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The first major phase of transformation

Excision of the western Peninsula from the forest realm

By 1900 the mines of the western Peninsula were already the world's largest producers of tin, even though labour-intensive methods were still almost exclusively employed (Yip Yat Hoong, 1969; Gullick, 1983: 120). Soon after, British capitalists entered the industry on a large scale and quickly dominated; they imported new technology, the consequences of which we examine below. Before the turn of the century, the first railways had already been built to link the mining centres to the coast, together with a number of gravelled roads (Ward, 1960; Lim Heng Kow, 1978). In the 1870s, the first attempts were made to establish land codes, under which it would be possible to delimit Malay territory, land to be used for mining and other forms of development, and a large reserve of state land comprising all the rest. After a number of failures, a successful attempt was made to use the Australian "Torrens System" in 1886; this was further modified in 1896 by Swettenham, and applied in all the Federated Malay States; later it was extended to the whole country. With only small changes, it still applies.

A land code was essential to regulate development, and it raised revenue for the government, but it was primarily the means by which to create a land market and thus make possible economic diversification based on private enterprise (Lim Teck Ghee, 1977; Brookfield, Samad Hadi, and Zaharah Mahmud, 1991). Under this code, the experimental early plantations - some of them Chinese, some also with European participants - growing gambler, cassava, pepper, and later sugar were supplemented after 1878 by the first wholly European land-based enterprise in the Peninsula. This was the cultivation of coffee on upland areas around the tin mines, developed on a substantial scale by the 1890s. The planters thus made the first agricultural use of the new transport infrastructure being created for the dominant mining industry (Jackson, 1968a: 176-207). The coffee boom did not last, but the estates thus set up became the foundation for the rubber-planting industry that followed. A little later, the first continuing European enterprises also emerged in South Kalimantan, where the Dutch agrarian regulations were extended from Java in 1888 to facilitate longterm leasing of land, initially for tobacco (Lindblad, 1988; Potter, 1993a).9 In the 1890s tobacco was followed by coffee. Both the tobacco and the coffee failed, and by the early 1900s rubber was already being tried on the same holdings.

The demand for rubber and rubber-like products had been rising for some 20 years as industrialization in Europe and North America created new uses for these materials. In the forest-fringe economy, the value of gutta rambung, derived from naturally growing Ficus elastica, increased notably, and for some years it was planted as well as collected (Lim Teck Ghee, 1977: 75). In the forests of Borneo, gutta percha (Palaquium sp.) was in much increased demand throughout the 1880s, leading to heavy pressure on the resource (Lien, 1987: 69-70); it was an important element in the export economy of both the Peninsula and Borneo in this period. Of lesser importance was the scattered Dyera costulata, producer of jelutong, the latex of which is edible and later became a raw material for chewing gum. The production of these materials has continued, with periodic bursts of prosperity, but has been of minor significance since the end of the first major rubber price boom in the years 1909 -1912.10

Hevea brasiliensis was taken from Santarem on the Amazon to Kew, and then introduced to Singapore in 1877. It was successfully established at sites in the Peninsula by 1879. However, serious propagation did not begin until 1889, and only in 1893 did distribution commence.11 Its suitability was firmly established by 1898 (Jackson, 1968a: 212-217). The new land code of 1896 provided a means for its official encouragement. From late 1897, land alienated for rubber would carry a quit-rent of only 10 cents per acre, onefifth of the regular rent, for the first 10 years (ibid.: 219). Unlike most other rubber-yielding species, Hevea brasiliensis requires no shade and, though it was at first interplanted with coffee, it quickly took over on former annual-crop lands that, having been abandoned by Chinese farmers, were alienated to European planters. Clearing of the forest itself soon followed. Within a few years large areas of forest, gazetted as state land among village land, were being alienated to plantation companies, felled, and planted to rubber. Between 1908 and 1913, and then again from 1916 to 1918, new estates followed the expanding rail and road system all the way up and down the west coast of the Peninsula (Jackson, 1968a).

Chinese entrepreneurs also experimented with rubber after about 1903, at first interplanting it on their shifting-cultivation land with annual tapioca and gambler. Starting about 1906 and becoming widespread after 1909, Malay villagers began cutting the forest and planting rubber on land within their own domain that was not required for their rice and fruit-tree economy. As Malay land registration proceeded, individuals sought and obtained titles to the roughly oblong 1-2 ha blocks into which large areas of former village backland are now characteristically divided. This happened in spite of an almost total lack of official encouragement to villagers to join in the planting boom (Lim Teck Ghee, 1977: 73-79). By 1921, more than three-fifths of the total agricultural area on the Peninsula was devoted to this one crop, and 40 per cent of that was already on smallholders' land, overwhelmingly Malay (Jackson, 1968a: 263-265).

At the same time there was strong public investment in infrastructure. After 1900, the short railways that linked each tin-mining area to its own port began to be connected by a lateral north-south railway along which land was quickly alienated for rubber planting. By 1910 there was already a continuous track from Prai, opposite Penang, to the northern side of Johor strait, and a few years later the system was extended north to link with the Thai system. In 1923, the causeway to Singapore was completed, so that continuous track ran from Singapore to Bangkok. There was already a branch railway into the centre of the Peninsula, reaching Kuala Lipis in 1921, but not completed to reach Kota Bharu until 1931, linking up with an earlier railway into Kelantan from Thailand completed in 1925 (Lim Heng Kow, 1978). The road system also extended the reach of modern communications, but mainly in the west. A narrow and winding road to the east coast at Kuantan was completed in 1915, but it carried little traffic for many years (Cant, 1973: 86).

Between 1900 and 1923, therefore, the western side of the Peninsula underwent a decisive transformation. At the beginning of this period its landscape was still dominated by forest, among which were pockets of rice cultivation and associated subsistence crops, plantation agriculture, and commercial shifting cultivation, and areas increasingly being ruined by labour-intensive tin mining. There were a few towns, none of them large; there were the first railways and roads, but there was still no network. The driving force of change was large-scale investment of capital, overwhelmingly British, in the formation of tree-crop plantations, in the industrialization and major expansion of tin mining, and in the growth of infrastructure. Cultivation was not continuous by 1923, and there remained wide areas of forest, but few gaps were left along the main axis and there was rapid extension of both estate and village cultivation toward the coast and inland to the foot of the mountains. By 1923, however, the first main phase of expansion was at an end. Although the price of rubber recovered somewhat between 1916 and 1920, it never regained the peak levels of 1908-1912. A further collapse in 1921, together with growing competition from Dutch Indonesia, led to curtailment of new land alienation for rubber in 1922, though this failed to stop smallholder expansion (Lim Teck Ghee, 1977). In some villages in Selangor, the clearance of remaining forest for rubber went on until all was converted by the early 1930s (Brookfield, Samad Hadi, and Zaharah Mahmud, 1991).

Expansion of commercial cultivation elsewhere in the region

Nothing like this integrated and well-capitalized transformation took place in the east of the Peninsula or in Borneo. There was some establishment of rubber estates along the new railway line through the centre of the Peninsula, creating a focus for later development, but the small tin mines, working more limited resources than in the west, did not prosper. High transport costs made all commercial development in the inland and eastern areas of the Peninsula very vulnerable to adverse price movements (Cant, 1973).

This was even more true of eastern Sabah in Borneo, where the British North Borneo Company made early efforts in the 1880s and 1890s to establish a plantation economy on the almost empty east coast, modelled on the successful Dutch development of wrapper-leaf tobacco in eastern Sumatra. Large numbers of Chinese and Javanese immigrant workers were sponsored by the tobacco companies, with 61 plantations established by 1890 around the many bays and far up the rivers, seeking out the best soils. Sales of land and profits from export duty on the tobacco allowed the company to pay its first divi dend to shareholders. In 1896, 55 per cent of the total revenue came from tobacco. When the industry began to suffer from the introduction of tariffs by the United States (the chief buyer), the company was able to use its available funds to invest in transport on the more populous western side of the territory, where a railway was speculatively constructed between 1896 and 1905 (Kaur, 1994). This made it possible to attract a number of entrepreneurs who planted rubber during the boom years. In 1928 there remained some 30 company estates, with a mean area of 1,300 ha (Naval Intelligence Division, 1944: II, 486). Although this made rubber Sabah's principal export, and also led to a good deal of smallholder planting, the scale remained quite small. The company lacked the means to attract any significant part of the large new flow of immigrant labour from India that served the Peninsular estates, although many Chinese were recruited to build the railway and were granted land to settle permanently (Kaur, 1994).12

In Indonesia, rubber was introduced almost as early as it was in the Peninsula, but the main development of new plantations took place in Sumatra and also Java. By the second decade of the new century, the Sumatran plantations became the principal competitors of the Peninsular estates. Dutch refusal to cooperate in the restrictions that were applied in British Malaya in the 1920s, in an attempt to prevent perceived "over-production,'' provided both estates and smallholders in Dutch Indonesia with the opportunity for rapid expansion, which continued until the global depression of the 1930s.13

In Kalimantan, too, the few estates quickly planted rubber. In South Kalimantan, leaf-tobacco and coffee estates set up in the Hulu Sungai in the 1880s and 1890s were already mainly planted in rubber by 1907 (Lindblad, 1988). However, a much greater volume of planting was undertaken by Banjarese smallholder farmers. Pilgrims returning from Mecca brought seedlings with them from Singapore, and by 1924 there were almost 9 million trees in 33,000 gardens in the Hulu Sungai (Lindblad, 1988: 63, citing Velsing, 1925: 213). A further important district for both planting and production was the lower Kapuas basin in West Kalimantan, where both Malay and Chinese farmers established large areas of rubber, exporting through Pontianak to Singapore (Ozinga, 1940). In recent years this has become the dominant rubberproducing region in Borneo.

After 1920, Dayak farmers further inland in Borneo also began to plant rubber in former shifting-cultivation fields. In addition, considerable areas of forest around villages were cleared and planted to rubber, far inland up the rivers in West Kalimantan, all without any persuasion by government (Helliwell, 1990). By the late 1920s, Dayak farmers were planting rubber along the Barito and Mahakam rivers in South and East Kalimantan (Lindblad, 1988), and by the 1930s in the upper Kapuas in West Kalimantan (Dove, 1993). The pattern was much the same as in Sarawak. Rubber was introduced by traders - Chinese in Sarawak, mainly Malay in Kalimantan. Even at a remote village far up the Tinjar River in Sarawak, 35 rubber gardens were established before World War II (Lien, 1987: 146). Today, Hevea brasiliensis is often found in scattered clusters among forests of fruiting and other useful trees around villages of inland Borneo. The trees are tapped quite frequently except where other income opportunities are available, and sheet rubber is made for sale.

Environmental consequences of the first development wave

The western Peninsula

Some of the environmental consequences of the first development wave, especially of what took place between the 1890s and about 1923, were very serious. For the western Peninsula, where they were greatest, they are discussed in some detail by Aiken et al. (1982: 109125). The effect of tin mining was devastating, especially of sluicing (lampanning) by water races and, after the entry of European capital, by hydraulic mining using powerful hoses. Large masses of tailings were created, and great quantities of silt and sand were fed into the rivers. Upland erosion was increased by the clearing undertaken for associated works and to obtain wood for construction and fuel, including charcoal used for smelting in the early days, and by small miners even in this century. Many villages, and one whole town, below the tin fields were forced to move by flooding rivers, raised by the quantity of bed-load being moved downstream and widened by the increased erosive power of the laden waters. Irrigated rice below the tin workings, where it had not been destroyed by mining, was ruined by flooding and silting, or by complete disruption of its water supply. The deterioration of agricultural land generated a great deal of concern and during this period one of its consequences was a substantial new increase in the practice of shifting cultivation on upland soils by farmers deprived of their wet-rice lands (Lim Teck Ghee, 1977: 48-49).

When floating dredges were introduced after 1912, to increase ultimately to more than 100 units, areas that had hitherto been almost unworkable, because of the impossibility of keeping holes sufficiently dry, became accessible to mining. They included considerable new areas of wet-rice land as well as swamp. The dredges made large ponds and, in the Kinta valley of PÍrak where the most intensive dredging was undertaken, a moon-like but wet desert was created, described in graphic terms a generation ago by Ooi Jin Bee (1955), and still remarkably little softened in the early 1990s. In the Klang valley and its tributaries, around Kuala Lumpur, the destruction of a former agricultural landscape was almost as complete. The capital city, established initially from a set of mining camps amid this desert and the forested hills around it, attained a metropolitan population of almost 2 million people before its expansion began to encroach onto the lands of still-active Malay rural villages (Brookfield, Samad Hadi, and Zaharah Mahmud, 1991).

Enactments intended to enforce control measures were introduced as early as 1895, but they proved singularly ineffective. In a survey undertaken toward the end of the 1930s, Fermor (1939) estimated that over 16 million tonnes of sediment annually had been fed into Peninsular rivers between 1909 and 1939. It was not until the late 1920s that even partially effective control measures were introduced, but the industry continued to receive "gentle" treatment from the authorities. Fermor's report advocated that land rich in tin be excised from Malay reservations, and thus become available for sale; in fact a number of such excisions had already been made (Lim Teck Ghee, 1977: 215).

Clearance of forest for rubber also had the inevitable consequence of a rapid increase in runoff and erosion, although, where rubber was established on land already degraded to grassland by earlier cultivation, the benefit even of the light cover provided by the rubber trees was significant; it was sufficient to shade out Imperata cylindrica and permit a more complete ground cover to become established. Unfortunately, clean weeding, adopted from tree-crop methods in Europe, was generally practiced on most of the early estates and on some smallholder land as well. It was quickly found that humus and topsoil were lost from plantations made on sloping land. In areas reclaimed from exhausted pepper, gambler, and tapioca land, there was even quite widespread tree death from this cause (Aiken et al., 1982: 122). In 1926, during a La Nina event, massive floods devastated valleys throughout the Peninsula, carrying so much suspended sediment that they are remembered as the great "red floods" (banjir merah) of that year (Winstedt, 1927). This event, in particular, led to some changes in practice in both rubber planting and tin mining, but they were slow to be adopted. The need for terracing and other forms of soil conservation was certainly perceived, and on some estates applied (Dakeyne, 1929), but in the depressed economic conditions of the time there was no general change beyond a laboursaving end to clean weeding.

Seeking to put the damage done by tin mining into perspective, Fermor (1939: 149-159) suggested that an average of 3 in. (7.6 cm) of soil had been lost from under Peninsular rubber since 1905, yielding an annual loss into the rivers about twice that which he attributed to tin mining. This piece of guesswork is often cited in the literature, but it should not be taken at face value. Soong et al. (1980: 2) found very much higher suspended sediment loads in rivers below tin-mining areas than below tree-crop agricultural land, even in the 1970s. However, despite subsequent revegetation of the ground, losses from land under rubber may still be up to 16 times higher than from slopes under undisturbed forest (Aiken et al., 1982: 173-175). One qualitative account by a returning absentee revisiting his village in 1951 may stand for what has certainly been a widespread experience (Yusoff Hj. Ahmad, 1983: 375):

The once lush and luxuriant kampung was beginning to show signs of ageing. The destruction of the natural vegetation [for rubber] around the kampung had caused much silting in the valleys and the yield per crop of padi was becoming less and less. People continued to plant except in areas where the level of the land had become too high to be irrigated and the water wheels which were once useful had disappeared nearly forty years earlier.

Environmental consequences in Borneo

There is also material on the environmental losses from new development in Sumatra in this period and subsequently (Pelzer, 1978, 1982), but much less has yet been assembled from Borneo. We can suppose that the planting of rubber on land that would again have been cleared and burnt in Kalimantan and Sarawak probably had beneficial net effects, but wherever land was taken from both grassland and forest for rubber there would have been increased soil losses. However, most smallholders in Kalimantan did not practice clean weeding and planted their trees close together. This was noted with disapproval by officials during the 1920s, who expected the plantings to fail. Creation of a smallholder "rubber forest' grassland in fact proved environmentally sound, once earl with fire were overcome, and much less likely to cause e' estate techniques (Bauer, 1948).


In evaluating more recent events and their impact in the and Borneo, the consequences of an earlier period of majortransformation should be borne in mind. Its damage is now in sure healed, although an ugly legacy remains. We should also bear in mind that shifting cultivation, the subject of severe controversy was very probably more widespread in the past, and that damage if there was such - may too have been healed should be recalled that the forest has been a used environment millennia. Merely to examine the present and recent past without also studying the historical experience is to risk drawing very in correct conclusions, and in no field so seriously as that of present "endangerment." This essay in historical evaluation of a complete environmental history, has identified a number of questions that need to be taken into account in the chapters that follow.


1. More detail on these products is presented in chapter 6.

2. An abrupt decline in the mid-fourteenth century may have been related to the Black Death, although there is no direct evidence to support this hypothesis. However, reason to suppose that a major trading centre linked to China and India would have received this infection at an early stage.

3. See chapter 1, note 2.

4. Christian missionaries have never been free to operate among the animist Orang Asli of the Peninsula, where, from the outset of colonial control, the Malay sultans of remained the guardians of the Islamic faith within their territories. There among the Chinese and other immigrants but very few others.

5. The political division of the Peninsula into the colonially ruled Straits Se federated Malay states centrally administered from Kuala Lumpur, and seven unfederated states in which Malay sultans remained nominally in full charge evolved in of the nineteenth century and endured until after World War II. In practice, British political control, but with considerable administrative confusion (Emerson, 1937)

6. From the time of establishment of Dutch control until the 1950s there administrative divisions (Afdelingen) in Kalimantan: West Borneo, and South Borneo. The former is the present province of West Kalimantan, while the divided into the three modern provinces of East, South, and Central Kalimantan. We use the names of the modern provinces throughout to describe events within their mental damage in both western Sarawak and West Kalimantan, this was of much lesser magnitude than in the Peninsula (Jackson, 1968b).

8. The Brooke government opened another coal mine in 1888 on territory that, even now, still belongs to Brunei. It was financially unsuccessful, but not finally closed until 1925. Chew (1990: 191) remarks that "In terms of capital expended, coal mining was the most important economic activity other than planting which the Brookes invested in directly. The significance of coal mining to the Brookes challenges the commonly accepted notion that Brooke economic philosophy discouraged speculative capitalist enterprise."

9. The very earliest European agricultural enterprise in Eastern Sundaland was probably in South Kalimantan in the vicinity of Banjarmasin, where the infamous Alexander Hare had pepper plantations using Javanese prison labour, set up during the short period of British control of Java between 1810 and 1816 (Irwin, 1955). Two Europeans tried commercial indigo in the Hulu Sungai in the 1870s. The Agrarian Regulation was initially introduced in Java in 1870 to replace the Cultivation System with private estates, and extended to South and East Kalimantan in 1888 to encourage commercial tobacco production (Potter, 1993a).

10. Brazilian rubber production, on a collection basis from wild sources, also continued to prosper until the slump of 1913, and the peak of Amazonian prosperity in fact coincided with the first period of rapid plantation establishment in the Peninsula.

11. It is remarkable, and rather disturbing from the point of view of disease resistance, that almost all the rubber in South-East Asia derives from only 26 parent trees in the Tapajos valley of Brazil. The success of plantation rubber in South-East Asia arises from the absence of the South American leaf blight (Microcyclus ulei), which brought failure in Brazil. Away from its home region, Hevea brasiliensis was secure from this blight (Schultes, 1984; Smith and Schultes, 1990).

12. In Sarawak there was no such company-based drive, although there was one attempt to set up a large company estate. Brooke policy was against large-scale commercial development, except of minerals. Rubber was, however, quite extensively planted by Chinese settlers, as well as by Malays and Dayaks. Ultimately four quite small estates emerged, all Chinese owned (Jackson, 1968b: 89). However, from the 1930s until the 1960s rubber was the principal export of Sarawak and over 90 per cent of this came from smallholdings.

13. Oil-palm, which at that stage had only a limited and rather experimental place in the plantation economy of the Peninsula, was also strongly pressed by Dutch planters in Sumatra from about 1911 onward, so that by the 1930s Dutch Indonesia had the largest palm oil production in the world. Most Sumatran plantations, whether of rubber or of oil-palm, were made by clearing primary forest.

Change since World War II

The background of modern economic transformation
New Order and New Economic Policy
Energy exports and production
Minerals, industry, and the cities
Agriculture and land settlement
Deforestation and timber extraction

The background of modern economic transformation

An explanation

This chapter is an essay rather than an analysis, designed to link the historical discussion of the previous chapter to the series of more detailed treatments of particular aspects of possible "endangerment" in part II. It draws on a large literature, and especially on a few good summaries of parts of that literature. It is, in consequence, lightly referenced. It attempts to cover, in a few pages, the transformation of two countries, and of a specific region that forms part of these two countries, through the most important period in their modern history. Ļ

The political evolution of the region

The Japanese army and navy conquered all of the Malay Peninsula and Borneo, and the surrounding region, between December 1941 and March 1942 and, except that they were ejected from Sabah and eastern Kalimantan in the last months of the war, remained in possession until August 1945. A Republic of Indonesia was declared in that month, but the Dutch attempted to extinguish it and did not withdraw until 1949; the constitution of the present unitary republic was drawn up in 1950. The Peninsula and Singapore were reoccupied by the British without opposition, but some areas remained in the effective control of the communist-dominated, anti-Japanese resistance forces, which embarked on a general insurrection in 1948 (Stubbs, 1989). This insurrection gained some ground until 1951 and, though its area of control was thereafter quickly reduced, the rebellion sputtered on in a diminishing number of forested and forest-fringe areas until the 1980s. The Peninsula became independent as the Federation of Malaya in 1957. Singapore - until then still quasi-colonial - joined this federation in 1963 but was unilaterally excised to total independence in 1965. The pre-war private regimes were not permitted to return to Sarawak and Sabah, and the two states became British colonies until, at the same time as Singapore, they were federated with the Peninsula in 1963 to form Malaysia. Brunei refused to join and became independent, in effect immediately but formally only in 1984. The Sukarno regime that ruled Indonesia in the early 1960s challenged the new Malaysia, and a low-key war, fought mainly along the border between Sarawak and West Kalimantan, lasted until shortly after Sukarno was toppled from power in the aftermath of the 1965 coup in Indonesia. It was not, therefore, until the late 1960s that postcolonial turmoil finally gave way to peace and order in the two new countries, ushering in the period of state-guided capitalism that has dominated the whole subsequent pattern of development.

The pattern of insecurity between 1945 and 1969

The main locales of violent action after the 1945 campaign in northeastern Borneo were in Java, western Peninsular Malaysia, and Sumatra - outside the region with which we are mainly concerned. The Malaysian rebellion began in 1948 and enjoyed considerable success in its early years, until 1950 when the boom created by the Korean war both gave the government additional resources and removed the main causes of popular discontent (Stubbs, 1989). Quite large parts of the eastern Peninsula were dominated by the communist rebels until the mid-1950s, and some even later.

Extensive areas of Borneo were also caught up in the insecurity of these years. Wartime repression by the Japanese, and guerilla action against them, were particularly violent in West Kalimantan, where many thousands were killed. In South and East Kalimantan an intense struggle against return of the Dutch began in late 1945, and this mainly Banjarese guerilla movement was organized by 1948 within the structure of the new republican army. The Dayaks were more scared of the Malay Banjarese than of the Dutch, and kept out of this conflict, which ended with independence in 1949. Later, in the mid

1950s, some groups of Muslims in South Kalimantan revolted in favour of an Islamic state, and their rebellion did not peter out until 1963 (Miles, 1976). A similar revolt on the part of the powerful Ngaju Dayaks for autonomy and separation from Islamic South Kalimantan led to the eventual formation of the separate province of Central Kalimantan and the creation of a new capital, Palangkaraya. Although not on the scale of the anti-centralist risings of the 1950s in eastern Indonesia, Sulawesi, and Sumatra, the violence in southeastern Kalimantan greatly disrupted normal life and led to substantial movement into the towns.

When the British territories in Borneo were in the process of being attached to a federal Malaysia in the early 1960s, there was a brief and abortive revolt by a North Kalimantan National Army in Brunei and adjacent areas of Sarawak and Sabah, certainly with Indonesian support. This was followed by the 1962-1965 "confrontation" miniwar (Konfrontasi) between Indonesia and the new Malaysia, and there was an associated but ideologically separate insurrection among mainly Chinese communists in western Sarawak. After settlement between Indonesia and Malaysia the communists were hunted down on both sides of the border. Dayaks in West Kalimantan, who had stood aside from the earlier conflict, then rose against the Chinese and some other groups; several thousand were killed and up to 50,000 of those who had survived the Japanese fled to the coast (Jenkins, 1978). In East Kalimantan there was only sporadic guerilla fighting against the Dutch, and some violence during the Konfrontasi period. The Dayaks again remained neutral. Borneo's other sensitive border, with the Philippines, never became the scene of military conflict, only of diplomatic hostility. There have, however, been occasional incidents more in the nature of piracy on the coast of Sabah, to which the Philippines has been reluctant to relinquish its historical claim, even into the 1990s.

Breaking out from the colonial economies

The classic colonial economies of Indonesia and Malaysia in the 1930s were, notwithstanding the political turmoil, soon re-established in the late 1940s, and in both countries endured some years beyond independence. The "cold war" and especially the Korean war of 1950-1953, with its accompanying boom in raw material prices, were of major assistance in this process. Both mining and plantation economies flourished again in all areas not directly affected by war fare and insurrection, and there were also sharp increases in wages and private business incomes. When this period came to an end in the 1950s new policies were required, but the two countries were, at that time, under regimes of very different philosophy. Under Sukarno, Indonesia sought to follow socialist and nationalist paths, nationalizing all Dutch enterprises in 1958 and discouraging all other foreign business except the petroleum industry. Exports suffered severely. Chronic balance-of-payments problems and hyperinflation were ineffectually addressed by various forms of state intervention; by the time of the 1965 coup the economy was in a state of collapse, both internationally and internally. In some parts of the country there was famine during these years Through all this, however, the charismatic Sukarno retained his great popularity. His replacement, after defeat of a communist coup in which his personal role remains unclear, did not come easily. Many thousands were killed, and the critically important, Chinese-controlled commercial sector suffered severe damage before the army-backed "New Order" regime of Suharto became firmly established by 1967.

Under its post-1951 colonial rulers, and under the first national leaders of the independent state after 1957, Malaya, and later Malaysia, followed a consistent set of policies operating a wide-open, free-enterprise economy in which ownership and control remained overwhelmingly in foreign hands. Even before independence, however, this was supplemented by interventionist policies aimed particularly at upgrading the economic position of the majority Malay population group, at that time still overwhelmingly rural. Export orientation has been a consistent theme in Malaysia, a brief flirtation with import-substitution industrialization only excepted. The interventionism, begun in the mid-1950s, was designed also to increase the output of cash crops, and it took the particular forms of financing rubber research and replanting and setting up the Federal Land Development Authority (FELDA) to clear and plant large areas of forest, then settle them with landless and near-landless peasants from the impoverished rice and rubber villages. In this and other ways, government set out to create new national capital in an economy that suffered such severe losses through profit and income repatriation that it too was threatened with balance-of-payments problems, notwithstanding the enormous success of its exports. However, an essentially unenterprising manufacturing sector remained overwhelmingly in Chinese hands, and formal urban employment grew only slowly. As rural Malays began to migrate to the cities in large numbers, they therefore found only menial and unrewarding employment in a growing "informal" tertiary sector. This fed resentment that was transferred into the political arena, and the resulting explosion of racial violence in May 1969 was as important an event in Malaysian history as was the September 1965 coup in Indonesia. Both led to new policies that enormously accelerated the pace of transformation.

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