Dutch East Indies - Economic History

Economic History

See also: Cultivation System and Liberal Period (Dutch East Indies)

Despite increasing returns from the Dutch system of land tax, Dutch finances had been severely affected by the cost of the Java War and the Padri War, and the Dutch loss of Belgium in 1830 brought the Netherlands to the brink of bankruptcy. In 1830, a new Governor-General, Johannes van den Bosch, was appointed to make the Indies pay their way through Dutch exploitation of its resources. With the Dutch achieving political domination throughout Java for the first time in 1830, it was possible to introduce an agricultural policy of government-controlled forced cultivation. Termed cultuurstelsel (cultivation system) in Dutch and tanam paksa (forced plantation) in Indonesian, farmers were required to deliver, as a form of tax, fixed amounts of specified crops, such as sugar or coffee. Much of Java became a Dutch plantation and revenue rose continually through the nineteenth century which were reinvested into the Netherlands to save it from bankruptcy. Between 1830 and 1870, 1 billion guilders were taken from Indonesia, on average making 25 per cent of the annual Dutch Government budget. The Cultivation System, however, brought much economic hardship to Javanese peasants, who suffered famine and epidemics in the 1840s.

Critical public opinion in the Netherlands led to much of the Cultivation System's excesses being eliminated under the agrarian reforms of the "Liberal Period". Dutch private capital flowed in after 1850, especially in tin mining and plantation estate agriculture. The Billiton Company's tin mines off the eastern Sumatra coast was financed by a syndicate of Dutch entrepreneurs, including the younger brother of King William III. Mining began in 1860. In 1863 Jacob Nienhuys obtained a concession from the sultan of Deli (East Sumatra) for a large tobacco estate. From 1870, producers were no longer compelled to provide crops for exports, but the Indies were opened up to private enterprise. Dutch businessmen set up large, profitable plantations. Sugar production doubled between 1870 and 1885; new crops such as tea and cinchona flourished, and rubber was introduced, leading to dramatic increases in Dutch profits. Changes were not limited to Java, or agriculture; oil from Sumatra and Kalimantan became a valuable resource for industrialising Europe. Dutch commercial interests expanded off Java to the outer islands with increasingly more territory coming under direct Dutch control or dominance in the latter half of the 19th century. However, the resulting scarcity of land for rice production, combined with dramatically increasing populations, especially in Java, led to further hardships.

The colonial exploitation of Indonesia's wealth contributed to the industrialisation of the Netherlands, while simultaneously laying the foundation for the industrialisation of Indonesia. The Dutch introduced coffee, tea, cacao, tobacco and rubber and large expanses of Java became plantations cultivated by Javanese peasants, collected by Chinese intermediaries, and sold on overseas markets by European merchants. In the late 19th century economic growth was based on heavy world demand for tea, coffee, and cinchona. The government invested heavily in a railroad network (150 miles long in 1873, 1,200 in 1900), as well as telegraph lines, and entrepreneurs opened banks, shops and newspapers. The Dutch East Indies produced most of the world's supply of quinine and pepper, over a third of its rubber, a quarter of its coconut products, and a fifth of its tea, sugar, coffee, and oil. The profit from the Dutch East Indies made the Netherlands one of the world's most significant colonial powers. The Koninklijke Paketvaart-Maatschappij shipping line supported the unification of the colonial economy and brought inter-island shipping through to Batavia, rather than through Singapore, thus focussing more economic activity on Java.

The worldwide recession of the late 1880s and early 1890s saw the commodity prices on which the colony depended collapse. Journalists and civil servants observed that the majority of the Indies population were no better off than under the previous regulated Cultivation System economy and tens of thousands starved. Commodity prices recovered from the recession, leading to increased investment in the colony. The sugar, tin, copra and coffee trade on which the colony had been built thrived, and rubber, tobacco, tea and oil also became principal exports. Political reform increased the autonomy of the local colonial administration, moving away from central control from the Netherlands, whilst power was also diverged from the central Batavia government to more localised governing units.

The world economy recovered in the late 1890s and prosperity returned. Foreign investment, especially by the British, were encouraged. By 1900, foreign-held assets in the Netherlands Indies totalled about 750 million guilders ($300 million), mostly in Java.

After 1900 upgrading the infrastructure of ports and roads was a high priority for the Dutch, with the goal of modernizing the economy, facilitating commerce, and speeding up military movements. By 1950 Dutch engineers had built and upgraded a road network with 12,000 km of asphalted surface, 41,000 km of metalled road area and 16,000 km of gravel surfaces. In addition the Dutch built, 7,500 kilometers (4,700 mi) of railways, bridges, irrigation systems covering 1.4 million hectares (5,400 sq mi) of rice fields, several harbours, and 140 public drinking water systems. Wim Ravesteijn has said that, "With these public works, Dutch engineers constructed the material base of the colonial and postcolonial Indonesian state."

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