Why Had Inequality in Indonesia Been Lower from World War II to 1997

The Indonesian economy had experienced a significant decrease in inequality relative to its neighbor countries such as Malaysia and Philippines (Soekirman, 1992). Such decline happened in the context of the regime of Suharto, post World War II. This significant decrease happened as a result of a play among different factors before, during and after their colonial history. Generally, it is the tiredness from colonialism, the negative experience from authoritarianism that resulted to global openness that could have effected Indonesia’s decrease in inequality prior to the 1997 economic crisis.

Before Indonesia’s first President, Sukarno’s administration, Indonesia experienced the Dutch colonial presence. This happened for three hundred years and was followed by the Japanese occupation during the Second World War (Indonesia, 2007). This historical fact played an important role in the post- World War improvement in inequality in the country, as distended nationalistic sentiments had been a major term in the creation of different developmental strategies in Indonesia.


During the reign of Sukarno, the idea of development was associated with the opposition of the Indonesian nation to colonialism and capitalism (McCormack, 1999). National development was characterized by literally rebuilding the nation, that was through the construction of physical buildings particularly, government structures, houses, schools and industrial structures. Development under Sukarno was part of the resistance to the colonial capitalist system (McCormack, 1999). In particular, the government of Sukarno clearly resented any Western idea on capitalism.

Under Sukarno, global capitalism was associated with colonialism. Attempts to improve the economy were done effecting an integration of the Indonesian economy into the global economy (McCormack, 1999). But because of the association of capitalism to Western colonization, it is not surprising that attempts to integrate Indonesia and develop its economy were done, such that it was completely opposite the West’s capitalistic ideology. As a matter of fact, Sukarno’s regime was once labeled authoritarian, socialist bordering communism (Indonesia, 2007).

This prevented Indonesia from being accessed in the International scene. Sukarno’s “Guided Economy,” for example, was planned to be financed using aid from the United States. This however, was in contrast to Indonesia’s heavy sense of nationalism because the assistance involved terms which Indonesia refused to accept (McCormack, 1999). Such conflict of interest included the issue on agricultural production in the 1950s when the US proposed to focus on the improvement of technical skills; Indonesia wanted to improve mechanization, instead and from then on, refused to accept any external aid.

Sukarno’s “Guided Economy” resulted to the rejection of anything foreign, the withdrawal from the world economy and world organizations, which in turn resulted in failure to develop economically (McCormack, 1999). Sukarno’s “Guided Economy” failed to guide the country’s economy towards economic development and equity. Such effect of Sukarno’s regime and seemingly communist sentiments and strategies resulted in the installation of Suharto into Presidency. Because of the past administration’s failure, strategies were made in total opposite of the ideals embodied by the “Guided Economy”.

There was still the Nationalistic Integration of Indonesia into the world market, but generally, this was done in the context of Western capitalistic ideals. Sukarno’s “Guided Economy” was replaced by Suharto’s “New Order” (McCormack, 1999). Suharto’s “New Order” meant developed banking and financial institutions and increased reliance on the International Monetary Fund and the World Bank in terms of financing the development programs in the country (McCormack, 2003). There had been years of reliance in such organizations that Indonesia had come to believe the necessity of integrating the country into the world-system.

This had been unprecedented since prior to World War II and since the regime of Sukarno (McCormack, 1999). The new order also meant Western Orientation. And, there had been an increased orientation to capitalism in the government and in the whole country (McCormack, 1999). Several government officials had acquired Western economic perspectives by studying in Western countries. Particularly, there was the Berkeley Mafia which influenced the economic policies and formulations that were implemented during the regime. All of the members were said to have had completed a degree in Berkeley (McCormack, 1999).

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