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Change in demand and in technology
Before World War II and in the early post-war years most tropical hardwood timber entering world trade came from countries bordering the Atlantic Ocean.8 Demand for South-East Asian timbers was selective, with emphasis particularly on teak and on certain species of great constructional value such as the Borneo ironwood (Eusideroxylon zwageri). Only in the Philippines, supplying the American market, was a more diversified trade developed, including logs and sawn timber from a number of dipterocarp species. Elsewhere, timber was widely felled and sawn for local use and, as agriculture expanded, a combination of logging and clearing destroyed large areas of lowland forest.
In the 1950s the forest industry of the Philippines was quite quickly rehabilitated after wartime destruction of equipment, and production expanded to meet a rising new market in Japan. In Borneo, some swampforest timbers, particularly ramin (Gonostylus bancanus), became important, still for the European market. Toward the end of the 1950s, Japanese demand - for hardwood logs as raw material for its timberworking industry - began to soar. Production rose rapidly through the 1960s and between 1970 and 1985 Japan alone took half the world's rising imports of sawlogs, most of it from South-East Asia. For the first time, there was substantial demand for the dipterocarp timbers of Sundaland, which, with a high merchantable density per hectare, had important comparative advantages as against the forests of Africa and the Americas. At first emphasis was placed on the group of Shorea species known as meranti, abundant in the lowland forests; later, demand widened significantly.
Exploitation of this comparative advantage called heavily on new technologies, especially the one-man chain-saw first developed in the 1950s, which made possible a great increase in productivity and, coupled with transport improvements, much deeper penetration of the forest.9 Among other innovations of significance were the outboard motor, extensively used on the rivers and bays, bigger and more powerful trucks, four-wheel drive vehicles, and especially that creature of World War II, the bulldozer. Others included the crawler tractor for hauling logs and all the equipment used in modern highlead winching, making possible extraction from increasingly steep slopes. In the rainforest environment all this costly equipment is punishingly used and has a short amortization period. Its introduction therefore brought with it a need for higher and faster returns.
Politics, economics, and management in the boom
In the Peninsula, where change began first, foresters quickly developed a system for managing extraction from the meranti-rich lowland forests - the Malayan Uniform System. This called for the creation of large gaps within which new dipterocarp seedlings would thrive, and be encouraged by poisoning unwanted species, so that a more uniform forest would become available for later extraction 60-80 years on. The system required an interest in the long-term future of the forests, but neither politics nor economics allowed this. Increasingly, the lowland forest lands were converted to agriculture after logging, and sometimes even without first extracting all the merchantable timber; in any case, no one was going to get concessions for up to 100 years in this fast-developing region.10 A "Selective System" therefore quickly took the place of the Uniform System and became necessary once extraction began to move into the more diverse forests of the hills, as it increasingly did after 1965.
The Selective System involves taking only mature trees, relying on the growth of immature trees to ensure a second harvest in the much shorter period of only some 35 years. Given that the very large, oldgrowth trees seem to be at least a century old and some are much older, the system would necessarily imply some reduction in biomass over time even if its exacting conditions are fully observed, which even now is very rare. However, few concessions have been given for longer than 20 years, and subcontracts are usually shorter. Together with the need, as well as the opportunity, for high short-term profits, the conditions were therefore created for a selective system that took far more than would permit the system to work as planned, and that approached the Uniform System in the size of gaps created.
In the Peninsula and Malaysian Borneo, concessions were rapidly extended over the upland forests after 1960. In Indonesia, the boom was delayed until after 1970 when, initially, a number of concessions were given to large multinational companies. In the absence of any real knowledge of the resource and its ecology, and with totally inadequate means of enforcing such regulations as were already in place, concessions were offered on extremely favourable terms, and were permitted to be worked without supervision, in order to develop log exports as important earners of foreign exchange. The theoretical
"annual allowable cut" was exceeded by several times in the 1970s, even in the Peninsula where regulation was far better than in any part of Borneo (Kumar, 1986). The rapidity of expansion yielded large revenues for state and provincial governments, despite low rates of royalty. Indonesia and Malaysia, with Brunei, together produced 17 per cent of the world's non-coniferous tropical timber in 1965, and 30 per cent by 1973. By the latter year, their share of world exports had risen to over 60 per cent and soon after reached the 70 per cent range around which it then stabilized to the end of the 1980s.
Rationalization and vertical integration
Timber did not share the 1973/74 price rise for oil; rather, prices dropped sharply. Production declined until about 1975, and a number of the early concessionaires withdrew. By this time, it was coming to be realized that export of unprocessed logs allowed all the profits of downstream manufacture to be captured in Japan and, by then, also Korea and Taiwan. As part of its post-1969 economic restructuring, therefore, Malaysia began to ban export of logs of some species from the Peninsula in 1972, and steadily widened the prohibition in order to build up domestic sawmilling as an industrial enterprise to diversify the economy of the new settlement regions. This did not apply to Malaysian Borneo, where few advantages in restricting log exports were seen at that time. Some of the "integrated timber complexes" set up on the Peninsula, and allocated large concession areas, have made serious efforts to develop sustainable extraction plans. However, much of the industry has remained outside this centrally guided system.
Indonesia followed suit with a higher log-export tax to encourage domestic processing in 1978; then a progressive ban on log exports was imposed in 1981, becoming complete from 1985. Although quite often described as such at the time, this was by no means a conservationist measure, but was designed to ensure the profitability of domestic sawmilling and especially plywood manufacture, an industry that Indonesia sought to capture from the East Asian countries. The capture was only partial, as Sarawak and Sabah exports increased dramatically in order to fill the gap in supply to East Asian industries. The new policy became of greater importance as the prolonged oil boom came to an end in the mid-1980s, and timber prices fell by less than those of many other commodities in the subsequent depression. Indonesia needed its plywood incomes and revenues to sustain in dependence in the planning of its own development. By 1987, Indonesia was supplying 58 per cent of all world exports of tropical plywoods, a high proportion of this from Kalimantan.
The frontier and the two nations
We take up the story from this point in the following chapters of part II. Before leaving this account of a remarkable transformation, however, it is important to stress highly important changes in regional development that have taken place during the period since World War II, and especially since 1970. The eastern side of the Peninsula has, substantially, become incorporated into the Malaysian national economy, but in the role of supplier of timber, oil, gas, palm oil, and the other products of the new settlement areas and the South China Sea. Indonesian Borneo not only has become the nation's major source of foreign exchange from oil and timber, increasingly gaining a larger share at the expense of initially dominant Sumatra, it has also become a growth area for manufacturing industry within the country. Sarawak and Sabah, still retaining a significant measure of constitutional independence, are also major suppliers of income from oil, gas, and timber for Malaysia. However, though less so than wholly independent Brunei, they are able to retain a larger share of the revenues than are the provinces of Indonesia.
What we have described in this chapter, therefore, is the incorporation of the eastern Peninsula and Borneo into the two nations in the role of "resource frontier." In his classic discussion of regional development policy, Friedmann (1966) discussed possible development paths for such regions. Where, because of their isolation, resource frontier regions cannot be merged with the core, it is clear that the exporting role that is the basis of their existence must be sustained. For their internal development, however, they need an urban focus, an agglomeration or agglomerations of a size that will provide a sufficient internal market, help diversify the economic base, reduce costs due to distance, and create a basis of community. Writing in a different and more interventionist era, Friedmann suggested the creation of regional development authorities to help accomplish these ends.
Regional development authorities were certainly created in the eastern Peninsula, where strongly Friedmannite development plans were proposed and implemented in the late 1970s and early 1980s. They still operate, but it cannot be said that they have been wholly successful.11 The Borneo territories have been less exposed to such directive regional planning, although it is becoming more fashionable to identify specific "development zones" within Indonesian provinces, and this has been done in Kalimantan. Identifying such zones and actually implementing particular plans are, however, two different things. The states of Sabah and Sarawak are themselves identified as "development regions" within Malaysia. The Second Outline Perspective Plan 1991-2000 (Government of Malaysia, 1991b) specifically states as an objective of regional development: "to progressively integrate the regional economies of the states of Sabah and Sarawak to foster national integration and to promote the complementarily of these economies with the economy of the Peninsular states." It is of major importance to evaluate how far the Borneo territories of Indonesia and Malaysia have advanced from a very peripheral "frontier" status to become sustainably developing regions within their countries. We shall return to this question in our conclusion.
1. The basic sources on developments at national level include Hill (1989, 1994); Rigg (1991); Booth (1992a); and Brookfield (1994d).
2. Malaysian public sector expenditure rose to above 50 per cent of GDP in the early 1980s but, with a privatization policy in place since 1985, has since declined by a few percentage points (Chee, 1990: 15).
3. It has been suggested that reports of the large discoveries off Brunei, announced at a critical time in 1963, played an important role in persuading the Sultan of Brunei to remain outside the Malaysian Federation (Leake, 1990).
4. One place submerged was an anthropological field site of Padoch (1982a, 1982b). She found during a visit in 1992 that her report has now become of particular value to the people of that community as the sole written record of their past (C. Padoch, pers. comm.).
5. Within Brunei, the oil town of Seria has a similar role to Miri and Bintulu. Bandar Seri Begawan is essentially the national capital and little more.
6. "Fringe alienation" allocated and assisted the clearing and planting with rubber of remaining forest around villages, mainly in hill country. Though it continued into the 1970s, much of the effort was wasted, and large areas have reverted to secondary forest. Small-farmer rubber became the object of a sustained rehabilitation drive, which still continues under overlapping authorities.
7. This history is recounted in detail by Fox (1991, 1993).
8. The story of deforestation and timber extraction, the subject of a large and still-growing literature, has been recounted by us in several other places, including Brookfield and Byron (1990), Brookfield, Samad Hadi, and Zaharah Mahmud (1991), Potter (1993b), and Potter, Brookfield, and Byron (in press), and in a number of more specific papers by Potter. Comprehensive recent accounts going beyond our own, principally with reference to Malaysia, include Berger (1990), Hurst (1990), and Aiken (1992). Other sources are used in chapters 4, 5, 6, and 7. We therefore offer only a brief and unreferenced review of the background in this chapter.
9. The history of the one-man chain-saw, one of the major modern innovations of environ mental transformation and destruction, and its adoption by the world's farmers and loggers, remains to be written.
10. There is a partial exception in Sabah, where lands of the former British North Borneo Company were transferred on long title to the well-funded Sabah Foundation, the Yayasan Sabah. The Uniform System was also used in Sabah.
11. One of us once wrote, for the benefit of the World Bank, which deleted it from the report: "So planners, on Malaysian maps, with central places fill their gaps; and underneath tall jungle crowns, plant growth poles in the place of towns." The central towns in the Jengka Triangle and Pahang Tenggara might be better than this, but not by much.
Capitalism, with intervention and guidance
The task in Indonesia was to restore economic growth and ensure its better distribution, restore the confidence needed to attract foreign capital and aid, improve agricultural production, and create the foundations of an industrial economy. The New Order government faced formidable immediate tasks in checking hyperinflation, reversing some of the nationalization that had been carried out, and dismantling a large part of the economic regulation and apparatus of inefficient state enterprise bodies created under Sukarno. Much of this was accomplished very speedily although, as Hill (1994) shows, without truly relinquishing central economic guidance; many of the parastatal corporations remained intact. Progress toward economic liberalism might have gone further than it did but for the enormous windfall of the oil price rise in 1973/74, which enabled Indonesia to fund much of its development programme for the next 12 years from oil revenues. Only after the price of oil and some other export commodities collapsed in the mid-1980s did substantial progress toward economic liberalism resume.
Malaysia already had strong economic growth and a stable currency in 1969, but there was a great need to slant this growth in favour of the Malays, to reduce foreign ownership without discouraging new investment, and to diversify the economy away from its dependence on a narrow range of industrial raw materials. As in Indonesia, Malaysia's "New Economic Policy" espoused a philosophy of free-market capitalism but, in practice, modified this significantly in the pursuit of national goals. Thus existing parastatal enterprises and authorities were strengthened, and others were set up for agricultural, industrial, and trading purposes. In the process, national corporations acting mainly on behalf of the Malay ethnic group bought controlling shares in many multinational enterprises over a period of years. Regulations provided for progress toward a pattern of capital ownership in which at least one-third would be Malay, for the most part held through organizations set up for this purpose, and strong preference was given to Malays in employment policy, the award of contracts, and opportunities for advancement.
Macroeconomic policy in the two countries has therefore tended to converge. Whereas Indonesia moved toward a liberal economic system without really getting there, post-1969 Malaysia found it had a tooliberal economy, and moved away from it without denying the basic philosophy. Although the oil boom gave Malaysia less advantage than it did Indonesia, it similarly assisted national financing of the development drive during the same 1973-1985 period. Late in this period under Dr. Mahathir Mohamad, a fervent Malay nationalist who became prime minister in 1981, a philosophy of guided management not unlike that of the Indonesian New Order took root. Hence, when the mid-1980s depression also forced a return to liberalism in Malaysia and the abandonment of some objectives, a strong nationally directed core still remained, capable of undertaking major new directions of policy.2 Indeed, throughout the past 20 years, Malaysian national planning has been firmer than Indonesia's, where successive "Repelita" plans have required modification soon after their appearance, and planning targets have more consistently failed to be met (Hill, 1994). To note these similarities is not to deny the great differences in economic achievement between the two countries, or the radical differences in the patterns taken by state investment. Malaysia is now going beyond its "New Economic Policy" to a "New Development Policy," which aims to attain the status of a developed country by the year 2020 (Government of Malaysia, 1991b); Indonesia's now-old "New Order" may be changing, but it has not yet formally sought new directions.
In the rest of this chapter we comparatively examine some specific sectors across the two countries, with emphasis particularly on their relevance to the region that was still largely forest in 1950 - Borneo and the eastern side of the Peninsula. Because of its macroeconomic significance, we begin with the energy sector, then turn to industrialization and only after that to the land.
Revival of oil exploration and development
By 1960 the land-based petroleum production of most Borneo fields was growing only slowly or was in decline, whether from reduction of resources or for political reasons; on the Peninsula there was no petroleum production. This was, however, a period in which improved techniques of exploration, and especially of offshore drilling, were being perfected elsewhere in the world. In the new political climate they were soon applied in South-East Asia. The first major offshore discoveries were made from Brunei and Sarawak, and in the second half of the 1960s the first offshore wells came on stream.3 In Indonesia, where Shell sold its assets to the Sukarno government in 1965, the introduction of production-sharing agreements by the Suharto administration in 1966 stimulated new investment in development and in exploration, both on land and offshore. Total Indonesian output more than doubled between 1968 and 1973 (Arndt, 1983: 138). In Malaysia, exports increased fourfold between 1965 and 1971, but a part of this was re-exported Brunei crude; when Shell completed new refining facilities in Brunei, Malaysian exports stagnated for several years (Government of Malaysia, 1971, 1976).
The oil and gas boom, and its sequel
To Indonesia and Malaysia, the first oil-price "shock" of 1973 was of enormous benefit, and the subsequent further price doubling in 1979 held boom conditions in place for a full decade. Even though oil exports were still quantitatively small at the time, the price rise eliminated all balance-ofpayments problems. There was great stimulus to new exploration, which soon also led to large discoveries of natural gas. By the late 1970s, the existence of more oil pools and of big gas resources had been established off large sections of the eastern and northern coasts of Borneo, and also in the western South China Sea off the north-eastern Peninsula. By the later 1980s a large part of what had been discovered was developed. Figure 3.1 details the present distribution of the resource and its exploitation around Borneo.
After the boom period was over in 1986, 56 per cent of Indonesia's exports by value were still derived from petroleum and natural gas, though this had declined to 37 per cent by 1991/92; for Malaysia, the proportion was much less, 18 per cent; while for Brunei, which is a major producer of both oil and gas, it reached 97 per cent (Rigg, 1991: 164). Even with lower prices, oil and gas still put East Kalimantan in first place among Indonesia's provinces in terms of wealth creation, providing more than 5 per cent of the nation's GDP (Statistik Indonesia, 1992), with a 1990 per capita income above US$2,800. Brunei, with a per capita GDP of over US$17,500, is among the world's richest countries (The Far East and Australasia, 1994). The contribution of energy production and processing to the income of Sarawak is much smaller, but gas production was forecast to double between 1990 and 1995, and this will principally feed Sarawak's enlarged LNG plant at Bintulu (Government of Malaysia, 1991a). The refineries and LNG plants, in both parts of Borneo, are also the major national sources of inorganic fertilizer, and furnish an important regional export.
Fig. 3.1 Oil and gas fields, refineries, and LNG plants in Borneo (Sources: Government of Malaysia 1991a; Valencia, 1991)
Borneo as a major future source of energy
With exploration continuing into ever-deeper waters, there seems no doubt that production, especially of gas, will continue to expand through the 1990s. However, the rising rate of energy demand in the region, coupled with oilresource limitations, leads to predictions that both Indonesia and Malaysia may become net importers of petroleum by as soon as the year 2000 (e.g. Government of Malaysia, 1991a; Clark, 1993; Hardjono, 1994). Natural gas, on the other hand, will certainly last well into the twenty-first century. In both countries, principal electricity generation is therefore being shifted from scarce oil to abundant gas, in Malaysia the latter providing 9 per cent in 1985, 24 per cent in 1990, and a projected 75 per cent in 1995 (Government of Malaysia, 1991a: 308).
With a view to the longer term however, increasing attention is also now being given to the substantial resources of mainly soft, but lowsulphur and lowash coal in southern and eastern Kalimantan, Sarawak, and Sabah, as major future energy sources for the two countries. The sedimentary sequences around large parts of northern, eastern, and southern Borneo exhibit characteristic successions through sandstones and clays to coal measures, some of sufficient size to be already attracting the interest of multinational corporations, which plan development for export to Japan in particular. One large Australian-based multinational is already involved in East Kalimantan, with an open-cast mine employing over 2,000 workers exporting steaming coal to Japan (Reuters News Service, 29 March 1993). Much of this coal is Pliocene or even Pleistocene and at shallow depth. Other resources, however, lie in bedded seams in already folded or block-faulted Miocene deposits well inland. Very large resources also exist north of the Rejang River in central Sarawak. Another, currently the subject of controversy since its exploitation would entail destruction of a unique floristic complex, occupies an enclosed and unpopulated synclinal basin within sandstone, in Sabah. East and South Kalimantan's Tertiary deposits are measured at nearly 2 billion tonnes out of 4.3 billion for the whole of Indonesia (Department of Mines and Energy, quoted in Indonesian Commercial Newsletter, 9 December 1991), but inferred reserves may be much larger. Although Indonesian coal production increased from 2 to over 14 million tonnes between 1986 and 1991 (Indonesian Commercial Newsletter, 8 March 1993), mining is still on a very small scale in comparison with the total size of the resource.
Hydroelectricity is also receiving closer attention, especially in the Peninsula and Sarawak. There are eight hydroelectric plants operating in the Peninsula and one in Sarawak, collectively generating about as much electricity as is fired by imported coal. A proposed dam at Ulu Tembeling, on the upper Pahang system in the Peninsula, was very seriously considered in the 1970s, but strongly opposed on environmental grounds. Another smaller scheme in the northern Peninsula has produced a good deal of controversy because of an apparent link between British aid in its construction and the supply of other British products to Malaysia, including armaments.
The largest proposal, however, is in Sarawak. The Bakun scheme on the Rejang in Sarawak would, in its original design, have supplied enough power for export by cable - if this proved technically feasible - to the Peninsula, as well as meeting all the needs of Sarawak and Sabah. The Bakun dam would have displaced a considerable number of people, and planning had gone forward some way before it was halted by the depression in the mid-1980s. However, with Malaysia's emphasis on further industrialization with expanding power needs, the Bakun project has recently been revived in a new form. In a concession to critics, the project now comprises a series of at least four smaller dams rather than a single large one, thus reducing - but also spreading impacts on the environment and the Iban people (Renter, Asia Pacific Business Report, 17 September 1993). Other and smaller schemes, such as the Batang Ai dam in western Sarawak, have already totally displaced numbers of people from their land.4
Thus far, there is only a single hydroelectric plant in Kalimantan, in the drought-prone south-east, and it performs poorly. However, the potential hydroelectric resources of Borneo might reach at least 60,000 MW; the Sarawak potential alone is estimated at 20,000 MW. As energy generation shifts away from hydrocarbons, these sources must be expected to attract increasing attention in the future.
Collapse of a mining industry
Up to the mid-1980s, the principal metallic mineral produced in the region remained tin from Peninsular Malaysia and the Indonesian islands of Bangka and Belitung. Malaysia's 450 mines gave it a preeminent position, with 32 per cent of world production in 1980. By 1984, competition from new lower-cost mines in Brazil had already led to a sharp reduction in both Malaysian and Indonesian output, but the world price was sustained until October 1985, when it crashed by 50 per cent. The Malaysian industry then shrank rapidly, surpassed in 1988 by Indonesia, which continued to support its mines with large subsidies (Burke, 1990). By 1992, restructuring and employment reduction had reportedly brought the Indonesian mines back to at least the edge of profitability (H. Hill, pers.comm.). Malaysian production, however, has declined further and, for the first time, tin mining rates no mention in the current national plan (Government of Malaysia, 1991a). The last floating dredge ceased operation in 1993 (G. Burke, pers. comm.).
Prospects for large-scale mining of metallic minerals currently focus only on Kalimantan, where there is a large gold mine operated by an Australian-based multinational, deep inland and at present accessible principally by helicopter, at Kelian in East Kalimantan. It employs almost 900 people (Callick, 1993). There is also a major nickel prospect close to the border between West and East Kalimantan, costly to develop but very likely to go ahead within the 1990s. Beyond this, small-scale gold mining continues along a number of rivers in Central Kalimantan, much of it illegal but collectively significant (G. Burke, pers. comm.). Mineral search continues, and there is a scatter of small enterprises, but the expectations of the late 1980s have dwindled with the actual or likely failure of a number of the smaller foreign companies involved. The fact that Borneo's minerals were important in regional trade for 1,000 years has little relevance today.
The major industrialization that has taken place since about 1970 in the western Peninsula, and its much more limited spillover into the eastern Peninsula, is more background to this volume than central to its story. It is discussed in numerous books, including one edited by one of us (Brookfield, 1994d). We are really concerned here only with the part that is vertically linked to resource extraction, especially extraction from the forests, and this is discussed in chapter 5.
What happened in the Peninsula after 1970 was a major drive toward export-oriented industrialization, with an initial emphasis on simple rawmaterial processing and textiles, then on electronics, and moving latterly into heavier industries, and - less successfully - to more sophisticated downstream production from domestic raw mat erials. The effect was to move manufactured exports into first place by the early 1980s, and also to make manufacturing the largest sector in terms of employment creation. By 1990, two-thirds of manufactured exports were electrical, electronic, and textile goods, with electrical goods forming the largest single category. The base remains narrow, however. Fong (1990: 79) remarks that "it is ironical that Malaysia has been successful in areas such as electronics-component assembly and textile manufacturing where it has no comparative advantage other than an appropriate workforce - and highly unsuccessful in downstream processing and manufacture of products based on commodities of which it is the world's major exporter." A further important change lay in the fact that Malays formed almost two-thirds of the new industrial workers by the late 1980s (Government of Malaysia, 1991a: 129). Together with the growth of service employment among Malays this had important consequences for the rural economy, reviewed in chapter 5.
Especially during the late 1970s and early 1980s, efforts were made to disperse manufacturing employment around the Peninsula and into Sarawak and Sabah, with the creation of a considerable number of industrial estates. These went so far as to encourage assembly of a luxury car in Sarawak for the national market. However, market forces determined that, with the signal exception of resource-based petrochemicals in Terengganu on the east coast of the Peninsula and at Bintulu in Sarawak, much the greater part of new industrial development, investment, and employment has remained concentrated in the "west coast corridor" of the Peninsula. Dispersal efforts now focus on setting up facilities for small and medium industries, and both Sarawak and Sabah share significantly in this planned new infrastructural investment (Fong, 1990; Government of Malaysia, 1991a).
The pattern of industrialization in Indonesia has been radically different. Growth in manufacturing after 1965 was geared mainly to the large domestic market, to which were added only the grandiose enterprises of the state oil monopoly. As late as the end of the 1970s, "the Indonesian manufacturing sector [was] composed of industries processing agricultural goods" (McCawley, 1981: 74). When exportbased industrialization was seriously initiated in the early 1980s, it was overwhelmingly raw material based, with plywood as the only major non-oil product. It is only since 1985 that significant diversification has taken place, but, notwithstanding further grandiose plans, this diversification has in no way yet followed the highertechnology path of Malaysian manufacturing (Hill, 1994).
There is also a significant spatial contrast between Indonesian and Malaysian industrialization, arising directly from these different development strategies. Whereas the oil and gas plants, and most associated petrochemical manufacture, of both countries are in the oil-producing areas - Borneo, Sumatra, and the east coast of the Peninsula - there is a sharp contrast between the growing concentration of other Malaysian manufacturing in the "west coast corridor" that is also the heart of the country, and the declining relative share of Java in Indonesia's total manufacturing investment and employment (Hill, 1994), though that island still dominates the industrial scene. Indonesian manufacturing has a heavier dependence on national raw materials than that of Malaysia, and a lower dependence on the growing web of technology and services. However, this is changing, especially in the large conurbation, "Jabotabek," around Jakarta. The strongest relative growth in recent years has been in the periphery, and in Kalimantan and Sumatra in particular. This concentration on resource-intensive manufacturing may, however, be starting to decline, with the recent (post-1988) surge in the importance of textiles, clothing, and footwear, exports of which now surpass those of plywood. Hill (1992) notes that the slow growth of plywood exports in recent years reflects the beginning of supply constraints, especially in Kalimantan. The labour-intensive industries of clothing and footwear are mainly located in Java, as are some alternative wood-based industries, such as furniture, which draw their raw materials from several provinces. Plywood and sawmilling are located closer to the supply sources away from Java, as will be the proposed new pulp and paper plants.
The growth of cities
This contrast in manufacturing notwithstanding, the pattern of modern urbanization is, at least superficially, similar in both countries. The dominant feature is the rapid growth of major cities in the national heartlands. Java has two cities more populous than any in Malaysia, and Jakarta is the world's eighth-largest city. However, Kuala Lumpur, together with its satellites, now has a higher proportion of the Malaysian national population than Jakarta's share of the whole Indonesian population. Though technically not within our region, the transnational conurbation (or "growth triangle" as it is nowadays termed) comprising Singapore together with Johor Bharu in Malaysia and Batam in Indonesia is only a little larger than the whole Kuala
Lumpur conurbation, with almost 4 million people in the former and over 3 million in the latter.
Of more concern to us, however, is urbanization in areas away from the national heartlands. East of the main range the Peninsula has no city larger than 230,000 people; there are four in Borneo that are of greater size. Because of problems of boundary definition, ill accommodated to the modern spread of quasi-urban buildings, data on town size are notoriously hard to interpret in this whole region, and especially so in Malaysian Borneo (Samad Hadi, 1990). On the basis of a realistic definition of "urban," however, Banjarmasin in south-east Kalimantan, with almost 500,000 people, is the largest city in either Borneo or the eastern Peninsula.
With the exception only of Kota Bharu, Palangkaraya, and Banjarbaru/Martapura, all the major centres are on the coast or are riverine seaports, albeit that some of the modern deepwater ports or anchorages - as at Kuching, Bandar Seri Begawan, and Sibu - now lie well downstream from the towns. Inland towns are quite numerous, but almost all are small. Only a few exceed 20,000 and most have fewer than 15,000 people. Except in Sabah and the eastern Peninsula, the great majority are on rivers navigable to small craft, although improvement in roads is reducing the significance of riverine location.
The towns of Borneo are the location of much of the manufacturing industry found in the island, including all the larger plywood mills and sawmills. Before the logging boom commenced in the late 1960s, Banjarmasin, Pontianak, and Kuching derived much of their small industrial income from rubber processing, the principal peasant cash crop since the early 1900s. Oil and timber are now the dominant industrial raw materials. Samarinda, Balikpapan, and Tarakan combine a population of 1 million people. Together with the industrial centre at Bontang, with its large LNG plant, they constitute a typically immigrant, "enclave" economy - 49 per cent of East Kalimantan's population is urban. Samarinda has one of the world's largest concentrations of sawmills, plywood factories, and other timber industries (Schindele and Thoma, 1989).
The contrast between the two countries persists. With the exception of the oil and gas centres of Miri, Bintulu, and Kemaman, the larger towns of Malaysian Borneo and the eastern Peninsula are all old-established regional centres with little industrial development.5 Most Malaysian manufacturing industry is located elsewhere. While Banjarmasin and Pontianak are even older regional centres, they and the newer cities of Samarinda and Balikpapan may be ranked among the principal industrial centres of Indonesia outside Java and North Sumatra. Substantial differences in urban character, population composition, and social conditions flow from these contrasts. We discuss the urban problems of Borneo, in particular, in greater detail in chapter 10.
Agriculture in the context of growth and industrialization
Agriculture was the locus classicus of the misunderstood dual economy of prewar South-East Asia (Boeke, 1953). An impoverished but - contrary to contemporary theory - not unenterprising smallfarmer sector competed poorly for government attention and support with a highly capitalized plantation sector. Most of part II of this book is concerned with what has happened to the land, its people, and its forests in modern times. Here we trace the evolution of policy and its implementation from the 1950s to recent years, as background to that much fuller discussion.
All of Indonesia's agriculture suffered under the dislocations of the Sukarno period, small farmers and plantations alike. For the latter, a gloomy situation in which prospects appeared to be only of further immiseration inspired the "agricultural involution" of Geertz (1963) and the equally dire predictions of many other writers. In Malaysia the plantations thrived, but small farmers obtained relief only in the short period of the rubber price boom between 1950 and 1952. The price boom was of less advantage to Indonesian peasants because of both generally poorer planting stocks and, in many areas, greater disruption from violence than in the Peninsula. Efforts to expand and upgrade their production through replanting and "fringe alienation" schemes in the period through independence left most of them still in poverty.6 As in Indonesia under the later Dutch administration, efforts to improve irrigation for rice were also made by the British, and continued after independence. The social benefits were limited for a long time.
A perceived solution to these problems was to relieve pressure by opening up new land and settling landless and near-landless villagers. "Transmigration" from Java and Bali to the outer islands began under the Dutch (Pelzer, 1945). It was taken up again under Sukarno, with totally unrealistic goals that never even began to be achieved. In a different context, the same idea was adopted in Malaysia shortly before independence with the establishment of FELDA, briefly mentioned above. Here the object of cash-crop expansion was as important as that of poverty relief and, over time, it came to dominate. From 1956 to the end of the 1980s, and with particular vigour between 1970 and 1985, FELDA alone cleared over 6,600 km˛of land in the Peninsula and a smaller area in Sabah (Sutton, 1989); it had settled some 700,000 people. Other agencies also participated, the Sabah Land Development Board being particularly vigorous in that Borneo state, so that a total of over 15,000 km˛of forest was converted to various forms of agriculture (Government of Malaysia, 1981, 1986, 1991a).
When the Indonesian transmigration programme was seriously resumed in the late 1960s, it continued using the old Dutch model rather than the Malaysian model. Farmers were settled more for subsistence cultivation than for cash-crop production, and holdings were less than half the size of those allocated in Malaysia. At first mainly in Sumatra, and only recently principally in Kalimantan, about 1.7 million people were resettled from Java and Bali by the mid-1980s (Hardjono, 1986). Between 1980 and 1985 nearly 400,000 transmigrants went to Kalimantan, but numbers then declined (Statistik Indonesia, 1990). Over the 1980-1985 period, transmigration accounted for between 41 and 65 per cent of the population increase in three of the Kalimantan provinces, but for only 14 per cent of that in East Kalimantan, which has been more affected by spontaneous movement (World Bank, 1988). There was a substantial new surge of both sponsored and spontaneous transmigration in the early 1990s, especially in Kalimantan.
Only a proportion of these government settlements has been truly successful, and there have been a considerable number of almost total failures, although some schemes written off by the authorities were not entirely deserted by the settlers, and some who left have later returned (Dent Hidayati, pers. comm.). Serious weaknesses in planning are identified by Hardjono (1986, 1994), and we discuss some of these in more detail in part II. Once oil revenues declined, it proved difficult to obtain international funding for a programme that, by the mid-1980s, was already under severe criticism on economic, ecological, and even social grounds. However, in recent years the Malaysian model, with variations, has at last been adopted in Indonesia, with primary emphasis on tree crops grown for sale. Smallholder cash-crop schemes (Perkebunan Inti Rakyat, PIR) have increasingly become the pattern in recent years, based around a central processing facility or existing government estate. Settlers are able to earn a wage as well as income from their own crops. Schemes using rubber have been most common in Kalimantan, but oil-palm, sugar, and even rattan have also been employed as the cash crop.
At the national level in the two countries, the reorganization and modernization of agriculture have been of greater significance than resettlement. Both in rice and in cash crops there have been major research inputs, introduction and dissemination of new varieties, subsidization, and fundamental changes in marketing and management. Again, however, there are significant differences between Indonesia and Malaysia. High-yielding rice was first planted in Java in the late 1960s, and at the same time major programmes of extension, fertilizer subsidy, irrigation improvement, and rural credit were either initiated or strengthened. These were accelerated in the 1970s, leading to attainment of Indonesian self-sufficiency in rice in the mid 1980s.7 Similar, though smaller, efforts were made in the Peninsula, but the programme lagged, primarily because rice farming remained a low-income activity in a country where the rewards of other activities were rising; since the early 1980s Malaysian rice production has been in decline. Reasons for the failure of subsidization and related schemes in Malaysia are analysed by Fatimah (1990); the benefits of subsidization have been more to profits than to production and, under Malaysian conditions, only farms larger than the average can profitably grow rice. This analysis further illuminates an outstanding examination (Scott, 1985) of social inequality in a Malaysian rice community undergoing change.
With cash crops, on the other hand, Malaysia has taken the lead, particularly by creating systems of collection, marketing, and processing that, in the Peninsula, have created strong vertically integrated structures at the core of which has been FELDA - by the late 1970s already an agro-business corporation of world scale (Bahrin and Perera, 1977). Other structures have been set up to process and market smallholder rubber, and in recent years these have extended to the encouragement of downstream manufacture. Nothing of this nature has evolved in Indonesia, where, Hill (1994: 75) writes, "the history of the cash crop sector therefore appears to be one of lost opportunities. "
These efforts in food-crop and cash-crop innovation were initially heavily concentrated in the core areas of the two countries. The eastern Peninsula became a major oil-palm and rubber region, but since 1980 the same new production system has been extended into eastern Sabah with rapid growth in acreage of plantation oil-palm and cocoa (Bach), Liew, and Abdullah Sibil, 1992). This shift, which has replaced rubber as the leading cash crop, has occurred despite severe problems of labour shortage. Almost all the plantation labour force has been drawn from foreign workers (Indonesian and Filipino), many of them illegal (Kong, 1992). Such developments are leading to a gradual redistribution of population in Sabah, with a drop in the proportion of the total in the old-established, west coast districts (except Kota Kinabalu) and a rapid increase in the formerly underpopulated east coast, especially around booming Lahad Datu, which trebled in size between 1980 and 1991 (Malaysian Census, 1991), and where it is unofficially estimated that half the population consists of illegal immigrants, for the most part living in houses built on stilts over mangrove swamps and tidal flats (I. Douglas, pers. comm.).
The emphasis on plantation agriculture in Sabah has tended to bypass local small farmers, whose yields have stagnated, and the overall growth in population has led to a decline in rice self-sufficiency, from 43 per cent in 1980 to 32 per cent in 1990 (Bach), Liew, and Abdullah Sibil, 1992: 8). Special efforts are now being made to target such farmers (Gunting and Khoo, 1991; Lau and Ooi, 1992). Little has even been tried in Sarawak. Although high-yielding rice has been adopted in the major producing areas of both South and West Kalimantan, both physical and social conditions have militated against the maximization of annual yields. In the old Banjarese "rice bowl" of the Hulu Sungai in the south-east, high-yielding varieties are largely grown and South Kalimantan is an exporter of rice, but water control has been unsatisfactory. Where irrigation is available from dams in the mountain foothills, it is not always utilized to produce a second rice crop. Low levels of land ownership and rice prices that are held down by government both discourage more intensive production. In the tidal swamp areas of South and Central Kalimantan, traditional rice varieties remain characteristic and yields are low.
With the principal exception of parts of the eastern Peninsula, therefore, induced agricultural change in our region has taken the form mainly of extensification rather than intensification. It has thus been closely linked with deforestation and with the timber industry. We therefore conclude this essay with a brief review of the background of these linked forces of transformation.
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