patron-client clusters and networks. Aspolicies are implemented, and work their way from the insulateddepartments in Jakarta to the remote outer islands, state patronsmake particularistic concessions to their clients. If thesemodifications were isolated, they would have little overall impact.But taken as a whole they debilitate state capacity, and the actualeffect of policies often bears little resemblance to the originalcontent outlined in Jakarta.65In sum, decisions and policies in the New Order are dominatedby the state -- in particular, President Suharto, the military, andthe bureaucracy. Parliament, political parties, interest groups,the media, students, and academics are peripheral. Business hasmore influence, though this is constrained by pervasive anti64Jackson, “The Political Implications,” p.35.65Poor policy implementation is reinforced by a culturalsuspicion of action. Jackson argues that “as designing plans isrelatively passive while implementation requires action, attentionand high status go with the former rather than the latter.Progress in bureaucracies is often impressive until the moment whenimplementation is required.” Ibid., p.39. An example is the 1982Environmental Management Act which contains an impressive set ofprinciples. There are, however, still no implementing regulations.According to MacAndrews, “Without these regulations, cases taken tocourt under this Act have often been dismissed for lack of anadequate legal basis.” MacAndrews, “Politics of the Environment,”p.379, footnote 16.124Chinese sentiments.66 Yet, even though the state excludes societalinput into policy formulation, extensive patron-client ties amongthe political elite, in the military, in the bureaucracy, andbetween members of these institutions and business, regional, andcommunity leaders have a profound impact on the implementation ofpolicies. For the management of timber, these ties drivedestructive practices and undermine state capacity to implementpolicies.PATRON-CLIENT POLITICS AND TIMBER MANAGEMENT IN INDONESIABackgroundUnder the 1945 Constitution, all primary forests in Indonesiaare owned by the state. The 1967 Basic Forestry Law is thefoundation for forestry regulations. The total land area ofIndonesia is about 190 million hectares. Officially, Indonesia has143 million hectares of forests, mainly on the outer islands.67Conservation areas, such as National Parks and Wildlife Reserves,cover 19 million hectares. Another 30 million hectares are setaside as Protection Forest, mostly for soil and water conservation.66See Maclntyre, Business and Politics, p.3. He argues thatbusiness leaders have had greater leverage over policy formulationsince the mid-1980s, partially due to more pribuini Indonesianbusinesses. Maclntyre focuses on legislation -- on the content ofpolicy. He examines how business groups have fought to overturnregulations (e.g., spinning industry), have resisted theintroduction of specific measures (e.g., pharmaceutical industry),and have attempted to convince the state to introduce legislation(e.g., insurance industry). He does not, however, look closely atproblems with enforcement, where businesses simple ignore or skirtregulations and laws.67Around 82 million hectares are rain forests.125A further 30 million hectares are Conversion Forest, areasdesignated for conversion to agriculture, settlements, andplantations, often after logging. The remaining 64 millionhectares are Production Forest, accounting for about 60 percent oflegal commercial timber in Southeast Asia. Production areas aresupposed to be managed sustainably, mostly by selective cutting inprimary and secondary forests.6 Numerous observers claim officialforestry statistics are inaccurate. A 1990 fine-resolution mappingproject estimated total forest cover at 108 million hectares. A1990 World Bank study estimated total forest area at 100 millionhectares.69 The radical Indonesian NGO group SKEPHI (Network forTropical Forest Conservation) is even more pessimistic, claimingThis data was supplied by a Professor at Bogor AgriculturalUniversity, Faculty of Forestry, Bogor Indonesia, 25 February 1994.These figures are essentially the same as those used by theMinistry of Forestry. For government forestry data, see IndonesianMinistry of Forestry, Indonesia and the Management of its Forests(Jakarta: Republic of Indonesia, 1992); Indonesian Ministry ofForestry, The Timber Industry in Indonesia (Jakarta: Republic ofIndonesia, 1992); Indonesian Ministry of Forestry, The IndonesianTropical Rain Forest Conservation Areas (Jakarta: Republic ofIndonesia, 1990)69Both these estimates are cited in WALHI (Indonesian Forum forthe Environment) and YLBHI (Indonesian Legal Aid Foundation),Mistaking Plantations For The Indonesia’s Tropical Forest,(Jakarta: Wahana Lingkungan Hidup Indonesia [WALHI], 1992), p.11.Also see Sandra Moniaga, “Status of Forest Resources in Indonesia,in JANNI, Reshaping “Development”: Indonesia-Japan Relation fromGrassroots’ Perspective, Proceedings of the INGI Kanagawa Symposium(Tokyo: Japan NGO Network on Indonesia [JANNI], 1993), pp.39-42.For a range of estimates, see Jill M. Blockhus, Mark R. Dillenbeck,Jeffrey A. Sayer and Per Wegge, eds., “Conserving BiologicalDiversity in Managed Tropical Forests,” Proceedings of a Workshopheld at the IUCN General Assembly Perth, Australia, 1990. (Gland:IUCN/ITTO, 1992), pp.45-46.126only 90 million hectares of forest remain.70 Even a governmenteconomist at the National Planning Agency estimated Indonesia’sactual production forest area is only 32 million hectares, half theofficial figure.7’Numerous bureaucratic departments shape the environmentalmanagement of timber concessions. The Ministry of Forestry-- witha staff of 50,000 -- is responsible for collecting taxes androyalties, setting annual allowable harvests, enforcing cutting andsilvicultural guidelines, and monitoring timber regulations.72 TheMinistry of Industry promotes the economic development of forestresources. This ministry has been a key force behind thedevelopment of wood processing. In 1978, the government formed theState Ministry for Development Supervision and Environment, laterrenamed the State Ministry for Population and the Environment, andnow called the State Ministry for the Environment. This Ministrycoordinates environmental management across departments, advisesdepartments on environmental issues, evaluates the environmentalimpact of logging proposals, and monitors reforestation sites.Other departments and ministries also influence forest management,including Finance, Trade, Agriculture, Transmigration, Public70SKEPHI, Forest Management Is Inefficient, Position Paper ForAustria Parliament (Jakarta, SKEPHI, 1993), p.2.71Sunimarized in. Rush, The Last Tree, p.36.721n 1983, the Directorate-General of Forestry of the Ministryof Agriculture became a ministry and was named the Ministry ofForestry.127Works, and Energy and Mines.73POLITICIANS, PATRONAGE, AND CHINESE TIMBER CLIENTSApproximately 500 concessionaires, under the control of about50 conglomerates, have licences to log more than 60 millionhectares of Production Forests. Between 1989 and 1994, averageannual legal timber production was over 30 million cubic metres.Concession holders log around 800,000 hectares a year, more thanthe rest of Southeast Asia conibined.74 Already by mid-1990, 25million hectares had been logged.75 About two-thirds of loggingconglomerates are controlled by Chinese-Indonesians. Non-Chinesetimber businesses are limited mainly to local companies. Chinesecompanies, however, must rely on politicians for concessions andlicences, on military officers for protection, and on bureaucratsfor ‘flexible’ interpretation of management rules. AmongIndonesian-Chinese timber leaders, Bob Hasan is the most powerfulfigure.76 He is the head of four trade associations, including73See Malcolm Gillis, “Indonesia: public policies, resourcemanagement, and the tropical forest,” in Malcolm Gillis and RobertRepetto, eds., Public Policies and the Misuse of Forest Resources(Cambridge: Cambridge University Press, 1988), pp.50-51; andMalcolm Gillis, “Multinational Enterprises and Environmental andResource Management Issues in the Indonesian Tropical ForestSector,” in Charles S. Pearson, ed., Multinational Corporations,Environment, and the Third World (Durham: Duke University Press,1987), pp.76-78.74Raphael Pura, “Rapid Loss of Forest Worries Indonesia,” TheAsian Wall Street Journal (hereafter AWSJ), 3 February 1990, p.10.75WALHI and YLBHI, Mistaking, p.12.76For an interview with Hasan, see John Vidal, “High stakes inthe rainforest,” The Guardian, 19 October 1990.128Apkindo, the Wood Panel Association that controls the plywoodindustry. One forestry official aptly declared: “The forestrydepartment cooperates with Apkindo, but Apkindo really makespolicy.”77 Hasan’s power stems from his direct link to Suharto.78Hasan -- who has the rights to log 2 million hectares-- andPresident Suharto have had close ties since the late 1950s.According to one insider, Hasan is the de facto Minister ofForestry -- the formal Minister of Forestry or the State Ministerof the Environment can only challenge him to a limited degree.79Asia’s largest timber operator is Prajogo Pangestu, a secondgeneration Indonesian-Chinese from Kalimantan. His main company isP.T. Barito Pacific Timber.8° Like Hasan, Prajogo has close,personal ties to Suharto.81 Prajogo’s timber concessions cover 5.5million hectares -- the size of Switzerland -- and he employs more77Adam Schwarz, “Timber troubles,” FEER, 6 April 1989, p.86.78lnterview, Senior official, Bappenas, Ministry of Planning,4 March 1994.79This official claimed that Hasan is primarily motivated by adesire to build his ‘empire’, and although he sometimes sounds‘green’, he has little concern for environmental issues.Confidential Interview, Senior Indonesian official, Jakarta, 3March 1994.80For a critical account of Barito Pacific Timber, see SKEPHI,Setiakawan, no. 10, January-June, 1993, pp.53-55.81A leaked 1991 memo from Prajogo to Suharto illustrates theirclose relationship. In this memo, Prajogo asked Suharto toencourage the Forestry Minister, Hasjrul Harahap, to “facilitatethe paperwork and financing for an industrial-tree plantation inSouth Sumatra.” According to FEER, Suharto responded by jotting anote to Harahap on the memo that “he should fulfil all of Prajogo’srequests.” Jonathan Friedland and Adam Schwarz, “Risks on Paper,”FEER, 12 March 1992, p.44.129than 50,000 people. Prajogo is the world’s largest exporter oftropical plywood, with annual sales around US$600 million. Thetotal value of Prajogo’s forest land, logging infrastructure andplywood mills is US$5-6 billion. His Barito Pacific Group ofcompanies is also the largest borrower of state funds, with morethan US$1 billion in loans. In 1992, he received “an unusuallyattractive. . .debt rescheduling that stretched repayment periods onabout US$460 million in timber industry borrowings into the nextcentury.”82 He has recently established huge state-subsidizedsoftwood plantations to supply a US$1 billion pulp and paper mill.His partner is Siti Hardijanti Rukmana, Suharto’s eldest child.Not surprisingly, Prajogo has made substantial ‘donations’ tocharities and social programs connected to Suharto’s family.Prajogo has also reportedly helped rescue poor investments linkedto Suharto and the military.83 Prajogo and his wife alsoconscientiously “nurture the relationship [with Suharto] with smallgestures, such as gifts of home-cooked treats from Mrs. Prajogo’shome province of North Sulawesi.hIM82Raphael Pura, “Timber Tycoon Confronts His Critics,” AWSJ, 27August 1993, p.8.83Prajogo’s timber holdings are discussed by Raphael Pura,“Timber Tycoon Confronts His Critics,” AWSJ, 27 August 1993, p.1and p.8; Raphael Pura, Stephen Duthi and Richard Borsuk, “PlywoodTycoon May Purchase Malaysian Firm, AWSJ, 3 February 1994, p.1 andp.4; and Adam Schwarz, “Forest Framework,” FEER, 12 March 1992,p.44.84Raphael Pura, “Timber Tycoon Confronts His Critics,” AWSJ, 27August 1993, p.8.130MILITARY LEADERS AND TIMBERIn 1967, Suharto distributed timber concessions to rewardloyal generals, appease potential military dissidents, andsupplement the military budget. In 1978, the Department of Defense(Hankam) business group P.T. Tn Usaha Bhakti, along with regionalmilitary commands, controlled at least fourteen timber companies.85Today the military is still heavily involved in logging. Forexample, in East Kalimantan, the International Timber Corporationof Indonesia (ITCI), operates a 600,000 hectare concession, thelargest in Indonesia. As well, by the year 2000, ITCI plans todevelop 140,000 hectares of timber plantations. Fifty-one percentof this company is controlled by the armed forces.86 Of theremaining shares, P.T. Bimantara Citra-- a conglomerate chaired bySuharto’s second son, Banibang Trihatmodjo-- holds 34 percent whileHasan owns 15 percent. According to Hasan, the military uses itsprofits to augment its official budget and build houses forso1diers) P.T. Yamaker-- which logs concessions in East85Robison, “Toward A Class Analysis,” p.28. These companieswere backed by Chinese and foreign funds.861n the early 1970s, ITCI’s major shareholders included themost powerful generals of the New Order. According to Hurst,ITCI’s concession was in effect a “pay-off from Suharto for theloyalty of Indonesia’s military elite.” Philip Hurst, RainforestPolitics: Ecological Destruction in South-East Asia (London: ZedBooks, 1990), p.34.Based on ITCI (International Timber Corporation Indonesia),PT. International Timber Corporation Indonesia (Jakarta: ITCI,1992); Rush, The Last Tree, pp.36-37; Raphael Pura, “Rapid Loss ofForest Worries Indonesia,” AWSJ, 3 February 1990, p.10; and StevenErlanger, “For Suharto, His Heirs are Key to Life After ‘93,” TheNew York Times International, 11 November 1990, p.Y1l.131Kalimantan near the border with Borneo Malaysia - - is anothertimber company linked to the army. This is deemed necessary forsecurity. Not surprisingly, with strong military protection, thereis little bureaucratic supervision of logging in these remoteareas. According to one insider, convoys of trucks smuggle illegallogs to Sabah.88Patron-client ties between state leaders and timber operatorsweaken state supervision of bureaucratic implementors and distortstate management policies. In the last few years, state leadershave declared a crackdown on illegal loggers and tax evaders.Despite the rhetoric, however, the state has had minimal impact oncorporate practices. Instead, top state patrons and powerfulbusiness clients continue to reap huge profits while middle-levelstate implementors continue to ignore state rules in exchange forbribes, gifts, and career stability. As we will see in the nextsection, the result is rampant illegal logging, timber smuggling,tax and royalty evasion, flagrant violations of logging rules, andavoidance of reforestation duties. As well, these patron-clientties have contributed to inappropriate and ineffective policies forplywood processing, foreign investment, conservation, and pulp andpaper plantations.88Confidential Interview, Senior Indonesian official, Jakarta,3 March 1994.132FORESTRY POLICIES ND PATRON-CLIENT POLITICSA. Logging Rules and Concession DistributionUntil the late 1980s, Indonesian logging was regulated by theSelective Cutting System (TPI). This system divided concessionsinto 35 areas which were then logged annually on a 35 year cycle.Loggers were only allowed to cut trees with a diameter of 50centimetres or more at breast height. As well, if less than 25trees with a diameter between 25-49 centimetres remained in alogged hectare, companies had to do enrichment planting.89 In1989, the government established a new cutting policy-- called theIndonesian Selective Cutting and Replanting System (TPTI). Loggingguidelines are essentially the same, although now loggers arerequired to replant commercial species. This current policy hasmade little difference. According to the NGO WALHI (Forum For theEnvironment) and the Indonesian Legal Aid Foundation, “it wasn’tapplication of a faulty management system, but rather the failureto apply any management system which resulted in so muchdegradation. Although improving management policies is useful, inreality the key to better forest management is betterimplementation and tighter enforcement.”9° There are certainlyproblems with timber management rules. For example, whilecompanies are allowed to log areas on a 35 five year cycle,licences are only granted for 20 years, with no guarantee of89For details on TPI, see Hurst, Rainforest, pp.lG-17. For acritique of Indonesian selective logging rules, see Gillis,“Indonesia: public policies,” pp.63-65.90WALHI and YLEHI, Mistaking, pp.59-60.133renewal. This obviously makes little sense.9’ But in the contextof Indonesian politics this discrepancy is not critical. Even ifconcession licences were granted for 100 years, it would makelittle difference since it is clear to loggers -- especially ethnicChinese -- that a shift in political or military power could changethe rules overnight.Historical allocation of timber concessions contributes tocurrent management problems. Starting in the mid-l960s, Suhartoawarded concessions to numerous loyal military and politicalclients. In 1970, to quash provincial claims to timber areasSuharto had awarded as ‘presents’, the authority to distributeconcessions was centralized under the Directorate-General ofForestry. As a result, small-scale loggers without Jakartan tieslost their concessions; many resorted to illegal logging. Jakarta-based concessionaires often had little forestry knowledge orcapital, and turned to Mt\TCs and Indonesian-Chinese companies tohandle logging operations.92 This split between control ofconcessions and management of timber operations continues today,reducing accountability and transparency. According to MarikoUrano, “the increase in these absentee concessionaires has91Barbier, Burgess, and Markandya, “The Economics of TropicalDeforestation,” p.57.92Despite needing sub-contractors, concessions were stillexcellent ‘presents’ since profits were huge and fast. 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Illegal logging is connected to high-rankingpolitical and military leaders, police, regional administrators,customs agents, and forestry staff.’°7 In 1993, total timberproduction was around 35 million cubic metres. Yet illegal loggingmay be equivalent to legal logging, putting total log production atabout 70 million cubic metres,’°8 far above FAQ’s conservativeestimate of sustainable production at 25 million cubic metres peryear.’°9 Logging companies use various techniques to evade timber‘°5Peyton Johnson, “Fire in the Mother Lung,” CERES FAQ 24,no.3, (May-June, 1992), p.34; SICEPHI, Forest Fire Profile inIndonesia (Jakarta: SKEPHI, 1992). SKEPHI is critical of the lackof Northern assistance in combatting these fires. SKEPHI,Setiakawan, no. 7, January-June, 1992, pp.44-46.‘°6As of mid-October, around 500,000 hectares had burned and thefires were still out of control. “Burning rainforest spreads pallover Southeast Asia,” The Vancouver Sun, 18 October 1994, p.A17;and S. Jayasan]caran and John McBeth, “Hazy Days,” FEER, 20 October1994, pp.66-67.‘°7Many senior Indonesian forestry academics are funded bytimber money and therefore are unwilling to document extensiveillegal logging. Interview, WALHI, Jakarta, 3 March 1994.‘°8lnterview, Bogor Agricultural University, Faculty ofForestry, Bogor Indonesia, 28 February 1994; and Interview, CentreFor International Forestry Research (CIFOR), Bogor Indonesia, 2March 1994.‘°Summarized in Adam Schwarz, “Timber is the test,” FEER, 23July 1992, p.36. A World Bank study estimated that Indonesia’sannual sustainable yield is only 22 million cubic metres.Summarized in Gareth Porter, “The Environmental Hazards of Asia138quotas. Loggers over-harvest their concessions and cut trees inNational Parks and conservation areas.Smuggling rings involving top military, political and businessleaders, as well as local forestry officials, security officers andforeign business executives (particularly Malaysians) transportmany of these logs outside the country.”° There are strong signsthat Japanese companies are purchasing illegal logs fromKalimantan, and moving them through Borneo Malaysia.’1’ In 1992,timber smuggling reportedly cost the state 135 billion rupiah.”2Domestic processors-- who face a chronic shortage of supply-- arealso deeply involved in illegal logging.”3 This is hardlysurprising since annual capacity of plywood plants and sawmills is60 million cubic metres, about twice as high as the ForestryDepartment’s estimate of sustainable production.”4 As a result,Pacific Development: The Southeast Asian Rainforests,” CurrentHistory (December 1994), p.431.“°According to local Forestry service data, loggers smugglebetween 50,000 to 100,000 cubic metres of illegal timber every yearfrom West Kalimantan to Borneo Malaysia. SKEPHI, Setiakawan, no.11, July-September 1993, pp.31-33.“Interview, Environmental consultant, Bogor Indonesia, 24February 1994; and Nectoux and Kuroda, Timber, p.73.“2As±an Timber, January 1993, p.9.“3Debra J. Callister, Illegal Tropical Timber Trade: AsiaPacific (Cambridge, United Kingdom: Traffic International, 1992),p.30.“4This incongruity is partially a result of poor coordinationbetween the Ministry of Forestry and the Ministry of Industry. TheMinistry of Industry set the capacity of plywood mills, stressingintense production to maintain rapid economic growth. Interview,Bogor Agricultural University, Faculty of Forestry, BogorIndonesia, 28 February 1994.139processors are constantly scrambling for more logs. According toa concession director, one way concessionaires increase supply isby hiring local people to cut logs illegally. These logs arereported ‘stolen’ and then bought back to feed the company’sprocessing mill h15B. Licence Fees, Royalty Policies, and Timber TaxesConcession holders must pay uniform ad valorem royalties onthe volume of logs extracted. This aggravates loggingmismanagement since loggers face few penalties for damaging timberstocks and have no incentives to cut defective or low grade timber.Instead, loggers concentrate on removing the largest and mostvaluable species, often creating irreparable ecological harm.”6Poorly designed and insufficient licence fees, royalties andexport taxes have contributed to Indonesia capturing a lowpercentage of timber rents. According to Repetto, from 1979 to1982, “only $1.6 billion of a potential aggregate rent of $4.4billion” was collected by the government -- the remainder becameprivate prof it.”7 In 1992, the World Bank estimated that the“5lnterview, Indonesian concessionaire, Jakarta, 3 March 1994.‘16Gillis, “Indonesia: public policies,” pp.59-60; and Barbier,et., al., “The Economics,” pp.56-57.117Robert Repetto, The Forest For The Trees? Government Policiesand the Misuse of Forest Resources (Washington: World ResourcesInstitute, 1988), p.43. For more details, see Gillis, “Indonesia:public policies,” pp.85-98. “Rent, by definition, is a value inexcess of the total costs of bringing trees to market as logs orwood products, including the cost of attracting necessaryinvestment. That cost may include a risk premium that reflectsuncertainties about future market and political conditions, so140Indonesian government collected only 30 percent of the economicrent from logging, compared with 85 percent for petroleum.”8 Evenmore alarming, a study by WALHI found that the government captureda mere 8 percent of timber rents in 1989. In 1990, after anincrease in reforestation fees and timber taxes, WALHI calculatedthat the government still captured only 17 percent of timber rents.According to a WALHI representative little has changed since then;the government now captures around 15 percent of timber rents.”9Low government rent collection has important implications.Loggers -- to maximize profits before rules suddenly change --quickly and recklessly extract logs while ignoring silviculturaltreatments, reforestation and sustainable management. According toone study, “when rent capture is low, it allows windfall profits tothe concessionaires and/or their logging contractors. Inevitably,windfalls are perceived as short-term gains, and the beneficiariesthere are inevitably doubts about the exact magnitude of availablerents.” Robert Repetto, “Overview,” in Gillis and Repetto, eds.,Public Policies, p.18.“8Sunimarized in Adam Schwarz, “Timber is the test,” FEER, 23July 1992, p.36.“9WALHI and YLBHI, Mistaking, pp.20-21; and Interview, WALHI,Jakarta, 3 March 1994. There is a wide range of estimates oftimber rent captured by the government, from a low of 8-15 percentby WALHI to a high of 83 percent by a government consultant. Moststudies fall in a range between 20 to 30 percent. For a list ofstudies, see Dudung Darusman, “The Economic Rent of Tropical ForestUtilization in Indonesia,” A Paper Presented at the NationalSeminar on the Economic Aspect of the Forestry Business inIndonesia, the Association of Forest Concessioners and the Ministryof Forestry, Jakarta, October 6-7, 1992, p.17.141will maximize them, as long as they last.”2° Low rent capturealso creates a de facto subsidy that supports inefficient woodprocessing. As well, it allows exporters to sell high-grade timberat exceptionally low prices. The state needs to collect economicrents since private companies cannot be relied on to plough profitsback into forest regeneration. Since reforestation and sustainablemanagement involve long-term returns and high financial risks, andrequire political stability, corporations have a strong inclinationto invest timber profits into other ventures, especially realestate which does not involve production, reinvestment, governmentlicences, or concessions.121Even though low Indonesian forest charges allow companies tomake substantial legal profits, loggers routinely forge exportdocuments, falsify harvest yields, illegally log inside and outsideconcessions, and ignore reforestation fees. According to onecorporation, 19 out of 21 timber companies in South Sumatramanipulate their export documents to evade taxes.’22 Companiesalso elude royalties and distort figures on volume extracted byreusing timber transportation documents, sometimes as many as 5times 123‘20lndonesian Ministry of Forestry and FAQ, Indonesian TropicalForestry Action Programme: Executive Summary (Jakarta, Governmentof Indonesia and the United Nations, 1991), p.44.‘21Robison, “Toward A Class Analysis,” p.33.22Suirimarized in SKEPHI, Setiakawan, no. 11 (July-September1993), p.31.‘23SKEPHI, Setiakawan, no. 8 (July-September 1992), p.3.142C. Foreign Investment PoliciesPrior to the mid-1960s, logging on the outer islands waslimited. After 1967, government incentives under the new ForeignCapital Investment Law opened a door to large Northern and smallerSouthern MNC5, triggering a logging boom in the primary forests.’24From 1968 to 1980, the volume of logs extracted increased onaverage 22.5 percent every year. By 1979, 89 percent of productionforest was divided into concessions.’25 During the late 1960s andearly 1970s, foreign timber technology and management adviceaccelerated the rate of extraction.’26 Mt\TC5 made enormous profitsby paying little for timber rights, ‘mining’ concessions of themost valuable trees, ignoring reforestation, refusing to investprofits in processing or rehabilitation, and avoiding taxes and‘241n the 1970s, major foreign investors in the Indonesiantimber sector were from the Philippines, Hong Kong, Malaysia, theUnited States, South Korea, and Japan. Before 1980, Southern firmsaccounted for two-thirds of foreign investment in the Indonesiantimber sector. From 1978 to 1981 Japanese investment expanded. Buteven in 1981 Southern firms still comprised over half of foreigntimber investment. Gillis, “Multinational Enterprises,” p.73. Thesignificant impact of Southern investment -- and increasinglytrade-- on Indonesian timber management suggests an important areafor future research: contrasting the impact of Southern andNorthern MNCs on resource management. For a preliminary comparisonof the environmental impact of Northern and Southern MNCs onIndonesian timber management, see Ibid., pp.84-86.‘25Gillis, “Multinational Enterprises,” p.70.‘26See Economic and Social Commission For Asia and the Pacific,Transnat±onal Corporations and the Tropical Hardwood Industry ofIndonesia, United Nations, Joint CTC/ESCAP Unit on TransnationalCorporations, Working Paper no. 16, Bangkok, 1981, pp.1-2. WhileSouthern investors accounted for over half of Indonesian timberinvestment, many of these companies used equipment and techniquesabsorbed from earlier contact with Northern companies.143royalties through transfer pricing.127 Many of these giant loggingoperations were in Kalimantan. By 1971, 65 percent of timberproduced came from Kalimantan; 75 percent was exported. By 1974,around 11 million hectares of Kalimantan had been carved intotimber concessions •128During the 1960s and 1970s, multinational timber profits andlog exports were lightly taxed. From 1967 until major tax reformsin 1983, foreign timber investors received four to six year incometax holidays -- which in practice sometimes exempted firms frompaying any income tax.’29 As well, until 1978 log export taxeswere only 10 percent of export value, compared to around 20 percentin Sabah.’3° As a result, companies made huge profits, nearlydoubling after-tax investment returns. Despite increases inforeign exchange earnings from timber, in the early 1970s, theIndonesian government began to restrict foreign investment. Thegovernment was angry over low rates of reforestation, ‘unfair’ anduncooperative foreign firms, evasion of timber taxes, and, mostimportantly, the reluctance of MNCs to invest in processing. In1975, the government forbid further foreign ownership or jointventures in logging, and only allowed equity shares in timber‘27A.J. Leslie, “The government-TNC relationship in tropicaltimber concession contracts” (Unpublished paper, 1980), summarizedin Ibid., p.5.‘28Hurst, Rainforest, p.2, and p.10.‘29Th±s greatly reduced Indonesian state timber revenues.Gulls, “Indonesia: public policies,” pp.67-69.‘30Gillis, “Multinational Enterprises,” p.68.144processing.13’D. Processing PoliciesThe first Five Year Plan, Repelita I (1969/70-1973/4)emphasized log exports and increasing foreign exchange earnings.During Repelita II (1974/5-1978/9), the central government pushedconcessionaires to build processing plants. Beginning in 1977, thegovernment collected a mandatory deposit on log exports to financeconstruction of processing plants. To encourage more processing,the Indonesian government doubled log export taxes in 1978.132Foreign firms that refused to participate in processing had thesize of their concessions reduced. At the end of the 1970s, MNCsbegan to withdraw in anticipation of even greater governmentregulations and restrictions. Before leaving, however, many timbercompanies mined their concessions. Partially as a result, in 1979Indonesia accounted for 41 percent of the world market in tropicallogs 133From 1980 to 1985, the government implemented a ban on logexports.’34 The World Bank and all major industrialized countries131bid., pp.74-76.‘32Gillis, “Indonesia: public policies,” p.69. To evade exportand income taxes both national and foreign firms were involved inundervaluing timber exports, including those to Japan. Gillis,“Multinational Enterprises,” p.68.‘33Potter, “Environmental and Social Aspects,” p.186‘341n 1992, the ‘ban’ on log exports was lifted and replaced byastronomical taxes on log exports. This in effect maintains theban.145-- including Japan, the U.S., and Canada-- opposed this decision,based primarily on free-market arguments. Indonesia ignored thispressure, concluding it was essential to control the market anddevelop a timber processing industry. There were three key reasonsfor this decision. One, to add value and diversify the economyaway from a heavy emphasis on oil exports. Indonesian plannersbelieved this would not occur in a free market. Two, to createjobs. Three, to provide incentives for long-term forestryinvestments.’35 While the government had ‘rational’ reasons forimposing a ban, state capacity to implement this policy was greatlyincreased by close cooperation and support from powerful domesticbusiness leaders who wanted to concentrate and consolidate control.Hasan has played a crucial role in forming the state-businessalliance that has strictly imposed this ban.’36With government support, Indonesia’s plywood industry grewquickly-- from 29 plywood mills in 1980 to 111 mills in 1988, withSenior official, Bappenas, Ministry of Planning,Jakarta, 4 March 1994. According to this government spokesman,more companies now replant to ensure future supplies for theirmills.136Part of the reason the government has been able to enforcea ban on log exports is that it has increased, rather thanundermined, financial opportunities for the most powerful timbercompanies. On the other hand, the Indonesian state has not beenable to control over-exploitation and environmental mismanagement.Environmental concerns, as a low profile, low priority issuealigned against strong patron-client networks and businessinterests do not create the internal support necessary to generatestrong state action.146a tenfold rise in production.137 Now there are over 130 plywoodmills. In 1991 Indonesia controlled 85 percent of world trade intropical plywood.138 In 1992, Indonesia exported 9.2 million cubicmetres of plywood. By 1993, forest exports earned US$4.5 billion;plywood accounted for nearly 75 percent of these exports.139Plywood manufacturing also generates significant employment andforeign exchange.’4° Indonesia’s plywood export strategy has beensimple: flood the market with cheap plywood and destroycompetitors; once this is accomplished, gradually raise prices andgovernment taxes. In some ways, this strategy has been successful.While the ban led to a temporary loss in foreign exchange earnings,by 1988 -- using equipment supplied by Taiwan, South Korea, andJapan -- Indonesia had regained its foreign exchange earnings. Withcontrol over the world market in tropical plywood, Indonesia can‘37William B Wood, “Tropical Deforestation: Balancing Regionaldevelopment demands and global environmental concerns,” GlobalEnvironmental Change 1, no. 1 (December 1990), p.34.‘38M. Bob Hasan, Keynote Address, “Prospects for Plywood intothe 21st Century,” Proceedings of the World Conference on TropicalPlywood (Jakarta, ITTO, December 1991), p.21.‘39”Indones±a to reduce tree cutting to help preserverainforests,” The Japan Times, 27 July 1994, p.18.‘40Around 2.5 million people work directly in the timberindustry and 1.2 million work in related industries such as gluemanufacturing. In 1990, plywood exports accounted for 14 percentof total foreign exchange earnings. Hasan, “Prospects forPlywood,” p.24. It is, however, important to note that governmentand corporate statistics exaggerate the economic benefits of timberprocessing since “primary forest assets are established withoutcost. Harvesting depreciates what is a valuable stock but theeconomic accounting of timber operations does not include thisdepreciation as a cost.” Zerner, Legal Options, p.5.147potentially be a ‘price leader.”4’ But despite these apparentachievements, there have been major economic and environmentaldrawbacks of building a processing industry.Dated technology, protective state policies and the log exportban have contributed to large numbers of inefficient processingmills.’42 Even though many operate far below capacity-- some aslow as 30 percent-- these mills waste valuable wood, putting evenmore pressure on forest Besides fosteringinefficiency and over-capacity, the ban on log exports and statesubsidies for processing-- including labour, electricity, and logcosts -- have contributed to enormous state revenue losses. Onestudy calculated that as a result of the phased log export ban,between 1981 and 1986 the government lost US$1.9 to US$3.1 billion‘41lnterview, Senior official, Bappenas, Ministry of Planning,Jakarta, 4 March 1994.‘421n Japan, processing efficiency is between 55 to 70 percent;in Indonesia it is between 40 to 50 percent. In fairness toIndonesian processors, while this discrepancy is partly a result ofbetter Japanese technology, expertise, and policies, it is alsopartly due to differences in the quality of logs. Japaneseprocessors import high quality logs while local Indonesian millsoften use logs from the surrounding area, naturally decreasingefficiency. Interview, Japan Plywood Inspection Corporation,Tokyo, 8 April 1994.‘43Carlos Alberto Primo Braga, “Tropical Forests and TradePolicy: The Cases of Indonesia and Brazil,” in Low ed.,International Trade and the Environment, p.190. While I have nosubstantive evidence, a government spokesman claims that manyprocessing mills have become more efficient since the mid-l980s.Interview, Senior Official, Bappenas, Ministry of Planning, 4 March1994.148in export revenues.’44 By eliminating export restrictions, andimproving rent collection, the World Bank estimates that theIndonesian government could collect another US$2 billion inforestry fees every year. According to this report, the export banhas depressed Indonesian log prices to around half the world level.This has contributed to “over-cutting and over-investment inprocessing capacity. “Besides financial losses, the log export ban has added toenvironmental problems. In 1960, log production was only 1.4million cubic metres. Pushed by foreign investment and technology,this climbed dramatically in the late 1960s and 1970s, reaching24.6 million cubic metres in 1978. Between 1981 and 1985 as thelog export ban was gradually imposed, log production dropped by 35percent.’46 Indonesian government and business leaders sometimespoint to this decrease in logging rates as proof of theenvironmental benefits of the ban. But this was a temporaryrespite. By 1988 log production was even higher, estimated at 32million cubic metres.’47 Today, driven by strong demand fromdomestic processors, there is even more pressure on the forests‘Holly Lindsay, “The Indonesian Export Ban: An Estimation ofForegone Export Earnings,” Bulletin of Indonesian Economic Studies25, no. 2, (August 1989), pp.111-123.145Quoted in Adam Schwarz, “Timber is the test,” FEER, 23 July1992, p.36.‘46WALHI and YLBHI, Mistaking, p.17.‘47This data on log production is from Indonesian Ministry ofForestry and FAQ, Indonesian Tropical, p.4.149than at the height of log exports in the 1970s.’48Many wood processors operate logging concessions. This issupposed to provide strong incentives for sustainable managementsince processors need steady future supplies. According to Hasan,“when you log, you don’t care if there are any trees left at theend. But if you invested in a factory, then you must be sure of asupply of raw material.”’49 In theory, Hasan may be right. But inpractice, processors-- to maximize immediate profits-- minetheir concessions and use illegal logs to feed their mills.Furthermore, allowing processors to own concessions distorts freemarket signals which would raise the price of logs as plywoodprices increase. Partially as a result, log prices are far too lowto support sustainable management.15° To compensate for low logprices, Indonesia has considered forming a timber cartel to raiseplywood prices. So far there has been little progress. The majortropical timber producers-- in particular Malaysia, Brazil,Nigeria, and the Ivory Coast -- have diverse interests anddifferent markets: Brazil to the U.S.; Africa to Europe; andMalaysia and Indonesia to Asia. Countries like Ma