Valuing persistence

Melissa Dell, an economist at Harvard, writes about persistence. One of her studies considers evidence of the effects of colonization in Indonesia. The Dutch controlled the archipelago caught between the South China Sea and Australia starting in 1610 with the establishment of the Dutch East India Company. Although the trading entity evolved, control of the territory and its resources lasted into the twentieth century.

Dell finds that the European presence left behind some societal benefits which persist to the present day. From the abstract of The Development Effects of the Extractive Colonial Economy: The Dutch Cultivation System in Java.

We examine these in the context of the Dutch Cultivation System, the integrated industrial and agricultural system for producing sugar that formed the core of the Dutch colonial enterprise in 19th century Java. We show that areas close to where the Dutch established sugar factories in the mid-19th century are today more industrialized, have better infrastructure, are more educated, and are richer than nearby counterfactual locations that would have been similarly suitable for colonial sugar factories.

Using a method of comparison between two similar geographic areas, the researchers were able to prove that the existence of factories and supporting works carried forward as a system, even after the colonizing power departed. It appears that the economic value of the factory extended beyond the daily production of the product at hand; that there is a residual benefit beyond the export produced (to the benefit of the Dutch) which remained attached to the land.

We also show, using a spatial regression discontinuity design on the catchment areas around each factory, that villages forced to grow sugar cane have more village owned land and also have more schools and substantially higher education levels, both historically and today.

Modeling this in the public/private-externalize/internalize framework would start by identifying three groups: the Dutch, the in-Indonesians and the out-Indonesians. The story of colonization which has been popular of late only involves one transaction. In this case it would be the Dutch reaping private monetary rewards from the sale of sugar to all the ports on the sailing route through the Straits of Malacca, around past Ceylon, past the Cape of Good Hope and on back to Europe. And although this is true, it leaves out a bunch of other trades.

Dell’s work indicates that the in-Indonesians (the ones who worked in the factories) ended up better educated. Their interactions with foreigners included being taught skills required of the job. Because it was to management’s benefit, time was spent to provide a public good to the locals which they then internalized. Similarly, because it was a benefit to the Dutch in a private sense, significant investment was made in transportation infrastructure, as noted here.

The analysis thus far has focused on the private sector, but public investments may also be an important channel of persistence. The historical literature emphasizes that the Dutch government constructed road and rail networks to transport sugar to ports. The Dutch made large infrastructure investments precisely because it was profitable for them due to the extraction of a surplus, and they would have been very unlikely to make these investments elsewhere in the absence of extraction

These public facilities were a public good to all the Indonesians who chose to use them. But Dell goes further in her analysis to suggest that the in-Indonesians persisted in developing infrastructure after the Europeans departure as they were simply more in-tune to the process of petitioning government for improvements. Perhaps their higher level of property ownership also motivated them to pursue a public good as they themselves would privately benefit.

To tell a story as a one-sided transaction does not do history justice. A complete accounting of all the transactions needs to be in play to evaluate whether everyone came out better off, or not.

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