Dutch Commerce and Chinese Merchants in Java: Colonial Relationships in Trade and Finance, 1800-1942

Claver, Alexander Book — Published Version Dutch Commerce and Chinese Merchants in Java: Colonial Relationships in Trade and Finance, 1800-1942 Provided in Cooperation with: Brill, Leiden Suggested Citation: Claver, Alexander (2014) : Dutch Commerce and Chinese Merchants in Java: Colonial Relationships in Trade and Finance, 1800-1942, ISBN 978-90-04-26323-9, Brill, Leiden, https://doi.org/10.26530/OAPEN_613428 This Version is available at: https://hdl.handle.net/10419/181391 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by-nc-nd/3.0/ Dutch Commerce and Chinese Merchants in Java Verhandelingen van het Koninklijk Instituut voor Taal-, Land- en Volkenkunde Edited by Rosemarijn Hoefte KITLV, Leiden Henk Schulte Nordholt KITLV, Leiden Editorial Board Michael Laffan Princeton University Adrian Vickers Sydney University Anna Tsing University of California Santa Cruz VOLUME 291 The titles published in this series are listed at brill.com/vki Dutch Commerce and Chinese Merchants in Java Colonial Relationships in Trade and Finance, 1800–1942 By Alexander Claver LEIDEN • BOSTON 2014 This is an open access title distributed under the terms of the Creative Commons Attribution‐ Noncommercial‐NonDerivative 3.0 Unported (CC‐BY‐NC‐ND 3.0) License, which permits any noncommercial use, and distribution, provided no alterations are made and the original author(s) and source are credited. Front cover illustration: Sugar godown of the sugar enterprise ‘Assem Bagoes’ in Sitoebondo, East Java, ca. 1900. Collection Koninklijk Instituut voor Taal-, Land- en Volkenkunde (KITLV), Leiden (image code: 6017). Back cover illustration: Five guilder banknote of De Javasche Bank, 1934. Front side showing a male dancer of the Wayang Wong theatre of Central Java. Back side showing batik motives and a text in Dutch, Chinese, Arabic and Javanese script warning against counterfeiting. Design by the Dutch artist C.A. Lion Cachet. Printed by Joh. Enschedé en Zonen. Library of Congress Cataloging-in-Publication Data Claver, Alexander. Dutch commerce and Chinese merchants in Java : colonial relationships in trade and finance, 1800-1942 / by Alexander Claver. pages cm. -- (Verhandelingen van het Koninklijk Instituut voor Taal-, Land en Volkenkunde, ISSN 1572-1892; volume 291) Includes bibliographical references and index. ISBN 978-90-04-25657-6 (hardback : acid-free paper) -- ISBN 978-90-04-26323-9 (e-book) 1. Java (Indonesia)-- Commerce--History--19th century. 2. Java (Indonesia)--Commerce--History--20th century. 3. Netherlands-- Commerce--History. 4. China--Commerce--History. 5. Dutch--Indonesia--Java--History. 6. Chinese--Indonesia-- Java--History. 7. Merchants--Indonesia--Java--History. 8. Netherlands--Colonies--Asia--Economic conditions. 9. Netherlands--Foreign economic relations--China. 10. China--Foreign economic relations--Netherlands. I. Title. HF3809.J4C55 2014 330.9598’2022--dc23 2013040518 This publication has been typeset in the multilingual “Brill” typeface. With over 5,100 characters covering Latin, IPA, Greek, and Cyrillic, this typeface is especially suitable for use in the humanities. For more information, please see www.brill.com/brill-typeface. ISSN 1572-1892 ISBN 978-90-04-25657-6 (hardback) ISBN 978-90-04-26323-9 (e-book) Copyright 2014 by Alexander Claver This work is published by Koninklijke Brill NV. Koninklijke Brill NV incorporates the imprints Brill, Brill Nijhoff, Global Oriental and Hotei Publishing. Koninklijke Brill NV reserves the right to protect the publication against unauthorized use and to authorize dissemination by means of offprints, legitimate photocopies, microform editions, reprints, translations, and secondary information sources, such as abstracting and indexing services including databases. Requests for commercial re‐use, use of parts of the publication, and/or translations must be addressed to Koninklijke Brill NV. This book is printed on acid-free paper. The realization of this publication was made possible by the support of KITLV (Royal Netherlands Institute of Southeast Asian and Caribbean Studies). <UN> <UN> CONTENTS List of Maps, Tables, Figures, and Boxes ...........................................................vii Acknowledgements .................................................................................................xi Abbreviations ..........................................................................................................xiii Glossary .....................................................................................................................xv Conventions ............................................................................................................xix Maps ..........................................................................................................................xxi 1. Introduction .........................................................................................................1 Research Outline ............................................................................................ 1 Access to Capital, Information and Security .......................................... 3 The Indonesian Case .....................................................................................7 Sources ..............................................................................................................9 Research Method .........................................................................................10 2. Prelude to Rapid Expansion (1800–1884) ................................................13 The Colonial State and the Economy .....................................................13 The Resilience of Private Enterprise ....................................................... 25 Entrepreneurship under the Cultivation System: Djauw Adjiem and Ho Kong Sing .......................................................34 Finance in Transition: Internatio and De Javasche Bank .................. 49 Wholesalers and Retailers: Van Beek, Reineke & Co. - HVA .............65 3. Crisis and Adaptation (1884–1890s) ..........................................................73 Economic Policy and Political Expansion .............................................73 The Organization of Trade ........................................................................76 The Onset of the Crisis: Sugar and Coffee .............................................86 Beginning of the Crisis ...............................................................................91 The Crisis Experienced: Internatio and Dorrepaal & Co. .................96 The Crisis Prolonged: Sing Liong & Co. .............................................. 120 4. Redefining Dutch-Chinese Commercial Relations (1890s–1910) .................................................................................................. 133 An Awkward Alliance: The Interdependence of Dutch and Chinese Business ......................................................................... 133 The Economic Position of the Chinese under Scrutiny ................. 149 A Wave of Failures: Surabaya in the Late 1890s ............................... 172 The Chinese Boycott of the HVA........................................................... 189 <UN><UN> <UN> vi contents 5. The Road to Expansion (1910–1930) ...................................................... 241 The Late Colonial State: Consolidation and Conflict ...................... 241 The Colonial Economy before 1914: The HVA in Trade and Agriculture ..................................................................................... 247 The Lure of Sugar in Trade and Banking ............................................ 260 De Javasche Bank and the Outbreak of the First World War ........ 268 The Colonial Economy after 1914 ........................................................275 The Kwik Hoo Tong Handelmaatschappij: A Prominent Chinese in Sugar ................................................................................... 283 6. Economic Crisis and Commercial Resilience (1930–1942) .............. 349 The Economic Experience of the 1930s ............................................. 349 The Incidence of Failure: Bankruptcy Cases and Business Fraud .............................................................................. 358 Commercial Resilience and Crisis Management: Internatio and Margo-Redjo ............................................................. 371 7. Conclusion ....................................................................................................... 393 A Bird’s-Eye View of Colonial Trade..................................................... 393 Trade Dynamics ......................................................................................... 402 Sources .................................................................................................................... 405 Bibliography .......................................................................................................... 407 Index ........................................................................................................................ 431 <UN> <UN><UN><UN> <UN><UN> LIST OF MAPS, TABLES, FIGURES AND BOXES Maps 1. Southeast Asia and the Indonesian archipelago. ....................................xxi 2. The islands of Java and Madura. .................................................................xxii 3. Regions of origin in South China of Chinese migrants represented in Southeast Asia. .................................................................. xxiii 4. Main emigration areas and corresponding dialect groups in South China. ...............................................................................................xxiv Tables 2.1. Trading companies in Batavia, 1817–1828............................................28 2.2. Trading companies in Batavia, 1829–1840............................................28 2.3. Trading companies in Semarang, 1829–1840. ......................................29 2.4. Trading companies in Surabaya, 1829–1840. .......................................29 2.5. Customer profile of the Batavia branch of Van Beek, Reineke & Co. / HVA (1878, 1884). ..........................................................70 3.1. The growth of Java and world sugar production in metric tons (x 1000), 1860–1890. ............................................................87 3.2. The share of Java sugar in world production, 1860–1890. ................89 3.3. Financial institutions and agricultural enterprises, 1884. .............. 104 3.4. Trade bankruptcies in the Netherlands Indies, 1883–1887. .......... 121 4.1. Colonial finances of the Netherlands Indies, 1816–1925 (in millions of guilders). ...........................................................................147 4.2. Survey of defaulted retail traders in Semarang, 1898/99–1908/09. ..................................................................................... 226 4.3. Sustained loss (f) of selected European wholesale import traders, 1898/99–1908/09....................................................................... 227 5.1. Annual average growth in major economic aggregates, 1874–1940. .................................................................................................. 249 5.2. Price index numbers, 1870–1940 (1913=100). ................................. 250 5.3. Imports and exports of Java and Madura, 1900–1913: values (at constant prices x f 1,000) and index numbers (1913=100). ................................................................................................. 251 <UN><UN> <UN><UN> <UN><UN> viii list of maps, tables, figures and boxes 5.4. Agricultural and trading activities of the HVA, 1901–1914: capital, commitments and profits (x f 1,000)................................... 255 5.5. Credit extension within the commercial banking system of the Netherlands Indies in 1905, 1910 and 1914 (x f 1,000). ............................................................................... 265 5.6. Money withdrawals at the Surabaya agency of DJB, 4–8 August 1914. ..................................................................................... 274 5.7. Geographical composition of the foreign trade of the Netherlands Indies, 1914–1922 (in millions of guilders). ........... 277 5.8. Imports and exports of Java and Madura, 1913–1930: values (at constant prices x f 1,000) and index numbers (1913=100). ............................................................................................... 280 5.9. Average annual sugar turnover of KHT in 1927 (divided by territory, in metric tons). ................................................. 333 5.10. Balance sheet of the N.V. Kwik Hoo Tong Handelmaatschappij, 31-12-1933. ..................................................... 345 6.1. Imports and exports of Java and Madura, 1929–1940: values (at constant prices x f 1,000) and index numbers (1913=100). ............................................................................................... 353 6.2. Private capital imports and dividends & profits in the Netherlands Indies, 1900–1939 (x f 1,000,000). ................ 359 6.3. Corporate enterprises in the Netherlands Indies, 1914–1940................................................................................................. 360 6.4. New bankruptcy cases submitted at the Councils of Justice in the Netherlands Indies, 1919–1940. ............................................. 361 6.5. Assets, liabilities, losses and repayments at concluded bankruptcies in the Netherlands Indies, 1922–1940. ................... 362 6.6. Average sustained loss at concluded bankruptcies in the Netherlands Indies, 1922–1940. ......................................................... 364 6.7. Turnover and net profits of Internatio, 1900–1929 (x f 1,000). ........................................................................... 373 6.8. Internatio’s return on capital employed (ROCE), 1900–1929................................................................................................. 374 6.9. Turnover and net profits of Internatio, 1929–1939 (x f 1,000). ........................................................................... 375 6.10. Internatio’s return on capital employed (ROCE), 1929–1939. ................................................................................................ 376 6.11. Internatio’s outstanding debt on trade goods and import client write-offs in the Netherlands Indies, 1929–1939 (x f 1,000). .................................................................................................. 381 <UN><UN> <UN> GLOSSARY agentschap agency / branch (office) alun-alun central square of Javanese town arak alcohol distillate made of rice or palm juice baar newcomer, (expression used for a European who had recently arrived in the colony), derived from the Indonesian word baru = new. baba a person of Chinese descent born in the Straits Settlements (i.e. Malaysia and Singapore) (see also peranakan) bang a Chinese dialect group organization bangsa nation or race bapak father / sir, form of address to an older man (often shortened into pak) batik cloth with Javanese patterns, printed by means of a special dyeing technique boei prison bouw unit of square measure (1 bouw = 1.747 m2) Binnenlandsch Interior Administration, Dutch colonial civil Bestuur service bupati / regent highest indigenous administrative official in Java, known collectively as priyayi Cabang Atas Chinese elite in Java Cina klontong pedlar of Chinese descent Cina mindering Chinese money lending, usury controleur Dutch official ranked below assistant resident cultuurbanken agricultural banks Cultuurstelsel Cultivation System desa village dokar horse-drawn buggy duit doit (copper coin of small denomination) erfpacht long lease Fukien Fujian, a province in Southeast China gandeng konco ‘buddies arm-in-arm’, a term referred to the Dutch-Chinese economic collaboration during colonial times in Indonesia <UN><UN> <UN><UN> <UN> xvi glossary gaplek dried cassava gemeente municipality gudang godown or warehouse gula batu lump sugar gula mangkok palm or cane sugar of lesser quality haji title give to a Muslim who has made the pilgrimage to Mecca handelsvere(e)niging trading association / trading company he(e)rendienst traditional obligatory labour service Hokkien people from Fukien, or dialect in south Fukien Huaqiao / Hoakiau Chinese sojourner / overseas Chinese hui a Chinese (business) association for mutual assistance hui kuan a Chinese (dialect) association inlander native (a derogatory term) IOU confession of guilt (abbrev. of ‘I Owe You’) junk Chinese vessel kabupaten regent’s residence / regency kacang kedele soy bean(s) Kapitan the second highest rank in the Chinese officer system under the Dutch colonial administration kecu robber / bandit kongsi a Chinese (business) partnership, company, association, secret society, or other shareholding socio-economic organization krakal hard labour kraton palace / court, especially of a Javanese ruler loteng loft Luitenant the lowest rank in the Chinese officer system under the Dutch colonial administration lurah (Javanese) village head Majoor the highest rank in the Chinese officer system under the Dutch colonial administration mandur caretaker / overseer Nanyang the Chinese term for Southeast Asia (lit. ‘Southern Ocean’) nihonjinkai Japanese cultural/business association(s) Ommelanden environs, particularly of Batavia <UN><UN> <UN> glossary xvii Opium Regie a system whereby the Dutch colonial administration controlled the production and sale of opium paal unit of linear measure (1 paal = 1,507 km) pachter farmer (i.e. person who holds a revenue farm) pak see bapak Pangreh Pradja Java’s indigenous civil service, headed by a Dutch-trained bureaucratic elite (priyayi) (lit. ‘Rulers of the Realm’) pasar market (place) Pasisir the coastal region, particularly the north Java littoral passenstelsel pass system patungan trade clandestine opium trade peranakan Indonesia-born descendant(s) of Chinese immigrants, acculturated to varying degrees pergerakan (political) movement perkara (contested) matter picol / pikul unit of weight measure (1 pikol = 61,76 kg) pikulan carrying pole perintah halus soft command, indirect order disguised as a suggestion pribumi indigenous Indonesian priyayi hereditary Javanese aristocracy/officialdom, member of the governing elite of Java, or characteristics of that class qiaoxiang place of origin in China (lit. ‘sojourner’s home village’) / emigrant communities regency administrative district headed by a regent / bupati regent / bupati highest indigenous administrative official in Java, known collectively as priyayi resident highest Dutch administrative official residentie administrative district headed by a resident revenue farm a colonial system of leasing the collection of government taxes to the highest bidder – usually Chinese – for a fixed period against a fixed rent sawah wet rice field Syahbandar harbourmaster <UN><UN> <UN> xviii glossary siang boe Chinese reading association siang hwee Chinese chamber of commerce singkeh new arrival, China-born immigrant sluipaccoord secret settlement in case of business default or bankruptcy Taiwan sekimin person registered in Taiwan Tionghoa Chinese toko (retail) shop totok Chinese China-born and less acculturated Chinese, regarded as the pure Chinese. towkay / tauke(h) boss / shopkeeper (synonymous with successful Chinese businessman) Vorstenlanden Principalities, the four indirectly ruled states of Central Java warung small retail shop or stall wedana Javanese district head wingewest area of (economic) exploitation <UN> <UN><UN><UN> <UN> CONVENTIONS The text follows the standardized Indonesian language spelling of names, places and persons as applied since 1972. Exceptions are on occasion made when names have been altered (e.g. Batavia/Jakarta or Buitenzorg/ Bogor), or when a person has preferred the traditional spelling (e.g. Soeharto). The colonial political entity comprising the Indonesian archipelago until 1942 is referred to as the Netherlands Indies. The word Indonesia(n) is used as a geographical notion, except when referring to the Republic of Indonesia as an independent country. In general, the romanization of the many sounds represented by Chinese characters is a treacherous matter as there is no commonly accepted means of rendering names. The pronunciation varies considerably from one dialect to another whereas the Western spelling itself depends on the time period as well as the colonial setting. Since the overseas Chinese were usually better known by the dialect form of their name, the decision has been made to identify individuals by the most common dialect spelling found. In agreement with M. Godley: “To use only the Mandarin pronunciation would be to strip away their Southeast Asian identities.” (Godley 1981: 8). The following rules apply with regard to the symbols used in the text: -no statistics available or (between two figures) inclusive -(10) minus (in combination with a number) 0 nil or less than 0.5 [ ] anything placed between brackets was added by the author N.B.: Detailed items in tables do not necessarily add up to totals because of rounding off. <UN><UN> <UN><UN> <UN> <UN> <UN> maps xxi BURMA Pegu ChiangmaiVientiane Ayutthaya ThonburiBangkokAngkor Hue LAOS Pnompenh Saigon My- Tho Nakhon Sithammarat (Ligor) Phuket (Junkceylon) Aceh Penang Perak Kuala Lumpur Medan Bagan Siapiapi Inderagiri Minangkabau S U M A T R A Jambi Palembang Bengkulu 20th Century boundaries 0600 Cirebon Yogyakarta Tegal Semarang Japara Demak TubanMadura Makasar Ternate Tidore TIMOR Bone Kupang Surabaya Gresik BALI SULAWESI MALUKU BORNEO SARAWAK BRUNEI NORTH BORNEO (SABAH) JAVA SEA KALIMANTAN LOMBOK Surakarta J AVA Rembang Banten Jakarta (Batavia) Kutei Benjarmasin kilometres SINGAPORE INDIAN OCEAN Songkla Patani Kelantan Trengganu Pahang Sambas Singkawang Sulu Zamboanga Cebu Iloilo Manila Magindanao MINDANAO NEGROS VISAYAS LUZON HAINAO SOUTH CHINA SEA PHILIPPINES Monterado Mandor Pontianak Sukadana Johor Riau Archipeligo Lingga Archipeligo Bangka I Belitong I Melaka CAMBODIA VIETNAM THAILAND (SIAM) Kedah Map 1. Southeast Asia and the Indonesian archipelago. Source: Reid (1996: x) <UN><UN> <UN> xxii maps Map 2. The islands of Java and Madura. Source: Vickers (2005: 34) Batavia/ Jakarta BandungCirebon Garut Comal Jepara Rembang Kudus Semarang Ambarawa Surakarta Yogyakarta Pasuruhan Surabaya Madura <UN><UN> <UN> maps xxiii SOUTH CHINA SEA SIYI REGION SANYI REGION Kaiping 0 250 km Xinhui Enping Taishan/ Xinning Nanhai Panyu Shunde FUJIAN PROVINCE GUANGDONG PROVINCE SANYI REGION SIYI REGION Guangzhou (Canton) Fuzhou Fuqing Yongchun Sanshui Shenzhen Hong Kong Zhongshan Macao Hainan Dongguan Anxi Tongan Huian Jinjiang Xiamen (Amoy) Chaoan/ Chaozhou (Teochew) JieyangShantou (Swatow) 0 1000 km Taibei TAIWAN TAIWAN CHINA PHILIPPINES VIETNAM MALAYSIA INDONESIA Singapore Kuala Lumpur Malacca Penang Map 3. Regions of origin in South China of Chinese migrants represented in Southeast Asia. Source: Douw, Cen Huang and Godley (1999: viii) <UN><UN> <UN> xxiv maps Map 4. Main emigration areas and corresponding dialect groups in South China. Source: Reid (1996: 50). GUANGXI GUANGDONG FUJIAN HAINANESE FUJIAN Guangzhou (Canton) Huizhou Hong Kong Meixian (Jiayingzhou) Chao’an Quanzhou Zhangzhou (Longxi) Xiamen (Amoy) Zhangpu Fuzhou Shantou (Swatow) TEOCHIU Speech Groups kilometres 0 100 200 300 Macao HAKKA HOKKIEN HOKCHIA HOKCHIU CANTONESE <UN><UN> <UN> introduction 7 10 A general trading company is defined here as a firm active in both import and export that will trade all kinds of goods all over the world. See Yonekawa and Yoshihara (1987) and Yonekawa (1990). 11 This had been the case from the earliest days of the VOC. Being a wholesale organization the Company could not afford to be bothered by small sales on the local market. As stated by the Governor General in 1639 the objective was not to enter the intermediate market and open the warehouses for a mere trifle at the demand of every prospective customer (Blussé 1986: 71). 12 A description of the economic position of the Arab community in general and Arab trading activities in particular can be found in Heuken (1996), De Jonge (2000: 145–146) and Mandal (1994: 39–52). Post (1991) provides an in-depth analysis of the Japanese trade. 13 See Chapter 4, Paragraph ‘An Awkward Alliance: the Interdependence of Dutch and Chinese Business’. 14 This concept has been formalized by T.P. van der Kooy in his Hollands stapelmarkt en haar verval. His argumentation highlights the crucial importance of ‘the second hand’ during the Dutch Republic (sixteenth and seventeenth century). These traders acted as a ‘buffer’ between irregular supplies and more regular sales. In his opinion, it was their knowledge of local market conditions – i.e. better access to information – which made them invaluable intermediaries. Van der Kooy also mentioned the speculative function The Indonesian Case Some features of trade require attention. First, there is the distinction between import and export. The trading company can focus on both aspects, or limit itself to one of the two. The well-known Dutch company Internatio did both, but the German company Erdmann and Sielcken concentrated itself on exports, primarily sugar ([Internatio] 1913; [Internatio] 1938; Schmiedell 1924). In the colonial trade general trading companies and specialized ones existed side by side.10 The large successful general trading company has received most of the attention, although most trading outfits were small and focused on a limited range of products. Second, there is the difference between wholesale and retail trade. Most European traders in the Netherlands Indies were wholesale traders. Neither willing nor able to compete in the local intermediate trade, European traders provided middlemen with merchandise on credit in the expectation that their products would thus reach the consumer market.11 The intermediate trade was traditionally the domain of the Chinese, although Arab and Japanese merchants participated as well.12 Chinese predominance owed much to their cultural background and ethnic minority position which seems to have favoured the development of certain business skills, as well as their extensive family and business contacts which gave them unrivalled access to intra- and extra-archipelago trade networks.13 Third, in the case of imports intermediate trade was tantamount to distributive trade or the so-called second hand (tweede hand).14 There <UN><UN> <UN> 8 CHAPTER ONE this type of trader fulfilled by pointing out the extremely small profit margins he had to accept (Van der Kooy 1931: 21–22, 45, 85–89). 15 A good illustration of this system is the distribution of opium on the black market as described by Rush. This so-called patungan trade system had a pyramidal structure and was carried out below the level of the state sanctioned opium farm stores by numerous street hawkers (Rush 1990: 57–63). 16 E.G.J. Gimbrère (1891–1949) practised law in Padang before he was employed by the Nederlandsch-Indische Handelsbank (NIHB) in 1917. He became Director in Batavia in 1926, but returned to the Netherlands in 1927 to take up a position as professor of law at the university of Tilburg. Throughout his (academic) career he published extensively on topics such as credit practices in trade and sugar finance (Korthals Altes 2004: 247, 282, 527; Gimbrère 1924 and 1928). wasalso often a third, fourth or even fifth hand (Liem Twan Djie 1947: 4–11).15 The distribution chain typically went from European importer to Chinese middlemen. The latter could be highly specialized, but the pasar enterprise – which sold just about anything – was equally important. From the intermediate trader the goods were distributed further down the chain. The merchandise was sold in shops: toko, or in even smaller warung in the villages (desa). Goods were also traded by small peddlers who would sell the merchandise in every conceivable spot. The Chinese (Cina klontong) with his carrying pole (pikulan) was a common sight everywhere. Last but not least, there was the market (pasar) in which Chinese and indigenous traders were active. In the case of exports intermediate trade meant collecting the merchandise. Petty traders would buy small quantities of local agricultural and industrial produce. These would be bundled and sold to retail traders. The retail traders could however also decide to buy directly from local producers. Wholesale traders would buy goods from retailers or directly from factories in the case of processed agricultural products like sugar. Fourth, the import and export trade of the Netherlands Indies thrived on credit. It acted as a lubricant for the trading sector and the entire economy. Access to sufficient capital was a precondition for the smooth running of the economic system. Credit was hard to come by and securing it was easier for those with access to socio-economic networks. From the top of the pyramid capital trickled down to those involved in trade, production, or consumption. Substantial risks were attached to the extension of credit. As late as 1924 E.G.J. Gimbrère16 pleaded for a clearly defined use of terminology and standardization of contracts (Gimbrère 1924: v–viii, 3–7). According to him trade boiled down to the creditworthiness of the participants. This <UN><UN> <UN> introduction 9 17 For more information on the press in the Netherlands Indies see Adam (1995), Bosma, Sens and Termorshuizen (2005), Hoogerwerf (1990), Maters (1998) and Termorshuizen (2001, 2011). 18 The interviews conducted with F.L.N. van de Ven (Pak Ferry), Pak Joenoes, and members of the Tan/Dharmowiyono family were of great importance in this respect. See Beekman (1996 and 1998), Birney (1998) and Nieuwenhuys (1972) for an overview of fiction dealing with the Netherlands Indies. 19 In the Netherlands: the Vrije Universiteit Amsterdam, the Universiteit van Amsterdam, the Koninklijke Bibliotheek in Den Haag, the Universiteit van Leiden, the Koninklijk Instituut voor Taal-, Land- en Volkenkunde in Leiden, the Koninklijk Instituut voor de Tropen in Amsterdam, the Erasmus Universiteit Rotterdam, and the Institute of meant assessing the extent to which risks could be covered. Sufficient collateral was a key condition since borrowing took place on security. This was greatly aided by clear liabilities. Still, as will be shown, being able tohold someone liable does not guarantee a favourable outcome when debtors default on their payments. Sources In Indonesia consultation of the archive of De Javasche Bank (DJB) at Bank Indonesia (BI), Jakarta provided unique material. Material was also found in Arsip Nasional in Jakarta and the private archive of coffee factory Margo-Redjo in Semarang. In the Netherlands the Nationaal Archief in Den Haag was of great importance, especially the archives of the Nederlandsche Handel-Maatschappij (NHM), the Koloniale Bank (KB), the Handelsvereeniging Amsterdam (HVA), and the Ministerie van Koloniën. Other archives worth mentioning are Internatio-Müller in Rotterdam, the Koninklijk Instituut voor Taal-, Land- en Volkenkunde in Leiden and the Nederlandsch Economisch-Historisch Archief in Amsterdam. Newspapers, magazines and other serial publications were crucial in supplementing and/or cross-checking data. Issues of Soerabaiasch Handelsblad, De Locomotief, or De Indische Mercuur were particularly useful in giving a more complete picture of specific events. In addition differences in point of view of these and other publications like Kabar Perniagaan, Pembrita Betawi, or De Telefoon shed more light on divisions within colonial society.17 Serial publications like the year reports of trading companies and societies contained invaluable statistical data. The interviews conducted provided the kind of unique background and atmospheric impressions hardly ever found on paper, save for the few well-written works of fiction.18 Extensive library research was conducted in general and specialized libraries.19 <UN><UN> <UN> 10 CHAPTER ONE Social Studies in Den Haag. In Indonesia: the Perpustakaan Nasional in Jakarta, the Centre for Strategic and International Studies in Jakarta, the Koleksi George Hicks at the Lembaga Ilmu Pengetahuan Indonesia in Jakarta, and the Perpustakaan Mangkunegara in Surakarta. 20 The word explanation should be used with caution. A historical narrative is not an image or an explanation of the past, but an interpretation at best. A historian provides an interpretation of the past by showing cohesion into something which appeared incoherent or without structure. Historical knowledge has been characterized as the arrangement of knowledge since it neither produces theory nor tests theory against the facts (Ankersmit 1983: 250; Ankersmit 1986: 182–190). Narration is one of the more common forms historians use to that effect. See Ankersmit (1986) and Lorenz (1987) for an overview of explanatory paradigms used in historical science. 21 The use of cases is a well-established method in social science research where controlled experiments are hardly feasible. The choice of a case study involves greater detail and accuracy of information at the cost of making less effective generalizations. The selection of a representative case is therefore crucial. The selection process involves hard to define concepts such as relevancy and significance. Hammersley (1993: Chapter 10–11) surveys case studies and alternative research strategies. Lustick (1996) deals with selection bias and argues for greater historiographical consideration to help focus investigation and explanation. Research Method The following pages reflect a historian’s exercise. Practical use has been made of economic science concepts to strengthen the argument and shed light on long-term historical developments. The study is archive-driven since it is primarily based upon archival sources: many of them new and/ or neglected by other scholars (Ankersmit 1986: 233–247; Breisach 1983: 291–302, 337–341, 355–360; Aslanian 2011: xv–xviii). Chronology and case studies constitute important elements in the narrative below. The word narrative stands for the organization of historical knowledge into an explanatory scheme which takes the form of a coherent story.20 Cases form an integral part of this story as they relate to the type of phenomena of the research.21 The argument alternates between the macro and micro level, between broader political and economic issues and the decisions made by companies and individuals. The selected case studies focus on Java and the trading world of Batavia, Semarang and Surabaya since a significant part of the ‘commercial action’ in Java took place in these urban surroundings. This spatial setting is complemented by a sectoral focus on wholesale and intermediate trade emphasizing the commercial relations between Europeans and Chinese. The research does not seek a macro-level explanation, but offers a detailed examination of the wholesale trading arena and selected <UN><UN> <UN> introduction 11 companies. This avoids making unexamined assumptions like the wellestablished perception of total Dutch dominance of wholesale business in Java. The resulting increase in complexity is balanced by a better understanding of historical developments offering a more solid basis for future research (Van Klinken 2005: 79–81). <UN><UN> <UN> © Alexander Claver, 2014. This is an open access chapter distributed under the terms of the Creative Commons Attribution-Noncommercial-NonDerivative 3.0 Unported (CC-BY-NC-ND 3.0) License. 1 The literature regarding the history of the VOC is overwhelming, making it difficult to give an accurate overview. A good start are the standard publication of Gaastra (1991), Jonker and Sluyterman (2000), and Jacobs (2002). Jacobs (2000) extensively covers the Asian trade of the VOC in the eighteenth century. CHAPTER TWO PRELUDE TO RAPID EXPANSION (1800–1884) Private entrepreneurial activity was initially viewed with suspicion by the colonial government and therefore not encouraged. In the eyes of the admi nistration private entrepreneurs were adventurers and fortunehunters and their presence could not contribute to a profitable development of the colony. Directing the flow of money into the state coffers had absolute priority. As a result, it would take until the demise of the Cultivation System (1830–1870) before private trading business could really take off. Though facing serious obstacles private entrepreneurship managed to persist. At first, British traders and planters played an important role. Their dominant economic position slowly declined after the advent of economic institutional progress. The establishment of the Nederlandsche Handel-Maatschappij (NHM) and De Javasche Bank (DJB) in the 1820s was crucial in this respect. Both institutions became a major lifeline of the economy. Chinese private commercial activity was just as indispensable by brokering between the different segments of colonial society. The Colonial State and the Economy The colonial state in Java came into being after the dissolution of the Vereenigde Oost-Indische Compagnie (VOC) on 31 December 1799. Established in 1602 in order to participate in the lucrative trade in Asian spices, the VOC managed to assert itself in a bustling commercial environment (De Houtman 1603; Van Leur 1955; Vogel 1992: 168–179). Aided by growing political influence the company developed into “a precocious multinational corporation with features of an Asian state.” (Dick et al. 2002: 44).1 The company concentrated its vast resources on <UN><UN> <UN> 14 chapter two 2 A discussion of the downfall of the VOC and the possible causes can be found in Jacobs (2000: 15–17) and Mack (2001: 41–46). Dillo (1992) discusses the final period (1783– 1795) of the VOC’s existence at length. 3 At this point the company’s debt totalled f 134,701,868. With shareholders being offered a compensation of f 6,440,000 the total amount would ultimately reach f 141,141,993 (De Bree 1928–1930: II 53). 4 To what extent the administration of the Dutch Republic and/or Kingdom can be characterized as ‘modern’ is questionable. Whereas the Republic’s economy has been characterized as ‘modern’ the administration was only partly centralised after the Napoleonic reforms. It would take the better half of the nineteenth century before the Dutch state had overcome the so-called institutional impotence of the Republic (De Vries and Van der Woude 1995: 789–806; Van Zanden 1987: 116–123). maritime trade throughout Asia with the primary goal of maximizing profits. A strong sense of purpose and the efficient methods employed to this end paid off as the VOC turned out to be very successful.  Business encouraged the company’s territorial ambitions, as it responded to the need of protecting its trading objectives and possessions. Still, financial considerations kept these territorial ambitions in check. The VOC organization had a high level of centralization. The company was headed in Asia by the Gouverneur-Generaal (Governor-General or GG) whose orders emanated from Batavia, located on Java’s northwest coast. The company’s influence spread from there, although its territorial sway within the Indonesian archipelago remained limited to Java and the Moluccas (Abeyasekere 1987: 3–47; Dick et al. 2002: 44). The VOC empire went into decline in the second half of the eighteenth century.2 Following the Fourth Anglo-Dutch War (1780–1784) which crippled the company’s business and nearly bankrupted it, financial difficulties proved insurmountable. Despite reorganization attempts the VOC became insolvent and on 1 March 1796 the administration of its possessions was handed over to a government committee.3 A few years later the VOC was formally dissolved (Somers 2005: 81–87). With the demise of the VOC the Dutch role in Asia contracted to exploiting the economic resources of Java and the company’s complex trading system was replaced by a dominant trading link with the Netherlands. However, changing the VOC-style administration into a modern, rational bureaucracy took much time and effort.4 The new Dutch colonial state inherited an eighteenth century administrative and political structure characterized by corruption, factionalism, and <UN><UN> <UN><UN> prelude to rapid expansion (1800–1884) 15 5 According to Boomgaard, the Governor-General and his advisory council formed “a quasi-oriental court with far-reaching, ‘despotic’ powers, and the pomp and splendour to match.” Emphasizing the parallel between the ‘court’ of the Governor-General and the kraton (palace) of the Javanese princes, he claims that both could be regarded ‘family governments’. The high court nobles and the princes were often related by marriage, while the same applied to the Governors-General and their high officials (Boomgaard 1989: 14). See also Blussé (2000b) for a description of diplomatic ritual at Batavia during the VOC era. 6 See Boomgaard (1989: 29–34), Dick et al. (2002: 59–60, 63–64), Van Niel (2005: Chapters 6 and 7), Ricklefs (2001: 145–150), Somers (2005: 89–92), Stapel (1941: 76–77), Stevens (1982: 45–48, 50–55). patrimonialism.5 The transformation of the Dutch colonial state was undertaken by H.W. Daendels and Thomas Stamford Raffles.6 Herman Willem Daendels was Governor-General of the Netherlands- Indies from 1808 till 1811. A supporter of Napoleonic political reform, he was the right candidate for the French who occupied the Netherlands. Daendels swiftly reorganized the central and regional colonial administration. He created the Generale Secretarie (General Secretariat) which formed the centre of his administration and formulated main policy. The Raad van Indië (Council of the Indies) was stripped of its legislative power and became a consultative body. Java’s territory was divided into districts, or Residenties (Residencies), which were headed by a Resident (Resident) (Cribb 2000: 123). The Resident was a European civil servant, responsible for many tasks from agriculture to the administration of justice. An important improvement was the introduction of fixed salaries and precise instructions to curb the old discretionary powers of colonial civil servants. With the spilling over of the Napoleonic wars into the Indonesian archipelago, the British took over the Dutch possessions and appointed Thomas Stamford Raffles as Lieutenant-Governor-General (1811–1816). Raffles maintained and refined the principal features of Daendels modernized administration. He introduced a new tax system that would replace the VOC system of compulsory labour services, the levying of taxes in kind (mostly rice and teak), and forced deliveries of monopoly products such as coffee, sugar, cotton, and indigo. In 1813 the land rent system was introduced which taxed the possession of land, obliging farmers to give up two-fifths of the proceeds of their (rice) harvests either in kind, or preferably, in cash (Boomgaard 1989: 32–34; Brown 1997: 96–98). Daendels and Raffles also curtailed the powers of the Regenten (Javanese district chiefs, known collectively as priyayi) as intermediaries <UN><UN> <UN><UN> 16 chapter two 7 The Controleur was the representative of the colonial civil service par excellence. Standing at the lowest level of the European colonial administration he was entrusted with a range of tasks. His workload included police matters, taxes (assessment, collection and payment), cultivations (general condition, irrigation, tests, harvest, sale, market prices), agrarian concerns (exploitation, rights of ownership, lease of land), labour services (maintenance of roads, canals, etc.), live stock (diseases, feed, theft) and the state of public health. To attend to all these matters with equal diligence was an enormous task as the number of duties was excessive while many required specialist attention (Dick et al. 2002: 115; Van Doorn 1996: 106). 8 See Van den Doel (1994) for a description of the Binnenlandsch Bestuur between 1808 and 1942 and De Graaff (1997) for its counterpart in the Netherlands, the Ministerie van Koloniën (Ministry of Colonies). Sutherland (1973, 1979) gives an account of the changes within the indigenous civil service (Pangreh Praja) showing how the Javanese priyayi responded to them. 9 Between 1816 and 1829 government spending greatly exceeded the revenue derived from Java’s export trade which was virtually the only source of public income. Accumulated deficits amounted to f 37,700,000 in 1829. As a result, the colonial government would keep expenditures within the colony to a minimum for decades to come. According to Fasseur, the administration showed an unbelievable frugality with expenses limited to the extreme (Booth 1998: 138–139; Creutzberg 1976: 17; Fasseur 1975: 37–40). between the European civil service and the Javanese peasantry, while direct contact with village heads was enhanced (Ricklefs 2001: 150; Stevens 1982: 48, 52.) After the restoration of Dutch rule to Java in 1816, the Binnenlandsch Bestuur (Interior Administration or BB) was built up around the Resident, the Assistent-Resident (Assistant Resident) and the Controleur7 (Inspector). Alongside the European hierarchy functioned an indigenous one (Pangreh Praja) with the Regent at the top, the Wedana (district head) in the middle, and the Lurah (village head) at the bottom. Colonial policies were implemented sideways by communication between European and indigenous officials of comparable rank (Dick et al. 2002: 60, 115; Sutherland 1973: 54–93, especially 54–63).8 Daendels’ and Raffles’ attempts at reform strengthened the state and contributed to rising costs of the Dutch administration in Java. These increased expenses could not be met by the colony itself for the government’s finances in Batavia were in an alarmingly sorry state. The Dutch colonial possessions were causing a large annual deficit,9 whereas the financial position of the Netherlands in the aftermath of Napoleon’s defeat was equally bad, and deteriorating. Profit from Java became absolutely essential. (Creutzberg 1976: 16–17; Ricklefs 2001: 155; Van Baardewijk 1993: 11). How to achieve this? In line with the reforms, an interventionist state came to replace the personal fiefs of VOC officials, who had depended far more heavily upon the cooperation of the ruling indigenous elite. <UN><UN> <UN> prelude to rapid expansion (1800–1884) 23 26 See Boomgaard (1989: 42), Dick et al. (2002: 65–67), Elson (1996: 123–135), Leidelmeijer (1997: 27), Mack (2001: 74–90). 27 The impact of steam navigation and telegraphy on the conduct of Singapore’s entrepot trade as described by Wong Lin Ken (1960: 169–175) shows how revolutionary these changes were. He points out that the faster and more reliable transportation of bigger cargoes, in combination with quick transmission of commercial intelligence and orders changed the trading business fundamentally. Goods could now be bought and sold while they were in transit across the oceans and with the same capital firms could now engage in a larger volume of business. See also Tagliacozzo (2005: 77–82, 86–87). outcome was inevitable since the colonial state grew stronger towards the end of the nineteenth century. It could now introduce a new system of exploitation which heavily depended upon its ability to guarantee security of land, labour and property to private investors and entrepreneurs. These would henceforth be entrusted the task of growing profits from Java’s soil.26 Infrastructural Developments The dismantling of the Cultivation System together with the law changes of 1870 were of vital importance to the development of private enterprise. This process was encouraged by a number of revolutionary changes in transport and communication during the second half of the nineteenth century (Jonker and Sluyterman 2000: 194–196; Kallioinen 2004).27 Connections within the archipelago and between the Netherlands Indies and Europe intensified as a result of more reliable and faster communication services. In 1844 the transport of passengers and mail was improved by the opening of the so-called ‘overland mail’, enabling passengers to disembark in Alexandria and travel over land to Suez where another ship would be waiting. The journey from the Netherlands to the Indonesian archipelago was thus reduced from eighty to fifty days. The opening of the Suez Canal combined with the rapid development of steam shipping further reduced travel time to 40–45 days which also benefited the cargo trade (Hogesteeger and Tutert 1995: 27–49; Van der Meulen 2002: 355–361). In 1870 the Stoomvaartmaatschappij ‘Nederland’ (SMN) started to operate a regular steam shipping service between Amsterdam and Batavia, followed in 1875 by the Rotterdamsche Lloyd (RL) (De Goey 1991; De Goey and Van de Laar 1995: 40, 49). Towards the end of the century it took these companies little over a month to reach their destination. The advent of steam shipping saw a remarkable increase in speed, as well as volume and regularity. The steady improvement in connections inspired <UN><UN> <UN> 24 chapter two 28 See also www.theshipslist.com. 29 See Simons and Tophoven (1994) for a description of the detailed flow of information between a Dutch textile manufacturer and its trading representative in the Netherlands Indies during the period 1875–1881. On the same topic and company see Fischer, Van Gerwen and Winkelman (1991: 98–112, especially 101). The account of Fischer and Nordvik on the Norwegian shipbroking firm Fearnley and Eger is equally instructive. It describes how and at what cost information was gathered and, even more tellingly, how bar conversations and gut feelings often took precedence over the hard evidence that had been hunted so keenly (Fischer and Nordvik 1994: 1–29). 30 This was a common problem within colonial business conditions of the time. Effective supervision was difficult because of the distance which contributed to the independent attitude of agents and branch offices. newspapers, in the Netherlands and Java, to start printing mail editions as early as the 1850s in order to keep the general public as well as the business community informed about events in the colony and mother country (Hogesteeger and Tutert 1995: 51–80; Huijts and Tils 1994: 57–73; Termorshuizen 2001: 83–84). Within the colony the first private steamship lines connecting the islands of the Indonesian archipelago were introduced in 1850. This important service was provided by the British owned Nederlandsch- Indische Stoomvaart Maatschappij (NISM) from 1865 till 1890, after which the company’s operations were taken over by the Koninklijke Paketvaart Maatschappij (KPM) – a joint initiative of the SMN and the RL and strongly favoured by the colonial administration for being a Dutch enterprise (à Campo 1992: 40–74).28 With the support of the government the KPM managed to build up an intricate network of shipping lines covering the whole archipelago. In the process of doing so the company became inextricably linked to the ongoing Dutch territorial expansion and economic penetration of the Outer Islands (à Campo 1992: 215–220, 624–627; Cribb 2000: 141). Business life in the colony also received an impulse from the introduction of the telegraph. The year 1870 saw the establishment of the telegraph line Batavia-Singapore which hooked up with the already existing connection between Singapore and London. Though expensive, the telegraph was immediately recognized as an invaluable means of information gathering. By sending telegrams important business information concerning import and export data, price movements, market prospects and preferences, political developments, harvest estimates, debtors, bankruptcies, etc. could swiftly be exchanged and reacted upon.29 The ability to transmit orders and receive information in a short space of time also enabled firms in Europe to act more as principals and restrain the freedom of their agents and branch offices operating in Asia (Wong Lin Ken 1960: 173).30 <UN><UN> <UN> prelude to rapid expansion (1800–1884) 25 31 PU/BOW Library 2603. 32 A concise history of railway development in the colony is given by Veenendaal (2004). Ten Horn-van Nispen (2004) has covered the neglected topic of road development. 33 During the period 1875–1905 total colonial expenditure on infrastructural improvements amounted to f 181 million on railways, f 36 million on harbours and f 59 million on irrigation works (Diehl 1993: 198). In 1870 there were as many as 35 telegraph offices spread all over Java. The rest of the colony was less well served with only 5 offices operative in South Sumatra at the time. The same applied to the postal services with 71 post offices in 1870 throughout Java against a total of 17 offices in the Outer Islands.31 Railway development during the late nineteenth century was confined to the island of Java and Sumatra. The first railway track was constructed in Central Java in 1873 and by 1894 it was possible to travel by rail between Batavia and Surabaya. With regard to roads Java could boast approximately 24,000 km of roads in 1903 against almost 13,000 km of roads in the rest of the archipelago (Cribb 2000: 140).32 These figures show that Java’s infrastructure was developing fast during the last quarter of the nineteenth century and it is therefore hardly surprising that the island proved to be the breeding ground of private entrepreneurial initiative after 1870.33 This is illustrated by the fact that Java accounted for almost 80% of all exports leaving the colony in 1894. Only in the second half of the 1890s exports from the Outer Islands began to grow faster than exports from Java (Dick et al. 2002: 102; Lindblad 1989c). The Resilience of Private Enterprise Private enterprise did not operate under favourable conditions before 1870. This does not mean that the government monopolized the colonial economy. Cultivation System and private enterprise did not exclude each other as shown by the astonishing development of Java’s cane sugar industry. Here state initiative and private entrepreneurship complemented each other, making it the second largest in the world after Cuba (Bosma 2005: 3–7, 27; Knight 1993: 7–12; Leidelmeijer 1997: 23–24, 260–261, 276– 278). Private enterprise did not disappear, although its progress can be dated no earlier than 1850 (Anderson 1983: 489). Government and private exports already equalled each other in value in 1860, but it would take another 20 to 30 years for the private sector to start pulling the weight of the economy. By 1885, the value of private exports was ten times higher <UN><UN> <UN> 26 chapter two 34 See Van den Berg (1907: 113), Booth (1998: 24, 85), Dick et al. (2002: 69–70), Korthals Altes (1991: 13–16). 35 Unfortunately, the history of the small Armenian (business) community in the Netherlands Indies remains to be written. The National Archive in The Hague houses the collection Joseph which contains the raw material for such an endeavour (NA/Collection Joseph, especially No. 4 and 10). 36 Most Dutch ventures persisted in following the methods dating from the times of the VOC. Thereby, a ship would be equipped with the goods the Dutch had to offer for export; usually victuals, garments and luxury items for the European population of the colony. Once the harbour of destination was reached, the cargo had to be sold and the search for return freight commenced. If competitors had been there recently, demand and supply frequently did not match and chances were great that the partners in these ventures had to take a loss, or were forced to abandon the trading business altogether (Mansvelt 1924: I 43–44). than that of the government (Furnivall 1939: 168–169). Still, it was the Cultivation System that put Java on the map as a major export economy. The period 1830–1870 saw increases in both the volume and value of exports from Java. This export growth continued till the 1870s and was accompanied from 1850 onwards by a rapid monetisation of the economy.34 Trading Enterprise Resurfacing Commercial activity in the colony revived after the administrations of Daendels and Raffles had ended. Apparently there was still an extensive field of operation for the various trading companies. Under the British, and right after the return of the Dutch, several trading companies and a number of plantation companies were established. The former mainly in Batavia, but also in Semarang and Surabaya. The latter primarily in the Javanese principalities. In 1816 Batavia counted ten European (English and Dutch) and three Armenian trading companies,35 while Semarang and Surabaya had three European trading companies each (Booth 1998: 253; Van Enk 1999; Van den Berg 1907: 274, 276). This initial period involved much pioneering – characterized to a high degree by trial and error – since a more institutionalized environment was lacking. Many Dutch trading-companies were established, but most collapsed after only a few years in business (Mansvelt 1938: 3, 12).36 Especially, since their competitors – above all of British origin – were in a much better position to bargain. After all, the Dutch had been virtually cut off from the colony for about 20 years from 1795 till 1815 (Gaastra & Emmer 1977: 280; Oosterwijk 1996: 35–36, 47). In the meantime, British trading firms <UN><UN> <UN> prelude to rapid expansion (1800–1884) 27 37 For instance, in 1823 the English trading firm Thornton in Batavia invariably succeeded in persuading the Chinese to buy its imported textiles by offering lower prices and longer credits. The head of the company, the widow Mrs. Thornton, was said to have an extraordinary command of dealing with the Chinese. According to the author of these lines, this required intimate knowledge of the Chinese character traits (Godée Molsbergen 1936: 7). 38 According to Mansvelt, the British managed to make profits of about 100% to 150% on their exported textiles (Mansvelt 1924: I 54). 39 See Bosma (2005), De Bree (1928–1930: I 79, 145, 168), Mansvelt (1938: 5–6, 10–12), Stevens (1982: 203, 207–215), TNI (1842: I 218–219). 40 Of the 222 Europeans registered as merchant in Java between 1819–1823 only 17% had been born in the Netherlands, whereas 25% originated from England, Ireland and/or Scotland (Bosma 2005: 11). had acquired great knowledge about the indigenous markets, and established many trading connections.37 In the case of Java, British exports were aimed at the indigenous population. This huge market had infinitely more possibilities than the much smaller European one. Backed by a massive industrial output – ensuring a steady supply of cotton cloth to cater for a growing indigenous demand – profits accrued,38 allowing the British to bid higher prices for return freights. Upon the restoration of Dutch power in Java, British commercial houses commanded the trading business. In addition to English and Scottish trading firms, there were American and to lesser extent Armenian and Arab companies active. In the 1850s, these were supplemented by a number of German traders. Foreign traders would retain their prominent position in the Netherlands Indies at least until 1860, although their relative importance did diminish gradually.39 Tables 2.1–2.4 document the dominant position of foreign trading companies at least until 1840. Between 1817 and 1828 foreign traders on average accounted for approximately 60% of the total number of trading firms active in Batavia.40 This percentage rose to 66% of all trading companies operating in Batavia during the period 1829–1840. The situation in Surabaya and Semarang between 1829 and 1840 was more balanced with foreign businesses accounting for 53% and 48% of all trading enterprises. Batavia was the colony’s undisputed centre of trade. On average there were 41 trading companies active in Batavia during the period 1829–1840 against 17 in Surabaya and 14 in Semarang. The Dutch element within the trading business remained significantly smaller (40%) than the foreign one (60%) for the period studied (Mansvelt 1938: 6). Naturally, the Dutch were not very comfortable with this situation. A number of restrictions were therefore proposed to hinder foreign trade <UN><UN> <UN> 28 chapter two Table 2.1. Trading companies in Batavia (1817–1828). Total Foreign Dutch %1 1817 14 9 5 36 1818 14 8 6 43 1819 – – – – 1820 13 5 8 62 1821 16 12 4 25 1822 21 13 8 38 1823 24 17 7 29 1824 26 17 9 35 1825 44 27 17 39 1826 40 24 16 40 1827 28 13 15 54 1828 27 15 12 44 1 The percentage of Dutch trading companies compared to the total number of trading companies. Table 2.2. Trading companies in Batavia (1829–1840). Total Foreign Dutch %1 1829 36 26 10 28 1830 36 26 10 28 1831 33 24 9 27 1832 38 24 14 37 1833 41 27 14 34 1834 43 28 15 35 1835 44 29 15 34 1836 44 29 15 34 1837 52 35 17 33 1838 45 29 16 36 1839 41 25 16 39 1840 39 22 17 44 1 The percentage of Dutch trading companies compared to the total number of trading companies. <UN><UN> <UN> prelude to rapid expansion (1800–1884) 29 Table 2.3. Trading companies in Semarang (1829–1840). Total Foreign Dutch %1 1829 13 9 4 31 1830 13 9 4 31 1831 14 9 5 36 1832 14 9 5 36 1833 15 5 10 67 1834 15 5 10 67 1835 15 4 11 73 1836 15 4 11 73 1837 13 6 7 54 1838 13 6 7 54 1839 17 9 8 47 1840 14 6 8 57 1 The percentage of Dutch trading companies compared to the total number of trading companies. Table 2.4. Trading companies in Surabaya (1829–1840). Total Foreign Dutch %1 1829 14 5 9 64 1830 14 5 9 64 1831 18 9 9 50 1832 18 9 9 50 1833 18 9 9 50 1834 18 9 9 50 1835 23 13 10 43 1836 21 13 8 38 1837 15 8 7 47 1838 15 8 7 47 1839 17 11 6 35 1840 14 10 4 29 1 The percentage of Dutch trading companies compared to the total number of trading companies. Source: Mansvelt (1938: 5). <UN><UN> <UN> 30 chapter two 41 Mansvelt (1924) and De Graaf (2012) are the standard works on the NHM in the nineteenth century. The preamble to the inventory of the NHM archive provides a welcome introduction (in Dutch) to the company (Wimmer and Tempelaars, 1998). and encourage Dutch trading enterprise. The principal aim was to favour imports from the Dutch textile industry (including the important Belgian one until the Belgian revolt in 1830) at the expense of the English (Korthals Altes 1991: 28; Van den Berg 1907: 277–279). From 1818 trade to and from Java was placed under tight control. Batavia became the exclusive port of entry for imports, while exports could only be shipped from Batavia, Semarang and Surabaya. A system of differential duties was levied whereby Dutch imports and/or ships had to pay significantly less than their foreign counterparts. In 1823 the immigration law was sharpened while travel and residence regulations became severely restricted. In addition, land could from now on only be rented or bought by the indigenous population, Dutch citizens and Chinese born in the colony (Bosma 2005: 5–6, 27; Dick et al. 2002: 70; Stevens 1982: 191–195). Other measures were taken as well. In August 1818 samples of textiles favoured by the Javanese and Sundanese were sent to traders and manufacturers in the Netherlands. The following month a goods exchange (De Bataviasche Beurs) was established in Batavia, and merchants met for the first time in their own building. Slowly, an economic framework started to emerge (Van den Berg 1895: 1599–1604; De Bree 1928–1930: I 129– 131; Koch 1916: 15–16). The Moulding of an Economic Framework: NHM and DJB It would take the establishment of the Nederlandsche Handel-Maatschappij (NHM) in 1824 and De Javasche Bank (DJB) in 1828 to create an economic institutional framework in the Netherlands Indies. The founding of the NHM was preceded by years of discussion.41 After the bankruptcy of the VOC the idea of concentrating trade in the hands of one enterprise was never completely abandoned. The strong support of King Willem I – who acted as guarantor and participated for several million guilders – led to the birth of the NHM in March 1824. Amid great public attention f 37,000,000 was raised which placed the company on a solid financial footing (Mansvelt 1924: I 64–73; Wijtvliet 1989: 97). Soon, the NHM became a large, Amsterdam-based commodity trading conglomerate. <UN><UN> <UN> prelude to rapid expansion (1800–1884) 31 42 Mansvelt’s comment is misplaced since Chambers of Commerce did not exist in the Netherlands Indies at the time of the NHM’s establishment, although De Bataviasche Beurs (1818–1827) can be considered a forerunner. The colonial government established Chambers of Commerce in Batavia, Semarang, Surabaya, Makassar and Padang in 1863. They represented all those participating in industry and trade, but also acted as an official source of information for the authorities (Koch 1916). From 1830 NHM operations included the shipment and sale of the Indies government’s share of the output of the Cultivation System. This agreement saw the Government acting as a mega-producer and the NHM as its agent and provider of working capital. In return, the NHM was commissioned to transport and sell the yields in the Netherlands (Wijtvliet 1989: 97; Knight 1993: 10). The first decades of the NHM’s existence were dominated by this symbiotic arrangement between the government and the company. This relationship was not seriously questioned until the 1870s and it took another decade to set out a new course. In April 1884, the statutes of the NHM were altered and activities shifted from trading to banking (Wijtvliet 1989: 116). This marked a deviation from the NHM’s original goals. Its initial purpose was threefold: it would not only take over the government’s trade with the Netherlands Indies, but also act as a general Dutch export/import organization, and – interestingly – serve as an information centre, both domestic and foreign. Two arguments supported the last task. First, inadequate knowledge was generally perceived as one of the most serious shortcomings of the Dutch trading community. Second, Willem I also aimed at a reduction of expenditure and hoped to achieve this by letting the NHM take over the costly task of gathering economic and political information, normally undertaken by the government itself through its consulates (Mansvelt 1924: I 84–85). The incompatibility of these tasks soon became apparent. When collecting information the NHM would naturally find the different Chambers of Commerce (Kamers van Koophandel) on its path.42 However, information from these institutions could be doubted since they were headed by entrepreneurs who might well be among the NHM’s competitors in its capacity as a commercial trader. In addition, how plausible was it for the NHM to extend credit to other trading companies? Private traders would love to profit from the financial resources and expertise of their competitor. However, for the NHM to survive as a trading company competition with these same traders was inevitable (Mansvelt 1924: I 104–107). It is not surprising that the NHM failed to fulfil all of its original tasks. But, it soon <UN><UN> <UN> 32 chapter two 43 Ten Brink & Reynst had been founded upon the instigation of the well-known Rotterdam ship-owner and trader A. van Hoboken. After several disappointments with business relations in the Netherlands Indies, Van Hoboken had realized that a more institutionalized form was needed to serve his purposes, in order “[…] to make sure from now on in whose hands my business comes to rest […]” (Godée Molsbergen 1936: 6). To establish a permanent representation he founded a new trading company in Batavia and sent one of his employees, C. ten Brink, to Java. Together with S.C. Reynst, he would head the trading company Ten Brink & Reynst as of 1821. After the death of Reynst, two new associates, M. Reynst and G. Gijsing, were brought into the company in 1823 which had its name changed into Ten Brink, Reynst & Gijsing. With the repatriation of Ten Brink and Gijsing in 1836 and the inclusion of A.A. Vinju as an associate in the firm, the company was transferred into Reynst & Vinju. Under this name the company became one of the most renowned Dutch trading companies in the Netherlands Indies. became one of the largest Dutch colonial enterprises in trade and finance under the direction of the Factorij, its head office in Batavia. The founding of DJB in 1828 had been long overdue. The need for better credit facilities and monetary reform had been voiced frequently (Boomgaard 1996: 492–493). The shortage of cash was a continuous hindrance to all including the NHM (Mansvelt 1924: I 191; Van den Berg 1907: 126). The money circulation consisted largely of copper coins which led to the following outburst by a Batavian businessman in 1827: “[…] just now some cartloads of copper money are stopping in front of my door, the verification of which will keep me busy the remaining six hours of this day. This money is coming from a Chinese debtor, of whom I have demanded payment for a long time to no avail, and who is offering me copper money at this time […] in the hope, that I will reject him, and that he will profit from this rejection later on” (De Bree 1928–1930: I 165). The trading companies did not have sufficient working-capital at their disposal, and as a result traders tended to vouch for colleagues. In the 1820s, an inextricable mutual dependency had thus evolved which threatened to bring the trading business to a halt (Mansvelt 1924: I 191; De Bree 1928–1930: I 169). Candidus ten Brink, an associate in the Batavian trading company Ten Brink & Reynst,43 would write in 1823: “It is impossible to form an opinion concerning solidity [financial soundness] in a colony, if one has not been there; everyone vouches for one another […] In this way someone without a penny in the world, buys houses, estates, etc.” (Godée Molsbergen 1936: 6). Although the urgency of the situation was generally acknowledged, years of fruitless discussion and different proposals went by before anything happened (De Prins 2002: 126–136). In 1825, once again upon the instigation of King Willem I, the first preparations for the establishment of a circulation bank were finally made. This bank would have to put the <UN><UN> <UN> prelude to rapid expansion (1800–1884) 39 shortage of funds had compelled Djauw Adjiem to turn to the NHM, or abandon his ambitious plans. He offered to consign the agricultural produce of his lands to the NHM in 1856. Schill envisaged a profit of f 30,500. He did make several reservations, but concluded positively by stating that the NHM would benefit greatly from the contract with interest amounting to f 10,000. Although the report does not tell us whether the NHM actually closed the deal with Djauw Adjiem, it shows the considerations both parties had to make. The trader – in this case the NHM – had to weigh the pro’s and cons carefully. One of the tools at his disposal was a thorough investigation of the undertaking. In doing so, he would be able to find out what kind of working methods were used. At the same time, the client could be met, enabling an better assessment if and how much trust should be placed in him. This is exactly what Schill did. Conforming to the general opinion of Europeans in the colony, his attitude towards Chinese businessmen was ambivalent. In his report, Schill expresses a genuine sense of admiration for Djauw Adjiem’s entrepreneurship. He characterizes him as an experienced landowner, a man of diligence, equipped with a spirit of enterprise and in possession of exceptional drive. Djauw Adjiem is praised for his tenacity and sobriety when compared with the lavish life styles of other Chinese. However, Schill also expresses substantial critique. He comments for instance on the lack of tidiness, neatness and – above all – orderliness around the living quarters of Djauw Adjiem and his Chinese employees. Other shortcomings and weaknesses of Djauw Adjiem’s business manifest themselves most clearly in the administration of the enterprise. No statistics concerning the cultivated areas and the sugar production are available. Djauw Adjiem cannot say how much sugar cane is planted since the cane fields are of unequal size. Likewise, no records are kept of the amount of cane milled every year. Schill regrets the fact that Buchanan is not present at the time of his visit to the factory, depriving him of the chance to learn more about the efficiency of production. Like his Chinese supervisors Djauw Adjiem can only give him either partial or unclear answers to his questions regarding the quality of the syrup, the speed of the process, etc. Again, no records whatsoever are kept. Nevertheless, Djauw Adjiem was not an absentee landowner. He took charge of business himself and supervised the work of his lands on a routine and daily basis. He would leave for Batavia once a month, to see a head administrator in charge of the arrival and delivery of the products. He would stay for two days to conduct his business and then return home. <UN><UN> <UN> 40 chapter two Djauw Adjiem resided in his house at the sugar factory Tjicarang. This western part of his lands had been in cultivation for a short time. The development of new ground was still in process and in constant need of his attention. Djauw Adjiem had therefore split the supervising structure of his enterprise. Both parts centred around one of the sugar factories and were of identical make-up. These two structures consisted solely of Chinese whose upkeep was taken care of by Djauw Adjiem. A head supervisor was in charge assisted by Chinese subordinates, who were supervisors in their own right. Below the supervising level there were mandur (caretaker or overseers), both Chinese and Javanese. The latter were needed to maintain contact with the population and worked closely together with the indigenous heads of the different villages. However, the mandur supervising the work on the fields would be Chinese again. Besides these supervisors, there were bookkeepers and clerks present at each factory. Schill did not think very highly of them. The specifications he was given by them lacked clarity, and did not contain the information to compile much needed statistics. The administrators just focused on the totals and neglected the details. Schill summarized his critique in the following lines: […] both in cultivating and manufacturing the sugar, there is a lack of a systematic working method, the observance of which combined with a European management, would soon see these lands a source of treasures. We will never know how far Schill’s judgement was removed from the realities of Djauw Adjiem’s business life. He spent only three days collecting the necessary information for his analysis. Lack of time usually turned any decision or recommendation into a blend of rational decision making and gut feeling. Caution and prudence would therefore have to be key words in the mindset of the trader. In general, the growth of inland villages followed the foundation of plantations and was actively promoted as Djauw Adjiem did. This led to a rising demand for imported goods. From the middle of the nineteenth century an increase in the number of markets within the vicinity of plantation and village accompanied these developments. The landowner – as personified by Djauw Adjiem – took an active part in this process, in order to tie more people to his land for labour recruitment purposes, while at the same time recognizing the new business opportunities accruing from providing facilities to them (Lohanda 1996: 206; Suhartono 1994: 180). This process gained momentum by the rapid monetization of the economy encouraged by the plantations’ wage system (Booth 1998: 19, 85; <UN><UN> <UN> prelude to rapid expansion (1800–1884) 41 59 NA/NHM 5279 No. 47: 25. 60 NA/NHM 5279 No. 47: 32. 61 Cina klontong was the common name used for pedlars of Chinese descent. Together with their Javanese counterparts their activities constituted the end of the distribution chain. 62 25% in the case of British textile imports imposed as early as 1824/25, and 50% for Belgian imports after the country became independent in 1830 (Mansvelt 1924: I 201, 289). Suhartono 1994: 180–184). The establishment of an export industry in rural areas led to an increasing commercialization of country life. The insufficient money supply, however, was a severe hindrance (Booth 1998: 24). Schill wrote that the future development of Djauw Adjiem’s business ventures depended on his ability to acquire sufficient cash, enabling him to give advances to the people living on and from his land.59 Schill’s calculation of Djauw Adjiem’s cash needs for 1856 clearly shows the urgency of a steady money supply. f 120,000 (approximately 75% of the total amount of f 161,500) was booked under the heading advances.60 With the years going by, it was increasingly difficult to balance rising demand with the money in circulation (Suhartono 1994: 180). The solution for the indigenous population was to pay for goods in instalments. The pedlars and hawkers roaming the country side were prepared to sell goods on credit (mindering in the vernacular of those days), since they realized that a constant flow of money to the villages was guaranteed by the payment of cash wages on a regular basis. Of course, they would charge heavily for this service. Printed cotton and cloth were consistently in highest demand with the Principalities among the biggest consumers. The distribution of merchandise was overwhelmingly in the hands of Chinese middle men traders. The textiles in Central Java were marketed via Chinese traders and/or shop-owners in Semarang and would pass from retailer to retailer in the smaller towns, until they arrived in the smallest of villages to be sold in shops (so-called warung) and by Cina klontong (Suhartono 1994: 179–181).61 The Dutch and indigenous side of the economy were linked by this long chain of Chinese tradesmen. The resulting relationship between the Chinese and Dutch – fostered by both sides – had been a common feature since the days of the VOC (Knaap 1996: 141, 176–177; Nagtegaal 1996: 232). So common, that it gave birth to the expression ana Landa ana Cina, to be translated as: Where there are Dutchmen, there are Chinese (Suhartono 1994: 179). For decades the NHM had been at the beginning of the textile import chain, thanks to a highly artificial construction. The company was aided by heavy import duties on foreign textiles62 and the establishment of a <UN><UN> <UN> 42 chapter two 63 Initially, private enterprise had the upper hand. The textile manufacturers in Twente turned away from the NHM since private traders managed to market their products more profitably because of their expertise and better knowledge of local circumstances ([Internatio] 1938: 15; Brugmans 1963: 72). 64 The following section is based upon a NHM-report: NA/NHM 5279 No. 50. 65 NA/NHM 5279 No. 50: 12. textile manufacturing industry in the Twente region in the Netherlands after the Belgian secession from the Dutch kingdom in 1830. The government supported the fledgling industry by creating an artificial outlet for its products in the Netherlands Indies. At a stroke of the pen, the decision was made to double the export of textiles to the colony, and the NHM was granted the first contract in 1835 (Mansvelt 1924: I 201–203, 284–290; Wijtvliet 1989: 97). In December 1854 the last contractual arrangements of this kind between the government and the NHM came to an end. From 1855 onwards, the NHM traded textiles in competition with private enterprise (Mansvelt 1924: II 271, 173).63 This was hardly considered a shock as the NHM had revised its strategy a few years before. As a result the company had come to focus more on the export trade. However, it did not abandon the import trade altogether. The protected export of textiles from the Netherlands by the NHM had been very lucrative for decades. It took the NHM some time to come to terms with this new situation. Serious difficulties were encountered along the way, as shown by the following example of the Semarang agency which ran into trouble in 1856. The Default of Ho Kong Sing In August 1856 Th.F. Schill travelled to Semarang to help solve the problems of the local NHM-agency after the default of the Chinese textile trader Ho Kong Sing.64 When confronted with the situation, his verdict of the agent’s behaviour was harsh: To my mind, the agent has acted in this matter against all the rules of caution & good order, contrary to the principle upheld by the Factorij […] not to extend any more credit to debtors before their arrears are settled.65 Before sailing to Semarang Schill had studied the monthly debtors’ survey of the Semarang agency and the correspondence regarding Ho Kong Sing’s payments schedule. In Semarang he analyzed the agency’s books and questioned the NHM-agent thoroughly. After his return he wrote a detailed account of thirty pages which related the downfall of Ho <UN><UN> <UN> prelude to rapid expansion (1800–1884) 43 66 It can be assumed that he must have been in business some time before 1845. Around that time, he donated f 2,000 for the building of the first Chinese Council office in Semarang: Kong Tik Soe. The large amount, and the fact that he is listed among the main donators out of a total of 123 is indicative of a respected position within Chinese business life and society (Liem 1933: 107). Kong Sing, and was equally informative on the import trade in general. His description supports the commonly held view that Dutch and Chinese traders were condemned to each other. From a business perspective, they were not able to live with or without one another. The first sign of problems with the Ho Kong Sing account dated from July 1855. It remains unknown when Ho Kong Sing had become a client of the NHM, or how long he had been active in the trading business.66 Considering his reputation within the Semarang trading scene, it must have been a substantial period. This seems all the more likely, since it was his son Ho Tiang Tjay – acting under his name and on his behalf – who conducted the family business. Ho Kong Sing, old and blind, had originally ventured into the rice and gambir trade, and had invested part of his profits in real estate. But, the fortunes of the family had dwindled considerably in the recent past. According to Schill the property had already been put up as security and the outstanding assets hardly possessed any real value. Ho Kong Sing’s trade in gambir and rice was directed towards the interior. In the last quarter of the eighteenth century the economy of Central Java had come to specialize in agricultural production. Its produce was destined for the internal market of the island, or perhaps the interinsular trade (Knaap 1996: 174). Although the advent of the Cultivation System had transformed both the production and trading system, a substantial portion of Java’s agricultural production was still intended for internal consumption. With a population of approximately 9,5 million around 1850 (Boomgaard 1989: 166) demand for all sorts of products was high. This market seems to have been served almost exclusively by Chinese merchants travelling into the interior. According to Knaap the Chinese presence in trade and shipping was felt particularly strongly in West and Central Java (Knaap 1996: 130, 176). Ho Kong Sing’s business operations thus fitted a well-established economic pattern. Schill’s informative account allows a closer look at the ins and outs of Chinese business. Ho Tian Tjay, granted power of attorney by his father Ho Kong Sing, had associated himself with his brother Ho Tiang Yam and his uncle Ho Kong King. In the customary fashion of Chinese business <UN><UN> <UN> 44 chapter two 67 The term kongsi is used to indicate a business partnership, i.e. a co-operative organization in which arrangements have been made for the pooling of resources for business purposes only (Somers Heidhues 1992: 37–39; Wu Xiao An 1999: 24; Yuan Bingling 1998: 3–7). According to Vleming kongsie in a more literal sense means the management (sie) of the common property or common cause (kong) (Vleming 1926: 56). 68 This decision was not given much publicity. There was no secret clause regarding this provision, but it was deliberately drawn up in rather obscure and vague terms to avoid attention (Mansvelt 1924: I 296–297). entrepreneurs they had formed a kongsi67 which served the purpose of pooling resources and spreading the risks of trading enterprise. Other business schemes were left untouched by this agreement. Schill’s report does not provide specifics, but makes it clear that all three were indeed involved in other business ventures. The Ho kongsi could only thrive by having enough capital at its disposal. The kongsi’s clientele in the Javanese heartland – smaller retail traders, hawkers, and/or the Javanese population – would all buy on credit, as we have seen from the case of Djauw Adjiem. As a result income and expenses did not match and required time to balance out. Capital was needed to cover the intermittent period. This problem was solved by shifting the burden to the supplier. Intermediate traders would ask for credit when purchasing goods. Since the wholesaler wanted to get rid of his stock, he usually had no other option but to consent. The Ho kongsi applied two strategies to maintain a sufficient level of liquidity. It made use of the opportunities offered by the colonial government with regard to the import of gambir. The law allowed for payment of customs duties at a later stage which gave the kongsi more financial scope. The three members had each been awarded a credit of f 30,000 by the Semarang customs office. (On average the Ho kongsi had been indebted for amounts of f 50,000 to f 60,000.) Unfortunately, this arrangement was gradually phased out and abandoned in September 1855. This left the kongsi with only one way of meeting its cash requirements, i.e. by using the cash advances of the NHM. The main reason for the associates to purchase cotton cloth from the NHM had been the flexible delivery conditions which required payment after only 2 to 4 months. Lacking connections and expertise, the NHM had no intention of entering the intermediate trade. As a wholesale organization it could not be bothered with small sales on the local market, and it preferred to entrust Chinese middlemen with the sale of the product. The NHM could afford to offer generous payment conditions because of its special position in this particular trade. The contracts concluded with the government not only exempted the company from tax levies,68 <UN><UN> <UN> prelude to rapid expansion (1800–1884) 45 69 Van Soest describes how Dutch traders in Semarang exploited these opportunities to the detriment of the NHM. It was supposedly Schill that put an end to these practices (Van Soest 1888: 314–315). but also stated that possible losses would be redeemed by the Ministry of Colonies on annual basis to a maximum of 12% of the invoiced value (Mansvelt 1924: I 288–289). NHM’s generous credit extension and the opportunities this offered, had been recognized early on.69 The NHM, neither willing nor capable of competing in the local trade, put out its merchandise to Chinese middlemen in the expectation that they had access to the consumer market. The Ho kongsi, among many others, reacted by purchasing large quantities of textiles on credit. The entire supply would then be sold immediately, often below its market value. The cash earned could be used for other purposes before having to pay back the first instalment (Blussé 1986: 71). Thus, the trade in textiles did not constitute the core business, but enabled more profitable speculations in gambir and rice. The amount of cash needed to keep the kongsi’s business going depended first of all on the conditions upon which it had extended credit to its own customers. These conditions had been too generous and on too large a scale in the case of the Ho-kongsi. Caution and prudence should have ensured that close attention was paid to these credit conditions. However, the kongsi had fallen into what Schill considered the pitfall of Chinese business mentality. It had operated too speculatively and not exclusively on the basis of perceived profit. Keeping a high profile to uphold a distinguished status and reputation within (Chinese) society had clouded the judgement of the kongsi members, and made them act without thinking. There was no consequence as long as the ready procurement of capital was guaranteed. But with the ending of government credit facilities at the customs office, the availability of capital was curtailed. This hurt the traders’ ability to pay the instalments upon their expiry dates. Ho Tian Tjay as well as his uncle Ho Kong King immediately ran into trouble. With the gradual reduction of their import credit in the months before September 1855, they experienced difficulty in meeting their obligations at the NHM- agency. The problems were aggravated by the scale of their commitments. From July to September 1855 each was indebted to the agency for over f 100,000. The agent was reluctant to act immediately, since both men were his biggest customers. Convinced of their solidity he waited until October before deciding to suspend credit until the arrears had been settled satisfactorily. This was achieved by both in the first months of 1856. <UN><UN> <UN> 46 chapter two 70 His name was found spelled in a variety of ways, e.g. Tan Tjang Toen, Tan Tjong Toen, Tan Tjang Taen, etc., but most commonly as Tan Tjong Thoen (NA/NHM 5279 No. 50). 71 Traces of individuals with the family name Tan can be found in Java as early as 1737, where they were active as professional seafarers and/or itinerant traders (Ng Chin-Keong 1991: 373–377; Hoetink 1917: 371–372; Hoetink 1922: 90). The ‘Tan network’ in the production and trade of salt in Central and East Java from the 1760s till the 1790s offers an interesting example of ‘Tan presence’ in this area. Acting as captain of Semarang (Tan Janko, Tan Leko and Tan Jokko), Surabaya (Tan Tinlo) and Gresik (Tan Singko) these men successfully managed to monopolize profits accruing from this commodity (Knaap 1996: 76–77, 124, 142; Knaap & Nagtegaal 1991: 142–143, 154; Liem 1933: 48–53; Kwee Hui Kian 2006: 164–165; Ong Tae Hae 1849: 23–24). Somewhat later in time, the Be family attained an extremely powerful position as well which owed a great deal to their connection and eventual partnership with the Tans (Rush 1990: 93). 72 The first member of the Han family to be appointed captain of Surabaya in the eighteenth century was Han Bwee Kong (1727–1778). The help of his future father-in-law – who happened to be a Tan – might have contributed to his achievement. The rise to power of both families in their respective bulwarks Semarang and Surabaya came about at more or less the same time (Kwee Hui Kian 2006: 165–166; Salmon 1991: 62). 73 NA/NHM 5279 No. 50: 3. However, Ho Kong King went bankrupt in April 1856, offering his creditors a settlement of 70%. Ho Tian Tjay managed to stay in business by associating himself with his brother-in-law Tan Tjong Thoen.70 In doing so, he assured himself of the help of the powerful Tan family. The Tan and Be clans were the most prominent in business in Central Java, while wielding considerable power and influence in parts of East Java as well.71 The stronghold of the Tan network was Semarang, where they had assumed social and political prominence in 1761 and retained the most important positions for over a hundred years. In Surabaya they had to content themselves with playing second fiddle to the Han family that dominated the local Chinese communities in East Java till the end of the nineteenth century (Rush 1990: 93; Salmon 1991: 78–80; Willmott 1960: 150).72 Tan Tjong Thoen was the black sheep of the family. Schill did not mince words, when he contrasted him with his very successful younger brother Tan Tjong Hoay (to be appointed Mayor of the Chinese in Semarang in 1860). Tan Tjong Huay is a solid Chinese, who appears to be doing the work alone, whilst Tan Tjang Taen does little or nothing, is addicted to opium and consequently more or less stays under the discipline of his family.73 The NHM-agent in Semarang nevertheless continued forwarding textiles to Ho Tian Tjay as long as Tan Tjong Thoen acted as guarantor which he did for a total amount of f 210,000. The agent was encouraged by the Factorij, who wrote at the end of 1855 that it would leave matters gladly to <UN><UN> <UN> prelude to rapid expansion (1800–1884) 47 74 BI/DJB 28 No. 113: 315. his discretion because of his better knowledge of local circumstances. Besides, it was feared that the agency’s most important customers – i.e. Ho Kong Sing and Ho Kong King – would leave when restricted in their purchasing. This would have been problematic since NHM-sales of textiles in Semarang had come to a near standstill. The NHM-agent thereupon decided to allow Ho Tian Tjay credit after he had settled his arrears in January 1856. By April 1856 Ho Tian Tjay was again in debt for f 94,000. From February onwards rumours started to circulate in Batavia about the unhealthy Semarang trading business. In the eyes of both DJB and the Factorij too much credit was being extended to Chinese retailers. Warnings were issued to be careful and not to deviate from the existing rules and regulations.74 As said Ho Tian Tjay’s kongsi partner Ho Kong King defaulted in April 1856. This had its repercussions for Ho Tian Tjay’s reputation of reliability. Rumours circulated that he was in desperate need for money to sustain his business. He usually obtained ready cash by buying textiles on credit and selling them cheaper when paid for in cash. Apparently this method no longer sufficed. Merchants became more and more wary about their commitments with Ho Tian Tjay and slowly started to restrict his credit. Except for the NHM-agent who trusted the connection with the Tan family. This connection seemed even more solid after 19 May 1856 when Tan Tjong Thoen formed a kongsi with Ho Tian Tjay. In May and July the agent allowed delivery of textiles worth over f 50,000 on credit, although the kongsi had already failed to pay two accounts upon their expiry dates. More worrying was the omission of Tan Tjong Thoens signature on the contracts from 1 July onwards. In all likelihood Tan Tjong Hoay had discovered his brother’s irresponsible commitments and had forced him to refrain from any further commitments. On 29 July he took possession of the undivided inheritance of their father and dissolved the business association between himself and his brother. Tan Tjong Thoen sought refuge in all kinds of delaying tactics; even pretending to suffer from an illness after 29 July. In the first week of August a creditor of the Ho kongsi – the Semarang-based trading company Veeckens & Co. – threatened to take legal action unless the required signatures were given. No positive response followed. Deprived of his brother-in-law’s financial backing Ho Tiang Tjay defaulted. <UN><UN> <UN> 48 chapter two 75 Not counting the other creditors, whose likely existence could not be ascertained (BI/DJB 28 No. 141: 336). 76 Tjoa Gian had been a client of the NHM in Semarang well before 1849 (NA/NHM 5279 No. 50: 20–21). The result of all this was the immediate introduction of a system of payment by cash only. Schill strongly approved of this measure and saw its justification in the likelihood of other defaults. In his view Chinese were often so deeply involved in each others businesses that other parties could turn out to be implicated in the Ho Kong Sing case. He acknowledged that a temporary decline in sales might occur, but was convinced that the more reputable traders would keep coming since textiles would remain in demand. Schill’s arguments proved to be right. Without credit sales the Chinese textile trader Tjoa Gian had to suspend payment. Although his business had been relatively small the accumulated debt was considerable: f 14,000 in the case of DJB and f 28,000 in the case of the NHM.75 He had also based his speculative trade in rice and other products as well as his commercial activities in the interior upon the cash flow realized with textiles bought from European traders. The credit facilities had allowed him to stay in business for years.76 Again, the prolonged trust of the NHM-agent in his creditworthiness had sufficed for a continued extension of credit. In the end Schill was not very hopeful that satisfactory settlements could be reached. He reckoned that Ho Tian Tjay might repay 60% of his debt at the most, whereas Tjoa Gian could probably do no better than 35%. After reassessment the latter’s outstanding assets – though looking quite promising on paper – proved to be worth only 20% of total debt. The only positive aspect were two mortgages the NHM-agent had demanded as additional security in 1849. On paper, these were worth approximately f 7,000. Schill was in favour of allowing Tjoa Gian’s friends time to pay for them since he feared collusion by the Chinese at a public sale whereby the houses would be sold at giveaway prices. If the amount of f 7,000 could be retrieved, 50% of Tjoa Gian’s debt to the NHM would be repaid. The remainder, however, could not be counted upon and would have to be written off. Djauw Adjiem’s and Ho Kong Sing’s business cases show that private enterprise during the Cultivation System was very much alive. Entrepreneurial activities crossed ethnic divides since they were governed by principles of profit and driven by competitive strength. However, private enterprise in Java in the middle of the nineteenth century faced numerous <UN><UN> <UN> prelude to rapid expansion (1800–1884) 55 84 Muntz would become the secretary of Internatio’s Board of Directors and its Board of Commissioners. 85 Van Geuns’ Door Oost-Semarang. Een reisverhaal met beschouwingen provides a chilling description of the devastation wrought by a flood (banjir) in the Semarang area as late as 1906 and clearly shows the problems encountered in the aftermath of such a disaster (Van Geuns 1906). This intention had indeed been expressed in the first letter Van Heekeren had received from J.W. Muntz on 16 July 1863.84 According to Muntz capital would be made available for trade and industry in the Netherlands Indies to support – among other initiatives – the expansion of private agricultural enterprise. However, it was specifically stated in the final contract that the agents would not commit Internatio to any agricultural enterprise unless Directors’ approval had been obtained. Management preferred to keep its representatives on a short leash for fear of a drain on the company’s limited capital resources. A tight control mechanism was devised to prevent this. The intended agencies in Batavia and Surabaya had to send full reports to the head-office in Semarang every month. The head-office was obliged to balance the books provisionally every three months in addition to the normal annual balance. Separate accounts concerning commission, expense, salary and commodity payments had to be kept. The agricultural engagements and accompanying contracts ought to be accounted for as well. All this had to be sent in regularly with an extensive monthly report concerning all important matters. After signing the contract with Internatio, Van Heekeren visited the business associates of the now defunct trading firm of Van Maanen & Co. to inform them and made his acquaintance with the new ones brought in by Internatio. On 19 February 1864 he went aboard a French steamer in Marseille. In Singapore he was told of a devastating flood that had hit Semarang and its surroundings on 27 January.85 He arrived in Semarang on 2 April to find his wife and only child safe and sound after an absence of more than 5 months. However, Internatio’s business had fared less well. Tobacco stocks had been damaged and the silkworm-breeding farm was virtually destroyed. In a gesture of good faith – contested later by Van Maanen who asserted that the farm was grossly overvalued – Van Heekeren decided to carry the burden of the f 15,000 silkworm write-off. Apparently, he expected to earn management’s gratitude for this and the recognition that they were in his debt. The following years saw increasing strife between Internatio and its principal agents in Java which had little to do with circumstances like the <UN><UN> <UN> 56 chapter two 86 Van Heekeren would remain in office until his involuntary discharge in 1867. J. van Maanen asked to be discharged in December 1864. It would take till 1 August 1865 before his succession by J.C. van der Zweep – a former captain in the merchant navy, sugar contractor and tobacco planter – had been settled. Apparently, Van der Zweep had done fairly well in the colony, allowing him to settle permanently in Rotterdam as a person of independent means. He was described as such in 1863 when becoming one of the co-founders/ commissioners of Internatio in which he subscribed for f 37,500. His appointment served to enable better supervision on the spot and therefore constituted the first attempt to strengthen the hold of ‘Rotterdam’ on business conducted in Java. But this scheme backfired spectacularly for Van der Zweep seems to have sided with Van Heekeren on more than one issue. His position soon became untenable and towards the end of 1866 he asked to be discharged with total aquittance which was granted only after extremely turbulent negotiations (Van Heekeren 1870: 21–22, 54, 60; [Internatio] 1913: 7; Archief Internatio 445). 87 In his agitated state of mind Van Heekeren went as far as labelling the actions of the Directors and his former business partner “jesuitic” and “satanic” (Van Heekeren 1870: 59–60). 88 In this context the word ‘capital’ signified investment (funds). mentioned natural disaster.86 In his emotional discourse Van Heekeren notes down a list of (perceived) grievances and shameful wrongdoings committed by the Directors, allegedly with the sole aim of getting rid of him.87 To some extent these are counteracted by Van Maanen’s statement, although he does not always sound convincing. What seems to have been at the core of the problem is a conflict over spheres of authority between the Dutch and colonial element present within Internatio. In a letter to the Board of Directors on 11 May 1866 – at which time the mutual relationships had already soured – Van Heekeren wrote: “We are of the opinion that (central) management should be compared with a powerful shipping company having equipped a ‘capital’ ship88 by the name of “de Java” and entrusting its leadership and command to the captain i.e. the Principal Agency. […] work has to be directed towards one goal; the flourishing of the shipping company! But, although the main command of the shipping company is being conducted on the shore, the ship can have only one captain and […] the captain alone is lord and master on his ship” (Van Heekeren 1870: 54). A few months earlier, he had used a different formulation: “The principal agents have to be shown trust instead of distrust, recognition instead of disdain, because Java cannot be governed from Rotterdam (Van Heekeren’s italics), for people in the Netherlands know our colony too little, its different circumstances, customs and needs […] (Van Heekeren 1870: 43).” Despite the fact that on many occasions Van Heekeren seems to have had a point, the Directors in Rotterdam were not willing to admit to any mistakes. Internatio’s memorial volume of 1938 states that although <UN><UN> <UN> prelude to rapid expansion (1800–1884) 57 89 Directors M.H. Salomonson, H. Bos and P.F. Bicker Caarten and secretary J.W. Muntz. management89 was full of good intentions, it lacked experience with regard to colonial cultural enterprise and the purchase of products to be exported from the Netherlands ([Internatio] 1938: 8). Van Heekeren put it more bluntly in 1865 when writing to Van Maanen: “They are not the right men in the right places”. The ambitious business objectives of Internatio added to the problems. As a result management had to divide its attention to the detriment of the Java trade. Van Heekeren complained that management in Rotterdam did not use the regular sending of textile samples and the specification of patterns and quantities in accordance to the requirements of the three main market places: Semarang, Batavia and Surabaya. No attempts were made to interest Dutch manufacturers, and he claimed to receive goods deviating completely from his requests. This was not confined to textiles since Van Heekeren grumbled about meaningless, unwanted and difficult to market products being sent to Java, despite his guidelines and repeated suggestions. These products had to be distributed under many retailers in extremely small quantities which took long and was hardly profitable. Of equal nuisance to Van Heekeren was the lack of financial assistance. Time and again he wrote that in order to expand business he had to have more funds at his disposal. The example of Ho Kong Sing has shown that the textile trade was conducted on credit. The same applied to agricultural enterprise, which could only operate by receiving advances. The colonial export/import business demanded large cash outlays which needed to be financed. Internatio however was short of cash. Loss-making ventures in other parts of the world had drained its resources and shaken the public’s confidence. Besides, the textile manufacturers would only export their products upon receiving a high percentage (± 80%) in advance; reputed companies like G. & H. Salomonson would even get 95 up to 100% (Brugmans 1963: 71–72). Consequently head-office in Rotterdam was in dire need of cash as well. The circle closed when Internatio’s management started to accuse Van Heekeren of displaying unwillingness in remitting funds earned from the sale of products exported from the Netherlands. Internatio was seriously crippled by the continuing power struggle and financing difficulties. In October 1866 Van Maanen suddenly returned to Semarang. After his retirement he had moved to the Netherlands, but he was sent back for a thorough and rigorous reorganization. We will <UN><UN> <UN> 58 chapter two 90 Van Maanen would stay in function as the Semarang agent until his honourable discharge on 31 December 1868 (Jaarverslag Internatio 1868 1869: 5; BI/DJB 36 No. 351: 362–363). 91 In June 1867, W. Suermondt Wzn – former partner of the Batavian trading company J. Cezard & Co. – was appointed as Internatio’s principal agent which shifted Internatio’s headquarters in Java from Semarang to Batavia. At the same time, A. Ruebenkoning and A.L. Teixeira de Mattos became the new agents for Batavia and Surabaya (Van Heekeren 1870: 35–38, 61; BI/DJB 35 No. 274: 259–260). 92 On account of these defaults nearly f 167,000 could not be retrieved, or almost half of total outstanding credit which amounted to f 338,000. Total losses over 1868 reached a staggering f 818,000 and the company’s shares were at this point in time traded at 47% of their issued price (Jaarverslag Internatio 1868 1869: 7, 13–14; [Internatio] 1938: 11; Van den Berg 1907: 204). 93 BI/DJB 38 No. 5: 22. probably never know what role Van Maanen played in all of this. In the eyes of Van Heekeren he was a perfidious Judas, who put a knife in his back while posing to be his friend. Upon his suggestion Van Heekeren took a six-month leave and travelled to Europe to resolve the situation personally. He came to regard this as a conspiracy to get him out of the way and present him with a fait accompli at a later stage. The outcome would probably have been the same: Van Maanen stepped in and Van Heekeren was fired.90 New agents were appointed and Batavia and Surabaya acquired more independent positions. Semarang ceased to be the principal agency.91 It had now become clear who was captain of the ship ‘de Java’. Internatio was wrong to count on a quick ending of the internal troubles. Business did not improve under the new principal agent Suermondt which contributed to a near-total sense of malaise. 1868 turned out to be a year of disaster (rampjaar), especially with regard to the import trade where Chinese and Arab bankruptcies had seen significant write-offs.92 Internatio was in dire straits. In April 1870, after yet another bad year, it was rumoured in Batavia that Internatio would not hold out longer than twelve to eighteen months.93 At the same time, the business of Van Heekeren’s discharge was raked up with the publication of his booklet. The shareholders meeting of June 1870 was marked by great tumult and even had to be suspended. Notwithstanding their soothing arguments Directors and Commissioners were accused of gross incompetence and mismanagement. In general shareholders considered the situation in Java rotten to the core ([Internatio] 1913: 13; [Internatio] 1938: 9–11). Trust in the capabilities of Internatio’s management ran at an all-time low and the situation was considered so tense that C.P. Sander – President <UN><UN> <UN> prelude to rapid expansion (1800–1884) 59 94 In a letter dated 6 September 1870 C.P. Sander reminded his fellow commissioners of the agitated state and highly inappropriate behaviour of some of the shareholders during the last postponed meeting. He therefore urged them to seriously consider ways to moderate the tense atmosphere in view of the next meeting to be held that same month (Archief Internatio 4). 95 BI/DJB 29 No. 458: 245–246 / BI/DJB 29 No. 468: 256. of the Board of Commissioners – recommended seeking legal council.94 In the end a vote of no confidence could only just be avoided and although the matter finally did calm down, Internatio was forced to count its losses. It had to reduce its statutory capital by half and subsequently had to operate very cautiously (Jaarverslag Internatio 1869 1870; Jaarverslag Internatio 1870 1871; Van den Berg 1907: 204, 206). From 1870 onwards the company limited itself to the trading business and tried to refrain from agricultural commitments, dubbed by its management a Netherlands Indies “disease”. However, private enterprise was allowed to penetrate the Javanese countryside more freely after 1870 and Internatio would not be able to withstand the temptation to compete in this highly risky business environment. Two factors seem to account for Internatio’s turbulent start, i.e. the distinctive lack of experience in colonial trade practices at the company’s head-office in Rotterdam and the paralyzing power struggle between Dutch and ‘colonial’ management over authority issues. The latter factor severely aggravated by an incomptabilité d’humeur or personal animosity between the men involved. Internatio’s example vividly illustrates the demanding nature of trade in Java prior to 1870. The main reason being a lack of finance opportunities due to a highly inadequate credit system. This proved a serious obstacle for any expansion of trading activities since a substantial amount of time and effort had to be devoted to makeshift measures. This drained resources and undermined the potential of the trading company. Improved access to capital was therefore of crucial importance for a smoothly functioning trade mechanism. The Slow Adjustment of DJB In November 1857 and again in April 1861 the trading community of Padang – a town on the west coast of Sumatra – requested DJB to open a branch office for the benefit of its business operations.95 On both occasions management decided against. In 1857 DJB’s field of operation was apparently strictly confined to Java, whereas in 1861 financial resources were considered too limited. Therefore, DJB remained present only in the <UN><UN> <UN> 60 chapter two 96 These offices had been founded in 1828 (Batavia) and 1829 (Semarang and Surabaya). In other words, DJB’s area of operation had seen no changes for more than 3 decades (De Bree 1928–1930: II 579). 97 In May 1864, a few months before DJB established its branch office in Padang, a third request was received from the commercial elite of Padang (BI/DJB 31 No. 92: 498–499/ BI/DJB 32 No. 113: 71–74). 98 BI/DJB 31 No. 11: 65, 67, 72–75. 99 BI/DJB 35 No. 242: 83; BI/DJB 35 No. 265: 211–228; BI/DJB 35 No. 277: 270–271. three main commercial centres in Java, i.e. Batavia, Semarang, and Surabaya.96 Still, it was obvious that an enhancement of credit and exchange facilities had been long overdue. Starting in 1864 no less than five new branches were established in a time span of 3 years: Padang (1864),97 Makassar (1864), Cirebon (1866), Pasuruan (1867), and Solo (1867) (De Bree 1928–1930: II 82–88, 579). Any expansion of DJB’s activities was considered meticulously beforehand, as becomes clear from a number of detailed reports in which the matter was treated exhaustively. These reports show the considerations which influenced the decision-making process. Extensive market research was an important component of this preparatory phase. For instance, in August 1863 D. Schuurman – DJB-agent in Surabaya – was sent to Makassar to conduct a full-scale investigation into the prospects of establishing a branch office there. He carried with him an instruction from the Directors comprising no less than 29 questions subdivided into numerous sub questions. Over half of these questions dealt with the prevailing trading situation on the spot, in particular the volume and content of both imports and exports, the number and (ethnic) identity of the traders, capital flows, etc. Closely related questions concerned the expected attitude of the trading elite and authorities towards DJB. Would, for instance, the governor and prominent members of leading trading companies be willing to sit on the Board of Commissioners? To achieve this, some delicate lobbying was required. If successful, it would greatly benefit the future economic and social position the newly founded branch office would come to occupy. Other questions centred around the monetary situation and more practical matters, such as the purchase of an office building.98 The importance of obtaining relevant and detailed information is also evident a few years later when Pasuruan was considered a possible candidate for further expansion of DJB’s activities.99 In September 1866, Schuurman was commissioned to conduct an investigation into the prospects of such a venture. The local business elite – European and Chinese alike – actively promoted this, emphasized its urgency and even proposed <UN><UN> <UN> prelude to rapid expansion (1800–1884) 61 100 Although not mentioned by name, Pasuruan had at least four wealthy traders ‘playing’ banker in a private capacity. They were all considered usurers by DJB because of the disproportionately high interest rates they charged (BI/DJB 35 No. 265: 217). to cover all costs related to DJB’s arrival for two years. At the time Pasuruan hosted three European import firms (NHM, Fraser Eaton & Co., and Van der Hart & Co.), all specializing in the sale of textile products. These businesses were supplemented by several Dutch shopkeepers, selling consumer goods to the upper echelons of local society. With regard to the textile trade only one Chinese merchant competed with the European importers. However, the Chinese in general had a far more diversified sales strategy aiming their product assortment predominantly at the needs of the indigenous population. In total, Chinese commerce comprised twelve traders – not counting the many pedlars – who would hawk their superiors’ cheap consumer goods in the countryside. Operating in the margin were several small Arab and Javanese traders, who were mentioned but not identified in Schuurmans report. The cash flow generated by the Pasuruan trading business was in itself not sufficient to warrant the establishment of a DJB branch office in the area, especially considering the proximity of Surabaya. Since the traders visited Surabaya regularly to purchase new merchandise, they had ample opportunity to use the extensive banking facilities there. But, located in the so-called ‘sugar corner’ of Java, Pasuruan was surrounded by a total of twenty sugar factories, equally divided among European and Chinese owners. For working-capital alone, these factories needed approximately f 1,000,000 year and generated an annual turnover of an estimated f 2,000,000. Since the combined capital flows of trade and manufacturing had reached such a high level, the transfer of money through DJB would constitute a significant improvement. In the current situation money was collected and transported between the two cities.100 Whereas the well-to-do travelled back and forth personally, the smaller entrepreneurs were forced to take part in a kongsi. This implied mutual recognizance and interest payments in connection with the costs and risks of the transport. The Pasuruan branch office was established in 1867 despite the negative advice of Schuurman. Being the agent of the Surabaya office he cannot have welcomed the competition of a new office nearby. Nevertheless, his arguments must have held some truth given the closure of the Pasuruan branch in 1890. As predicted by Schuurman, the profitability of the office had proven to be questionable. However, DJB’s obligations as <UN><UN> <UN> 62 chapter two 101 See Chapter 2, Paragraph ‘The Moulding of an Economic Framework NHM and DJB’. 102 BI/DJB 40 No. 117: 26. 103 BI/DJB 45 No. 59: 415–436. the colony’s central bank went beyond mere profitability arguments.101 Besides, with an underdeveloped banking sector in 1867 DJB had been the only one able to act. The position of DJB at the time was such that it could afford a gesture of good will. This seemingly impregnable position was about to change as DJB’s management soon learned. After 1870 private enterprise was allowed more freedom and the resulting investment needed to be financed, creating numerous opportunities for banking activities of all sorts (Sihotang 1983: 18–24). Under the new agrarian regulations it was possible to conclude long leases on uncultivated land for the purposes of plantation agriculture which boosted the production of sugar and coffee in particular (Creutzberg 1975: 20; Wertheim 1994: 60). The Sugar Act of 1870 placed sugar exports in private hands (Korthals Altes 1991: 15). At DJB’s head office in Batavia expectations were raised. In the weekly meeting of President and Directors on 13 June 1872 the decision was made to raise the bank’s rates by 1%. The management was unanimously of the opinion that demand for credit would surely rise, because of the larger amounts of sugar to be traded on the market.102 And so it did. But, the increased demand created its own supply as well. DJB started to experience fierce competition; no longer did it enjoy its former mighty position. Even more worrying was DJB’s diminishing market share. It began to loose ground on its own favourite turf: the extension of credit for trading purposes (Van Laanen 1980: 34). In November 1878 the situation became alarming and a special meeting was convened to discuss the position and to suggest measures to counter this undesired development.103 Should the interest rates of DJB come down? In the end, this course of action was rejected. It was highly unlikely that it would help regain DJB’s market share, while it could easily be calculated that an annual loss of f 45,000 would be incurred. Taking such a decision had required a thorough analysis of the Batavian money market. This showed how fundamentally the financial sector had altered in the time span of only twenty years. Before 1857, DJB was the only institution offering financial services to the trading sector. Outside DJB traders could only turn to three insurance companies and some private administration offices, like Reynst & Vinju. In 1878, this situation had changed beyond recognition. The following institutions were <UN><UN> <UN> prelude to rapid expansion (1800–1884) 63 104 BI/DJB 45 No. 59: 435. earmarked by DJB as competitors in the financial sector: four commercial banks (i.e. the NIHB, the NIEM, the Chartered Bank, and the Chartered Mercantile Bank); several spaarbanken (savings banks) eleven insurance companies; numerous administration offices; and two private firms (Reijnst & Vinju, and the Armenian trader Arathoon). In the words of one of the discussants: It cannot be denied, when compared to former years, that there is a lot – I would say – too much money in the Indies.104 Little could have been suspected how prophetic these words would turn out to be in five years’ time. With a thriving financial sector at hand, trading firms should have had less difficulty in gaining access to capital. This would have enabled them to escape the permanent squeeze of simultaneous credit demands from buyers and suppliers. This assertion seems to hold true. Nevertheless, when it came to spending money, bankers and traders did not wish to be reckless. Fulfilling the credit needs of the trading sector meant the buildup of an intricate control-mechanism. The trading companies needed to assess not only the validity of credit requests but also the expectation of having their outstanding capital returned with a profit. Exactly the same considerations played in a banker’s mind the moment a trader knocked on the door to ask for credit. Protecting capital outlays through a control mechanism was of eminent importance for the survival of all participants involved in the trading business. Credit was never extended without collateral, e.g. in the form of property, or a range of different commodities. Frequently, a loan had to be guaranteed and co-signed by another individual deemed to be solid and trustworthy. Though striving for complete security, the commercial sector knew that there would always be an element of risk and uncertainty. To eliminate the risks as far as possible, traders and bankers needed information. Often, information had to be distilled out of rumours and hearsay. The sensitivity of credit matters and the personal sphere in which business took place, kept information gathering low-profile and highly dependent on the skills of the people involved. Information was handled in an unstructured and rather haphazard way. The necessity of a formal information structure was however not lost on everyone. The problem was acute for the larger enterprises with several agencies spread over the <UN><UN> <UN> 64 chapter two 105 BI/DJB 45 No. 56: 391–392. 106 BI/DJB 39 No. 80–81; BI/DJB 45 No. 13: 89; BI/DJB 50 No. 39: 149. 107 BI/DJB 45 No. 37: 255–256. Indonesian archipelago. The smaller ones had less incentive to invest in systematic accounts and appraisals of their debtors. However, they were sometimes obliged to do so by their financiers who could not afford to take such matters lightly. At DJB, there was never any misunderstanding about the importance of a steady flow of information. Information was considered an extremely valuable asset. An undisturbed flow was guaranteed by instructing the agents to report on all matters of concern. This resulted in an overwhelming weekly correspondence. Letters (labelled confidential or secret) and telegrams (sometimes encoded) were constantly exchanged. The telephone would later add to this avalanche of messages. This reporting added substantially to the agents’ already massive workload and was aggravated by the awareness of a highly demanding head office in Batavia which was not easily satisfied. This may be illustrated by an example from December 1877 when the Semarang agent’s rather harmless negligence caused him an immediate reprimand. Upon hearing rumours in Batavia of a Chinese trader’s default in Semarang DJB’s President, N.P. van den Berg, immediately telegraphed Semarang for further inquiries. The next day, the rumours were confirmed: a certain Ong Siok Yoan had defaulted with a total debt of about f 300,000. Despite the fact that the Semarang agency was not involved, DJB’s management decided to express its dissatisfaction over having to learn such important news indirectly. These events should have been reported by the agent and he was reproached for lack of diligence.105 To control DJB’s business outside Batavia President and Directors visited all the offices routinely. Additional information was occasionally obtained through the mediation of others, like the NHM, or the Chartered Bank.106 A formal cooperation between the financial institutions did however not exist. In October 1877 the desirability of such a scheme was debated within the confines of the President’s chamber at DJB. At the time it had become impossible to know to what extent companies were indebted to the different banks. The exchange of credit information would lead to greater transparency and a substantial reduction of risks. Nevertheless, bound by its statutes which forbade the disclosure of these figures, DJB’s management could not proceed with the plans and had to abort them prematurely.107 <UN><UN> <UN> prelude to rapid expansion (1800–1884) 71 125 Items mentioned were: pottery, glassware, bread, paint, toiletries, matches, Manilla cigars, petrol, watches, yarn, rice, wax, etc. 126 More information regarding the Oey clan can be found in Knaap (1996: 141–142). goods and an astonishing variety of fashionable articles.125 The Arabs spread their activities over a far wider area, and specialized exclusively in the textile trade. Only a few of the more wealthy merchants – like Aydiet – were active in the shipping and trade of other products, mainly commodities such as rice, petroleum, iron, or cokes (i.e. fuel). In 1878 Van Beek, Reineke & Co. prided itself that they were not involved in the bankruptcies of Arab traders of that year. Their losses were of minor importance due to a timely reduction of credit limits. This was achieved by closely monitoring the behaviour of customers in an attempt to estimate their financial position. Wille described how Van Beek, Reineke & Co. obtained the required information on the financial position of their customers. First, inspection trips were carried out regularly. In his report, Wille repeatedly mentioned how specific details were gathered by his associate Gans, while visiting the company’s business associates located along the Pasisir. Second, inquiries were made concerning ‘suspected clients’ by contacting European trading companies operating in the same city or area. Third, Van Beek, Reineke & Co. made optimal use of its privileged connection with Major Aydiet, who kept concise and updated records of the Arab community in Batavia. Undoubtedly, access to this unique source of information must have been invaluable in penetrating the Arab network of business relations. The Chinese business environment was accessed similarly through two members of the influential Oey clan. They were given credit up to f 50,000, the maximum amount extended by Van Beek, Reineke & Co. In addition, the future Captain of the Chinese in Batavia, Lie Ang Ie, was among the most prominent clients of Van Beek, Reineke & Co.126 In 1884 the customer profile of the HVA (formerly Van Beek, Reineke and Co.) in Batavia basically showed the same pattern. The predominance of Chinese traders had become even stronger which can be attributed to the establishment of a new agency in Semarang (Brand 1979: 12). The 22 Arab traders active along the Pasisir (Cirebon, Tegal, Pekalongan, Semarang) could now make use of the credit facilities offered by this branch office and had shifted their accounts from Batavia to Semarang. More remarkable is the reduced level of total credit extension of the Batavia office, decreasing from f 1,500,000 to f 900,000. <UN><UN> <UN> 72 chapter two 127 BI/DJB 1358 Correspondence Surabaya branch office, 5 June 1890: 1. 128 This episode is dealt with in more detail in Chapter 5, Paragraph ‘The HVA and Agricultural Enterprise. 129 BI/DJB 1507: 31–32, 44, 57–58, 101. Though understandable given a sharply diminished Arab clientele, another explanation has to be found regarding the Chinese whose average credit limit fell from f 10,000 to f 7,000. The reason has to be sought in the severe economic crisis that Java experienced in 1884. The downfall of the world market price for main agricultural export products such as sugar and coffee seriously affected the purchasing power of the Javanese. Fearing a series of Chinese bankruptcies resulting from a lower rate of turnover and deferred debt repayments by the indigenous population, the European wholesale import traders scaled down credit limits as a preemptive measure. In the case of the HVA its financial commitment to seven agricultural enterprises was also of influence since it utilized as much as f 1,150,000 of the company’s capital in 1884 (see Table 3.3). Therefore, capital resources could not be fully mobilized for import activities. This trend became more pronounced in the following years. In 1891 the HVA’s engagements with 19 agricultural enterprises amounted to f 3,690,000. Nevertheless, the firm’s import activities remained considerable and were expanded as testified by DJB’s agent in Surabaya in 1890. In his appraisal of the HVA, he compared its position with Internatio concluding that both companies were probably well matched, at least in Surabaya.127 In 1910 the HVA nonetheless ended its import activities in order to specialize on the management of agricultural enterprise and the export of its products.128 Up till then, the import trade had continued to flourish and had actually contributed more to the company’s profitability than the export business in the years prior to this decision. The problem was that importing goods consistently required f 4,000,000 to f 4,500,000 and this capital was urgently needed for investment in the company’s own plantations and factories. In 1910 the agricultural engagements of the HVA amounted to f 20,600,000 (Helfferich 1914: 123–124, 129– 130, 141). In two months’ time the import activities of the HVA were liquidated. Its trading products and business relations were transferred to Internatio, taking over the commodity imports, and Geo. Wehry, handling the smaller items such as food and beverages. The company’s outstanding credit of f 1,500,000 was paid back in full and on time by its Chinese and Arab clients. Contemporaries greatly admired the management of HVA’s import activities and characterized it as a well-run and efficient enterprise.129 <UN><UN> <UN> © Alexander Claver, 2014. This is an open access chapter distributed under the terms of the Creative Commons Attribution-Noncommercial-NonDerivative 3.0 Unported (CC-BY-NC-ND 3.0) License. CHAPTER THREE CRISIS AND ADAPTATION (1884–1890S) In 1870 the Cultivation System was officially abolished and private enterprise was allowed to operate more freely. However, tapping the wealth of the Indonesian archipelago proved difficult. The crisis of November 1884 had far reaching consequences for the business world of the Netherlands Indies, and involved some of the largest companies around such as Dorrepaal & Co. Business interests in Amsterdam – together with the NHM and DJB – intervened and prevented a full-fledged collapse of the private economic sector. The threatening credit crunch could only be solved by an overhaul of the customs regarding credit extension which came down to financing long-term investments by incurring shortterm debts. The 1884 crisis exposed the shaky foundations of the private economy. Many firms were forced to adjust their business strategy accordingly. The ties between commerce and capital became better guarded. The completion of this painful reorganization constituted a fundamental reassessment of the relationship between capital, commerce and agricultural enterprise. The crisis also affected the spending power of the indigenous population with great repercussions for the import side of the economy. Chinese and European enterprise with their mutual linkages suffered accordingly. Many Chinese tradesmen defaulted to the detriment of their predominantly European creditors. Economic Policy and Political Expansion The post-1870 liberal attitude governing economic policy would constitute the rather loose framework of entrepreneurial conduct until the economic crisis of the 1930s. In a political sense abstention was the official ideology behind Dutch colonial economic policy ever since 1841. Given the limited resources of the Dutch state, the country’s colonial possessions were to be confined to Java. Dutch settlements outside of Java – the so-called Outer Islands – were considered undesirable with costs <UN><UN> <UN> 74 chapter three 1 The history of Dutch imperialism in the Indonesian archipelago has been the subject of several studies. The most important are à Campo (1992, 2002), Kuitenbrouwer (1985), Lindblad (1986, 1989a) and Locher-Scholten (1994a, 1994b). See for a concise overview of the debates concerning Dutch imperialism Lindblad’s contribution in Dick et al. 2002: 109–110. 2 The Historical Atlas of Indonesia by Cribb (2000) is an invaluable guide to the piecemeal process of Dutch territorial expansion. See especially Chapter 4, Paragraph ‘Conquest and Annexation’. outweighing the gains. Still, upon closer inspection a process of territorial expansion characterized the nineteenth century.1 Dutch expansion in the Indonesian archipelago proceeded in several phases.2 After the conclusion of the Java War (1825–1830), which left Dutch authority over the island undisputed, territorial ambitions slowly turned outward. The initial phase of expansion lasted until the early 1870s and saw Dutch presence extended to West Sumatra, Bali, Lombok, Makassar (South Sulawesi), the Minahasa (North Sulawesi), South Kalimantan, Deli (East Sumatra) and the island of Belitung (see Map 1). At this point, commercial policy prevailed over political authority and expensive military intervention remained limited. Dutch private capital became involved in the Outer Islands during the 1850s and 1860s upon receiving concessions for mining and estate agriculture from local rulers which were subsequently endorsed by the colonial authorities. The second phase lasted from 1873 until 1896 and started with the outbreak of the Aceh War in North Sumatra (Bossenbroek 2001; Van ‘t Veer 1969). Dutch colonial expansion became more determined, but overt military aggression did not extend much beyond Aceh. Expansion generally took the form of enforcing authority over territories that were claimed but not yet effectively controlled. Local economic and political interests frequently coincided to initiate (reluctant) colonial expansion (Fasseur 1979). Government economic policy fluctuated between restraint and intervention. Concessions, for instance, were authorized but could also be held up for years. Partly because the government could not guarantee the safety of men and property on remote sites, and partly because it anticipated a more expensive local administrative apparatus once a concession was granted. The exploitation of the Outer Islands’ natural resources by private capital remained sluggish during this period which contrasted sharply with the situation in Java where private enterprise became feverishly active. With the escalation of the Aceh War in 1896 the third and final phase of Dutch colonial expansion commenced. The deployment of massive <UN><UN> <UN><UN> crisis and adaptation (1884–1890s) 75 3 Military conquest came at a price. Between 1875 and 1905 f 1504 million (33% of colonial expenditure) was spent on army and navy. The Aceh War (1874–1901) cost about f 300 million (Diehl 1993: 197–198). 4 The establishment of the Deli Maatschappij in East Sumatra in 1869 is the proverbial exception to the rule. The organization of this tobacco estate emphasized large-scale production allowing for rationalization of processing and distribution and lower overhead costs, while setting a standard for consistent high quality. The company was an example of successful capital investment in the Outer Islands and ultimately launched a spectacular economic expansion of the region (Dick et al. 2002: 103; Thee Kian Wie 1977). 5 Exact figures are not available, but an indication is provided by Taselaar. Focusing on Dutch business interests, he discerns an elite of 143 persons divided over 129 families during the first half of the twentieth century. A distinction is made between a ‘core’ of 29 persons, who constituted the focal point of a network and the rest (Taselaar 1998: 49–57, 92–97). Bossenbroek distinguishes a ‘core elite’ of 31 persons in the Netherlands in 1900 (Bossenbroek 1996: 87–90). The ‘Western’ business elite of Java was probably of military resources and full-scale warfare lasted throughout the first decade of the twentieth century, by which time the Indonesian archipelago had been subjugated to Dutch rule.3 Only the western half of the island of New Guinea was spared colonial rule until the 1920s. Alongside the colonial administrators private European investors finally made their presence felt. The beginning of the twentieth century saw a massive influx of foreign direct investment into the Outer Islands (Dick et al. 2002: 93–106; Lindblad 1989c; Ricklefs 2001: 171–189). The period under consideration here (coinciding with the second phase of territorial expansion) saw little evidence of growing economic activity in the Outer Islands.4 Certainly not comparable to the situation in Java. Towards the end of the nineteenth century private investment in the Netherlands Indies stood at approximately 750 million guilders of which the overwhelming majority (at least 75%) was invested in Java (Dick et al. 2002: 97; Furnivall 1944: 312; Kuitenbrouwer and Schijf 1998: 63–65). The political and economic centre of Java was far better equipped to reward new business initiatives. The island boasted a good infrastructure, a sufficient labour force accustomed to market production, as well as an experienced administrative system without pressing security concerns. The necessary means of communication and transport were either in place or being rapidly developed. The existence of roads, waterways, telegraph lines, shipping services, storage facilities etc. contributed to a favourable investment climate. Equally important was the presence of banks, insurance companies and trading companies. Tapping relevant sources of expertise and support required considerable skills in social conduct and networking talent as the ‘Western’ business elite was small in number and closely-knit.5 The apex of the <UN><UN> <UN><UN> 76 chapter three equal size. The analysis by Bosma and Raben of the planter’s elite in Central Java in the nineteenth century seems to confirm this (Bosma and Raben 2003: 109–142, 250–261). See also Knight (1999 and 2006) for information related to Java’s sugar industry. 6 Taselaar provides many more examples of this phenomenon by discerning several clusters of companies grouped around a single enterprise (Taselaar 1998: 31–98, especially 57–92, 94–95). commercial world of Java in the nineteenth century consisted of an elite of well-to-do businessmen, who knew (of) each other and whose background (family, friends, acquaintances) provided (a sense of) security. This colonial business elite overlapped to a considerable degree with the business elite of the Netherlands and was well connected with political circles in both The Hague and Batavia. Merchants, bankers and brokers from Amsterdam figured prominently in this arena, although businessmen from The Hague and the Netherlands Indies also played their part (Bossenbroek 1996: 87, 113–114; Kuitenbrouwer and Schijf 1998: 82). The relatively small (export) basis of the colony’s economy made its business elite highly interconnected (Bossenbroek 1996: 87–89; Taselaar 1998: 49–57, 92–98). The NHM was the frontrunner in this respect. At the beginning of the twentieth century NHM’s president C.J.K. van Aalst occupied eleven official positions at companies such as shipping lines and machine manufacturers. In addition, each of NHM’s Directors performed similar functions at enterprises (Taselaar 1998: 58–62). DJB’s network is also interesting. In 1902 the bank’s six Directors held thirteen chairs in twelve different boards, either as executive or as supervising director. DJB was thus officially connected to five agricultural enterprises, three sugar factories, one bank as well as a cement, a mining and an insurance company (Kuitenbrouwer and Schijf 1998: 70–71).6 The Organization of Trade Profit prospects made traders increasingly reckless in the years preceding the financial collapse of 1884. World market conditions after 1870 were good and there was a strong demand for products from the Indonesian archipelago. Producing for the world market required working capital which was eagerly supplied by financial and trading firms. All over Java money poured in, accelerating the monetization of the economy and its concomitant demand for imports. These imports were supplied by wholesale traders, but could not be paid for by the retailers immediately. An intricate credit system, caused by the time lag between purchase and sale, <UN><UN> <UN> crisis and adaptation (1884–1890s) 77 7 NA/KB 883: 17–18, 68, 73. 8 In general, long communication lines and the independent position of company representatives in the colony were an often heard-off complaint and could cause serious problems. 9 For the stipulations of a consignment contract, see Djie ting Ham (1926: 28). developed. According to Furnivall, it was conducted along the most risky lines (Furnivall 1939: 197; Van Laanen 1990: 254–255). The inherent dangers were not completely overlooked. J. Hudig Dzn., Director of the Koloniale Bank (KB) and former employee of the NHM, is a good example of someone unable to change the course of events, although fully aware of the potential dangers.7 The KB started its activities in Java in 1881 and soon conducted business on a large scale. Despite warnings from the Commissioners and Directors Calkoen and Hudig in the Netherlands KB’s head office in the colony quickly committed the bank for large sums. Frequently, the management in Amsterdam could only accept certain deeds as a fait accompli.8 Before the KB officially started its operations on Java, the bank’s commitments amounted to f 518,000 in June 1881, rising to f 3,299,000 in June 1882, and reaching f 5,997,000 in June 1883. On the eve of the crisis, the KB had already ‘spent’ about one million more than its total initial capital of f 5,000,000. On 30 September 1884 capital outlays in agricultural enterprises alone totalled f 8,377,000. Sugar (f 5,712,000) and coffee (f 1,621,000) accounting for 87,5% of the amount. These loans were advanced using the forthcoming harvests as collateral. Most planters could not operate unless they had sufficient working capital at their disposal. These so-called consignmentcontracts were universally used for that purpose (Djie Ting Ham 1926: 27–28; Potting 1997: 32, 65–66). Extending credit on these terms meant that the loan applicant agreed to give the products in consignment to the capital provider. The provider earned the right to sell the harvest of the debtor, receiving at least a 3% commission. This kind of contract was usually concluded for five years.9 Hudig became aware of the fact that the contracts were used to furnish working capital, but also to finance the establishment of new factories, or pay off other debts. In a commissioner meeting on 15 May 1882, he proposed lowering the interest rate of the bank from 7,5% to 6%. He wanted to make the KB more interesting for financially sound companies in need of working-capital only, but not willing to pay such high interest. In his opinion companies needing more funds for additional purposes were oblivious to high interest rates, as long as they managed to get the money. <UN><UN> <UN> 78 chapter three They would bet their cards on a good harvest and high market prices, enabling them to pay back the loan. Hudig claimed that any decline in revenue from rents would be offset by an increase in commissions. If agreed the KB would confine itself to providing working capital only. Commissioners Fellinger and Hintzen, however, disagreed. They considered the extension of large sums part of the bank’s business and were against a change in policy. Hudig had to back down although future events would prove him right. Like Hudig, DJB was aware of the dangerous financing practices of the time. The situation had seemed to change for the better with the new legislation of 1870. However, the new laws still curtailed the possibilities for Europeans to own land. The only viable option was to operate on the basis of a long-term lease. This was a significant improvement since Europeans had only been allowed to rent land for short periods of up to twenty years. However, real estate could be mortgaged, a practice widely used in the provisioning of capital. Land falling under long-lease arrangements could not, because there was a time limit on the use of it. DJB therefore underwrote the principle of only mortgaging land in ownership. Its example was followed by other financial institutions in the colony. The resulting effect was one of expanding agrarian business with expanding credit needs that failed to correspond with existing credit facilities. The kind of money required proved to a considerable drain to the moneylenders’ resources (be it trading company or bank). They dreaded having too much of their capital tied up, and put a rather short time-limit on any outstanding loan. Long-term commitments were thus accommodated by short-term loans to be repaid within months. Inevitably, loans had to be prolonged and/or renewed, leading to an ever increasing accumulation of debtors, creditors, and guarantors (De Bree 1928–1930: II116–119). Immediately after the laws of 1870, DJB’s Board of Directors decided notto allow advancements in agricultural enterprise. This decision did not work out the way as planned. DJB preferred to lend money on quickly disposable goods: so-called beleeningen. Other kinds of security – in essence anything judged too difficult to market – ought to be rejected. Nevertheless, DJB did not want to lose important clients. In the end, the agencies were advised to focus on traders’ credit only, but it was left to their discretion to choose other secure possibilities (De Bree 1928–1930: II 121, 123). In 1878, this led to an internal conflict between the Board of Directors and the Board of Commissioners of DJB (Van Zwet 2004: 159–160, 162, 169). <UN><UN> <UN> crisis and adaptation (1884–1890s) 79 Commissioners strongly objected to the extension of working capital to sugar factories on the basis of mortgage and equity capital. The dispute could not be solved amicably and both parties turned to the government, who decided in favour of the commissioners. De Bree – dwelling on the timing of this conflict – discerns a possible conflict of interest in this matter (De Bree 1928–1930: II 123–133). Arguably, C.P. Lohr Jr., who had been appointed commissioner in 1877, was the driving-force behind the protest. At the time, he was president of the Factorij in Batavia, the head office of the NHM in Asia and one of the principal competitors of DJB. Although we could accuse Lohr of looking for an opportunity to obstruct the business operations of a competitor, there is an alternative explanation. In the period 1875–1879, the NHM incurred losses on its involvement in agricultural enterprise. Its profitability suffered and gave rise to dissatisfaction among shareholders. In 1879, the earlier mentioned Hudig was tasked to reduce the interests of the NHM in agriculture. After thorough inspection he started a clean-up of badly yielding business. In 1883, NHM investment in agriculture stood at f 6 to f 7 million, down from f 11 to f 13 million in 1879 (Mansvelt 1924: II 404–405, 408, 415). It is therefore possible that Lohr operated in the best interest of DJB, having intimate knowledge of the NHM’s vicissitudes. Regardless of Lohr’s motivations, DJB would from now on steer a conservative credit course. Only those who did not participate in any way with the financing of agricultural enterprise, could retain a truly independent position. This held true for the Nederlandsch-Indische Escompto Maatschappij (NIEM), the only Dutch bank in the Netherlands Indies, that confined itself to deposit banking (Djie Ting Ham 1926: 60). The same philosophy was adhered to by the English banks operating in the Indonesian archipelago: the Chartered Bank and the Hongkong and Shanghai Banking Corporation (HSBC). Credit and Agriculture Bankers and traders could respond to the credit needs of agricultural enterprise by providing long-term or short-term credit. After the crisis of 1884 this demarcation was much better understood. The Cultuurbanken (Agricultural Banks) came to focus exclusively on long-term commitments. The general banks strengthened their ties with the traders while keeping a lively interest in agricultural business on a short-term basis only. Such a clear distinction did not exist before the crisis (Helfferich 1914; Djie Ting Ham 1926: 26–38). <UN><UN> <UN> 80 chapter three Before 1884 advances were preferably given to enterprises deemed capable of repaying their debts within a short time. Consequently, attention focused on enterprises growing one-year crops like sugar and tobacco. In the case of crops that needed longer to harvest (e.g. coffee or tea) risks were evidently bigger. The duration of the contract was longer, a period in which more could go wrong. Pros and cons had to be weighed before entering into such a deal. This required more expertise and more monitoring once the contract was closed. Access to information in order to gain security was of great importance in this respect. The consignment contract was the financial instrument used to cover short-term loans. The terms stipulated in this kind of contract strongly favoured the creditor. His risk was minimized by gaining the right to dispose of the product after the harvest. In addition, he sometimes demanded control over management and administration of the enterprise. Further security was obtained by mortgaging the buildings and the land (or its long-lease arrangement) and by acquiring the right to harvest the crops. Last, a consignment contract was always concluded for an extended period (usually five years). The creditor was entitled to cancel at any given time, whereas the debtor was only allowed to do so after a stipulated period of time, or otherwise obliged to pay a fine. A solid company in need of a relatively small amount of cash for wages or transport would not accept such terms. Another popular source of short-term capital was the use of bills of exchange (Gimbrère 1924: 50–56). In essence this constitutes an agreement between buyer and seller, whereby the buyer usually requests the signature of a guarantor. A bill of exchange reduces the buyer’s risk, since a third party agrees to act as warrantor by accepting it. In so doing it greatly enhanced business trust, and contributed to the further development of commerce. The use of bills of exchange signals the growing distance – both geographically and mentally – between the parties participating in the market. After all, when parties know each other and their solidity, they will trust each other enough to place and carry out orders without the backing of a third party (Gimbrère 1924: 7–9). The reliance on a third party only shifts the problem. People still have to ascertain the reliability and trustworthiness of one of the parties involved. If the financial soundness of the third party was known to depend heavily on future market price fluctuations or upcoming harvest results, the signature is subject to grave doubts and therefore worth less. Of course, there was always collateral in the form of the harvest or mortgaged buildings. But despite these provisions the element of risk remained. Harvest sales were uncertain, because of <UN><UN> <UN> crisis and adaptation (1884–1890s) 87 18 Countless memorial volumes testify to this assertion. To name but a few: De Bree (1928–1930: II 232–262), Mansvelt (1924: II 415–418), [Internatio] (1913: 14–19); [Internatio] (1938: 19–22), Colenbrander & Stokvis (1916–1917: I 144–147). 19 Albert and Graves (1984: 1–2). For a graphic representation of the fall of the sugar price, see their volume (Figure 1.1 and 1.2 on p.2). 20 This section is partly based on the dissertation of Bakker (1989: 44–51). See for a brief introduction also Albert and Graves (1984: 1–9). event, many years after it had been overcome.18 It came to form part of the collective memory of generations of businessmen. What triggered this chain of events, and what does it tell us about the fundamentals underlying the commercial world of Java at the time? The key factor initiating the process of default was the sudden fall in the price of sugar. Most primary commodity prices declined in these years, but of the tropical products none was hit as hard as sugar. In 1884 the price dropped by almost 40%, a major blow to sugar producers all over the world.19 This decline was not an entirely new phenomenon.20 It had been experienced by sugar traders since the 1860s, but until 1880 it was a relatively marginal phenomenon. Besides, the sugar market was notorious for its price fluctuations. The downward trend of the sugar price had its roots in the worldwide growing supply of both cane and beet sugar which was strongly encouraged by an ever-increasing demand for sugar (see Table 3.1). For centuries cane sugar had been the only sweetener available for mass productionand consumption. Technical progress, however, made the mass production of Table 3.1. The growth of Java and world sugar production in metric tons (x 1000), 1860–1890. Java World (cane) World (beet) 1860* 130 (100) 1376 (100) 352 (100) 1865 142 (109) 1506 (109) 681 (193) 1870 176 (135) 1662 (121) 939 (267) 1875 203 (156) 1816 (132) 1377 (391) 1880 221 (170) 1883 (137) 1857 (528) 1885 387 (298) 2300 (167) 2172 (617) 1890 423 (325) 2597 (189) 3680 (1045) * 1860 = 100 Sources: Creutzberg (1975: 63–76, 141–143), Leidelmeijer (1997: 39–42, 324–326). <UN><UN> <UN> 88 chapter three 21 The historical development of beet sugar production in Europe, and more specifically the Netherlands, in relation to the production of cane sugar is described in Claver (1995: 16–23). 22 1 picol = 61,76 kilo (Van Schendel 2000: 110). beet sugar in Europe a viable option from the 1860s.21 In 1870 the worldwide production of cane sugar was still about twice that of its competitor. But in 1883 the production of the two kinds of sugar were virtually on a par. After 1888 the production of beet sugar kept growing at a faster pace than its tropical variant. Nonetheless, cane sugar production in the period 1860–1890 displayed quite a remarkable growth, considering that the industry was far more mature (Claver 1995: 15–16, 55). The production increase on Java was realized first of all by establishing new sugar factories. Between 1882 and 1884 18 new sugar factories were established (De Bree 1928–1930: II 232; Rush 1990: 179). Second, the threatening competition of beet sugar stimulated the planters to improve the profitability of their enterprises. Around 1860 they started to enlarge and modernize their plantations and factories. Consequently, output expanded and by 1882 the production of the Java sugar industry had more than doubled compared to 1870 (Tio Poo Tjiang 1923: 20). In 1884, total production of Java sugar amounted to 6,493,000 picols,22 an increase of over 75% when compared to 1876 when total volume stood at 3,700,000 picols (De Bree 1928–1930: II 232). The growing supply of sugar had a downward effect on the price. This encouraged producers to put even more sugar on the market. It was the only way of making a profitable return on their investments. Since producers could not influence the market price individually, every supplier had to conform to price movements on a huge, anonymous world market. (See Table 3.2 for an indication of the relative position of Java sugar.) But sugar production remained profitable. Before 1884 participation in the industry seemed a sure bet. The sugar manufacturer’s cost price lay at f 10 per picol, whereas even the lower quality sugars were bought by the trading companies for f 12,75 to f 13 per picol. (De Bree 1928–1930: II 232). With profit margins of 25–30% it is hardly surprising that the expansion of output was on everyone’s mind. It was not until 1880 that people began to feel uncomfortable with the sugar market. Even experts could only guess the rationale behind the continuing fluctuations. Sugar traders such as Rueb & Co. in Rotterdam admitted to this frankly. When reviewing the sugar market of 1883 they wrote that all statements predicting deficiencies in the harvests had been totally unfounded. Never before had world production been so large. <UN><UN> <UN> crisis and adaptation (1884–1890s) 89 23 Cited in Bakker (1989: 50). See also Van den Berg (1907: 208, Note 1). 24 The price of sugar depended upon the level of purity. In 1839 the NHM devised a method of rating 18 kinds of sugar by colour of which 1 represented the ‘standard’ quality (Mansvelt 1924: II 167–168). The logic behind all this exaggeration? To tell the truth, we don’t understand a bit of it!23 They concluded by lamenting that all the mistrust had only caused prices to fall to the lowest level in many years. The standard quality24 of Java sugar, which touched f 19 per picol in 1877, dropped to f 15 per picol in 1883 (Furnivall 1939: 196; Tio Poo Tjiang 1923: 20; De Bree 1928–1930: II 232). This drop coincided with the moment that the world production of beet and cane sugar had reached equal size. Whether this knowledge constituted a psychological turning point is uncertain. Whatever the cause, buyers and suppliers reacted without restraint and tried to get rid of their stock, resulting in an unprecedented and dramatic fall in price (Bakker 1989: 50–51). In January 1884 the price had dropped to f 13 per picol and fell to f 11 in July. During the harvest of 1884 the price of Java sugar kept falling to f 8 per picol (Furnivall 1939: 196; Tio Poo Tjiang 1923: 20; De Bree 1928–1930: II 232–233). In relative terms the price of sugar in that year fell by 23% in Batavia and nearly 29% in London. These percentages are the best indicators for the seriousness of the crisis, especially since London had become the most important market for Java sugar after the Sugar Act of 1870 and would remain so until the 1890s (Korthals Altes 1994: 17, 79, 93). Table 3.2. The share of Java sugar in world production, 1860–1890. Java* World* (cane) % World* (cane + beet) % 1860 130 1376 9 1728 8 1865 142 1506 9 2187 6 1870 176 1662 11 2601 7 1875 203 1816 11 3193 6 1880 221 1883 12 3740 6 1885 387 2300 17 4472 9 1890 423 2597 16 6277 7 * in metric tons (x 1000) Sources: Creutzberg (1975: 63–76, 141–143), Leidelmeijer (1997: 39–42, 324–326). <UN><UN> <UN> 90 chapter three 25 Bakker (1989: 46, 51). 26 The figures below show the share in export earnings of the largest commodity (Booth 1998: 208). 1825 67.7% coffee 1870 40.2% coffee 1900 28.6% sugar 1940 37.7% rubber 1850 36.1% coffee 1885 45.4% sugar 1925 32.6% rubber 27 This can be illustrated by the example of the two coffee plantations ‘Mangan Ardjo’ en ‘Mangan Simo’ in Central Java, owned by A.J. Boers. In 1883, these two coffee lands produced 3,804 picols of coffee against 313 picols in 1884 (BI/DJB 52 No. 92: 493). 28 See Furnivall (1939: 196), Ricklefs (2001: 162), Korthals Altes (1994: 17), De Bree (1928–1930: II 232). 29 See Bulbeck et al. (1998: Chapters 4 and 5) for the importance of coffee and sugar in Southeast Asia. 30 This was not altogether improbable. When discussing the position of DJB debtors in Surabaya in July 1871, the following was said about J.H. Fuchter, a notary of profession with Judging from events in other sugar markets such as Amsterdam, Antwerp and Paris, the collapse was a shared phenomenon. Remarkable since the Paris and Antwerp sugar market were virtually closed for foreign sugar, because of significant import duties. The London and Amsterdam sugar market did not impose any kind of protection. The effect of crises could therefore be felt immediately. Nevertheless, there was not much difference in price movements in the respective markets.25 The sudden fall in prices was so marked that it threatened a total breakdown of the whole economic system in Java (Furnivall 1939: 196). Sugar was the most important export commodity of colonial Indonesia and its domination of Java’s estate economy meant that the impact of the crisis became widespread. Sugar had only recently overtaken coffee as the major export earner.26 However, coffee remained of great importance for the economy and it was not until the 1890s that the struggle for first place as the country’s prime export earner was decisively won by sugar (Brown 1997: 21; Korthals Altes 1994: 79). Coffee underwent its own crisis in the years immediately preceding 1884. From the late 1870s the coffee leaf disease seriously damaged Java’s coffee plantations. Harvests were minimized or completely obliterated and production had fallen.27 In addition coffee cultivation became even less profitable after the price of coffee started to slide from 1877 onwards, culminating in a major price fall in 1881/82. Between 1877 and 1883 the price of coffee fell from f 60 to f 30–35 per picol.28 Together coffee and sugar were of immense importance for the economic prosperity of Java.29 Huge sums were invested in cultivation and trade involving ever bigger and usually interconnected interests. An increasing number of people, all reckoning to be rich within years, scrambled for a piece of this pie.30 Everyone seemed to profit. Despite wavering <UN><UN> <UN> crisis and adaptation (1884–1890s) 91 substantial interests in the cultivation of sugar: “Probably J.H. Fuchter will become a man of fortune in due time, but for the moment everything still has to be paid out of the sugar” (BI/DJB 39 No. 76: 64). 31 Bahre & Kinder were also active as shipping and insurance agents and had acquired a good business reputation. In the late 1850s and 1860s members of this German firm were listed as (honorary) consul for Denmark and several of the German states (Saxony, Bremen, Oldenburg) (Merrillees 2000: 60–61). 32 BI/DJB 51 No. 48: 200–201. commodity prices, the early 1880s were prosperous years for Java. In the wake of the Agrarian Law of 1870, which opened Java to private exploitation, commercial agriculture continued to expand. Coffee and sugar can be considered true exponents of the agrarian export economy. These and other export commodities had brought the government of the Netherlands Indies huge revenues. Revenues that were largely remitted to the mother-country. The economic development and resulting great wealth of the Netherlands were for a substantial part founded on the efficient exploitation of – above all – Java’s resources (Van Baardewijk 1993; Fasseur 1975: 20–21, 37–42, 118–128, 200–205). At the same time, the dependence on a few agrarian exports set the stage for problems that started in the beginning of 1884 and unfolded from the middle of September. Beginning of the Crisis What events finally tipped the scale and plunged the commercial world of Java into a prolonged crisis? At the beginning of 1884 optimism still reigned, but with a depressed sugar market and with the sugar price at an all-time low (according to Rueb & Co.) it did not take much to shake confidence. In February 1884 – with the sugar price down to f 12 – sugar traders C. Bahre & G. Kinder went bankrupt. They had been in the import/ export business since 1848 and were among the bigger traders. Their downfall caused quite a stir.31 DJB-President N.P. van den Berg discussed the situation on 21 February 1884 and drew the attention to the difficult position of another renowned firm, Martin Dyce & Co. in Surabaya. This company too was in the sugar trade and had advanced substantial sums for that purpose. N.P. van den Berg anticipated big losses considering the current market conditions.32 And so it did, because on 29 February 1884 the headquarters of Martin Dyce & Co. in Glasgow sent the following telegram to its agent MacColl: <UN><UN> <UN> 92 chapter three 33 BI/DJB 51 No. 50: 208; BI/DJB 51 No. 52: 232. 34 See Mansvelt (1938: Appendices 2 and 3). 35 The following paragraphs are partly based on a report submitted by N.P. van den Berg on 26 April 1884 (BI/DJB 52, No. 4: 15–27). 36 See also BI/DJB 52 No. 4: 25. 37 BI/DJB 52 No. 4: 25–27. Have suspended payment balance books at all branches 29 February. Give preference to nobody. Suspend operations until you hear from us. Must hand over nothing […]. The next month Martin Dyce & Co. declared itself bankrupt.33 Like Bahre & Kinder, it had been in the import/export business for years (at least since the 1860s). With the collapse of these companies, business confidence – aggravated by the persisting downfall of commodity prices in general and sugar prices in particular – started to melt away.34 Worried about the unfolding situation DJB concluded that a careful review of the bank’s engagements in Central Java and East Java was called for.35 Letters with instructions and requests for additional information were sent. In April 1884 N.P. van den Berg left Batavia for Semarang and Surabaya. This visit formed part of the regular inspection of the branch offices of DJB as a means of monitoring its agents. However, Van den Berg also assessed the position of the sugar business in this part of Java. His findings were not encouraging. He encountered a very depressed mood among sugar manufacturers and traders. Regardless of the price there was hardly any inclination to trade and people doubted whether the trading companies could purchase all the available sugar, estimated by N.P. van den Berg at five million picols. In other words, the purchasing power of the export sector was judged to be insufficient. Traditionally, each sugar enterprise sold the bulk of their production to exporters in Java (Korthals Altes 1994: 79).36 This system was maintained until 1917 when a sharp price fall led producers to set up an association – the Vereenigde Javasuiker Producenten (VJSP) – in order to prevent prices from sliding again. It seems there was no such response during the crisis of 1884. However, we learn from Van den Berg’s account that two so-called sugar unions (suikerbonden) had been established in Central Java in 1884. According to Van den Berg, the sugar manufacturers had become convinced that they themselves had to find buyers abroad. For this purpose they combined under the guidance of experienced trading enterprises: i.e. Dorrepaal & Co. and Internatio. The agreement between Internatio and various producers shows how the sugar industry tried to provide for security.37 Under the arrangement <UN><UN> <UN> crisis and adaptation (1884–1890s) 93 38 NA/KB 883: 42–43. the participants’ sugar was pooled in order to be sold by a common sales department under the ‘right’ conditions. To enable the planters to continue their business, Internatio would advance money to the participants upon each delivery which left the sugar in possession of the company. The sales department was run by Internatio. The planters’ interests were safeguarded by the establishment of a committee of three that would take care of day-to-day affairs and convene alternately in Surabaya and Semarang. It was specified that a representative of the producers would be seated in the committee. In case of disagreement his decision would settle the matter. The inspection of the sugar – in order to determine its value – would be done objectively by assigning an independent inspector to perform this task. If need be, the planters’ representative was allowed to act as such. The planters could appoint a representative in Rotterdam to consult with Internatio’s Directors about sales policy. It should be kept in mind that this cooperation was forced upon the participants because of exceptional economic circumstances. Normally, the interests of traders and planters tended to clash, above all concerning the value of the delivered sugar. It was the buyer/exporter who decided how much he was willing to pay for the sugar and he himself carried out the inspection. According to the planters their sugar was consistently undervalued. Arbitration was possible, but this meant turning to the trader association (Handelsvereeniging) in which the big sugar exporters occupied a dominant position. When in 1883 the sugar price steadily declined, sugar traders tried to hedge against a further price fall by severely ‘cutting’ the value of the marketed sugar. In September 1883, manufacturers complained that the price of the same quality of sugar was now f 1,5 to f 2 less than the year before.38 Although hopes were high, the proposed sugar union did not succeed. Too many actors in the business were left outside and no influence could be exercised on market prices. Even a completely unified Java sugar industry would have had a weak position vis-à-vis the world market with only 6% tot 9% of total world sugar production in the period 1880–1885 (see Table 3.2). In August 1884 another big player in the field started to tumble and suspended payments. Erdmann & Sielcken, active in Java’s commercial trade since 1875, managed to resume trading operations after reaching an agreement with its creditors. By paying 20% of outstanding debts the firm was given complete discharge from liability. A modest new capital <UN><UN> <UN> 94 chapter three 39 NA/KB 883: 42–43; BI/DJB 39 No. 66: 9–10; Mansvelt (1938: Appendices 2 and 3). 40 See also BI/DJB 52 No. 47: 172. investment of f 100,000 enabled the company to make a successful restart (Schmiedell 1924). In early November 1884 Dümmler & Co. threw in the towel as well. This bankruptcy seems to have been the final confirmation that any rescue attempt for the industry was doomed to fail. Dümmler & Co. had been in business at least since 1843. Its involvement in sugar dated back many years and it was counted among the three most important sugar exporters in Surabaya.39 Like any other trading firm, Dümmler & Co. had borrowed heavily in order to secure the delivery of sugar from the producers. The assets of both traders and planters were relatively small compared to the huge sums necessary to harvest, manufacture and market the sugar. To provide the necessary working-capital (werkkapitaal) of the planters advances were made, to be repaid when the sugar was finally sold. The time lag between the extension of the loan and the final repayment was therefore considerable. Dümmler & Co. had sought to overcome this problem by asking the banks for credit. This was common practice and the Nederlandsch-Indische Handelsbank (NIHB) was among those that had agreed to Dümmler & Co’s request for capital. With Dümmler & Co. bankrupt, the extended loan of f 400,000 could not be redeemed and had to be written off. In a normal situation, NIHB’s capital reserves would have sufficed to absorb this write-off. But times were far from normal. The NIHB needed the support of DJB from late June 1884 when its agent Van Heukelom admitted to a temporary shortage of liquid assets because of the sugar crisis. A credit of f 1,500,000 was given on the personal recommendation of N.P. van den Berg. An additional credit of f 600,000 was given in September 1884. Desperate for funds the NIHB tried to strengthen its position by raising a debenture loan of f 2,954,000. Less than f 500,000 was subscribed to, and the attempt failed (De Bree 1928–1930: II 235).40 By now, unrest became widespread. Trust in the stability of even the biggest institutions in the Netherlands Indies started to wane. When the KB ran into similar problems at the end of October 1884, the NHM turned down its request for help. On 1 November 1884 KB-agent Lohr informed N.P. van den Berg of the extremely serious situation. Within days head office in Amsterdam would have to default unless DJB agreed to operate as ‘lender <UN><UN> <UN> crisis and adaptation (1884–1890s) 95 41 NA/KB 883: 76. 42 BI/DJB 52 No. 48: 176–180. 43 NA/KB 883: 76–79. of last resort’. Director Hudig of the KB, a personal friend of N.P. van den Berg, was confident that DJB would help out. In his own words: President Mr. N.P. van den Berg is extremely well-disposed towards us and will be glad to collaborate.41 Lengthy deliberations among the Directors of DJB commenced. The KB was in effect bankrupt. Its assets were tied up and could not be made liquid on short notice. Acquiring additional funds by means of a debenture loan was the only option, but permission could only be granted in a shareholders’ meeting. Such a meeting could be convened, at the earliest, at the beginning of December. On 5 November 1884 DJB agreed to provide a credit of f 200,000, but only after its demands for extra security were met satisfactorily. DJB recognized that the fate of the KB and possibly of numerous other ‘houses’ rested on a favourable decision. It was obvious that the downfall of the KB would create a panic which could trigger a series of bankruptcies.42 The loan of f 200,000 postponed the inevitable by only a couple of days. Director Hudig of the KB had calculated that f 1,500,000 was needed to cover short-term debt and an additional f 3,000,000 to provide working capital for the agricultural enterprises administered by KB. Given the extremely low prices for sugar and coffee, the current deficit would amount to at least f 1,000,000. On 11 November 1884 the KB applied for suspension of payment which was granted on 14 November 1884. By now, the crisis had become full-fledged.43 The most striking aspect of the Sugar crisis of 1884 is its omnipresence. It pervaded every corner of the commercial world of Java. This demonstrates the myriad connections between bankers, traders and planters and above all the great interdependence of these connections. Because of this interdependence the ‘system’ could grow to such proportions and hold out for so long. At the same time it was also the main cause of its spectacular collapse. What constituted the core of this so-called system, was the craving for (working)capital and the endemic shortage of it. An exogenous factor – one that could not be influenced – contributed to its demise. The price fall of key commodities, especially sugar and coffee, signalled the end of a period of transition. <UN><UN> <UN> 96 chapter three The Crisis Experienced: Internatio and Dorrepaal & Co. The experience of 1884 will be illustrated by the vicissitudes of Internatio and the trading company Dorrepaal & Co. Internatio fared relatively well during the crisis and managed to reorganize itself. Dorrepaal & Co. was one of the most interesting though least known Indies trading firms. The archive of the company seems not to have survived. Fortunately, material regarding this eminent trading firm could be retrieved in secondary sources, because of its standing, huge scale of activities and spectacular downfall in the 1880s. Internatio How did Internatio fare during the upheaval of the mid-1880s? The company did not survive its first twenty years’ of existence without a scratch. In the two memorial volumes published in commemoration of Internatio’s 50th and 75th birthday the crisis of 1884 – though decades ago – still figured prominently ([Internatio] 1913: 14–24; [Internatio] 1938: 19–29). The problematic twenty-year period before 1884 was depicted as a learning process which the company had to go through, and in which trial and error were viewed as natural companions. The events of 1884 were considered a turning point for Internatio. Internatio was first and foremost a general trading-company. In the early years of its existence Internatio was involved in almost every sector of the Netherlands Indies economy (Sipos 1992: 5). It took part in banking, had an interest in agriculture and industrial production and represented different shipping and insurance companies. Trade however came to form the backbone of the company, not least because of the experience of 1884 and its aftermath. Initially, the import of textiles from the Netherlands constituted Internatio’s core business in the Netherlands Indies. The founding of the company was driven by textile producers operating from Twente in the east of the Netherlands. But soon the company started to import other products and ventured into the export business. This inevitably led to engagements in agricultural enterprise. This agricultural involvement can be deduced from Table 3.3. On the even of the crisis Internatio had committed itself for f 7,900,000 and entered into relations with 55 enterprises. These commitments consisted mainly of consignments contracts. From the start Internatio’s management had tried to refrain from outright ownership of agricultural enterprises. Internatio’s business was conducted as much as possible on the <UN><UN> <UN> crisis and adaptation (1884–1890s) 103 61 Ibidem, 181. 62 Ibidem. 63 Archive Internatio Doc. 22: 17. 64 See Chapter 5, Paragraph ‘The HVA and Agricultural Enterprise’. 65 BI/DJB 52 No. 66: 293–294. point through indifference or ignorance, but through circumstances, which we were not able to change […].61 According to him, these circumstances came down to bad harvests, the spreading coffee leaf disease which accounted for part of the bad harvest and the unprecedented price fall of sugar. He continued by saying: It does not help to dwell on this; much more practical is the question, whether people have faith in our policy and energy, our ability to return to a healthy situation, and with respect to this, I believe to be able to point to an improved situation, in which we can take comfort.62 However, emphasizing a reduction of total immobilized capital by f 508,427 did not impress DJB since it amounted to a relative decrease of a mere 5%. Total capital tied up in agricultural enterprises at the end of 1885 stood at f 9,248,876. Suffice it to say that DJB did not feel inclined to change its decision. Internatio was in for a rough ride. Although Internatio scaled down its activities in export agriculture in order to liquidate bad debt, it did not abandon its participation in this economic sector. The number of contracts with agricultural enterprises never dropped below fifty in the years before 1900. The amount of capital committed to them decreased, albeit at a slow pace. In 1900 total engagements of Internatio in agriculture amounted to f 4,460,000. A reduction of capital outlays over a period of fifteen years to only half.63 The backbone of the company was in trading, but opportunities in agriculture remained too important to neglect. In the case of the HVA this would ultimately result in a complete focus on agricultural business (i.e. sugar) in 1910. The import and export business was abandoned and Internatio took over many of its clients, profiting especially from the acquisition of a highly developed distribution system.64 In 1884 this outcome could hardly have been predicted. Founded in 1879 the HVA was still a small player in the field. As noted the HVA had contacts with seven agricultural enterprises. Total commitments comprised f 1,150,000 which was quite unimpressive when compared to others (see Table 3.3). The HVA did not suffer immediate losses due to the crisis. In December 1884 its agent Benjamin even requested a loan from DJB to furnish working capital for three sugar factories.65 According to him these <UN><UN> <UN> 104 chapter three 66 NA/KB 883: 71. 67 NA/KB 883: 97. factories were excellent, working cheaply and completely free of debt. He would very much like to include them among his clients, but lacked sufficient funds. A strange request, considering the fact that as late as 27 December 1884 the agent of the KB would write to his management: Importers are not selling anything, are not receiving any money; machine factories are not getting any orders; employees of factories are being dismissed, etc. Banks are not discounting paper [i.e. bills of exchange] from importers anymore.66 N.P. van den Berg, after hearing Benjamin, did not even bother to consult the other Directors but refused his request downright, adding that this was not the time to invest capital in agriculture and that they needed their funds to support their import business. He was proven right. In May 1885 the HVA had to write out a debenture loan of f 1,500,000. Eventually, the money was raised but only with difficulty (Helfferich 1914: 123).67 Dorrepaal & Co. At the onset of the crisis Dorrepaal & Co. conducted business with 113 companies. The company’s total outstanding credit amounted to f 13,125,000 (See Table 3.3). Among its clientele were 22 sugar factories and 38 coffee plantations. Dorrepaal & Co’s fortunes were highly correlated with a continuation of the bull market for agricultural export products. After the market collapse of 1884 Dorrepaal & Co. put up a desperate fight Table 3.3. Financial institutions and agricultural enterprises, 1884. Enterprises Engagements sugar coffee others total (f) Dorrepaal & Co. 22 38 53 113 13,125,000 HVA 4 2 1 7 1,150,000 Internatio 12 20 23 55 7,900,000 Koloniale Bank 9 17 12 38 7,700,000 NHM 30 12 5 47 6,900,000 NIHB 29 20 4 53 22,500,000 Sources: Archive Internatio Doc. 22: 11; BI/DJB 52 No. 92: 483–516; BI/DJB 54 No. 24: 182; Furnivall (1939: 197); Helfferich (1914: 39, 140–141). <UN><UN> <UN> crisis and adaptation (1884–1890s) 105 68 See Appendix 1 in Mansvelt (1938). 69 NA/KB 883: 94. 70 Ibidem. 71 See Appendix 3 in Mansvelt (1938). Up till then, it was common practice to charter a ship for its complete tonnage. The names of the companies that commissioned those ships showed up in the trade statistics. When export traders started to charter ships for joint account, the possibility of identifying the respective participants gradually disappeared. Single companies kept chartering ships, but these data do not give a complete picture of their trading activities (Mansvelt 1938: 8–9). 72 See Appendices 2 and 3 in Mansvelt (1938). for survival to no avail. After a prolonged battle one of the most renowned trading companies in Java disappeared from the scene. Its strongly personalized structure, seemingly well-suited to survive any kind of strain, proved outdated and necessitated a restart in a different and greatly reduced format. Its founder, G.L. Dorrepaal, would never know about the collapse of his life’s work. He died shortly before the outbreak of the crisis. On 4 May 1883 Georgius Leonardus Dorrepaal passed away in The Hague, where he had retired after living for many decades in Java. Born in 1816 in the Netherlands, he arrived in the colony in 1840 and settled in Semarang. He associated himself with A.E. Soesman who had started his own trading business in 1835.68 From approximately 1841/42 onwards Soesman & Dorrepaal provided working capital to agricultural enterprises located mainly in the Principalities (De Bree 1928–1930: II 412).69 Around 1843 Dorrepaal established his own company under the name Dorrepaal & Co.70 One year later he married Ludovica Manuel (1817–1896) daughter of the deceased owner of ‘Peterongan’, a huge private estate near Semarang. How he financed his business activities remains unclear. He might have received Chinese financial support, either from Chinese moneylenders in Semarang, or possibly through the mediation of his brother-in-law C.H. Manuel who lived on ‘Peterongan’ together with a Chinese woman (Bosma and Raben 2003: 122–124). Little is known about the early activities of Dorrepaal & Co. Until 1850 the company remained quite small and was certainly not counted among the big and influential names in the trading business in Semarang. The firm was active in import and export on a rather humble scale. In the years before 1850, Dorrepaal and Co. registered as exporter only once.71 Between 1851 and 1863, it chartered nine ships for the export of goods to the Netherlands. The import share of the company’s business seems to have been considerably less. During the same period only one ship was chartered to bring in goods from the Netherlands.72 This is no surprise, considering the later development of Dorrepaal & Co. and its early commitment <UN><UN> <UN> 106 chapter three 73 BI/DJB 39 No. 78: 72–76. 74 For more details on Dorrepaal’s status in colonial society, see Bosma and Raben (2003: 125–126). 75 BI/DJB 46 No. 39: 371. 76 For example, G.L. Dorrepaal was a commissioner of the Semarang agency of DJB for many years and when in 1879 DJB’s new statute was drafted, a representative of Dorrepaal & Co. acted as a consultant. 77 BI/DJB 46 No. 78: 371–372. to agricultural enterprises primarily geared to export. The company slowly consolidated its position and concentrated on the abundant business opportunities in Central Java (including the Principalities).73 It improved its standing and reputation considerably and its wishes and needs were increasingly noted. Early 1860s Dorrepaal & Co. had ‘arrived’. Less than a decade later, G.L. Dorrepaal’s position among planters and traders was absolutely unrivalled; he had become the undisputed ‘king’ of Central Java.74 In the 1870s some important changes occurred. After approximately forty years in the trading business G.L. Dorrepaal decided to withdraw in favour of C.L. Dankmeyer and his son-in-law W.L. Mirandolle. However, his stake in the company was still by far the greatest.75 In 1878 the firm’s total capital amounted to f 2,540,000 furnished by seven partners. G.L. Dorrepaal’s share was f 1,500,000 or 60% of the company. This was a sizeable share which turned out to be even larger, since he had furnished short-term credit of f 1,000,000 to be repaid in monthly instalments over the next eight years. Dankmeyer, with a share of f 350,000 the second biggest participant, must have been buoyant in his expectations for the future. After all, the company stood at the height of its power. Its position was acknowledged and it wielded considerable influence.76 Business was running smoothly and was well founded in a sound financial situation with enough room for further development. The general economic outlook was excellent and the company was well prepared to take advantage of this. Dankmeyer, the company’s spokesman, therefore requested DJB in September 1878 to consider establishing a new agency in Yogyakarta.77 The desirability of an agency in the Principalities (Yogyakarta and Solo/ Surakarta) was demonstrated by presenting DJB-President Van den Berg an overview of Dorrepaal & Co’s substantial engagements within the Yogyakarta residency. Van den Berg, present in Semarang for a routine inspection of the Java agencies, listened carefully. In 1867 agencies had already been established in Solo and Pasuruan (De Bree 1928–1930: II 579), <UN><UN> <UN> crisis and adaptation (1884–1890s) 107 78 BI/DJB 46 No. 57: 658–659. 79 BI/DJB 46 No. 57: 665–672. but there might be sufficient reason to review the situation. Upon Dankmeyer’s and other people’s information Van den Berg decided to extend his visit and travelled through East and Central Java to see for himself. In his final report he wrote that the situation in the Yogyakarta area could be characterized as exceptionally good and that in his view an agency would be of great value (De Bree 1928–1930: II 184). We will never know if the financial needs of Dorrepaal & Co. tipped the balance in favour of a new agency, but the outcome was positive. The decision to establish an agency in Yogyakarta was taken surprisingly fast and on 1 April 1879 DJB opened the doors of its newest agency. Dorrepaal & Co. seemed to be doing excellent, but concerns were suddenly raised about its financial situation. In December 1878 DJB’s Board of Directors contemplated their commitments in Central Java and decided that no more credit should be extended to companies (partially) owned by Dorrepaal & Co. unless the firm was willing to accept short-term bank credits with a maximum of ten days.78 The agent in Semarang was urged to visit Dorrepaal & Co. and ask to see the books in order to allow a better assessment of its commitments. Evidently, DJB feared an overextension of Dorrepaal & Co’s financial strength. However, in September Dankmeyer’s answer to Van den Berg’s inquiry regarding the financial situation of Dorrepaal & Co. was accepted. This sudden reversal of attitude towards a well-respected and longtime client was caused by two reasons. First, as we have seen, the end of 1878 saw a crisis within DJB between Directors and Commissioners which steered the bank into a more conservative course (De Bree 1928–1930: II 196–203, 207–220, 224, 228). Second, at the end of November 1878 the agent in Semarang had compiled a list of clients operating in the Principalities.79 This list must have been extremely alarming. It showed 39 enterprises engaged in agricultural activities (predominantly sugar and coffee, to a lesser extent tobacco and indigo) with the names of their owners, administrators and financial backers. The name of Dorrepaal as financial backer and/or owner appeared 32 times on this list. The Directors worried: how sound were all these commitments? What if Dorrepaal ran into trouble? With such an influential position in the all-important Javanese heartland, the company’s default could assume catastrophic proportions. <UN><UN> <UN> 108 chapter three 80 BI/DJB 46 No. 76: 815. 81 BI/DJB 39 No. 76: 62–68. The reply from the Semarang agency came two months later and was partly reassuring. Dorrepaal & Co. had fully co-operated in allowing access to its books and the resulting report satisfied the management in Batavia. They had to admit that with business on such a scale the requested and already extended credit was quite moderate. Therefore, a modest expansion of outstanding loans was permissible. However, the negative outcome of the conflict with the Commissioners made the Directors cautious, and the decision was made not to deviate from the earlier reduction of credit facilities.80 According to the earlier mentioned list Dorrepaal & Co’s activities spread out from its Semarang base in the direction of the Principalities.81 With Central Java as its main operating field, its scale of business was large. In the eyes of DJB this was alarming, partly because its Semarang agency had come to rely too much on the Dorrepaal & Co. account, and partly because Dorrepaal & Co. could be indebted to other banks as well. This would make its scale of business even bigger, but also more complex and ambiguous. A disturbingly large number of enterprises were connected to each other and to Dorrepaal & Co. Dorrepaal & Co. would act as financial backer, as owner, or both at the same time. In many instances Dorrepaal & Co. had advanced money to enterprises partially owned by G.L. Dorrepaal himself. The same G.L. Dorrepaal who still owned 60% of the company and had provided an additional loan of f 1,000,000. As long as there was no interruption in the company’s cash-flow, business continued to run smoothly. Although DJB’s sudden credit restriction caused some concern, it could be dealt with because market conditions remained favourable. Dorrepaal & Co’s reputation was solid. This Semarang trading company served, in the eyes of many, as a good example of daring entrepreneurial behaviour. In the eyes of the KB Dorrepaal & Co. also constituted an ideal businesspartner, whose network of clients and contacts were welcomed to support the KB’s fledgling business operations. The KB even contemplated taking over Dorrepaal & Co’s business. In 1881 talks were held in Amsterdam with the old patriarch, G.L. Dorrepaal, and an associate of the company, J.H. de Kanter. In September 1881, however, Hudig figured a take-over would probably not succeed. A major obstacle was the company’s ownership of planatations. By statute the KB could not possess agricultural enterprises. Splitting up Dorrepaal & Co.’s business interests <UN><UN> <UN> crisis and adaptation (1884–1890s) 109 82 NA/KB 883: 31–32. 83 BI/DJB 49 No. 49: 330–333. 84 Ibidem: 331. seemed a way out, but the option was rejected outright by the associates of Dorrepaal & Co. G.L. Dorrepaal himself was at any rate opposed, since a take-over by the KB would mean losing the name Dorrepaal which he found unacceptable. In the end the negotiations faltered. A business relationship was nevertheless established soon afterwards. At the end of February 1882 the KB agreed to a one-year loan of f 300,000 which was repeatedly prolonged.82 On 30 January 1882 the position of Dorrepaal & Co. was once more under critical review by DJB.83 The immediate cause was Mirandolle’s request for an additional credit of f 300,000. DJB had extended this credit for the last three years, although it was considered a temporary measure in order to alleviate minor payment difficulties. Mirandolle’s letter to Director A.A. Buijskes was not well received. Acting President Buijskes argued against prolongation of the loan. His reasoning gives a rare insight into the root causes of Dorrepaal & Co.’s accumulating problems acknowledged almost two years before the actual demise of the company. Buijskes identified a number of problems which would take several years to sort out. First, there was the principal consideration of not using a short-term loan for long-term purposes. Approving the same credit for the fourth time would be tantamount to a continuous credit. Second, if guaranteed sufficiently this did not have to be problematic, but determining the solidity of guarantors remained troublesome. In the case of Dorrepaal & Co. the second consideration was of greater importance. According to Buijskes, the sheer volume of the company’s business combined with its diversity complicated matters considerably. In addition, he expressed an acute awareness of: […] the extreme difficulty – indeed – sheer impossibility of acquiring accurate knowledge of the relations between planter and money lender.84 Buijskes continued by saying that most of the credit extended by Dorrepaal & Co. was not guaranteed at all and in the case of difficulties would come to bear on the company itself. In other words, there was no safety net. Dorrepaal & Co. had large resources at its disposal, but in case of a calamity it would take months, if not years, to straighten things out. Buijskes’ third consideration touched upon the problem of credibility. He claimed that the company’s credibility originated from the founder’s personal <UN><UN> <UN> 110 chapter three 85 Ibidem. 86 BI/DJB 49 No. 53: 351–353. fortune, and he was of an advanced age. G.L. Dorrepaal could pass away in the foreseeable future, leaving the company without his influence, reputation and money. Buijskes concluded by pointing out that Dorrepaal & Co. was committed to more than 90 enterprises. These commitments did not consist of uniform contracts. Instead, a bewildering variety of arrangements (debentures, bills of exchange, promissory notes, etc.) had been concluded. In Buijskes words: […] something that – in case of a possible disruption of the regular state of affairs – will give rise to such a chaos of complications, that it will not be possible to work out what will come of it […].85 He therefore strongly urged discontinuing Dorrepaal & Co’s credit. With President Van den Berg not present at the time the decision was postponed until further notice. It would take a month before the matter was taken up again. On 24 February 1882 N.P. van den Berg addressed the issue of Dorrepaal & Co at the weekly meeting of DJB’s Board of Directors.86 Although partly agreeing with Buijskes, he did not share all of his objections. Above all, he found it implausible that the general public would react extremely to G.L. Dorrepaal’s death. No such thing had happened when G.L. Dorrepaal resigned in the late 1870s which offered enough reassurance. Besides, provisions had been made to prevent G.L. Dorrepaal’s capital from being withdrawn upon his death. This capital would have to stay in the company another eight years, contributing to the stability of Dorrepaal & Co. Buijskes’ reaction was one of caution. The general public, far less familiar with the histoire intime of the company, would surely adjust its opinion concerning the reliability of Dorrepaal & Co. upon hearing of the death of its founder. As far as he could tell, G.L. Dorrepaal was still highly regarded by the public. D. Groeneveld – like Buijskes a member of the Board of Directors – opined that Dorrepaal & Co’s account with DJB had amounted to f 800,000 over the last few years. Including the extraordinary loan the account had more than once risen to f 1,200,000. A “colossal amount” according to him that he would not like to see in the books again. Nevertheless, he favoured accommodating Dorrepaal & Co. with the required f 300,000 provided that such a request would not be granted again in the future. After this <UN><UN> <UN> crisis and adaptation (1884–1890s) 111 87 See the earlier described conflict between Directors and Commissioners of DJB in 1878–1879 on the matter of extending loans to agricultural enterprises. was decided DJB’s agent in Semarang was authorized to extend credit up to f 200,000 immediately. N.P. van den Berg’s favourable standpoint regarding credit extension for trading and agricultural purposes might be contributed to his past working environment. Before accepting the position of President of DJB in 1873, he had been the Chief Agent of the NIHB in Batavia from 1864 onwards. His first hand knowledge with regard to the (financial) needs of private enterprise derived from this position. We can probably date his first encounter with agricultural enterprise as early as 1864. Van den Berg’s brother-in-law was Karel Frederik Holle, a famous entrepreneur in the history of the Netherlands Indies. He was a man of many talents. Holle was active as a scholar, educator, admirer of the Sundanese culture, active promoter of new agricultural methods and poetry. He also became famous as a tea planter with his own plantation ‘Waspada’. He had been the administrator of another tea plantation ‘Tjikarang’ since 1858 and achieved fine results with new cultivation methods. However, like everyone else, he needed working capital (Van den Berge 1998). For this he turned to N.P. van den Berg, who was not only his brother-in-law, but also a good friend (Van den Berge 1998: 30–32). The two men had a close personal relationship and Van den Berg described Holle in one of his letters as one of the noblest men he had ever met. Van den Berg supported Holle’s request for an advance wholeheartedly and tried to convince the NIHB of the soundness of his and Holle’s plans. Management in Amsterdam was hesitant and sent Van den Berg a letter on 7 June 1864 warning him not to let his judgement be influenced too much by feelings of friendship. Van den Berg persisted and emphasized the increased competition of the NHM. In December 1864 the loan was approved and the consignment contract was signed on 4 January 1865. Holle was in business. Van den Berg soon found out that the policy of the NIHB had not essentially changed. Its Directors remained reluctant to advance money to agricultural enterprise and were not prepared to sign any more consignment contracts (Korthals Altes 2004: 91; Van Zwet 2004: 114). The risks were considered too great and the rewards too small. Van den Berg’s next job at DJB gave him more opportunities to support private enterprise, although DJB was severely restricted in this field of operations.87 Short-term credit, for the benefit of trade only, with sound and tightly guarded security was the <UN><UN> <UN> 112 chapter three 88 BI/DJB 52 No. 92: 488, 497, 509. 89 J.A. van der Linde – who started out in Semarang in 1860 – and J.C. Teves had become partners in 1875 and traded primarily in ironware and utilities for factories and agricultural enterprises. They also traded in general import products, but most of this business was soon abandoned. Upon Van der Linde’s death in 1880 the company was restructured the following year. Dorrepaal & Co. furnished part of the starting capital whereupon A. Mirandolle acted as a ‘silent partner’ (Gedenkboek Lindeteves –Stokvis 1939: 1–2; Kind 2000: 11–12). norm. As seen, exceptions could not be avoided. With Dorrepaal & Co.’s agricultural interests becoming more important, the security it offered became increasingly linked to these same interests. Strict compliance to DJB’s statutes would have forestalled such loans, but management closed its eyes and bent the rules somewhat. Van den Berg played an important role here. During his years as President of DJB he was undisputedly in control, although President and Directors got along quite well, and weregenerally of the same opinion. Disagreements hardly ever occurred. The discussion regarding the extra credit for Dorrepaal & Co. was unparalleled. In the few years before the eruption of the crisis, Dorrepaal & Co. went about their business as usual. The company did not have to ask for additional funds. Business, however, was conducted on an ever larger scale and the agricultural commitments became vast. Though described as a general import-export firm, Dorrepaal & Co. had become the largest financier of agricultural enterprise in the colony. Its import business had withered away completely and both in absolute and relative terms amounted to almost nothing.88 At the end of 1884 a financial survey of Dorrepaal & Co showed imported goods worth a total of f 850,000. This total included f 300,000 worth of goods imported on behalf of the company Van der Linde & Teves. Dorrepaal & Co. – personified by A. Mirandolle – was an associate in this Semarang-based firm. At the time of the crisis of 1884 it had invested f 10,000 in the company and was entitled to 25% of its profits. Dorrepaal & Co. had co-founded it on 28 April 1881 in order to provide machinery, materials and other necessities to its many clients in agricultural enterprise.89 A large and quite expensive stock was maintained at all times to that effect. Another f 28,000 was spent to import gunny bags for the transport of agricultural products. In other words, almost 40% of total imports was directly related to Dorrepaal & Co.’s agricultural commitments, leaving a mere f 522,000 for the import of other goods (e.g. butter). This was a negligible 3% of total assets, which were conservatively estimated at f 17,200,000. <UN><UN> <UN> crisis and adaptation (1884–1890s) 119 114 NA/KB 883: 71; BI/DJB 52 No. 51: 205–206; BI/DJB 52 No. 92: 487. The help offered by the NIS was continued for several years. In November 1886 its management wrote to all sugar manufacturers in the Principalities that it would again lower its freight rate for sugar transports with regard to the 1887 season. In practice this meant a reduction of transport costs per picol of sugar of up to 26% (NA/NHM 7963). 115 NA/KB 883: 96; BI/DJB 52 No. 92: 484, 497–498. 116 NA/KB 883: 162–168. 117 On 30 August 1886 the Semarang agent of the NHM confirmed the acute shortage of capital in a letter to Batavia. He had been informed that the Dorrepaalsche Bank used its working capital for all kinds of other purposes. (For instance, three factories accredited f 475,000 on 3 April 1886 had received only f 262,000 at the end of July.) The owners’ discontent started to grow and he was confident that these relations could be taken over by the Factorij with relative ease (NA/NHM 2444 No. 456; Bosma and Raben 2003: 253). produce from the field to the ports of shipment. Transport was done by rail. In order to lower the freight charges of the railroad companies, these firms were petitioned as well. The freight rate had been a source of complaint, but was now becoming a real burden with cost price exceeding the selling price. This burden is exemplified by Fokker’s estimation of Dorrepaal & Co.’s freight charges for the second half of 1885 which amounted to f 900,000. When the Nederlandsch-Indische Spoorwegmaatschappij (NIS) decided to lower its rate for sugar transports in 1885, he wrote in his report to expect a reduction of transport costs of f 200,000 to f 300,000.114 On 28 December 1884 it became known that through the combined forces of the Amsterdam financial elite additional capital (f 2,000,000 ) had been obtained. This persuaded Fokker to advise positively regarding an extra credit of f 1,000,000 to f 1,500,000. In the end the NHM negotiated a take-over of the consignment business of Dorrepaal & Co. and advanced f 2,000,000 on 400,000 picols of sugar. In other words, paying f 5 per picol.115 Dorrepaal & Co. had finally been restructured into the Dorrepaalsche Bank der Vorstenlanden. However, this was not the end of the story. The Dorrepaalsche Bank continued to struggle with a shortage of capital. By the end of 1885 an additional credit of f 3,000,000 was needed to finance its agricultural commitments. The NHM provided the money by concluding a new consignment deal. In July 1886 the company was bailed out again by the Dorrepaal family with f 1,000,000. One of the conditions was that Mirandolle, who had been sidelined when the Dorrepaalsche Bank was formed, became the new Director (De Bree 1928–1930: II 265–266; Bosma and Raben 2003: 253).116 Of course, these ad hoc solutions did not solve the chronic capital shortage of the Dorrepaalsche Bank.117 More drastic measures were <UN><UN> <UN> 120 chapter three 118 NA/KB 883: 165–166. 119 See also NA/KB 916. demanded. A reorganization plan was announced on 11 August which converted the Dorrepaalsche Bank into the Cultuurmaatschappij Dorrepaal. Shareholders and debenture holders were not enthusiastic and this sealed the company’s fate. Suspension of payment was granted on 3 September 1886 for a period of one year. The firm faced a total loss of f 7,000,000. In September 1887, the management of the Dorrepaalsche Bank declared itself bankrupt. A new company by the name of Cultuurmaatschappij der Vorstenlanden (at some point the name Dorrepaal had been lost) would be its successor. Since only 30% was offered to pay for any outstanding debt of the dissolved Dorrepaalsche Bank, most creditors decided to participate in this new enterprise. On 1 March 1888 the Cultuurmaatschappij der Vorstenlanden was founded with total assets valued more than f 6,000,000 lower than its predecessor (Bosma and Raben 2003: 254; Helfferich 1914: 143–160). The Dorrepaal family did not participate in this company. In early 1887, it had established the Klattensche Cultuur Maatschappij into which the privately owned enterprises (i.e. the ones not included in the debt settlement) were absorbed. Mirandolle was in charge of product sales which he soon turned into a separate company. From 1 January 1889 the trading company Mirandolle Voûte & Co., official representative of the Klattensche Cultuur Maatschappij, was in business in Semarang.118 The Crisis Prolonged: Sing Liong & Co. The commotion surrounding the financial reorganization of the agricultural export industry peaked in the first few months after the price of sugar plummeted (Colenbrander and Stokvis 1916–1917: II 144–147). Attention in the Netherlands was overwhelming. Newspapers reported frequently, if not daily, on the subject. A quick look at the issues of Dutch newspapers – e.g. Algemeen Handelsblad, De Nederlandsche Financier, Het Nieuws van den Dag, or De Amsterdammer – shows that during the last two months of 1884 and in early 1885 the crisis was considered hot news.119 Soon after interest started to subside and finally dwindled away. The crisis ceased to appear on the front pages. The different committees installed to solve the situation did their job and were subsequently dissolved. Once again, business was conducted behind closed doors. <UN><UN> <UN> crisis and adaptation (1884–1890s) 121 The massive financial restructuring of the agrarian export sector did not bring an immediate end to the crisis. At first instance, the consequences for the import side of the economy appeared negligible. In 1884 the total number of trade bankruptcies was 55 against 58 in 1883. There was a general sense of optimism among European and Chinese import traders. Many shared the belief that the sugar crisis was a momentary deviation caused by short-term speculation on the part of wholesale exporters. Few foresaw the tenacity of the depression and no one predicted it to last well into the 1890s (Rush 1990: 179–183). Statistical evidence published in 1889 shows how unwarranted the feeling of optimism was. The effects of the crisis had only been delayed and the import sector was hit by numerous bankruptcies (see Table 3.4). Chinese traders figured prominently in this deteriorating situation. European wholesale traders experienced great problems in reclaiming their outstanding loans. Often less than 10% of extended credit could be retrieved. In 1887 75% of defaulting Chinese traders could not even accomplish that. Consequently, wholesale importers had to curtail their expenditures, not only because of outstanding debts, but also because money had become less available. The financial sector increasingly regulated its activities and the banks were more careful than ever in credit approval. The wholesale import companies soon started to feel the shortage of cash. Among them was the trading firm Soesman & Co. which suspended payment on 21 November 1886 after more than 50 years of commercial Table 3.4. Trade bankruptcies in the Netherlands Indies, 1883–1887. Chinese bankruptcies Total retrieved debts % of total bankruptcies partially retrieved less than 10% retrieved 1883 58 38 (66%) 36 (95%) 21 (55%) 1884 55 38 (69%) 33 (89%) 17 (45%) 1885 99 66 (67%) 64 (97%) 32 (48%) 1886 113 77 (68%) 77 (100%) 31 (40%) 1887 110 69 (63%) 17 (25%) 5 (7%) Source: De Indische Gids 11 1 (1889) 1083–1084. <UN><UN> <UN> 122 chapter three 120 NA/NHM 7981 No. 241. 121 Ibidem. 122 Ibidem. activity (Mansvelt 1938: Bijlage 1).120 Soesman & Co. was a renowned and experienced import company in Central Java with a head office in Semarang and two branch offices in Solo and Yogyakarta. It had experienced no problems late 1884 and displayed no signs of payment difficulties. Still, it did not survive the crisis unscathed. At the end of 1885 the company closed its books with a total capital of f 887,000 of which 44% (f 386,000) had a short-term character. In other words, a significant percentage of its funds could be claimed by creditors at short notice. In addition, the company had extended credits to the amount of f 504,000. No harm was done as long as the instalments were paid on a regular basis. The situation changed rapidly in the first 10 months of 1886. Soesman & Co. suddenly experienced problems in payment from its debtors and could thus hardly meet the expiry dates of its own debts. The explanation offered, illustrates the general economic circumstances in Java following the crisis of 1884. […] the difficulties the firm finds itself in, can be attributed in principal to two causes, both of them a consequence of the current unfavourable circumstances. 1. the credit the company used to have at its disposal, is drawn back, which appears from the termination of deposits, whereas the facilities the company used to enjoy from houses here [trading companies in Semarang] when buying goods cannot be counted on anymore. 2. the debtors are paying less and less, manifesting itself particularly in the case of the indigenous princes and elite all involved in agricultural enterprises.121 From January to October 1886 average repayments of debtors amounted to approximately f 28,000 a month. The monthly sales figures on the other hand came close to an average of f 30,000. However, these goods were not paid for in cash upon receiving them. In other words, extra credit of about f 2,000 had been involuntarily extended whereas a contraction would have been more appropriate. No improvement was foreseeable and dissolving the company seemed the most sensible option. This course of action was justified, because: […] it offers more opportunity to act powerfully against debtors, more especially the indigenous princes and elite, so that important payments from their part can take place, without running the risk of losing their very profitable clientele in case of a continuation of the business.122 <UN><UN> <UN> crisis and adaptation (1884–1890s) 123 123 BI/DJB 57 No. 79: 290. 124 BI/DJB 58 No. 5: 16; BI/DJB 58 No. 14: 48; BI/DJB 58 No. 18: 61; BI/DJB 58 No. 32: 114. Unfortunately, the archive of DJB contained only the information book of Surabaya compiled in 1890. Whether the other books have been lost, misplaced or deliberately destroyed during the Pacific War remains a matter of speculation. Adverse external circumstances had made Soesman & Co.’s position untenable. This happened with such speed that owners and creditors alike were taken by surprise. A number of internal measures were considered, like economizing on expenses or curtailing the field of operation, etc. Such arrangements would undoubtedly have given the company some breathing-space. The proposals were nonetheless rejected since it would take too much time to produce the required results. Creditors would soon start retrieving their loans instead of prolonging them for fear of losing their claims altogether. The Chinese retail traders found themselves in a similar position. The situation in the Chineesche kamp (Chinese residential area) was therefore monitored closely. Bankers and traders paid scrupulous attention to any rumours regarding their Chinese clients. DJB recognized the need for more systematic retrieval and storage of information. Inspection of the agencies and their clientele was regularly conducted and had proven its value. DJB now started to pay even more attention to its clients’ status. Over the years, agents had informed the head office about their clients in case of “certain changes” such as a delay in payment or rumours about a possible bankruptcy. This method had become outdated. The economic situation as well as the expansion of DJB’s field of operation and its complex business dealings demanded more up-to-date information at immediate disposal. In February 1890 the subject was raised by President S.B. Zeverijn.123 According to him more should be done to ensure adequate information retrieval. From now on all agents had to keep records of their clients’ status in ‘information books’. These should be sent to Batavia, where the head office intended to compile a register of all companies and traders with whom DJB did business. Any firm or person considered important enough to be a potential client were to be included as well. The register would provide an immediate overview of a client’s financial position and greatly facilitate future decisions regarding proposed transactions. Zeverijn’s suggestion was put into effect and within a few months the first information books from Makassar, Surabaya, and Semarang were recieved.124 The usefulness of the register proved itself in practice and <UN><UN> <UN> 124 chapter three 125 BI/DJB 74 No. 41: 225. 126 In most instances a wooden block hammered on, to alarm people in case of distress. needed to be revised a decade later. In August 1900, the agents were instructed to compile new information books using a standard format with regard to both content and outward appearance.125 DJB’s quest for information was only one attempt to enhance security. A refinement of regulations concerning the extension of credit was another. With bankruptcies rather common DJB was particularly aware of the need for sufficient surety. Each loan had to be covered to avoid financial risk. Obviously, this could not always be prevented, but the mistakes made in the case of the Chinese trading firm Sing Liong & Co. made it clear that there was much room for improvement. Sing Liong & Co. Around three o’clock in the morning on Sunday 11 June 1893 the inhabitants of Kampong Bahroe in Surabaya were rudely awakened by the sound of the tongtong,126 The warning signalled the outbreak of fire in one of the godowns located in their neighbourhood. When police and fire-brigade arrived on the scene, smoke and flames were bursting from the roof of the warehouse. With the flames spreading to other buildings the fire could develop into a full-blown blaze. The police managed to force the entrance and the fire could be extinguished before causing any serious damage. Soon it became obvious that arson was involved. Inside the warehouse – divided into two godowns under the same roof – the air was permeated with the smell of petroleum. Upon closer inspection it was discovered that the wooden beams under the ceiling had been wrapped with gunny bags, soaked in petroleum, whereas the gutters of the building had been filled with petroleum as well. Even more disturbing was the fact that the adjacent godowns had also been smeared with petroleum. Had the fire not been detected so early very little could have been done. A disaster had been prevented by a stroke of luck. Though the fire had started at the godown of Sing Liong & Co., its owners – Kho Swie Siang and Kwa Kok Ing – had no part in it. The investigation pointed to another Chinese trader, The Yang Hie, whose godown was situated in the same building. The rice in store at this location had been insured by him for f 155,000. A recount showed that the amount of rice present was only worth f 3,000. The Yang Hie was detained upon suspicion <UN><UN> <UN> crisis and adaptation (1884–1890s) 125 127 BI/DJB 63 No. 26: 129; BI/DJB 63 No. 63: 324; SH, 12-06-1893, 13-06-1893, 14-06-1893, 19-06-1893, 21-06-1893, 23-06-1893. 128 BI/DJB 63 No. 26: 129. 129 BI/DJB 63 No. 38: 202–206. of insurance fraud, but denied all charges brought against him. However, it took the police less than a week to find out that he had indeed masterminded the arson. Repeated questioning of The Yang Hie’s Chinese employees led to the arrest of two Madurese day labourers, who subsequently confessed to the crime. According to their statements, they had been promised f 300 each in advance and f 500 after the job had been done. The Yang Hie had provided them with the petroleum and given specific instructions how to proceed. In order to avoid suspicion, the fire had to be lit at Sing Liong & Co. by breaking and entering through the roof. With this kind of evidence, The Yang Hie’s denial was hardly convincing. The judicial process did not take long and in September 1893 The Yang Hie and his accomplices were convicted to fifteen years of hard labour.127 When the DJB head office first learned of the events in Surabaya, the Directors did not seem worried. President and Directors discussed the situation on 19 June 1893 after having received the necessary information from the Surabaya agency.128 According to the agent – H.J.J. Hepp – the fire had done little damage and what damage there was could be reclaimed from the insurance companies. This applied specifically to Sing Liong & Co., which had been advanced f 73,000 with rice as collateral. The President added that DJB had no engagement with The Yang Hie and no financial losses could be incurred from his criminal actions. But Hepp had been less than frank when writing that the advanced sum was fully covered. The day after the fire he had become aware of a deficit in the quantity of rice stored at the godown of Sing Liong & Co.129 Instead of reporting this, he bought himself time by ordering a recount. The reason for this will become clear in the following account which takes us back to the scene right after the outbreak of the fire. Despite the early hour many people could be found in the street shortly after the alarm had been given. Among the curious crowd gathered to watch the fire, one person was professionally interested in the spectacle. V. Eweg had only recently been employed at the Surabaya agency of DJB with the task of guarding the collateral on the basis of which credit had been extended. He had been alerted by J.K. Herman, the bewaarder (keeper) of the godowns, who had come to his house within hours after <UN><UN> <UN> 126 chapter three 130 Ibidem. 131 BI/DJB 63 No. 37: 194. 132 Soerabaiasch Handelsblad (SH), 14-06-1893. 133 BI/DJB 63 No. 29: 145; BI/DJB 63 No. 30: 150. 134 This is what happened when Eweg reported a deficit in the godown of Ong Kong Wan on 17 May 1893. Ong Kong Wan had been advanced f 15,000, but upon inspection it turned out only about one-third of this amount was covered. DJB immediately cancelled the contract and demanded to be reimbursed before the end of May. Ong Kong Wan could only acquiesce and repaid the loan by 7 June in two instalments of f 12,000 and f 3,000 (BI/ DJB 63 No. 38: 203). 135 BI/DJB 63 No. 28: 141; SH, 26-06-1893. the fire. Upon hearing the news Eweg left as soon as possible to have a look himself.130 Upon arrival he realized there was little he could do besides notifying his superiors. The next day Eweg visited the storage of The Yang Hie and Sing Liong & Co. again accompanied by Hepp himself. A first glance at the sacks of rice, damaged by petroleum and water, convinced them that something was seriously wrong. Clearly, there was a deficit but the disorder inside the godown did not permit an estimate at that time. The only thing to do was to order a recount and find out exactly how much was missing. A deficit of minor proportion was not uncommon. In general the kind of loan Sing Liong & Co. had been given, was only authorized on a number of conditions. First and foremost, there should always be a 20% surplus value of products and/or goods against the money extended.131 In other words, the f 73,000 credit from DJB, had to be covered by an amount of rice with an estimated market value of f 91,250. With the prevalent market price in Surabaya at approximately f 1,000 for 300 picols of rice, there should be 27,000 picols of rice.132 The question was whether this amount was actually present. The recount carried out under the supervision of Eweg took some time and was not finished until 28 June 1893. The final outcome was worse than expected. Sing Liong & Co. was over 40% short, which amounted to 11,000 picols of rice with an estimated market value of f 37,000.133 This entailed a breach of contract and DJB would normally terminate the existing agreement and demand an immediate reimbursement of the loan.134 Unfortunately, this procedure could not be followed, for Sing Liong & Co. had been declared bankrupt two days before on 26 June 1893.135 President and Directors of DJB first learnt of the deficit and possible fraud of Sing Liong & Co. in a telegram informing them of the firm’s bankruptcy. In a rather angry reply additional information was urgently requested. Within days the events leading up to the present situation were <UN><UN> <UN> crisis and adaptation (1884–1890s) 127 136 BI/DJB 63 No. 29: 144–146; BI/DJB 63 No. 30: 150–152. 137 Ever since 1855 the Netherlands Indies judicial system allowed Chinese businessmen to file for bankruptcy themselves. This was a common feature in the trading sector at large. Approximately three quarters of the total number of pronounced bankruptcies in the Netherlands Indies for the period 1883–1887 had been initiated by the defaulter himself (1883: 74%; 1884: 76%; 1885: 71%; 1886: 76%; 1887: 86%). This practice was a source of aggravation for many European wholesale traders, fearing fraudulent intentions from the side of the Chinese. As late as August 1892, J.W. Young – working as a translator of Chinese in Semarang – had fulminated against it, pleading for a change in the law in order to offer more protection against suspected Chinese bankruptcies (Meeter 1881: 64–64, 67; De Indische Gids (IG) 11 1 (1889) 1083–1084; TNI 21 2 (1892) 244–245). 138 SH, 12-06-1893. 139 BI/DJB 63 No. 38: 204. pieced together.136 It transpired that Kho Swie Siang and Kwa Kok Ing had fallen out with each other. Kwa Kok Ing, who suffered from an illness, accused his associate of embezzling the company’s money and financial records during his absence. In an effort to secure his property, he had seized the rice godown by court order whereupon Kho Swie Siang had filed for bankruptcy. Reimbursement from the two partners in the Chinese firm was now impossible.137 The only person who could be held financially accountable, was J.K. Herman. As keeper of Sing Liong & Co’s collateral, he had failed to make sure that nothing was moved in or out of the godown without proper registration. However, with hardly anything to his name, the sale of his assets would not be enough to compensate DJB. In short, a financial loss could not be avoided and the resulting damage had to be covered by DJB itself. The head office was not content to leave it at this and pressed for firm action. Negligence was suspected and for good reason. The local newspapers of Surabaya were read in Batavia with great interest. The Soerabaiasch Handelsblad (SH) reported almost daily about the fire and its aftermath. Its coverage started with an article on 12 June and DJB’s management must have been extremely intrigued by the concluding line: Conspicuously, from a writing desk in the godown all the books, papers, etc. had disappeared. Saved in time or stolen, one wonders.138 As a result of the following investigation, Kho Swie Siang was arrested. The company’s records were never retrieved and Eweg’s attempts to obtain the godown’s registry remained fruitless.139 When exactly the rice had been moved and who had been involved could not be ascertained. Agent Hepp was getting increasingly worried. The head office was running out of patience and not prepared to accept more delay. Hepp’s delaying tactics can be understood when we take his nomination as Director of <UN><UN> <UN> 128 chapter three 140 BI/DJB 63 No. 30: 151. 141 BI/DJB 63 No. 31: 153–154. 142 BI/DJB 63 No. 33: 166; BI/DJB 63 No. 38: 202. 143 Nevertheless, Noothout had been compromised by the whole affair and rumours – originating from Eweg – concerning his alleged shameful behaviour started to circulate in Surabaya. In the end, his once promising career at DJB proved to be short-lived, because in 1894 his employment was terminated (BI/DJB 63 No. 37: 193–194; Regeeringsalmanak voor Nederlandsch-Indië 1894, 1895). DJB in consideration. His successor had already arrived in Surabaya and everything had been arranged for his departure to Batavia on 3 July. The shock must have been great when he received a telegram on 30 June telling him to remain in Surabaya.140 Hepp was instructed to wait for a list of questions pertaining to the matter of Sing Liong & Co. drawn up by President and Directors. The earlier dismissal of Herman had not sufficed to soothe the matter. Since the agent was ultimately responsible, Hepp probably feared a reprimand or even worse. He was fully aware of the fact that he had not been installed yet as Director of DJB. With his career in jeopardy Hepp found an easy scapegoat in the person of Eweg. So far Eweg’s conduct had not been criticised and Hepp even suggested appointing him in the former position of Herman. Suddenly, Hepp’s favourable opinion of Eweg changed.141 He accused Eweg of having played an ambiguous role and of having tried to mislead him. Eweg tried to refute these allegations. According to him he had informed the deputy agent E.M.A. Noothout twice about a possible deficit at Sing Liong & Co.’s, but to no avail. Noothout flatly denied this and Eweg was not believed. In fact, it hardly mattered whether Eweg told the truth or not, because he had compromised himself to such an extent that his pleas seemed unconvincing.142 Eweg had been employed by DJB less than a year. He and his family had arrived in Surabaya in 1892. Faced with the costs of renting and furnishing a place to live, Eweg ran into financial problems. He decided to borrow money from a befriended Chinese trader. It turned out that he had taken up a private loan of f 250 with none other than Kwa Kok Ing. This was deemed unacceptable. Eweg was fired instantly, although there remained some doubt whether or not he had really conspired with Sing Liong & Co. The President and Directors even expressed pity for him and his family. No charges were brought against him and an earlier advance on his salary was written off. In addition, he was given six weeks pay. In the case of deputy agent Noothout inquiries were made as to his suspected negligent behaviour, but no further disciplinary measures were taken.143 Hepp got <UN><UN> <UN> redefining dutch-chinese commercial relations (1890s–1910) 231 157 Busy shopping street in Semarang just north of the official Chinese settlement area across the kali Semarang where many Chinese lived and worked ever since the first decades of the nineteenth century. Running north-south this street connected the European commercial area with Semarang’s China town (Widodo 1988: 6, 8, 13, 20, 31). Kilsdonk’s argument essentially comes down to the reassurance that So Kim Seng owed his debt to Semawis and the Generale and not to the banks. All the more reason, according to Kilsdonk, not to linger and simply await the banks’ collection of this amount which will earn him nothing. So Kim Seng, however, denies that he is not obligated to either the Chartered Bank or the NIEM and points out that he has certainly benefited from the extended credit. After all, the money in question was received in the form of merchandise enabling him to conduct his trading business. He himself may not have had any business with the banks, but could this dismiss him of all responsibility? Besides: S.K.S.: Apakah toean djoega tida kasihan kalau saja moesti meroegikan pada marika itoe? K.: Tida, soedah begitoe moestinja. Bagaimana sobat sobat poenja teman teman di Pekodjan157 soedah berlakoe. Marika itoe kebanjakan soedah djatoh, tapi mendapat oentoeng besar dan merasa senang. Sobat tida bisa bersaingan dengan marika itoe dan lama lama sobat akan djatoh dengan terpaksa. S.K.S.: Don’t you too feel sorry, when I cause them such a loss? K.: No, it has to be like this. Don’t you have friends in Pekodjan where this has already happened? Many of them have already fallen, but they have profited greatly and are feeling fine. You cannot compete with them and sooner or later you will be forced to shut down. S.K.S.: Seandainja saja maoe membikin accoord; dengan berapa percent kira kiranja saja poenja crediteuren ada merasa senang? K.: Kalau sobat memberi 60 percent, semoea tentoe soeka dan malah marika membilang terima kasih djoega. S.K.S.: Suppose I want to settle; with how much percent approximately can I satisfy the creditors? K.: If you give them 60 percent, they will all certainly like it and they will express their gratitude as well. Upon hearing this percentage So Kim Seng starts to laugh. While chuckling he makes it very clear that this is not what he had in mind and therefore unacceptable. <UN><UN> <UN> 232 chapter four 158 It cannot be ascertained with certainty whether this outcome was actually intended by the HVA as it would have required intimate knowledge of the financial position of both companies. However, it is not unlikely that the HVA had obtained such information or had picked up rumours on the subject. Compared to the HVA, the losses ‘Hoppenstedt’ and ‘Soenda’ had incurred as a result of defaulting clients were significantly higher and must have been of graver consequence considering the larger resources of the HVA (Table 4.3; SH, 12-08-1908). S.K.S.: 60 Percent! Boeat sebegitoe tida haroes saja failliet. Tida; kalau saja failliet saja maoe dapat oentoeng lebih dari itoe. Dengan 60 percent oentoeng saja tida seberapa besar. K.: Hal itoe sobat boleh timbang timbang lagi. Sekarang jang terlebih perloe iaitoelah bahoea sobat djangan membajar pada saja pada tanggal 12, soepaja saja bisa soeroeh membeslag. Kalau soedah, saja berminta pada firma jang lain akan bikin accoord. S.K.S.: 60 Percent! This way I do not need to default. No, if I default I want to get more profit than that. With 60 percent my profit is not that much. K.: That matter you may reconsider. For now, the most important thing is that you do not pay me on the 12th, so that I can order the seizure. If that is taken care of, I will ask whether the other firms agree with a settlement. At this point in the conversation So Kim Seng appears somewhat confused. Seemingly unable to make up his mind, he remains silent for a while. By now, Kilsdonk has had enough of the indecisive behaviour of the Chinese. When So Kim Seng changes the subject and asks whether he can receive part of his merchandise in storage at the HVA godown, the answer is very short: K.: Tida boleh; lebih doeloe sobat moesti failliet. K.: That is not possible, first you have to default. What can be concluded from the scene depicted above? The situation was obviously an attempt from the side of the HVA to profit from the extremely precarious trading situation in Semarang. By persuading one of its Chinese customers to default, the competition would have been dealt yet another blow. It was even alleged that if this scheme had succeeded two competitors – the Firma G. Hoppenstedt and the Import Maatschappij Soenda – would not have survived.158 Tellingly, these companies constituted So Kim Seng’s main creditors and in the process of doing business they had extended many thousands of guilders worth of merchandise to him. However, So Kim Seng’s financial position was undisputed as he <UN><UN> <UN> redefining dutch-chinese commercial relations (1890s–1910) 233 159 De Locomotief, 08-08-1908. 160 So Kim Seng certainly lived up to his creditors’ expectation as he was one of the very few to faithfully pay the banks the money he originally owed ‘Semawis’. On 7 August 1908 he had already repaid about f 5,994.78 of acceptances bearing his signature which ‘Semawis’ had used as collateral to obtain credit from the banks. According to Keuchenius this left only one more acceptance to the amount of f 2,000 to be paid on 10 August 1908 (BI/DJB 1346, 07-08-1908). owned a profitable cigar factory next to his trading activities. It was estimated that his assets totalled f 150,000 against liabilities of approximately f 50,000.159 With a threefold coverage of debt So Kim Seng’s credibility was not being questioned by his suppliers. Besides, over the years So Kim Seng had acquired a reputation for paying his debts promptly and in time.160 Under the depressed circumstances of that time the HVA, like any wholesale import trader, was very happy to count So Kim Seng among its regular customers. But So Kim Seng conducted most of his business with ‘Hoppenstedt’ and ‘Soenda’. In order to break into these existing relationships the HVA could, for instance, offer lower prices and/or improve its credit facilities, but in the short rum these measures would certainly decrease profit. It would take time before a sufficient increase in turnover had been generated to compensate for this. In addition, the response of ‘Hoppenstedt’ and ‘Soenda’ would predictably lead to a long and drawnout conflict from which only So Kim Seng would benefit. The HVA thereupon decided to force the matter by bringing So Kim Seng down. This would ideally mean the end of ‘Hoppenstedt’ and ‘Soenda’, but at the least it would cripple their financial position and thereby their competitiveness. As it turned out So Kim Seng put up much more of a fight than the HVA had expected. On Wednesday 5 August 1908, the day before the conversation reported above, the HVA had made its first move by serving So Kim Seng a summons to pay a small debt of f 500 which had expired 5 days before, deliberately not sending a reminder beforehand, even though this was customary. As another precaution the claim was made at half past five in the afternoon when money could no longer be withdrawn from the banks. Fortunately So Kim Seng had enough cash in the house to pay the debt, but this was refused to his astonishment. Realizing that he had to act immediately, So Kim Seng went to H.J. Valkenburg, the manager of Import Maatschappij Soenda, and asked him for advice. Valkenburg decided the best thing to do was to call in the help of a lawyer and that very same evening both men paid a visit to laywer J.H.L. Bergsma. With his help a <UN><UN> <UN> 234 chapter four legal document was drawn up recording the evening’s events, whereupon So Kim Seng officially handed over f 500 to Bergsma. We can only guess what kind of discussion took place in the office of the HVA the following day. The plan had failed miserably first of all because So Kim Seng had possessed sufficient cash. Moreover, because of his swift reaction the existence of a legal document now precluded an appeal to the court for outstanding debts. In a get-together the Semarang agent of the HVA, F.C. Drescher, and Kilsdonk decided that the only way to proceed was by obtaining the co-operation of So Kim Seng himself. Kilsdonk would point out to him the obvious gains in defaulting and offering a percentage. He could reassure So Kim Seng by promising that the moment he started a new trading business the HVA would gladly allow him a large credit account. With this message Kilsdonk appeared on So Kim Seng’s doorstep early in the morning of Thursday 6 August 1908. As we have seen, So Kim Seng reacted cautiously by indicating that he needed some time to think about the proposal he was suddenly offered. His request was generously granted by Kilsdonk and both men agree to meet each other again at two o’clock. In reality, So Kim Seng did not need any time to contemplate matters. As soon as Kilsdonk left his toko, he notified Valkenburg about the fraudulent scheme the HVA had worked out to the detriment of Import Maatschappij Soenda. Valkenburg wasted no time. He immediately informed agent Keuchenius of DJB as well as the agents of the other banks, and conferred with the manager of Firma G. Hoppenstedt regarding their countermove. In order to fend off the threat to their business they needed to prove malicious intent by the HVA. H. Dermout, deputy manager of Firma G. Hoppenstedt and M. Snijders of the Import Maatschappij Soenda, were instructed to overhear the conversation between Kilsdonk and So Kim Seng. Dermout and Snijders succeeded in arriving unnoticed at the Chinese toko a little before Kilsdonk, hiding themselves on the loteng (loft) directly above the court yard. When carefully leaning over they had an excellent view of Kilsdonk three metres below, as he sat on the bench and studied the goldfish. Completely unaware of the fact that the two men were listening to every word he says, Kilsdonk repeated the offer he had made to So Kim Seng a few hours before. The Chinese played his part well and no suspicion crept into Kilsdonk’s mind as he insisted that So Kim Seng had to declare himself insolvent. Kilsdonk assured him that a settlement of 30–40% was also possible and dismissed all his objections light-heartedly. Meanwhile, Dermout and Snijders in their unenviable position right under the hot zinc roof are <UN><UN> <UN> redefining dutch-chinese commercial relations (1890s–1910) 235 161 BI/DJB 1346, 07-08-1908; Pembrita Betawi, 12-08-1908; Kabar Perniagaan, 11 and 12-08- 1908; De Locomotief, 08-08-1908; SH, 12-08-1908. 162 De Locomotief, 10-08-1908; SH, 15-08-1908. See SH, 13-08-1908 for a contrasting point of view. registering the event. When Kilsdonk started to repeat himself and once again lent on So Kim Seng not to pay his debt of 270 guilders on 12 August they decided to expose Kilsdonk and show themselves. Sekarang soedah tjoekoep, So Kim Seng akan bajar oetang itoe, tapi kamoe H.V.A. kamiorang soedah tandai dan kelakoean maatschappijmoe kamiorang akan memaloemkan. Enough, So Kim Seng will pay that debt, but we have noted you HVA, and we will make the behaviour of your firm publicly known. Kilsdonk was dumbfounded, as if struck by lightning. So Kim Seng, quite understandably, was not feeling very comfortable either. The only thing Kilsdonk muttered before slinking away is di sumber geledek adanya (all evil is rooted in the source). After his departure the two witnesses headed for their offices to report events while So Kim Seng immediately disappeared to his cigar factory.161 The remark made by Kilsdonk is very interesting, not because of the attempt to justify his little conspiracy, but because of the implication that the prevailing trading conditions were at the core of the problem. What Kilsdonk seemed to imply was that all traders had been poaching on each other’s territory for years and that fake defaults accompanied by sluipaccoorden were part of the game. This view was adopted by several commentators after the affair had come out on Saturday 8 August with a publication by Dermout in De Locomotief. The tenor of their argument was that inexcusable though the deeds of the HVA were, only those without fault should throw the first stone.162 While this was generally acknowledged, most people disapproved strongly of the kind of methods the HVA had used, not least the Semarang Chinese who decided not to let this pass. On 27 August 1908, 28 Chinese merchants signed a notarial agreement which forbade any one of them to trade with the HVA. The conditions stated in the contract were similar to those in the Surabaya case of 1902 indicating that the participants meant business. The HVA was thus faced with another boycott. This time the signatories clearly aimed to make the boycott a truly general movement. Circulars were sent to Chinese traders in Yogyakarta and Solo and even in Surabaya and Batavia attempts were made to boycott the HVA. Considerable pressure was exerted to have all <UN><UN> <UN> 236 chapter four 163 SH, 01-09-1908; De Locomotief, 29-08-1908 / 01-09-1908. 164 BI/DJB 1346, 28-08-1908. 165 NA/HVA 1 Minute Book 4: 69; De Locomotief, 02-09-1908; SH, 04-09-1908. 166 NA/HVA 1 Minute Book 4: 69. 167 Kabar Perniagaan, 04-09-1908; De Locomotief, 07 and 09-09-1908; SH, 09-09-1908. 168 NA/HVA 1 Minute Book 4: 75; BI/DJB 1505, 15-10-1908; De Locomotief, 12-09-1908 / 13-10-1908; Pembrita Betawi, 12-09-1908; SH, 14-09-1908; Kabar Perniagaan, 15-09-1908. 169 Pembrita Betawi, 12-09-1908. traders participate in the movement. In Semarang, for instance, flyers were posted on every wall inside the Chinese settlement with calls to join the boycott and threatening everyone with the “heaviest punishments from the heavens” should they refuse.163 Drescher realized that things had turned for the worse. He had drawn courage from the opinion that virtually no trader had a clear conscience, convincing him that the affair would blow over. But now this prospect was shattered. The morning after the Chinese made their intention public Drescher visited Keuchenius and asked him to use his influence to break the boycott. Keuchenius declined, answering that with Surabaya in mind little could prevent the HVA from once again having to pay the f 25,000 which the Chinese demanded.164 As before, the HVA pulled every possible string in the hope of finding support. In the first days of September, J.H. Roodhuyzen – deputy manager of the HVA in Surabaya – travelled to Semarang where he tried to move the government into action, but officials instead advised Roodhuyzen to settle the matter amicably.165 With the government refusing to intervene Directors and Commissioners in Amsterdam decided that it was time for harsher measures. The minutes of their meetings indicate that they were especially worried about the company’s image. So far the financial consequences of the boycott were bearable as the boycotters cost the Semarang branch f 190,000 of turnover, about 7,5% of an annual total of f 2,500,000.166 However, the uproar seriously damaged the reputation of the HVA. Charges were therefore pressed against Dermout for deliberately misrepresenting the conversation between Kilsdonk and So Kim Seng, but only after Dermout had refused to voluntarily sign a statement to that effect.167 Almost simultaneously and in contradiction to this approach the HVA then proceeded to fire Drescher and Kilsdonk. The public took this as a confession of guilt and pitied the two men who, it was generally assumed, had only followed management directives.168 In the opinion of the Pembrita Betawi the company’s employees did not deserve to be punished for a policy designed by its management. The dismissal of Drescher would not help the HVA.169 <UN><UN> <UN> redefining dutch-chinese commercial relations (1890s–1910) 237 170 The Chineesche Handelsvereeniging (Chinese trading association) had been established on 31 December 1907. See for its statutes and an early list of its members in Chinese the Collection Vleming (Portfolio 16, Folder Chinees zakenleven) kept in Amsterdam at the IISG/NEHA. 171 BI/DJB 1505, 04-12-1908; Kabar Perniagaan, 04-09-1908; Pembrita Betawi, 12-09-1908; De Locomotief, 21-12-1908. 172 NA/HVA 1 Minute Book 4: 87; BI/DJB 1505, 04-12-1908. 173 See De Locomotief, 19, 21 and 22-12-1908 for an extensive exploration of this theme. 174 BI/DJB 1505, 04-12-1908; Bataviaasch Nieuwsblad, 03-12-1908; De Java-Bode, 03-12- 1908; De Locomotief, 04-12-1908; Pembrita Betawi, 04 and 05-12-1908; Kabar Perniagaan, 04-12-1908. 175 De Locomotief, 04-12-1908. In the meantime the boycott gained in strength. In Semarang 86 Chinese traders signed the contract during the first week of September. A few weeks later it was alleged that, barring a few exceptions, all Chinese within the city were involved. The rest of Java did not follow quite as enthusiastically and had to be persuaded with more difficulty. For this purpose members of the Chineesche Handelsvereeniging in Semarang170 even travelled to Yogyakarta and Solo to explain the boycott’s objectives and convince sceptics of its righteousness.171 In the beginning of October 1908 the Board of Directors of the HVA decided that the situation was growing out of control and needed to be investigated on the spot. Director Vroeg arrived in Batavia in early November, and was received by the Governor-General and President Vissering of DJB. Vissering confronted Vroeg with the fact that the HVA did not enjoy a good reputation in general. The company was accused of being too ‘sharp’ in business and both European and Chinese trading firms could muster little sympathy for it.172 DJB would not help out, but was prepared to explore the possibility of an understanding. It requested Kan Hok Soei, an influential Chinese landlord and rice trader, to contact the Chinese in Semarang and carefully inquire about the feasibility of lifting the boycott. In his letter to the Chineesche Handelsvereeniging in Semarang Kan Hok Soei mentioned that DJB was of the opinion that the boycott was starting to acquire the traits of a political campaign173 and reeked of extortion. Naturally Chinese feelings were inflamed after excerpts of this letter were leaked to the peranakan newspaper Warna Warta and DJB swiftly withdrew afraid of burning its hands.174 The HVA was left on its own and had to weigh its options. On 3 December it fired its Chinese cashiers in Semarang, because – as before in Surabaya – business information had been given systematically to the leaders of the boycott.175 However, there was actually very little it could do. <UN><UN> <UN> 238 chapter four 176 NA/HVA 1 Minute Book 4: 87-91. 177 BI/DJB 1505, 04-02-1909; BI/DJB 1346, 08-02-1909; Pembrita Betawi, 04-12-1908, 19-01-1909. 178 BI/DJB 1505, 08-04-1909, 06-05-1909; NA/HVA 1 Minute Book 4: 116–117. In Amsterdam three scenario’s were considered in a meeting on 19 December 1908. First, to buy off the boycott as had been done a few years ago. Second, to quit the import trade altogether. Third, to persevere and fight back as hard as possible. The first two options were discarded, because it would seem as if the HVA had given in to the Chinese. The third option essentially came down to a stubborn determination to continue business for as long as possible. No attempts were made to expand turnover by larger shipments or bigger credits, it was only permitted to sacrifice part of the profit by lowering the sales prices and underbidding the competitors to maintain the current level of turnover.176 At the end of January 1909, six months after the beginning of the boycott, DJB tried one more time to bring both parties closer to a solution. The situation had reached a deadlock; the HVA was financially too strong and too determined to be forced into surrender, but the same could be said of the Chinese. Moreover, their war chest was filled thanks to a small levy on each product sold and was skilfully managed by the Chineesche Handelsvereeniging. To discuss the boycott, Director Gerritsen of DJB travelled to Semarang on 29 January. He visited the President of the Chineesche Handelsvereeniging, the powerful Chinese sugar dealer The Ing Tjiang. The latter promised to bring the subject to the attention of the members. The results were however not encouraging and Keuchenius had to report that the HVA was still generally despised and even hated. It was his opinion that any new attempt to mediate would be utterly useless.177 The Ing Tjiang was a little more confident and decided to wait a few months. In April 1909 he raised the matter again, but this time the HVA in the person of Vroeg himself made a mess of it. Instead of letting The Ing Tjiang work quietly, he sent a rude letter to the Chineesche Handelsvereeniging. Its contents accused the association of lying to the HVA and claimed that several of its leading members were in charge of the boycott.178 This ruled out a timely solution. The boycott had to wither away and this might have happened. Unfortunately, the sources remain silent. However, the HVA sold its import business in 1910 (see Chapter 2, Paragraph ‘Wholesalers and retailers: Van Beek, Reineke & Co. / HVA’ and Chapter 5, Paragraph ‘The HVA and agricultural enterprise’). If the boycott was still <UN><UN> <UN> redefining dutch-chinese commercial relations (1890s–1910) 239 in force at that time, it would have died a silent death. It is interesting to speculate that the boycotts in Surabaya and Semarang contributed their share to the decision of the HVA to concentrate on plantation exports only. But the boycotts did demonstrate the economic strength and indispensability of the Chinese. In 1902 the Dutch still thought they could turn the tide; in 1908 they had recognized the inevitable. <UN><UN> <UN> the road to expansion (1910–1930) 247 10 The issue of disproportionate participation touches upon the important issue of compartmentalization and segregation within colonial society. In general colonial rulers need a mechanism to enable a small foreign group to rule over a much larger indigenous population. To achieve this, social groups are usually kept apart to prevent them from conceiving a common interest. The Dutch produced a hierarchical, race-based society which manifested itself in separate chambers of commerce, separate laws, separate taxation etc. In fact, all aspects of life were racially distinguished from train tickets to toilets (Vickers 2005: 25–30). One way of achieving this was by participating in representative institutions established by the Dutch after the Decentralisation Law of 1903. This law provided a legal basis for decentralisation of authority to the local level. The first municipal governments or municipalities (gemeenten) were setup in 1905, followed in later years by regency councils in rural areas. The creation of the Volksraad (People’s Council) in 1918 was the most obvious gesture towards decentralisation and increasing popular involvement in government. However, Indonesian participation in these councils was never proportionate to the size of their community and given the restricted powers of these bodies seemed unlikely to achieve independence.10 It can only be concluded that in the period under consideration the colonial state was faced with many questions for which it could find no solution. In J.Th. Lindblad’s view the authorities tried to reconcile what was mutually incompatible. Administrative reforms embraced both decentralization and bureaucratic rigidity. Economic liberalism did not prevent the authorities from interfering with local society and economy. An ethically inspired reform policy was accompanied by fiscal restraint and increasing political repression. In the end no-one was satisfied and colonial authority could only be maintained through tightening repression (Dick et al. 2002: 123). The Colonial Economy before 1914: The HVA in Trade and Agriculture In his account of DJB’s centennial L. de Bree characterized the 1890s and the first few years of the following century as “possibly the most worrisome period in the history of the Netherlands Indies.” When looking back upon those difficult years in 1928 the author’s recollection of the deep sense of malaise pervading the colony was still vivid. De Bree listed several factors responsible for the colony’s economic downturn, such as the unabated slump in world market prices, the recurring incidence of cattle and crop disease and an impoverished indigenous population. <UN><UN> <UN> 248 chapter five 11 For an overview of this discussion, see Booth (1998: 29–34). Agriculture – the colony’s ‘life blood’ – had been hit especially hard and its reorganization demanded great effort. But, De Bree reminded his readers that in the early 1900s agricultural enterprise had been put on a more solid footing and could finally view the future with more confidence. His assessment of the colony’s commercial sector was less positive. The steep price fall of agricultural products had diminished the profitability of the export trade and business had been greatly reduced. The sector’s outlook remained grim for a long time. The export branch was highly dependent upon the fortunes of agricultural enterprise and lacked the possibility of influencing the market. Consequently, exporters could only accept low prices and wait for better times. The importers fared even worse. The population’s decreasing purchasing power endangered the operations of wholesale and retail traders and led to the downfall of many. However, De Bree concluded that the importers had themselves to blame by maintaining a system of large and long-term credit extension to intermediate traders. Foolishly, no agreement to restrict this practice was reached which resulted in mounting losses (De Bree 1928: II 329–334, 421–422, 432). De Bree’s gloomy analysis of the economic situation was supported by contemporaries who generally dated the reversal of the colony’s fortune around 1905 (De Bree 1928: II 432–433; Vissering 1920: 79–82; [Internatio] 1913: 25). Researchers today support the view that the decade before 1914 saw considerable acceleration in economic activity. There has been discussion concerning the severity of the depression in the preceding period.11 However, a comparison between the late nineteenth and early twentieth century shows that entrepreneurs had to operate in very different economic environments. In general, the final three decades of the nineteenth century witnessed a distinct weakening of the markets, especially those for primary products. Expansion in world trade decelerated and this affected the colony’s economy. Trade volumes continued to increase, but much less than in the 1850s and 1860s. It would take until the beginning of the twentieth century before this slowdown in expansion was successfully reversed. The colonial economy accelerated again between the early 1900s and the worldwide depression of the 1930s. According to tentative calculations Gross Domestic Product (GDP) per capita rose about 13% over the period 1870–1900. It took less than half the time to achieve a growth of 23% over the period 1900–1913, and most of this was achieved after 1905 (Booth <UN><UN> <UN> the road to expansion (1910–1930) 249 12 See Booth (1998: 34, 85–86), Creutzberg (1975: 20–22), Van der Eng (2002: 15–16), Korthals Altes (1991: 14–19, 46–56, 66–75), Dick et al. (2002: 100–101, 123–124). 1998: 6). Other economic aggregates also indicate an improvement in the state of the economy (see Table 5.1). Export volume growth accelerated and increases in money supply reflected a higher incidence of monetization accompanying output growth.12 This economic expansion was export-driven and mainly derived from an improvement in the colony’s commodity ‘terms of trade’. In other words, the prices of exports on the world market rose faster than the prices of imports. This stimulated export producers to supply more to the world market. In addition, the colony’s balance of trade saw an increasing surplus since a smaller volume of goods needed to be exported in order to import a comparable volume of goods (Korthals Altes 1994: 11; Dick et al. 2002: 123–124). Still, these circumstances came into being gradually. Contemporaries would have found it hard to predict a fundamental change in the colony’s economic outlook. In the first decade of the twentieth century it was far from clear how much longer economic hardship would have to be endured. The drop in money supply growth between 1885 and 1900 is indicative of a serious lack of economic activity. The food crop economy even failed to keep up with population growth. Per capita rice production and consumption fell after 1885 although the expansion of non-rice food crops ensured that there was no mass starvation. Judged by the downward movement of cotton cloth imports in the late 1890s and early twentieth century, indigenous Table 5.1. Annual average growth in major economic aggregates, 1874–1940. Period GDP (per capita) Export volume Money supply1 Terms of trade2 1874–1900 – 3.1 2.7 4.2 [1885–1900 – 3.9 1.6 4.1] 1901–1928 1.7 5.8 3.6 5.3 [1920–1928 2.3 7.7 4.8 6.8] 1928–1934 − 3.4 − 3.9 − 2.2 − 6.9 1934–1940 2.5 2.2 3.8 2.2 1 coins, notes and bank deposits 2 indicating the relationship between export and import prices Source: Booth (1998: 18). <UN><UN> <UN> 250 chapter five purchasing power was affected negatively as well (Booth 1998: 22, 33, 95, 100–104). Because of the extraordinary price developments in the 1920s the aggregated numbers in Table 5.1 give a highly distorted picture of the colony’s economic performance throughout the period 1900–1928. The exceptional annual growth from 1920 to 1928 coloured the overall result, and actually influenced average values disproportionately. The price index of Table 5.2 allows a more refined picture of the change in the economic circumstances of the Netherlands Indies. It shows that until 1910 the colonial economy still had to cope with adverse trading conditions. This situation transformed during the next two decades. From 1910 there is a distinct surge in prices, albeit with severe fluctuations occasioned by events such as the First World War or the recession of 1921. Bearing in mind the volatility in price movements, it is necessary to examine economic change year by year in order to ascertain exactly what happened. This has been done with regard to Java and Madura by looking at the value of imported and exported goods during the period 1900–1913 (see Table 5.3). These data needed to be deflated to assess real trade performance. Import and export values, as reported by customs officials at the time, were given in current prices only and subject to distortion by sudden changes in market prices. Therefore, an inflation correction has been applied to judge economic performance more accurately. Import and export values have been expressed in current as well as constant Table 5.2. Price index numbers, 1870–1940 (1913=100). Import products Export products Freights World market prices x s x s x s x s 1870–1879 232 17 126 14 329 24 115 9 1880–1889 155 15 115 32 191 50 90 9 1890–1899 113 11 105 13 86 28 78 6 1900–1909 108 7 84 7 58 34 86 5 1910–1919 150 47 135 45 744 140 145 39 1920–1929 182 24 234 44 164 51 168 26 1930–1940 95 23 61 28 110 27 106 10 x = average index number s = standard deviation indicating the relative importance of the fluctuations [expressed as percentage of the average index numbers] Source: Korthals Altes (1994: 15, 159–166). <UN><UN> <UN> the road to expansion (1910–1930) 251 Table 5.3. Imports and exports, Java and Madura, 1900–1913: values (at constant prices x f 1,000) and index numbers (1913=100). Import Export Value Value at constant prices1 Value Value at constant prices1 1900 126,909 39 110,356 34 184,099 52 221,806 63 1901 141,958 44 122,378 38 167,897 48 197,632 56 1902 127,234 39 128,519 40 173,511 49 234,474 67 1903 111,453 34 116,097 36 186,698 53 239,356 68 1904 126,405 39 122,723 38 192,662 55 229,360 65 1905 138,110 42 126,706 39 197,240 56 205,458 58 1906 146,972 45 133,611 41 208,786 59 254,617 72 1907 154,136 47 130,624 40 228,641 65 272,192 77 1908 172,402 53 152,568 47 327,744 93 381,098 108 1909 182,683 56 175,657 54 306,136 87 343,973 98 1910 228,240 70 248,087 76 285,839 81 321,167 91 1911 262,467 81 265,118 81 328,000 93 309,434 88 1912 281,100 86 278,317 86 347,704 99 328,023 93 1913 325,664 100 325,664 100 351,706 100 351,706 100 1 deflated import and export values Source: Korthals Altes (1991: 46–56, 66–76), Korthals Altes (1994: 159–166). prices (Dick et al. 2002: 125, 148). The results were converted into index numbers with 1913 as a reference point to show changes in percentages. The graphic display of these index numbers in Figure 5.1 shows the development of colonial trade from 1900 up to the advent of the First World War. The curves show that if only current prices had been used the export performance would have been undervalued with the opposite holding true for the import performance. Using the deflated import and export lines reveals that the negative economic trend of many years was successfully reversed long before the war broke out. The improvement of export conditions can be dated in 1905. Import conditions had to wait till 1907 to reach their turning point. Knowing this, it does not seem odd that upon his arrival in Batavia in June 1906 G. Vissering – the newly appointed President of DJB – did not see any signs of the economic depression everyone had been talking about in the Netherlands (De Vries 1989b). He concluded that the colony <UN><UN> <UN> 252 chapter five had finally overcome the crisis of 1884. According to Vissering, the year 1906 clearly saw the beginning of a new age for the Dutch colonial possessions in the Indonesian archipelago (Vissering 1920: 79–97; De Vries 1989a: 18). The HVA and Agricultural Enterprise This economic turnabout had a considerable impact upon business life in the colony. This can been in the unexpected, even dramatic, change in business strategy of the HVA in 1910. (See also Chapter 2, Paragraph ‘Van Beek, Reineke & Co. / HVA’.) Suddenly, the company stopped its flourishing and lucrative trading business, choosing to specialize in managing agricultural enterprises and exporting their products. Outsiders were stunned since the HVA had built an outstanding position in the colony’s wholesale trade. The scale and results of its trading activities contributed substantially to the company’s overall profitability and compared well with the largest trading companies. In 1910, for instance, profits accruing from trade alone amounted to at least f 1,083,464.35, or 29% of total profits.13 This was in no way inferior to that of strong competitors such as the trading giant Internatio (Jaarverslag HVA 1910; Jaarverslag Internatio 1910). 0 20 40 60 80 100 120 1900 1901 1902 1903 1904 1905 1906 1907 1908 1909 1910 1911 1912 1913 Index numbers Years Import Import (deflated) Export Export (deflated) Fig. 5.1. Index numbers of imports and exports, Java and Madura 1900–1913 (1913=100). Source: Table 5.3. 13 Unfortunately, the financial accounts of the HVA do not allow a reliable calculation of all trading results as the consignment proceeds cannot be ascertained exactly. The commission received upon sale of consigned goods was put on a general account after <UN><UN> <UN> the road to expansion (1910–1930) 253 subtracting 6% interest to make up for the cost of having part of the company’s capital tied up in credit arrangements. In 1910, this account showed a profit of f 295,012.73 which partly derived from trade transactions. Therefore, the trading branch of the HVA must have contributed even more than 29% to total profits in the year its management decided to dispose of it (Jaarverslag HVA 1910; Helfferich 1914: 130). 14 NA/HVA 13 Shareholders’ Meeting 1911. 15 The following account is primarily based on the minutes of HVA Board meetings and the annual reports of the HVA. In addition, the excellent financial analysis of E. Helfferich in his Die Niederländisch-Indischen Kulturbanken has been used (NA/HVA 1, 10 and 11; Helfferich 1914: 120–143). The radical change of course received a surprisingly summary treatment in the company’s annual report. In a few pro forma sentences shareholders were first officially informed in June 1911, whereas the new approach had come into effect almost six months before. Without being consulted shareholders were confronted with a major shift in policy, characterized by one observer as: den gröβten, schwerwiegendsten Entschluβ im Leben der Gesellschaft (“the biggest, single most important decision in the history of the company”) (Helfferich 1914: 123). Objections were raised against this fait accompli, but were brushed aside with the meagre assurance that the interests of shareholders had been taken into consideration. Besides, consultation at an early stage had not been deemed necessary as Directors and Commissioners represented about half the issued share capital. As shareholders their decision to liquidate the trading business of the HVA could therefore never run against the interests of the remaining shareholders. This kind of fallacious argumentation did not fool anyone, but had to be accepted nonetheless given the powerful position of the management.14 The break with the past was presented as the logical outcome of practical considerations and sound reasoning. The past three years (1908–1910) had seen a significant enlargement of the company’s interests in agricultural enterprise which, according to the Directors, had become increasingly difficult to manage and required all of their attention. Running a complicated trading business at the same time was simply too demanding. It was furthermore claimed that the two branches were separate concerns that failed to complement each other. This reasoning was obviously for the sake of argument since the HVA had successfully combined both businesses over thirty years. In reality Directors and Commissioners had quarrelled for years about the appropriate strategy before they could finally agree on leaving the trading business (Jaarverslag HVA 1910; Helfferich 1914: 130). Cutting the knot proved to be painful for a number of reasons.15 The return on trading activities was at best acceptable, certainly when compared to the results of the agricultural interests. This realization first dawned upon the <UN><UN> <UN> 254 chapter five Directors Reineke, Ter Kuile and Vroeg in the beginning of 1908, after reviewing the general results of the import and export business. In a Board meeting on 7 February 1908 P. Reineke stated that the Singapore office showed poor prospects. Considering its importance as a transit point closure was hardly an option, because it would seriously impede the operations of the buying office in Manchester. Large textile shipments originated from England and the HVA could ill afford the loss of these vital imports. In Reineke’s opinion the risk of having to close down the Manchester office was too great as it would bring the Java import trade of the HVA to a virtual standstill. It was therefore decided that one of the Directors would investigate the situation on the spot. On 4 September 1908 the situation was reassessed after the net results of the preceding year had become available. It turned out that with an average working capital of f 3,314,000 the import trade had realized a net profit of f 299,306.29, a profitability rate of 9.03%. The export trade had done even better with a 10.93% profitability rate resulting from a net profit of f 115,215.98 which was based upon an average working capital of f 1,054,000. These results were considered very satisfactory. However, more detailed calculations told another story. With regard to the import trade the profitability of the Surabaya office (14.31%) contrasted sharply with the offices in Manchester (5%) and Singapore (3.08%). And although imports showed a nice return in relation to the amount of capital used, a different picture arose when the result was set against the level of turnover. With turnover at almost f 11,500,000, profitability reached only 3.4% which was indeed an improvement given the rate of 2.9% achieved in 1905 and 1906. By contrast, the profitability rate of HVA’s agricultural interests amounted to 24% in 1907 (Jaarverslag HVA 1907; Helfferich 1914: 130, 136). Undoubtedly, Reineke, Ter Kuile and Vroeg knew that the costeffectiveness of the trading business left much to be desired, especially considering the excellent yields of the agricultural investments. However, they were not blind to the fact that the import trade in particular had a low rate of return which could only be countered by achieving a high turnover. What worried them more was the large amount of capital needed for this purpose. In 1907 the trading commitments of the HVA had required more than f 4,000,000. The question was whether (part of) this vast capital could not be put to better use by investing in agricultural enterprise such as sugar and coffee plantations. It is clear that the company’s management had severe doubts concerning the viability of the company’s trading business. In accordance with <UN><UN> <UN> the road to expansion (1910–1930) 255 the steadily improving profitability and economic conditions for agricultural exports the decision was taken to focus more on agricultural business (see Table 5.4 and Figure 5.2.). The HVA’s involvement in such enterprise soared abruptly from f 8,760,000 in 1907 to f 13,406,000 in 1908. Related profits more than doubled from f 796,000 to f 1,946,000. Both accounts continued to expand the year after to f 17,214,000 and f 3,065,000. This increase was financed by enlarging the company’s own capital with almost f 10,000,000 in new shares (f 3,750,000), a debenture loan (f 4,500,000) and retained profits. No dividends were subsequently paid out in 1908–1909 for the first time in almost twenty years. Still, the financial demands of the agricultural business proved difficult to meet and in 1910 the HVA found itself in a liquidity crisis. Short-term capital to the amount of f 6,628,837.45 was provided by different creditors, but covered for only 74% by directly payable assets. Table 5.4. Agricultural and trading activities of the HVA, 1901–1914: capital, commitments and profits (x f 1,000). Commitments2 Profits3 Capital1 Agricultural Trade Agriculture Trade 1901 10,456 7,336 2,286 286 81 1902 10,291 6,680 2,223 125 295 1903 9,826 6,249 2,641 379 307 1904 9,990 6,019 3,297 1,261 325 1905 14,060 8,043 4,287 1,151 406 1906 13,881 8,592 4,327 809 550 1907 13,702 8,760 4,148 796 614 1908 16,767 13,406 4,551 1,946 682 1909 23,584 17,214 4,046 3,065 964 1910 23,273 20,604 4,784 2,364 1,083 1911 22,961 21,688 2,422 352 1912 22,647 19,884 4,274 1913 22,332 18,470 4,443 1914 25,514 18,528 8,069 1 long-term capital (equities, debentures and reserves) 2 after write-offs 3 excluding commission Source: Jaarverslag HVA 1901–1914. <UN><UN> <UN> 256 chapter five This situation owed much to the spectacular failure of ‘Djatiroto’, a giant sugar plantation situated in East Java between Lumajang and Jember in the residency of Pasuruan. ‘Djatiroto’ was intended to become the largest sugar estate in Java and land purchases to that effect were made as early as 1905. At the end of 1907 the total surface area of the plantation amounted to ca. 15,000 bouw or approximately 10,645 ha. In 1909 the brand-new sugar factory, equipped with state-of-the-art machinery, was ready to process an estimated daily amount of 80,000 picol (about 4,670 metric tons) of sugar cane. At this point approximately f 4,500,000 had been invested in ‘Djatiroto’ and the first harvests would have to make a substantial profit to satisfy people’s expectations. However, results were extremely disappointing with ‘Djatiroto’ operating at a loss of no less than f 987,056.83 in 1909 and f 1,097,721.59 in 1910. Huge cane fires, poor soil fertility and a variety of other problems regarding e.g. the administrative organization, irrigation management and labour all contributed their share. The HVA was forced to write-off vast sums while re-investing almost f 1,500,000 to pay for costly adjustments. Fig 5.2. Capital, investments and profits of the HVA, 1901–1914. Source: Jaarverslag HVA 1901–1914. 0 5,000,000 10,000,000 15,000,000 Value (f) 20,000,000 25,000,000 30,000,000 1901 1902 1903 1904 1905 1906 1907 1908 Years 1909 1910 1911 1912 1913 1914 Capital Agr. engagements Trade engagements Combined engagements Agr. Profits Trade profits <UN><UN> <UN> the road to expansion (1910–1930) 263 23 By displaying features of both commercial and central banking DJB was a rather peculiar organization. It might best be depicted as a private bank which behaved like a commercial bank by participating directly in the financing of trade, while performing some of the tasks of a central bank such as issuing notes and acting as a lender of last resort in times of (economic) distress (Van Laanen 1980: 35–36; Van Laanen 1990: 252). 24 These included Pontianak (1906), Bengkalis (1907), Medan (1907), Banjarmasin (1907), Tanjung Balai (1908), Tanjung Pura (1908), Bandung (1909), Palembang (1909) and Manado (1910). they accounted for the lion’s share of banking activities undertaken in the Netherlands Indies’ (Van Laanen 1980: 30–32, 92). Until the establishment of the NIEM in 1857, DJB had been the only private financial institution to which traders could turn for credit. Certain trading companies did provide financial services during this period, but generally preferred to reduce their risk in case of longer-term arrangements by leaving their own capital base intact and using credit obtained from DJB. This situation changed from the 1860s onwards when DJB lost ground to new, more specialized banking institutions such as the NIHB and the Chartered Bank. DJB entered into competition with these relative newcomers in a number of areas, such as the direct financing of commodity trade through loans on security. At the same time, however, DJB also carried out some of the functions entrusted to a central bank such as supporting failing private banks. In other words, when private banks ran into liquidity problems DJB had to bail out its competitors by acting as a lender of last resort (Van Laanen 1980: 36; Van Laanen 1990: 250–251, 254).23 These conflicting tasks proved hard to reconcile since DJB was compelled by its charter to establish and maintain agencies throughout the Indonesian archipelago at considerable expense. Financial considerations of this kind became especially acute when the colony’s rapid economic expansion after 1900 required DJB to establish nine new agencies between 1906 and 1910 (De Bree 1928: II 439, 579).24 This doubled DJB’s existing network of eight agencies which had seen no expansion after the Amsterdam office had been founded in 1891. From a business point of view most of these investments were far from sound and financial compensation had to be sought in other commercial ventures. Established as a private corporate enterprise, with the colonial government as a major shareholder entitled to a percentage of the profit, DJB could ill afford to run a loss. To keep a surplus on its balance sheet despite higher operational costs required DJB’s management to improve the company’s cost-effectiveness. Competition with commercial banks was stepped up, especially in the lucrative financing of Java’s export trade (De Bree 1928: II 440; Djie Ting Ham 1926: 44). <UN><UN> <UN> 264 chapter five 25 Sugar traders preferred to settle their substantial credit demands at DJB and many of them were among DJB’s best clients. This owed as much to the low interest offered, as to DJB’s renewed focus on its revenue-generating commercial activities produced splendid results in the years before the First World War. Dividends paid out after 1906 varied between 11% and 16%, whereas the colonial administration saw its part in the profit rise from a meagre f 93,418.29 at the turn of the century to no less than f 820,802.38 at the outbreak of war. This was accomplished by a sharp increase in capital invested against interest. In 1900 total capital investments stood at f 31,593,000. This figure accumulated almost threefold until capital outlays totalled f 86,773,000 in 1914. The extension of loans on security to private enterprise played an important role as the share of this kind of investment over the same period rose from 22% to 57% (De Bree 1928: II Appendices A, B, I, S1). DJB’s capability to finance this successful expansion of business owed much to its unique position within the banking system of the Netherlands Indies. The provisions of its charter allowed it to compete with the other banks on more favourable terms by making use of its note-issuing monopoly. DJB could enlarge the quantity of banknotes in circulation without repercussions as long as the bank’s specie reserves equalled at least 40% of their total worth. These notes thus constituted DJB’s principal means of credit. The surplus of gold and silver indicated the bank’s unused credit potential (Gimbrère 1928: 91–92; Van Laanen 1980: 92). The recognition that there was substantial room for improvement in this respect soon dawned upon the President and Directors of DJB. In 1903 the bank’s specie reserves covered 66% of the total value of banknotes in circulation. In 1913 this percentage had shrunk to 51%. A reduction which ‘earned’ DJB more than f 25,500,000 in additional credit facilities, although it still left a gold and silver surplus of well over f 12,000,000, i.e. an unused credit potential of almost f 30,500,000 (De Bree 1928: II Appendices C, F, P). Apart from the printing and transport costs of the new banknotes, DJB’s credit expansion was realized at little expense. Other banks were less fortunate. They had to finance their growing business activities by attracting outside funds on more onerous conditions. Expanding their credit operations, either through the enlargement of equity capital or the acquisition of loan capital, came at a higher price and hurt their competitive strength. More frustrating was the fact that its artificial cost-effectiveness allowed DJB to offer potential clients credit against interest rates which proved impossible to underbid. As a result, DJB built up an impressive clientele of highly reputable European and Chinese traders, accepting only the larger and most creditworthy among them.25 <UN><UN> <UN> the road to expansion (1910–1930) 265 The only rival to DJB in trade finance at the beginning of the twentieth century was the NHM, although it had to concede that the most soughtafter clients invariably preferred to conduct their business with DJB (Djie Ting Ham 1926: 44–45; Gimbrère 1928: 92). The dominant position of DJB among the four largest commercial banks is shown by the fact that the amount of credit extended by DJB in 1905 accounted for 44% of total credit extended by the NHM, NIEM and NIHB combined (Table 5.5). This percentage would continue to climb to 71% in 1910, before decreasing to 61% in 1914. The result is impressive since DJB’s charter only allowed the extension of credit for trading purposes. After excluding the amount of credit extended by the NHM and the NIHB to their agricultural banking business, DJB’s dominance is even more telling with percentages recalculated at 54% (1905), 85% (1910), and 75% (1914). The difference is largely explained by NHM’s financial interest in the agricultural export sector which accounted for about one-third of the company’s total banking activities in the years under consideration. The NIHB had only a very slight interest in the extension of agricultural credit following the crisis of 1884 after which it transferred most of its agricultural interests to a legally separate subsidiary: the Nederlandsch-Indische Table 5.5. Credit extension within the commercial banking system of the Netherlands Indies in 1905, 1910 and 1914 (x f 1,000). 1905 1910 1914 x y x y x y DJB 28,870 28,870 56,660 56,660 77,880 77,880 NHM 29,620 41,400 24,330 37,440 46,140 68,440 NIEM 20,900 20,900 28,620 28,620 33,330 33,330 NIHB 3,200 3,370 14,070 14,180 24,740 24,740 Total 82,590 94,540 123,680 136,900 182,090 204,390 x = excluding agr. banking business y = including agr. banking business Source: Van Laanen (1980: 100–101, 148). the fact that the trade in Java sugar was controlled by foreign companies (of English, German, Chinese and Japanese origin) with little or no obligations to the banks operating in the Netherlands Indies. These traders were not bound on account of previous financial commitments. This allowed them to choose freely where to satisfy their capital needs and contributed to DJB’s dominant position in sugar trade finance (Gimbrère 1928: 75, 92–93). <UN><UN> <UN> 266 chapter five 26 The agricultural banking activities of the NHM amounted to f 11,780,000 in 1905, f 13,110,000 in 1910 and f 22,300,000 in 1914. The relative importance of these activities came down to 28%, 35% and 32% when measured against the company’s total extension of credit. The NIHB was hardly involved in the financing of agricultural enterprise with credit extended to the amounts of f 170,000 in 1905 and f 110,000 in 1910, i.e. 5% and 0,7% of total credit extended. From 1914 onwards the company’s balance sheets no longer registered any agricultural interests. It does however deserve to be mentioned that the NHM and the NILM, the latter founded by the NIHB, often accounted for more than 50% of total agricultural banking business within the Netherlands Indies right until the end of the 1930s (Van Laanen 1990: 249). 27 The NHM reacted to the positive change in the colony’s economic outlook by establishing thirteen new agencies (1903–1913), followed by the NIHB with ten (1901–1913) and the NIEM with four (1902–1913). For the sequence of events and location of these agencies see Djie Ting Ham (1928: 50–51, 67–68, 90–91). 28 The NHM raised it paid-up equity capital from f 35,783,000 to f 45,000,000 in 1901. As a result the working capital of the Factorij was expanded from f 8,000,000 to f 12,000,000 in 1903 and again from f 12,000,000 to f 16,000,000 in 1908. Likewise, the NIHB raised its paidup equity capital from f 7,200,000 in 1905 to f 19,943,000 in 1914. The working capital of the company’s head office in Batavia was increased repeatedly from f 2,500,000 to f 9,000,000 between 1906 and 1914. The paid-up equity capital of the NIEM saw a significant enlargement as well from f 3,000,000 in 1903 to f 10,500,000 in 1913. See also Djie Ting Ham (1928: 14–15, 48–51, 63–65, 91–93). Landbouw Maatschappij (NILM).26 The NIEM was the only bank with no ‘mixed’ interests from its inception in the 1850s. Founded as a ‘pure’ commercial bank it occupied a singular position within the colonial banking system and always refrained from the extension of long-term credit to agricultural enterprise (Van Laanen 1980: 38). Table 5.5 also shows how fast DJB’s business activities expanded in the decade before the First World War. This extraordinary growth stands out more clearly when compared with the achievements of its main competitors. Like DJB the other banks did however respond immediately to the growing demand for credit generated by the economic prosperity of the early twentieth century. New agencies were opened wherever the first signs of an economic upturn were detected.27 These offices were located all over the archipelago and in places like Singapore, Penang, Shanghai and Hong Kong. The banks thus extended their operating network in a relatively short burst of activity. This process of expansion was primarily financed through the investment of new equity capital.28 Judged by the rising levels of outstanding credit for each of the banks concerned, the millions of guilders obtained were successfully employed. This is confirmed by the dividend rates paid out between 1903 and 1913, averaging 9% for the NHM, 8% for the NIEM and 12% for the NIHB. In the end, the total volume of credit extended by the four commercial banks in the period under consideration expanded <UN><UN> <UN> the road to expansion (1910–1930) 267 29 The following arguments with regard to the general conditions governing the relationship between trading and banking derive from the survey of G. Jones in his book on British trading companies in the nineteenth and twentieth centuries (Jones 2000: Chapters 1, 2, 8, and 12). 30 The ‘rolling-over’ of overdrafts often meant that short-term credit facilities were in fact utilized to finance long-term business strategies. more than twofold and reached over f 200,000,000 in 1914. Approximately 90% of this amount was short-term credit intended mainly for the financing of trade conducted by private enterprise (Djie Ting Ham 1928: 14–17). The developments outlined above make it clear that bank lending played a very important, if not critical, role in the business expansion of trading companies after the turn of the century.29 (Retained profits fulfilled a similar role in the last quarter of the nineteenth century when business expansion was slower and less erratic.) The provision of credit was an intrinsic part of the activities of any trader. Trading companies routinely accommodated their suppliers and/or customers either by advancing money on their crops or by agreeing to payment in instalments. The extension of credit allowed traders to undertake business activities on a larger scale and to grow more rapidly in the volume of trade handled. However, with only limited capital resources, they regularly had to pay their bankers a visit to apply for financial support. The main purpose of lending – except in crisis conditions – was to finance the movement of trade and the growing of crops. Conversely, trading companies were valuable customers to the banks because of the range of services they used, each of which provided an additional source of commission income. Since trading activities involved the generation of a high volume of transactions even a small commission percentage could easily accumulate to a large sum. The routine banking facilities required by the trading companies involved short-term credit and exchange facilities. This credit was provided by overdrafts the size of which fluctuated with movements in trade and the commodity’s production cycle. As a sensible precautionary measure overdrafts had to be renewed on a regular basis, but they were occasionally ‘rolled over’ and could therefore acquire a position rather different from mere short-term finance.30 In addition to routine transactions, banks also welcomed oneoff services provided the risk was acceptable, e.g. by giving guarantees that their clients’ bills would be honoured at maturity. Because of the value to both sides the relationship between trading companies and banks tended to be long-term and supportive, in contrast to the familiar characterization of individual banking deals as short-term <UN><UN> <UN> 268 chapter five and at arms’ length. Ties were sustained over long periods and relied as much on trust as on contracts. On many occasions the risk assessment of banks rested heavily on senior bank managers’ opinion of the managerial competences of directors and partners of the trading company, together with the degree of trust they felt could be placed in their business leaders. Naturally, loans still needed to be secured even though trading companies– as valued customers – were allowed to borrow on easier terms than many other customers. However, owing to the often intimate relationship between bank managers and their clients, this was frequently done in a rather ‘informal’ fashion. Given that the trading companies were valued customers and that the loss of one large client could destroy economies of scale in operations at certain branches, banks were prepared to be flexible in order to avoid liquidations. De Javasche Bank and the Outbreak of the First World War The decade before 1914 had shown the profitability of participating in the cultivation and export of agricultural products. At the same time the example of ‘Djatiroto’ had shown the inherent dangers, in particular the extreme dependence on external circumstances such as climatic conditions and erratic price movements. These factors proved difficult to foresee and impossible to influence. The outbreak of World War I in August 1914 posed a similar threat to the colony’s economic development. A sense of nervous anticipation and growing insecurity mounted throughout the summer of 1914, as it became apparent that political tensions in Europe were building. With the assassination of Archduke Franz Ferdinand – the heir to the Austrian throne – and his wife in Sarajevo on 28 June 1914 the political situation spun out of control. On 28 July 1914, after escalating political tensions had resulted in mobilization efforts, ultimatums and scarcely concealed war threats, Austria- Hungary declared war on Serbia. An elaborate system of alliances ensured that this fateful decision set off a chain reaction which put Germany and Austria-Hungary against Great Britain, France and Russia. Other countries joined and in less than two weeks the European continent had become the stage of a military conflict of unknown proportions. The Netherlands remained neutral until the end of the war in 1918. The country was thus spared active participation in the horrendous warfare of these years. However, the side-effects of the conflict could not be avoided. <UN><UN> <UN> the road to expansion (1910–1930) 269 31 This paragraph is based on DJB Board meetings and DJB reports which assessed the economic and financial situation in the Netherlands Indies right after the outbreak of the First World War (BI/DJB 97 No. 19: 166–188; No. 20: 189–202, 207–218; No. 24: 252–259; No. 32: 310–321; BI/DJB 98 No. 51: 453–467). See also Van Dijk (2007: Ch. VI.). 32 This provision remained effective for more than half a year. It would take until 9 February 1915, before the stock exchange was finally reopened upon the instigation of the Minister of Finance. The first forebodings of trouble were cabled to DJB in Batavia on 30 July 1914.31 At this point the full-scale effects of the Austro-Hungarian war declaration had not yet materialized. Nevertheless, DJB’s office in the Netherlands spoke off utter panic ruling Amsterdam. Additional press telegrams confirmed the chaotic situation throughout the country. To the Dutch public a European war had apparently become inevitable. As a result, food supplies were being hoarded massively and bank offices were overrun in an attempt to obtain as much cash as possible. In Amsterdam people spent the night on reclining chairs in front of the Dutch central bank: De Nederlandsche Bank (DNB). The agency of DNB in Maastricht had to call in police assistance to control the agitated crowd and restore order. For safety reasons numbered tickets were distributed the following day to prevent people from jumping the queue. In addition, only five persons at a time were admitted inside the building. DNB was not the only one confronted with people fearing an economic breakdown and anxious about their life’s savings. Huge cash withdrawals were made all over the country, primarily in coins as banknotes were no longer valued. The Rijkspostspaarbank (Government Savings Bank) accustomed to serving an average of 800 clients approximately f 200,000 in cash per day, saw itself confronted on 1 August 1914 with over 13,000 people withdrawing f 4,800,000. Meanwhile, the Amsterdam stock exchange had been forced to close its doors on 29 July 1914. The price quotations had plummeted after shares started to be traded far below their real value. This alarming flight of capital threatened to paralyse not only the financial market but the entire economy. All financial trade was thereupon suspended until further notice.32 Another indication of the deteriorating events was the decision made by insurers to cancel any coverage to war risk forthwith. These incidents pointed to a serious crisis of confidence. To prevent a complete economic breakdown firm action was urgently needed. DNB, in close cooperation with the government and the commercial banks, responded to the pending economic crisis with the swift implementation of countermeasures. On 1 August 1914 Batavia was informed <UN><UN> <UN> 270 chapter five 33 Cited in De Vries (1989a: 61). See also Von der Dunk (1988: 348–350), De Vries (1989a: 61–70), Mansvelt (1924: II 432–433), Gedenkboek NHM (1924: 92–96). 34 Within the colonial administration there were seven civil and two military departments under the supervision and command of the Governor-General. The civil departments were managed by Directors and consisted of the Departments of Law (1), Home (2), Finance (3), Public Instruction and Public Works (4), Agriculture, Industry and Commerce (5), Civil Public Works (6) and Government Works (7). The two departments of the army and the navy were headed by their commanders-in-chief. They were appointed by the crown. The civil heads were appointed by the Governor-General (Carpentier Alting 1914: 7). that the government had agreed to reduce the obligatory specie coverage (i.e. the amount of gold and/or silver in relation to the amount of banknotes in circulation) of the Dutch central bank from 40% to 20%. In addition, the bank’s statutory obligation to exchange banknotes for specie upon request was cancelled. These and other measures greatly enhanced the financial leverage of DNB and put the financial sector on a more solid footing. Of paramount importance was the establishment of a support syndicate (Steunsyndicaat) on 29 July 1914 in anticipation of a possible credit shortfall. DNB contributed generously to this relief fund, promising to guarantee emergency loans against collateral to the astonishing amount of f 200,000,000. This gesture restored business confidence to more acceptable levels and elevated DNB to the position of leading economic and financial player. In the words of G. Vissering, who had left DJB in 1912 to become President of DNB: “Suddenly, we had become the absolutely central institution, around which everything concentrated.”33 E.A. Zeilinga – Vissering’s successor at DJB – strongly approved of the energetic steps taken by DNB and clearly favoured a similar approach for the Netherlands Indies. In a meeting with the Director of Finance34 on Sunday 2 August 1914, he encouraged powerful government intervention to prevent the economic system from collapsing in case of a full-scale European war. Zeilinga proposed several precautionary measures to improve DJB’s financial leverage and increase its field of operations. It was imperative that DJB be given the opportunity to act as a true lender of last resort. By enabling undisturbed continuation of business, consumer confidence would remain unimpaired and irrational behaviour or outright panic could be avoided. In other words, it was of crucial importance that no brakes should be applied to the economy. All efforts should be aimed at stimulating economic forces. Zeilinga argued his case by analyzing the colony’s current economic position. He assumed that the anticipated proliferation of the military conflict in Europe would isolate the Netherlands Indies. Consequently the <UN><UN> <UN> the road to expansion (1910–1930) 271 35 BI/DJB 97 No. 19: 166. 36 BI/DJB 97 No. 19: 167. 37 BI/DJB 97 No. 19: 167. colony would have to depend on its own resources. The process of readjustment would doubtless be difficult and demanding of DJB. Zeilinga pointed out potential difficulties. It is to be expected that shipping will soon be completely disrupted. The result will be a virtual stop to exports and in order to procure the means to continue agricultural enterprise people will have to call in the help of financial institutions, who in turn will have to appeal to De Javasche Bank. The sugar harvest is in full progress, the harvesting of coffee, tea and rice also demands regular expenditure […] while the already harvested products need to be paid for upon delivery.35 He stressed that the suspension of such payments could result in a general collapse, because it would effectively halt agricultural exports. Consequently, many thousands of workers would be made redundant which could lead to trouble in Java’s interior. There were other problems as well. Furthermore, it is likely that the public will be overcome by fear and start closing their credit accounts at the banks. In order to satisfy those requests the majority of the banks will have to call in the help of De Javasche Bank. A run on the savings banks, even the Rijkspostspaarbank, is very likely and the only way to end this as soon as possible is by satisfying all requests, for which purpose however De Javasche Bank will necessarily have to help out. Therefore, it is of the utmost importance that De Javasche Bank will be able to satisfy all credit requests.36 DJB could dispose of f 9,000,000 for emergency support, but a significant increase of DJB’s financial strength was of vital importance. Such an expansion of leverage would also serve the interest of the colonial administration, as Zeilinga cleverly remarked. The government itself […] is likewise dependent for a substantial part on the support of De Javasche Bank, now that significantly less public revenue will probably flow as a result of the general disturbance.37 Zeilinga proposed a number of measures which were readily accepted by the Director of Finance and presented to Governor-General Idenburg on Monday morning 3 August 1914. It was decided that DJB’s obligatory specie coverage would be reduced, like DNB two days before, from 40% to 20%. The narrow definition of suitable collateral as prescribed in DJB’s <UN><UN> <UN> 272 chapter five 38 See the following publication for (auto)biographical information: Helfferich (2000), Kaminski (1999), Siebert (2002: 106–132). statutes was altered to facilitate the acceptance of credit requests. Finally, the banknotes issued by DJB were declared legal tender to prevent them from being refused as payment. Idenburg offered to discharge DJB of its legal obligation to exchange banknotes for specie, but this was not considered necessary and politely declined. Upon his departure Zeilinga gratefully acknowledged the cooperation of the government and assured Idenburg that DJB would respond positively to justified credit requests, in particular regarding agricultural exports (De Bree 1928: II 441–442). DJB’s financial leverage now stood at approximately f 150,000,000 and was immediately put to the test on Tuesday 4 August 1914. Before opening hours every agent of DJB was instructed to stay calm and be obliging towards all clients in an attempt to quiet the excited atmosphere. All running credit arrangements should be observed, but new requests for credit were to be scrutinized by the head office before approval. Representatives of businesses in desperate need of credit were received at the Batavia head office from early morning till late in the evening that day. All were asked to disclose the financial situation of their company after which credit possibilities were discussed. The branch offices later reported the same parade of business people anxiously seeking financial support. In his memoirs E. Helfferich, a prominent German businessman38 in charge of the Straits und Sunda Syndicat – an investment company with numerous interests in export agriculture – vividly recalled the extreme circumstances of those days. He received a telegram from Hamburg at the beginning of August with the short and ominous message: “Don’t rely upon remittance from here.” However, hundreds of thousands of guilders were needed before the recently planted crops could be harvested. Thevery survival of the company depended on obtaining a loan to assure continuation of activities. After calculating the syndicate’s capital requirements for the next six months, Helfferich went to DJB and explained the difficult financial position in a conversation with Zeilinga, whom he knew personally. A few hours later he was told that DJB had decided to grant the Straits und Sunda Syndicat a credit of f 300,000. In confidence Zeilinga had added: “And when that has been used up, we will see” (Und wenn das alle ist, werden wir weiter sehen) (Helfferich 2000: 270; Hiemstra 1998: 75–77, 87). In the meantime people became increasingly restless. Fear of an economic breakdown generated an extreme demand for cash at the banks <UN><UN> <UN> the road to expansion (1910–1930) 279 At the outbreak of the First World War 37 Japanese firms – mostly medium-sized trading companies handling a wide variety of Japanese goods – had registered in the Netherlands Indies. Most Japanese products were imported through Chinese businesses and distributed by means of Chinese networks. The war in Europe presented Japan with the opportunity to extend its commercial networks in Southeast Asia. In the Netherlands Indies large Japanese banks and trading companies, such as the Taiwan Bank, the Yokohama Specie Bank, Mitsui Bussan and Gosho, started to appear on the scene. Existing trading firms – e.g. Ogawa Yôkô, Nanyô Shôkai and Chôya & Co. – rapidly expanded their network of branches and agents. Their example was followed by the establishment of hundreds of small Japanese shops (Toko Jepang). The reliance on Chinese networks was slowly reduced. Chinese business links remained important, but would from now on be complemented by Japanese business connections who focused more on their own trade associations and institutions. The successful redirection of commercial activity did not only benefit the Japanese. As mentioned before, it coincided with a favourable price development which enabled traders to stay in business. The importers had little to complaint. The (anticipated) dearth caused prices to rise substantially and the resulting larger profits more than compensated the smaller turnover. Old stocks continued to fetch good prices and with occasional shipments arriving from Europe the financial results remained satisfactory. Owing to increased demand export firms and plantation companies also benefited greatly from extraordinary prices, and speculation – especially in sugar – was rife. The increasing lack of sufficient cargo space came to constitute the bottleneck of trade. After 1917 large stocks started to accumulate in godowns all over the archipelago and forced sales seriously depressed the market. Importers and exporters enjoyed a short period of unprecedented prosperity after the end of the war (see Table 5.8 and Figure 5.3). As a result of pent-up demand commodities produced were sold at fabulous prices. The quantities exported were unusually large due to the accumulated stocks of the preceding years. The windfall profits accruing from these exceptional circumstances lasted till the end of 1920 when the economy resumed a more conventional course. A fall in prices set in which continued throughout 1921, resulting in big losses for the export traders whose stocks declined in value, and the speculators who had signed forward contracts at high rates. Importers too saw their profits dwindle as they had flooded the market with goods in an attempt to regain their former <UN><UN> <UN> [Document text truncated for crawler view.]