Economists with Guns

Authoritarian Development and U.S.-Indonesian Relations, 1960-1968

STANFORD UNIVERSITY PRESS

Contents

Imagining Indonesian Development

The only prophet without a significant Indonesian following is probably Adam Smith.

— Max Millikan

The collapse of Japanese and European colonialism and the rise of revolutionary nationalist movements in East and Southeast Asia in the 1940s was a signal event of twentieth-century international history. The post — World War II attempt by a generation of U.S. and European policymakers to direct the inevitable process of decolonization along lines compatible with Western interests and the efforts of indigenous forces to assert their own visions of self-determination helps to explain much of the Cold War in Asia, which produced two devastating wars in Korea and Indochina and myriad instances of covert intervention. The historical trajectory of Indonesia, then the world's fifth most populous nation and its largest Muslim state, would be decisively shaped by these efforts. Since the surrender of Japanese forces in August 1945, which ended World War II, U.S. policy toward the former Netherlands East Indies has lagged consistently behind the aspirations of its nationalist leaders to sever the economic, political, and cultural sinews of European colonialism. Concerned more with the implications of rapid decolonization of Asian empires for Europe and Japan than with the demands for independence of anticolonial leaders, the Truman administration initially acquiesced to Dutch efforts to reestablish control over their former colonial empire, expressing the same ambivalence about the fitness of Indonesians for self-government that it did for Vietnam. For three years the United States publicly professed neutrality in Indonesia's independence struggle while The Hague used lend-lease equipment and funds freed up by U.S. Marshall Plan aid to repress Indonesia's republican forces. Not until the fall of 1948 did Washington decisively back Indonesian independence by threatening to withhold military and economic aid after the Netherlands unilaterally violated a U.S.-brokered settlement. Not only did Dutch military actions threaten the Truman administration's European priorities, but U.S. officials also feared that the anticolonial struggle might unleash more radical and less easily controlled forces, such as the "emergence of a Pan-Asian bloc, which ... may follow an independent path." Equally important, the young republican government demonstrated its anti- Communist bona fides to the Truman administration by bloodily crushing a PKI uprising in September 1948 in the East Java city of Madiun. While White House officials congratulated themselves for their newfound devotion to Indonesian independence, many Indonesian nationalist leaders remained profoundly suspicious of both U.S. and Soviet intentions. Washington's near simultaneous decision to back the French effort at colonial reconquest in Indochina and continued British control over Malaya — both also challenged by radical independence movements — underscored the fragile nature of Washington's support for Asian self-government, as Indonesia's new leaders readily recognized.

In the wake of Indonesia's independence in 1949, U.S. officials and social scientists identified the Southeast Asian nation as a linchpin in Washington's strategy of regional economic integration and as a line of containment against the expansion of Soviet and later Chinese power. Washington hoped that its support for Indonesian independence and the provision of a modest program of economic and technical assistance beginning in 1950 would help foster the emergence of a representative, capitalist, and pro-Western government. The vast majority of Indonesians, however, associated Western-style democracy and capitalism with colonialism and sought a collectivist, social democratic (or even socialist), and indigenously rooted path to political and economic development. Sukarno's articulation of the famous five principles known as the Pancasila — national unity, social justice, belief in God, humanitarianism, and democracy — was an imprecise attempt at formulating a distinctly Indonesian vision of democracy through consensus, as opposed to the "free fight" democracy of a competitive parliamentary system. Mohammed Hatta, Indonesia's first vice president and its foremost advocate of a decentralized Indonesian state and a democratic, participatory government, likewise firmly rejected Western-style democracy (even as he battled against Sukarno to rescue the parliamentary system), arguing in 1956 that "political democracy alone cannot bring about equality and fraternity. Political democracy must go hand in hand with economic democracy," a "social democracy covering all phases of life." Throughout the mid-1950s both visions reflected a fragile optimism both within and outside Indonesia over the prospects for democratic development, even if they profoundly differed over the meaning of democracy.

The rising strength of the Indonesian Communist Party (PKI) in the years after independence, however, tempered such hopes, as did Indonesia's firm commitment to neutralism and national development along lines that clashed repeatedly with U.S. goals in the region. Growing U.S. frustration with Indonesia mirrored its concerns during the decade over the rise of indigenous radicalism, neutralism, and nationalism throughout the so-called third world. By the mid-1950s U.S. support for and optimism about the prospects for democracy in Indonesia proved to be highly contingent. As in countless other nations, Washington began encouraging, alongside technical and agricultural assistance, military aid programs that prioritized stability over democracy and envisioned U.S.- trained military establishments as vanguards of modernization. Indonesia's abandonment of parliamentary democracy and the outbreak of a U.S.- backed civil war during the late 1950s marked a turning point toward the Indonesian and American embrace of an authoritarian regime as the appropriate vehicle for modernizing the world's fifth largest nation. When the Kennedy administration arrived in Washington in 1961, visions of military modernization framed the boundaries of American and Indonesian thinking about possible paths to the country's future.

Imagining Indonesian Development

Indonesia's postindependence hopes for political and economic development flowed directly from its experience under Dutch colonial rule and the near insuperable challenge of creating an integrated nation out of a far-flung, multiethnic archipelago poorly prepared by its former colonial power for independence. The bewildering complexity of Indonesian politics in the decade after independence, with nationalist, Socialist, Catholic, Communist, and Islamic parties and organizations offering fundamentally different proposals for the nation's basic political and economic structure, testified to the difficulty of constructing a unified nation and political system. The persistence of local and regional identities in places such as Aceh as well as Dutch attempts to weaken the new republic through federalist schemes exacerbated these challenges, leading Sukarno in August 1950 to abandon the federal arrangement agreed to in the 1949 Roundtable Conference and guaranteeing conflict between the island of Java, with two-thirds of the nation's population, and the rest of the archipelago. Indonesian views on economic development were likewise conditioned by the exploitative nature of Dutch colonialism — which concentrated much of the economy in foreign hands and oriented it toward production of commodities, such as rubber, tin, palm oil, and petroleum, for the world market. Consequently, Indonesian nationalists, beginning with the country's first president, Sukarno, hoped to take back control of the economy from foreigners and establish a basis for national unity, development, and self-sufficiency.

U.S. officials, on the other hand, framed Indonesia's strategic, economic, and political importance squarely in regional terms that flowed from their commitment between 1947 and 1950 to seek the reconstruction of Japan, regional economic integration, and the containment of Communism throughout Asia. Dean Acheson's State Department laid out the goals in a series of planning documents, in particular PPS (Policy Planning Staff) Paper 51 and NSC 48/2, which called for both the economic integration of Southeast Asia through the linkage of its raw materials with Japanese industrial capacity and Western access to the region. These core commitments, for which containment and anti-Communism were the means, not the ends, remained the unspoken assumptions guiding U.S. policy toward Indonesia through the end of the Sukarno era and indeed throughout the Cold War.

Indonesia's commitment to a nonaligned foreign policy, its pursuit of state-led development, and its tolerance of a strong and growing Communist party, however, posed profound challenges to U.S. goals that mirrored those it faced elsewhere in the developing world. Indonesia's postindependence leaders, committed to a nonaligned foreign policy, "proved resistant, from the first, to American direction and obdurately refused to join the American alliance system or even to accept any American aid that might come with strings attached." Republicans in Washington, who viewed foreign aid as "a global extension of the New Deal Programs they loathed," sought to link such assistance to pro-U.S. military and economic policies, with predictably counterproductive results. In 1952 popular outrage at U.S. demands that Indonesia sign a mutual security agreement as a condition of receiving U.S. military aid brought down the Sukiman cabinet. First the Truman and then the Eisenhower administration tried to cement Jakarta's ties to the West and to the regional economy through programs of military, technical, and economic assistance, only to express exasperation as civilian and military leaders of all stripes proved willing to accept aid but unwilling to take sides in the Cold War.

Sukarno's hosting of the Bandung conference of nonaligned nations in 1955 symbolized Indonesia and other postcolonial nations' determination to chart an independent course in foreign affairs and the broader challenge that nonalignment posed to both the United States and the Soviet Union. The Eisenhower administration initially opposed the convening of the Bandung conference (called "a vast illuminated soapbox where the malcontents of the world — the black, the yellow, the brown, and even some whites — could have their say" by Newsweek) and at turns sought to accommodate itself to or undermine the efforts of Yugoslavia, India, Egypt, Indonesia, and other nations to pursue a neutralist path in the Cold War. The Soviet Union, likewise initially hostile to nonalignment, under Khrushchev revised Communist development doctrine to account for and appeal to its proponents, developing the notion of the "national democratic state" as a way station on the road to Socialism. China's Communist leadership, even as they participated in the Bandung meeting, were also unsure of how to relate to neutralist and anti-imperialist leaders such as Nehru, Nasser, and Sukarno, who were often lukewarm or hostile to domestic Communist parties. Although Mao publicly praised Sukarno for his anticolonialism, Deng Xiaoping confessed to Soviet ambassador to China Stephan Chervonenko that "the struggle with bourgeois figures of this sort is one of the most important problems facing the international communist movement."

The threat that the U.S. and other Western governments identified at Bandung, however, extended beyond the obvious political challenge that nonalignment posed to the imperative of Cold War alliance building. In his opening speech to the conference, Sukarno implored, "I beg of you, do not think of colonialism only in the classic form which we of Indonesia, and our brothers in different parts of Asia and Africa, knew. Colonialism has also its modern dress, in the form of economic control, intellectual control, actual physical control by a small but alien community within a nation."

As Sukarno suggested, the creation of the nonaligned movement raised the specter of more than just an unprecedented alliance of what American conference attendee Adam Clayton Powell called "the two billion colored people of the earth." U.S. officials also feared that political nonalignment might extend to the economic sphere as well, presaging collective attempts at independent state-led development, regional trading blocs, or declarations of support for Soviet or Chinese models of industrialization. Many neutralist leaders embraced socialist ideals, at least rhetorically, and viewed Western-style capitalism as an exploitative extension of formal colonialism. Eisenhower administration officials could only express relief when the nations attending the Bandung meeting seemed to acknowledge their continued dependence on foreign investment and technical assistance from the West and refrained from explicit calls for autonomist programs of development.

Training for Development

It was to this challenge of explaining and attempting to direct the scope of change in the so-called third world that the U.S. government and a host of nonstate and international organizations turned their attention as the Cold War solidified. The establishment of area studies programs in the late 1940s and early 1950s by a constellation of academic institutions, philanthropic foundations, and the U.S. intelligence community was a crucial development in the history of American hegemony. Both as intellectual adjuncts to the creation of a national security state and as sites for the figurative naming and categorization of the world, area studies programs at Harvard, the University of Chicago, the University of California at Berkeley, MIT, Johns Hopkins University, Cornell University, and elsewhere played a crucial role in the construction and dispersal of social scientific thinking about political and economic development in the developing world and in the production of relevant policy knowledge. This was nowhere more true than in Indonesia, where programs funded by the Ford and Rockefeller Foundations, among others, shaped both American and Indonesian understandings of the possibilities and limits of Indonesia's development.

The historian Henry Benda in 1964 wrote without exaggeration that "no country in Southeast Asia has in postwar years received greater attention, institutional support, and dedicated individual scholarship than Indonesia." Much of that attention resulted from a massive outpouring of foundation funding for the study of Indonesian politics, economics, and society in the years between 1950 and 1964. During this period the Ford and Rockefeller Foundations alone disbursed nearly $20 million for education, agriculture, medical, and technical assistance in both the United States and Indonesia. These philanthropic institutions not only facilitated a dramatic expansion of social scientific research on Indonesia but also funded participant and educational exchange programs for Indonesian technicians, economists, teachers, agrarian specialists, military personnel, and engineers — what U.S. ambassador to Indonesia from 1958 to 1965 Howard Jones termed a long-term "struggle for the Indonesian mind." Ford and Rockefeller Foundation funds underwrote the creation of area studies programs in the United States, including the Social Science Research Council's Committee on Comparative Politics, which also funded studies of Indonesian politics and economics. These efforts intersected with and helped to shape wide-ranging debates taking place within Indonesian society during the 1950s over the nature and direction of economic and political development, debates that would have far-reaching implications.

The Ford Foundation arguably played the most significant (and doubtless most well-publicized) role. Ford-funded education training for Indonesian social scientists directly shaped Indonesian development thinking. Between 1956 and 1962 Ford Foundation fellowships, in addition to AID participant training programs, provided training for an entire generation of Indonesian economists through the creation of a partnership between the University of Indonesia and the University of California at Berkeley and the funding of graduate economics study at MIT, Cornell University, and other institutions. The young republic's need for trained economists was acute; in 1956 only fifteen Indonesians had pursued advanced study. Two years later Ford Foundation officials reported that its economics training program had "become increasingly associated with the internal development of Indonesia."

The experience of the economist Subroto was illustrative. After Subroto had completed a master's degree in economics at McGill University in 1956, Sumitro Djojohadikusomo, dean of the Faculty of Economics at the University of Indonesia (FEUI), arranged for Subroto to continue graduate work at MIT, where he worked with Ben Higgins, Charles Kindleberger, and Paul Samuelson studying Indonesia's terms of trade in primary commodities. A year later Subroto returned to teach at FEUI, leaving again in 1960 and 1961 to study management at Stanford University and business at Harvard, both on Ford Foundation fellowships.