Our Resources, Our Rules: A Political Economy of Resource Nationalism in Indonesia

Abstract

Indonesia is a major exporter of the world’s mineral and agro-commodities. During the global commodity boom, which took place roughly from 2003 to 2013, Indonesia’s resource sectors were subject to new nationalist agitation and intervention. The government placed limits on foreign investment, and restricted raw commodity exports. These policies, therefore, disrupted global markets and angered foreign companies and trading partners. Nationalist intervention was remarkably aggressive in some sectors, such as mineral mining; in others, however, like the booming palm oil sector, nationalist policy proposals failed. What explains this nationalist variation?

Conventional market-cycle theories suggest resource nationalism rises and falls in tandem with commodity prices. However, external shocks cannot explain the varied policy responses we find throughout resource-rich countries, and across their resource sectors. Nor can market-centred theories explain why nationalist interventions sometimes persist long after a boom has ended. Variation tells us that nationalism is contingent - but contingent upon what exactly? What are the mechanisms that lead from a price boom to very different nationalist outcomes? What makes some resources more vulnerable to nationalist mobilisation than others? Why do states behave differently in different sectors?

To answer these questions, this thesis brings recent comparative work on resource nationalism into conversation with classic political economy scholarship on business, politics and economic policymaking. It refocuses the analytical lens upon sector-level variation, holding state-level conditions constant, and offering a structured comparison of varied nationalist outcomes in Indonesia’s mining, commercial plantations, and oil and gas sectors.

The principal contention of this thesis is that nationalist variation was a function of the preferences and capabilities of prevailing domestic business interests. While nationalist policy networks in each sector included a range of actors from the bureaucracy, private sector and civil society, those networks prevailed when they enjoyed support from an expanded and materially-powerful class of domestic resource companies. The subsidiary contention is that business’s policy preferences and capabilities were conditioned by each sector’s unique structural conditions – such as dependence upon and integration with foreign capital, levels of business internationalisation, contribution to state revenue and developmental goals, and each commodity’s centrality to broader nationalist narratives. In other words, variation was contingent on structural conditions in each sector that gave rise to, and enabled, effective nationalist policy networks.

This study is motivated by an empirical puzzle about nationalist outcomes in Indonesia, and aims first for internal validity over generalisability. However, it also explores the portability of these claims beyond the Indonesian case. Specifically, this thesis proposes a new model for explaining cross-sector variation which foregrounds a causal role for the preferences of lead firms and their levels of internationalisation. It offers a preliminary test of the model’s explanatory power by introducing Brazil as a second country case study.