Colonial Surplus and Foreign-Owned Investment in South-East Asia Alec Gordon

From: Rakesh Bhandari (rakeshb@STANFORD.EDU)
Date: Mon Feb 02 2004 - 20:34:17 EST
  EPW Special Articles
January 24, 2004

Colonial Surplus and Foreign-Owned Investment in South-East Asia

This paper seeks to initiate a wider discussion on the origins and
direction of colonial flow of investment funds to and/or from
south-east Asia.Where did these investment funds actually come from
and how much of it was actually 'foreign produced'? An analysis for
Indonesia, formerly the Netherlands East Indies and Malaysia.
Alec Gordon

One of the elements of the folk wisdom of most economists and
mainstream economic historians is the very significant role European
investment played in the development of the rest of the worldŠ

- Bagchi 2002: EPW: 2230

Unfortunately, however, the conventional view seems to have survived
against both historical evidence and the remarks of passing critics.

- Drake, 1972: 951


This study is intended as part of a larger one on the origins and
direction of the colonial flow of investment funds to and/or from
south-east Asia. However, as the data so far available for Indonesia
and Malaysia show, both stand on their own and are important, we
present them below.

Recent interest in the subject in general and in particular the
contemporary north-south financial relationship has provided
stimulation to consider the historical situation and a real need to
show the matter as it was in colonial times.1 Where did the
investment funds actually come from? This interest is despite or
rather because so much current academic effort goes into ignoring it.
A questioning of how much of foreign owned investment is really
'foreign produced' is surely in order. For example, a recent official
statement on behalf of the Association of South-East Asian Nations,
Reinvestment earnings played a significant role in supporting Foreign
Direct Investment (FDI) flows to the region last year, representing
at least 75 per cent of the total FDI in Singapore and Malaysia.
(Bangkok Post, Business News, 2002:1)

When over three-quarters of 'foreign' investment is produced
'locally' there is surely a need at least to re-consider definitions.
Or consider,
Cal-Comp Electronics of Thailand said business was so good they will
open five new factories - in ChinaŠThey expect 2003 sales to reach
$870 million, up from $780 million in 2002ŠSo the Thai profits will
be sent quickly to China so that Cal-Comp can put $125 million into
the project to build the five new plants.
(Bangkok Post, Database: 8 Home Review, 4/12/02)

In other words although the money is foreign owned, it was produced
in Thailand.

With those cases in mind and since history has not yet come to a halt
we propose to examine the beginnings of this phenomenon in colonial

The investigation that follows is simple in its aim. Given the
eventually huge amounts of foreign investment generated in colonial
regions, where did it come from? What was the flow of funds of
colonial south-east Asia? Most of that foreign investment was located
in the Netherlands East Indies now Indonesia and in what is now
Malaysia and we shall concentrate on these two colonies. Our analysis
leads to the conclusion that the funds for investment were originally
found locally, in south-east Asia if not in the two places themselves
and, as the amounts of investment rose, continued to be funded by the
outflow of funds from those colonies.2

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