Economic History Case Studies: Suharto’s New Order (Pt. I of II)

Indonesia gained its independence from the Europeans in the Cold War, the latter half of the Second World War. The country’s “Old Order” was established by its founding President, Sukarno, who pivoted toward a National Communist orientation around the late 1950s and 1960s. Sukarno insisted that Parliamentary Democracy was impractical in Indonesia, instead pursuing a political program that sought to appease the Indonesian armed forces, Nationalists, Communists, and Islamists. This Old Order was formally known as “Nasakom,” a term derived from the Indonesian words “Nasionalisme” (Nationalism), “Agama” (Religion), and “Komunisme” (Communism). The Indonesian armed forces served as the backbone for the country’s future in the late 20th century.

The political program espoused by Sukarno upheld Indonesian Nationalism and Indonesian Socialism as part of the principle of a “Guided Democracy.” Unlike Parliamentary Democracy or Council Democracy, political power rested on a national consensus between local Indonesians and Sukarno. The Indonesian Totality would engage in local politics and receive the guidance of Sukarno at the national government. The Indonesian government was dependent on a multi-party cabinet that advised the President on all matters related to the Indonesian nation. This form of political governance has less in common with Council Democracy and more in common with the sort of Patrimonialism advocated by Carl Ludwig von Haller a century earlier in Switzerland, who outlined its political system in Restoration of Political Science.

Thus, it was Sukarno, not Suharto, who laid the foundations of the Patrimonialism that Suharto would later exploit for his own purposes. The Indonesian government during Sukarno became increasingly controlled by the Indonesian Communist Party, which sought to move Indonesia toward a Marxist-Leninist orientation. Indonesia sought to minimize its dependency on the Western world and the Empire of Liberty by trying to pivot toward the Soviets, Chinese, and the various non-aligned nations of the period. But their reign under Sukarno was far from successful, as Indonesia lacked the sufficient economic and firepower to maintain its national independence.

Inflation rose exponentially, which coincided with the failure of a UN Resolution calling upon the Netherlands (Indonesia’s former colonial ruler) to negotiate ownership of the West Irian region. When the Dutch failed to concede to the Indonesians’ demands, the Indonesian military began a widespread nationalization of Dutch commercial firms that had to have been operating there since colonial times. The result led to the militarization of the Indonesian economy, which meant that the Indonesian military became increasingly embroiled in the affairs of Indonesian economic life and all other facets of everyday life.

Economic issues were not the real cause behind the overthrow of Sukarno and the end of Nasakom. In actuality, the cause itself was partly political and martial in nature, the consequence of an interservice rivalry between the Indonesian Army and the Indonesian Air Force’s support of a proposal from Sukarno at the behest of the Indonesian Communist Party. The other half came from Sukarno’s own folly, who made the decision to oppose the Empire of Liberty on its own and in a politically unstable national government.

In the 1960s, as one of the political policies instituted by Nasakom, the Communists believed that the Indonesian military should be replaced by a new Proletarian military more in line with the Soviet Red Army or the Chinese People’s Liberation Army. Sukarno grew increasingly supportive of the Indonesian Communists to the detriment of the Indonesian Islamists and Nationalists. Whether his Nasakom program was genuinely sincere is irrelevant; what is relevant, however, is that Sukarno cemented his own demise by destabilizing the very foundations which he had created for himself and the Indonesian Communists. Given that Indonesia throughout the late 20th century was a Patrimonial State, where the “State” exists as a mere extension of social relations between the Head of State (as the Self) and Totality, it should not be too surprising to later discover that Suharto would continue some aspects of Patrimonialism when the New Order was established.

The New Order was opposed to Marxism-Leninism whilst being sympathetic to Neoliberalism, which could not have been possible without the elements of the Indonesian Army led by Suharto being supported by the Jeffersonians and the Empire of Liberty. The New Order was governed by the principle of Pancasila, which was defined by five principles:

Ketuhanan yang Maha Esa (Belief in the one and only God)

Kemanusiaan yang adil dan beradab (Just and civilized humanity)

Persatuan Indonesia (The unity of Indonesia)

Kerakyatan yang dipimpin oleh hikmat kebijaksanaan dalam permusyawaratan/perwakilan (Democracy guided by the inner wisdom in the unanimity arising out of deliberations among representatives)

Keadilan sosial bagi seluruh rakyat Indonesia (Social justice for the whole of the people of Indonesia)

In a Patrimonial State like the Indonesia of Sukarno and Suharto, one must ask exactly where the country falls within the Types of Economic Governance Charts that I had established in my Treatises:

Based on the Economic History of Indonesia between Sukarno and Suharto, I would argue that Indonesia began at Leninist-style NEP under Sukarno, then shifted somewhere between the Chinese Birdcage & Doi Moi and Falangist Syndicalism. This can be inferred from the descriptions given by the proponents of Pancasila’s economic policies, who insisted that their economic system rejected the true Market/Mixed Economy of the US and EU/NATO member-states and the Command Economies. An “Indonesian Planned Economy” under Suharto would be the more appropriate term here than an “Indonesian Mixed Economy” due to the manner in which the country’s Economic Organizations were formatted and the political program implemented by Suharto’s government from 1966 to 1998.

In an Indonesian Planned Economy, State Enterprises governed the most important economic activities and were supported by coexisting Social Enterprises. These Social Enterprises consisted mostly of Cooperatives that were operating in accordance with the principles of Patrimonialism. In essence, if Suharto treated the Indonesian government and nation as extensions of his family’s Personal Property (as opposed to Productive Property like under the Work-Standard), then these Cooperatives also operated under similar parameters. All the economic problems associated with Suharto’s Indonesia, from institutional corruption and nepotism to rampant Rent-Seeking (a very important term that we will discuss in another Economic History Case Studies Entry), stemmed from the country being a Patrimonial State. Therefore, it would be tenable to argue that the Patrimonialism of Carl Ludwig von Haller can be potentially undermined by the political-economic history of Suharto’s Indonesia and its New Order.

Even so, in the context of late 20th century Indonesia, could Indonesia become the archetypical model for applying the Work-Standard in a non-Western country? It is possible, although there would have to be a lot of reforms by someone who lacked the shortsightedness of Sukarno and the corruption of Suharto. They would need to maintain a steady alliance between the Nationalists, Communists, Islamists, and the Indonesian Military-Industrial Complex. The country would be an Islamic Socialist Council Democracy where Sharia Law coexists with National Law, where a conception of Economic Planning is implemented in lockstep with the rest of the Muslim world, and where the Council Democracy deters the Head of State from turning the State into his Personal Property and from violating the Freedom of Conscience in the political arena. This personality, whoever they may be, must build civil-military relations and refrain from causing interservice rivalries among the armed forces. When the Work-Standard is properly implemented, however, Indonesia could become another model for the rest of Asia to follow, competing with the Japanese, Koreans, and Chinese economies.

Categories: Economic History

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