Time to end the colonial plantation legacy

Time to end the colonial plantation legacy

The government plans to privatize a number of state
enterprises and has named a government plantation group among
them. Dr. H.S. Dillon, executive director of the Center for
Agricultural Policy Studies and the head of a team which
consolidated 26 plantation companies into nine groups in 1994,
addresses the issue.

Question: What do you think of the government's plans to
privatize state enterprises?

Answer: It's a good idea, and we should follow the New Zealand
rather than the Polish model. By improving the performance of
these companies, we should be able to obtain much higher returns
through privatization. However, now that Presidential Decree No.
12 no longer attaches any priority to their erstwhile mission as
agents of development, many of these companies should be sold
outright. Waiting for initial public offerings might take years.
But some unfinished business should be cleared up first.

Q: What unfinished business are you alluding to?

A: The conversion of all existing plantations in North Sumatra to
the nucleus estate and smallholders model so that 60 percent of
the land, or more than 200,000 hectares, would be handed over to
about 80,000 laborers. This is the perfect moment, because once
these plantations have been privatized, we would be condemning
the laborers to a lifetime of hard labor.

Q: Why would you want to hand over 60 percent of the government's
plantation land to laborers?

A: For justice's sake. The forebears of these laborers were
initially brought over by the colonial authorities to serve more
or less as indentured workers. They have been serving the
plantation cause for generations now, without any sign of real
progress in their welfare. We have witnessed similar
impoverishment in plantation economies world wide. It is only
fair that they get the same treatment thousands of transmigrants
have obtained over the last two decades. You know that President
Soeharto himself has insisted that even foreign plantations
adhere to the smallholders plantation mode for extension of their
plantation concessions.

Q: What would be the impact of such a conversion?

A: Thousands of households would see more than a fourfold
increase in their incomes. Not only would this lift them out of
poverty, but it would finally set these Javanese households on a
development path long enjoyed by other ethnic groups in North
Sumatra. You might not realize that the Javanese are the largest
social group in North Sumatra.

The impact on regional development would not be trivial
either. With their new-found self-respect, I am sure that they
would be able to protect their holdings against theft, which has
plagued all oil palm plantations. The new minister should carry
it one step further: The former laborers should be provided with
a 60 percent share in the factory, too.

In this way, they would also gain from the profits garnered by
the estates.

Q: What do you think of the new state minister's office for the
empowerment of state enterprises?

A: Well, it all depends on its performance. If it manages to
establish proper corporate governance, that is by selecting
qualified people as nonexecutive board members and then holding
the executive directors accountable for company performance, then
we should say that it has served a purpose.

If, however, it creates another bureaucracy like the Strategic
Industry Management Board, then it could degenerate into a
ministry like those in socialist economies.

All of the abuses practiced under previous arrangements would
continue unabated, only the masters would be different now. Don't
forget that the state enterprise directors are rational actors
and know how to appease new masters. Most of them have managed to
survive many changes by simply relying on the old adage: "Every
man has his price!"

Q: With your experience as head of the consolidation team that
initiated these reforms five years ago, what advice could you
give to the new minister?

A: Not to underestimate the power of entrenched interests. If he
wants to succeed, he should establish credibility very early in
the game. He could do that by immediately dissolving the Joint
Marketing Office, which serves as a nexus for rent-seekers of all
types. Any hesitation on his part could be construed as an
indication that he condones earlier rent-seeking practices and
wishes to continue business as usual.