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  • Writer's pictureChristopher Soelistyo

Reading "Economists with Guns" by Bradley Simpson

In the early/mid-1960s, U.S. policymakers saw Sukarno's Indonesia shifting dangerously to the left. The government was aligning with the People's Republic of China, drawing closer to the Indonesian Communist Party, and antagonising the West with its foreign and economic policies: waging war against British and Dutch colonial interests, as well as undermining the position of foreign corporations in the country.

However, by 1967, the country was in the firm control of the Indonesian Army, which had eradicated the communist party and its alleged supporters in a staggering bloodbath, and now swung Indonesia's foreign policy toward the West, as well as creating an investment climate that triggered a gold rush by Western multinational firms.

In this effort, they received ample material and propaganda support from the Western powers - principally the United States and the United Kingdom - as detailed by Geoffrey Robinson in his book The Killing Season (a summary can be found here). But why exactly was Indonesia so important to U.S. policymakers? What long-term plans did they have for the country, and how did these interact with the forces at play within Indonesia itself?

Simpson's account stresses both the political and economic aspects of U.S. policy toward Indonesia, and reveals that they were both intertwined. Indonesia was (and still is) an undeveloped nation. By fostering Indonesian economic development, and "enmeshing the country in webs of Western aid and influence", the U.S. and its allies sought to mold Indonesia into a reliable and stable partner in a vital region in which they were engaged in a fierce competition for influence with the Soviet Union* and China (p.239). Indonesia's political alignment with the West was seen as vital given the country's strategic position across maritime transport lanes, as well as its ample stock of natural resources including oil, tin and rubber.

*The Soviet Union was the largest supplier of military aid to Sukarno's Indonesia.

Hence, a friendly Indonesia, embedded in a regional economy with U.S. allies such as Japan and the Philippines, could act as an importance source of raw materials, as well as a market for goods and a destination for foreign investment. Thus, in Simpson's reading, the U.S. sought to take advantage of Indonesia's potential as an economic partner of the West.

However, in the eyes of the Kennedy and Johnson administrations, the development of this potential required economic stability and the adoption of investment-friendly policies - to be prescribed by the International Monetary Fund (IMF) - as well as the political stability required to repress countervailing forces at home. Both of these were threatened by the existence within Indonesia of the world's largest non-governing communist party, a force that was steadily gaining influence under Sukarno in 1964/65.

The only organisation with the capacity and willingness to take on the Indonesian Communist Party (Partai Komunis Indonesia, or "PKI") was the Army. Washington's enthusiasm for supporting the Indonesian Army stemmed not only from the Army's political opposition to the PKI, but also from a growing strand of thinking within the social sciences that emphasised the capacity of military regimes to act as effective vehicles for economic modernisation and development.

I. Indonesia's Role in Free East Asia

The global cold war between the United States and the Soviet Union was fought fiercely in the post-colonial "Third World", where both sides sought allies and pushed their own competing visions of economic development; a state-led, centralised economy, or a free market system amenable to the interests of private capital. From the U.S. point of view, the goal of political and economic integration was vital not only to gain as many allies as possible, but to construct a U.S.-dominated sphere of influence that was viable and economically self-sustaining*.

*Two books that elaborate this point in more detail are "Imperial Brain Trust" by Lawrence Shoup and William Minter, and "Tomorrow, the World" by Stephen Wertheim.

In this picture, Indonesia played a vital role as a producer of raw materials. The country was well-known for possessing large reservoirs of tin, rubber, copper, crude oil and other minerals. American, Dutch, British and French oil companies had fought over concessions in the Netherlands East Indies since the 1890s, and Japan's invasion of Southeast Asia in 1942 was motivated primarily by its need for raw materials such as crude oil (pp.99,100).

Indonesian natural resources were seen as particularly important for the reconstruction of Japan into an economically advanced Western bulwark in East Asia. More concretely, the State Department and National Security Council saw benefits in the "linkage of [Southeast Asian] raw materials with Japanese industrial capacity" to achieve the economic integration of the "free states" of the region (p.16).

In November 1961, undersecretary of state Chester Bowles further elaborated that the ultimate aim of U.S. policy in East Asia should be to achieve the "gradual economic integration of the free Asian rim land, from Japan and Korea to India and Pakistan". Only such efforts could ensure increasing political integration, as well as "coordinated security planning by the free states of the region". In 1966, a State Department memo maintained that the economies of Indonesia and resource-poor Japan were "complementary", such that the integration of the two would benefit both. Japanese capital would help develop Indonesia, while Indonesian raw materials would power Japanese industry (p.11).

One can imagine that Japanese policymakers were thinking along similar lines, given that Japanese economic assistance to Indonesia from 1950-1963 was second only to that from the United States ($623 million against $711 million, p.89). Upon Suharto's rise to power in 1966, Japanese foreign minister Takeo Miki further asserted that "Japan should play a leading role in constructing the Indonesian economy"; indeed, Japanese exports to Indonesia rose 70 percent from 1965 to 1966 (p.212). After all, Japan had played its own role in Suharto's takeover, channelling rice* and textiles to the Army. Japanese ambassador to the U.S. Kunihiko Saitō asserted that "an Army dominated government is so much better than any other prospect that we cannot allow it to be ruined in public esteem by an accumulation of public misery in the form of a rice famine" (p.183).

*The political importance of rice provisions was elaborated by Robinson in "The Killing Season", p.199.

Thus given its reserves of raw materials, as well as its size, population and strategic position, Indonesia was of "special concern to the free world" (p.96). Indeed, the historian Henry Benda wrote in 1964 that "no country in Southeast Asia has in postwar years received greater attention, institutional support, and dedicated individual scholarship than Indonesia" (p.19). In 1964, Secretary of State Dean Rusk even contended that "more is involved in Indonesia ... than is at stake in Vietnam", a year before the Johnson administration would pour tens of thousands of combat troops to support its ailing partners in Saigon (p.127). Indeed, Rusk could tell a British official in February 1965 that, in the context of deteriorating relations with Sukarno, President Johnson had concluded that "should it become necessary, he would be ready for major war against Indonesia" (p.154).

II. Military Modernisation Theory

These considerations dovetailed with a contemporary trend in American social scientific thought that saw military regimes as an effective vehicle for economic modernisation. Simpson contends that while social science research had, until the late 1950s, displayed a "liberal opposition to military regimes", from 1959 onward, the trend began to shift in the other direction. He credits this shift to growing anxiety over the increasing Soviet provision of assistance in the Third World, as well as the opportunity presented by the "growing political and economic role that armed forces establishments were carving out for themselves" throughout these areas (p.68).

This strand of thinking proved highly influential in U.S. policymaking circles. In 1959, the Draper Committee, created to review U.S. foreign military assistance, recommended that assistance programs should "encourage the use of the armed forces of underdeveloped countries as a major transmission belt of socioeconomic reform and development". Moreover, at a June 18th National Security Council meeting, military assistance groups were encouraged to "develop useful and appropriate relationships with the rising military leaders and factions in the undeveloped countries to which they were assigned" (p.69). Appropriately, in 1961, the State Department recommended that Indonesian officers who trained in the United States* should be educated not just in traditional military matters, but also on "civil administrative responsibilities", including "public safety, public health, welfare, finance, and education, economics, property control, supply, management, [and] public communications" (p.70).

*Between 1950 and 1965, some twenty-eight hundred Indonesian officers trained at U.S. Army Service Schools (The Killing Season, p.98). In fact, five of the six generals killed on October 1st, 1965 had been U.S.-trained, and so were all thirteen top members of Suharto's staff right after his rise to power (p.227).

By 1963, 'military modernisation theory' had become "widely accepted in policy-making circles". In January, a State Department report noted that the military regimes were a "powerful potential group of 'modernizers' and a conduit [for] contemporary Western thought and values", suggesting that "contemporary analyses of modernization, which ... account for the inevitability of the military role and, which in a sense legitimize that role ... provide a basis for a more coherent U.S. doctrine" (p.72).

Such ideas faced a parallel aspiration on the part of the Indonesian Army for civil administration. Army leaders believed that their right to administer a broad spectrum of national life was earned by their key role in the independence struggle. They also believed that developing greater grassroots support from the population was required in the face of internal threats such as the separatist rebellions in 1957, and the PKI's campaign to marshal support in the countryside through land reform legislation (pp.74,78).

Moreover, the Army had already enjoyed some experience of non-"traditional" roles, after the imposition of martial law in 1957, and its acquisition of Dutch corporate assets that same year amid tensions related to the West New Guinea dispute, as well as other factors. Hence, by 1962, a full 40 percent of the Army's manpower was dedicated to rural development ("civic action") projects designed to develop the economy, marshal popular support and give work to some of Indonesia's 350,000-strong armed forces, who faced demobilisation after the resolution of the West New Guinea dispute (pp.78,79).

III. The "New Order" Courts Investment

Washington's hopes were mostly realised when Suharto, after claiming power and announcing a "New Order" (orde baru), proceeded to court the foreign investment that would help Indonesia boost its economic growth in the following decades.

Inflows of aid given by multilateral institutions (e.g. the IMF and the World Bank) and private corporations were encouraged to supplement the limited ability of the American and other governments to provide the requested funds*. After Suharto's takeover, army leaders were petitioning the U.S. for public funds "running in the hundreds of millions of dollars", which the Americans could ill afford given their growing commitments in Vietnam (p.226). Indeed, Army leaders were disappointed by the limited aid offered by the U.S. given their role in purging communism, with the Indonesian ambassador informing assistant secretary of state William Bundy that officers "had been led to expect substantial, unrestricted flows of U.S. aid" for their efforts (p.239).

*These were required to stabilise Indonesia's ailing economy - marred by high inflation and dire public finances - as well as the military's dogged resistance to paring back its expenditures.

To stabilise the economy and encourage private investment by American and other foreign corporations, the New Order took three major steps: passing a new foreign investment law (January 10th, 1967), signing an investment guarantee agreement with the United States (January 7th, 1967) and reaching debt rescheduling agreements with Indonesia's major creditors, including Japan, the United States and the Soviet Union (November/December 1966).

The foreign investment law was drafted in close collaboration with the United States. A consultant from U.S. firm Van Sickle & Associates even helped write the bill. After a draft was completed in September 1966, it was passed by Indonesian officials to the U.S. embassy, which complained that it gave "too much discretionary authority" to the government and was "discouraging to potential investors". The draft was thus amended in accordance with American suggestions, ensuring "maximum liberalization" for foreign investors (p.234). In a similar vein, the investment guarantee agreement limited the powers available to the Indonesian government to conduct measures such as expropriating foreign property.

Hence, by late 1966, American business was setting its eyes on Indonesia. One official with the Garrett Corporation, an aerospace company, suggested that major U.S. corporations could set up an "unofficial development consortium" for Indonesia. Similarly, James Linen, president of Time Inc., proposed a gathering of "major American companies which could help develop American interest in Indonesian economic development" (pp.235,236).

In the first half of 1967, "scores" of U.S. companies were sending representatives to Jakarta, especially after Freeport Sulphur, a metals and mining conglomerate, signed a contract with Indonesia's Ministry of Mining in April. Most of these were involved in raw material extraction and production: "mining, timber, independent oil, chemical and fertilizer companies" (p.243). In August, the Pacific-Indonesia Businessmen's Association hosted a meeting in Jakarta, sponsored by the Stanford Research Institute, which brought together 250 businessmen from the U.S., Japan, Australia and Western Europe, as well as Indonesian businessmen and government officials. At the event, Minister of Manpower Awaluddin Djamin attempted to "allay any fears prospective investors may harbor about possible trouble with trade unions", noting the extremely low pay typically given to Indonesian workers. Then, in November, an even more significantly gathering in Geneva brought together "scores of executives from dozens of the world's leading financial, manufacturing, and extractive firms" with Indonesian economic ministers to discuss investment opportunities (p.245).

The economic development of Indonesia was also of interest to the Johnson administration and others as an experiment of how free market policies and international aid could help transform underdeveloped nations. For example, in June 1968, Fortune magazine noted that Indonesia was "putting on trial what many observers have long considered to be model rules of behavior for backward nations"; if successful, it could "point the way for many a floundering country in Asia, Africa and Latin America". The U.S. embassy in Jakarta similarly noted in February that Indonesia presented the "latest test of whether liberal economic policies combined with free world assistance offer a more solid path to modernization than communism or other totalitarian solutions". Indonesia was a "controlled experiment in modernization", a "good test subject" because it contained a "cooperative government, a classically traditional society, and a good measure of material resources". As such it was a "virtually clean slate" on which Washington could paint its ideas (pp.246-248).

III. Reflections

Simpson's book is an intriguing account of the ways in which American economic ideology and grand strategy combined to produce its foreign policy, relatively consistent across administrations, toward Indonesia. The focus of the book is highly U.S.-centric and does not focus so much on Indonesia's internal affairs and rivalries. However, it still makes clear that while the U.S. developed a clear conception of Indonesia's role in its sphere of influence, Indonesians themselves were not passive actors: it was ultimately the Army under Suharto that crushed the PKI, not the United States. Nevertheless, U.S. policymakers were able to take advantage of the carnage to push Indonesian politics in their desired direction.

The result was a New Order regime, under the rule of General Suharto, which switched its foreign and economic policy to alignment with the West. In addition to the economic measures outlined above, the New Order also took a intolerant line on communism - banning the teaching of Marxism-Leninism - and shifted its foreign policy away from Sukarno's confrontationism toward the West. He negotiated an end to the ongoing war against Malaysia in August 1966, allowing the British to wind down their costly military presence in Southeast Asia, and co-founded the Association of Southeast Asian Nations in 1967, which Washington saw as a counterbalance to Chinese influence in the region.

I was intrigued by the discussions on how policymakers in Washington, Tokyo and Jakarta saw mutual benefits in the relationship between Indonesian resources and Japanese industry. I am fascinated generally by how the East Asian "tigers" - Japan, South Korea, Taiwan and Singapore - were able not only to supercharge their economic growth, but also lift up their neighbours with them through an increase in trade and investment. Of course, this effort has not totally been successful - after all, Indonesia remains an underdeveloped nation today and Japan itself has been facing economic stagnation for the past few decades. Nevertheless, it may point to ways in which a reinvigoration of regional economic growth is achievable.

Moreover, I find interest in the ways in which U.S. policymakers have sometimes justified their foreign policy goals - usually behind the scenes - in terms of crude resource availability and complementary economic systems, rather than hifalutin ideologies about "democracy" (a consideration elaborated in detail in Imperial Brain Trust and Tomorrow, the World). Simpson touches on these ideas lightly; however, I would certainly be interested to delve more closely into how Indonesia figured in American foreign policy, both on its own and in relation to Southeast Asia and also to East Asia as a whole.

I think this book raises some interesting questions. For instance, we know that the Suharto regime was an authoritarian, repressive state that came to power by prosecuting one of the most horrific murder campaigns of the twentieth century. However, it also brought Indonesia sustained economic growth by inviting foreign investment and moderating its foreign policy. Surely, this cannot justify such violence and terror. However, it does raise the question of what avenues were available at the time, in the global context of the Cold War.

It is easily forgotten that the successful developmental states of East Asia were all to some extent authoritarian during their periods of high-speed growth. Taiwan conducted large-scale massacres of dissidents under the Kuomintang, and did not make the transition to democracy until the 1990s, around the same time South Korea made its own transition from military dictatorship. Japan conducted its own purges of suspected communists during the seven-year U.S. occupation period after the war. Since 1955, it had been governed by the same party, except for two exceptional briefly periods, thus ensuring a large degree of political stability during its period of high-speed growth in the 1960s. The dominance of Singapore's People's Action Party has also provided political stability throughout the country's leap to first-world status.

It would be interesting to explore where Indonesia fits into this picture. While the U.S. and IMF pushed a free-market system, the path chosen by Indonesia more closely hewed to the state-led model that the Asian tigers themselves exercised. In these countries, it was not only political power that was centralised, but economic power, exemplified by organisations such as Japan's Ministry of International Trade and Industry. Thus, it is clear that centralised systems are effective at promoting high-speed growth, undercutting America's own message about the merits of unfettered free-market capitalism.

Why then, did Indonesia fail to achieve high development while the tigers succeeded? This is surely a complex question that falls outside the scope of the book, but is interesting to ponder nonetheless.

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