Thursday
Feb132014

Development in Modjokuto, Java

In Geertz’s view the social structure of the towns is key to understanding their development potential and in particular, as we emphasized in our last post, whether modern firms could emerge.

Geertz traces the different social structures in Modjokuto (Java) and Tabanan (Bali) to the very different colonial experiences they faced.

The Dutch East Indies Company founded the city of Batavia in Java in 1619 (present day Jakarta) and they quite quickly became heavily involved in the politics of Javanese states. Until 1901 when the rest of the archipelago was formally annexed, direct Dutch control was limited to Java and key economic places in the outer islands (particularly the spice islands of Banda, Ambon, and Ternate).

In Modjokuto, there was long history of Dutch rule and in the nineteenth century, the presence of large sugar cane plantations undermined traditional political elites. Traditionally Javanese society was also perturbed by powerful outside influences, for example, the islamization of the Javanese coast and the spread of Muslim merchants into the interior, as well as the presence of a strong Chinese business community.

In Tabanan, in contradistinction, the traditional political elite, which traced its roots and legitimacy back to the great Hindu Java kingdom of Majapahit, ruled until 1901, and so was much stronger politically and socially. Islamic merchants were absent in Bali and the Chinese were much less present, and to the extent that they were, they were more ‘indigenized.’

These histories might be thought to have created an advantage for Modjokuto that appeared in the 1950s, when Geertz studied it, to have most of the trappings of a modern society. There was a very dynamic and capitalistic Javanese Muslim trading community based around the market and the Mosque. But these traders, rather than developing modern firms, remained small peddlers.

Geertz described this as (pp. 31-33)

on the other side of the jump from peddling to merchandising, the Chinese storekeepers, truckers, and warehouse owners have  … complete control.

[For a peddler] skill in bargaining … is his primary professional qualification.

The fixed price system, along with brand names, advertising, and the other economic customs which accompany it, relieves the buyer-seller relation of competitive pressure and places it on the relation between sellers.

In other words, Geertz characterizes the economy of the Muslim traders of Modjokuto using the concept of the “Bazaar economy,” which we introduced in our post on the economy of the Congolese city of Kananga.

But those working in the Bazaar economy find it hard to grow and create firms.

In Geertz’s words (p. 126):

Modjokuto enterprises seem to grow so large and then no larger, because the next step means widening the social base of the enterprise beyond the immediate family connections to which, given the lack of trust which is the inverse of individualism, they are limited.

Or (p. 47):

Whatever is obstructing the development of a modern economy out of the general bazaar economy, it is not a lack of “business-like” orientation … what [it] lacks is not elbow room but organization, not freedom but form.

So Geertz portrays Modjokuto as inhabited by economically rational peddlers, but who are caught in the Bazaar economy because, to grow in scale and form modern firms, they would need to be able to write contracts and enter into long-run deals. But they cannot do this because of a general lack of trust. They trust members of their family and this supports the Bazaar economy, but trust goes no further.

Ironically, therefore, the same factors that eroded traditional economic elites along with their social ties and extra-market relations and thus freed the field for capitalistic individuals simultaneously creates an environment with a severe dearth of trust, which turns out to be a major impediment to the development of more modern economic organizations.

Why can’t the Chinese businessmen of Modjokuto take up the slack and create firms?

To some extent they do, but Geertz argues that they are blocked by social barriers, particularly a general resentment, and the fact that they are outsiders.

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