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Renegotiating a Timber Commodity Chain: Lessons From Indonesia on the Political Construction of Global Commodity Chains Paul K. Gellert1

This paper shows how political strategies and negotiations influence the construction of the market linkages that form global commodity chains. It provides an account of how an oligopoly of timber-producing firms in the peripheral nation of Indonesia came to dominate the production and export of processed tropical plywood from 1985 to 1998. The oligopoly forged alliances with the state to gain domestic control over producers of the raw material and negotiated an external alliance with Japanese importers to penetrate that core market. Exposing processes of political influence can enrich global commodity chain analysis of market processes in the global political economy. KEY WORDS: global commodity chain; markets; development (politics of); raw materials exports; timber; Indonesia; Japan.

INTRODUCTION Global commodity chain (GCC) analysis has emerged in recent years as one of the more promising methodological and conceptual approaches to understanding the shifting structure of global production. In their ambitions at least, Gereffi (1994) and other writers in this vein (Cramer, 1999; Gibbon, 1997; Talbot, 1995–96, 1997) attempt to go “beyond [the] nationstate” (Robinson, 1998) which has been (and continues to be) the predominant unit of analysis in most theories of development. Adhering to a world-systems tradition that attempts to analyze the overarching international division of labor, they argue that it is more important to examine 1 Department of Rural Sociology, Cornell University, 337 Warren Hall, Ithaca, New York 14853;

e-mail: [email protected]. 53 C 2003 Plenum Publishing Corporation 0884-8971/03/0300-0053/0 °

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the whole chain of production from raw material to final marketed commodity.2 I argue that the ambitions of the global commodity chain approach are so far unfulfilled because the politics of the particular chains are largely unexplored. In addition, especially with respect to raw materials nodes of the chain, there is a lack of attention to the particular characteristics of the commodity and how those characteristics affect outcomes.3 In this paper, I investigate how the Indonesia–Japan link of the tropical timber commodity chain was renegotiated for at least a decade from the late 1980s through the late 1990s.4 Logging and export of raw timber in large volumes from the vast forests of Indonesia’s so-called Outer Islands5 began in the late 1960s with Suharto’s rise to power. Log exports boomed during the 1970s and reached a peak in 1979 when more than 25 million cubic meters of raw wood were exported (Gillis, 1988). It was only during the early 1980s, however, that two alliances—a domestic one of Indonesian timber producer firms and the state and a transnational one linking “private” firm 2 Wallerstein has reasserted the importance of this in the Introduction and Conclusion to a recent

issue of Review devoted to commodity chain analysis. He writes, “It is the characteristics of the chain as a whole that should be the primary object of investigation, not those of particular boxes, or particular aspects of all boxes” (Wallerstein, 2000: 12). 3 Here I focus on natural resource commodities and their physical, topographical, and locational specificity, but I also believe that the argument could be extended with some benefit to manufactured commodities writ large. 4 The commodity chain in timber is relatively short: logging trees, transporting logs (by land and river), peeling logs into veneer, laminating veneer sheets into plywood, transporting plywood, and (for half of the Japanese market) using plywood for concrete forms in construction. Labor is a minor input in logging (after mechanization in the early 1970s in Indonesia), and more labor is employed in the mills of Indonesia because of its cheap availability. The other significant input to plywood is glue, which also was brought under domestic control. Alternative end uses for logs such as sawn timber and furniture, which require more highly skilled labor and knowledge of market tastes, were both effectively eliminated by political fiat during the Suharto era (e.g., exports tax holidays and credit for plywood mill investment, regulations requiring vertical integration from logging to processing mill, and a hefty tax on sawn timber). In recent years, depletion dynamics have made timber from various other forests economically attractive, e.g., in the Pacific islands, Guyana, Surinam, and western Africa. Also, technological developments have made it increasingly possible (and acceptable in consumer markets) to convert softwood trees into structurally equivalent manufactured wood products, such as oriented strand board (OSB). As a result, new sources have become part of the “relative supply” (Barham et al., 1994a) of timber, which puts competitive pressures on Indonesian suppliers and expands the number of nodes in the chain. I should also note that if one defines the chain by the end product, then one could conceive of a number of more complex chains, e.g., back from construction forms to either logs or iron/steel; back from window and door frames to either logs or bauxite/aluminum, etc. My focus in this paper, as will become clear, is not on the whole chain or on comparing chains but on the political sociology of market construction across the Indonesia–Japan nexus. 5 A term from the Dutch colonial period that has carried over to the Indonesian period in reference to the islands “outside” Java and Bali such as Kalimantan (Borneo), Sumatra, and the eastern islands of the country. The Philippines’ forests had more significant timber resources in the 1950s and 1960s because Indonesia’s Outer Island forests were politically made “unavailable” for logging and export during the Soekarno Presidency (through 1965).

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actors in Indonesia and Japan—together transformed Indonesian timber exports from the typical peripheral role as exporter of raw material tropical logs to core consumers into the more remarkable role of producing and controlling the marketing of processed plywood in a key core market from 1985 to 1998. In GCC terms, this transformation appears to be a move by a peripheral country “up” the commodity chain to a more profitable “node.”6 One of the main points of this paper, however, is to argue that moving “up” involves neither real movement nor, especially, national movement (as the image implies) as much as the capture of value added or surplus value by particular actors as a result of political struggle along the chain. In other words, it is a sociopolitical process rather than a purely geographical one. This paper explores the political, economic, and social organizational processes by which these two alliances were forged. The paper proceeds in four sections. First, I explain how the commoditychain literature can be used as a point of departure for a more historical and political analysis that also pays attention to the specific characteristics of commodities, particularly raw materials like timber. Second, I analyze the process by which the Indonesian state worked with timber firms to create a powerful oligopoly that garnered almost all of the Japanese market share for a decade. The institutional embodiment of this oligopoly called Apkindo was headed by Mohammad “Bob” Hasan, who had a long personal and working relationship with President Suharto. In the third section, I offer a preliminary analysis, based on interviews in Japan in 1999 and 2000, of how a monopsony7 importing arm, Nippindo, was created at the Japanese end of the chain.8 Specifically, Hasan forged an alliance with the leader of a relatively small Japanese firm in order to facilitate the entrance of Indonesian plywood into the Japanese market. From that alliance’s power, innovation was achieved, not in technological developments as is often the case (e.g., O’Hearn, 1994) but in marketing. On the other end of the timber commodity 6 The

metaphor of a chain seems to call for “links” rather than “nodes.” Hopkins and Wallerstein’s early paper (Hopkins and Wallerstein, 1986) set the precedent by using nodes, but recent papers in Review have used the term “boxes,” which is visually accurate to their diagrams. I believe that my approach is more in line with the visual image of interlocking links in a chain. 7 Monopsony refers to “a market situation in which the product or service of several sellers is sought by only one buyer” as opposed to the more commonly known monopoly which refers to a market with a single producer or seller (American Heritage Dictionary of the English Language, 4th edn. available at http://www.bartleby.com/61/83/M0398300.html). 8 This paper is based on 18 months of field work and interviews in logging companies and plywood processing mills in East Kalimantan and in executive offices, governmental institutions, and NGOs in Jakarta, Indonesia, during 1994–95. Brief follow-up trips to Indonesia in 1998 and 1999 and, especially, 2 weeks of initial research interviews in Japan in May–June 1999 and June 2000 have enabled me to expand the analysis to include the Japanese end of the plywood chain.

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chain were further allies, who facilitated the renegotiation of power relations in a key market because it served their own accumulation strategies, as well as capitalist rivals who were for some years unable to counter the move through access to alternative supply locations or use of alternate timbers. In the fourth section, I underscore the power of Hasan’s political economic organization, as well as the relationship between authoritarian regimes and developmentalism,9 by presenting some of the criticisms of Apkindo voiced during a brief window of opportunity in 1994 and 1995. During the world-historical period of post-World War II developmentalism, the legitimacy of such regimes was greater, both domestically and internationally, than at present. The 1998 political changes in Indonesia were brought about in part by the International Monetary Fund (IMF)-imposed structural adjustment, which included the dismantling of Apkindo’s powers as one of its conditions. The paper concludes by arguing that commodity chain analysis is enriched by examining the political strategies by which markets, and therefore links in the chain, are constructed. In addition, political analysis of the forging of new links in commodity chains offers insights into the changing historical conditions, ideologies, and practices of the global political economy.

COMMODITY CHAINS, RAW MATERIALS, AND THE NEED FOR POLITICAL ANALYSIS In building a GCC approach to understanding the global organization and relations of production, Gereffi and Korzeniewicz argued that “. . . the concept of GCCs ultimately challenges the hierarchical distinction between raw material production, industry, and services” (Gereffi and Korzeniewicz, 1994:4). Thus they attempted to be truly global in their analysis. Writing in support of such efforts, William I. Robinson has recently argued that in this age of globalization, sociology and the social sciences in general are in need of a “break with the ‘nation-state framework of analysis’ that continues to guide much macrosocial inquiry” (Robinson, 1998:562). Robinson therefore praises GCC research for tracing “global decentralization and transnationalization of production processes.” However, at the same time, he is critical of the GCC literature for “nation-state centered developmental conclusions grounded in the state-stratification assumptions of world-system theory” (Robinson, 1998:577). Similarly, Tomich (1997:300) proposes, production and exchange should be “understood as relations that presuppose, condition, and are formative of one another as distinct parts of a whole . . . [T]he 9 Bruce

Cumings has called these bureaucratic authoritarian industrializing regimes or BAIRs (Cumings, 1984).

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relevant unit of analysis is defined by the extent of interrelated processes of production, distribution, exchange, and consumption.” I argue in this paper that more detailed comparative and historical work on the politics of links in commodity chains, including how they are created and how they change, may provide a means of addressing this weakness of global commodity chain analyses.10 The argument in this paper builds on the GCC perspective in two key ways. First, it demonstrates the prominence of politics—both domestic and transnational—in explaining the ability of peripheral producers (or anyone else) to garner benefits from commodity trade. Second, it emphasizes the crucial importance that control of marketing channels can have over links in the commodity chain and, thereby, who benefits most from their configuration. In emphasizing markets, I am also, at least implicitly, addressing the broad sociological critique of the common economic assumption of the natural occurrence of markets. Markets are politically constructed, and this paper demonstrates how this is so in the case of Indonesian timber exports to Japan. Unfortunately, in their zeal to characterize the whole chain, GCC writers have sometimes lost the historically dense stories and complicated political struggles among states and firms in particular cases and at particular nodes on the chain. At their weakest, I argue, commodity chain analyses are limited to a descriptive characterization of the changing geography of production. Gereffi (1994, 1998) has worked hardest to refine the GCC approach, including types of governance through the broad distinction between “producer-driven” and “buyer-driven” chains. In producer-driven chains, transnational corporations (TNCs) exercise control over the production chain. He associates producer-driven chains with capital- and technologyintensive industries and notes that these tend to be vertically integrated chains. In buyer-driven chains, by contrast, retailers and brand-name merchandisers are “pivotal” (if not in control) in organizing the subcontracting arrangements typical of these chains. Gereffi has argued that, because of the increased importance of brand names and other factors, some lower level technology products (e.g., garments, shoes) are moving into buyer-driven chains where the end-market actors have more influence and capture more of the total surplus value available in the chain than do producers. 10 Or,

in Robinson’s words, they may provide a means of distinguishing “between appearance (national phenomena derived from nation-state analysis) and essence (transnational phenomena)” (Robinson, 1998:573). While I agree with the general thrust of Robinson’s transnational argument, it seems that he throws out the nation-state as a mere epiphenomenon of the emerging transnational reality too quickly (see, e.g., Linda Weiss’s recent work on the mythical end of the nation-state). Nation-states, firms within them, and other actors inside national borders continue to work for (and struggle against) national-level “development.”

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There are important limitations to the analytical utility of this broad distinction, however. First, the conditions giving rise to specific forms of governance are not elaborated. It is unclear whether the type of chain governance is a causal result of the type of product being produced, the organic “evolution” of business organization, the historical period of global capitalism, and/or the result of political struggle. For example, the possibility of a process by which industrial actors, such as firms at the producer end of a buyer-driven chain, might assert some agency to convert the chain into a producer-driven chain—or some other form that might be more controllable closer to the raw materials end—remains unexplored. Gereffi seems to favor the first two explanations of governance (i.e., type of product and business organization evolution) by highlighting the importance of low-wage labor and organizational flexibility in the manufacturing of lower technology products for the shift to buyer-driven chains in East Asian export-oriented industrialization (Gereffi, 1994). My argument in this paper regarding the emergence of particular forms of chain governance would be for a combination of factors. I agree that the type of product is important, but we need to be more specific about commodity characteristics than just level of technology when we are examining raw materials with their varying geographical sources, topographies of extraction, relative inputs of labor, and the like (see Barham et al., 1994a). In addition, this case falls within the broader period of developmentalism, which McMichael dubbed “the development project” (McMichael, 1996). It legitimated state intervention to industrialize national economies. In sum, efforts to reconstruct commodity chains involve political struggle and (re)negotiation among states and firms in and across multiple jurisdictions. Second, as Dicken (1998) points out, Gereffi’s emphasis on TNCs is apt but partial. The firm(s) from the periphery may not be TNCs; often they are only transnational in that product is exported to foreign markets.11 More important, as just noted, both types of production chains continue to be regulated by the state.12 As social scientists going back to Polanyi (1944) have recognized, markets are (at least in part) political institutions. Studies of particular histories of market creation illuminate exactly how politics come into play. It is the dynamics of conflict and collaboration between TNCs (and subcontracting producers) and states—as well as, importantly, the labor 11 On the other hand, it is fascinating as well that a number of Chinese–Malaysian and Chinese–

Indonesian logging firms did become truly transnational in the 1990s with operations in Latin America and West Africa. be sure, Gereffi does briefly consider the role of “state policies” in GCCs (Gereffi, 1994:100–101) but he does not develop this, in part because his work highlights the growing importance of retailers and brand naming. Here I am trying to examine the particular relations between state and firm actors.

12 To

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and nature exploited in production—that matter for the social outcomes observed in a particular case. Without these broad political relationships, including supranational and subnational governance structures, created and transformed through such struggles, capital would not have the stability necessary for accumulation. As such, while a GCC perspective would view the Indonesian timber case as a producer-driven chain, which more recently seems to be transforming toward a buyer-driven chain, I am reticent to make this argument because the distinction between the two is more ideal-typical than historical. In a more historical analysis, I argue, we would specify the causal mechanisms and renegotiated power relationships that result in the observed governance structure.13 Therefore, I focus on the national and transnational political alliances that made Indonesian plywood exports to Japan profitable and that seem to be breaking apart with IMF structural adjustment and the triumph of neoliberal economics.14 In sum, the GCC approach, while useful as a heuristic in guiding us toward analysis of the complex and shifting global organization of production, does not incorporate questions of state and nonstate power sufficiently into its analysis. One of the reasons for this lacunae, I believe, is the focus on the division of labor as a transnational integrating mechanism. This focus, despite the best intentions of global commodity chain writers to “contest developmentalist accounts of capitalism’s birth as incrementalist process contained within nation states” (Korzeniewicz and Martin, 1994:69), reinforces developmentalist assumptions that nation-states are comparable units and that industrialization allows a nation-state as a totality to “catch up.” Rather than reify nation-states in this way, I believe we should understand the historical specificity and politics of transnational structure in this period. Another, more directly related reason is that most of the work on commodity chains has begun with the end product rather than with the raw material, where states have become more obviously and directly involved. Industrial processes are, in theory, completely mobile, but natural resource extraction is, in its ideal form, perfectly immobile. Mobile processes are conducive to more mobile actors like transnational capital seeking out favored locations, usually those with cheap labor and cooperative states, for its production around the world. However, immobile resources create challenges 13 To

make a somewhat different point, a structure of governance, it seems to me, should indicate more than power over the economic organization of the chain. As more commonly understood, governance refers to the degree of democracy and transparency in society, but such notions are not mentioned in the producer-driven versus buyer-driven chain distinction (either at individual nodes or for the whole chain). 14 For a comparable argument about dependent capitalist development in East Asia in general, see Bernard (1999).

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for capital and capitalist states. Bunker and Ciccantell’s work (Bunker and Ciccantell, 1995), for example, has brought attention to the important role of raw materials acquisition for rising hegemons (Dutch, British, American, and Japanese) in the world system. They argue, in order to become so productive and so efficient, economies rising to core status must organize other economies and international transport systems to assure the increasing, secure, cheap supplies of the raw materials that support productive efficiency and economic growth. (Bunker and Ciccantell, 1995:1)

As in Bunker’s other work (see Bunker, 1992, 1994; Bunker and O’Hearn, 1993), they demonstrate that the physical characteristics of natural resources themselves constrain the realm of socially possible action. At the same time, hegemonic states may be willing and able to take actions, from supporting development of new technologies to outright imperialism, to assist “their” firms in achieving access and control. For our purposes, however, Bunker and Ciccantell focus their argument too narrowly on ascendant hegemons and their access to and control over key raw materials for the most technologically advanced and productive industries of the day.15 This leaves most of the world’s states as involved in “residual” struggles against these powers, but, in fact, a range of states with “developmental” aspirations also struggle to gain power within the system.16 The question that emerges is how relevant their analysis might be to peripheral states and firms involved in the export of noncritical raw materials. I argue that we can learn a great deal about the relationship between core and peripheral states and firms by analyzing commodities that are less critical to the core. The richest accounts of power (or “governance”) in commodity chains are to be found in historical accounts of the political struggles over particular chains (see e.g., Barham et al., 1994b; Coronil, 1997; Peluso, 1992; Schurman, 1993; Talbot, 1995–96). The starting point for such an analysis is to understand the particular characteristics of the commodity in question because they establish the social, ecological, and geopolitical parameters. What kind of a commodity is timber?17 In the late twentieth century, timber is certainly a less critical commodity than aluminum (see Barham et al., 1994b) or iron and coal (see Bunker and Ciccantell, 1995).18 On the 15 Where

productivity is measured in terms of capital accumulation. they remind us, most observers did not predict Japan’s ascent before it (arguably) happened. 17 By way of clarification, timber can be viewed as a subset of all wood products, which would include those products resulting from the reduction of wood to its fiber components, such as chips, pulp and paper, and those products resulting from the cutting of wood into pieces. The latter include raw logs, sawn wood, and plywood. In this paper I focus on plywood, the dominant wood export from Indonesia in the period under consideration. See also footnote 3. 18 In earlier periods, of course, timber had been critical because of its importance for shipbuilding (Albion, 1926; see also Hopkins and Wallerstein, 1986). 16 As

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spectrum developed by Barham et al. (1994b) for “mapping” raw materials industries, timber lies between the critical and luxury ends.19 The demand for timber is tied to the overall level of economic growth because its main end use is in the construction industry for forming concrete. Consumption of timber therefore boomed in Japan in the postwar growth era.20 The technology of timber production is relatively unsophisticated and available without licensing fees, labor inputs are small and not especially skilled (for construction end uses), and the sources of wood, even if we restrict our attention to tropical hardwoods, are multiple. In addition, the degree of substitution has been increasing in recent years to the point were softwoods, as well as composite wood, plastic, and metal products are replacing tropical hardwood in many end uses. On the other hand, in a peripheral country like Indonesia, timber represents one of the few available options for domestic capital accumulation. Given the competitiveness of the global timber industry, the challenge is whether this resource can be turned to such advantage when most raw commodity exports have not. In the next section, I demonstrate how firms and the state in Indonesia together endeavored to capture more of the surplus. What appears as a move “up” from a GCC perspective is more accurately portrayed as a shift in power to peripheral state and firms. HITTING THE MARKET WITH A BOARD: HOW INDONESIAN FIRMS BROKE INTO JAPAN’S PLYWOOD MARKET Two remarkable steps were taken in timber exporting from Indonesia over the last three decades since President Suharto opened up the country’s economy to foreign investment and its forests to intensive logging exploitation.21 First, Indonesia actually stopped exporting logs in 1985, and the state 19 Brad

Barham and his colleagues built a framework from their analysis of the global bauxite– alumina–aluminum complex that incorporates important factors such as relative scarcity (including alternative sources of the mineral), substitution, and depletion. These factors are then analyzed within a comparative historical methodological approach that accounts for political struggle over access to and control over resources. For more, especially within the now-established but vaguely defined field of “political ecology,” on access to and control over resources as the most important arena of political struggle, see Peluso (1992) and Ribot (1998 (draft)). 20 Interestingly, as Brian Woodall’s fascinating study (Woodall, 1996) shows the Japanese construction industry is rife with bid-rigging and collusion. Despite—or even because of—the pork barrel politics of public works, the economy and the construction industry continued to grow. Woodall’s distinction of “strategic policy markets” that are internationally competitive and/or deemed vital to national interest from “structural policy markets” such as public works is comparable to the distinction I am drawing between strategic raw materials and timber. 21 Almost immediately after Suharto’s ascension to power, he introduced the foreign investment law and a new forestry law (No. 1, 1967) that opened the foreign investment valve which had been mostly closed under Soekarno.

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provided easy credit to investors to create a large tropical plywood industry. Second, Indonesian plywood firms managed to penetrate the Japanese market, which has been the most prominent importer of tropical timber in the postwar era. In this section, I present a political history of the state-firm alliance that made it possible. By creating Apkindo, the Indonesian Wood Panel Association, and by using its institutional power within the Indonesian political economy, this alliance enabled Indonesian producers to resituate themselves in the global hierarchy of timber producers. The importance and rarity of the gains from this alliance should not be underestimated. As Chris Barr notes, “When Hasan first proposed largescale plywood exports to Japan in the mid-1980s, most industry observers perceived the Japanese market to be virtually impenetrable to Indonesian producers” (Barr, 1999:224).22 Japan’s plywood industry was more efficient and protected by tariff and nontariff barriers. The most notable nontariff barrier was (and remains) the requirement that imports meet Japan’s Agricultural Standard (JAS), especially for use on government-funded construction. The inability of producers in the Philippines and Malaysia to move into downstream processing during this period, although attributable to domestic factors, also may have been affected by the daunting challenge. Both in terms of the “mapping” (Barham et al., 1994b) mentioned previously and the historical record, timber is a relatively competitive global commodity. Its competitiveness can be attributed largely to the relative global abundance of supply, low technological barriers to entry, and elastic demand. Therefore, although Indonesia’s forests were the second largest tropical expanse in the world and Indonesian timber exports accounted for about three quarters of the world’s tropical timber exports, control of the resource base is a necessary but not sufficient explanation for the growth of its processing industry. An unusual alliance between timber firms and the Indonesian state enabled them to overcome the competitive tendencies of timber as a commodity and the weak position of Indonesia in global timber markets. In 1970, the largest firms established an organization (MPI, Masyarakat Perhutanan Indonesia or Indonesian Forestry Community) to try to raise and stabilize export prices (Magenda, 1991). Prices did rise through the 1970s, although global economic growth probably contributed more to this rise. Extrapolating from log harvests and export value data (Ministry of Forestry, 1995), the implied price per cubic meter of exported wood rose from $11 in 1970 to $40–45 in the mid-1970s and peaked at $86 in 1979 (in current dollars). Sedjo and Lyon (1990) also note that the rate of increase in global industrial wood prices peaked in 1979. 22 In contrast, when Korea, Taiwan, and other countries began plywood exports, the less restric-

tive American market was still dominant.

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The 1980 joint announcement by the Departments of Agriculture (i.e., the Directorate General of Forestry), Industry, and Trade to phase out log exports by 1985 brought an immediate decline to domestic log prices. The ban was justified on several grounds: the importance of industrial job creation; the alleged interest of processing mills in managing the forest (i.e., the timber resource base) more sustainably; the nationalism of developing an “Indonesian” industry (in fact dominated by Chinese Indonesians) that would ostensibly care more about Indonesians and the country’s forests; and the ineffectiveness of pleas to exporters to establish downstream industries.23 It is difficult not to attribute the ban’s effective implementation to the authoritarian character of the New Order regime. Suharto’s grip on power ensured that opposition to logging by indigenous residents of the forest was suppressed24 and reluctance by log exporters to develop processing industry was overridden. The “developmentalist” aims of Suharto should not be discounted as a factor, considering that the Philippines’ unsuccessful log export ban came during a period of authoritarian rule too. In fact, the timing of the ban could not have been worse for Indonesia’s economy. The reduction of log exports started in 1982, just at the beginning of the worst oil price decline, and the timber price decline was exacerbated by economic recession in the importing countries, reflected in high interest rates and declining housing starts. As a result of these global and domestic factors, total log harvests dropped off, and many logging companies slowed or stopped their operations, especially in the less accessible and more hilly forests.25 Increased plywood capacity led to a rapid recovery and ultimately to overcapacity in log production in the mid-1980s. With the government providing 5- and 6-year tax holidays to mills (Repetto and Gillis, 1988), the number of plywood mills grew fivefold from 21 in 1979 to 101 in 1985 (FAO/GOI, 1989). This growth created challenges for the profitability of Indonesian exporters, however. There was intense competition among the mills in Indonesia, as well as between them and established ones in Singapore, Taiwan, Japan, Korea, and Malaysia. Buyers were able to play them off against each 23 For

more about the ban, see author’s dissertation (Gellert, 1998).

24 Manual logging, which dominated in the early boom of 1967–74, had been attractive to many

indigenous Dayaks in Kalimantan as a source of income, but they were largely excluded from employment after mechanization (see Peluso, 1983). There have been increasing complaints by local communities, sometimes with NGO assistance, about infringement on their access to and control over land and forest resources, but little political space to voice them openly until the last couple years. 25 Data from East Kalimantan’s forest service indicates a high number of ”inactive” firms in this period. In the Central Mahakam District, for example, one fourth of the firms reportedly stopped operating altogether. One company where I conducted field work in the mid-1990s had reopened the site after a decade hiatus.

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other, as the industry “mapping” predicted. In early 1986 the average plywood price was about $200 per cubic meter and it even dropped as low as $135, far below average production costs, which at the time ranged from $180 to 200.26 If Indonesian producers hoped to capture more of the available surplus from the exploitation of the forests available to them, action was required to deal with the price downturn. As the Secretary General of Apkindo, A. Tjipto Wignjoprajitno, later described the situation, “The Minister of Trade called us and said, ‘You can’t go on like this. You’re killing each other. You have to organize yourself.’”27 The counter scenario—that it was the timber firms themselves, under Mohammad “Bob” Hasan, who initiated the organization—is equally, if not more, plausible. The result was the birth of the tremendously effective industrial association for Indonesian plywood firms.28 Hasan, bolstered by his close ties to President Suharto, maintained the reins for the rest of Suharto’s rule. All plywood firms were immediately required to become members of Apkindo. In 1986, Apkindo established seven joint marketing boards, one for each major market region, and mills were allotted quotas and informed of the “standard prices” for exports by the boards. The board members were marketing executives from the largest mills, and tight control was exerted over all members, including even the largest ones. When it was discovered that a mill was selling over its quota or below the standard price, that mill’s subsequent quota was reduced or temporarily suspended—a serious loss of income.29 The blurred lines between private firm power and state power are critical to understanding the so-called developmental success of Indonesia’s timber sector.30 In effect, Apkindo became more powerful than the government’s Ministry of Trade (or the Ministry of Forestry for that matter). Everyone in and around the sector, from government officials and firms to NGOs and academics, knew that the quotas that ostensibly came from the government office were approved personally by Hasan of Apkindo.31 It is 26 Data

provided by Apkindo, 1995. interview, July 19, 1995. was also the leader of APHI (Asosiasi Pengusaha Hutan Indonesia or Indonesian Concession Holders Association), and the umbrella MPI, which oversees Apkindo and the furniture, pulp and paper, and other wood product organizations. Given the prominent role of plywood exports, Apkindo was the key organization through the 1990s. 29 Chris Barr (1999) recounts how even some very well-connected firms were stopped from exporting for a number of months in 1985 because of violations of Apkindo direction, sending a clear signal from Apkindo and (by implication) from President Suharto to all producers. 30 One way of understanding this is to refer to synergies across the public–private divide (see, e.g., the special section of World Development edited by Evans, 1996), but in this case only a very small segment of so-called civic society benefitted from the synergy. 31 Corroborated in a number of interviews by author, 1994–95. Hasan also exerted personal control over the level of taxation or rent collection by the government. 27 Author’s 28 Hasan

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this personal power of Hasan that Barr (1998) analyzes so keenly. The most interesting aspect of Hasan’s power, though, is not the personal strength of his relationship with President Suharto (on which, more below) but the organizational strength achieved and institutionalized for Apkindo based on—and unthinkable without—this personal power. By virtue of being “private,” Hasan and Apkindo were able to protect themselves, e.g., from being called in for any sort of public accounting by the (admittedly docile) Parliament, whereas the various ministers were required to make periodic appearances at Parliament and also to report formally to the President. Hasan’s relationship with Suharto was more personal and thus informal. The feigning only came to an end in Suharto’s final cabinet before his resignation in 1998, when Hasan was appointed and briefly held the post of Minister of Trade and Industry (by then combined in one ministry). Part of Hasan’s strategy for Apkindo to succeed in the competitive global markets was to break the strength of the other Asian producers. By using funds from $15 per cubic meter fees charged of exporters ($10 for promotion and $5 for handling), Apkindo was able to subsidize companies willing to attack “new” markets, which in the 1980s included Japan. As Table I Table I. Indonesian Plywood (SITC 634.3/4) Export Volumes, by Destination, in 1000s of Cubic Meters Indonesian plywood exports Year

Total

Other dev’g (79–88) Japan China S. Korea (89–93) U.S.A. S’pore H. Kong S. Arabia

79 80 81 82 83 84 85 86 87 88 89 90 91 92 93

195 245 760 1232 2106 3021a 3964a 4607 5648 6372 8039 8244b 8635 8654 8904

Na 9 18 Na Na 139 311 509 1543 1884 3217 2800 2793 2489 3382

Na Na Na Na Na 95 146 439 996 1126 859 1503 1499 2068 1504

Na Na Na Na Na 216 366 372 148 582 726 1050 1031 853 1069

41 26 46 211 574 700 945 1095 1119 820 982 990 758 838 1047

15 50 128 365 347 413 508 589 381 316 163 375 170 148 74

33 100 110 327 294 613 976 581 640 416 1209 482 436 433 388

— — 127 76 — 256 186 300 182 287 — 260 247 300 301

Source: FAO Forestry Yearbook, various years (1980–94). Note. Where data for a particular year or country were revised in a newer FAO Yearbook, the revised data are included. China data combines PRC and Taiwan through 1991. The split data are as follows for 1992: PRC = 1409, and Taiwan = 659. For 1993: PRC = 935, and Taiwan = 569. Specific South Korea data begins in 1989. The S. Korea column is actually “Other developing countries” through 1988. a Total export figure differs from total in table with breakdown by importing countries. b Unofficial data.

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indicates, through 1986 the largest Indonesian export market was the United States. Over time, Indonesian plywood was able to penetrate Japanese, as well as Korean, markets more successfully. Japanese and other East Asian mills had been supplying U.S. markets but were becoming important consumer markets themselves. With raw wood increasingly difficult to obtain, some mills collapsed in these countries.32 In both Japan and Korea, domestic production declined and imports, largely from Indonesia, increased. By 1993 Korean imports exceeded domestic production. In Japan, domestic production was still edging out imports but the absolute volumes were four times as high. What is more, although a causal relationship is difficult to prove (particular a monocausal one), under the Apkindo system, plywood prices soared to about $350 per cubic meter by the end of the 1980s. What have been the “secrets” of Apkindo’s success? First and foremost, Bob Hasan’s personal relationship with President Suharto was critical to his capacity to lead Apkindo and served as the platform for more institutionalized power. This relationship of trust, which began when Suharto was still a lieutenant general and Hasan ran supply missions for the army in Central Java in the 1950s, was representative of a long-standing pattern of Suharto relying on others, especially Chinese-Indonesians and, toward the end of his rule, his children, for the creative capacity to lead (protected) private efforts at accumulation. As long as the relationship continued to provide Suharto with direct and indirect benefits (i.e., through the various so-called “charitable foundations” (yayasan) that have ownership stakes in numerous timber firms and through the financial assistance that the President could call for when necessary), he continued to support Hasan.33 In reality, Hasan’s power only increased under Suharto. Under the umbrella of his conglomerate Nusamba, co-owned by one of Suharto’s children, Hasan’s economic activities spread to other forest products (rattan, furniture, pulp and paper, etc.) and to other economic sectors such as mining.34 Barr’s analysis of the rise of Apkindo in terms of personal accumulation by Bob Hasan is surely accurate (Barr, 1998). Exporters were required to use Hasan’s shipping and insurance lines, for example, and pressures were put on companies to lower prices (and profits) to attack the Japanese market. 32 The

head of the Forestry Mission of the World Bank in Jakarta indicated in an interview that Hasan bragged about how he had created these declines and would continue to crush competitors. 33 Only in rare cases were these personal relationships cut off by Suharto. One glaring example is when the head of Pertamina (Indonesia’s oil company), Ibnu Sutowo, whose possession of comparably broad and autonomous power in the more critical oil sector seemed to pose a threat to Suharto’s rule (see chapter 7 in Bresnan, 1993). Pertamina endured in weakened form after Sutowo and such may be the fate of Apkindo after Hasan. 34 For more detail on Hasan-Suharto business connections, see Brown’s report “Addicted to Rent” (Brown, 1999).

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However, the structural point gets lost in the personal story of Hasan’s rise. That is, that the ability of Apkindo, a small producers’ association in a peripheral country, to become a powerful actor garnering significant “strategic gains in international markets” (Barr, 1999:252) relied precisely on the personal power of Hasan through his patron–client relations with President Suharto. In other words, political power, built on key relationships and the creative capacity of Hasan for steering Apkindo’s members, was institutionalized. As an intellectual exercise, we might usefully contemplate what the achievements of Apkindo might have been in a more egalitarian producers’ association. The concentration in the sector under Hasan’s leadership still allowed for and supported the existence of 575 logging concessions in 1994 and over a hundred plywood-processing units (mills).35 Given this large number of producers, coordination and control over their exports was a great challenge, and it seems unquestionable that free riders would have continued exporting logs and, later, exceeding quotas or undercutting prices to lucrative markets.36 The second “secret” of Apkindo and simultaneously the method by which Apkindo asserted control over domestic producers was through control of international marketing channels. Compared to controlling hundreds of scattered logging concessions (and more illegal logging operations), the task of monitoring the somewhat more limited number of plywood producers and their export goods, which must exit through an international port, is relatively easy to manage. The required use of shipping and insurance monopolies further facilitated this control. In addition, the export quotas, as noted previosly, were officially controlled by the Ministry of Trade, but given the first condition, Hasan’s word was more important. He could sanction members who attempted to circumvent the Apkindo rules by reducing or eliminating their quota in the next period. In an interview with the Asian Wall Street Journal he recounted that if Apkindo members do not follow the rules, “we just take them off the (export) list for a few months even if they have very powerful friends” (Pura, 1995a:4).37 Finally, the control over import channels, through the creation of marketing arms like Nippindo in Japan, provided a further check for Apkindo on the movement of plywood to overseas markets. 35 The latter number depends on how one counts, whether based on the number of mills or lines.

See Fenton (1996) for more details on the problems of statistics regarding the Indonesian timber sector. 36 The evidence of continued and illegal logging from the Philippines (Vitug, 1993) as well as post-Suharto Indonesia supports the veracity of the assertion. 37 Mr Ketut Kaler of Apkindo corroborated this history (and bemoaned the current state of “openness” in Apkindo) during an interview with the author, June 2000.

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Third and finally, the nongovernmental stature of the Apkindo organization provided Hasan with a buffer against domestic criticism.38 Whereas Indonesia’s state oil company, Pertamina, came under criticism in the 1970s for corruption of state funds; the timber firms and Apkindo as their trade association are private. Hasan was a private citizen acting on behalf of a private organization, and crucially, this organization did not need to share its extensive data on plywood prices and marketing with outsiders. To the extent that Apkindo was internally undemocratic, corrupt, or not obtaining good prices for its members, it was in theory hurting only its members, rather than some public interest.39 The power of Hasan to determine even the taxation policy of the Department of Forestry was completely “unofficial.” This “private” status was openly supported by government officials. In a 1995 interview, the (then) Minister of Trade, Satrio B. Joedono, defended Apkindo’s role as having brought good results for plywood exports and prices despite the drop in 1994. He regarded Apkindo’s role in setting quotas as unquestionable (SINAR, 1995f).40 More tellingly, responding to the question of internal criticism of Apkindo by its members he deferred completely to Bob Hasan.41 Although the power vested in this individual was important, the growth of Indonesian plywood exports under Apkindo has depended more generally on strong collaboration with the Indonesian state writ large. The effects of this collaboration are several. First, capital concentration and legally required vertical integration of operations in the timber industry have created an overemphasis on plywood production. Second, concentration of capital has also concentrated control of the forest areas that feed the industry. Third, the state, because of its intimate involvement with the industry, has been unable to distance itself sufficiently—in other words, maintain enough autonomy—to “discipline” capital with respect to overlogging violations. Finally, although Hasan was clearly able to skim profits off the top (Barr reports $5 per cubic meter exported by Indonesia), benefits were also shared by a number of timber firms. Thus, we should not overstate the negative influence of the individuals of Hasan and Suharto and their personal relationship

38 Dauvergne

notes that the technically nongovernmental status of Apkindo also helped it to defend itself against Japanese accusations of unfair trade practices brought to the Fair Trade Commission of GATT. “GATT has no jurisdiction” over nongovernmental entities (Dauvergne, 1997:92). 39 Hasan has been convicted and jailed for corruption, but this line of argument has continued to be deployed and was significant in keeping corruption charges narrowly focused on misuse of Department of Forestry funds allocated for aerial photography. 40 . . . tidak perlu didebatkan. 41 Wah, itu saya tidak tahu. Saya enggak mau berkomentar. Tanya Bob Hasan dong. Jangan desak saya, jangan begitu. (Well, I don’t know about that. I don’t want to comment. Go ask Bob Hasan. Don’t pressure me like that.)

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on the sector. MacIntyre (1990) has shown that in various sectors, even in Suharto’s Indonesia, disgruntled actors did make their grievances known. In the timber sector, by contrast, even in the later years of the New Order, none of the producers were willing to criticize the system publicly.42 Although perhaps they were too afraid of the power of Hasan and his closeness to the President to do anything, it is doubtful that they would have maintained their silence if there were not some financial reward as well.43 In sum, the capacity of an authoritarian regime such as Indonesia’s New Order (1967–98) under President Suharto to enforce a log export ban, “subsidize and discipline capital” (to use Barr’s phrase) into producing plywood, and to aim strategically for the most lucrative consumer markets in the world is impressive but understandable. Taking into account the historical relations among classes and the state in Indonesia, as well as state access to international sources of finance (see Winters, 1996), arguably it was not difficult for Suharto to pass off much of the control to one “private” individual. While this provides the necessary condition for controlling domestic producers, the degree of success of the peripheral state–capital alliance in breaking into the Japanese core markets is less easily understood. Therefore, in the next section of the paper, I explore the process by which Indonesia’s plywood exporters were able to exert comparable control over Japanese marketing channels. The reason for considering the Japanese links in this commodity chain is not to engage in the bargaining perspective, common to political science, on the relations between wholly autonomous but unequal (in terms of power) nation-states. By combining a commodity chain understanding of the transnational scope of economic production with an analysis of the politics of the chain, I argue that we come closer to a truly transnational analysis that includes the role of states and firms in renegotiating the competitive relations of the world market.44 42 Private

criticism was leaked to the press, and foreign criticism, particularly from Korean importers, was voiced during the downswing in timber markets in late 1994 (see below). 43 In a 1995 interview I had with an executive at Sumalindo Lestari Jaya, which had recently been bought by Prajogo’s Barito Pacific Group, he admitted that they did not criticize Bob Hasan both out of fear and continued profits. 44 A related area that I am researching but that is outside the scope of this paper is the transnational activity of “Asian” (largely overseas Chinese) logging companies in Central and South America and west Africa. In accordance with Robinson’s analysis, I believe that this activity represents the transnationalization of the elite or capitalist class and not the shifting balance of power in the global capitalist system to a new Asian center. Particularly because it is not clear that these companies have even the appearance of a national base in Malaysia or Indonesia or institutional support from either of those states, their economic activity has “transnational essence” (Robinson, 1998:574). For a recent report on such activity, see Sizer and Plouvier (2000), the officially released version of a report that WRI and WWF were loath to release for 2 years because of nervousness about relations overseas, especially with Malaysia.

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FORGING TRANSNATIONAL ALLIANCE CAPITALISM IN JAPAN How exactly did the Indonesian plywood enter into the Japanese market? Preliminary research in Japan indicates that the process was not as one-sided as the earlier section of this paper may make it seem. In addition to the control of Indonesian raw materials and export product by Apkindo, there is a complex political economy of timber in Japan itself that is only just beginning to be explored.45 A strategic alliance into this political economy, in combination with the long-standing strategic geopolitical relationship between Japan and Indonesia, all occurring at a particular historical conjuncture, I argue, were the sufficient conditions that “allowed” Indonesian plywood exports to flourish in Japan under a monopsony importing arm called Nippindo. Neither comparative advantage in raw materials nor Apkindo’s export marketing strategy from the Indonesian end on its own provides a plausible explanation for marketing success in Japan. Moreover, the “flying geese” model of East Asian development, in combination with the technological “shedding” of Vernon’s product cycle theory (Vernon, 1971), is also inadequate both theoretically and empirically in this case. Theoretically, because it analyzes development in terms of the industrialization of nation-states in a sequential and idealized manner, the flying geese model accepts the nation-state reification that this paper seeks to avoid. The implication, as Bernard and Ravenhill (1995) note in their useful critique of the flying geese model, is that the Japanese experience of development will be replicated, first in Taiwan and South Korea and later in the “second tier” NICs such as Indonesia. Empirically, in contrast to the technological shedding of obsolete technologies, one finds exclusionary measures imposed on importation of finished timber products to Japan (e.g., tariffs and the JAS seal of approval). The point I wish to emphasize is that development is understandable not in technological terms but in political ones. Instead, the keys to what might be called transnational alliance capitalism46 are to be found in personal relationships, factors in the Japanese political economy of timber, and Japan’s broader relationship with Indonesia. This latter relationship, forged during Japan’s occupation (1942–45) of the Dutch East Indies, has long been based on Indonesia’s importance as a 45 Peter Dauvergne’s recent comprehensive survey (Dauvergne, 1997) of forestry developments

in Southeast Asia unfortunately offers little more about Japan itself than the reasonably useful theoretical idea of an “shadow ecology” cast by Japan’s high consumption of tropical timber products. The shifting terrain of political relationships that I try to explore in this paper is missing from his analysis. 46 This term builds on Gerlach’s Alliance Capitalism (Gerlach, 1992). I appreciate being directed to this work by Derek Hall, unfortunately too late to fully incorporate it into the argument here.

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source of a number of key raw materials, including oil and gas. (Indonesia is Asia’s only OPEC member.) It seems possible that the Japanese state and its most powerful trading houses “allowed” Indonesian exporters to make gains through unusual access and control over plywood markets, at least in the short term, in order to maintain cheap and stable supplies of other raw materials. It is certainly relevant to the political relationship that Bob Hasan and President Suharto’s family together had investments in a number of these raw materials industries. For example, with Hutomo Mandala Putra (“Tommy” Suharto), Hasan owned Perta Oil Marketing, which held the monopoly on the import of crude oil and fuel products (Brown, 1999:19). In the late 1980s, Apkindo began its assault on Japan as a “new” market for plywood, as described by Dauvergne (1997) and Barr (1999), and quickly thereafter moved to create a Japanese style marketing arm in Japan. In 1987, exports to Japan jumped to overtake “traditional” markets such as the United States, Singapore, and Hong Kong (see Table I).47 Japanese firms’ production of plywood decreased as a result, from a peak of 7.3 million cubic meter in 1987 to 5.2 million cubic meter in 1993, still a significant level. The key obstacle to Indonesian profits was the Japanese trading houses or sogo sosha, which serve to steer trade, finance, information gathering, and coordination of complex business systems (Dicken, 1998:394). Eight houses are significant. The six leading ones are Mitsubishi, Mitsui, Itochu (C. Itoh), Marubeni, Sumitomo, and Nissho-Iwai (Dicken, 1998:394), and Dodwell (1992, cited in Dicken, 1998:225) adds a seventh one, Tomen. Finally, in timber, Kanmatsu is also important (author’s interview, Mitsubishi Shoji executive, June 1999). The trading houses imported both directly from producers and through Apkindo, but in either case, prior to 1990 they were the key node in the commodity chain and thus able to control supply and affect prices (see Fig. 1). While Indonesian exporters desired high prices, the trading houses are not because they are part of consortia that are integrated with end consumers and fabricators (Bunker and Ciccantell, 1995:especially 41–43). At this historical conjuncture, conditions were favorable for a more forceful entry of Indonesian firms into Japanese markets. Inside Japan, some wholesalers and construction companies had begun to voice disgruntlement with the trading houses’ dominance (Edgington and Hayter, 1997; Hayter and Edgington, 1997). Realizing the vulnerability of Indonesia’s exporters to the trading house system, Apkindo moved to establish its own trading house independent of the Japanese sogo sosha. Hasan formed an alliance with Mr Mazaki, President of Kanmatsu Trading Company. Kanmatsu had pioneered the importation of processed plywood into Japan with shipments 47 Hong

Kong was a significant producer of processed wood for export to both Japan and the United States, whereas Singapore was a station for reexport in all directions.

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Fig. 1. Flow chart of Indonesian plywood to Japanese market, before 1990.

from Korea beginning in 1968 and from Indonesia beginning in 1979.48 In 1988, they announced the formation of Nippindo as a joint venture between Apkindo (95%, which Hasan owned personally), and Kanmatsu Shoji (5%).49 Through its exclusive rights to Indonesian plywood, Nippindo changed the flow of imports into the Japanese market end of the chain. Importantly, the trading houses (mostly) were forced to purchase from Nippindo, and wholesalers and construction firms were put on equal footing, as shown in Fig. 2.50 Four factors were vital to this shift in control. First, as mentioned previously, Indonesia was at the time the major source of the tropical timber demanded by Japanese construction firms. Second, Indonesian firms were able to compete with the Japanese plywood producers on price, even with a 20% tariff imposed on processed wood products. In the early 1990s, Apkindo forced its producers to sell 10% of their product to Japan and at below-market value.51 To be sure, the dramatic appreciation of the yen, 48 Mr

Mazaki, now the semiretired Chairman of Kanmatsu, revealed that he never imported logs, which involved the complication of selling to some 300 Japanese processing mills, and that he ignored complaints about his practices from the trading companies (which, it seems, did not receive as much state assistance as Apkindo in Indonesia). (Author’s interview, July 21, 2000.) 49 Shoji means trading company. Barr notes Hasan’s personal appropriation of Apkindo’s 95% stake came as a shock to Indonesian producers who were each forced to provide $50,000 toward the establishment of Nippindo and expected joint ownerhship in the endeavor. Hasan and other Apkindo leaders continued to assert that their members all benefitted from the project, but clearly he benefited much more than others. 50 Kanmatsu was one of the trading companies that purchased from Nippindo, presumably at more favorable prices. 51 What is not clear from any of the accounts is exactly how long Apkindo sustained the belowmarket price strategy among its producers. Although some firms (anonymously) claimed they

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Fig. 2. Flow chart of Indonesian plywood to Japanese market, 1990–98.

or endaka, after the Plaza Accord of 1985, followed by devaluation of the Indonesian rupiah in 1986, also helped to make Indonesian exports more attractive.52 Probably the most crucial factor, third, was getting Indonesian plywood certified as JAS-approved product. After 8 years of negotiations (1988– 95) with the Japanese Plywood Inspection Corporation (JPIC), Mazaki and Hasan had obtained approval for 80% of Indonesia’s mills. Fourth, as a result of its control over import flows, Nippindo provided reliable quality and quantity of delivered product to their customer firms. While interested in raising prices, Hasan and Mazaki benefitted from stability and quantity like the sogo sosha before them. Mazaki’s Kanmatsu provided a further cushion to be used toward stabilizing market prices by purchasing between 20 and 40% of Nippindo’s imports (less when the prices were high and more when they were low).53 Nippindo’s price became the benchmark in Japan and rose to over $400 per cubic meter in the mid-1990s. The chief beneficiaries of this system were Hasan and Mazaki, and with the cooperation of the Indonesian producers secured, they circumvented the trading houses to a significant degree. were forced to sell below their own cost of production, Mazaki voiced convincing skepticism, given their vertically integrated access to the raw material. 52 Mazaki related that the Japanese price per 4 × 8 (3.6 mm) sheet of plywood was Y1200 whereas Indonesian imports were Y950, plus 20%, or Y1130. The difference was 70 yen at a time when the exchange rate was at pre-Plaza-Accord levels of Y250–270 = $1 (author’s interview, July 21, 2000). 53 Author’s interview with Nippindo manager, July 21, 2000. Mr Mazaki noted that the Indonesian firms pressured them to import more when the price was low, but he admitted there were limits to their stockpiling efforts. During the 1997 Asian crisis, they tried to maintain the price at $465 for a whole year, leading to losses from which they are still recovering.

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One telling piece of evidence for Nippindo’s success in countering the sogo sosha control of the timber trade is that by the mid-1990s, most of the trading houses had drastically reduced the role of their Lumber Departments. Institutionally, these departments in Sumitomo, Marubeni, Nisho Iwai, Nichimen, and Tomen were either moved from the head offices to affiliates or eliminated altogether. However, according to a Mitsubishi executive (author’s interview, June 1999), a number of the sogo sosha refused to pay the commission Nippindo demanded on sales, which he pegged at 2–3%. According to this executive, Kanmatsu was a “class C” lumber company but established relations with Nissho Iwai, which was one of the two “class A” companies with Itochu. The executive allowed that Mitsubishi would make smaller lump-sum payments to Nippindo to secure supply.54 Unlike in the strategic mineral sectors that Bunker and Ciccantell analyzed, there is little, if any, evidence of Japanese state interference in the (domestic) access strategies of the Japanese trading houses. However, the houses were not completely reticent about being edged out of the marketing of timber; they created new tactics to secure cheap and steady access to supplies of plywood and its substitutes for construction. At the same time as the Japanese trading houses were losing control to Nippindo and Kanmatsu, they were also seeking alternative sources and materials to substitute for Indonesian sources in the long term. From 1980, when Indonesia introduced the logging ban, trading houses moved their capital to other countries, especially Malaysia. Later, as Nippindo was established, the Japanese encouraged eastern Malaysian producers to expand logging and, after the 1992 restrictions on Sarawak logging and 1993 ban in Sabah, plywood. They reportedly moved Japanese equipment there and provided running capital while taking advantage of the lower fees and lax enforcement of logging regulations.55 Malaysian plywood production increased rapidly in the mid-1990s when notably its supplies of raw logs were already more tenuous than Indonesia’s. While in the early 1990s, Japan’s tropical plywood imports were almost completely obtained from Indonesia, by 1999 Indonesia only represented 60% and Malaysia 30% (author’s interview, Dr Araya, June 1999).56 In addition, backed by the urging of North American 54 There

was clearly both disdain for and acknowledgment of Kanmatsu’s role (through Nippindo) in the importing and distribution of plywood. He added that Nisho Iwai was an exception to the commission rule because Nisho Iwai and Kanmatsu are both (with Itochu, also known as C. Itoh) part of the same Dai-Ichi Kangyo Bank group. 55 Author’s interview, Mr Mazaki, July 21, 2000. 56 It is important to recognize that by the 1990s, Malaysia’s forest resource base for timber was more depleted than Indonesia’s. So the encouragement given to processing in Malaysia was part of an intraclass political struggle between the sogo sosha and Mazaki–Hasan and not based on the natural “comparative advantage” of the Malaysian forests. Accusations that Malaysia took advantage of illegal logging across the Indonesian border further demonstrate the continued superiority (albeit declining) of Indonesia’s timber base.

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wood producers, Japan slowly became more open to use of softwood plywood for the concrete construction panels that still represent the majority end use of the Southeast Asian wood. After the breakup of the Soviet Union, Siberia became a source of softwood supply at prices 10–20% cheaper than those of Southeast Asian wood. The change to alternate species of wood was also supported by shifts from plywood to engineered wood products like MDF, OSB, and wafer board.

THE LIMITS OF THE AUTHORITARIAN ALLIANCE IN INDONESIA Although Apkindo appeared invincible inside Indonesia and increasingly powerful in its export markets during its first decade of existence, events in late 1994 showed both the limits of Apkindo’s strength and the importance of authoritarian backing. Domestic objections from plywood producers to Hasan’s strong role in and control over Apkindo profits had been almost unknown.57 But suddenly export plywood prices and volumes dropped precipitously. The price of plywood went down from a peak of over $600 per cubic meter to $380 per cubic meter in January 1995, and export volume in the first half of 1994 was barely 4 million cubic meter (versus 4.6 million cubic meter in 1993).58 The largest and most public criticisms of Apkindo to date ensued, although still almost no timber firm executives spoke out publicly (Hindryati, 1995b; Pudyanti, 1995). In retrospect, the period from late 1994 to early 1995 was a short-term threat to Apkindo’s power and autonomy that was weathered successfully with the recovery of plywood markets by late 1995. The public attention on Apkindo was a short “window of opportunity” for analysts, researchers, and the public in Indonesia to better understand its oligopolistic role prior to the fall of Suharto, although in the meantime the oligopoly remained in place. In a sense this was a dress rehearsal for the IMF-led dismantling of Apkindo amid the Asian crisis of 1997–98. There was some debate about the causes of the export decline in Indonesia’s key markets, but the most important reason was probably the general recessions occurring in Asia and the related decline in construction activity. In Japan, the oversupply of office space had sent vacancy rates soaring from only 1% at the end of the 1980s to 10 to 20% in 1994 (Sender 1994). 57 Objections

from NGOs and local communities were widespread but are not so relevant to the argument advanced in this paper.

58 Calculated from aggregate volume and revenue data provided by Apkindo. Journalists quoted

similar figures of drops from the $600–700 range to $560 in August and around $350–400 per cubic meter in October 1994 (Prospek, 1994; Pudyanti, 1995).

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By October, the Japanese Plywood Manufacturers’ Association was projecting a slight decline in plywood imports from Indonesia from 9.2 million cubic meter in 1993 to perhaps only 9 million in 1994 (Kompas, 1994). This is the pure market explanation that was favored publicly by Apkindo itself. A second and more controversial reason is retaliation against the marketing innovations and power of Apkindo. In two hard-hitting articles, Vincent Lingga of the English-language Jakarta Post reported on conflict between Apkindo and the Korean wood industry over the gradual reduction of firms able to buy Indonesian wood products (Lingga, 1994a,b). The Asian Wall Street Journal followed in January 1995, reporting that the Korean Imported Plywood Association had sent a four-page letter to (then) Minister of Trade, “Billy” Joedono, complaining about how the timber trade between the two countries was being wrecked by forcing importers to buy through an agent designated by Apkindo (Pura, 1995b). Then numerous reports in the Indonesian vernacular press began to include rumors of a Japanese and Korean boycott against Indonesian producers because of alleged dumping practices (Indonesian Commercial Newsletter, 1995:14). That is, Apkindo was accused of unfairly subsidizing lower than market plywood prices in order to break the local producers. These practices were said to have elicited a boycott as importers turned instead to Malaysian sources and temperate substitutes. Hasan quickly denied the existence of a boycott (Kompas, 1994), although Japanese importers did request Indonesia to reduce its export volume (Jakarta Post, 1994a). Domestically, the export decline was turned into a limited opportunity to criticize Apkindo at the beginning of 1995.59 One of the first articles to directly address the role of Apkindo referred to “pressure to dismiss Bob Hasan from Apkindo (desakan untuk mendepak Bob Hasan dari Apkindo)” (Prospek, 1994). A member of the generally weak Indonesian Parliament (DPR), H. Imam Churmen, criticized the fees charged to member firms and the lack of commensurate benefits (see e.g. SINAR, 1995e). Another member of the DPR, A. A. Baramuli, criticized Apkindo for owning companies and arranging letters of credit for purchasing. Finally, in an extremely rare open interview with a timber company executive, Han Chong, Director of PT. Gunung Meranti, complained about the lack of direct contact with buyers: Kalau sudah sekian harga dari Apkindo, ya, harus kami terima saja. Padahal, kami tahu berapa harga yang seharusnya. Jadi, kalaupun rugi, ya, kami pasrah saja. Kan 59 An

extensive, but not exhaustive, list would include the following literature; Ardi, 1995; Economic & Business Review Indonesia, 1995a,b; Fenton, 1996; Hindryati, 1995a,b; Indonesian Commercial Newsletter, 1995; Jakarta Post, 1994a,b; 1995a,b,c,d,e; Jati, 1995; Kompas, 1994; 1995a,b,c,d; Lingga, 1994a,b; Media Indonesia, 1995; Munthe, 1995; Munthe and Hindryati, 1995; Prospek, 1994; Pudyanti, 1995; Pura, 1995a,b,c; SINAR, 1995a,b,c,d,e,f,g,h,i; Suara Kaltim, 1995a,b; Suharyanto, 1994; Warta Ekonomi, 1995; Wibisono, 1995.

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sudah ditentukan di Apkindo. (If that’s the price from Apkindo, well, we just have to accept it, even though we know how much the price really should be. So, even if we’re taking a loss, we just have to give in. It’s all been arranged by Apkindo.) (SINAR, 1995h)

In the midst of the crisis, the East Kalimantan Head of MPI (the umbrella organization over all wood-processing associations including Apkindo), B. S. Suba, complained that 90% of the province’s plants might have to stop operations because of difficulty in exporting. Baramuli called for the organization to follow the pattern of the Association of Indonesian Coffee Exporters of concentrating on quota distribution without getting involved in the details of who sells to whom (Hindryati, 1995a). Even the Minister of Trade, responding to the criticisms, acknowledged to reporters that, although Apkindo’s export system was basically sound, its “implementation” could use some improvement (SINAR, 1995f). In 1995, in no small measure because the market downturn did not last, the purportedly private nature of the Apkindo organization, again, served to protect it from change. The organization’s power was asserted over members and critics to quickly close the window of openness. For example, Suba was immediately summoned to Jakarta and made no further public statements.60 Exporting problems at Kalimantan mills were dismissed by Hasan as being due to lack of stock. Apkindo refused to reveal its books to the Ministry of Forestry or anyone except its own members—and even members complained of lack of transparency (SINAR, 1995b). One of Indonesia’s preeminent foresters, Prof Dr Achmad Sumitro, defended Apkindo’s role because of the monopsonist position of Japan in the plywood market (Kompas, 1995a), and Hasan himself obviously concurred. He responded heatedly to a query about the “many members” of Apkindo who have complained by asking the reporter to name names (SINAR, 1995a). Overall, he has spoken proudly of his accomplishments in defeating other Asian producers, creating an “Indonesia Inc.” and, finally, claiming, “We’re the only guys in Southeast Asia who fight the sogo soshas (trading houses)” (Kompas, 1995b; Pura, 1995b).61 The curtain call for the power of Indonesian timber producers under Hasan’s Apkindo was finally marked by the Asian financial crisis of 1997, which, when accompanied by democracy movement protests in Indonesia, precipitated the resignation of President Suharto in April 1998. The IMF brought down what it saw as a sign of “crony” capitalism in its (second) 60 He is still listed as the head of MPI’s East Kalimantan branch for the 1996–2001 term on their

web site http://www.aphi.org/mpi.htm. my interview with Tjipto W., he similarly boasted and added that U.S. automobile manufacturers could learn something about marketing in Japan from the Indonesians.

61 In

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Fig. 3. Flow chart of Indonesian plywood to Japanese market, after 1998.

Letter of Intent (LoI), which was signed by President Suharto on January 15, 1998, with IMF leader Camdessus looking over his shoulders. The LoI contained unusual paragraphs requiring the breakup of Apkindo—or at least its marketing powers. As Cumings (1998) found in the case of Korea, IMF was able to rely on the (unwitting?) support of the popular movement in Indonesia, which had long been critical of the environmental degradation and social dislocation caused by the powerful logging companies, to ensure that its aims were achieved. The inclusion of forestry and environmental problems in IMF LOI reportedly came as a result of NGO input (Kartodihardjo, 1999 (draft)). NGOs and local communities had been clamoring for the end of Hasan’s grip on the forests through Apkindo and its sister organizations. The picture of Indonesian exports and particularly Apkindo’s role is not completely clear at this time (early 2001). Nippindo’s monopsony role has been altered and its managers now aim for a 20% market share (see Fig. 3).62 Indonesian companies, after initial enthusiasm, are not all pleased with the competitiveness of markets and the novelty of making contacts overseas by themselves and, although now permitted to do so, they have not switched to alternative shipping and insurance companies.63 Those damaged by the liberalization of the Asian timber markets and by political transition in Indonesia include notably Hasan (who has been arrested on corruption charges) and his firms, but it remains to be seen who the beneficiaries might be: other firms in Indonesia, regional political elites in Indonesia, communities living in and around Indonesia’s forests, trading houses in Japan, wood products conglomerates in North America and Europe, or other groups. 62 Author’s 63 Author’s

interview with Nippindo manager, July 21, 2000. interviews with Indonesian company executives, 1999, 2000.

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CONCLUSION This paper has examined the politics of market creation at the Indonesia–Japan nexus of the tropical timber commodity chain. I have highlighted the formation of two interrelated alliances, a domestic Indonesian one of timber firms and the state and a transnational one linking “private” firm actors in Indonesia and Japan. Together, these two alliances transformed Indonesian timber exports from the typical peripheral role of supplier of raw material logs to core consumers into the more remarkable role of producing and controlling the marketing of processed plywood in a key core market from 1985 to 1998. This case study of shifting political relations along the timber commodity chain has been situated within the broader context of Japan–Indonesia relations and Japan’s political–economic interest in steady, secure, and cheap supplies of a variety of raw materials from oil to timber. It has built on the insights of GCC analysis regarding the transnational organization (and reorganization) of production and exchange. At the same time, it has gone further in its emphasis on the very political economy of an important tropical timber GCC and the construction of a transnational alliance of timber capitalists (or rentier-capitalists). Robinson’s call for a transnational social science (Robinson, 1998) is a useful reminder that we need to abandon the nation-state reification still implicit in some of the GCC literature, but at the same time, we need to pay close attention to the varying role of states in the renegotiation of particular commodity chains. In addition, both the collaboration between economic actors in Indonesia and Japan, who in theories based in the old nation-state centered paradigm would have been in conflict, and the conflict between this alliance and other fractions of capital embodied in the Japanese trading houses need to be understood. These are intraclass alliances and conflicts within a transnational capitalist group over the surplus available from the exploitation of nature. The achievements of a peripheral capitalist class in Indonesia and its ability to participate in a broader transnational structure were undergirded by the authoritarian New Order regime of President Suharto. Indubitably important and yet ignored in this account are the workers who are exploited and local forest communities that are marginalized at the same time. It is worth reiterating the link between the authoritarian and the developmentalist aspects of the Indonesian state. As Cumings (1984) argued for Korea, a bureaucratic authoritarian industrializing regime achieved its aims through an alliance with industrial capital. Without this regime backing Apkindo, it is difficult to imagine either the effective domestic control over producer firms or the credible partnership forged with Kanmatsu in Japan. During its long existence, the regime legitimized itself and its strategies as

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“developmental” and beneficial to the welfare of the nation as a whole. There were both significant reinvestments of the capital surplus from the plywood, though sometimes notorious, such as into the (later President) Habibie’s airplane factory and Hasan’s pulp-and-paper mill, and lucrative gains for the key players involved. In 1998, domestic opposition groups, their international supporters, and the international financial institutions were unified against the corrupt and so-called “crony” capitalism that facilitated the movements described herein. As a result, I believe this case is indicative of the structural opportunities that were available to firms and states in the world economy during a historical period of nation-state defined and led development project(s) but which are just as surely passing in the era of “globalization.” ACKNOWLEDGMENTS Funding for the research upon which this paper is based was provided by the SSRC International Predissertation Fellowship Program, Fulbright/IIE for dissertation field work and for travel to Japan, Cornell’s International Agriculture Program in 1999, and Cornell’s Southeast Asia Program in 2000. Thanks are due to Shelley Feldman, Leland Glenna, and students in Rural Sociology 606 (Spring 2000) for providing comments on an earlier version of this paper, which was also presented at the August 2000 ASA meetings in Washington, DC. I especially thank Phil McMichael for reading multiple drafts of this paper and nudging it toward completion. Finally, my appreciation goes to the former editor Dick Hall and the three anonymous reviewers, particularly reviewer B, who pushed my thinking about problems of reification of the nation-state. REFERENCES Albion, Robert Greenhalgh 1926 Forests and Sea Power: The Timber Problem of the Royal Navy 1652–1862. Cambridge, MA: Harvard University Press. Ardi, Ade 1995 “Tersandungnya sang primadona (The stumbling of the primadonna).” Warta Ekonomi VI:29. Barham, Bradford, Stephen G. Bunker, and Denis O’Hearn 1994a “Raw material industries in resourcerich regions.” In Bradford Barham, Stephen G. Bunker, and Denis

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83 Polanyi, Karl 1944 The Great Transformation. New York: Rinehart. Prospek 1994 “Menggugat peran Apkindo (Attacking Apkindo’s role).” Oct. 1:24–5. Pudyanti, Dewi 1995 “Pessimism over plywood’s future.” Indonesia Business Weekly III(6), Jan. 20:33. Pura, Raphael 1995a “Bob Hasan builds an empire in the forest.” Asian Wall Street Journal Jan. 20–21:1, 4. 1995b “Indonesian plywood cartel under fire as sales shrink.” Asian Wall Street Journal Jan. 23:1, 4. 1995c “Some believe Apkindo is too powerful.” Asian Wall Street Journal Jan. 23:4. Repetto, Robert, and Malcolm Gillis (eds.) 1988 Public Policies and the Misuse of Forest Resources. New York: Cambridge University Press. Ribot, Jesse C. 1998 Decentralization and participation in Sahelian forestry: Legal instruments of central political–administrative control. Manuscript. (draft) Robinson, William I. 1998 “Beyond nation-state paradigms: Globalization, sociology, and the challenge of transnational studies.” Sociological Forum 13:561–594. Schurman, Rachel 1993 Neoliberalism and Natural Resources: A Case Study of the Chilean Fishing Industry.” PhD Dissertation, University Wisconsin – Madison. Sedjo, Roger A., and Kenneth S. Lyon 1990 The Long-Term Adequacy of World Timber Supply. Washington, DC: Resources for the Future. Sender, Henny 1994 “No going back: Recovery eludes Japan’s construction sector.” Far Eastern Economic Review Sept. 15: 74–5. SINAR 1995a “Diserang gitu . . ., seneng saya (Attacked like that . . ., I’m happy).” Feb. 18:14–15. 1995b “Kalau ada, kami bagi-bagi (If there’s any [profit], we share it ).” Feb. 18, 1995:20.

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