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.