Development in Tabanan, Bali
Tuesday, February 18, 2014
Daron Acemoglu and James Robinson

In our last post, we discussed how Clifford Geertz used the idea of the Bazaar economy to characterize the economic problems of Modjokuto Java.

Geertz noted that the erosion of traditional society had created a “Catch-22” type of situation where it allowed for the emergence of “economic man and woman” but simultaneously eroded the basis for generalized trust. Thus, though it facilitated some types of economic relationships, these were intrinsically limited in scale.

But things were different in Tabanan.

In Geertz’s words:

Tabanan’s aristocratic-entrepreneur faces nothing resembling the entrenched, resourceful, and bitterly antagonistic Chinese Business community with which Modjokutu’s former peddlers must contend.

In fact:

Tabanan’s traditional ruling family – about 6 percent of its population – overwhelmingly dominates the nascent modern economy of the town.

And Geertz noted that the aristocracy of Tabanan consciously saw themselves as

shifting the material basis of [their families] eminence from land ownership and political power to commerce and industry, as maintaining an old ascendancy in a new society. (p. 119)

Their strategy to do this was explicitly to exploit the traditional social structures over which they had a lot of control:

it is on the basis of this type of pluralistic collectivism – in such marked contrast to the hyper-individuated, person-to-person bazaar pattern with which Modjokuto’s would-be firm builders must cope – that the aristocratic entrepreneurs of Tabanan must base their efforts after innovation, reforms and economic growth. (p. 99)

In Tabanan, the aristocracy used the traditional social structure to their economic advantage. In one firm (a tire capping factory) all “fourteen men, all traditional commoner descendants of the lord, work in the factory” (p. 111). In another (a bus line) “this enterprise obviously rests on concepts of group loyalty and traditional leadership which grow directly out of rural social organization and which are wholly lacking in the bazaar economy” (p. 116).

But just as the bazaar economy was limited, so was that of Tabanan.

Geertz state that this is:

Tabanan’s firms can become easily politicized in modern terms and this is – at least in a democratic state – extremely dysfunctional to further growth.

This was because they 

had a tendency to behave uneconomically because of the “social welfare” pressures of its members who, for the most part, are not basically growth minded. (p. 123)

So although the use of traditional social structures allowed Tabanan princes to build firms that the peddlers of Modjokuto could not, at the same time these social structures were in many ways inimical to profit maximization because they built in social norms of redistribution which impeded the incentives of the princes to build such organizations.

Article originally appeared on Why Nations Fail by Daron Acemoglu and James Robinson (
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