Rural Capitalists in Asia

RURAL CAPITALISTS IN ASIA
NORDIC INSTITUTE OF ASIAN STUDIES

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RURAL
CAPITALISTS
IN ASIA
A Comparative Analysis on
India, Indonesia and Malaysia
Mario Rutten
Nordic Institute of Asian Studies
Monograph Series, No. 88
First published in 2003
by RoutledgeCurzon
11 New Fetter Lane, London EC4P 4EE
Simultaneously published in the USA and Canada

by RoutledgeCurzon
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© Mario Rutten 2003
All rights reserved. No part of this book may be reprinted or

reproduced or utilised in any form or by any electronic,
mechanical, or other means, now known or hereafter invented,
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writing from the publishers
British Library Cataloguing in Publication Data

Rutten, Mario
Rural capitalists in Asia : a comparative analysis on India, Indonesia
and Malaysia. - (Nordic Institute of Asian Studies. Monograph series ;
no. 88)
1.Entrepreneurship - India 2.Entrepreneurship - Indonesia
3.Entrepreneurship - Malaysia
I.Title II. Nordic Institute of Asian Studies
338’.04’0954
Library of Congress Cataloguing in Publication Data

A catalogue record for this book has been requested
ISBN 0-203-98711-X Master e-book ISBN
ISBN 0-7007-1626-2 (cloth)

ISBN 0-7007-1627-0 (paperback)
FOR
PETRA HOOGEDOORN-VAN DEN BERG (1963–2000)
Contents
Preface … ix
Introduction … 1
Background and aim of study • Data collection • Notes
Chapter 1
THE STUDY OF ENTREPRENEURSHIP IN SOUTH AND SOUTHEAST ASIA … 13
Indian entrepreneurs • Muslim industrialists • Overseas Chinese
businessmen • The need for a comparative perspective • Notes
Chapter 2
RURAL INDUSTRIALISTS IN CENTRAL GUJARAT … 41
Diversification of the rural economy • Business strategy and pattern of
investment • Joint-family enterprises and business partnerships • Upward
mobility and social distance • Class and caste • Conclusion • Notes
Chapter 3
OWNERS OF COMBINE-HARVESTERS IN THE MUDA AREA … 95
Development of mechanized harvesting • Business expansion and economic
diversification • Family enterprises and business networks • Regional
mobility and local basis • Class and ethnicity • Conclusion • Notes
Chapter 4
IRON FOUNDERS IN CENTRAL JAVA … 149
Iron casting in a rural environment • Industrial development and techno-
logical changes • Individual firms and economic co-operation • Social
mobility and differentiation • Class and religion • Conclusion • Notes
Chapter 5
A COMPARATIVE PERSPECTIVE … 205
South and Southeast Asian entrepreneurs compared • ‘Asian’ assumptions
about the early European industrialists • The early European industrialists •
In search of a comparative framework • Notes
Bibliography … 247
Index … 263
vii
Illustrations
MAPS
1. Location of study areas … 6
2. Kheda district … 42
3. Muda region … 94
4. Klaten district … 150
FIGURES
1. A small-scale factory in an agricultural environment … 44
2. A small-scale floor-tile and marble-sawing factory … 47
3. A rural industrialist checking the production of floor-tiles in his
factory … 47
4. Sawing of marble in a small-scale factory … 48
5. Unloading of rice from the combine-harvester into the truck,
while the broker pays a visit on his motorcycle … 99
6. Repair and maintenance of combine-harvesters in front of the
owner’s residence in the countryside … 104
7. Mechanized harvesting of rice … 106
8. A small-scale workshop for agricultural machinery and spare
parts … 128
9. Iron foundry with residential house in a rural environment … 156
10. Casting of iron in a kopula furnace … 158
11. Casting of iron in a tungkik furnace … 158
12. Finishing of cast iron products … 168
viii
Preface
THIS BOOK IS A STUDY on small capitalists and rural industrialists in three

Asian countries. It compares the business strategy and social behaviour
of Hindu entrepreneurs in India, Muslim industrialists in Indonesia,
and Chinese and Malay businessmen in Malaysia. The findings presented
are the result of long-term fieldwork among small-scale industrialists
in the Kheda district in central Gujarat; owners of iron foundries in
the Klaten district in Central Java; and owners of combine-harvesters
in the Muda region of northern peninsular Malaysia. Over the past
fifteen years, I have spent about four years in these three research
localities altogether, living among different communities with their
own specific social customs and history. Such intensive research over
such a long period of time has only been possible because of the help
I received from many people, especially in India, Indonesia, Malaysia,
and in the Netherlands.
During my periods of fieldwork in India I was associated with the
Centre for Social Studies (CSS) in Surat and with the Entrepreneurship
Development Institute of India (EDII) in Ahmedabad. Ghanshyam
Shah, the director of CSS for many years, acted as my host and
intellectual adviser, while Dinesh Awasthi of EDII became one of my
most critical readers. The same is true for Carol Upadhya of the SNDT
Women’s University, Bombay, with whom I edited a comparative
volume on small business entrepreneurs in Asia and Europe. Together
with many of their colleagues in Surat, Ahmedabad, Vadodara, Delhi,
Bombay, and Trivandrum, they were always willing to spare the time
to comment on my research and to provide me with valuable insights
into Gujarat and Indian society.
ix
x Rural Capitalists in Asia
During my research in Indonesia I was affiliated to the Pusat

Penelitian Kependudukan (PPK) of the Universitas Gadjah Mada in
Yogyakarta. My wife Rienke and our two children, Daan and Lisa,
accompanied me on this second leg of my fieldwork in Asia. My
colleagues Irwan Abdullah, Pande Made Kutanegara, and Tadjuddin N.
Effendi not only provided us with insights into Javanese society, but
also helped us in many ways to settle down in this new environment.
The same is true for Bp. Soejitno and his family, who became an
important base of support to us in Klaten.
In Malaysia, I was associated with the Department of Anthro-
pology and Sociology of the Universiti Kebangsaan Malaysia (UKM)
in Bangi. Shamsul A.B. provided me with valuable contacts and insights
into Malaysian society and was always willing to comment critically
upon my research findings. I am also grateful to the staff members of
the Muda Agricultural Development Authority (MADA), Alor Setar,
especially to S. Jegatheesan, for their support during the period of
fieldwork.
In the three research localities in India, Indonesia and Malaysia, I
received help from many entrepreneurial families. Several of them have
given me a second home in the countryside of Asia where I regularly
stay during my research trips. In each country there are a number of
families who especially helped me to adjust to my new surroundings.
Without doing injustice to the others, I want to mention here the
families of Shantudas A. Patel, Mohanbhai S. Patel, and Jagdish and
Malti Baad in India, the families of Abdul Rohim, H.M. Husnun and
Musa Asy'arie in Indonesia, and the families of Md. Nor Bin Hamzah,
Lee Peng Boon and Khoo Ewe Chin in Malaysia.
Over the years, I have received various scholarships and funding
for my research work in Asia. A large part of the fieldwork in India was
covered by a fellowship from the Netherlands Organization for Scientific
Research (NWO), through the foundation for the Advancement of
Tropical Research (WOTRO). My research in Indonesia and Malaysia
was covered by an Akademie-Onderzoeker Fellowship of the Netherlands
Royal Academy of Arts and Sciences (KNAW). Additional funding for
my research trips to Asia was provided by the Centre for Asian
Studies/Amsterdam School for Social Science Research (CASA/ASSR)
Preface xi
and Faculty of Social Sciences of the University of Amsterdam, and by

the International Institute for Asian Studies (IIAS). The NIAS–IIAS
Strategic Alliance provided me with a one-year Nordic–Netherlands
Fellowship at the Nordic Institute of Asian Studies (NIAS) in Copen-
hagen, Denmark. I would like to thank the NIAS staff for making this
a very fruitful year in which I was able to combine the findings of the
three empirical studies into this one book. In the final stages, Gerald
Jackson took a keen interest in its completion.
Over the past fifteen years, I regularly discussed my research
findings in seminars, conferences, and during personal meetings with
colleagues. It is impossible to mention all those from whose insights I
benefited. Most of my contacts in Asia and most of my knowledge of
the region have their origin in the Netherlands. My research on Indo-
nesia and Malaysia would not have been possible without the help of
Frans Hüsken, Ot van den Muijzenberg, and Heather Sutherland.
More than anyone else, it is Jan Breman who has been my intellectual
guide and main source of academic inspiration. He introduced me to
Gujarat and India and encouraged me to broaden my field of expertise
to Southeast Asia. His academic and personal support, his critical
comments and valuable suggestions, and his dedication and commit-
ment to Asian studies, have been of great importance to my academic
training.
Equally important as the funding and academic support in the
Netherlands was the fact that my colleagues at the University of
Amsterdam and at the IIAS shared the burden of my frequent research
visits abroad. It were especially Hans Sonneveld, José Komen, Annelies
Dijkstra, and Miriam May (all CASA/ASSR), and Wim Stokhof, Sabine
Kuijpers, John Kleinen, and Annelore van der Lint (all IIAS) whose
workloads increased because of my absence. As always, Rosemary Robson
spent lengthy hours editing my drafts of what I thought was English
with great care. Hein Streefkerk frequently pointed out to me the im-
portance of balancing academic work and family life. I am grateful to
all of them.
Finally, and most importantly, I would like to thank Rienke, Daan,
and Lisa. They have contributed more to this book than they realize
and than I can ever show my appreciation for. They left their home
xii Rural Capitalists in Asia
and friends to accompany me to Indonesia, and supported me urging

me to accept a one-year fellowship in Copenhagen. During this last
period, I spent too little time with them. I only saw a few of Daan’s
goals and could only occasionally watch Lisa horse riding. Most im-
portantly, my year in Copenhagen coincided with very sad events in
Rienke’s family. Her father passed away one month after I had started
working in Copenhagen. I dedicate this book to Rienke’s youngest
sister, Petra, who passed away shortly after my return from Denmark
in the summer of 2000. Although I tried my best to return home as
much as possible to support Rienke in her efforts to help and be with
her sister, I realize that I clearly failed in my duty towards her. The least
I can do is to promise her to write my next book from our own house
again.
Mario Rutten
Amsterdam
Introduction
BACKGROUND AND AIM OF STUDY

OVER THE PAST FEW DECADES, there has been much discussion in the press
and academia about the upsurge of entrepreneurial dynamism in Asia.
Most of these analyses of Asian business are based on studies that focus
on large enterprises in urban areas. Entrepreneurs who operate at the
national level of East Asian countries especially have captured public
attention with their new and very large business conglomerates, as
they were able to challenge the economic pre-eminence of the West.
Somewhat neglected in this debate have been the new business classes
which have sprung up at the regional level of the still largely agrarian
societies of South and Southeast Asia. Although the ‘Asian miracle’
was usually linked to the activities of multinational corporations or
attributed to close collaboration between big business interests and the
state, scattered evidence suggests that new business classes operating
at the provincial level and in rural areas have become among the most
powerful and socially prominent groups in their societies, and that
their enterprises are a significant element of the economic changes
that have taken place in these countries.
The need for knowledge about these intermediate-level business
groups in Asia has been further enhanced by the Asian crisis that started
with the fall of the Thai baht in July 1997. Following the collapse of
many large conglomerates in the Southeast Asian region since then,
policy makers in national and international circles have started to
show increasing interest in the small-scale economic sector in these
countries. Within these circles, this sector is often seen as a ‘safety net’,
generating employment for vulnerable groups and cushioning social
1
2 Rural Capitalists in Asia
and political tensions by offering new opportunities to the middle

class in small towns and rural areas. A similar refocusing of attention
on small enterprises has occurred in India where the slow down of the
economic reforms and subsequent recession from the mid-1990s
onwards has raised renewed interest in the small business sector among
policy makers.
In spite of this renewed interest, our knowledge of the small business
sector in South and Southeast Asia is still impressionistic in nature
and is hardly based on systematic and in-depth empirical research.
There is by now an extensive literature concerning large-scale business
enterprises in Asian countries, but less attention has been paid to the
smaller businessmen who are not visible at the national level. More-
over, most studies are country- or community-specific. Because of the
dominance of area studies in much of the social sciences, research on
entrepreneurship in any one country or on any one community tends
to address debates or theoretical issues that are confined mainly to
that region or community, without looking for parallels in other parts
of the world. Although general social theories informed research on
entrepreneurship in the 1960s and 1970s, since then there has been a
trend towards conceptual fragmentation such that different issues
tend to be emphasized in different regions with regard to different
communities.
Overall, the study of small-scale entrepreneurship in South and
Southeast Asia is characterized by a variety of analyses of different
groups of businessmen, but it is dominated by three major discussions.
In South Asia, the discussion on entrepreneurship focuses mainly on
the question of whether and to what extent small-scale industrialists in
India constitute a class of productive industrialists who show a strong
interest in the advancement and technological development of the
production process, and in the improvement of the scale of industrial
operations through reinvestment of profits. The dominant argument
is that small-scale industrialists in India are not productive industrialists
but instead should be characterized as commercially oriented entre-
preneurs. They are viewed as opportunistic businessmen with very
short-time horizons, interested only in fast turnover and quick profits,
unconcerned with technology, unwilling to invest more than the bare
Introduction 3
minimum in fixed capital, and preoccupied more with trade than with
industry. Instead of reinvesting their profits in the industrial enterprise
in order to advance technology and increase the scale of industrial
operation, small-scale industrialists in India are held to be notoriously
quick to shift investments into new fields in search of quick profits.
These frequent shifts prevent the attainment of proficiency in any
single line of production and work against the improvement of quality
and technological advance.
In Southeast Asia, one major discussion on entrepreneurship deals
with the question of whether and to what extent the traditional Con-
fucian value system has promoted successful business-like behaviour
among the overseas Chinese entrepreneurs in these countries. In this
discussion, the dominant notion is that the Chinese or Confucian
emphasis on family and community has contributed to the business
success of overseas Chinese entrepreneurs in Southeast Asia. Their
preference for collective forms of business organization, such as the
family firm and business networks, have been instrumental in the
accumulation of capital and the development of successful entre-
preneurship. Staying together as one family gives them the potential to
increase the scale of their operations. Moreover, because of their small
size, their closeness, personal leadership style, intense management
dedication and family support, Chinese family business enterprises
maintain a high degree of flexibility and are well suited to speedy
decision-making, two factors which enable them to seize business
opportunities. This comparative advantage of the Chinese family
business is further enhanced by the fact that these enterprises are
usually embedded in larger social and business networks, which add
scope and depth to the family firm. In fact, both sides often work in
tandem, and together these collective forms of business organization
are seen as an important factor in explaining the business success of
Chinese entrepreneurs in Southeast Asia.
The other major discussion on entrepreneurship in Southeast Asia
focuses on the entrepreneurial behaviour of the indigenous (especially
Muslim) population in Indonesia and Malaysia, and deals with the
question of whether and to what extent religion, in particular Islamic
belief, facilitates or hinders the economic success of industrial entre-
preneurship. In this discussion, the dominant notion is that Javanese

entrepreneurs in Indonesia and Malay businessmen in Malaysia have
been unsuccessful in developing their enterprises and often remain
heavily dependent on state support for their survival. Their Muslim
background has not provided them with instruments to shape and make
use of efficient organizational forms and economic institutions more
complex than the nuclear family firm. Moreover, their commitment
towards their own religious group, both in the internal and external
side of their management, indicates that these entrepreneurs do not
have an urge to convert a certain level of profits into bigger profits in
order to further develop their businesses. Their profits are not based
on production but are said to be in essence rent incomes that are the
result of distorted market mechanisms following a high level of state
intervention and regulations. To the extent that these Muslim business-
men do become successful in terms of organizational capacity and
technological development, their success is seen more as the result of
their dependence on outside capital and technology than of their own
hard work, mechanical ingenuity, organizational capability and spirit.
Most existing in-depth studies of regional or rural entrepreneurs
in South and Southeast Asia are country- or region-specific and based
on data collection among one business community only. They have a
tendency to stress the uniqueness of the entrepreneurial behaviour of
the businessmen studied and rarely refer to work on similar entrepreneurs
elsewhere, especially when these businessmen have a different ethnic
background or operate within a different institutional setting. Practically
no attempt has been made to examine the new business classes across
South and Southeast Asia within a broad comparative perspective, as
a result of which scholars have tended to take a rather narrow view of
their subject matter. Another shortcoming is that the research for such
studies is usually designed, and the findings analysed, in relation to
the discussion that is specific to the particular group of businessmen
rather than to some wider theoretical problematic.
The brief characterization of the three major discussions on small-
scale entrepreneurship in South and Southeast Asia already indicates
that there are large differences in emphasis and outcome between them.
Studies of Indian entrepreneurs emphasize the commercial investment
Introduction 5
strategy to substantiate their view of retarded industrial development

in India. Studies of overseas Chinese businessmen in Southeast Asia
stress the collective forms of business organization as an example of
Southeast Asia’s economic success. And studies of Muslim business-
men in Indonesia and Malaysia place the emphasis on their dependence
on state support to demonstrate failed home-grown industrialization
in these countries. Moreover, there is a tendency in the study of entre-
preneurship in South Asia and Southeast Asia to highlight different
explanations. Studies of the entrepreneurial class in South Asia tend to
focus on the structural aspects of entrepreneurial behaviour, while
studies of the entrepreneurial class in Southeast Asia tend to focus on
the cultural aspects of their behaviour. In the discussion on entre-
preneurship in India, the commercial business strategy of the Indian
businessmen is usually explained in terms of the specific context created
by the politico-economic and historical experiences of the Indian
Subcontinent. In the discussion on entrepreneurship in Southeast Asia,
the view prevails that it is the Confucian background of the overseas
Chinese businessmen that has been responsible for their successful
flexible family and network forms of business organization, while the
perceived lag of the Muslim entrepreneurs in Indonesia and Malaysia
is often explained in terms of their cultural Islamic background, which
is said to promote nuclear families and egalitarianism and does not
support a capitalist business mentality.
These variations in analytical emphasis in the entrepreneurship
literature on different parts of South and Southeast Asia tend to mask
the similarities on the ground – economic, social and political – that
seem to unite the newly emerging businesses classes of various countries.
What is needed, then, is to direct a comparative focus on similar classes
of entrepreneurs in several South and Southeast Asian countries and
to present the findings within an analytical framework that stretches
beyond the three separate discussions on Indian, Chinese and Muslim
businessmen. This is the main aim of the study presented here.
The major part of this book consists of a comparative study of
rural entrepreneurs in India, Indonesia and Malaysia. It is based on
empirical research among (1) small-scale industrialists in central
Gujarat, west India, almost all of whom belong to the middle and
Map 1: Location of study areas
upper castes in the Hindu community; (2) Muslim owners of iron

foundries in rural Central Java, Indonesia; and (3) Chinese and Malay
owners of combine-harvesters in the Muda region of north peninsular
Malaysia (see Map 1). An analysis of the sociological characteristics of
these three groups of rural entrepreneurs in India, Indonesia and
Malaysia is, in brief, the starting-point of this book. Its main objective
is to provide a comparative perspective on the nature of capitalist
development in South and Southeast Asia through the study of regional-
level and rural-based entrepreneurs. Such a study of regional-level
entrepreneurs provides a different point of entry into investigating the
ways in which capitalist transformations are affecting various levels of
society and how these changes are similar or different in various
countries. The theme of this book is therefore the emergence of small
capitalist enterprises and of new entrepreneurial classes as part of
overall processes of capitalist development in South and Southeast
Asia today.
In order to place the three empirical studies on India, Indonesia
and Malaysia in a wider framework, in the first chapter I present a
Introduction 7
brief overview of the study of entrepreneurship in South and Southeast

Asia. I weigh up the major discussions on Indian entrepreneurs,
overseas Chinese businessmen and Muslim industrialists. On the basis
of this overview, I argue for a comparative perspective, which integrates
the analysis of political and economic structures with an understand-
ing of cultural factors without being too context-dependent. This
overview of the study of entrepreneurship in South and Southeast Asia
is followed by a description of the three empirical studies in Chapters
2, 3 and 4. In each chapter I present detailed information about the
business strategy and pattern of investment of the rural entrepreneurs
concerned, their forms of business organization and their socio-political
behaviour and lifestyles. In order to place these empirical studies in a
wider framework, I end each chapter with an analysis of the findings
in the context of its specific debate on entrepreneurship.
Following these separate analyses of each of the three empirical
studies, I end the book with a comparative perspective in Chapter 5.
This chapter starts with a summary of the socio-economic behaviour
and lifestyle of the three case studies of rural entrepreneurs in central
Gujarat, Central Java and northern Malaysia. This comparative exercise
shows there are many similarities in economic and social behaviour
between these three groups of Indian, Chinese and Muslim entrepreneurs
in South and Southeast Asia, similarities that are usually hidden under
the variations in analytical approaches. While earlier studies of South
and Southeast Asian entrepreneurs tended to stress variability, this study
points to the view that there are striking resemblances in entrepreneurial
behaviour across the two regions.
Although this study emphasizes similarities within Asia, it does
not support the view of a specific Asian business pattern, which is
different to the rise of non-Asian, especially European, entrepreneurs.
A major part of the concluding Chapter 5 is therefore devoted to the
issue of the East–West divide. This East–West comparison is included
because of the fact that the three discussions on South and Southeast
Asian entrepreneurs are often based on unexamined assumptions about
the origin and nature of the capitalist class in Europe, with which they
are implicitly compared – mostly in a derogatory way. By analysing
these assumptions in the light of the findings of historical studies on
the early industrialists in Europe, I question the notion of contrasting

differences between Asian and Western patterns of entrepreneurship.
Based on this discussion, I explore the possibility of developing a
wider theoretical framework for comparative analysis.
DATA COLLECTION
The major part of this book consists of three empirical studies of rural
entrepreneurs in India, Indonesia and Malaysia. Together they cover
rural enterprises in the field of agriculture, trade and industry in
countries with different economic structures and historical experiences.
For the purpose of revealing in depth the play, interrelation and
dynamics of the various forces underlying the rise of the rural capitalist
class in India, Indonesia and Malaysia, I selected three agriculturally
developed regions as my research sites. Suitably, all three regions have
witnessed a tendency towards diversification of their rural economy in
the last few decades. The main reason for selecting such economically
advanced regions in which to do my fieldwork was that this would
provide me with the possibility to examine trends that are still taking
shape and have not yet fully crystallized. These three empirical studies
therefore do not represent the full range of rural entrepreneurs in
South and Southeast Asia by any means. However, although I present
my material as case studies, I would suggest that the outcome of the
fieldwork has a validity which transcends the actual research settings.
Taking into account the specific characteristics of the three selected
regions, my proposition is that the characteristics of the rural entre-
preneurs in central Gujarat, Central Java and the Muda region are also
present in other parts of South and Southeast Asia, a claim I shall sub-
stantiate in Chapter 5, after having presented the empirical findings of
the three studies.
Most of the information on the three groups of rural entre-
preneurs was collected during fourteen months of fieldwork in India,
nine months of fieldwork in Indonesia, and seven months of field-
work in Malaysia. During 1986–87, 1992, and subsequent follow-up
visits, I studied 59 rural industrialists (and 75 large farmers) in two
villages in the Charotar tract of Kheda District in central Gujarat,
western India, covering fourteen months of fieldwork in all. This
Introduction 9
research in India was followed by two periods of fieldwork in South-

east Asia. I carried out nine months of research on 155 owners of small
and medium-scale iron foundries in a cluster of five villages in Klaten
District in Central Java in 1993–94, and during subsequent visits. My
research on 40 owners of combine-harvesters and workshops for
agricultural machinery in various villages and small towns in the Muda
region of Kedah and Perlis States of northern Malaysia was carried out
in 1994, with subsequent visits, covering seven months of fieldwork.1
I briefly revisited both locations in Indonesia and Malaysia again in
December 1998 to assess the impact of the economic crisis on the
rural entrepreneurs studied.2
My research population in India, Indonesia and Malaysia consisted
of rural capitalists and their family members. By ‘rural capitalists’ I
mean capitalists living and operating in the countryside or small rural
towns. ‘Capitalists’ are defined as owners of means of production who
appropriate surplus through the exploitation of wage labour, and
reproduce and accumulate capital in their enterprises. This could be
either capitalist production in which labour is exclusively waged and
the owners take on a managerial role, or ‘petty-capitalist’ production
in which a combination of the owners’ unwaged labour and hired labour
is used. It should therefore be pointed out that the subject of this book
is ‘capitalist’ or ‘petty-capitalist’ rather than ‘petty commodity’ produc-
tion, in which the direct producer is the enterprise owner-operator
and only non-wage labour is used. Therefore, the three empirical
studies in this book are not concerned with the huge stratum of petty
commodity producers or with the ‘national bourgeoisie’ of the countries
concerned, but with the intermediate layer of small businessmen who
are engaged in various kinds of capitalist production.
By and large, I had no problems in gaining access to the entre-
preneurial families in the three research localities. In fact, many of the
rural capitalists were among the first to seek contact with me. Being
an outsider staying in ‘their’ domain, they took it for granted that I
would come to them first of all, if not to them alone; and when I did,
they usually offered me a generous welcome and overwhelming hospital-
ity. In most cases, however, this relatively easy access to the entre-
preneurs and their families did not mean that I could immediately
start collecting my data: many of the entrepreneurs made it clear that

they saw this as a social visit only. If I wanted information I should
come back at another time. Because many of them were reluctant to
fix a date for such a second visit, I had to give up my original plan of a
quick first round of basic data collection. Instead, I followed up on
those businessmen with whom I had been able to fix a second visit and
from there, I pushed whatever contacts I had in the direction of other
entrepreneurial families.
An important and necessary part of the qualitative methodology I
used was making more than one visit to the entrepreneurial family,
following the businessmen during part of the working-day and
leisure-time, and staying with several of them for a few days, in order
to establish and maintain more or less durable relationships with as
many members as possible. Besides visiting their homes, their factories,
their workshops, and their farms, I regularly accompanied the
entrepreneurs on their business and social trips outside the home
area. A characteristic of these rural capitalists in India, Indonesia and
Malaysia is that their field of entrepreneurial and social operation
often encompasses the regional, state, or even national level. These
entrepreneurs are highly mobile, in the sense that they regularly make
business trips for the purpose of meeting suppliers, customers and
government officials. They are also highly mobile in the sense that
they invest part of their capital outside their hometown or village, be
it in land, trade, or industry. One result of this characteristic of the
entrepreneurs was an increased mobility in the setting of my field-
work, as I was forced to be equally mobile. Although it might seem
that they were highly peripatetic, it became clear that the home region
is an important arena for the social and political interaction of the
entrepreneurs and their family members. Therefore, I narrowed the
field of study by choosing a local basis as a result of which fieldwork,
in the anthropological sense, was still possible.
Most entrepreneurs in the three empirical studies presented here
belong to one community. Almost all the small-scale industrialists in
central Gujarat are Hindus of middle caste background, all the iron
founders in Central Java are Muslims, while the owners of the combine-
harvesters and workshops in the Muda region are either Chinese or
Introduction 11
Malay. Ethnic background, however, was not a selection criteria in my

research but followed from the ethnic composition of the entre-
preneurial community in each research locality. In the selected villages
in central Gujarat more than 90 per cent of the industrial property is
owned by families with a middle caste background; in the selected
villages in Central Java all iron foundries are owned by Muslim business-
men; and in the Muda region two-thirds of the combine-harvesters
are owned by Chinese families, while the remaining one-third is
owned by Malay businessmen. Therefore, the ethnic composition of
the entrepreneurs described in this book is representative for the three
research localities.
The sociological study of rural entrepreneurs in India, Indonesia
and Malaysia presented here is not only primarily about entrepreneurs
that belong to specific business communities but also primarily about
men. In order to understand the recent changes in behaviour and
lifestyle of the entrepreneurial families, I studied the behaviour and
lifestyle of the female members as well. Because of my position as a
male researcher, however, it was difficult for me to build up rapport
with the wives and female relatives of the rural entrepreneurs. I was
considered by the male members as their friend or relation and was
therefore expected to be in their company, to sit with them on the
veranda of their homes or at their factory premises, and not to be into
the kitchen, except when taking food. Although after several months,
I was able to make contact with some of the wives and daughters of
those entrepreneurs whom I had come to know better, in almost all
these cases the conversations were short and no more than superficial.
Therefore, the attention which is paid to the behaviour and lifestyle of
the female members of the entrepreneurial families in my study deals
more with the male perception of women than with the viewpoint of
the female members themselves.
As mentioned above, the empirical findings of these three studies
of rural entrepreneurs in central Gujarat, Central Java and the Muda
region are discussed separately in Chapters 2, 3 and 4, and put in com-
parative perspective in Chapter 5. In order to be able to place these findings
in a wider framework, in the next chapter I first present a brief over-
view of the study of entrepreneurship in South and Southeast Asia.
NOTES
1 To protect the anonymity of my informants the names of the entrepreneurs
described in the book, as well as certain places, have been changed. For the purpose
of the study, I named the two selected Indian villages Udyoggam (industrial village)
and Vepargam (trading village) as most of the industrial enterprises are located on
the territory of the first village, while in the second one a large amount of trading
in agricultural products takes place. The cluster of five villages in Indonesia is
named Batur after its centrally located hamlet.
2 It turned out that the economic crisis in Indonesia had dramatic conse-
quences for the small-scale rural iron foundries in Batur. By the end of 1998, many
of the small iron founders had slowed down or had stopped production, while the
larger entrepreneurs were already on their way up due to strong links with
government agencies, state enterprises, and large private conglomerates. In
Chapter 4, I briefly discuss these consequences. In the Malaysian case, the eco-
nomic crisis did not have such an impact on the owners of combine-harvesters
and workshops for agricultural machinery. The Malaysian economy was less
affected by the Asian crisis than the Indonesian one, where economic problems
triggered off major social and political changes. Moreover, the agricultural sector
was less affected by the crisis than the industrial sector. The situation of the
owners of combine-harvesters and workshop for agricultural machinery in the
Muda region in 1998 did not, therefore, differ substantially from the original
findings of 1994.
CHAPTER 1
The Study of Entrepreneurship

in South and Southeast Asia
THE PURPOSE OF THIS CHAPTER is to present a brief, selective overview

of the study of entrepreneurship in South and Southeast Asia over the
past few decades and to indicate the need for a comparative perspective.
This overview is not intended to be a comprehensive review of the
literature, but is only to highlight some of the central issues that have
dominated this field. This chapter is divided into four parts. In the
first section, I discuss the study of entrepreneurship in India. After an
emphasis on the cultural perspective in the 1950s and 1960s, studies
on Indian entrepreneurs pursued a more Marxist analysis and since then
have focused on the structural aspects of entrepreneurial behaviour. In
this, they concentrate on the investment strategy to accentuate the alleged
low quality of the entrepreneurial behaviour of Indian industrialists.
Studies that deal with the emergence of the entrepreneurial class in
Southeast Asia have tended to highlight the cultural aspects of entrepre-
neurial behaviour. In their analyses, they focus on the forms of economic
organization and on the interaction between state and business. In the
second section, I concentrate on those issues that have dominated the
discussion on Muslim businessmen in Southeast Asia, in particular on
Muslim businessmen in Indonesia and Malaysia. In this discussion, the
slackness of Muslim entrepreneurs is explained in terms of their lack
of economic co-operation and their dependence on state support. In the
third section, I present a brief overview of the discussion on overseas
Chinese businessmen in Southeast Asia. Although there have been shifts
in the analysis over time, the main emphasis in this discussion to
13
explain their entrepreneurial success has been on the collective forms

of economic organization and the close interaction between state and
business.
Based on these three overviews of entrepreneurship studies in South
and Southeast Asia, in the fourth and final section of the chapter I con-
clude that there are wide differences in emphasis on and approach to the
discussions on Indian, overseas Chinese and Muslim businessmen.
Most striking is the difference between the study of entrepreneurship
in South Asia and Southeast Asia. Studies of Indian entrepreneurs
tend to focus on the structural aspects of entrepreneurial behaviour
and to concentrate on their investment strategy, while studies of Chinese
and Muslim businessmen in Southeast Asia tend to focus on the cultural
aspects of their behaviour and to concentrate on the forms of economic
organization and the interaction between state and business. Although
there were some attempts in the 1960s to discuss the separate analyses
of entrepreneurial groups in various regions of Asia in a comparative
perspective, these were short-lived, as a result of which subsequent studies
have tended to take a rather one-sided view of the subject matter. In
order to solve this problem of compartmentalization of knowledge, at
the end of the chapter I argue for a comparative perspective in the
study of South and Southeast Asian entrepreneurship that combines
and stretches beyond the three separate discussions on Indian, Chinese,
and Muslim businessmen.
INDIAN ENTREPRENEURS
Discussions on the nature and manifestations of entrepreneurship in
India in the 1950s and early 1960s were directly linked to investigating
the basic causes of India’s economic backwardness. The dominant
approach at that time was the modernization theory, which originated
on the assumption that Indian cultural and religious values were in-
compatible with the spontaneous development of industrial capitalism.
This ‘cultural perspective’ was inspired by Max Weber’s Protestant ethic
thesis (1976, 1978), which emphasized the cultural embeddedness of
capitalist development and the ideological motivation for rational
profit-seeking among early European capitalists. The Indian version of
this approach was represented in studies that explored the compatibility
The Study of Entrepreneurship in South and Southeast Asia 15
of Hindu religious values with industrial entrepreneurship. Following

Weber’s analysis of Hindu society (1958), these scholars argued that the
spirit of enterprise was inhibited among the indigenous population of
India by the religious philosophy of resignation embodied in the doctrine
of karma and by the rigid social organization of the caste system and
the joint family. This cultural perspective viewed these elements as
hindrances to entrepreneurial development and they were seen as
important factors in explaining India’s retarded economic growth.1
This alleged incompatibility of Indian ideology and values with
economic enterprise was held to be responsible for India’s failure to
make a successful transition to industrial development along the lines
followed in Western Europe at the beginning of industrialization.2 In
contrast to the track pursued in Western Europe, Indian artisans did
not form an important source of entrepreneurial talent in modern
industrial development in India. This had already been pointed out by
Weber (1958) who emphasized the traditionalism of Indian artisans
which, he thought, was reinforced by the fact that the caste structure
was an obstacle to occupational mobility and socio-economic change,
placing a premium on the acceptance of one’s caste dharma and on
following traditional ritual laws. Those authors who studied industrial
development in India in the 1950s and 1960s within the overall modern-
ization framework had a similarly low opinion of artisans, stressing
that their contribution to India’s industrial development had been
negligible because of their traditionalism and resistance to change
(McClelland 1961; Staley and Morse 1965: 71; Myrdal 1968: 1100).
Alongside this view that, in contrast to Western Europe, small
artisan producers did not play a critical role in the development of
industrial capitalism in India, there was a strong focus on the category
of merchants as the prime movers behind the transition to industrial
capitalism in India. To a large extent this position is consistent with
the historiography of Indian industrial development.3 Following
Weber, however, there have long been doubts about the suitability of
Indian traders to be industrial entrepreneurs. Weber argued that the
most important reason why Indian traders would not be able to make
the transition from ‘pariah capitalism’ to ‘rational capitalism’ was to
be found in their rituals and in the caste structure. In his view in their
ritual seclusion Indian traders remained ‘in the shackles of the typical
oriental merchant class, which by itself has never created a modern
capitalist organisation of labour’ (1958: 112).
In line with Weber’s analysis, studies conducted on Indian entre-
preneurs in the 1950s and 1960s emphasized the specific commercial
style and poor reputation attributed to Indian traders which were said
to stand in the way of establishing modern businesses. These studies
argued that given their stark profit motivation, Indian money-lenders
and traders could not be considered a significant reservoir of industrial
entrepreneurial recruits. They considered the production process to
be something fixed and static and were not prepared to invest more
than the absolute minimum amount of capital in installations and
machines. This commitment towards rapid and not necessarily honest
profits closely paralleled the traditional Vaishya ethic, in which, according
to this view, such activities can find religious sanction. In other words,
for Indian traders wealth is there to be amassed and then, at intervals,
consumed in magnificent marriages, religious services and funerals
that enhance the status of the family (Elder 1959: 17). The upshot is
that ultimately Indian businessmen remain committed to trade and
quick turnover as the most important sources of profit, and place a
high premium on the flexibility of capital. In this view, the cultural
disposition and subsequent commercial orientation of the Indian
businessmen with a trading background is supposed to have turned
the highly-developed profit motivation of Indian entrepreneurs not
towards productive investments of significant scope, but towards
consumption and towards less risky and more immediately profitable
fields of economic activity.4
Attacks on this cultural approach to the study of Indian entrepre-
neurship began in the early 1970s and it was superseded by what I
would call a ‘structural perspective’. These studies, based mostly on
theoretical views of a Marxist persuasion, related variations in entrepre-
neurial development in India to the broader politico-economic and
historical context, particularly to the experience of colonialism and
neo-colonialism. In these analyses, the emphasis was no longer on the
values and social prerequisites of industrialization, but had tended to
shift to socio-economic structures and the relations of exploitation em-
bodied in these structures. The overall notion was that these structural
factors had impeded the creation of indigenous industrial capital or
had thrown up aberrant types of entrepreneurship in India.5
The first point these various scholars challenged was the previously
held negative views on the relative contribution of caste- or religion-
based groups to India’s industrial development. These authors emphas-
ized the prominence of several hereditary business communities in the
formation of business corporations and corporate management in India,
which indicated that Indian businessmen were capable of perceiving
new opportunities and developing a distinctive style of management
consistent with their needs and social structures. The tight organization
as a commercial community that characterized such groups as the
Marwaris and the Parsis, for example, certainly helped the members
of those communities to compete on more than equal terms with the
rest of the population. However, these studies argued strongly against
the prevailing cultural notions in which these communities were
viewed as inherently more dynamic by virtue of either race, or superior
social customs, or some sort of Protestant religious-cultural ethos
(Kennedy 1965; Timberg 1978). In the search for a reason for the
success of these communities, it was pointed out that the decisive
factor was not so much their cultural disposition or religious mentality,
but their social networks and the strategic positions they had carved
out for themselves early on by virtue of acting as the collaborators
with the Europeans in the Asian trade (Ray 1992: 1–69; Dobbin 1996:
77–155).
The question of the relative contribution of artisans and merchants
to India’s industrialization, which was central to the cultural perspective
in the 1950s and 1960s, has also played a prominent role in the
structural approach to Indian entrepreneurship since the 1970s. This
time the outcome has been very different. The alleged failure of Indian
artisans to engage in industrial enterprise was not explained by
reference to their ‘traditional’ orientation, but by reference to the
colonial policy and the process of de-industrialization. In their analyses,
these authors placed emphasis on the economic factors inhibiting
industrial development rather than seeking an explanation in cultural
compulsions. They harped upon the fact that the artisanal motivations
and standards in India suffered enormously under British rule, during

which period the economic circumstances of a large number of artisans
deteriorated considerably. Consequently, Indian business developments
were bound to be retarded and the entrepreneurial ability of Indian
artisans could not find its full expression. This process, which has
been described as ‘de-industrialization’, is one in which British rule led
to a decline in urban and village handicraft production and to a
displacement of traditional manufacturers as suppliers of consumption
goods to the internal Indian market.6
Other scholars working within the structural perspective stressed
that the previously held cultural notions about the contribution of
artisans should be corrected on the grounds that, in many instances,
artisans in India did in fact become industrial entrepreneurs. Mark
Holmström, for example, has pointed out that ‘[i]n some cases artisan
castes adapted their traditional crafts to new products: some handloom
weavers bought powerlooms; the Karkhanedars or Muslim armourers
of Delhi became blacksmiths under the British, and later went into light
engineering products like ball bearings and motor parts’ (Holmström
1985: 85–86). This transition from artisan to industrialist occurred in
other parts of India as well (Chadha 1986; Saberwal 1976). Following
a review of studies that showed how members of artisan castes were
involved in the process of industrial development in various parts of
India, Streefkerk concludes that a ‘correction … must be made to the
dominant version of native industrial development, namely rejection
of the claim that members of artisan castes were, and are, unable for
cultural and socio-psychological reasons to make a contribution to
industrial development’ (Streefkerk 1985: 124).
With regard to the prevailing notion about the contribution of
merchants to industrial development in India, the structural perspective
no longer tended to accentuate the alleged lack of entrepreneurship,
but turned attention to the quality of the entrepreneurial behaviour of
industrialists in India. Within these studies, the volume of entrepre-
neurship was no longer considered a major bottleneck, but economic
and political factors were used to explain the specific ‘commercial’
orientation of Indian entrepreneurs. These studies indicated that con-
siderations of caste, family and kinship were still very important to
entry into the business of manufacturing and to the style of manage-

ment. Furthermore, these studies viewed the commercial orientation
of Indian industrialists as the typical Indian style of entrepreneurship.
The gist of these studies was that Indian industrialists expended con-
siderable effort on the purchasing and marketing aspects of their firms
but paid very little attention to the actual production process. Rather
than applying their energies to reducing the costs of production through
the utilization of full capacity, appropriate technology, labour product-
ivity, and so on, industrialists in India were inclined to concentrate on
the reduction of purchasing costs and the enhancement of sales receipts.
On top of this, they tended to have interests in a number of activities
simultaneously, and to engage in a large variety of activities over time.
Instead of reinvesting their profits in the industrial enterprise in order
to advance technology and increase the scale of industrial operations,
industrialists in India were said to be notoriously quick to shift
investments into new fields in search of quick profits. These frequent
shifts impeded the attainment of proficiency in any single line of
production, and militated against the improvement of quality and
technological advance. These authors claimed that this aspect of
commercialism – i.e. the inclination to involve oneself in too wide a
range of disparate commercial and industrial activities, whether
successively or simultaneously – was the most typical distinguishing
characteristic of Indian industrialists.7
Studies on Indian entrepreneurship since the 1970s have emphasized
that this typical pattern found in India – the concentration of business
activity in trading rather than industry – is a response to structural
factors such as imperfect markets or lack of an adequate institutional
framework. Structural features in the economy and the interference of
the state are thought to encourage non-productive forms of entrepre-
neurial activity in India, including the spreading of risks though divers-
ification of investment and a preference for high-profit speculative
activities rather than long-term commitment.
In the structural approach to Indian entrepreneurship the focus is
therefore placed on the economic and political factors as a means to
explain this commercial orientation of industrialists there. These
authors argue that, if the commercial climate is favourable, industrial
entrepreneurship is bound to develop. In this approach the develop-

ment of entrepreneurship – that is, the employment of capital and
other productive means for industrial production – is placed in a
broader political and economic frame. Commercialism is considered
not to be the characteristic of a specific social group but inherent in
the Indian socio-economic structure. In other words, these authors
emphasize that the most important explanation for the commercial
behaviour of Indian industrialists must be sought in the economic
structure, which encourages rather than prevents diverse investments
and the spreading of risks (see e.g. Van der Veen 1976).
On the basis of these characteristics, most industrialists in India have
been viewed over time as ‘routine entrepreneurs’ (Leibenstein 1978),
‘imitative entrepreneurs’/‘meta-innovators’ (Broehl 1978), ‘financier-
industrialists’ (Holmström 1985) or ‘commercialists’ (Streefkerk 1985).
They finance industrial production as a commercial undertaking and
launch industries to fill a known gap in the production chain or to
manufacture a specific known component. In contrast to true ‘innovators’
(Schumpeter 1934) and ‘technician-industrialists’ (Holmström 1985),
who learn new skills and production techniques by trial and error and
improvization and who build up their businesses gradually by re-
investing profits, most industrialists in India are thought to have no
interest in developing either the production process or the production
capacity, but are credited with a strong tendency to get involved in a
number of different commercial activities, either successively or
simultaneously.
MUSLIM INDUSTRIALISTS
While a commercial investment strategy is often used to illustrate the
alleged low quality of the entrepreneurial behaviour of Indian industrial-
ists, the slackness of Muslim businessmen in Southeast Asia is often
explained in cultural terms. A mentality characterized by resignation
and opposition to change and an inability to operate along collective
lines of business organization have since long been viewed as the main
causes of the lack of enterprise in Muslim entrepreneurship in South-
east Asia. In the case of Indonesia, for a very long time, scholars ‘are in
surprising agreement that particular cultural traits seem to set limits
to the economic performance and potential of the Indonesian petty

entrepreneur’ (Henley 1997: 8).8 This cultural approach to Muslim entre-
preneurship in Indonesia is most clearly visible in an early essay by
Koentjaraningrat, originally published in 1969, that served as back-
ground material for several of the five-year development plans of
Indonesia.9 Koentjaraningrat argued that various aspects of the
Indonesian mentality are not appropriate or conducive to economic
entrepreneurship, because Indonesian culture emphasizes dependency
on leaders, and promotes conformist attitudes and a spirit of apathy
(Koentjaraningrat 1988: 113, 120 and 122). Moreover, ‘(t)he spirit of
competition appears to be lacking in a large number of Indonesian
ethnic collectivities and social strata’ (ibid.: 123). Instead of making
long-term investments in order to improve the quality and efficiency
of production, many entrepreneurs display a so-called ‘short-cut rush
mentality’, in which they ‘are trying to achieve and display a high
standard of living as quickly as possible using unusual means to avoid
having to face the initial difficulties of starting a business’ (ibid.: 124).
Turning to examine Malaysia, there has been a similar tradition of
emphasizing cultural factors to explain the economic retardation of
the Malay population. An early exponent of this view is Parkinson,
who argued in 1967 that there is a strong tendency among Malays to
resist change, to strive for security and ‘to rely on the guidance and
advice of their elders and rarely to question the wisdom of such advice
objectively’.10 He contended that Islamic beliefs are an important
element of Malay life that discourage initiative by instilling a sense of
fatalism and resignation.
The Islamic belief that all things are emanations from God … tends to
make them fatalistic in their approach to life. … Such an attitude constitutes
a significant drag on economic development. … (Moreover,) … there is a
tendency to sit and wait passively for change to occur rather than to
become active vehicles of change. In short, there is a tendency to adopt an
attitude of resignation rather than of innovation. (Parkinson 1975: 336)
As part of these early cultural approaches to Muslim entrepreneur-

ship in Southeast Asia emphasis was placed on the lack of economic
co-operation. Particularly heavy stress was laid on the inability to
operate along collective forms of business organization which has
been held responsible for the predominance of small enterprises

among the Muslim businessmen in Indonesia and Malaysia. This
argument is directly or indirectly derived from Clifford Geertz’s
analysis of the economic progress of the Islamic community in the
East Javanese town of Mojokuto (Geertz 1963, 1968). In this study,
Geertz tested the validity of Max Weber’s (1976) ‘Protestant ethic’ thesis
by examining the relationship between religious belief and economic
behaviour in Java. He emphasized that the Muslim traders studied
displayed ‘the typically “Protestant” virtues of industry, frugality,
independence, and determination in almost excessive abundance’ and
had adequate capital resources and sufficient market opportunities.
What they lacked, according to Geertz, were the organizational skills
and economic leadership that would enable them ‘to mobilise their
capital and channel their drive in such a way as to exploit the existing
market possibilities’ (Geertz 1963: 28). Because of this, he questioned
whether these Muslim businessmen had the right qualities to become
the ‘sturdy, indigenous, business class’ of Indonesia, without which
rapid economic growth and industrial development would be impossible
(ibid.: 79–80).
In the wake of Geertz’s analysis there have been several studies that
focused on the relationship between Islam and economic development
in Indonesia.11 Although these studies differ in their evaluation of the
influence of other factors, they all agree that although the Islamic
background of the entrepreneurs has indubitably contributed to their
economic success, this acts as a block to further economic develop-
ment. These authors argue that the characters of these businessmen
have been shaped by the fact that they are devout and pious Muslims
(santri). It has made them hard-working, untiring, industrious and
scrupulous in their calculations, ethics that are thought to support
rational capitalist entrepreneurship. At the same time, however, they
emphasize that Muslim businessmen combine their formidable drive
with an individualism so fierce that it is almost impossible for them to
co-operate even in pursuit of clearly defined common interests. This
lack of co-operation is first of all reflected in their difficulty in
maintaining sufficient unity within their own families to ensure the
continuity of their enterprises. The decision among Muslims to set up
a new enterprise is often not based on an assessment of the market

opportunities, but is the result of the break up of a family in line with
the right of succession practised within the community. Javanese
enterprises in particular are typically owned by nuclear families. They
really do stand alone as these nuclear family enterprises are often viewed
as the independent responsibility of individuals. ‘(E)ven in situations
where some form of collective household enterprises might appear
economically efficient, Javanese make considerable efforts to ensure
that individual contributions are calculated and paid for separately’
(Alexander 1998: 216).
Studies that focus on Malay entrepreneurship also emphasize the
predominance of nuclear family firms which is linked to the bilateral
or cognatic kinship system practised by Muslims. The extended family
has not been a common vehicle of economic co-operation among
indigenous Malays.
Malays do not expect any family member, spouse or child, to work unpaid
or pool capital for a family business. They recognise that all individuals
have the right to their own income and labour, and they tolerate the
reluctance of children, especially sons, to work under paternal authority.
When entrepreneurs do employ family labour, they endeavour to pay
market rates or to compensate with significant gifts that keep their debts
of gratitude within bounds. The result is that Malays cannot rely on the
nuclear family as a business. (Li 1998: 157)
This alleged inability to co-operate in family enterprises among

Muslim businessmen in Indonesia and Malaysia is also reflected, it is
argued, in their failure to make use of other collective forms of
business organization to accumulate capital, expertise and contacts in
order to further develop their business. Malays do not like to enter
joint business ventures with their relatives or co-operate with friends
in economic activities, mainly because ‘…kinship and business do not
– or at least should not – mix’ (Peletz 1998: 183). Among Javanese
entrepreneurs, business partnerships and entrepreneurial associations
often take very loose forms which protect the autonomy of each
partner as much as possible.12 In general, it is said that they are not
able to work in partnerships or other forms of business organizations.
The proof of this, it is alleged, lies in the fact that they are known for
their failure to co-operate and for their frequent split-ups. Because of

a lack of organizational skills and a prevailing ideal of independent
entrepreneurship, enterprises owned by Muslim businessmen in
Indonesia and Malaysia tend to be short-lived, which deprives them of
the time, the capital and the organizational capacity to grow.13 The
result is a large number of small stagnant enterprises in which no real
structural economic or technological expansion takes place. It is this
predominance of small enterprises among Muslim businessmen that
was seen as a major cause for the lack of indigenous home-grown
industrialization and economic development in Indonesia and Malaysia
up to the late 1960s, early 1970s.
These early views on the dearth of Muslim entrepreneurship in
Indonesia and Malaysia were uneradicable during the years of economic
growth in the 1970s and 1980s. The overall dominance of Chinese and
foreign capital and entrepreneurship at the national level during this
period resulted in high levels of government intervention to support
the rise of indigenous entrepreneurship in these countries. It was this
high level of state intervention in the economic sphere in order to
counterbalance the Chinese and foreign dominance that is supposed
to have distorted the emergence of a ‘true’ indigenous capitalist class at
the local level even more.14 It was not the Muslims, but the foreigners
and Chinese who exhibited the entrepreneurial attitudes and skills
that brought about the spectacular economic growth in Indonesia and
Malaysia. To the extent that Muslim entrepreneurs did become
successful in terms of organizational capacity and technological develop-
ment, their success was said to be more the result of their dependence
on outside capital and technology than of their own hard work, thrift,
mechanical ingenuity and character or spirit. Instead of being involved
in capital accumulation based solely on their own property, they pre-
ferred to establish associations with large foreign, Chinese or government
enterprises that would provide them with new technology, management
and capital. Muslim entrepreneurship in Indonesia and Malaysia is
therefore not thought of as being based on production but is said to
be in essence the result of a close interaction between state and
business.
In his study on the capitalist class in Indonesia, Richard Robison

employs the term ‘bureaucratic capitalist’ for those Indonesian entre-
preneurs who are connected to, or dependent on, state power. Bureau-
cratic capitalists are those who once held or still hold bureaucratic
posts, which they used for their initial capital accumulation; if they no
longer hold bureaucratic posts, they still maintain close connections
with the government and use these for their businesses. Robison
emphasizes that to the extent that a group of indigenous capitalists has
emerged in Indonesia, it is a bureaucratic bourgeoisie which is ac-
cumulating money without risks or entrepreneurship. For these bureau-
cratic capitalists, ‘the use of politically secured economic privileges
proved to be the path to capital accumulation rather than spontaneous
transformation from a base of traditional small-scale trade and
commodity production’ (Robison 1986: 48). This applies not only to
the category of large, urban-based industrial entrepreneurs, but also
to the rural elites, as indicated, for example, by a study by Frans
Hüsken. He stresses that rural elites in Central Java were – and still are
– ready partners in a coalition with the state, and they have benefited
from it in many ways. As a result, the rise of a local economic elite is
therefore ‘…to be attributed more to its position of anak mas
(favourite child) of the state than to its entrepreneurial capacities as
such’ (Hüsken 1989: 327).
Taking an almost similar line, Jomo uses the term ‘statist capitalists’
to characterize the dependent type of entrepreneurs who benefited
from the New Economic Policy pursued by the Malaysian state since
1971. Under this policy, the development of Malay capitalism has been
advanced by placing the onus of capital accumulation on the state.
Statist capitalists are those entrepreneurs who are not involved in capital
accumulation based solely on their own private property, but use the
state apparatus to accumulate. They control capital accumulation by
virtue of their access to state power and are popularly identified primarily
with indigenous, Malay politicians, bureaucrats and businessmen. As
a class, these statist capitalists have been in the ascendant since inde-
pendence and dominant since the early 1970s (Jomo 1988: 268–272).
Alongside these more structural-oriented analyses used to explain
the lack of indigenous entrepreneurship in Indonesia and Malaysia,
cultural-oriented notions about Muslim businessmen have continued

to prevail. The main reason stated for the lack of Muslim entre-
preneurship in Southeast Asia is the dependent nature and ‘short-cut
rush mentality’ of the businessmen – the fact that they prefer incomes
that are subject to the state apparatus and that they skim off quick
profits made by others instead of acquiring profits on the basis of
productive investments. To the extent that indigenous companies in
Indonesia and Malaysia have been able to develop enterprises, they are
said to have done so only by riding successive commercial waves. Rather
than trying to assume direct control over the manufacturing process,
most pribumi Muslim entrepreneurs in Indonesia and bumiputra
Malay businessmen in Malaysia prefer to direct their available time
and resources to the build-up of market outlets to which they then
hitched the industry as it is, minimizing their intervention in the
production aspect. The result of this has been a predominance of
small companies without any structural economic transition to factory
production and technological improvements in the production process
of these enterprises. Following this line of reasoning, scholars argue
that the indigenous entrepreneurs in countries like Indonesia and
Malaysia are ‘dependent’ or even ‘infant capitalists’ (Raillon 1991: 92–
93), who are inclined and willing to play a secondary role in their own
economy.
In a nutshell, scholars have since long emphasized that in-
appropriate cultural characteristics have obstructed development and
hindered the emergence of an indigenous entrepreneurial class in
countries like Indonesia and Malaysia. They argue that Javanese and
Malay culture, viewed as the core of pribumi or bumiputra values, is
not propitious to rational economic activity because it promotes de-
pendency and resignation, and hinders the rise of large, technologically
advanced enterprises. As entrepreneurs they have wealth and power
and have managed to become a local elite, yet they lack organizational
skills and are not imbued with a ‘capitalist spirit’. They seem to be
satisfied with the wealth they have attained and do not make use of
advanced organizational forms to accumulate capital in order to develop
their businesses more expediently, but remain dependent on outside
capital and technology, based on state support. It is this notion of the
unsuitability of indigenous Muslim businessmen in Indonesia and

Malaysia to industrial entrepreneurship that seems to have gained
even more support after the onset of the economic crisis in Southeast
Asia in 1997.
OVERSEAS CHINESE BUSINESSMEN

In a similar cultural-oriented line of reasoning, the predominance of
family enterprises and business networks among Chinese entrepreneurs
was held responsible for the lack of economic development in most of
Southeast Asia up to the early 1970s. This argument was partly based
on Weber’s study of the Religion of China, in which he juxtaposed the
collectivism and particularism of the Chinese economy with the
individualism and rationalism of the Western economy (Weber 1951).
Following the path set by Weber’s analysis, studies of overseas Chinese
businessmen emphasized that under the influence of Confucian ethics
the spirit of familism and particularism is deeply entrenched in the
behaviour of people. These authors are convinced this explains the
preference among Chinese businessmen for personal and kinship
connections in the management of their enterprises, which gives to
the problems of diseconomies of scale. They have called attention to
the uncertainty of investment when a business cannot transcend the
person of the entrepreneur and the resultant identification of the
family with the business operations of its head. They have argued that
the family component in overseas Chinese enterprises implies that
these enterprises have to remain small because, once the circle of
contact extends beyond family and friends, economic activities become
extremely risky.15
It is also asserted that Chinese businesses were unable to expand
partly because of the tensions within families which lead them to split
and partly because over the longer term direct family lines die out
owing to the absence of heirs or the lack of interest shown by scions of
such dynasties. In addition, modern industry and the Chinese family
business were considered to be mutually subversive, because this form
of family organization encourages particularism, which results in
nepotism. Because access to family enterprises is restricted to a circle
of family members, relatives and friends, the allocation of resources
like jobs, capital and information has become inefficient in Chinese

enterprises.16
Others have emphasized that the extended Chinese family has
negative economic effects because it takes care of ‘indolent’ members
and its pooling of income discourages individual savings and ‘dilut[es]
individual incentives to work’.17 Some have seen these elements ‘…as
linked to Confucianism which holds “familism” as a central tenet, just
as Weber and his followers have seen ascetic Protestantism as doing a
similar job for individualism in the West’ (Goody 1996: 153). They
argued that the ownership of property by a family or clan indubitably
gives protection in hard times but is a deterrent to economic progress.
By contrast individualism, which encourages experimentation, is a
great advantage. It is this emphasis on collective forms of business
organization among the overseas Chinese entrepreneurs which has often
been seen as one of the key factors which explain economic under-
development in Southeast Asia.
With the rise of various Southeast Asian economies, various scholars
began to challenge these negative views on familism and particularism
as being hindrances to the entrepreneurial success of Chinese business-
men. They started to turn the argument around by emphasizing the
predominance of personalized management and collective forms of
business organization as among the key factors by which to explain
the success of Chinese businessmen in Southeast Asia. Having a
Chinese or Confucian cultural tradition, these authors point out, has
shaped the characteristics of these entrepreneurs. Among the traits to
which they attribute success in economic enterprise are a strong
accentuation on personal advancement through hard work and self-
sacrifice for the purpose of gaining honour for one’s family,
community and ancestors.18 It is the emphasis on extended family
households and the development of the family business especially that
is seen as a very important factor in promoting capitalist behaviour
among the Chinese entrepreneurs in Asia.
A whole gamut of ideas has been discussed on the family firm in
the literature on Chinese business. In the case of overseas Chinese in
Southeast Asia, the social cohesion provided by the traditional family
structure and kinship ties is thought to promote the accumulation of
wealth because of the savings on labour costs, the pooling of capital,

and relations of trust within the group.19 Staying together as one
family for a large number of years and dividing the property among a
relatively small number of children (only sons), has given them the
possibility to increase the scale of their business operations and the
opportunity to diversify their economic interests. This has been given
an extra fillip because diversification is increasingly viewed as a rational
strategy of flexibility and risk management. By establishing various
economic activities in different fields, Chinese entrepreneurs are able
to grow without running the risk of putting all their eggs in one
basket. In a similar vein, particularism is now seen as much a solution
as a problem in economic life. More and more studies argue that trust
and particularism are extremely efficient as they save entrepreneurs a
lot of trouble if they have a fair degree of reliance on one another. As
uncertainty is a perennial problem in economic life, the resilience of
particularism and clientalism are often seen as positive factors.20
Moreover, Chinese family firms are usually embedded in networks
that rest on trust and reciprocation. These guanxi networks add scope
and depth to the family firm. The effective operation of a family
business depends as much on the ties within a network as it does on
the ties within the family. In fact, both sides work in tandem, each
being dependent on the other for economic success. ‘By being part of
such guanxi networks, family firms are tied to other family firms so
that, by combining, they reach beyond the limitation imposed by their
size, both geographically and economically’ (Hamilton 1996: 17). In
addition to business networks, social networks have been a major focus
in studies of overseas Chinese businessmen, who are thought to use
both traditional and modern social organizations to strengthen their
business relations and to operate informal credit systems.21
In short, more recent studies argue that it is the family firm and
business network as cultural artefacts – based on closeness, collectiv-
ism, paternalism, trust and intense managerial dedication – that have
been instrumental in the recent accumulation of wealth by Chinese
businessmen in Southeast Asia. Continuing this line of reasoning, it is
this system of familism and particularism with its emphasis on liquid
capital and flexible investment strategy that has also proved to be very
useful to many Chinese businessmen during the recent financial crisis

in Indonesia and Malaysia.
Although the culturally oriented approach has always been the
dominant perspective in the study of Chinese entrepreneurship in
Southeast Asia, there have been shifts in perception and ideology
among the scholars working within this perspective. The first example
of this is the emphasis on state intervention. Studies that deal with the
emergence of the Chinese entrepreneurial class in Southeast Asia have
gradually put more emphasis on the role of the state. The deep
political and social divisions between Chinese and foreign capitalists
on the one hand and indigenous, mostly Muslim capitalists on the
other hand lie at the centre of this shift in analysis. It is the high level
of state intervention in the economic sphere in order to counter-
balance this Chinese and foreign dominance by supporting the rise of
a class of indigenous businessmen that partly explains the inclination
among Chinese entrepreneurs to depend on state support by making
use of politically secured economic privileges to accumulate capital.
Some recent attempts to explain the Chinese economic role in
Southeast Asia have therefore focused on institutional and politico-
economic influences. One of the more important of these is the so-
called ‘early start’ model of Chinese economic success. This explanation
emphasizes that Chinese immigrants to Southeast Asia achieved greater
economic success earlier than indigenous people did because the
Western powers utilized Chinese as comprador middlemen during the
colonial period. These ‘“middleman” or “comprador” roles many Chinese
took on in the colonial era as intermediaries between the Western
colonial rulers and the indigenous peoples yielded big profits and
other advantages, from which a few were able to diversify into more
lucrative economic roles well beyond the capabilities of the indigenous’
(Mackie 1998: 137). Having achieved such an ‘early start’ in economic
entrepreneurship, the Chinese have then proved difficult to displace,
even in the face of the various discriminatory regulations in Southeast
Asian countries like Malaysia and Indonesia.
Despite these more structurally oriented approaches, explanations
of the economic success of the Chinese entrepreneurial class in South-
east Asia have always remained more closely linked to the notion of a
specific cultural mentality and entrepreneurial values within the over-

seas Chinese business community. Although there are differences in
opinion as to the specific nature of the Chinese entrepreneurial class
in Southeast Asia, various scholars stress that their present economic
success is the direct or indirect result of the existence of a specific
parasitical mentality and business culture, one in which public and
private interests mix effortlessly. According to this view, Chinese business-
men in Southeast Asia have a strong inclination towards making use
of politically secured economic privileges to accumulate capital and
are characterized by an underlying instinct that prefers to slice off a
cut of someone else’s wealth rather than creating it by themselves
(Clad 1989). This is partly shown by the use of such concepts as ‘rent-
seekers’ or ‘ersatz capitalists’ (Yoshihara 1988), concepts which character-
ize the behaviour of the Chinese entrepreneurial class in Southeast
Asia by referring to a mentality and value system which contributes to
a business culture favouring access to the state apparatus and leading to
a dependent role in society. Therefore, beneath the shift in emphasis
towards the aspect of state intervention lies the implication that cultural
factors such as a specific mentality and business culture represent the
most important explanation for the entrepreneurial success of the
Chinese business class in Southeast Asia.
The second example of a shift in perception on Chinese entrepreneur-
ship in Southeast Asia is the ‘Confucian culture’ argument with regard
to collective forms of business organization, which has been discussed
above. While cultural factors were first used to explain why Chinese
businessmen were unable to develop corporate businesses and thereby to
become successful entrepreneurs, the same argument was later turned
around to explain the recent rapid development of East and Southeast
Asian countries by emphasizing the contribution of traditional Chinese
‘values’ and modes of social organization to entrepreneurial behaviour.22
Although there have therefore been some shifts in perception and ideol-
ogy among the scholars working within this perspective, the culturally
oriented approach has always been the dominant perspective in the
study of overseas Chinese entrepreneurship in Southeast Asia.
In sum, the nature of the Chinese entrepreneurial class in Southeast
Asia has been explained more by cultural factors than by structural or
economic factors.23 In this analysis, the dominant view holds that there
is a strong relationship between values and economic behaviour in the
sense that a value system has its own inherent morals and practices,
which influence economic activities. The values that are supposed to
be a stimulus to successful entrepreneurial behaviour are a strong
achievement-oriented work ethic, frugality, pragmatism, diligence,
order and individual responsibility. In order for these values to find
their proper channels and the right conditions to support them, it is
essential to have a social or family way of thinking, both in terms of
institutions and in terms of a certain mental base. While cultural factors
were first used to explain why Chinese businessmen were unable to
become successful entrepreneurs, arguing they clung too much to family
and kinship relations and traditions, the same argument was later turned
around. It is now generally believed that a social or family environ-
ment, combined with a keen sense of personal obligation to group
welfare and family loyalty, all of which are strongly influenced by
traditional values and practices, has contributed to the accumulation
of capital and the development of industrial entrepreneurship among
the overseas Chinese businessmen in Southeast Asia.
THE NEED FOR A COMPARATIVE PERSPECTIVE

The three overviews of the discussions on Indian, Muslim and overseas
Chinese businessmen show that there are wide differences within the study
of entrepreneurship in South and Southeast Asia. Studies of Indian entre-
preneurs concentrate on their investment strategy in order to accentuate
the alleged low quality of the entrepreneurial behaviour of Indian indus-
trialists. Studies of Muslim businessmen in Southeast Asia also focus on
the low quality of entrepreneurship, but they explain it in terms of a
reluctance to embrace change and to a lack of economic co-operation.
The main emphasis in the discussion about overseas Chinese businessmen
in Southeast Asia has been on the collective forms of economic organ-
ization and the close interaction between state and business to account
for their entrepreneurial success.
Most striking is the difference between the study of entrepreneurship
in South Asia and Southeast Asia. Since the early 1970s, variations in
forms of business entrepreneurship in India have usually been explained
in terms of structural or politico-economic imperatives, while studies

on variations in forms of business entrepreneurship in Southeast Asia
have been inspired more by the analysis of Max Weber and his emphasis
on the cultural aspects of entrepreneurial behaviour. In my view, one
possible explanation for this difference in emphasis is a difference in
perception between the scholars studying South Asian entrepreneurship
and those studying Southeast Asian entrepreneurship. Looking at South
Asia first, it is my hypothesis that the emphasis on structural aspects
is partly related to the perception of South Asian society as a hier-
archical, highly differentiated society, with a relatively homogeneous
ethnic composition.24 This perception of Indian society is mainly the
result of the omnipresence of the caste system. The differences between
the castes are usually viewed as hierarchical differences within an
ethnically homogeneous community. The relationship between caste
and occupation has influenced scholars of Indian society to view the
caste background of the entrepreneurs in economic rather than in socio-
cultural terms. To explain the fact that most entrepreneurs originate
from middle and upper castes, most scholars accentuate the occupa-
tional background, economic position and social contacts that coincide
with membership of a specific caste. This emphasis on the interrelation-
ship between social background and economic position within an
overall perception of a hierarchical, highly differentiated society partly
explains the popularity of the structural perspective within studies on
South Asian entrepreneurship.
Turning to Southeast Asia, on the other hand, my hypothesis is that
the emphasis on cultural aspects is partly related to the perception of
Southeast Asian society as, relatively speaking, a less hierarchical society,
with a highly compartmentalized ethnic composition. This perception
of Southeast Asian society is largely the result of the overpowering
presence of separate ethnic communities, often consisting of an eco-
nomically dominant Chinese minority and a politically dominant
indigenous (Muslim) majority.25 The hierarchical differences within
the ethnic communities are usually neglected or viewed as relatively
small compared with the differences between the ethnic communities.
The relationship between ethnicity, religion and a particular value system
has led scholars of Southeast Asia to view the ethnic background of the
entrepreneurs in cultural rather than in economic terms. To explain

the fact that most entrepreneurs originate from a specific ethnic com-
munity, most scholars highlight the value system and religion that are
part of the tradition of an ethnic community. Thus the interrelation-
ship between ethnicity, religion and a value system within an overall
perception of a highly compartmentalized society partly explains the
popularity of the cultural perspective in studies on Southeast Asian
entrepreneurship.
Although general social theories informed research on entrepreneur-
ship in the 1950s and 1960s, since then there has been a trend towards
conceptual fragmentation so that different issues tend to be fore-
grounded in different regions. The cultural perspective that dominated
research on entrepreneurship in South and Southeast Asia in the 1950s
was not an isolated case, but was part of a wider attempt to apply
Weber’s Protestant ethic hypothesis to material drawn from various parts
of Asia, including East Asia. In some instances, attempts were made to
discuss these separate analyses of entrepreneurial groups in various
regions of Asia within a comparative perspective (see e.g. Bellah 1968;
and Eisenstadt 1968). In these attempts towards achieving a comparative
analysis of Asian entrepreneurship, early studies of South and South-
east Asian businessmen seem to have played a prominent role. The
discussion that followed Milton Singer’s analysis of various Indian
examples in his ‘Cultural Values in India’s Economic Development’
(1956), for example, was not confined to India, but became part of a
wider debate on the Protestant ethic analogy in Asia, which included
Geertz’s analysis of the Santri Muslims of Java (1963) and Robert
Bellah’s study on the Jodo Buddhism and the Hotoku and Shingaku
movements in Japan (1957).
Moreover, it is important to point out that the cultural and structural
approaches to entrepreneurship in South and Southeast Asia are not
mutually exclusive and that various scholars, especially recently, have
tried to include both perspectives in their studies.26 Even so, most
entrepreneurship studies are unsatisfactory because they tend to privilege
one type of explanation above the other, rather than integrating them.
When we look at the history of the emphasis on structural aspects
within the Marxist ‘mode of production’ analysis and on cultural aspects
within the Weberian ‘spirit of capitalism’ analysis, we will find that

both analyses were originally closely related, sharing a common concern
with the origins and likely course of the evolution of Western European
industrial capitalism. More specifically, Weber saw the economic con-
ditions that Marx believed determined the development and future
transformation of capitalism as being embedded in a unique cultural
totality (see Giddens 1972). In the transfer of this debate on the
development of capitalism in Europe to Asia, however, these two analyses,
that were in essence closely linked to each other, became disconnected.
Studies of South Asia followed a more Marxist analysis and focused
almost exclusively on the structural aspects of entrepreneurial behaviour,
while studies of Southeast Asia were inspired more by the analysis of
Max Weber and concentrated their analysis on the specific nature of
cultural factors that supported or hindered capitalist development.
Because of the dominance of area studies in much of the social
sciences since the early 1970s, research on entrepreneurship in any one
country or region has tended to address debates or theoretical issues
that are confined mainly to that region, without looking for parallels
in other parts of the world. While earlier studies on entrepreneurs in
South and Southeast Asia tended to stress variability in forms of business
organization, recent studies point out the view that there are striking
resemblances in entrepreneurial behaviour across Asia.27 This observa-
tion suggests that there may be certain imperatives inherent in capitalist
entrepreneurship that are manifested in various ways in different cultural
contexts. Just as the division between labour and capital is a central
feature of production under industrial capitalism, the requirements of
investment, risk-taking and the organization of production and market-
ing appear to structure the behaviour of entrepreneurs in particular
ways. For example, there is a strong element of rational pursuit of
profit and decision making based on instrumental rationality, as
specified in Weber’s model. But this is qualified by the fact that entre-
preneurs are not driven solely by the profit motive; goals such as desire
for prestige and constraints such as obligations toward kin, also
determine their actions. Another common feature is that the economic
transactions of entrepreneurs are often also social transactions – they
are usually embedded in social relations and not simply determined
by impersonal market forces. What is needed is to reconnect the

cultural and structural approach again and to come up with an overall
framework that will integrate the analysis of political and economic
structures and an understanding of cultural context with a concept of
human agency. This should enable individual action to be related to the
macro-processes that constitute development, and it should facilitate
the analysis of specific cases without being too context-dependent.
Such a framework has to be built up within a comparative perspective
of South and Southeast Asia.
In this book, therefore, I do not advocate either a structure- or a
culture-centred analysis, but argue instead for the development of a
fresh approach that combines both by looking at how political, eco-
nomic and cultural processes interact within the historical process of
capitalist development. Such an approach should facilitate in-depth
research on the issue ‘To what extent a capitalist style of entrepreneur-
ship produces similar features across the globe’. In contradistinction
to the earlier universalistic theories of industrial development, recent
research suggests that industrial capitalism may be highly adaptable to
various social and economic forms, as a result of which both signi-
ficant similarities and variations are found around the world in the
organization of business enterprises and transactions, mode of labour
exploitation, entrepreneurial behaviour and ethos.28
The empirical findings of studies of entrepreneurs in different regions
of South and Southeast Asia indicate that there are indeed many similar-
ities in the economic behaviour and lifestyle of these businessmen.
However, in spite of the fact that such studies share a common subject
of research, there have been practically no attempts to look at the
business classes across South and Southeast Asia within a broad com-
parative perspective, as a result of which scholars have tended to take
a rather narrow view of their subject matter. For example, studies of
overseas Chinese businessmen usually concentrate on networks and
the deployment of traditional social institutions in business dealings,
while discussions of Indian entrepreneurship focus on the caste or
religious backgrounds of business groups and their organization along
those lines. As a result, discussions of entrepreneurship in South and
Southeast Asia have tended to be either too localized or too general,

without attempting middle-range analysis by comparing similar cases
across different countries or regions.
With the purpose of providing the building blocks for such a
comparative exercise, in the next three chapters I present the findings
of the three empirical studies of rural entrepreneurs in India, Malaysia
and Indonesia. This comparative exercise will show there are many
similarities in economic and social behaviour between these three groups
of Indian, Chinese and Muslim entrepreneurs in South and Southeast
Asia, similarities that are usually hidden under the variations in analytical
approaches. While such a comparative study of entrepreneurship may
feed into a larger theoretical exercise at the macro-level, here my aim is
more modest – to move towards developing a more adequate analytical
framework that will enable the understanding of entrepreneurial
behaviour in any socio-cultural context. One problem inherent in this
comparison is that such an endeavour might amount to nothing more
than ‘butterfly collecting’ (Leach 1971), that is, the comparison of essen-
tially incomparable cases taken completely out of context. To circum-
vent this problem, it is important to maintain a historical perspective,
and to keep particular phenomena in their own realm. For that reason,
in Chapters 2, 3 and 4, I first discuss the findings of the three empirical
studies separately before placing them in a comparative perspective in
Chapter 5. In order to discuss the findings of each study in a wider
framework, I end each chapter with an analysis of the findings in the
context of the debate that is specific to the entrepreneurs studied. Based
on the fact that most discussions on Indian entrepreneurs tend to focus
on their investment strategy, and that most discussions on Chinese
and Muslim businessmen in Southeast Asia tend to concentrate on the
forms of economic organization and the interaction between state and
business, I have opted for a broad analysis which includes these different
aspects of their behaviour, but makes comparison between the three
groups of entrepreneurs possible. Therefore in each chapter I present
detailed information about the business strategy and pattern of invest-
ment of the entrepreneurs, I discuss their forms of business organiza-
tion and analyse their socio-political behaviour and lifestyle.
NOTES
1 For examples of such studies, see Elder (1959) and Kapp (1963). They represented
the dominant view at that time that ‘the Indian personality, by and large, remained
unentrepreneurial, if not anti-entrepreneurial’ (Tripathi 1992: 77). However,
there were also some studies that tested Weber’s thesis by looking for an equivalent
to the Protestant ethic, or some kind of ‘this-worldly asceticism’, in Hindu religion
that might have contributed to the development of capitalist entrepreneurship.
Cases in which this assocation was claimed included the Jains and the Parsis. See,
for example, David McClelland who discussed the Jains and the Parsis (1961: 368–
369), and Milton Singer who discussed several Indian examples in his ‘Cultural
Values in India’s Economic Development’ (1956: 81–91).
2 See Dobb’s study (1976) on the European transition from ‘feudalism to
capitalism’. I shall discuss this notion on the industrialization process in Europe
extensively in Chapter 5.
3 Berna 1960: 8. See also Streefkerk (1985: 30–31) who emphasizes that the
native industrialization which took place after 1850, and which was mainly based
in cities such as Bombay, Ahmedabad and Calcutta, was realized principally by
traders such as Vaishnava Banias, Jain Banias and Parsis.
4 See e.g. Berna (1960: 217), Hazlehurst (1966: 145), and Fox (1969: 143).
5 Such structural analyses have been inspired in part by Marxist mode of
production theories which focus on class formation and the economic conditions
of capitalist development. For an overview of the literature, see for example
Tripathi (1992), Streefkerk (1985), and Rutten (1995 and forthcoming).
6 The question of the growth of industrial capitalism, or lack thereof, has been
central to Indian economic history, and structural explanations of India’s
economic backwardness have usually centred on the role of British capital and the
colonial state (Bagchi 1972, 1976, 1988). See for an overview of this perspective,
Streefkerk (1985: 27–36) and Tripathi (1992: 77).
7 For an extensive discussion of the aspect of commercialism among industrialists
in India, see Streefkerk (1985: 162–171). More recently, Gorter (1996) and
Streefkerk (1997) discussed this aspect of commercialism in connection with the
change from a cultural to a structural perspective in the study of Indian
entrepreneurship.
8 See e.g. also Alexander and Alexander 1991: 375–376.
9 Koentjaraningrat 1988. This article is an English translation of Chapter III of
Koenjaraningrat’s work Rintangan-Rintangan dan Pembangunan Ekonomi di
Indonesia (Jakarta: Bhratara, 1969).
10 Parkinson 1975: 336. This is a reprint of an article originaly published in 1967.
The article by Parkinson led to a very critical reaction by William Wilder (1975;
originally published in 1968).
11 For examples of such studies, see Castles (1967) and Nakamura (1976).
12 See e.g. Sievers (1974). For an overview of this discussion, see Crouch (1986).
13 For exponents of this view, see the analysis by Henley (1997) in which he
refers to the notion of ‘excessive individualism’ among Muslim businessmen.
14 See e.g. Abdullah (1994); Braadbaart and Wolters (1992); Muhaimin (1990);
Kuntowidjojo (1984); and Roepke (1979).
15 See e.g. Levy (1949). For an overview, see e.g. Schak (1998), and Chan and
Cheung (1998).
16 For overviews of the discussions on the Chinese family business firm and
Chinese business networks, see for example Wang (1994), Brown (1995), and
Schak (1998).
17 Kerr et al. 1973: 94 (quoted in Schak 1998: 3).
18 For an overview of the discussion on the relationship between Confucian
tradition and Chinese entrepreneurial behaviour in Asia, see, for example, Wong
(1985, 1989), Redding (1990), Wang (1994), and Chen (1995).
19 Cf. Wong (1985); for a critique of this notion see Greenhalgh (1994).
20 See e.g. Redding (1990) and Fukuyama (1995).
21 For a sampling of the extensive literature on Chinese business practices and
networks, see Hamilton (1991), Hefner (1998), Lim (1983), Lim and Gosling (1983),
Limlingan (1986), Mackie (1992), Smart (1993), Wang (1994), Whitley (1992),
and Willmott (1972).
22 See McVey (1992: 9–10) for a discussion of the turn-around in the cultural
argument in regard to Chinese entrepreneurship in Southeast Asia.
23 I do not suggest that there are no studies on Southeast Asia that relate the
state-dependent mode of capitalist development to the specific political-economic
formations of these countries, particularly the pre-eminence of Chinese capital
and the efforts of these states to subvert this dominance. For such arguments in
regard to Malaysia, see Jomo (1988); for Indonesia, Robison (1986).
24 There is a high degree of regional generalization throughout the chapter. My
remarks about the perception of South Asian society are based mainly on the
Indian example. Although there is large diversity within the South Asian region, I
believe that these differences do not challenge the main argument here. For
references to studies on entrepreneurship in the South Asian continent, see Rutten
(1995: 19–21, 34–36, 47–49).
25 There is, of course, a large diversity within the region. My remarks about the
perception of Southeast Asian societies are based mainly on Malaysian and
Indonesian examples. Despite the different positions of the Chinese community
in various Southeast Asian countries, several studies indicate the existence of a
common approach in the study of Chinese entrepreneurship in Southeast Asia.
See, for example, Clad (1989); Redding (1990); Wang (1994, 1995); Yoshihara
(1988).
26 See for example the case studies in the volume by Hefner (1998) and the study
by Sloane (1999). Further on in the book, especially in the concluding Chapter 5,
I shall return to the discussion on cultural and structural perspectives to
entrepreneurship.
27 For case studies on contemporary entrepreneurs in different parts of Asia, see
the collection by Berger (1991), Hefner (1998) and Rutten and Upadhya (1997).
For a historical comparison of entrepreneurs in different parts of Asia, see Dobbin
(1996) and Tripathi (1997).
28 Recently a number of anthropologists have turned to these issues and are
investigating how the advance of global capitalism is being worked out in
culturally disparate ways in various localities. See Blim (1996) for a review of this
literature. A major point of debate in this literature is whether such diverse local
forms of economic organization should be regarded as hybrids produced by the
impact of the world capitalist system on pre-existing ‘cultures’, or as an integral
part of the history of capitalism (understood as economic and culture system to
which ‘local capitalisms’ contribute). In the latter view, European capitalism can
be understood as just one form of capitalism even though it originally gave rise to
industrialism, while earlier forms also existed and later forms were produced
through the articulation of local socio-economic systems with expanding capitalist
markets. An intermediate position would hold that the world economy has its
own logic but is historically contingent on encounters with local formations, pre-
capitalist and capitalist.
CHAPTER 2
Rural Industrialists in Central Gujarat
DIVERSIFICATION OF THE RURAL ECONOMY

SITUATED IN CENTRAL GUJARAT, West India, Kheda district forms an
unbroken plain, characterized by a very high population density and
a well-developed agricultural sector. These characteristics apply especially
to the southern part of this region, the so-called Charotar tract, which
administratively encompasses roughly the four talukas (sub-districts)
of Anand, Nadiad, Petlad and Borsad (see Map 2).1 The soil here is
known as goradu, a light and shallow loam which has been made very
fertile over centuries by the farming methods of the Charotar inhabitants
(Hardiman 1981: 257–259). Small, carefully tended fields, on which
agricultural operations continue the whole year round, are typical of
this part of central Gujarat, which is famous for its predominantly
green appearance and its agricultural prosperity.
The economic prosperity of this region today is based on a long-
term process of agricultural commercialization and economic develop-
ment. The early cultivation of cash crops is a clear case in point. ‘When
tobacco had first appeared in India in the seventeenth century, the
Charotar farmers had been among the first to grow this profitable
crop. Cultivation was limited almost completely to the Charotar tract’
(ibid.: 262). Further evidence of the growing importance of cash crop
cultivation began to appear in the middle of the nineteenth century.
Important incentives during this period were the general improve-
ment in communications, especially the construction of the Bombay–
Ahmedabad railway in 1863, and the fillip given to production by the
general price rise after 1857, stimulated in particular by the American
Civil War of 1861–65 (Bates 1981: 789). Although this period of
41
Map 2: Kheda district
economic growth was interrupted abruptly by famine, plagues, and

droughts around the turn of the century, these years of agricultural
depression were followed by an almost explosive increase in cash crop
farming in the first decades of the twentieth century, clearly indicating
an early process of commercialization of agriculture in the area under
study (ibid.: 789–790).
Economic development in central Gujarat accelerated more after
independence. Especially from the beginning of the 1960s onwards,
Rural Industrialists in Central Gujarat 43
agriculture in the Charotar tract received a new impetus in the form

of the so-called Green Revolution. Output increased substantially during
those years as a result of the intensification of production. An important
factor in this development was the expansion of irrigated area, which
made double and even triple cropping on a larger amount of land
possible. From the beginning, well irrigation has been the dominant
form of irrigation in the region. In spite of a substantial increase in
canal irrigation during the 1960s, two-thirds of the irrigated area of
the Charotar tract is irrigated by well water. Partly as a result of this
increase in well irrigation, mechanization in agriculture made rapid
strides. The number of diesel engines and electric motors for irrigation
purposes increased substantially from the early 1970s, while the number
of tractors, especially for land preparation, and of threshers, witnessed
a similar rise during those years. Along with the extended use of new
seed varieties, fertilizers, insecticides and pesticides, this tempo of
improvement in farming equipment indicates a sharp rise in the capital
intensity of agriculture in Charotar tract over the past few decades.
Based on an early process of commercialization, this recent speeding-
up of agrarian modernization has made the Charotar tract one of the
most agriculturally developed regions of India.2
The ‘new’ kind of dynamism in the rural economy of the Charotar
tract over the past few decades has not been limited to agriculture.
Industry also expanded markedly in the region in the period after
independence. In terms of the type of industry, agro-industries have
always predominated. Along with the rise in industries with backward
linkages to agriculture – such as factories processing tobacco, rice and
pulses – industrial development has been stimulated by developments
in agriculture through forward linkages and consumption linkages.
This includes engineering companies that repair agricultural machinery
and industries that manufacture bricks and cement products for irriga-
tion works and the building industry. Compared to the high level of
urban industrial concentration in Gujarat as a whole, industrial develop-
ment in the Charotar tract is more rural in character, with over half of
its manufacturing and repair enterprises located in the countryside.
As a result, more than in most other parts of Gujarat, industrialization
in the Charotar tract is part of an overall tendency towards diversifica-
Figure 1: A small-scale factory in an agricultural environment
tion of the rural economy, based to a large extent on a highly developed

agricultural sector.3
This process of long-term agricultural development and rural
diversification in central Gujarat has been socially confined to the class
of middle-large farmers, traders and small-scale industrial entrepreneurs.
In the Charotar tract, this class consists primarily of members of the
Patidar community, an upwardly mobile, middle-ranking peasant
caste which makes up about 15 to 20 per cent of the population in this
part of Gujarat. Since the early part of the twentieth century, this
community has been able to acquire economic, social and political
dominance at the local, regional and state level. Forming a rising class
of relatively prosperous cultivators of cash crops and having control
over the largest share of agricultural land in the region, members of
the Patidar community have been by far the greatest beneficiaries of the
agricultural development that took place in the Charotar tract after
independence, and they were subsequently able to capture most of the
opportunities that followed the diversification of the rural economy.
Therefore, within the economic elite of central Gujarat today, members
of the Patidar community form the large majority of the business

population in the fields of agriculture, trade and industry.4
This dominance of the Patidar community is also visible in the two
selected research villages of Vepargam and Udyoggam. These two villages
are located next to each other in the heart of the Charotar tract (see
Map 2). Members of the Patidar community account for about 15 per
cent of the village population, but they own more than 40 per cent of
the total agricultural land. The total amount of agricultural land in
Vepargam/Udyoggam is irrigated and three crops a year are grown on
most of it. Agriculture is fully commercialized and characterized by a
high level of capital intensification. During the summer and monsoon
season bajri (a species of coarse grain) is the predominant crop, while
during the winter season potatoes, the main commercial crop of these
villages, are grown, making this the most important agricultural season
of the year.
Vepargam and Udyoggam are not only agriculturally developed
villages, they are also a typical example of economic diversification in
the countryside of the Charotar tract. At the time of the original
research in 1987, there were 59 small-scale industrial enterprises in
Vepargam/Udyoggam, in which 1,142 workers were employed.5
Although this comes to an average of 19.4 per enterprises, the large
majority of the 59 industries employ between 10 and 15 labourers.6 In
all, the 59 enterprises are owned and managed by 93 people, who
belong to 59 families in all. The majority of them, 34 of the 59, belong
to the Patidar community. Of the remaining 25 families, 9 belong to
the Kachhia caste (a caste of small greengrocers and bricklayers) and
7 to the caste of local artisans. The remaining 9 families are from a
wide range of social backgrounds.
Although the tendency towards rural diversification in the Charotar
tract has accelerated during the last few decades, industry is not new
to the two villages selected, but in fact dates from long before inde-
pendence. The oldest company still operating in Vepargam/Udyoggam
is a sawmill established in 1910. Seven businesses were operating shortly
after independence, five of which were still functioning in 1998. In
addition to the sawmill, there is a floor-tile factory, which was established
in 1933, a cement pipe factory from 1943, and two tobacco-processing
factories dating from 1939 and 1949. In the period between inde-
pendence and the end of the 1960s, industrial expansion took place
only gradually. No more than 11 of the 59 enterprises in 1987 were set
up in the 1950s and 1960s. Indeed, the vast majority of businesses were
established very recently: about three-quarters of them after 1970, while
almost half date from after 1980.
All the industrial enterprises in Vepargam/Udyoggam are housed
in premises outside the two villages or on their outskirts, with the
exception of one metal workshop, which occupies part of a private home
in a residential area. With the growth in the number of businesses over
the years, there has been a spread of such premises over a wider area
in and around the two villages. Nearly all of those established prior to
1970 are located in the area between the two villages. The Bombay–
Ahmedabad railway line and the metalled road between the two district
towns of Anand to Nadiad, which runs parallel to it, both traverse this
industrial complex. The whole area, especially the part around the
joint Vepargam/Udyoggam railway station, has developed into a dense
concentration of industries. Those established after 1970 have fanned
out to cover a wider area in and around the villages of Vepargam and
Udyoggam, mainly along the Bombay–Ahmedabad national highway,
which curves in an arc around them. On the whole, these new business
premises are less densely concentrated.
In virtually all cases, production takes place in a factory shed built
for the purpose. The greater part of the production process takes place
inside the factory building, which is often noisy and filled with fumes.
Part of the production process, however, almost invariably takes place out-
side the factory shed. Some of the preparatory work and the finishing
off of end products might be done in a corrugated iron lean-to in front
of, or adjacent to, the main building. As a result, most factory sites are
cluttered with large quantities of raw materials, waste, semi-finished and
finished products. In combination with the neighbouring agricultural
fields in which farming operations are going on practically the whole
year around, these industrial premises are therefore a typical example
of rural diversification in the middle of an agricultural environment.
In terms of type of activities, the production process of 20 of the
59 enterprises is directly linked to the agricultural sector. A first group
Figure 2: A small-scale floor-tile and marble-sawing factory
Figure 3: A rural industrialist checking the production of floor-tiles in his factory

of 9 enterprises is concerned mainly with the storage and processing

of agricultural crops, including cold-storage units for potatoes and
ginger, tobacco-processing factories and a rice-husking plant. A second
group is made up of 11 businesses whose activities are solely or partly
geared to supplying products or services to the agricultural sector. These
include factories producing cement pipes for irrigation and metal work-
shops which manufacture fencing, and make and repair irrigation pumps,
tractor parts, threshing machines and other agricultural equipment.
The production of the remaining 39 industries in Vepargam/Udyog-
gam is totally unconnected to the agricultural sector. They process
non-agricultural raw materials brought in from outside the region
and manufacture products which are unrelated to the agricultural
production process and are ultimately destined for the consumer goods
market. Their activities are highly diverse, ranging from factories that
manufacture floor tiles, plaster, brick and cement articles, to plants for
sawing wood, cutting marble, refining oil and factories manufacturing
plastic products, PVC products, cylinder linings, ceramic products,
drugs, silicate, printed matter, biscuits and snacks.
Figure 4: Sawing of marble in a small-scale factory

BUSINESS STRATEGY AND PATTERN OF INVESTMENT

An important characteristic of the business strategy of the industrial
entrepreneurs in Vepargam/Udyoggam is the predominance of economic
diversification as their main pattern of investment. Ownership of an
industrial enterprise represents the sole independent business venture
for only 7 of the 59 entrepreneurial families. As many as 52 families
have economic interests outside the industrial sector. They are simul-
taneously active in business ventures of various kinds: agriculture;
trade in agricultural produce; traditional crafts; private financing
corporations or contracting companies; transport concerns, shops or
commerce in non-agricultural products. Of these 52 families, 49 have
interests in either the agricultural or the commercial sector, and 21
operate in both, and are therefore active in all three sectors of the
economy. The result is a high level of diversification of ventures among
the rural industrialists in Vepargam/Udyoggam.
Agriculture emerges as the most common secondary business
venture engaged in by these industrial entrepreneurs; 39 of the 59
families own agricultural land. In total these 39 families own 469 acres
of agricultural land – 318 acres of which is in Vepargam/Udyoggam –
which is an average of 12 acres per family. For just under half of them
farming is a continuation of a long-established family concern in
which investments are made in the form of intensification of pro-
duction, but usually not through new land purchases. For the other
half, agriculture is a business venture in which they have invested a
portion of their capital through the purchase of land – partly because
of the large profits to be made and partly because profits from agri-
culture are not subject to taxation in India. It is therefore an attractive
proposition for families to engage in agriculture in addition to their
industrial and commercial ventures, since it enables them to launder
some of their black money by transferring it to their farming business.
The second most important side-business of these industrial entre-
preneurs is the trade in agricultural products. In total, 19 families trade
in agricultural products, covering a total of 36 different trading activities.
Apart from one family that trades in tobacco, all the other families
trade either in seed-potatoes, potatoes or ginger, or in a combination
of these products. Trading in seed-potatoes and potatoes are the two
most important of these three activities: while only 4 families trade in

ginger, 14 families deal in seed-potatoes, and 18 families in potatoes. This
trade in seed-potatoes and potatoes by the industrialists in Vepargam/
Udyoggam is closely related to their farming activities and the direct
result of the recent change in the cropping pattern in the two villages.
The introduction of potatoes as a cash crop in Vepargam/Udyoggam
dates back to the beginning of the 1930s, but this replaced tobacco as
the main commercial crop in the village only from the second half of
the 1960s. The increase in the cultivation of potatoes since then has
been stimulated to a large extent by the increase in the cold-storage
capacity in the two villages and their immediate surroundings. In 1968,
the first cold-storage building was established in Vepargam/Udyoggam;
in 1987 their number had increased to 6 and to 13 in 1992. This in-
crease in storage capacity enabled the larger farmers to store their own
produce and gave a boost to their trade in cultivated potatoes purchased
from small and marginal peasants in the area.
Apart from their interest in agriculture and agricultural trade, the
owners of the industrial enterprises in Vepargam/Udyoggam also invest
in non-agricultural land, in private savings and in shares on the stock
market. For some years, investing in land for the purpose of speculation
has become popular among the younger generation of entrepreneurs.
In partnership with other entrepreneurs, some families have bought
pieces of land near the road-sides with the express purpose of selling
these to potential industrialists in the near future. As a business, land
speculation is practised by six families who are partners in one of three
private financing companies (shroffs), all situated in the nearby district
town of Anand. Through these companies, the families speculate in
land in Vepargam/Udyoggam and in the nearby towns of Anand and
Nadiad. A major part of the working capital of these shroffs comes
from well-to-do families in Vepargam/Udyoggam who, in exchange
for a relatively high rate of interest, have deposited part of their
savings in these three private financing companies. The amount of
own money involved in this activity of land speculation is certainly
not negligible but probably represents only a small part of the savings
of these families. A much larger part of their surplus incomes is put
into savings accounts at the bank or post office. Along with investing
surplus in land speculation and in savings, investment in shares has

recently become a new way of channelling surplus money into uses
which may earn a quick profit without any need to account for its
origin, and again is especially popular among the younger generation
of entrepreneurs.
To some extent, this diversified pattern of investment among the
industrial entrepreneurs in Vepargam/Udyoggam is related to their
occupational background. The majority of them do not have the type
of grounding for managing an industrial enterprise. Many were
previously involved in local-rural and agricultural-commercial activities.
Over one-third had no previous work experience, having assumed the
management of their present businesses immediately after completing
their education, while one-third had previous experience only in the
agricultural and commercial sectors or one or the other. This agri-
cultural and/or commercial background of these industrial entrepreneurs
often goes back a generation. The fathers of half of the present genera-
tion of owners of small-scale industries in Vepargam/Udyoggam were
employed exclusively in the agricultural and commercial sectors of the
economy.
Consequently, industrial management is a new and unfamiliar oc-
cupation for the majority of the entrepreneurs. Organizing the production
process, working with a variety of labour-recruitment arrangements,
and establishing and maintaining contacts (in connection with the supply
of raw materials, the financing of the production process, and the
marketing of the finished goods) all entail operating on unexplored
terrain, from the geographical, economic and social points of view. A
further handicap is that these entrepreneurs have only limited personal
know-how and little recourse to contacts and local networks to help
them gain access to the bureaucratic apparatus and to sources of
financing, technical expertise, raw materials and markets.
This agricultural and commercial background, and the diversified
pattern of investment, has not prevented a great many of these entre-
preneurs from making improvements to their industrial enterprises,
improvements that are often accompanied by new investments. One of
the most striking changes in this context relates to the marketing of the
manufactured products. In the first place this concerns the size of the
market. The vast majority of the enterprises in Vepargam/Udyoggam

have expanded their markets. In their early years virtually none of the
companies reached beyond the district, whereas in 1987 three-quarters
of them marketed a proportion of their goods outside the district and
in some cases even outside Gujarat State.
A large number of the enterprises have not only expanded their
markets, but also made changes to the type of market targeted. In the
majority of cases the emphasis during the first few years was generally
placed on establishing the enterprise, production being largely geared
to orders received from individual clients or from small companies. In
due course, however, the entrepreneurs increasingly put their efforts
into submitting tenders for contracts, hoping to gain orders from
state-owned or large private companies, which would guarantee part
of their turnover for a relatively long period of time. In general, these
orders also offer more attractive terms of settlement than those
prevailing in the small-scale private sector. This increasing interest in
tenders applies particularly to some of those 23 companies which
manufacture cement and associated products, in which large orders
from private contractors may account for a significant share of the
annual turnover.
These changes in the size and type of market targeted have had an
impact on external management procedures in the enterprises con-
cerned. As a result of the expansion of the market, the owner-managers
have increasingly taken to spending whole days, or even several days
at a time, away from the village. This tends to be the practice especially
when entrepreneurs start putting in tenders and procuring major
government contracts. They are obliged, far more than in the case of
fulfilling small orders, to submit their ideas and proposals on paper
and to support them by making a large number of personal visits. In
consequence, they spend a good deal of their time making (and
maintaining) contact with clients – whether of state-owned or private
companies – in the larger cities of India like Ahmedabad, Bombay or
even Delhi, and are far less able to fall back on existing social networks.
Whereas locally they belong to an elite and are used to arranging
everything themselves, in this new situation they find themselves
manœuvred into a position of dependency with respect to agents and
government officials. It is whether an entrepreneur is able to respond

to the challenge of this constant role change and to develop the necessary
range of skills that determines if the management of the company is
successful.
It is axiomatic that changes made in the production and marketing
processes also affect the internal organization of some of the companies.
Operating in wider markets requires stability in the scope and quality
of the production apparatus; this in turn necessitates entrepreneurs
having sufficient capital, being able to obtain a steady supply of raw
materials, and creating the kind of working organization that will
enable them to respond flexibly to changing markets. Procuring and
fulfilling major orders, as well as ensuring that marketing possibilities
once created are preserved, all require the entrepreneurs to work with
a view to the long term. This means that apart from the need to be
patient and willing to take risks, it is also necessary to make new invest-
ments in the company, in some cases with the aim of introducing
technological improvements into the production process. In at least
16 of the 59 companies additional investments were made subsequent
to the establishment phase, which is a relatively high number consider-
ing that the great majority of these companies had started operating
only very recently. In most cases the aim was to expand production
capacity. Eight companies went further than this, investing not only to
increase production capacity but also to make technological improve-
ments in the production process.
As a result of these investments, nearly all 59 industries use machinery
or power-driven equipment. Ten can even be described as technologic-
ally advanced; the pace of work is set by the machinery and manpower
is only a secondary factor. The owners of these latter companies were
graduates in various branches of technology, and all of them came
either from outside the region or had spent some years away from the
village. It was the experiences and impressions gained elsewhere
especially that had encouraged them and given them the confidence to
establish manufacturing companies characterized by a high level of
technological complexity.
The establishment of the industrial enterprises and the changes
made in their marketing, production and management procedures as
described above were financed to a great extent by investments on the

part of the industrial families. Of the 59 industrial families 20 made
their first investment in a company after 1981; 13 did so between 1971
and 1980; 16 between 1961 and 1970; 5 between 1951 and 1960; and
5 families made their first industrial investment between 1910 and 1951.
In 50 cases this investment was made in Vepargam/Udyoggam itself,
while 9 families made their first investment in companies established
elsewhere. The vast bulk of the capital they invested in these ventures
came from agriculture and trade. The invested capital of 38 families
consisted wholly or partly of income accumulated within the agricultural
and/or commercial sectors. Of the remaining 21 families, 10 invested
their earnings from either traditional crafts (5 families) or employ-
ment outside India (5 families), while 10 families did not use any family
capital for their first investment in an industrial enterprise. Only one
family had begun with capital derived exclusively from industrial
production, but 4 combined industrial profits with other sources of
income to make these first investments.
As already noted, only a small number of companies – 16 out of 59
– made extra investments after going into operation. This does not
mean that the 59 families have been investing or reinvesting little in
industry. The low level of reinvestment in these companies may be
explained to a significant extent by the fact that more than half of
them did not start operating until after 1980. Secondly, 27 of the 59
families concerned have since invested, but in new ventures; in 24 of
these cases the new investment was again in an industrial concern,
either in Vepargam/Udyoggam or elsewhere.
In a large number of cases the production process in these new com-
panies strongly resembles that adopted in the family’s first enterprise;
at least 10 companies in Vepargam/Udyoggam, in fact, may be regarded
as expansions of existing ones. The main reasons families have for
choosing to set up a new company instead of (formally) expanding the
existing one, are that it enables them to pay lower taxes, increases the
likelihood of receiving a subsidy, and makes it easier to evade com-
pliance with labour legislation. Such cases can indeed be classified,
therefore, as a family’s reinvestment of capital in industry. This re-
investment does not occur, however, within one and the same concern
but through the establishment of a new one. A total of 14 out of the 59

families concerned own (or are partners in) more than one industrial
concern; in six of these cases the ownership or partnership covers
more than two enterprises.
In sum, economic diversification based on the accumulation of
local capital deriving from agriculture and agricultural trade is typical
of the business strategies practised by the industrial families in the two
selected villages of Vepargam/Udyoggam. The findings, as presented
above, show that this commercial orientation and diversified investment
pattern has not prevented many of these families from making changes
to their industrial enterprises. Additional capital may have been invested
to augment their outlets, to improve the organization of the labour
force, to expand production, or to introduce technological improvements
into the production process. These changes are not taking place on a
large scale, but they are nevertheless significant, particularly when the
fact that these enterprises have only recently been established is taken
into account. Undeniably, the agricultural and commercial background
of the entrepreneurs has increased the amount of capital available to
these families for industrial investments and has given them know-
ledge, contacts and experience in operating outside the agricultural
sector and outside the local environment. As a result, the links be-
tween the different economic sectors within this group of entrepreneurs,
often within one and the same family, have played a major role in the
establishment and expansion of industrial enterprises in Vepargam/
Udyoggam, which is illustrated by the following case study.
The family of the two owners of the Krishna Tile factory (established
in 1975), Rameshbhai (aged 35 in 1987) and his brother Mohanbhai
(34), have lived in Vepargam for many generations. They are members
of the Patidar caste. Their father has been a farmer all his life, and in
1969 he also started to trade in agricultural products (potatoes, seed
potatoes and ginger). Both Rameshbhai and Mohanbhai are well
educated. After leaving secondary school, Rameshbhai took a two-
year qualifying course in mechanics, while Mohanbhai took a degree
in commercial science and a bachelor’s degree in law. Neither they nor
their father had ever envisaged their education as a preparation for

work other than in the family business, but neither of the brothers was
interested in becoming a farmer like their father. In 1975, as soon as
Mohanbhai had completed his studies, the two brothers set up the
Krishna Tile Factory with money their father had made cultivating
and selling agricultural products.
Today, Rameshbhai and Mohanbhai devote far more time and
energy to the marketing side of the business than they did in the first
few years of operation. This is due to the tremendous increase in
cement-processing industries – including floor-tile factories – since
the abolition of the cement quota system in 1983. In Vepargam/
Udyoggam alone, the number of floor-tile factories rose from four in
1983 to seven in 1987, while nineteen new factories were established
in the rest of Kheda district during those years. Fierce competition has
spurred Krishna Tile to pursue bigger orders in order to keep its head
above water. With a touch of nostalgia, Rameshbhai and Mohanbhai
reminisce about the way things used to be, when there was no shortage
of orders. ‘The problem then’, they would say, ‘was not finding
customers for floor tiles, but obtaining an adequate supply of cement.
Customers, many of them from miles away, were only too happy to
pay in advance, and even then, they had to wait three months or more
for their tiles to arrive.’
Although Rameshbhai and Mohanbhai undoubtedly see these early
years through rose-tinted spectacles, their account reflects their perception
of their present marketing problems. Securing large orders is of vital
importance if they are to keep production at its present level. This
mainly involves putting in tenders, which requires an extremely active
marketing approach and entails a lengthy process of negotiation. The
tenderer is in a relatively weak position, which is anathema to Ramesh-
bhai and Mohanbhai. As members of the dominant caste in the village,
they are accustomed to bellowing orders at their assistants and labourers.
It was therefore a curious experience to spend an hour with them in a
contractor’s office in Anand, witnessing their efforts to exercise restraint
whilst being obliged to wait. Even though it goes against the grain,
they are indeed able to switch roles. On one occasion, I accompanied
Rameshbhai around his agricultural land. He spent the morning
screaming at his overseers, enraged at having been kept waiting for his
tea and water, yet only a couple of hours later he was sitting humbly
in the contractor’s office, extolling the many virtues of his floor tiles.
In 1986 more than half the output of the Krishna Tile Factory was
produced for a single order placed by a contractor who needed floor
tiles for a large block of flats in Baroda. The order had consequences
for the internal organization of the production process, because al-
though the company was assured of sales worth about Rs. 40,000 a
month, it was also obliged to adhere to a strict time schedule. When
the polishing machine broke down on several occasions in November
and December 1986, Rameshbhai and Mohanbhai were up day and
night trying to get it repaired. Although they normally spend no more
time in the production area than is strictly necessary, that is where they
were to be found, poring over the machine, with their hands covered
in grease. All their time and energy went into restoring the production
process. They had no compunction about postponing their other
business and social commitments for a couple of days.
Securing the Baroda order solved some of the marketing problems
at Krishna Tiles. In the preceding years, Rameshbhai and Mohanbhai
had been forced to produce tiles without having received orders first.
Increasing competition meant that neither they nor their five competitors
in Vepargam/Udyoggam could continue to produce solely on com-
mission. Although they would have no labour costs if production were
to grind to a halt, their more experienced workers would be likely to
move away if they found themselves frequently out of work. Partly in
view of these circumstances, Rameshbhai and Mohanbhai have been
more or less obliged to build up a modest-sized stock of their best
selling ranges to keep production going. Producing stock out of their
own pockets, as it were, means that they have needed a larger capital
reserve in recent years to span the period between buying and selling.
At the beginning of 1987, they discussed the matter with the branch
manager of their bank in Vepargam on several occasions, and managed
to have their company credit ceiling raised to Rs. 70,000.
JOINT-FAMILY ENTERPRISES AND BUSINESS PARTNERSHIPS

Where several business ventures are conducted simultaneously by the
owners of the industrial enterprises in Vepargam/Udyoggam, it is
frequently in the context of a joint family. The joint-family structure
is therefore an important form of co-operation among the industrial
entrepreneurs in these two villages. There are only eight nuclear families
among the total of 59; all the others may be characterized as joint
families, consisting either of members of three or more generations or
of two or more married brothers and their unmarried children. The

members of these joint families share a common property and pool
together their resources for common consumption. Almost half of
these joint families, however, consist of several households, each using
its own kitchen; in many cases the family even occupies a number of
houses.
This institution of the joint type of family has made it possible for
these families to diversify their economic interests both within and out-
side the industrial sector. Being part of a joint family has enabled them
to mobilize the financial and managerial resources needed for their
different types of business operations in agriculture, trade, and industry.
Indubitably it has created scope for amassing and transferring capital
– by delaying the moment at which it is split up – and it has intro-
vertibly enabled the various business activities to be distributed among
the various adult male members of the family. It is therefore not
uncommon to find that within one family, one member manages the
family lands, while another is a trader or industrial entrepreneur. By
systematically diversifying their interests, these families create employ-
ment outside farming with the aim of slowing down further partition
of the family’s landed property. Although in the end, these joint families
are bound to break up, delaying this process often gives them time to
expand their enterprises in both type and variety.
The predominance of the joint family organization among the
entrepreneurs in Vepargam/Udyoggam is not based on economic
considerations only but is also strongly related to, and based on, an
extended and inclusive notion of the concept of family. This notion of
family involves a recognition of mutual kinship obligations and expecta-
tions which often includes a large number of (distant) relatives. For
most of the entrepreneurs, the kutumb - the local term for family -
means an extended joint family which includes parents, married sons
and their wives and children, and often also other relatives along the
male line of descent, such as the families of the father’s brother and
father’s sister.
This highly developed sense of jointness and family feeling is
strongest among those 34 families that belong to the Patidar com-
munity. For a long time, agricultural land has played a great emotional
role in tying the family members of this community together, as a

result of which ‘family-centrism’ has become an important
characteristic of the behaviour and attitude of the members of this
caste. Among the Patidar entrepreneurs in Vepargam/Udyoggam,
there are many who idealize the advantages of joint ownership of
property by relatives. For practical reasons, however, joint families are
bound to break up eventually. Whenever the male members of the
entrepreneurial families in these villages refer to the break-up of the
joint family, they do their utmost to maintain their ideal of jointness
to the outside world. In many cases the ‘blame’ for destroying this state
of jointness is placed on the women, for not being able to get on well
with their husband’s mother, with their husband’s sisters, or with their
husband’s brothers’ wives.
Another recurrent phenomenon among the men of these families
is their insistence that in the past the division of property took place
with entire agreement between all the different parts of the family.
This is an idealization because in reality the actual division of the
family property was often the final outcome of disagreements and
conflicts that had already been smouldering for some years. In many
cases, these conflicts are related to the strongly authoritative relationship
which develops between the eldest and some of the younger brothers.
After their father’s death, the eldest brother (motabhai) becomes the
head of the family, something which is not always accepted by the
younger brothers in relation to the economic activities of the family.
This often leads to tensions among the different family members and
finally to a split between some of them.
Co-operation in establishing and running an industrial enterprise
is not something limited to members of the same family unit. More
distant relatives, members of the same caste, and/or acquaintances
may also be involved. All such relations play an important role in the
running of the 59 businesses established in Vepargam/Udyoggam. A
large number of the entrepreneurs profited from the assistance of
relatives, friends and other members of their caste at the time of setting
up their business, and in the first few years of running it. Several of
them, for example, were able to gain a number of years’ experience in
an industrial concern prior to the establishment of their own business,
through the mediation of a relative or someone of their caste. This

involved their working in a supervisory capacity, as manager or over-
seer, often within the same type of business as the one they wished to
set up themselves. The owners of these companies often preferred to
install relatives or those of their caste in these positions on the assumption
that such people would feel more committed to protecting the
economic interests of the enterprise. As most of these companies were
established outside Vepargam/Udyoggam, this training period also
served to furnish the aspiring industrialists with work experience
outside the village community and enabled them to broaden their
circle of acquaintances.
Another way in which relatives helped in the initial phase of a new
business venture was by providing loans and – more importantly still –
by providing surety for loans. In cases where the industrial entrepreneurs
either had no farmland of their own or any other family assets that
could serve as collateral for a bank loan, surety provided by
prosperous relations or fellow caste-members would often make it
possible for them to set up in business. Nor did support stop there. In
addition to providing assistance during the initial set-up phase, in a
number of cases family and fellow caste-members continued to play a
major role for the first few years of a company’s life, particularly in
product marketing.
Co-operation in establishing and managing small-scale industries
in Vepargam/Udyoggam does not exist solely in the form of joint
families or in the form of support, assistance and advice by caste
members, it is also formalized in business partnerships. Of the 59
enterprises, 11 have one owner each, the remaining 48 being owned
by partnerships in which a total of 166 individuals are involved, i.e. an
average of almost 3.5 partners per company. In 23 cases these business
partners belong to the same family; the assets are divided up legally –
largely with a view to gaining tax benefits – with virtually no con-
sequences for the management of the enterprise. In the other 25
partnerships different families are involved, and in 11 of these instances
there is no blood tie whatever between the partners.
The number of existing partnerships at the present time does not
in itself provide an adequate indication of the importance of this form
of co-operation to the rise of industry in Vepargam/Udyoggam. This

becomes clear when the great number of shifts of ownership that have
taken place in the course of time, and the ways in which many of the
companies are associated through partners and ex-partners are studied.
An overview reveals that 34 of the 59 enterprises have ties with one or
more of the others in the form of partners or ex-partners. Besides
three cases in which only two companies are involved, there are three
clusters of four companies interconnected through partners and ex-
partners. Particularly striking is a group of fourteen companies which
are all connected with each other through ties between partners and
ex-partners, which lends added emphasis to the significance of
partnerships and changes within them.
This preference among a large number of these families for operating
in partnerships is not limited to their industrial activities, but also
characterizes their trade in agricultural produce. As mentioned above,
agricultural trade is the second most common side-business engaged
in by these industrialists. Out of the 19 families that trade in agri-
cultural products, 10 do so in partnership with one or more other
families. Characteristic of almost all these partnerships in agricultural
trade is their informal nature. They are seldom registered officially but
exist as oral agreements between the partners. This non-official nature
is closely related to the fact that these families do not pay any tax on
their trading income. As income out of agriculture is not liable to
taxation in India, tax evasion is a relatively simple matter for these
families: they simply shift part of their trading income to the farming-
part of the family, as they have large amounts of land to account for
their stored potatoes and extra income. To a great extent these
partnerships in agricultural trade, and also those in other types of
commercial ventures, have been set up within the group of 59
industrial families. All in all, it turns out that 30 of the 59 families are
in partnership with one or more of the others, over and above their
partnerships in industrial enterprises in Vepargam/Udyoggam, and 34
have had such ties at some time in the past.
Simultaneous involvement in diverse business ventures constitutes
one reason for many of these families to elect to form partnerships.
Someone who is running several businesses at the same time,
frequently in different sectors, will not be able to work full-time on a

newly established concern and will generally need a trusted business
associate. Operating in partnership enables them to pool large
amounts of capital, experience, contacts and management-potential.
In most instances, these partnerships consist of families belonging to
the same caste or even sub-caste, and in many cases two or more of the
partner-families are connected by (distant) family relations.
Another reason that so many of these families form partnerships is
that they are people whose roots are in agriculture and commerce; it
is a lack of experience in industrial management, as much as a lack of
time or of capital, that moves them to engage in collaborative ventures
with others. The expediency of sharing experience and knowledge is
often an important reason to operate in partnership with other
families. Therefore, one of the reasons why most of these industrial
families have entered partnerships at one time or another, is to
counteract the uncertainty they face when operating in relatively
unknown territory. By taking on someone they know and trust, the
family hopes, though often in vain, to avoid the partnership being
beset by conflicts.
This aspect of uniformity in the social background of the
respective partners and their families indicates that the partnership as
a form of business organization cannot be explained simply in terms
of capital accumulation. The predominance of partnership is closely
related to the strong sense of jointness and the wide-embracing
notion of family. For most of these entrepreneurs, the establishment
and management of trading and industrial enterprises is a relatively
unknown activity which requires co-operation with others from
outside the joint family. For reasons of trust and social control, they
hold on to their familiar way of operating through kinship and family
networks as far as possible, and therefore prefer to operate in partner-
ship with others from their own social background.
Not only do these entrepreneurs choose business partners from
the same social background, but they also strongly and explicitly
emphasize the kinship ties and family relations that exist between the
different partners. To many of them, the partnership is as much a
personal and family form of organization as it is a contractual
business arrangement between different parties. Members of the

Patidar caste, more than any others, tend to form partnerships, largely
because of their background in agriculture and commerce, because of
their tendency towards diversification in business ventures and
because of their experience with operating in partnerships outside the
industrial sector. At the same time members of this community have
a keen sense of status, and this prompts them to prefer to operate
without assistance from outside the family. This emphasis on family
feeling in business operations is often carried to the extent that the
ambition of most entrepreneurs is to have a business owned entirely
by members of their own joint or extended family. In 20 out of the 59
companies some shift in ownership has taken place since establish-
ment. Most of these cases involved one partner being bought out in an
effort to bring the enterprise completely under the control of one
family. In some cases an active partner was involved and in others a
sleeping partner. In either event such a move often resulted from a
conflict situation.
This ideal of a family-owned business often leads to distortions
when the history of their enterprise is discussed with persons from out-
side. In many cases, the owners try to conceal the fact that their
company had originally been established in partnership with others
from outside the family. In order to realize their ambition of a family-
owned business-enterprise, some of these entrepreneurs had actually
ended an economically fruitful partnership with someone from
outside the family, despite sound business reasons for staying together.
More often than not, the partner had been one of the original
founders of the enterprise and had brought in the necessary contacts,
technical knowledge and/or managerial experience. Because of the
irreconcilability between the reality of the past, and their overall
emphasis on self-made or family-made achievement in business, these
entrepreneurs often try to conceal the fact that there had ever been a
partnership in the past, sometimes without being aware of doing so.7
Because of the fact that most partners do not view the partnership
primarily as a business arrangement and many enterprises are family
firms, differences of opinion over issues concerning the enterprise can
escalate to personal conflicts more easily. Although the division of
property often creates bitterness between partners and family members,

they usually come together again on a new basis once they are separ-
ated. The recognition of mutual kinship obligations and expectations
of assistance and support still survive in many families and business
enterprises today, albeit with diminished force. It is often difficult,
therefore, to establish the exact relations between the different family
members and business partners. This aspect of fluidity and change is
characteristic of their family and business structure. The exact
organization of their families and their firms is not a fixed entity but
changes over time. It is not the survival of the joint family or business
partnership as such which is important but the predominance of a
type of family and business organization that is characterized by both
a kind of jointness juxtaposed with conflict and by change, as is shown
in the following example.
Since the death of his father in 1978, Bhikhabhai (aged 53) has been
the head of a family of five brothers. Together, they own 20 acres of
irrigated land in Vepargam. In 1966 their family owned 13 acres of
land and purchased their first four-wheeled tractor. By then,
agricultural land had already become a scarce commodity in the
village and its purchase was increasingly difficult. After having
increased their landholding to 17 acres in 1974, they therefore decided
to buy agricultural land outside the area, in partnership with one of
the other large farming families in Vepargam.
In 1975, they purchased 40 acres of agricultural land in a neigh-
bouring district. It was Bhikhabhai and his wife and children who
then moved to this area to look after the land, while his father and
younger brothers remained in the village. After two years of successful
farming, Bhikhabhai started a small cement-pipe factory in that area,
partly with capital from agriculture. At that time, one of his younger
brothers and his wife joined him to look after the land as Bhikhabhai
himself had become more and more occupied with the newly
established factory.
After his father died in 1978, two of his younger brothers in the
village wanted to divide up the family property. This did not suit
Bhikhabhai, who was of the opinion that their agricultural land in the
village was still of vital importance to their attempts to establish
economic activities outside farming. He therefore moved back to

Vepargam with his family and was finally able, though with great
difficulty, to convince his brothers not to divide their family property.
While one of his younger brothers took over the management of the
factory in the neighbouring district, Bhikhabhai established a trading
company in agricultural products in 1980, thereby adding a new
economic activity to the family’s sources of income.
In 1981, Bhikhabhai’s family also became one of three partners in
the Charotar Crisps Factory, a factory that produces savoury snacks
and crisps in Udyoggam. The main partner was Maganbhai Patel, a distant
cousin of Bhikhabhai. He developed the idea for the factory after a
visit to a potato crisp factory in Bombay. As the main ingredient of
crisps is potatoes, Maganbhai was convinced that it would be possible
to produce crisps in Vepargam/Udyoggam, seeing that the cultivation
of potatoes there had increased enormously in the course of the
previous 30 years.
The third partner in the enterprise was Chottubhai Patel, an
acquaintance of his father’s and one of the most knowledgeable people
in the village where potatoes are concerned. It was this expert knowl-
edge about potatoes that made Maganbhai decide to ask Chottubhai
to become a business partner in the crisp factory. Bhikhabhai’s family
was asked to join by Maganbhai in order to raise some extra capital,
but more importantly because he needed an additional person whom
he could trust with the day-to-day supervision and paperwork of the
factory, as Maganbhai was going to concern himself with the
marketing side of the enterprise, which would often involve his being
away for the entire day. For Bhikhabhai it was an opportunity to fulfil
the wish of one of his brothers to have an enterprise ‘separate’ from the
other members of his family.
In the course of the next few years, the Charotar Crisps Factory
expanded quickly in terms of annual turnover and investment, and in
the number of products the company marketed. Then, in 1985, problems
arose between the partners. This was because Maganbhai’s younger
brother, Kiritbhai, had come back to Vepargam that year after spending
time in England. Kiritbhai had to be provided with employment and
this suited Maganbhai, who wished to limit the ownership of the com-
pany more to the members of his own family. His problem was that he
could not dispense with the services of Chottubhai, whose knowledge
and experience were still of inestimable value to the company.
Some months after Kiritbhai’s return to India, Bhikhabhai’s family
was bought out by the two other partners. As far as Maganbhai was
concerned, there had been no problems whatsoever. As he put it,

‘Bhikhabhai and his brother themselves decided to leave the
partnership because they wanted to devote their energies more to
their other economic activities in farming and agricultural trade. We
are still good friends.’ When I visited Bhikhabhai and his brother at
their house a few months later, however, I heard an entirely different
story. When I inquired quasi-nonchalantly about their partnership in
the Charotar Crisps Factory, it was Bhikhabhai who reacted most
strongly and immediately, exclaiming, ‘They simply kicked us out.
When Kiritbhai came back from London my brother was no longer
needed, even though we had helped build up the business all those
years. It’s not the kind of thing you expect from a friend, is it?’ he
demanded rhetorically, while his brother sat nodding his agreement
in the background.
In 1987, Bhikhabhai’s family consisted of three separate house-
holds. All the income and most of the expenditure was shared among
the five brothers and their families. Talking about the advantages of
their form of joint family, Bhikhabhai more than once quoted the
following proverb: ‘ek lakri tuti jay, pan lakrano bharo na tude’ (while
one stick will break, a bundle of sticks will not break). Although there
was strength in unity as a family with regard to the management of the
economic activities and also with regard to part of the expenditure,
they operated virtually independently from each other – some of
them seldom even visited each other’s houses.
In 1989, Bhikhabhai and his brothers decided to divide up the
family property. It turned out that in that year, in an attempt to solve
part of the liquidity problems of the trading company, Bhikhabhai
had gone to his brothers in the neighbouring district and had taken a
substantial amount of money out of the agricultural and industrial part
of the family. Because of this, angry words passed between him and two
of his brothers, which finally resulted in the division of property. Even
in 1998, several members of the family were still not on good terms,
although others seem to at least accept the authority of Bhikhabhai, as
the eldest brother and head of the family, in social matters.
UPWARD MOBILITY AND SOCIAL DISTANCE

An important characteristic of the labour management practised by
the industrial entrepreneurs in Vepargam/Udyoggam is the use of an
intermediate stratum of labour contractors or subcontractors. Many

of the small-scale industrialists do not employ their labourers directly
and on an individual basis, but hire them through intermediaries or
as small teams. In most of these cases, the industrialist enters into an
agreement with a contractor or team of workers to perform specific
operations in his factory, such as loading or unloading trucks with raw
materials or finished products, producing a fixed number of articles, or
finishing off products. For this, they pay a fixed amount agreed on in
advance. Control over production remains in the hands of the industrial-
ist who decides on the type and timing of the whole range of operations
and usually provides all of the capital required, including financial
advances to the intermediary who often does not have the reserves to pay
the wages and other allowances of the hired-in labourers. As a result,
many of the labourers are not employed directly by these rural entre-
preneurs, but operate as outworkers who are employed as teams or by
an intermediate stratum of labour contractors who have been commis-
sioned to carry out part of the production process in which they are
responsible for recruitment and actual supervision of the workforce.8
This picture of employment arrangements – which relies heavily
on the piece-work and outwork systems – illustrates the way in which
rural industrialists in Vepargam/Udyoggam have transferred the adverse
effects of fluctuations in production to the labour force. By thus
organizing the recruitment of labour and the work in their factories,
they have solved the problem of fluctuations in supply and demand of
labour, while still exercizing control over the production process. As
far as possible, they recruit labour on terms which allow them to hire
and fire as it suits them, while they accept no responsibility whatso-
ever for the fate of their workers. These piece-work and outwork systems
enable them to shift the onus of supplying work and for the terms of
employment to an intermediate group of labour contractors, or, as far
as piece-work is concerned, to a team of workers. Although not a new
phenomenon, the creation of an intermediate stratum has become an
important aspect of the management in small-scale factories in
Vepargam/Udyoggam, in which direct contact and responsibility for
the welfare of the labourers working in the fields or factories is
increasingly abdicated to an intermediate layer in society.
By contracting out the labour-intensive parts of the production

process, the industrial entrepreneurs in Vepargam/Udyoggam avoid
having to recruit labour and to provide daily supervision in their
factories. The piece-work or contract system means that they need to
carry out inspections only retrospectively, either at the end of the day
or, in some cases, at the end of the week. As discussed in the second
section (from page 49 above), many of these families are involved in
several economic activities at the same time and often have interests
in various sectors of the economy simultaneously: they are often
engaged in farming, in agricultural trade and in other commercial
ventures besides managing their industrial enterprise.
While performing these various economic activities, these industrial-
ists have turned themselves more and more into managers who spend
a substantial amount of time attending to the external side of their
affairs. A significant part of their day’s work consists of making
contacts and maintaining relations within government organizations,
banks and co-operatives in order to keep up-to-date with marketing
trends, and to secure access to capital and material inputs. By paying
short visits to their factories, farms and trading activities, and by
having regular conversations with their middlemen, these entrepreneurs
are able to acquire the information they need to take decisions and to
give instructions on the work to be done. Not having sufficient relatives
to supervise the execution of the work, as a result of the size of the
enterprise and the composition of the family, their frequent absence
from the village leaves them relatively little time to supervise production
processes themselves, and the situation is exacerbated if they are engaged
simultaneously in several business activities in different sectors of the
economy. Partly for these reasons, these rural industrialists in Vepargam/
Udyoggam resort with mounting frequency to making use of an
intermediate stratum of labour contractors or subcontractors who
relieve them of the burden of recruitment and direct supervision. This
is installing a system of labour management which diminishes direct
contact between the economic elite and the rural labour force, while
it enables the entrepreneurial class to continue to perform the major
managerial functions in their factories and other economic activities
in agriculture and agricultural trade.
For a large part of the working-day and during their leisure-time,

these industrial entrepreneurs are often surrounded by less wealthy
friends, caste-members, or distant relatives of the same age. These people
act as a kind of ‘personal assistant’ to the entrepreneurs and perform
all sorts of odd jobs for them. Although most of these are related to the
business activities of the entrepreneurs, a number of services provided
by these personal assistants are also meant to make life more comfort-
able for the male members of the entrepreneurial families.
In exchange for being at the beck and call of the entrepreneurs,
these personal assistants receive money and gifts at irregular intervals.
A few of them have even been made minor working partners in the
trading activities of their wealthy friends. Although all of them are
granted the privilege of taking part in the leisure-time activities of the
male members of the entrepreneurial families, they do so only as a
‘junior’, even inferior, member of the group. This phenomenon of
making use of personal assistants illustrates the general emphasis on
dependence, rank and inequality among the entrepreneurs in Vepargam/
Udyoggam, especially among those who belong to the Patidar com-
munity. The male members of these families not only refuse to submit
to others, but have a desire to reduce others to submission. By provid-
ing help, advice and protection, in return for services and especially in
return for the acknowledgement of dependence, these entrepreneurs
have formed their own ‘unequal-relationship’ groups in which they
combine business and pleasure within and outside the village.
Overall, the distance between members of the economic elite and
the remaining population of Vepargam/Udyoggam is widening. This
is occurring not only in the field of management and labour relations,
it has also extended into the field of education. Both Vepargam and
Udyoggam have a primary and secondary school within their boundaries.
The two secondary schools are private institutions, which were founded
in 1952 and 1966, partly through donations from the economic elite,
especially members of the Patidar community. From an early stage,
these families recognized education as a valuable addition to the family
‘property’ and could afford to send their children to the newly estab-
lished village schools. Over time, an increasing number of these children
have pursued higher education in the nearby towns of Anand and
Nadiad. Consequently, most members of the Patidar entrepreneurial

families in Vepargam/Udyoggam today are well-educated, and especially
among the younger generation, both male and female, a diploma course
or university degree is no longer exceptional, but has in fact become a
quite common level of education.
Until recently, almost all entrepreneurial families in the country-
side relied on the availability of primary and secondary education in
Vepargam/Udyoggam. Since the 1970s, however, an increasing number
of them has supplemented local education with extra, private teaching
facilities, such as individual tuition, or has sent their children to private
primary and secondary schools outside the village. For the sake of their
school-going children, more and more entrepreneurial families have
bought a house in Anand or Nadiad, to which part of the family has
moved. Some families have started to send their children to English-
language education, while several of them have even begun to send
their children to boarding-schools outside the district (such as Mount
Abu), or even outside Gujarat (such as Panchgini). The purpose behind
this preference for primary and secondary education outside the
village is to provide their children not only with an educational but
also with a socio-cultural background which will help them to acquire
the essential knowledge and contacts among the urban middle class to
run the family’s economic interests in the future. Therefore, many of the
younger generation of entrepreneurs in Vepargam/Udyoggam operate
on a day-to-day basis within a regional network of economic and
social relationships, while they hardly ever have, or have had in their
youth, frequent and direct interaction with members of the poorer
sections within the village, including those belonging to their own
community.
This widening social cleft between the economic elite and the
majority of the village population has been deepened further by the
recent tendency among the entrepreneurial families to shift their resi-
dence away from the village to new and distinct geographical locations.
Until recently, the houses of the economic elite in Vepargam/
Udyoggam were situated in the centre of the village, which has always
been the residential area of the higher castes, in particular of the
Patidar community. Hampered by a scarcity of building space in these
residential areas, many entrepreneurial families have constructed new

houses on specially designated plots just outside the village, while others
as mentioned have moved to one of the district towns. At present,
there are seven separate housing localities on the edge of Vepargam
and Udyoggam, all of them organized within the framework of a co-
operative or private housing society. The initiative for establishing these
societies came from members of the economic elite in the two villages.
These societies were established in the 1960s and 1970s, although most
of the houses were constructed in the 1980s and 1990s. Membership
of most of these societies is restricted to families belonging to the
higher castes, especially to members of the Patidar community.9
It is on these plots of land that the entrepreneurial families have
been able to give expression to their newly acquired wealth by building
spacious bungalows, two to three storeys high, replete with all kinds of
luxurious facilities and furnished with expensive consumer durables.
Another illustration of their wealth is the fact that all of them own one
or more motorized vehicles such as mopeds, scooters, motorcycles and
cars. Especially among the younger generation within these families,
the motorcycles and cars that have been introduced by Indian firms
with a Japanese collaboration are becoming increasingly fashionable.
As a result, the old brands of scooters (Bajaj), motorcycles (Rajdoot)
and cars (Fiat and Ambassador) are quickly being replaced by the new
and more prestigious brands such as Suzuki and Hero-Honda motor-
cycles and Maruti and even BMW cars.
The shift of residence away from the village centre to separate
localities with a socially and economically homogeneous population has
meant a further decline of direct contact between the economic elite
and the majority of the village population in Vepargam/Udyoggam.
On top of their frequent absence from the village during the day-time
and their abstention from supervision of the work process, their
isolated residences leave these rural industrialists very limited opportun-
ities to mix or even keep in regular touch with other sections of rural
society. Only occasionally and for a very brief visit only, do the male
members of the entrepreneurial families still come to the village
square in the evening: they usually stay in their car or on their scooter
or motorcycle, send out their order for pan, chat for a while with
relatives or friends, and then leave again. Slowly but surely, they are
withdrawing from social life in Vepargam/Udyoggam and restrict their
interaction with the village population to brief contacts with inter-
mediaries, usually within the confines of their offices or on the veranda
of their newly constructed bungalows located outside the village resi-
dential area.
The changes in lifestyle of the members of the entrepreneurial
families in Vepargam/Udyoggam are not restricted to the males only,
they have ineluctably affected the life of the women in these families
as well. During the last few decades, there has been a strong tendency
within these families to make housekeeping the main activity of the
women. Furthermore, it has become increasingly customary for these
women to be assisted in their household work by servants, often the
wives and daughters of hired-in industrial or agricultural labourers.
As a result, the major part of the day’s work for these women
consists of preparing and serving the food to the other members of the
household. Their major task is to be at the disposal of the male
members of the household and to serve them in all kinds of ways: to a
large extent, their day’s rhythm revolves around the coming and going
of the men, who often follow an irregular pattern in the division of
their day’s work and leisure time.
Even though these women work more hours per day than their
male counterparts, the recent change in the type of work they perform
– which adds to the husbands’ prestige – has given them more leisure
time, part of which is spent outside the village. In spite of these trips
outside the village – which clearly distinguish them from the majority
of their fellow villagers – increasingly, the overall consequence of the
changing daily routine has been to tie the women to their homes.
Especially in those families whose homes are located on the outskirts
of Vepargam/Udyoggam, there are far fewer opportunities for them to
go out of the house on their own and they are often more dependent
on the willingness of their husbands and sons to accompany them.
This process, which is turning the women of the entrepreneurial
families in Vepargam/Udyoggam into full-time housewives, is strongly
stimulated by the male members of these families. Among the Patidars
particularly, there is a growing tendency for the men to want (and be
able) to keep the women in the home. Even among the younger genera-
tion, it is exceptional for a man to go out of the village together with
his wife. They always visit each other, or other people, on their own or
in exclusively male company. They prefer to have their get-togethers
outside their own houses, outside their own streets and often outside
the village as well. On these occasions, they often display behaviour
they would never show at home or with family members around.
Strictly vegetarian and teetotal at home, they take to drinking and eating
chicken when outside and in each other’s company, and occasionally
have illicit sexual relationships with other women. Seen from their
point of view, it almost seems as if they are somehow trying to com-
pensate for their own behaviour outside – frequently breaking the
norms existing in their own community – by keeping their women at
home as much as possible and by discouraging them from undertaking
any activities that require their presence outside the house.
Taken as a whole, the recent changes in daily activities, labour-
management, residential location, education and lifestyle among the
rural industrialists in Vepargam/Udyoggam have brought about a
widening social distance between the economic elite and the remaining
village population, especially the poorer sections among them, which
is illustrated by the following case study.
The family of Ambalal Patel (aged 63) owns 12 acres of agricultural

land in Udyoggam. Although Ambalal handed over the management
of the farm to his two sons several years ago, he still spends most of his
days near the family’s farmhouse on the outskirts of the village. When-
ever I met him there he was always somewhere in the fields, checking
work in progress at close quarters and discussing the condition of the
crop with the labourers. In the 1960s, Ambalal and his brother jointly
owned about 9 acres of land. At that time, they were usually in the
fields throughout the working day, supervising the day-to-day execution
of the agricultural work and often doing part of the manual work,
such irrigating the fields, tending the motor pump, and driving the
tractor themselves. At the busiest times, during planting and harvest-
ing, both brothers could often be seen working alongside their agri-
cultural labourers.
In 1998, Ambalal’s two sons Ashok (41) and Suresh (39) manage
the agricultural operations of the family from the veranda of their
house or from behind their desk in the office of their factory. Almost
all the labourers working in their fields are not employed directly by
them, but are hired by one of their four labour contractors to whom
they have given their land on contract; each of them is responsible for
the labour on 2–4 acres of land for which they receive a small share in
the gross produce. Given this organization of the agricultural work in
the field, supervising the execution of the work is not part of Ashok
and Suresh’s daily work. Only once in every three to four days, one of
the brothers may visit the farmhouse on his scooter or in his car.
During those brief visits, they usually analyse the condition of the crop
from a distance and hardly ever talk to the labourers directly. When
necessary, they address them only through their contractors. It is far
more usual for the contractors to come to see the brothers in their office
from where they also manage the floor tile factory that the family
established in 1985. In this business also, they make use of a piece-
work and contract-labour system which allows them to limit their super-
vision of production to inspections at intervals of several days. By thus
instructing their contractors as to the timing and type of operations to
be carried out, Ashok and Suresh are able to perform the major managerial
functions and to exercise control over the process of production from
a distance, both on their farm and in their factory.
A large part of the working day of both Ashok and Suresh is spent
outside the village. Part of their time away from home is devoted to
buying agricultural inputs or raw materials for their factory, but most
of it is concerned directly or indirectly with selling their agricultural
products or marketing their finished floor tiles. For this purpose, they
spend several days a week visiting agrarian traders, building contractors
and government officials in the major cities of Gujarat and sometimes
in other states as well. Such activities mean that Ashok and Suresh are
hardly ever in the village during the day-time. If they do not come home
late, they usually spend their evenings in their office or sometimes at
home in front of the television. Up to ten years ago, the family still lived
in their ancestral house in the centre of the village. At the insistence of
Ashok and Suresh, who wanted to convert part of the family’s newly
acquired wealth into a luxurious and more respectable lifestyle, they
then moved to a new three-storey bungalow on the edge of the village.
Since then, Ashok and Suresh have tended to turn their backs on the
village itself. ‘I sometimes feel like a visitor in my own village’, Ashok
told me once after he had returned home from a business trip lasting
a few days. ‘I mostly drop in at the centre of the village for very brief
visits only, usually in connection with a family occasion. It is only every
so often that I go to the village square in the evening to get some pan
or cigarettes and mix with old friends. I therefore can’t keep up with
the latest bit of news about what’s happening in the village, and to be
honest, I don’t really care’.
This tendency to turn away from village society shown by Ashok
and Suresh will probably be even stronger among the next generation
in their family. Ashok and Suresh went to the village primary and then
secondary school until they had obtained their SSC examination, after
which they went to high school and college in Anand. A few months
ago, the brothers decided that from next year onwards their children
will go to primary and secondary schools in Anand. To facilitate this
resolve, the family has bought a bungalow in Anand where Suresh will
live with his wife and their own children, taking care of Ashok’s
children as well. When I asked Suresh about their reasons for sending
their children to schools in Anand, he answered: ‘Private schools in
Anand have a good reputation and their standard of education is very
high. Besides, our children will be able to meet many children from
good families at such schools. This might be good for our company
and it will help our sons later when they will take over or set up a new
kind of business for themselves. As Anand is only twenty minutes by
car, this change will not affect the management of our family business.
Quite apart from this, I personally like the idea of a move to Anand as
most of my friends live there. In fact, I often feel that I have more
friends in Anand than here in the village’.
CLASS AND CASTE

The findings in the previous section showed that the widening social
distance between the economic elite and the rural poor in Vepargam/
Udyoggam can be attributed partly to changing management practices
and subsequent changes in daily activities, to the overcrowding of the
village residential areas and to the perceived need for higher education
to protect the elite’s economic interests in the near future. Alongside
these business considerations and other economic-related reasons, this
recent increase in social secession of the business elite in Vepargam/
Udyoggam is closely related to changes in their social behaviour and
in their views and perceptions towards the poorer sections in society.

This is especially true of their preference for management practices
which rely heavily on the use of an intermediate stratum of labour
contractors. The motives underlying this preference are indeed economic
reasons, but there is also an increasing reluctance among the industrial
entrepreneurs in Vepargam/Udyoggam to take part in manual labour
and to rub shoulders with those who do. The concentration on
managerial tasks by the male members of the entrepreneurial families
is part of their transition to a new lifestyle in which the performance
of physical labour is regarded as demeaning, the direct supervision of
the work of lower social classes as unpleasant, and the performance of
managerial tasks as enhancing one’s status. Disengagement from per-
forming manual labour in the factory or on the farm indicates wealth
and enhances the status of the family. Being the manager-owner of an
industrial enterprise, a farm, or trading company, without having to
perform manual labour, or even better, without having to come into
too-close contact with those who do, is considered to be a position
worth striving for.
This preference for management and especially for managing one’s
own enterprise is based on a strong feeling of self-reliance and on an
attitude of insistence on autonomy among these entrepreneurial families.
The desire to establish oneself as an independent entrepreneur, em-
ploying others instead of being employed, is most typical for those
families that belong to the Patidar community. Among the members
of this community, the prospect of spending one’s working life as a
government official or as a salaried employee in a private company is
rejected almost with contempt. The phrase nokeri kare chhe (he is in
service) is used to express the low status of a salaried job and of the
person performing it. If the person in question happens to be a relative
who belongs to one of the wealthier families in Vepargam/Udyoggam,
it is often explicitly stated that this is a temporary expedient only, to
be thrown aside as soon as the person has enough experience to set up
a business on his own.
The tendency among the rural entrepreneurs in Vepargam/Udyoggam
to withdraw, for social reasons, from direct contact with the village
population not only applies to their involvement in labour manage-
ment in their factory or other economic enterprises, but also to their

participation in socio-political institutions at the local level. Until
recently, the local organizations in Vepargam/Udyoggam, such as the
village panchayats (councils) and the local educational boards, were
controlled by members of the economic elite, especially by those who
belonged to the Patidar community. Occupying positions of political
dominance, these entrepreneurial families were among those responsible
for establishing public facilities in Vepargam/Udyoggam in the 1950s
and 1960s. Many of them were actively involved in getting public funds
and private donations to lay on electricity, to put in water pipes, and
to construct school buildings. In most cases, they themselves were the
main beneficiaries of these facilities: the connections to the water and
electricity mains were confined to the residential areas in the centre of
the village predominantly inhabited by the Patidar caste, and the schools
were attended mostly by children of this same community.
In contrast to this early involvement and participation in the village
panchayats and other local organizations, present-day members of
entrepreneurial families in Vepargam/Udyoggam are not interested in
local politics or social welfare. They have no ambition to stand for the
village panchayat and are not interested in the issues discussed during
its meetings. Those entrepreneurs who are members of local educational
boards seldom attend the meetings. This low level of participation
does not mean that the entrepreneurs are satisfied with the present-
day level of public facilities in Vepargam/Udyoggam. On the contrary,
most families believe that over the past ten to twenty years, the level of
public facilities in Vepargam and Udyoggam has declined substantially,
using as examples the overdue maintenance needed on the village roads,
on the water supply system, and on the school-buildings. Although
they acknowledge these problems, they emphasize that they are not
willing to donate money to the village panchayat or local educational
board, something which they are regularly asked to do. They are no
longer interested in local politics and do not consider the deteriora-
tion of public facilities in Vepargam/Udyoggam to be their concern.
This withdrawal from local politics and lack of concern for education
and public facilities on the part of the entrepreneurial families is
related to changes in the power balance at the village level and the rise
in economic position of the families concerned. The gradual shift in

power in favour of the lower castes in Kheda district and Gujarat in the
1960s and 1970s affected the balance of power in the village panchayats
in Vepargam/Udyoggam, where the Kshatriyas were eventually able to
capture the majority of the seats.10 Following the decline in power of
the Patidars, most Patidar entrepreneurs began to distance themselves
from local politics, which to them had become a low-status profession,
dominated by members of the lower castes. It was also at this time they
became less dependent on the very public facilities which they them-
selves had helped to build up. Following their economic success in the
1960s and 1970s, these entrepreneurial families were able to acquire
modern in-house facilities such as watertanks, bathrooms and wash-
basins, and were in a position to send their children to private educa-
tional institutions outside Vepargam/Udyoggam. Nowadays, therefore,
they are less affected by the malfunctioning of public facilities at the
village level. More than anything else their interest lies in the pursuit
of profit, in agriculture, trade and industry, and in this goal, they feel,
positions of local power do not count for much.
At the same time, the dominance of the industrialists in the local
co-operative bank of Vepargam clearly reflects the types of economic
activities that are important to these families. This co-operative bank,
founded in 1972, provides commercial and industrial loans for business
purposes not directly related to farming. In 1986–87, about half of the
total amount of loans provided were given to agricultural traders who
had stored potatoes in a cold-storage building. Ever since its establish-
ment, local industrialists and agricultural traders have dominated the
board of directors of the bank. It is the importance of financial
resources for the trading and industrial activities of these families that
partly explains their concern for, and active participation in, the
functioning of this local co-operative bank of Vepargam.
As well as protecting their interests in the local co-operative bank,
members of the industrial families in Vepargam/Udyoggam have also
undertaken activities with the purpose of promoting their common
interests in industry. In 1978, the Vepargam/Udyoggam Laghu Udyog
Association (Vepargam/Udyoggam Small-Scale Industry Association)
was established at the initiative of two local Patidar industrialists. The
immediate cause for this was the need for a separate industrial electricity
feeder. In order to add weight to their request, the industrialists of
Vepargam/Udyoggam decided to establish an organization which col-
lected signatures on a petition from all the factory-owners. With the help
of several political contacts, it took them less than one year to get their
request fulfilled: in 1979 a separate feeder for small-scale industries in
Vepargam/Udyoggam was erected by the Gujarat Electricity Board.
In the period between 1978 and 1987, the association undertook
several activities on behalf of the industrialists. In spite of these activities,
which often involved personal lobbying by individual industrialists,
there has not been a meeting of the association for many years.
Although all 59 small-scale industries are members of the association,
its membership is of an informal nature only; every factory situated in
Vepargam/Udyoggam automatically acquires membership of the associa-
tion, without any kind of formal registration or the payment of any
form of membership fee. In fact, the association was never mentioned
in conversation and the only physical evidence of its existence is a
small file with correspondence, stashed away in the office at the factory
of the secretary of the association. Therefore, in comparison to their
panache in promoting their interests in agricultural trade, the promotion
of industrial interests by the entrepreneurs in Vepargam/Udyoggam is
a somewhat more undeveloped or at least erratic phenomenon.
In line with their interests in agriculture, trade and industry, the
entrepreneurs in Vepargam/Udyoggam are increasingly voicing their
grievances and supporting agitations against government policies at the
regional, state and national level. Although most of the entrepreneurial
families manage to evade taxes and circumvent government regulations,
and although some have even benefited directly from government
subsidies, they have a very negative attitude towards the agricultural
and industrial policies of the state and national governments. On many
occasions, they publicly emphasize that their interests are not served
by government policy, even worse they are in fact being frustrated.
Considering themselves the backbone of the rural economy, providing
employment and income to the village population, they have no com-
punction about claiming a larger share from the government budget
in terms of subsidies while, rather perversely, they feel strongly that
they should be left alone to run their economic enterprises without

any government interference in the form of labour laws, price regula-
tions, taxes and so on.
In the field of industry, the resentment of the entrepreneurs towards
government policy is shown in complaints asserting that they are
‘harassed’ by tax officers and labour inspectors, and are not eligible for
subsidies which, they say, are given only to factories in backward
talukas and to families with poor, low caste backgrounds. In the field
of agriculture, these feelings are expressed in complaints about the
imposition of land ceilings, the high level of the minimum wage, low
prices for agricultural products and high irrigation rates and power
tariffs. As they see it, any attempt by the government to intervene in
these matters, especially in the relationship between employer and
labourer, is seen as a direct attack on their freedom of economic move-
ment as entrepreneurs, and on their privileged position as members
of the dominant class. They view themselves as the ‘sons of the soil’
who bring prosperity to the countryside and should therefore receive
full support from those in power. They utter a swelling litany of
complaints about the growing laziness, independence and impudence
of those they hire for work in their fields or factories. As members of
the entrepreneurial class, they are of the opinion that the state apparatus
should be used to teach the labouring classes discipline rather than to
support those who are not able to help themselves and are not willing
to pay respect to their superiors on whom they depend for survival. In
their view, the poor and lower classes in rural society are not to be con-
sidered victims but major obstacles to future economic development,
whose members should not receive any government assistance – however
marginal – but should be disciplined and kept firmly under control.
It is not only in connection with their economic interests that the
entrepreneurial families in Vepargam/Udyoggam openly voice their
grievances against government policy, this begrudging attitude is also
betrayed in their social interests. Entrepreneurial families of the Patidar
community, especially, have been very outspoken in their criticisms of
the social policy pursued by the state and national governments to
facilitate access to higher professional education and to employment
in the public sector for lower castes through a quota arrangement
system of positive discrimination. When this quota of reserved places

in education and government was increased in 1985, they strongly
supported the anti-reservation demonstrations which took place in
Gujarat in the two following years.11 Although none of the entrepreneurs
of Vepargam/Udyoggam participated in any of these demonstrations
themselves, they encouraged members of their own community who
expressed their willingness to participate to do so and sometimes
offered them the use of their scooter or car with driver. They displayed
the same attitude when the reservation policy gave cause for similar
protests in various parts of the country in the early 1990s. According
to the members of the Patidar entrepreneurial families in Vepargam/
Udyoggam, it should not be caste or economic backwardness that
form the criteria for selection and admission to higher education and
government positions, but intelligence and level of examination
marks. They claim that the recent participation of children from the
lower castes in ‘their’ primary and secondary schools has resulted in a
decline in the level of education in Vepargam/Udyoggam. For this,
they blame the Gujarat government which has tried, by using positive
discrimination, to increase the educational opportunities of those
who belong to the lower castes.
These complaints about the government’s social policy from the
Patidar entrepreneurial families especially do not imply that they
consider their interests best served by emphasizing caste solidarity.
Although they usually interact with members of their own community
in Vepargam/Udyoggam, there is a tendency among the Patidar entre-
preneurs to express their discontent openly when their poorer caste-
fellows try to lay claim to financial and social caste-solidarity. By
shifting their residence away from the village centre and by gradually
withdrawing themselves from social and political positions in village
society, they are distancing themselves not only from the lower classes
in rural society, but also from their poorer caste-fellows, albeit trying
not to antagonize them unnecessarily. They are in fact wasting their
breath, as this tendency is clearly noticed and viewed negatively by the
poorer sections within the Patidar community in Vepargam/Udyoggam.
At the same time, caste is still the most important social criterion
in the selection of a marriage partner among the industrial families in
Vepargam/Udyoggam. Following Hindu tradition, marriage is viewed

as a family affair, involving not just two individuals but two whole
families. Although also practised among the other communities, the
norm of caste endogamy is taken to its most extreme form by those
families that belong to the Patidar community. Their concern with the
status and economic position of the family, when selecting the marriage
partner, partly explains the enormous expenses that are involved in
weddings among the entrepreneurial families in general and among
the Patidars in particular.
Although strongest among the families of the Patidar community, it
is characteristic of almost all the entrepreneurial families in Vepargam/
Udyoggam that the marriage of a daughter is invariably associated
with social and economic status, and thus involves enormous expenses.
Most of the families stated explicitly that they did not believe in the
dowry system and had not taken any dowry from the bride’s family in
the recent past. Despite their protestations most of the families could
not stop complaining – as well as boasting – about the expenses they
had incurred in marrying off one of their daughters or sisters.
This show of wealth at the time of the marriage, the various modern
gifts and the pompous urban style of the wedding celebrations are all
part of the conspicuous consumptive behaviour of these entrepreneurial
families. Through such expensive and ostentatious celebration of a
daughter’s or sister’s marriage, these families are demonstrating their
desire for social display and trying to show off their elevated economic
position – real or artificial. The motive of image-building within the
village or caste community, and the desire to maintain or enhance
social prestige or status in the eyes of fellow caste members and fellow
villagers, partly explains the increasing expenditure on marriages and
dowries among the entrepreneurial families in Vepargam/Udyoggam.
The system of marriage circles existing within the Patidar com-
munity has provided these families with valuable social networks in the
region. These networks are not confined to central Gujarat but have
slowly been extended to other regions in Gujarat, India and foreign
countries as well. Having a long history of international migration,
starting in the late nineteenth century to East Africa, the Patidar com-
munity is among the largest and most prominent groups of South Asian
migrants in Britain and the USA today. To a certain extent, those who
have settled outside Gujarat have become the reference group for the
entrepreneurial families in Vepargam/Udyoggam. The pattern of foreign
migration especially has given the members of the Patidar entrepre-
neurial families in Vepargam/Udyoggam the idea that their dominance
within their own home territory can easily be extended to other parts
of the world as well. The local, regional, national and even inter-
national migration of relatives of these entrepreneurial families has
broadened the horizons of those who remain by providing them with
new social contacts and experiences. Many of them consider these
new contacts as nothing more than an extension of their network in
the Charotar tract and act accordingly, displaying an unlimited faith
in their own strength and superiority.
Partly fuelled by callous views about the weaker sections in society,
over the years the economic elite in Vepargam/Udyoggam has dis-
tanced itself to an ever-greater extent from the majority of the village
population. The younger generation is raised in homes outside the
village residential area, educated in private schools in urban localities
and is hardly ever in direct contact with members of the labouring
classes working in their family’s fields or factories. It would therefore
be fair to say that both in terms of business contacts and social life,
members of the entrepreneurial families in Vepargam/Udyoggam operate
on a supra-village or regional level. As part of this, they have adopted
a regional middle-class social frame of reference in which the under-
lying assumption is that the positions of local status and power do not
count for much, at least not for those who are making financial
fortunes. They view themselves as part of an elite whose economic and
social future does not depend on their local contacts but whose interests
coincide with members of the regional or even national middle class,
both rural and urban. To be part of such an extended social network
also requires an emphasis on caste, kin and rural ties, but of a different
order to what this used to be. Instead of strengthening sub-caste
divisions and relationships with other communities in the village, the
Patidar entrepreneurial families in Vepargam/Udyoggam emphasize an
upper caste-class solidarity, based on loyalties between those families
who are economically well-off and belong to the upper social stratum
in society. As a result, they consider themselves members of a larger

community consisting of mainly rich, upper caste families whose free-
dom of movement is not limited to village, sub-caste and kin ties, but
who operate at a regional or even national level. Following their recent
success in agriculture, trade and industry, they view themselves as the
backbone upon which the rural order depends for progress and stability,
and whose economic and social interests should be served and not
frustrated by the Gujarat and Indian governments whose policies often
strike, they feel, at the heart of their very interests and thereby against
the interests of the society at large, as is shown in the following collage
of statements by members of the economic elite in Vepargam/Udyoggam.
The lower classes and the government’s educational and social policy
were among the topics which the members of the entrepreneurial
families in Vepargam/Udyoggam themselves frequently brought up in
the conversations I have had with them over the years. Many of them
lament the growing laziness and independent attitudes of the labourers
working in their farms or factories. ‘Nowadays, the labourers are lazy,
they just don’t bother showing up for work if they don’t feel like
working. They say they are ill, but they are just being lazy and stay
home because they have been drinking the night before and have to
sleep it off. During the last years it has even become worse because of
the government’, one of them once told me. When I asked him to
explain, he answered:
In the past there was a harmonious relationship between the farmer and his
labourers. We provided them with financial support when necessary and they
were loyal to us and always willing to do some extra work. But ever since the
government has started to implement the minimum wage policy, the
labourers have become impudent and no longer show their employers any
respect. They demand a minimum wage, but do not want to work eight hours
for this: they come to work late in the morning and leave early in the
afternoon. The government would do better to spend more time on teaching
the labourers to fulfil their duties towards their employers than to antagonize
the relationship between the farmer and the labourers.
Government intervention in the field of education has also
strengthened the entrepreneurial families in their conviction that the
government policy is diametrically opposed to their interests. They claim
the standard of education in the villages has deteriorated tremendously

since the lower castes began to attend the village schools. ‘And what’s
worse’, one of the industrialists once angrily pointed out to me:
The government in India as a whole has become totally dominated by the
lower castes. The policy of the Congress Party has always been to give govern-
ment jobs and provide admission to engineering and medical courses to
people from backward castes, even though most of them are not qualified for
these positions. The only reason is that they want to get these peoples’ votes.
Because of this, in the future our health will depend on unqualified doctors.
Even now, we have to say ‘Solanki Saheb’ when we visit a government office
[Solanki being a common surname among the Kshatriyas in Gujarat]. Can
you imagine it! ‘Solanki Saheb’, these people can’t even write their own name
properly! I tell you, sarkar emni baju chhe! [the government is on their side].
On various occasions, members of the entrepreneurial families
stated that in their opinion a new climate of corruption and a lowering
of standards began to make themselves felt in politics when the
Kshatriyas first set foot on the political scene in Kheda district in the
1960s. Once, while sitting in a factory office with two industrialists,
one of them told me:
In the beginning, the changes were only minor, but in next to no time the
Kshatriyas became more active and began to run ‘our’ village. I remember
my uncle telling me: ‘What’s the use of spending all my time in politics when
the lower castes are in power. Whatever your father, grandfather and I built
up, these uneducated people are unable to manage. They have no interest
other then their own self-interest; whenever they can, they use money from
the panchayat for their own benefit.’
To this, his business partner added:
This is the reason that I am not interested in politics. Nowadays, it is
dominated by lower castes. The serpanch of our village is a Bariya (low-
ranking Kshatriya). He is an anghutha chhap (thumb print), he can’t even
write his own name. Kshatriyas are all uneducated and have no idea about
how to run an organization. They only get elected because there are so many
of them. Since then the village has succumbed to mismanagement. Nothing
works properly in our village today: for example, the supply of water is
irregular because the panchayat has run up a debt with the electricity board.
Luckily, we are not affected by it. We have our own water tank which ensures
that we have running water throughout the day. Personally I think we
businessmen should not get involved in politics. There is nothing to be gained
by it. We are better off using our time and energy to develop our businesses
instead of wasting them in building up what these lower castes will break
down in no time at all, either through mismanagement or plain corruption.
In more general terms, the members of the economic elite in

Vepargam/Udyoggam are of the opinion that it is not poverty which
is the problem, but the poor themselves. ‘India could have been
among the leaders of the world if there weren’t so many poor people’,
one young entrepreneur told me once.
Hamstrung by their presence, India has become the beggar of the world. It all
started with (Mahatma) Gandhi. Have you seen pictures of him, the way he
used to dress? Like a beggar! It was he who started with the idea that we
should help the poor, and see for yourself where it has led us. Instead of giving
support to those who give employment to the poor, through its reservation
policy and interventions in agriculture and industry, the government has
oppressed those very people who could easily have turned India into a
developed country. India would have been a much better country if the English
had only stayed on here. Look at Hong Kong for example: a rich country
which is highly respected throughout the world. What our government has
done is to take money away from the hardworking farmers and businessmen,
and give it the lower classes. But that doesn’t mean that you eradicate
poverty, it only means you spread poverty over more people and end up
having more poor people. Today, India is a beggar on the international scene.
Our leaders have to hold out their hands to the World Bank and beg for
money. My friends who live in the USA often tell me that foreigners look
down upon us because we come from a poor country. If only we had less poor
people in India, India would no longer be notorious throughout the world
only for its poverty and people like us would receive the respect we deserve.
CONCLUSION
The findings of the study presented here show a tendency among the
rural industrialists in Vepargam/Udyoggam to make investments in a
multiplicity of areas and to participate in a variety of activities simul-
taneously. This tendency towards economic diversification is often
realized through collective forms of organization, especially through
the institution of the joint family and the business partnership. In
terms of social and political behaviour, the lifestyle of the members of
these industrial families is characterized by luxury, upward mobility
and social secession, based on a supra-local orientation and often
callous views towards the lower strata in rural society.
How should this recent industrial development and the rise of a
class of rural industrialists in Vepargam/Udyoggam be explained?
Following the discussion on industrial transition in India in Chapter 1,

the industrial development in Vepargam/Udyoggam seems to have
been affected more by a transition from trading to industry than by a
transition from traditional craftsmanship to industrial production
methods. As already indicated, by far the majority of industrial activity
in the two villages is run by people of the Patidar caste, a middle-
ranking peasant community. Those industrial families that belong to
the Patidar community have part ownership of 34 of the 59 factories in
Vepargam/Udyoggam, possessing a total of 50 per cent of all industry
activity. These Patidar industrialists would appear, up to a point, to
correspond to the description of ‘merchant industrialists’. They account
for the great majority of merchants in agricultural produce in the two
villages. Moreover, a substantial share of the capital invested in industry
in Vepargam/Udyoggam derives originally from commercial enterprise.
It is striking, in relation to the recent rise of the Patidar caste as
industrial entrepreneurs, that the families concerned tend to have a
background not merely in commerce but in agricultural trade, and
that they are local people. Both these features of their background have
played a major role in the establishment and expansion of industrial
enterprise in Vepargam/Udyoggam. An important factor is the marketing
practices in the case of potatoes compared to the previous commercial
main commercial crop in these villages – tobacco. Tobacco marketing
is dominated by a small number of merchants who operate through
commission agents (dalal) at the village level, with only a few com-
mission agents in each village. In contrast to these marketing practices
of tobacco, trading in vegetables is a relatively open market where
farmers sell their products directly to a large number of traders. Build-
ing on the early existence of market-oriented production, the recent
change in cropping pattern from tobacco to potato in Vepargam/
Udyoggam has resulted in a more active participation in the market by
those families with a substantial amount of agricultural land. These
families were in a position to bring their own produce to the market,
and to do so when it suited them, as they were able to take advantage
of the increased storage capacity to postpone the sale of their produce
for some months. Along with acquiring a larger part of the agri-
cultural surplus generated on their farms, this market situation has
enabled many families to become agricultural traders themselves. Buying

and selling potatoes and seed-potatoes from small and marginal peasants
has provided them with extra capital and has given them the opportunity
to establish economic activities outside farming but closely related to
their own agricultural enterprise.
Despite this background of the majority of the industrialists in
Vepargam/Udyoggam and despite their diversified pattern of investment,
it would not be correct to describe the process of industrial develop-
ment in Vepargam/Udyoggam as ‘merchant capitalism’ and to dub the
industrial entrepreneurs as ‘merchant’ or ‘commercial’ industrialists.
As mentioned before, the business strategy of the industrialist in
Vepargam/Udyoggam is characterized by both commercialism and
capital deepening. Part of the accumulated surplus is indeed invested
outside the industrial sector, resulting in a move towards diversifica-
tion of economic activities by these families. Part of their profit is
reinvested in the industrial enterprise itself, resulting in an increase in
capital-intensity and in scale of economic operation. These changes may
not occur on a very large scale, but they are nonetheless substantial,
especially when one takes into account that these industrial enterprises
only recently came into existence.
Moreover, the business strategy of economic diversification, the
use of collective forms of organization, and the emphasis on luxury
and social secession as part of a tendency towards upward mobility are
not new phenomena but part of long-term changes in the economic
and social behaviour of the rural elite of central Gujarat, especially
apparent among those families belonging to the Patidar community.
In the late nineteenth century successful landholders within the Patidar
community were already diversifying their interests by entering new
fields of activities in trade and commerce such as moneylending and
marketing of agricultural products (District Gazetteer 1879: 60; Clark
1979: 327, 348; Bates 1981: 794–796).
Although economic diversification based on agrarian surplus is
therefore not a new phenomenon among the upper stratum in agrarian
society of the Charotar tract, the example of Vepargam/Udyoggam
shows its increasing importance and specific character. Activities in
agricultural trade have not only increased the amount of surplus
available to these families but it has also given them knowledge, contacts
and experience in operating outside the agricultural sector and out-
side the local environment.
The preference for partnerships with caste members and the occur-
rence of extended types of joint families, which consisted of joint
ownership of property and mutual obligations between relatives who
no longer lived together in the same household, also has a long tradition
in the Patidar community of the Charotar tract, going back at least
more than a century (Pocock 1957 and 1972). This highly developed
sense of jointness not only explains the predominance of the joint family
structure and the support given by caste members in establishing and
managing small-scale industries, it also partly explains the popularity
of partnership as a form of business organization among the entre-
preneurs in Vepargam/Udyoggam. It is in fact this emphasis on family
ties and caste membership through collective forms of business
organization that has contributed to the pattern of economic diversifica-
tion among these rural entrepreneurs in Vepargam/Udyoggam.
The social behaviour and lifestyle of the members of the industrial
families in Vepargam/Udyoggam, is also not a new phenomenon but
is based on values, standards and practices which often go back several
generations. This is especially true of the characteristics of withdrawal
from manual work, the increase in social secession and supra-local
orientation, and the emphasis on expressions of anti-government
sentiment. The tendency to move away from performing manual
labour has a long tradition among the better-off members of the
Patidar community. As part of a process of upward mobility, a small
elite of landlords, traders and money-lenders had already begun to
disengage themselves from performing agricultural work in their
fields in the second half of the nineteenth century. As part of this same
process, this oligarchy among the Patidars tried to set themselves apart
and gain prestige through the enforcement of social customs, such as
demanding exessively large dowries for marriage, putting a ban on
widow remarriage and on exchange marriage, and increasingly secluding
and confining the women of the family to their homes. It was partly
through these early forms of social secession that this small elite distanced
themselves from the remaining village population in an effort to pre-
serve and strengthen their priviliged descent and superior status (Bates
1981: 789; Clark 1983: 19–22; Hardiman 1981: 41).
This early social secession was concomitant with a supra-local
orientation among the members of this business elite. The profitable
trade in tobacco especially spelled early prosperity for the elite families
and brought their members into contact with other parts of India at a
relatively early stage. Even before independence, these families were
establishing branch-offices in cities like Calcutta, Nagpur, and Puna to
sell their tobacco (Desai 1948). One of the male members of the family
would move in his turn, taking his wife and children with him to the
new place to set up a separate household within the joint family.
Consequently, members of the older trading families have long-
standing business contacts and well-established social networks in other
parts of India, which go far beyond family ties and caste relationships.
It was partly as a result of this exposure to the outside world that these
families began to place a higher value on education at an early stage.
Among a small part of the business elite in the Charotar tract, it has
therefore been common practice for several decades to send their
children to educational institutions and hostels outside the village.
The expression of strong dissatisfaction with government policy
by the entrepreneurial families in the Charotar tract today also has a
relatively long tradition. Within the Patidar community particularly,
it is part of an overall anti-government attitude and reaction to power at
the supra-local level. Members of this community formed part of the
vanguard of the nationalist movement against British rule (Hardiman
1981) and provided the main leadership for movements and groups
against central Congress Party elites which dominated Gujarat politics
in the 1950s and 1960s (Wood 1973: 330). During these years, they
developed an instinctive dislike of the Congress-dominated govern-
ment’s professed philosophy of welfarism through taxes and could not
appreciate the logic that some social groups could not climb the eco-
nomic ladder on their own and, therefore, needed support (Somjee
1978: 113).
Although the widening of social distance between the economic
elite and the majority of the village population in central Gujarat is
based on older patterns of behaviour, it is also symptomatic of a
transition to a new lifestyle which has only recently become more

widespread among the upper stratum of village society. In the late 1950s,
for instance, most of the male members of the Patidar entrepreneurial
families were still performing agricultural labour in their own fields,
which earned them a reputation as ‘good cultivators’ who led a life of
simplicity and frugality (Pocock 1972: 62). The raising of one’s social
status by the expedient of withdrawal from manual labour and social
secession is therefore not a new phenomenon among the economic
elite in the Charotar tract, but is one which has only recently become
more widespread among a larger-sized group of newly rich entrepre-
neurial families operating in agriculture, trade and rural industry.
The urban type of lifestyle and the supra-local orientation are also
relatively new phenomena among the larger part of the economic elite.
It was in the 1960s and 1970s especially that migration by members of
the Patidar community to the cities in Kheda district increased
substantially (Trivedi 1992: 33–4), a phenomenon which was closely
related to a new tendency among a wider section within the Patidar
community to send their children to schools outside the village as part
of the recent upward economic and social mobility of these families.
The same can be said about the strong anti-government attitude pre-
vailing among the economic elite, of which the more callous expression
is also the outcome of recent changes. Viewing the government as an
enemy which was increasingly imposing restrictions on their freedom
of economic movement, members of the economic elite began to lend
their support to the farmers’ demonstrations and the agitations against
reserved places in Gujarat in the 1970s and 1980s (Bose 1987; Shah 1987
and 1990), and subsequently many shifted allegiance to the Bharatiya
Janata Party (BJP) that has been in power in Gujarat since the early 1990s
(Patel 1999). Although based on earlier patterns of behaviour, a reaction-
ary view of life has become more explicit and more widespread among
the rural business community of central Gujarat. An important char-
acteristic of this view of life is an espousal of callous views, in which
the presence of the poor is seen as a nuisance and an obstacle to further
progress, and the government’s attempts to intervene to make a partial
correction to the distorted economic and social balance in rural society
are viewed as a dangerous threat to stability (Breman 1985 and 1993).
As the findings of this study have shown, the lifestyle of the industrial
families in Vepargam/Udyoggam is characterized by an emphasis on
luxury and social secession as part of a tendency towards upward
mobility. Their socio-political behaviour is characterized by the pursuit
of specific economic interests and by a tendency to widen their social
and political networks away from family ties and local sub-caste
relationships to regional upper caste-class linkages. This ambivalence
in the urban type of lifestyle and supra-local orientation among the
entrepreneurial families in Vepargam/Udyoggam is in line with the
conclusions reached regarding their business strategy. Typical of the
members of these families is their tendency to turn away from their
local agrarian base, without fully being embedded in either a regional
or a national industrial environment.
NOTES
1 Recently Kheda district has been divided into Kheda and Anand districts.
Because it was still known as Kheda distrct at the time of the original research, I
shall continue to refer to it in that way throughout the book.
2 See Rutten (1995: 70–81) for a detailed account of agricultural development
in the Charotar tract of central Gujarat in historical perspective.
3 See Rutten (1995: 83–86) for an account of the industrial development in the
Charotar tract of central Gujarat after independence.
4 For an account of various aspects of the social, political and economic
characteristics of the Patidar community in the Charator tract of central Gujarat,
see Hardiman (1981), Pocock (1972) and Rutten (1995).
5 In total, there were in 1987 62 industrial enterprises in and around Vepargam/
Udyoggam. The other three enterprises did not belong to the category of small-
scale enterprises (see note 6). They either employed more than 300 people or
formed part of a major industrial concern. In 1992 the number of small-scale
industrial enterprises in Vepargam/Udyoggam had already risen to 81, while this
number had increased by yet another fifteen to 20 enterprises in 1998.
6 The statistic of an average of 19.4 workers per enterprise is somewhat
deceptive, since there are two large companies which each have a staff of 250. In
1987, these two enterprises both had the status of small-scale industrial ventures
as a result of the fact that only very few of the 250 workers had a fixed contract or
regular employment. The great majority were taken on through various inter-
mediaries on a contract basis, thereby placing these companies formally within
the definition of small-scale industry: at that time defined as enterprises with not
more than 50 workers in regular employment and total investment in plant and
machinery not exceeding Rs. 3.5 million. The two ventures belonged to one family.
One of them was the result of a legal division, a construction to which many
entrepreneurs in these two villages have recourse, and which will be dealt with at
greater length further on.
7 In most cases, concealment of information about previous partnerships does
not spring from a fear of giving away information on profits, income, etc. This is
shown by the fact that in answering questions, they often did not lower the actual
figures on production and volume of trade but gave the impression that the total
amount of income had been earned by their family alone.
8 Almost half of those hired on a piece-work or outwork basis come from
outside the area. The vast majority of them are migrants from tribal areas, who
spend the whole year, except for part of the rainy season, in Vepargam/Udyoggam,
and are generally hired to do unskilled or heavy work such as making bricks or
manning the slate furnaces in sagol (plaster) factories.
9 This dominance of the societies by Patidars is illustrated by their names.
Many of these private housing societies have included the name of ‘Sardar Patel’
after India’s first Minister of Home Affairs, Vallabhbhai Jhaverbhai Patel, who was
a Patidar from Kheda district. Others are named after religious sects which are
popular among the members of the Patidar community, as for example the
Swaminarayan Sect, which has a centre in the Charotar village of Vadtal.
10 For an account of the political rise of the Kshatriya community in central
Gujarat, and their power struggle with the Patidars, see Shah (1975; 1983) and
Sheth (1976; 1983).
11 After the 1975 assembly poll, which was the high-water mark of Patidar
power, the Congress party in Gujarat deployed the KHAM strategy to expand its
political base by winning votes among the Kshatriyas, Harijans, Adivasis and
Muslims. The reserved quota for direct recruitment of Scheduled Castes went up
from 12.5 per cent in the 1950s to 15 per cent in the 1970s and for Scheduled
Tribes from 5 per cent to 7.5 per cent, in proportion to the rise of their population.
On top of that, separate quotas of 10 per cent were introduced for other backward
castes in 1978 on the basis of the outcome of a specially appointed commission by
the Gujarat government. This emphasis on positive discrimination within the
overall KHAM strategy led to a victory for the Congress party in the 1980
elections, which resulted in the dominance of the Kshatriyas at the highest
political level in Gujarat and the appointment of Natvarsinh Solanki as the first
Kshatriya chief minister. In January 1985 this government decided to increase the
quota for ‘other backward castes’ from 10 per cent to 28 per cent, thereby bringing
the total quota of reserved places in education and government from 31 to 49 per
cent. This decision – which was based partly on the Rane Commission report
following the first anti-reservation protest in 1981 – triggered off new riots which
started in Ahmedabad in 1985 and quickly spread to other cities and rural areas
of Gujarat (Shah 1987; Sheth and Menon 1986).
Map 3: Muda region

CHAPTER 3
Owners of Combine-Harvesters
in the Muda Area
DEVELOPMENT OF MECHANIZED HARVESTING

THE MUDA REGION, named after the Muda River, makes up a large part
of the alluvial plain of Kedah and Perlis states in the north-western
part of the Malay Peninsula (see Map 3). The region covers an area 46
by 14 miles and consists mostly of fertile, dense, marine-clay soil. With
two cropping seasons a year, rice in its different stages and colours
dominates the scenery of the Muda region. Known as the rice-bowl of
Malaysia, the view is one of an immense paddy field interrupted only
by occasional rocks and by belts of trees that follow the linear patterns
of settlements and the extensive network of metalled roads and irriga-
tion canals. Clusters of commercial activities in and around the various
small rural towns and regular traffic on the roads add to the overall
outlook of economic prosperity of the Muda region, which is founded
on a well-developed agricultural sector.
This high level of rural development in the Muda region today
follows an early process of agricultural commercialization supported
by the introduction of technological improvements. From the early
recorded history of this part of the Malay world, the region was known
to be a major rice-exporter by the sixteenth century. In the latter part
of the eighteenth century and throughout the nineteenth century, it
became the main provider of rice to the Straits Settlement and also to
most parts of the Federated Malay States. By that time, extensive drain-
age systems had already been constructed to support a continuous
expansion of the cultivated area by reclaiming large swamplands that
95
made up most of what was still a frontier society. The first drainage
system set up by Kedah state was completed in 1667, and successive
drainage systems and canals were laid out in the eighteenth and nine-
teenth centuries. The greatest and most famous of them was the twenty-
mile-long north–south drainage canal between Gua Chempedak and the
capital, Alor Setar, which was dug in 1885 and resulted in a substantial
expansion in land utilization. Highly specialized rice cultivation, with
a strong export orientation, has therefore already been carried out on a
large scale in the Muda region for several centuries, indicating an early
process of agricultural commercialization in the area under study.1
Despite these early developments, however, agriculture in the Muda
region was still very much based on traditional methods and still
depended on rainfall at the time of independence in 1957. Moreover,
the results of the early process of rural development were most un-
evenly distributed. The large majority of the peasantry in Muda region
was poor and indebted to traders and private moneylenders. Many of
them were forced to hand over the cultivation of their land, which
often ultimately spelled the loss of property rights.2
In order to solve this problem of rising inequality and of poverty
in a large section of the rural population, the Malaysian government
initiated a large irrigation scheme in the Muda region in 1966. The main
aim of this Muda Irrigation Project was to make double-cropping a
feasible venture in the region by the construction of large infrastructural
facilities, such as dams, irrigation and drainage networks. The major part
of the work was completed in 1973. A newly established organization,
the Muda Agricultural Development Authority (MADA), was put in
charge of the management of the project implementation and for
maintenance of the infrastructural facilities. It also played a major role
in the subsequent introduction of institutional changes and techno-
logical innovations in agricultural operations.
The introduction of high-yielding varieties, intensified fertilizer use,
new technology and mechanization, credit facilities and new milling
and marketing channels led to an enormous increase in productivity
and to a transformation of agricultural practices in paddy production
in the Muda region in the 1970s. Agriculture became heavily dependent
on chemical inputs such as fertilizers, pesticides and herbicides, in-
Owners of Combine-Harvesters in the Muda Area 97
dispensable in the operations of nursery preparation, transplanting and

weeding. As was to be expected, ground preparation and harvesting
have become highly mechanized and transplanting – which requires
intensive labour input – has almost disappeared since the early 1990s,
having been replaced by direct-seeding and broadcasting. Together,
these changes have brought about an almost complete transformation
of agriculture in the Muda area and have made it into one of the best
known Green Revolution regions in Asia.3
This recent transformation in agriculture in the Muda area is not
restricted just to developments in the forces of production, it has also
permeated the relations of production. Studies that have focused on the
social consequences of the developments in the rural economy have
indicated that with the speeding-up of agrarian transformation in the
Muda area, differentiation within the rural community has accelerated.
What these studies have revealed in particular is a sharpening of socio-
economic differences between a large class of small peasants and
agricultural labourers at the lower end of the agrarian structure and
the rise of a class of rural capitalists at the upper end. Following an
overall tendency towards rural diversification in the Muda area, this
capitalist class consists of a mixture of large-scale farmers, rural traders,
rice-millers, entrepreneurs in agricultural machinery, and owners of
small-scale industrial workshops that have recently sprung up in and
around the rural towns of the region.4
An important aspect of this recent transformation of and rural
diversification in the Muda area is the developments related to
agricultural mechanization. In so far as this part of northern Malaysia
is concerned, mechanization, in the form of tractorization, preceded
rather than followed the advent of the Green Revolution. The use of
tractors for land preparation was already widespread in the Muda region
before the introduction of double-cropping and high-yielding varieties.
In 1958 four-wheel tractors were brought in by private entrepreneurs
to be hired out to the farmers. As early as 1966, approximately 40 per
cent of the land was mechanically ploughed, while in 1970, when the
Muda Scheme was officially commissioned, the proportion of farms
that reported the use of the tractor had risen to 94 per cent. With the
introduction of irrigation and high-yielding varieties of rice in the
1970s, agriculture became even more dependent on this form of mech-

anization as a speeding up in ploughing became a vital element in the
success of double-cropping (Jegatheesan 1971: 11; Muhammad Ikmal
1985: 42).
Mechanization of rice harvesting in the Muda area is a more recent
phenomenon and can indeed be claimed to be the direct consequence
of the introduction of double-cropping. At the end of the 1960s, the
Muda Agricultural Development Authority (MADA) was given six
Western-made combine-harvesters under the Colombo Plan to test the
feasibility of using these machines in the environment of Malaysian
paddy agriculture. These combines were made available to the farmers
through farmers’ associations. A few years after their introduction,
however, the operations had to be stopped and the machines went out
of circulation succumbing to problems of management and a lack of
technical expertise (Yamashita et al. 1980: 43). In 1975, MADA decided
to revive its contracting service with the purchase (with a World Bank
loan) of 30 small harvesters of Japanese make. These smaller machines
were again made available to the farmers through the farmers’
associations. While this was being put into effect, large Western-type
combine-harvesters were being brought in by private contractors to
work on a commercial basis. By virtue of their greater technical
efficiency and suitability to the soil conditions prevailing in the Muda
region, these larger combines rapidly found favour among the farmers,
pushing the smaller Japanese-made harvesters out of the market
(Jegatheesan 1980; Morooka et al. 1996).
Although at the initial stage of its introduction there were cases of
sabotage and resistance was strong, within just five years mechanized
harvesting became a common phenomenon in the Muda area.5 In 1980,
nearly 84 per cent of the area was already mechanically harvested, and
soon after that manual harvesting had disappeared almost completely
from the region (MADA 1980: 2). Nor was this the only change: the
widespread use of mechanized harvesting of rice stimulated the replace-
ment of transplanting by broadcasting in the 1980s (Morooka et al.
1996).
As a result of these developments, harvesting of rice in the Muda
area of northern Malaysia has become a highly mechanized activity. At
Figure 5: Unloading of rice from the combine-harvester into the truck, while the
broker pays a visit on his motorcycle
the end of every season, big Western-made combine-harvesters with

13- to 14-foot cutter bars and engines over 100 horsepower can be
seen crawling across the plains of Kedah and Perlis states, reaping and
threshing more than ten acres of paddy a day each. What used to be a
highly labour-intensive part of the agrarian cycle has become a period
during which the large rice fields of the Muda area look almost
deserted. Except for the driver of the combine-harvester and his
assistant, there is often no one in the field at the time of harvesting.
Only occasionally a few persons might be seen watching on the side.
Sometimes a truck-driver is waiting for the rice to be unloaded from
the combine-harvester into his truck, which he then takes to one of the
rice mills in the area. Then there is the broker, the local intermediary
between the combine-harvester owner and the cultivator, who regularly
pays a visit on his motorcycle, occasionally in the company of the
owner or tenant of the land. It is his task to organize and check the
harvesting activities, to arrange for transport to the rice mill, to bring
fuel for the combine and food for the driver and assistant, and to
determine the order of the fields to be harvested. Finally, and only

every so often, the owner of the combine-harvester arrives in his car. He
checks the work, brings required spare parts, discusses the harvesting
activities with his driver and broker, and collects part of his fee for the
work completed.
During the first years after its introduction in 1975, mechanized
harvesting turned out to be an extremely profitable business into
which to venture. In his study of 20 owners of combine-harvesters in
1981–82, Mustafa Najimuddin (1985: 32) calculated that, between
1977 and the first season of 1979, there was a marked increase in the
average profit per combine, but then, from that season onwards, profits
showed a steady decline until the first season of 1981. According to
Mustafa Najimuddin, this fall in profits was mainly a reaction to a
decline in the average area operated per machine, along with a rise in
costs of production. As a result of increased competition – the number
of combine-harvesters rose from 88 in 1977 to about 350 in 1981 – the
amount of land harvested per combine per season declined from
1,100 relong (one relong equals 0.711 acre) in 1977 to about 850 relong
in 1981, while the charges imposed on the farmers even dropped in
terms of constant prices (ibid.: 23–4). This led him to remark that
although ‘it was still profitable to operate combines in 1980 compared
to the opportunity cost in terms of the return on capital if the amount
expended on the purchase of combines is instead kept in the bank to
earn interest … the situation changed in 1981 with the opportunity
cost of capital exceeding the average amount of profit’ (ibid.: 32).
Therefore, with a total of about 350 combine-harvesters operating in
the Muda area by the end of 1981, the business of mechanized contract
harvesting seemed to have already reached its economic saturation
point.
Nothing could have been further from the truth, because since the
early 1980s the number of combine-harvesters operating in the Muda
area has more than doubled, from 350 in 1981 to about 800–1,000
units in 1994.6 About one-quarter to one-fifth of this total number of
combine-harvesters is owned by those 40 companies in the Muda
region among which I conducted my fieldwork. In total, these 40
companies own 209 combine-harvesters: 16 companies own 1–3 com-
bines, 14 companies own 4–7 combines, while the remaining 10 com-

panies own 8–14 combines. Most of them started their businesses during
the early years of the introduction of combine-harvesters in the Muda
area. Out of the 40 companies, 28 were established before 1986, indeed
more than half even started before 1981. A closer look reveals that the
owners of nine companies were already owners of one or more combine-
harvesters before they launched their present companies. They left an
earlier partnership without taking a combine-harvester and started a
new company with the purchase of a new combine. If we take these
earlier partnerships into consideration, it turns out that the owners of
32 of the 40 companies had already begun in business before 1986,
and 26 had even started before 1981.
In total, these 40 companies are owned by 71 families, of which 51
are Chinese who own 76 per cent of the total property, while the
remaining 20 families are Malays who have a total share of 24 per cent.
Of the most actively involved family in each of the companies, 28 are
ethnic Chinese while the remaining 12 are Malay.7 This proportion of
ownership in terms of ethnic background corresponds with the findings
of an earlier study on the combine harvesting business in the Muda
area. According to Rayarrapan and Taylor (1980: 5), 76 per cent of the
private contractors in 1978 were ethnic Chinese, while the rest were
Malays. Based on an interview with a sales agent in Alor Setar, Mustafa
Najimuddin estimated that by 1981 the Malay contractors had out-
numbered their Chinese counterparts, with the latter constituting only
about 40 per cent of the total. He remarks that this might be because
of the fact that ‘a lot of Malay “brokers” had become contractors them-
selves. Their familiarity of the area and with the farmers facilitated their
efforts in getting clients. Access to capital was no problem because the
finance companies were willing to give out loans without demanding any
collateral in return’ (Mustafa 1985: 17). This increasing participation
by Malay owners in the early 1980s, as noted by Mustafa Najimuddin,
has probably been only a temporary phenomenon. Out of the 160 regular
customers of one of the two largest shops supplying spare parts for
combine-harvesters in Alor Setar in 1994, only 30 were exclusively Malay
companies, and these owned only 76 out of the 429 combine-harvesters
owned by these 160 customers. The earlier proportion of three to one
of Chinese and Malay ownership of combine-harvesters therefore still

seemed to be valid in 1994.
BUSINESS EXPANSION AND ECONOMIC DIVERSIFICATION

Economic diversification based on the accumulation of local agrarian
capital is an important feature in the business strategy of the owners of
combine-harvesters in the Muda region. Along with reinvesting their
accumulated surplus in their combine business, over time many of the
owners of combine-harvesters have diversified into other economic
activities. They have purchased agricultural land, set up (international)
trading companies in agricultural products, agricultural machinery
and spare parts, and have invested part of their profits in rice-mills and
in small-scale workshops and factories repairing and manufacturing
agricultural machinery and spare parts. Part ownership of a combine
enterprise represents the sole independent business venture for only 8
of the 40 entrepreneurs. The remaining 32 families are simultaneously
active in business ventures of various kinds, including farming (26
families); hiring out of tractors (9); rice trade, including the owner-
ship of trucks to transport the rice (3); rice mill (1); transport concerns
(3); workshops for agricultural machinery (3); and trading companies
in agricultural and non-agricultural spare parts (2).
The economically most dominant group among the owners of
combine-harvesters show a strong tendency to widen their economic
activities away from their local agricultural base. A characteristic feature
of the economic behaviour of these businessmen is their tendency to
set up commercial and industrial activities, although often related to
the business of agricultural machinery. Examples of such commercial
enterprises are large shops dealing in spare parts and trading companies
in agricultural machinery, some of which have started to export second-
hand combine-harvesters to Thailand, a deal including the provision of
on-the-spot training for local workers. Examples of industrial enterprises
co-established by these owners of combine-harvesters include workshops
for the repair and modification of agricultural machinery, including
combine-harvesters, and small-scale factories that manufacture spare
parts for agricultural machinery as well as producing spare parts for
customers outside the agricultural sector.
Despite this diversification, in terms of sources of income, farming

is still the most common activity the 40 owners of combine-harvesters
are engaged in along with their combine businesses. Those 26 families
who are engaged in farming cultivate a total area of 803 acres of agri-
cultural land, which comes to an average of 30.9 acres per family.8 Out
of this, 600 acres are situated within the Muda area, while the remaining
203 acres are located in Penang and Perak states. With an average of 23.1
acres of agricultural land within the Muda area, these 26 families are
among the largest farmers within the peasant community. About three-
quarters of their agricultural land is rice land, while the remaining is
given over to rubber or fruit trees.
This strong link to agriculture is visible not only in the current
economic activities of these families, it is also quite clear from their
occupational backgrounds. Thirty-eight of the 40 main owner-partners,
the father of the entrepreneur was or still is a farmer, often cultivating
a substantial amount of land. Three of these members of the previous
generation are also rice traders along with their other agricultural interests,
while one of them is also a partner in a rice-mill.
Almost all the 40 main owner-partners belong to the first generation
in their families to be owners of combine-harvesters. Three entrepreneurs
had no work experience whatsoever but joined their father’s company
or that of a close relative immediately after completing their education.
Seven entrepreneurs had previous experience in non-farming activities
only, although often indirectly related to the agricultural sector. The
remaining 30 entrepreneurs had previous experience in farming or
activities closely related to the agricultural sector. Out of them, 14 entre-
preneurs had experience only in agriculture, while 16 had experience
in farming along with other agriculturally-related activities, such as
the hiring out of tractors or the running of a rice trading company, a
rice-mill, or a transport company. Among these 30 entrepreneurs with
previous experience in agriculture or agriculturally-related activities,
there are eight who had some experience in the combine business,
either as a broker (3), a driver (4) or both (1).
Notwithstanding the agricultural and commercial background of
the entrepreneurs and their diversified pattern of investment, many of
them have reinvested a substantial part of their profits in their enter-
Figure 6: Repair and maintenance of combine-harvesters in front of the owner’s

residence in the countryside
prises through the purchase of combine-harvesters or through improve-

ments in the workshop facilities by the judicious addition of tools and
machinery. Repair and maintenance of the machines is carried out in
front of the owner’s house by the drivers and assistants themselves. To
accommodate this work most owners have constructed a special lean-
to, while some of the companies owning eight or more combines have
built their own workshop at a separate location. In all cases, the tools
and machines, including welding sets, drills, cutting-machines and
oxy-acetylene cutters, are kept in a separate tool-shed. Two companies
even have their own lathes.
Over the years, many enterprises have increased the size of their
businesses. Although the majority of the enterprises was established
before 1981, they purchased most of their combine-harvesters after
1985. Out of the total of 238 combine-harvesters bought by these
companies between 1976 and 1994, 151 were bought after 1985. Over
the years, these companies have lost 29 combine-harvesters, which were
either sold off or were the result of a split-up of partners. If we deduct
these 29 machines that disappeared from the ownership of the 40 com-
panies, it turns out that the total number of combine-harvesters owned

by these enterprises almost tripled over a nine-year period: from 75
combines in 1985 to 209 in 1994. The overall result of this develop-
ment in the 1980s is a substantial increase in the average size of the
selected companies, from 1.9 combines in 1980 and 2.7 in 1985 to 5.2
combines in 1994.9
A substantial increase in the number of combine-harvesters after
1985 was not the only matter occupying these 40 companies. This
period also witnessed a change in the type and brand of the machines
purchased. Almost all those combine-harvesters that were purchased
by the companies between 1975 and 1980 were new machines, directly
imported from Europe. Between 1981 and 1985, half of the combines
purchased were new machines, while the other half were second-hand
machines from the Muda area that had come into the market when
other companies went out of business. After 1985 hardly any of the 40
private contractors bought new combine-harvesters: 147 out of the 151
machines bought between 1986 and 1994 were second-hand combine-
harvesters. A very large part of these (117 out of the 147) were second-
hand imported combines, i.e. combines that had been used in Western
countries before, mainly for harvesting wheat and maize in Europe
and Australia. As a result, more than half of the combine-harvesters now
owned by the 40 companies are of the second-hand imported type.
The first of these second-hand imported combines entered Malaysia
in 1986, brought in by private traders. To make them suitable to rice
harvesting in the Muda area, the companies have the threshing mech-
anism adjusted in local workshops. The combines are also raised in
height by adding an extra undercarriage and have their four large tyres
changed into two caterpillar tracks at the front and two smaller tyres
at the back. Even after completing these major adjustments in a work-
shop, supplemented with smaller repairs by the companies themselves,
the price of these second-hand imported combines is less than half of
the price of a new combine-harvester.
This decline in the purchasing cost is one of the reasons for the
substantial increase in the number of combine-harvesters after 1985.
Another reason is the growing competition, although this sounds like
a paradox. We have seen that the market for mechanized harvesting
Figure 7: Mechanized harvesting of rice
seemed to have reached its saturation point by the early 1980s, which
resulted in a decline in the average area harvested per combine. Many
entrepreneurs recalled with nostalgia how the brokers and farmers used
to come to their house to ask for their fields to be harvested during the
early years. Whenever there were technical or logistical problems, the
farmers had no choice but to wait for a few days as there were no other
combines available to harvest their fields. In the second half of the
1980s, however, this situation changed. The enormous increase in the
number of combine-harvesters in the Muda area could not but generate
stiff competition among the entrepreneurs. Whenever a particular
company could not harvest on time – because of a breakdown of the
machine or harvesting of other fields had been delayed because of rain
– the broker and the farmers would search for other companies to
harvest their fields. This made the owners of the companies realize that
they needed more combine-harvesters in order to overcome these logis-
tical problems and thereby to keep control over the area harvested by them.
The increased competition for work in the 1980s forced these entre-
preneurs to look further afield and to take up harvesting work outside
the Muda area. The upshot is that since the early 1990s, most of the
companies with more than three combine-harvesters obtain a part of
their income from harvesting rice outside the Muda area, especially in
Perak, Penang, Kelantan and Selangor. Among the companies with
more than seven combines, the proportion of earnings from outside
the Muda area can even reach 30 per cent of their total income in this
line of business.
Extending their field of operation to most of peninsular Malaysia
has enabled the larger companies to make better use of their combines.
Harvesting in Kelantan, Perak and Selangor usually takes place during
the slack periods of the agrarian cycle in the Muda area. Armed with
this activity these companies have been able to compensate for part of
the decline in the average area harvested per combine in the Muda
area. Although the owners are often unwilling to provide exact figures
on the amount of relong harvested, my impression is that this was, in
1994, between 400 and 600 relong per combine per season in the Muda
area. It is this decline in the average area harvested per combine – from
1,100 relong in 1977 to 800 in 1981 and about 500 in 1994 – that
inexorably encouraged the larger companies to look for opportunities
outside their region. This in turn stimulated the expansion of these
companies, as they needed a larger number of combine-harvesters to
be able to operate the whole year round, sometimes in several states of
peninsular Malaysia at the same time.
A final factor that has led to a steady increase in the number of
combines per company is the change in popularity of the different
brands of combine-harvesters, particularly the shift from the Claas brand
to the New Holland. From the time of the introduction of the first
combine-harvesters in the Muda area, there have been six main brands
of Western-made combines operating in this part of Malaysia: Claas
(Germany), New Holland (Belgium), Deutz Fahr (Germany), John Deere
(USA/UK), Laverda (Italy), and Massey Ferguson (UK).10 From the
information provided by Yamashita et al. (1980: 44) on the 172 Western-
type combines operating in the Muda area at the end of 1979, the Claas
brand seems to have been the most popular one (85 units), followed
by John Deere (30 units), and New Holland (22 units). This was also the
case among the 20 contractors studied by Mustafa in 1981, who found
that the Claas brand accounted for 50 per cent of the total number of
combines owned, followed by New Holland and John Deere (Mustafa
1985: 20). In the mid-1980s, a shift became visible and Claas combine-
harvesters have had to yield the lead to New Holland, which has become
the most popular brand of combine-harvester in the Muda area.
This change in popularity from the Claas to the New Holland brand
is also shown in the history of the 40 selected companies. While more
than half of the combines purchased by these companies before 1986
were Claas combines, this brand makes up less than one-quarter of the
combines bought after this date. Over the years, the New Holland brand
has soared in popularity: more than half of the combines purchased
after 1985 were of this type, while this figure has even increased to
more than three-quarters of the combines purchased after 1990. As a
result, since the early 1990s, New Holland has replaced Claas as the
most owned brand among the 40 companies.
This swing in popularity from Claas to New Holland combine-
harvesters among the contractors is the outcome of a change in prefer-
ence among brokers and farmers. Since about the end of the 1980s,
farmers and brokers have been of the opinion that New Holland com-
bines harvest better because they use five instead of four transporters
and are therefore thought to waste less paddy during threshing. An
additional advantage is that they are lighter and so are said to cause
less damage to the soil. Whatever the hearsay, most of the owners of
the combines stated that this recent change in preference among the
farmers and brokers is not based on facts, and they claim there are no
real differences in the quality of harvesting among the different types
of combines. They emphasize that provided the combine is in good
condition, it is the ability of the driver that affects the quality of the
harvesting to a far greater extent. Rather than waste their breath arguing,
when confronted with this change in preference among the farmers
and brokers, who were now in a position to force their will upon the
owners of combine-harvesters, several companies have been more or
less compelled to acquire at least one if not a few New Holland com-
bines in order to keep their control over the area harvested.
One of the consequences of these developments has been a con-
centration in the ownership of machines. Those entrepreneurs who
had the financial means reacted to the increasingly stiff competition

by making a leap forward and becoming owners of relatively large
combine enterprises. The most remarkable aspect of this tendency
towards concentration of ownership is the emergence of a category of
so-called fleet owners. Among the 40 companies, there are 10 that own
between 8 and 14 machines, with an average of 10.2 combines per
company. These 10 fleet owners have almost as many combines as the
other 30 companies combined. There is one company that owns 14
combine-harvesters, making it the largest enterprise of its kind in the
Muda area.
In a nutshell, their agricultural and commercial background, and
their diversified pattern of investment has not prevented many of the
owners of combine-harvesters in the Muda area from making changes
in their enterprises. Additional capital was invested to take essential
measures such as to expand the number of combine-harvesters in their
enterprises, to introduce technological adjustments to the combines,
to make improvements in the workshop facilities by adding extra tools
and machinery, and to extend their field of operation to other parts of
Malaysia. They have been aided in this as their agricultural and
commercial background has given them the knowledge, contacts and
experience to operate in other agricultural-related sectors of the
economy, often outside their local environment. It is therefore the
interconnection between the agricultural, commercial and industrial
sectors of the rural economy that is essential to understanding the
business strategy of these owners of combine-harvesters in the Muda
area, which clearly indicates their transition from agricultural entre-
preneurship to commercial and industrial businessmen, as is illustrated
by the following case study.
Ong Beng Tai (age 48) is the eldest of five brothers who live in a small
rural town in the northern part of the Muda area. All five brothers live
separately with their own families. Ong Beng Tai owns jointly five
combine-harvesters with his third and fourth brother and a Malay
partner. In 1978, their family was among the first owners of a combine-
harvester in the region. At that time, his father was a rice trader along-
side his farming activities. Being the eldest son, Tai assisted his father
in the agricultural activities and rice trade. Two of his younger brothers
took care of the combine-harvester, which they drove themselves
during the first two seasons. Profits were high and the family quickly
expanded with the purchase of more combine-harvesters. By 1980,
they already owned three combine-harvesters, which increased to five
in 1985. During those years, they also bought a new truck for their
rice-trading company, one trailer and two tractors, which they mainly
contracted out to other farmers in the area.
In 1985, about a year after their father’s death, the second and fifth
brother indicated that they wanted to withdraw from the family’s
enterprise. ‘Some tension had already been building up over the last
few years between me and my second brother’, Tai told me once when
I accompanied him on one of his business trips. ‘My brother wanted
to be independent and I therefore thought it would be better to
separate at a time when we were still on good terms. I gave my two
brothers three combines, the trailer and some of our agricultural land’.
This left Tai and his third and fourth brother with two combines, the
rice trading company with the truck, and about ten relong of rice land.
During the next few years, Tai and his two brothers were able to
expand their business by the addition of a second-hand trailer and
three second-hand imported combine-harvesters. They also built a
large workshop on the outskirts of their hometown for maintenance
and repair works of their combines. Having bought several welding
sets, two drilling machines and one lathe machine, they were able to
make almost all the adjustments to their three newly bought second-
hand imported combines themselves. These three combines were of
the New Holland brand, in contrast to their two older ones which were
of the Claas brand. Following the complaints by farmers and brokers
that their Claas combines did not harvest efficiently because they only
used four transporters, Tai’s brothers and their Malay partner success-
fully experimented with the construction of a five transporters system
in their two Claas machines.
Along with these changes in their combine enterprise, Tai’s family
also expanded their farming activities during those years. They were
able to buy seven relong of rice land in the Muda area and to lease in
an additional fifteen relong on a long-term basis from small peasants
in the surrounding villages. Seeking yet more expansion, between
1987 and 1989 they leased in an additional ninety relong of rice land
in Perak State through the help of a relative of their Malay partner who
had moved to that area around 1980. While engaged in these activities,
the three brothers were able to continue with the rice-trading activities
of their father, although they had to slow down to some extent ham-
pered by the government’s policy of supporting only Malay businessmen
in rice trading.
Ever since the split up of the family in 1985, Tai’s two younger brothers
have supervised the trading and farming activities and the hiring out
of the tractors, and with their Malay partner they also take care of the
internal running of the combine-harvesters enterprise. They are the ones
who are constantly in the vicinity of the combines, lending a helping
hand with the repairs in the workshop and supervising the harvesting
operations on a day-to-day basis, both in the Muda area and outside.
Tai, being the eldest, takes care of the external and financial side of the
combine enterprise and of the hiring out of the trailer. Most of his day’s
work is spent outside his home and work-shop, visiting colleagues,
relatives and friends who own combine-harvesters or specialized work-
shops, or who have contacts in the farming community.
Along with the expansion of their combine enterprise and agri-
cultural activities, in the 1990s Tai and his two brothers started to diversify
their interests outside the agricultural sector even more. In 1990, in
partnership with two Chinese friends, they established a trading company
that imports second-hand forklift trucks and spare parts for private cars
from Japan. One of these friends owns a company trading in agricultural
machinery, while the second one is a partner in a specialized workshop
and owner of three combine-harvesters. Every year, Tai’s son and one
of his partners go to Japan for three months, taking with them four
Chinese workers from their home town in the Muda region. At that
time they buy second-hand forklift trucks and private cars from which
they take out the useful spare parts that are then shipped to Malaysia
by container. In order to sell these products, they have set up a big
warehouse on the outskirts of the state capital, Alor Setar, managed by
the eldest son of one of the partners.
This same group of partners, joined by one more Chinese owner
of combine-harvesters, established another company at the beginning
of 1994. This company produces simple spare parts for agricultural
machinery, in particular components for tracks and conveyors of
combine-harvesters. The idea for this came from the owner of a shop
in spare parts and from a mutual friend of Tai and his partners, whose
family owns a medium-scale industrial enterprise that manufactures
all kinds of spare parts for machinery. The owner of the shop saw the
market potential and the mutual friend provided the company with
technical advice in the early stages and still continues to assist them when-
ever needed. The company is located at the same location as their trading
business on the outskirts of Alor Setar, and it is through this enterprise
and the shop in spare parts that most of the products are sold.
FAMILY ENTERPRISES AND BUSINESS NETWORKS

In their economic activities, the owners of combine-harvesters in the
Muda region usually operate in co-operation with others, primarily with
family members. The extended family household is the predominant
form of family structure among the 40 main-partners. Only 17 live in
a nuclear family that consists of not more than two generations, usually
the father, mother and their unmarried offspring. The remaining 23
families have an extended type of family organization. They consist
either of members of three or more generations, or of two or more
married brothers and their unmarried children. These families share
common property and pool their resources for common consumption.
Despite this, a large number of them do not share a common residence.
Out of the 23 extended family households, 13 families do not live
together under one roof but in separate houses. These 13 families have
set up 36 separate households to deal with the daily domestic affairs
such as cooking food, washing clothes and the like. Although they
have chosen to go their own way in these matters, the members have
agreed to continue sharing the responsibility for their incomes as well
as their expenditure. In those cases, the adult males live separately
with their own families, but they still operate as a single family as far
as their economic interests in combine harvesters, agriculture, trade
and other activities are concerned.
These extended type of family arrangements have enabled the owners
of the combine enterprises to increase their rate of surplus accumulation
and to follow a strategy of economic diversification, or at least it has
facilitated them in doing so. Because these businessmen are part of an
extended family household, they are often able to mobilize the
financial and managerial resources needed for their various business
dealings in farming, agriculture-related activities, trade and industry.
It is therefore not uncommon to find that one brother manages the
combine-harvesters while another takes care of the family land or the

rice-trading activities. By investing in different economic activities
simultaneously, these families provide their members with separate
enterprises and thereby increase the possibility of slowing down the
dismemberment of the family’s property. By delaying the break up of
the extended family, these owners of combine enterprises have been
able to increase the scale of their business operations, both in the
combine business and in other sectors of the economy.
Although co-operation within the family is characteristic of the
majority of the owners of the combine enterprises in the Muda region,
there are differences within the group that partly coincide with ethnic
background. The predominance of the extended family households is
stronger among the Chinese than among the Malay families, although
this form of family organization is certainly not absent in the last
category. Out of the 23 families which are of the joint type, 18 are
ethnic Chinese while the remaining 5 are Malay. Twelve of these 18
Chinese families do not live together under one roof, but still operate
as one family in terms of income and expenditure, while only one of
the five extended Malay families lives in this type of family household.
The predominance of the family business among the Chinese owners
of combine-harvesters is strongly based on, and related to, an ideal
notion of a family enterprise. Many of the Chinese entrepreneurs talk
about their enterprise as being a part of the family property rather
than as a separate administrative entity. They indicate that the key
decision-making unit and locus of resource control in their business
is the family, in particular the eldest male member as head of the
extended household. They often argue that it is this predominance of
the extended family enterprise that has contributed to their economic
success. Given the existence of family ownership, the business and
personal goals of those who manage the enterprise are identical. The
fact that the owner-managers are often part of the same family makes
it easier for them to trust each other and thereby to achieve business
success, or so the entrepreneurs claim. It must be said that because of
their small size, their leadership style and family support, Chinese
family businesses maintain a high degree of flexibility and are well
suited to speedy decision-making, two factors that have enabled them
to seize new business opportunities. It is especially the emphasis on

extended family households and the comparative advantage of the
family business – its small size, flexibility and deal-making skills – that
are seen by the Chinese owners of the combine enterprises in the
Muda region as important reasons for their business success.
Many of these Chinese businessmen also emphasized that the personal
ownership and control of their family enterprises has given them the
flexibility and ability to shift resources quickly to those areas where
there is profit to be made. This flexibility has facilitated them in divers-
ifying into various economic activities simultaneously. Economic
diversification into new lines of business by these entrepreneurs is often
accomplished by establishing a new firm with capital drawn from the
profits retained from an existing firm under the management of a family
member or another highly trusted close associate. This preference for
expansion through setting up separate firms rather than integrating
activities through a singly larger managerial hierarchy, reduces the
risks associated with high levels of business specialization. By establish-
ing separate small firms run by family members for distinct activities,
these Chinese families retain control while reducing the risks of
concentrating all their resources on one area of business. Overall,
then, risk management through limiting commitments, restricting
firm size and diversifying activities is viewed by the Chinese owners of
these combine enterprises as being among the important factors in
promoting their economic success.
This emphasis on the family enterprise among the Chinese business-
men in the Muda area often leads to exaggerated stories about co-
operation and to the covering up of conflicts. Some entrepreneurs would
claim the non-acrimonious dismemberment of the extended family in
the past, while others would even try to hide break ups in the family
property from outsiders. One businessman might try to convince out-
siders that their property was still jointly owned and managed as a family
business, but his brother would indicate that he recently separated
from his family because of conflicts over investment decisions or over
the use of profits for consumption purposes. In reality, therefore, the
emphasis among the Chinese businessmen on the family characteristics
of their enterprise often co-exists with tensions within the family, tensions
that sometimes evolve into severe conflicts and end up in break-ups of

family property.
Malay owners of combine-harvesters, on the other hand, often
emphasize their independence from family members, both in the
establishment and in the running of their enterprise. Even in those
cases where family-members stay together in one compound, they
often deny that they live in an extended type of family structure. Most
of them stress that the economic activities of family members are
undertaken separately and that there are no joint investments or any
sharing of income between father and son or between brothers. In
several instances, however, it has turned out that the combine enterprise
had in fact been jointly established by family-members, and that some
of them even still manage and operate part of their combine-harvesters
as a joint family undertaking.
Although of great importance, co-operation within the family is
only one form of economic co-operation among the Chinese and Malay
owners of combine-harvesters in the Muda region. The establishment
of business activities on unfamiliar ground especially is usually not
undertaken by one family on its own, but in partnership with one or
more other families. In terms of ownership, 27 of the 40 companies are
owned by members of one family; the remaining 13 enterprises operate
on a partnership basis. In the case of five of them, the partnership con-
sists exclusively of relatives, usually brothers or cousins, who operate to-
gether in their combine business but form separate families with regard
to other economic activities and expenditure. Four enterprises consist of
a partnership with non-relatives, and the remaining four companies have
a mixed partnership involving relatives as well as non-relatives.
Characteristic of almost all the partnerships is their informal and
often complicated nature. Business partnerships among the owners of
combine-harvesters are seldom registered officially but exist as oral
agreements between the partners. Some of the enterprises have a rather
complex ownership structure, with some combine-harvesters being
owned by all the partners jointly, while the remaining machines are
owned by a few partners only, sometimes in partnership with others
outside the original partnership. Conversely, several entrepreneurs
own a number of their combine-harvesters individually, while they
simultaneously also have combine-harvesters in partnership with others,

even when opting to operate with new partners in some of their other
economic activities, such as a rice company or an enterprise that owns
trailers to transport agricultural and building machinery.
The number of existing partnerships at present does not in itself
provide an adequate indication of the importance of this form of co-
operation for these rural entrepreneurs in the Muda region. Looking
at the business histories of the 40 companies, there have been many
changes in partnerships over the years. Out of the 13 companies that
operated in partnership in 1994, six had experienced one or more
changes in their partnerships in the past. In some cases partners left,
in other cases new partners joined the company, and two companies
experienced both types of change. Although most of the 13 partnerships
relate to all the combines owned by the company, several partnerships
relate only to some of the combines owned, with the remaining
combines being the property of one family only. The importance of
partnership as a form of economic co-operation is further shown by the
fact that out of the 27 family enterprises that operated without partners
in 1994, 18 had done so in the past. This means that out of the 40
companies, 31 at one time or another have operated in partnership.
Co-operation between families of different ethnic backgrounds is
not uncommon within these partnership arrangements. Out of the 13
companies that operated in partnership in 1994, six are owned by Malay
and Chinese families together. Four of the exclusively Chinese companies
and four of the exclusively Malay companies had had a mixed Malay-
Chinese composition in the past. If we take these previous partnerships
into account, it turns out that 14 out of the 31 companies that at one
time or another operated in partnership had a mixed Malay-Chinese
ownership.
The pooling of capital is one of the reasons why these businessmen
have chosen to enter partnerships at one time or another, but it is
certainly not the only one. One of the other reasons is to counteract the
uncertainty they face when operating in relatively unknown territory.
By forming a partnership with other businessmen they can take
advantage of the experience, knowledge and contacts of other families.
Problems encountered in managing two or more different economic
activities simultaneously has been another reason for these entrepre-

neurs to enter into partnerships. This aspect is particularly important
to those families who do not have enough male members in relation
to the number and size of economic activities engaged in by the
family. Especially when they have to manage several businesses in
different sectors, they will not have the time to pay full attention to all
of them and therefore will need a trusted business associate for part of
their economic interests. Simultaneous involvement in diverse business
ventures is thus an important reason that many of these families have
elected to form partnerships.
Besides co-operation within family enterprises and the predominance
of various forms of partnerships, co-operation among the owners of
combine-harvesters also takes place through business networks. Because
of the small size of most combine enterprises, networks of exchange
relationships between firms sometimes play a critical role, both for
subcontracting and for mobilizing capital, market information and
other resources. Where the investment needed is too great for family
resources to cope with singly, or where access to different businesses
and social or political networks is required, families enter into
alliances with trusted partners in order to undertake specific activities.
The most common reason to form such type of alliances is to share
or subcontract part of the orders for harvesting in case a businessman
is unable to meet his obligations because of other commitments or a
breakdown of his machines. This also applies to those entrepreneurs who
have diversified into trading and industrial activities, some of whom
subcontract some of their orders within their social network of friends
and relatives. Another way in which the owners of combine-harvesters
make use of their social networks for business purposes is when they
want to establish or extend their contacts with brokers in the Muda
region or beyond. On those occasions, they often make use of personal
and family connections within their own community. Malay owners of
combine-harvesters, for example, were able to establish first contacts
with local Malay brokers in Perak State through Malay peasants from their
home village in the Muda region. These Malay peasants had moved to
Perak some years previously in search of agricultural land. A similar
network of contacts was used by those Chinese owners of combine-
harvesters who wanted to extend their area of harvesting deeper into

Perak and Selangor.
In addition to these ethnic business networks, there are several
business circles that include both Malay and Chinese families. This is
a common practice when temporary partnerships are formed for
harvesting rice outside the Muda area. In particular when there is a chance
of large tenders for harvesting rice in semi-government corporations
like Felda in Perak State, Chinese and Malay owners often pool their
combine-harvesters together in a joint tender. Although in some cases
the Malay owners are used as front-men in order to meet the govern-
-ment condition of Malay participation, in many other cases economic
co-operation between Malay and Chinese owners of combine-harvesters
is on an equal footing.
Economic co-operation through partnerships and business networks
often involves business associates with whom personal obligations
and social relations have already been established in the past. This
means that economic and social networks overlap, and inevitably the
influence of personal relationships extends to the management of the
business enterprise. Most of these contacts are informal, with many
agreements being reached orally. Flexibility is the key to managing
such a combination of business and social networks. By temporarily
joining forces, a small family business is able to handle different
economic activities simultaneously and to respond to shifts in national
and even international trade with greater efficiency, as is shown in the
following example.
It is about nine o’clock in the morning when Ong Yen Huat (aged 43)
joins his friends for breakfast in one of the foodstalls in Alor Setar.
Huat is the eldest of four brothers who live in a small rural town in the
southern part of the Muda area. Huat and two of his brothers live to-
gether in the parental house in the main street, along with their father,
mother, and youngest sister. The fourth brother (number three in terms
of age) lives separately with his own family. On several occasions,
Huat emphasized that as far as the economic interests of the brothers
are concerned, the four brothers still operate as a single family. One of
the brothers, however, indicated that there had been several conflicts
between Huat and the brother who lives separately, over the last few
years. Although they had not split up the property yet, it seems that he
has in fact already been given three combine-harvesters and two
tractors as an advance for his share in the family property.
Together, Huat and his three brothers own twelve combine-
harvesters, two trailers, four tractors, and one truck. The family also
leases in 50 relong of agricultural land, mostly from small and marginal
peasants. In 1977, Huat’s family was among the first owners of a
combine-harvester in the region. At that time, their father was a
farmer and rice-trader. Being the eldest son, Hock took care of the
combine-harvester, which he drove himself during the first two seasons.
Profits were high and they quickly expanded their enterprise by buying
more combine-harvesters. By 1980, they already owned four combines,
which they increased to seven in 1985 and twelve in 1994. During
those nine years, they also bought their two trailers – in partnership
with relatives – constructed a large workshop, purchased two of their
four tractors, and expanded their farming activities by leasing land on
a long-term basis from peasants in the surrounding villages.
From the late 1980s onwards, Huat and his brothers also started to
diversify their interests outside the agricultural sector. In 1989, in
partnership with three Chinese friends, they established an export
company in combine-harvesters. The establishment of this company
followed a trip by Huat and his friends to Thailand to explore the
possibility to sell second-hand combine-harvesters in a rice-growing area
north of Bangkok. Since then they have sold 25 combine-harvesters in
two batches in the early 1990s, also providing on-the-spot training for
local workers.
On several occasions, I was able to witness Huat’s way of operating
when I accompanied him on one of his business rounds through the
region. At least once a week, Huat and his partners, along with other
members of their circle of friends, have breakfast together, sharing
business and personal information. Several members of this group
occasionally go to Singapore, Japan, China, Taiwan, Sri Lanka, or Europe
to buy or sell goods for their various companies.
One morning, Huat’s three partners in the trading company are all
present at the breakfast table when we arrive, and so are two other
businessmen and three owners of combine-harvesters. That morning
the partners of the export company are discussing the trip to Thailand
of one of their supervisors and five of their workers. This group will
accompany the third shipment of combine-harvesters and undertake
repair and maintenance work on some of the combine-harvesters that

were sent as part of the first batch.
Just when they are about to decide on the date of departure for this
group of workers, Huat gets a phone call from one of his brothers.
There are problems with one of their combines in the northern part
of the Muda area and they are in need of some spare parts from Alor
Setar. After a few minutes, we therefore leave the group and, after
having picked up some spare parts, we drive up north.
It turns out that one of their brokers has complained to Huat’s brother
about the delay caused, especially now that the rains are expected any
day. Because Huat does not want to risk losing this broker, who
provides him with about 900 relong of harvesting work each season
and has helped him to get established in this part of the Muda area, he
decides to bring in an extra combine-harvester. To do so, he makes a
phone call to one of his friends with whom we had just had breakfast
together in the morning, to ask him whether he could send in one of
his machines to help them out. After that, Huat takes his broker out
for lunch. Having eaten we leave at about one o’clock.
During the rest of the day, I accompany Huat to some of his other
combine-harvesters operating in the area and to the houses of several
of his brokers where he collects overdue accounts and explores
possibilities for new harvesting work. We also pay a visit to his eldest
brother-in-law, whose family owns six combine-harvesters, in a nearby
town. Huat wants to see him to discuss the possibility of collaborating
with him in their attempt to secure one of the government tenders for
harvesting rice in Perak this coming season. As they had done last year,
Huat’s family will put in six combines, his brother-in-law three, and
one of Huat’s cousins will bring in four machines in conjunction with
his Malay partner, whose name they will use in the application. During
their talk, Huat’s brother-in-law indicates that he might be able to
help Huat in finding new harvesting work in Selangor. He has recently
met a shopkeeper whose brother had moved to Selangor some years
back and might be able to help Huat to establish new contacts with
both Malay and Chinese brokers there. Now joined by his brother-in-
law, we go to see the shopkeeper who tells us that his brother might
return from Selangor for a short visit later that month. He promises to
contact Huat’s brother-in-law when his brother arrives from Selangor,
so that they can meet together and get the information about the
harvesting work from him personally.
REGIONAL MOBILITY AND LOCAL BASIS

The combine enterprises in the Muda region are all small companies
in terms of the number of workers they employ. In total, the 40 com-
panies employ 442 workers. More than 90 per cent of them are Malays,
while the remaining 10 per cent are Chinese and Malaysian-Thai workers.
On average, the 40 companies employ two workers per combine-
harvester: one operator or driver (derebar) and one attendant or
assistant (kolet). In the larger companies – those with more than four
combines – there are often one or two extra workers employed to
supervise and help the drivers and attendants with repair work and to
assist them at the time of harvesting.
Although various types of payment are employed, in all the enter-
prises the major share of the income of the driver and assistant depends
on the size of the area harvested, or on the amount of rice harvested
when harvesting takes place outside the Muda area. Usually the driver
receives about two to three times as much as his assistant (together
about 12 per cent of the harvesting fee), both of them being supplied
with food and drink three times a day. For repair and maintenance
work, most drivers and assistants are paid a fixed amount per day and
most companies also differentiate between both categories of workers
for this kind of work. A few companies pay their workers one lump
sum per season for repair and maintenance work, while some do not
pay them at all but give them higher wages for harvesting work. In
almost all cases, the workers get food and drink once a day when repairs
are going. Most of the time, the food is brought in from outside shops,
although some of the Malay owners provide their workers with home-
made food when the combines are being repaired.
The price of harvesting within the Muda area is a fixed sum per
relong. The harvesting contract with the owner or tenant of the land is
always established through a commission agent or broker. These brokers
are usually larger farmers who have ready access to and control over
other farmers in their village, benefiting from their economic position
and social status in the community. Almost all of them are Malays;
Chinese brokers are found only in those villages where there is a high
concentration of Chinese farmers. On average a broker has between 300
and 600 relong under his control, although there are some brokers who
have substantially more land to be harvested. Their job is to inform

the owner of the combine-harvester about the time of harvesting; to
decide the order of the fields to be harvested; to direct the drivers and
assistants to the fields; to arrange for permission to pass through other
fields; to provide fuel for the machine and food and drink for the
driver and his assistant, and lodging if so required; to collect the
contract charges from the farmers; and to help the driver and the
assistant should the machine break down. They are, in short, the local
intermediaries for the owners of the combine-harvesters, who often
operate in regions relatively unknown to them – all over the Muda
area and in other states of peninsular Malaysia as well. For this work
they receive between 10 to 15 per cent of the harvesting fee.
Together, the 40 companies have 98 owner-managers, which comes
to an average of 2.5 per enterprise. It is common to find that within
one company one of the entrepreneurs takes care of the external side of
the management, while the others share responsibility for the internal
running of the enterprise. When the combines are not in the fields, the
‘internal managers’ spend their working days supervising the repair
and maintenance of the machines. To have the combines in good
condition is of vital importance in this line of business. An ‘internal
manager’, having been a driver himself on one of his own combine-
harvesters during his first years in business, therefore often lends a helping
hand with the repairs. Whenever one of the combines is sent to one of
the specialized workshops in the area for major adjustments, these
‘internal managers’ usually visit the workshop once a day to check on
the work and give instructions. At harvest time, they are the ones who
are constantly in the vicinity of the combines, bringing spare parts,
assisting the workers with repairs and staying with them for several weeks
when the combines are harvesting in other states of Malaysia.
Most of the activities related to the external and financial side of
the enterprise are handled by one of the other owner-managers, which
in the case of brothers and close relatives is often the oldest member
of the family. An important part of the day’s work of these ‘external
managers’ consists of visiting colleagues, relatives and friends, many
of whom also own combines or workshops, or have contacts in the
farming community. These owner-managers pay regular visits to their
brokers within and outside the Muda area to inform themselves about
the coming season, to collect overdue accounts, to give advances and to
entertain them with meals (and, if the owner is Chinese, occasionally
with beer, gambling opportunities and a visit to a massage parlour).
Most of the day’s work of the ‘external managers’ is therefore spent
outside their homes and workshops, driving more than 50,000 kilo-
metres a year in their cars.
As almost all companies have one or more mobile telephones at
their disposal, these ‘external managers’ regularly maintain contact with
their partners, brokers and suppliers, and keep themselves informed
about recent developments, especially with an eye to increasing their
area of harvesting for the next season. When their combines are in the
fields, they occasionally pay short visits to discuss the work with their
partners, drivers and brokers, to bring the required spare parts, and to
collect part of the harvesting charges. Using the information provided
by their brokers and partners, these ‘external managers’ decide if and
when an extra combine-harvester is to be transferred from one location
to another, within the Muda area or across peninsular Malaysia. In
short, they are the ones who survey the entire business and take care
of the external dealings of the company.
As was mentioned earlier, the owner-managers of combine-harvesters
have become regional entrepreneurs whose field of operations covers
the whole Muda area and often includes the territory of other states as
well. Out of the 40 main-partner families 23 families live in a village
and 13 families live in a small rural town, while the remaining 4 reside
in the state capital, Alor Setar. Only a very small part of the area
harvested by the 40 companies is situated in the immediate vicinity of
the owner’s residence. Mechanized harvesting in the Muda area is not
a village-based activity but takes place on the regional level. Although
the combine-harvesters of each company operate in a limited number
of locations only, these locations are usually spread out all over the
Muda area, as a result of which their field of operation covers an area
of more than 500 square miles.
In 1981 a few of the present-day companies had already become
accustomed to sending their combines to Perak and Kelantan to harvest
rice – a distance of several hundred kilometres from the Muda area, at
that time a new and relatively difficult undertaking. There were no

trailers, so the owners had to send their combines to Kelantan by train
and drive them on the road to Perak, after exchanging the caterpillar
tracks for tyres, with the cutterbars and caterpillar tracks being trans-
ported by truck. This turned out to be an unprofitable business, given
the high costs of transport and relatively low earnings, as farmers in
Kelantan and Perak were not particularly enthusiastic about having
their rice mechanically harvested. Although these first entrepreneurs
stopped harvesting outside the Muda area after one year, several of
them did take the plunge and begin afresh at the end of the 1980s. The
availability of trailers made transport easier and cheaper, and mechanized
harvesting quickly gained acceptance outside the Muda area as well. After
these pioneering companies had re-widened their field of operations
to include most of peninsular Malaysia, many others followed.
This geographical mobility in terms of business operations of the
owners of combine-harvesters is even more visible among those entre-
preneurs who are involved in economic activities outside the agricultural
sector. Those businessmen who have set up a trading company or a
specialized workshop or small-scale factory visit cities like Penang and
Kuala Lumpur very often and regularly make business trips to foreign
countries. So far, most of these foreign trips are to Malaysia’s neighbours
Singapore, Thailand and Indonesia but now to an increasing extent,
however, these rural businessmen also visit countries like China, Japan,
Vietnam and Sri Lanka. Some have also made visits to Australia, USA
and Europe. These trips to foreign countries are related to their trading
activities and often have to do with the import of machinery and spare
parts.
Most of the time the rural entrepreneurs make their trips outside
the Muda region together, although this is not always really necessary.
During these visits to other places in Malaysia or abroad, business and
pleasure are invariably mixed. Many of them emphasize that they feel
more at ease and have more fun, especially when they go abroad with
friends instead of on their own. During these trips, they buy goods and
explore new business opportunities, and usually also take the opportunity
to have a short holiday, frequently visiting night-clubs and karaoke bars
until late at night. Being away from home for several days at a time in
the company of partners and friends, gives many of them the opportun-
ity to indulge in activities that are often not possible for them to
contemplate within the Muda area itself.
Among the Chinese entrepreneurs especially, outings and frequent
trips outside their home area have become an important part of their
lifestyle. Many of them not only regularly undertake trips outside the
Muda area, they also spend a large part of their spare-time outside
their residential house even when they are in their home area. It is not
uncommon for them to have all the three meals of the day, including
breakfast, at a foodstall or in a restaurant, even when they are in the
vicinity of their hometown. Even when they have been away all day,
they spend several evenings a week outside their homes, usually
together with Chinese business associates and friends from all over the
Muda region, sometimes in the company of their wives. During these
outings they have dinner together, often followed by a visit to a night
club or karaoke bar, where they consume large quantities of alcohol.
Those Chinese who participate in the trips and outings are mostly
entrepreneurs themselves, either owners of combine-harvesters or
businessmen with a workshop, small-scale factory, or private trading
company. In some instances, poorer relatives and trusted employees of
the wealthier entrepreneurs are invited to participate in these outings.
When this happens, the wealthiest entrepreneur and social leader picks
up the restaurant bill, but the costs incurred in the night club or karaoke
bar are usually intangibly shared among the businessmen present. The
poorer relatives and trusted employees usually occupy a lower social
status in the group, but they are not used as assistants during the outings
themselves. Although they often do not actively take part in the discus-
sions about business matters, their position is otherwise not very
different from the others present. The privilege of taking part in the
outing, often without contributing financially, is seen as a reward for
their loyalty to the wealthier entrepreneurs of the group and an
encouragement to provide further help and assistance in business
operations in the future.
Outings and trips outside the home area have also become part of
the lifestyle of the Malay owners of combine-harvesters, although these
trips occur less frequently and are less conspicuous in nature than are
those of their Chinese counterparts. Among this more conservative group,

the outings of the Malay businessmen are usually confined to those
restaurants where Malay food is served but the younger generation
occasionally risks a visit to a bar or massage-parlour, and has developed
a taste for Chinese or Indian food. Their company normally consists
of Malays only, among whom there are hardly any businessmen. Most
of those present during the business trips and outings arranged by the
Malay entrepreneurs are friends and poorer relatives from their village
area, or brokers who help them in getting harvesting work. Invariably
it is the Malay owner of combine-harvesters who pays the expenses.
The poorer relatives and friends of the entrepreneur pay for their free
participation in the outing by acting as assistants and general factotums
who perform all kinds of menial tasks during the business trip, such
as buying cigarettes and collecting overdue debts from peasants.
Notwithstanding the differences between the Chinese and Malay
entrepreneurs, their overall geographical mobility and sociable behaviour
is part of a luxurious lifestyle which sets this class of rural business-
men apart from the remaining rural population in the Muda area. The
wealth of these businessmen is also seen in the ownership of expensive
consumer goods and relatively large residential houses. As well as one
to two company pick-up trucks, most of them have at least two air-
conditioned cars of which one is for private use only. Almost all the
entrepreneurs live in well-built, relatively spacious houses in which all
modern facilities are available, including air-conditioning in various
rooms. Each of them usually has several large television sets, along with
video and compact-disc players, and the larger entrepreneurs also have
karaoke equipment in their house and sometimes even a laser-disc
player.
The residences of the owners of combine-harvesters not only differ
in quality from the majority of the rural dwellings, they also stand
apart in their specific geographical location. Those entrepreneurs who
still live in their home village have often constructed new and spacious
houses, isolated from the village population. Some Malay entrepreneurs
shifted their location quite a while ago by building a large compound
on their own agricultural land. Others have built their house along
one of the main metalled roads. More recently, an increasing number
of businessmen have shifted their place of residence to one of the small

rural towns in the Muda area, a few have even moved to the state
capital, Alor Setar.
This shift of residence away from the village is closely related to the
geographical mobility in business operations of these rural entrepreneurs.
To a growing extent these businessmen have become regional entre-
preneurs whose business and social networks extend over the whole
Muda area and beyond. This has made them less dependent on the
economic and social contacts with their fellow villagers. In the process,
they have also grown away from the majority of the rural population
both in lifestyle and in daily activities. Although their fathers all used
to work in their agricultural fields or in their shop, manual labour is
no longer a major part of the working-day of the owners of the
combine-harvesters. None of the entrepreneurs operate their combines
themselves, although several did so during the first years of getting
their business on its feet. Many of the ‘internal’ managers still do some
manual work when the combines are being repaired but the ‘external
managers’ of the combine enterprises hardly ever undertake any manual
labour. For them, management has become part of a lifestyle and only
rarely, when there is an emergency, do they lend a helping hand in
repair work.
The changes in lifestyle and daily activities of the male entrepre-
neurs have also had consequences for the female members of their
households. Where their mothers often used to take part in the economic
activity of the family, either in agriculture or trade, housekeeping has
become the main activity of the wives of these entrepreneurs. Among
the Malay entrepreneurs, it is not uncommon for the wife to play an
active part in the administration of the enterprise. Some of them have
set up their own sundry shop or run a small restaurant-cum-coffee
shop. They are only rarely invited by their husband to take part in his
outings. Most of their day-time is spent in and around the house, and
in the evenings their husbands are usually at home to take part in the
social activities of the family or to mingle with neighbours and local
friends in the village.
The daily activities of the wives of the Chinese businessmen are
even more confined to housekeeping. Not one of them helps in the
family enterprise or has set up her own business. Most of their day’s
work consists of taking care of the children, cleaning the house (some-
times assisted by a domestic help), and going out to do the shopping.
Many have their own car in which they regularly pay visits to relatives
and friends in the region. Occasionally, they are invited by their
husbands to participate in one of their joint outings, and it is common
for most of these entrepreneurs to take their family for a short holiday
several times a year. Despite these concessions to family life, in between
these joint outings and short holidays, many Chinese businessmen hardly
ever spend time with their family, as they usually come home late at
night and often stay away for several days on end.
The mobility in business activities and subsequent changes in life-
style among the owners of combine-harvesters in the Muda have resulted
in a widening social distance between these entrepreneurial families
and the majority of the rural population. The changes in their business
operations, consumption pattern, residential location and daily activities
has turned them into regional businessmen with a lifestyle that must
of its very nature set them apart from their fellow villagers with whom
Figure 8: A small-scale workshop for agricultural machinery and spare parts

they now have less direct contact. But, even so, they remain strongly
attached to their local base. All owner-managers of the 40 combine
enterprises selected like to spend their evenings in the Muda region,
often in their own village or rural town where they feel at ease among
their local friends and relatives. This also true for those Chinese
businessmen who regularly make business trips outside the Muda
region. Many of them indicate that they are keen to return to their
rural town or to Alor Setar in the evening after having spent the day in
Penang or Kuala Lumpur going about their business. They do not feel
at ease with their business associates in those cities, who often invite
them to play golf and visit expensive clubs to drink whisky and
brandy. Being first-generation small-scale entrepreneurs with strong
roots in the countryside, they prefer to play cards in their office, to
have dinner at a local pavement restaurant and to drink beer in their
own karaoke bar.
Although these owners of combine-harvesters in the Muda region
have therefore become entrepreneurs with a regional and sometimes
even national and international outlook, most of them still very much
depend upon their local networks in operating their business enter-
prises. Through these local networks of relatives and friends they have
a basis by which they establish and extend their contacts within the
Muda area and beyond, which is well illustrated in the following case
study.
It is eight o’clock in the morning when Rashid Moktar (aged 39)

enters his workshop compound. Together with his younger brother
Ghani (aged 34), Rashid is the owner of ten combine-harvesters. Their
workshop, which they constructed in 1992, is located a few hundred
metres from Rashid’s house in their native village, which is situated in
the northern part of the Muda area. Six of their combine-harvesters
are at the workshop for repair and maintenance. The remaining four
are in Perak where they have been harvesting rice over the past four
weeks. Rashid’s brother Ghani stays there to supervise the work and to
maintain the contacts with the local brokers. Yesterday evening Ghani
phoned from Perak to inform Rashid that they needed an extra combine-
harvester; work had been slowed down due to rains and, on top of
that, one of the combines was having engine trouble. After Ghani’s
phone call, Rashid had immediately contacted a Chinese owner of a
trailer with whom he had done some harvesting work in Perak in the
past. Because of his relationship with this Chinese businessman, Rashid
could arrange for his combine-harvester to be transported to Perak
this very evening.
Just before leaving his house, Rashid had again talked to Ghani
over the phone and this made him decide also to go to Perak for a few
days. In the workshop, he instructs his workers about the work to be
done today and tomorrow. He tells the driver and assistant who will
accompany their combine to Perak that night to take a mobile phone
with them and to put one of the motorcycles on the trailer. After that,
Rashid and I leave for Perak, but first we make a short stop in Alor
Setar where we buy some spare parts that Ghani had asked for over the
phone.
Driving on the north–south highway to Perak, Rashid keeps himself
regularly informed about the progress in the workshop at home and
about the situation in Perak by car phone. When we reach the area
where their combines are harvesting, it has begun to rain again. Ghani
gives directions, by phone, on how to get to the fields and informs us
that one of the combines has bogged down in the mud. For more than
an hour, we watch Ghani and his workers trying to get it out again
with the help of one of their other combine-harvesters. After they
finally succeed, it turns out that the combine has suffered some damage.
While Ghani and the workers start welding some broken parts, Rashid
and I leave the fields in the company of their broker who has joined us
in the meantime.
Drinking tea at one of the foodstalls in a nearby village, Rashid
discusses the remaining harvesting work with his broker and collects
part of the payment after deducting the costs of fuel and food for the
workers, and of the rent of the house in which Ghani and the workers
have been living over the past few weeks. After half an hour we leave
to pay a visit to a friend of Rashid who comes from a village near
Rashid’s home village, but moved to Perak in search of agricultural
land about fifteen years ago. ‘Through this friend and some other
Malay friends from the Muda area, I was able to make my first contacts
with Malay brokers in Perak’, Rashid told me on the way to his friend’s
house. ‘He informs me whenever there is a possibility of extra harvest-
ing work, either here or in other parts of Perak’. During dinner at his
friend’s place, Rashid discusses the harvesting business in the area
exhaustively and tries to find out information about specific brokers.

At about ten o’clock we return to the rented house where Ghani and
the workers are just preparing for the night. Before going to bed, Rashid
discusses the work with Ghani and on the basis of this information, he
decides that on our way back to Kedah tomorrow we will first visit two
of their brokers to collect overdue accounts.
The next morning we are on our way early, taking breakfast in one
of the nearby rural towns. After paying a short visit to the first broker,
where Rashid collects part of his money, we spend a large part of the
morning at the house of the second. This broker brings Rashid into
contact with another local broker who might be interested in giving
harvesting work to Rashid next season. After Rashid has accompanied
his broker to the village mosque for the Friday prayer, we leave for
Kedah. Once we are in the car, Rashid explains that in his first contacts
with brokers he deliberately makes use of his Malay background and
the fact that he is a farmer in Kedah himself.
Although I wanted to leave earlier, I thought it would be better to join them
in the Friday prayer, because I know that both of them are very religious
persons. Whenever I make first contacts with a potential broker, I emphasize
the fact that I am farmer myself and have once been a broker and therefore
understand their problems much better than most other owners of combine-
harvesters, especially those of Chinese origin. I have many friends among the
Chinese businessmen in Kedah, with whom I sometimes collaborate, but
when I am with these Malay brokers I try to emphasize that I am one of them,
a Malay farmer and a religious Muslim. I think that’s important and over the
past few years, I have been able to get a fair amount of harvesting work here
in Perak.
After having been a driver of a combine-harvester owned by a
Chinese businessman, and one of the larger brokers of his village,
Rashid and his brother joined forces in the purchase of their first
combine-harvester in 1980. Over the years, they have slowly increased
the number of combines they own. At the same time, Rashid has been
able to increase his operational holding from 12 relong in 1978 – his
private share of the family inheritance – to 37 relong in 1994, of which
30 relong are his own personal property. Only a few months ago, he
bought 3.5 relong of agricultural land for which he paid RM 45,000. ‘I
am always interested in buying land’, he said, after we had eaten dinner
at his home and were visiting one of his farmer neighbours. This
farmer informed him not only about the water supply in the fields, but
also about the fact that his cousin, from whom Rashid has been
renting some land over the past few seasons – paid for in advance in a
lump sum – is in need of more money and might be willing to sell off
his property.
CLASS AND ETHNICITY

The foregoing analysis indicates the rise of a class of rural entrepre-
neurs with common characteristics in terms of economic diversification,
co-operation, regional mobility and consumption. These common
characteristics are also visible in their socio-political behaviour. This
is clearly visible in the activities that the owners of combine-harvesters
have undertaken in the recent past to promote their business interests.
In 1991, the Persatuan Tuan Punya Jentuai Menuai Padi Kedah (Kedah
Combine-Harvesters Association) was established on the initiative of
several Malay and Chinese entrepreneurs. The immediate reason for
this was to make a co-ordinated effort to raise the price for harvesting
in the Muda area. In July 1991, the association had 189 members, both
Malay and Chinese entrepreneurs. An office was set up in Alor Setar
in which administrative staff was employed to support the activities of
the association. Their efforts to raise the price of harvesting resulted
in protests from the Farmers’ Associations, supported by the Muda
Agricultural Development Authority (MADA). The attempts of these
organizations to mobilize the farmers against the owners of the
combine-harvesters were in vain. Because of its activities, in 1991 the
Kedah Combine-Harvesters Association was able to increase the price
of harvesting for its members from around RM 50–55 to RM 60–65
per relong.
Although several board members have tried to launch new attempts
to raise the harvesting fee even further in the following years, the
association soon turned into a dormant body. The introduction of a
membership fee in 1991 never materialized and the office was closed
in the following year. Although all entrepreneurs complained about the
fact that there had been hardly any increase in the harvesting fee since
then, none of them thought it worthwhile to revive the association. Those
who had been active as board members in 1991 had increased and
diversified their business operations since then and indicated that they
were no longer willing to spend time on an issue that was obviously not
viewed as a common interest by most colleagues. These businessmen
believed that the competitive nature of the combine business had
resulted in frequent undercutting of informal price agreements in the
past. The sad upshot was that the only evidence of the existence of the
association at the end of the 1990s was a file with correspondence and
a membership list, put away in the office room at the workshop of the
association’s Malay chairman.
This loss of interest by the entrepreneurs in the functioning of the
Kedah Combine-Harvesters Association is a typical example of the
gradual withdrawal of these members of the rural business community
in the Muda area from active involvement in socio-political matters.
In the recent past it was not uncommon for some of the entrepreneurs
to occupy socio-political positions in their hometown or village. This
tendency was even more clearly marked among the fathers of the
present entrepreneurs, several of whom used to hold various positions
of local power during their active working life. Some of the Malay
owners of combine-harvesters were contact farmers for the Farmers
Association or occupied the position of village head, while several of
the Chinese businessmen were head of the Chinese community in
their rural town.
The winds of change are blowing and over the last few decades the
owners of combine-harvesters have started to withdraw from the
socio-political arena in the Muda region. Having become regional
entrepreneurs with social contacts all over the Muda area and beyond,
they are less interested in local affairs and often get annoyed by requests
for help from poorer members of their community in their home town
or village. They are of the opinion that the socio-political positions at
the local level take too much time away from their business and prag-
matically they are no longer important to their economic operations.
Those entrepreneurs who belong to the Malay community are often
very critical of the dominant ruling party which has held power since
independence, the United Malays National Organization (UMNO). This
depends heavily on Malay votes to keep it in power. One of the main
instruments in the strategy of the UMNO to attract Malay votes has
been its New Economic Policy (NEP), introduced in 1974. This reserva-
tion policy provides all kinds of benefits to the Malay population in terms
of loans, licences, educational facilities and so forth. Among the Malay
owners of combine-harvesters there are many who have benefited in one
way or another from the NEP by obtaining loans for the purchase of agri-
cultural machinery or lorries or by being able to buy Malay-reserved
agricultural land. Since they have achieved the status of well-to-do
businessmen, these Malay owners of combine-harvesters do not like
to be reminded of this aspect of their business history. They do their
utmost to try to avoid even giving the impression of any connection
between their recent upward mobility and the receipt of government
support.
Although these Malay businessmen are very critical of the dominant
ruling party, UMNO, they do not like to be associated with the opposi-
tion Muslim party, PAS (Partai Islam). This party was in power in
Kedah State during the second half of the 1990s and has a very strong
base in the countryside of the Muda region. Many of the Malay owners
of combine-harvesters indicate that they are frequently approached by
poorer relatives and friends to support the Muslim party actively,
sometimes by standing for the local election. They are often very
uncomfortable with these requests and are willing to make financial
contributions only, even though they support the party policy. Well
aware of their frequent contacts with Chinese businessmen, these Malay
entrepreneurs prefer to refrain from openly showing any political support.
Indeed they feel that their interests are best served by keeping away
from politics altogether.
A similar withdrawal from the political arena is visible among the
Chinese owners of combine-harvesters. Most of them support the UMNO
government and its New Economic Policy because they consider political
and social stability to be the best precondition for economic success.
They are of the opinion that the NEP reservation policy has been
crucial in eradicating poverty among the majority of the rural Malay
population. The subsequent improved socio-economic position of
the rural Malay community has been a major factor in preventing the
occurrence of social and political unrest in multi-ethnic Malaysia. The
fact that the NEP policy restricts members of the Chinese community
in various fields, like buying of agricultural land and having access to
government jobs, is something they view as a necessary evil that has not
seriously affected the economic well-being of their families. Preferential
treatment in the field of employment in government offices is not a
major hindrance to the future prospects of the children of these Chinese
rural entrepreneurs. Many of them do not aspire government employ-
ment for their children, but show a strong preference for setting them
up in their own business or providing them with a job in a private
company. The same applies to the restrictions regarding the purchase
of agricultural land in the Muda area, most of which is categorized as
Malay-reserved land. These restrictions only have a limited impact on
the economic opportunities of these Chinese entrepreneurial families.
First of all, they employ various strategies to circumvent these regulations
by making land purchases with or through Malay partners or by leasing
land on a long-term basis. Moreover, the tendency towards economic
diversification among these rural entrepreneurs has made them less
dependent on the agricultural sector for business expansion.
This attitude of indifference shown by the Chinese owners of combine-
harvesters in the Muda region towards the consequences of the NEP
reservation policy of the Malaysian government does not extend to the
field of education. They often complain that it is this aspect of the New
Economic Policy that really affects the future well-being of their family.
The large majority of these entrepreneurs have only enjoyed schooling
up to lower secondary school level. Over the years they have made a con-
scious effort to invest part of their new wealth in the education of their
children. They have spent large sums of money on private tuition and
other facilities to enhance their children’s chances of getting admission
to higher education. In this they have been thwarted by the educational
policy of reserved places for bumiputra Malaysians, which has made it
very difficult for the children of these Chinese businessmen to gain
entrance into the universities in Malaysia. The crux of the matter is
that their income as small-scale entrepreneurs does not allow them to
send their children to be educated abroad.
It was especially to cater to the needs of such members of the Chinese
middle class that ‘twinning’ programmes between Australian and
American universities and local colleges in Malaysia were established
in the early 1990s. The fact that the students take half of their courses
in Malaysia and only go abroad for the final year of their programme
also makes private education abroad affordable for the rural business
community in the Muda area. At the end of the 1990s, several children of
the selected Chinese owners of combine-harvesters had already gradu-
ated from one of the ‘twinning’ universities in the USA.
The foregoing analysis shows that the Malay and Chinese owners
of combine-harvesters in the Muda region not only display many
similarities in terms of business strategy, co-operation and geographical
mobility; they also reveal common socio-political characteristics like
a gradual withdrawal from socio-political matters at the local level.
This indicates the predominance of class over ethnicity in the behaviour
of these rural entrepreneurs. But this is not all-encompassing. The
analysis of the business behaviour and lifestyle of these owners of
combine-harvesters shows that there are differences within this group
of rural entrepreneurs that coincide with their ethnic background.
The tendency towards economic diversification and the emphasis on
economic co-operation, for example, turn out to be stronger among
the Chinese than among the Malay entrepreneurs, although these forms
of business and social behaviour are certainly not absent in the latter
category. Not infrequently, partnerships, temporary business alliances
and contacts with brokers and other businessmen in the Muda region
and beyond, are established and maintained along ethnic lines.
Notwithstanding the importance of ethnicity to the business strategy
of the owners of combine-harvesters in the Muda region, differences
among these businessmen only partly coincide with distinctions along
ethnic lines. More specifically, there are differences in business strategy
within the Chinese business community that are of the same size as
those between Chinese and Malay entrepreneurs. These differences in
business strategy within the Chinese business community coincide to
a large extent with differences in lifestyle among the Chinese entre-
preneurs. At the risk of greatly exaggerating the differences, one could
distinguish three ideal types of owners of combine-harvesters in the
Muda area – one Malay and two Chinese types.
As was shown in the previous section, a characteristic feature of the
Malay entrepreneurs is that they usually operate through their contacts
within the Malay peasant community in their own home areas. All the
Malay owners of combine-harvesters reside in their home villages and

their evenings are usually spent in the company of local friends and
relatives who are mostly small or middle peasants. Through these
friends and relatives the Malay entrepreneurs establish and extend their
contacts with brokers in the Muda area and in other states of Malaysia.
In Perak, the larger Malay owners were able to establish initial contacts
with local Malay brokers through Malay farmers from their home villages
who had moved to that area some years ago in search of agricultural
land. Starting with these, they are able to extend their contacts to other
regions in Perak and beyond. As was shown, many of them deliberately
make use of their ethnic background to establish these first contacts
and to get orders for harvesting in regions unknown to them.
Most of the surplus of these Malay owners of combine-harvesters
is reinvested in agriculture – through purchasing land – or used to expand
their companies - through the purchase of additional combine-harvesters,
tools, or machinery. Economic diversification outside farming is limited
among these entrepreneurs and is always very closely related to the
agricultural sector, such as a rice transport business or a rice-trading
company. In sum, they are rural entrepreneurs who have become eco-
nomically and geographically mobile by making extensive use of their
local agricultural base.
A characteristic feature of the Chinese owners of combine-harvesters
is that they usually operate through their contacts within the Chinese
community. A ‘homely’ lifestyle is typical of one category among them.
These Chinese entrepreneurs usually spend their evenings in their home
villages or neighbourhoods in the company of local Chinese friends
and relatives, several of whom are also combine-harvesters owners.
Although they sometimes drink a glass of beer, imbibing alcohol is not a
major part of their leisure activities. Through these friends and relatives,
who usually have a similar ‘homely’ lifestyle, these Chinese entrepreneurs
establish and extend their contacts with Malay brokers in the Muda area
and in other states of Malaysia. Although these Chinese entrepreneurs
also meet with Chinese owners of combine-harvesters who have a more
‘conspicuous’ lifestyle, this is mainly confined to working hours.
Most of the surplus of these Chinese entrepreneurs is reinvested in
their companies through the purchase of combine-harvesters or tools
and machinery. Government policy to restrict the ownership of agri-

cultural land by ethnic Chinese makes it very difficult for them to
purchase land, although they use part of their surplus to give loans to
Malay farmers in exchange for the right to cultivate their land. These
Chinese entrepreneurs are therefore still interested in expanding their
scale of operation in agriculture, and if they diversify into economic
activities outside farming those they choose are always very closely
related to the agricultural sector, such as rice transport, milling, or trading.
In short, they are rural entrepreneurs who have become economically
and geographically mobile by making extensive use of their local
agricultural base.
The economically most dominant and socially most visible group
among the Chinese owners of combine-harvesters shows a clear tendency
to widen its economic activities and social networks away from its local
agricultural base. Most of these entrepreneurs have recently moved
from their home villages to one of the small rural towns in the Muda
area, while some families have even moved to the capital, Alor Setar.
On the whole, their lifestyle can be characterized as conspicuous, and
socializing is an important element. They often spend their evenings
outside their homes, usually in the company of Chinese friends from all
over the Muda region. During these outings, they regularly have dinner
together, occasionally followed by a visit to a night club or karaoke bar
(sometimes accompanied by their wives), where they consume large
quantities of alcohol. Many of these friends are entrepreneurs themselves,
either owners of combine-harvesters or of workshops for agricultural
machinery, small-scale factories, or private trading companies. Through
these Chinese friends they establish and extend their contacts within the
business community in the Muda area and in other states of Malaysia.
They often make trips outside the Muda area in each other’s company,
combining business and pleasure. Some of them stated that they deliber-
ately use their lifestyle to entertain Malay brokers who are interested
in gambling, drinking and womanizing occasionally. Although they
often work together with the Chinese owners of combine-harvesters
with a more homely lifestyle, this is mainly confined to the daytime.
A large part of the surplus of these Chinese entrepreneurs is still
reinvested in their companies through the purchase of combine-
harvesters or tools and machinery. But their sights are set higher and
a characteristic feature of the economic behaviour of these business-
men is their tendency to set up activities outside the agricultural sector.
This tendency towards economic diversification indicates a transition
from local, agricultural entrepreneurship to regional, commercial and
industrial entrepreneurship. However, notwithstanding their urban
lifestyle and their national or sometimes even international level of
economic operation, these entrepreneurs still remain strongly based
in their own region in terms of social life.
In a nutshell, the findings on the owners of combine-harvesters in
the Muda area show that the economic behaviour and lifestyle of this
rural capitalist class are closely interrelated, and that differences in
business strategy only partly coincide with differences between Malay
and Chinese entrepreneurs, but are as much related to differences within
the Chinese community. Lifestyle is therefore an important aspect of
the business management of this class, which should not be viewed
exclusively in terms of ethnicity. It is the interconnection between eco-
nomic behaviour, lifestyle, and ethnicity that is essential to under-
standing the business strategy of the rural capitalist class in the Muda
area today, as is shown in the following example.
Chai (aged 43) is a Chinese entrepreneur who lives in a small rural

town in the southern part of the Muda region. Together with two of
his brothers he owns six combine-harvesters and some agricultural
land in their hometown. Several times I accompanied Chai for a few
days on his trips through the Muda area and beyond. On one of those
occasions we paid a visit to a specialized workshop in the region. One
of Chai’s combine-harvesters was being repaired there and he wanted
to find out what progress had been made so far. When we entered the
office, there were four other customers present, all of them Chinese
owners of combine-harvesters. Judging from the number of empty
beer cans on the table, they must have already been there for some
time. After Chai had inspected and discussed the condition of his
combine with his workers, we joined the others, who had started to
play cards for money, in the office. By now it was past six o’clock and
after another few beers one of them suggested having dinner in Alor
Setar with some other friends whom they had already contacted by
phone. Chai and I were invited to join them, but I could see that he
was uncomfortable with the situation. ‘You can go with them if you
like’, he told me, ‘but I cannot come with you because I have other
things to do tonight’. I quickly cooked up an excuse for not being able
to join them this time, and after I had promised that I would certainly
accept their invitation at a later stage, Chai and I returned home.
On the way back, Chai told me that he hardly ever joins this group
in their outings.
It was because of your presence that they also invited me, because they know
that I will not join them. They drink too much and usually stay in a
nightclub or karaoke bar until the early hours of the morning. If I go with
them I am supposed to join them in everything, otherwise they do not enjoy
my company. I don’t like to spend my evenings that way, I think it’s a waste
of money and also quite dangerous to drive home with so much alcohol in
your body. I prefer to stay at home and spend the evening in one of the shops
in our main street, having a few beers, talking to friends and playing cards or
a game of mahjong.
And that’s exactly what Chai did that evening after we had had our
dinner in his house.
About a week later I accompanied Hock (aged 49) who was one of
the Chinese businessmen present that day in the office of the work-
shop. In partnership with two brothers and one Malay partner, Hock
owns eight combine-harvesters. Before he started in this line of business
in 1979 he had a small transport company, owning two trucks to trans-
port construction materials. After expanding his combine enterprise,
Hock started to diversify his interests. In 1992, with three Chinese friends,
he established a trading company in combine-harvesters and spare
parts.
On that particular day, I accompanied Hock to check on three of
his combine-harvesters that were operating in the Muda area. During
our trip we also went to the houses of four of his brokers where Hock
collected overdue accounts and explored possibilities for new
harvesting work. At about five-thirty, we returned to Alor Setar and
paid a visit to the office-cum-workshop of the trading company of
Hock and his friends. When we entered the office five other Chinese
businessmen were present, among them two of Hock’s partners. They
were playing cards for money, having a few beers, and all the while
exchanging business information. Hock joined them immediately and
we stayed until about seven-thirty. At that time, they decided to have
dinner in Alor Setar together with several other partner-friends who
would meet us in the restaurant. We first went home to take a shower

and to pick up Hock’s wife who would join us that night.
When we arrived at the restaurant the others were already there,
some of them also accompanied by their wives. Hock continued to pour
beer in the glasses of the others even when some of them indicated
that they had had enough. ‘As business partners I only select those
persons who also like to drink and enjoin life like I do’, he told me over
dinner.
I certainly do business with those people who do not like to go out, like Chai
for example, but I would never establish a partnership with him. I think it is
important that partners have the same ideas about how to enjoy life, because
we spend so much time together as partners that differences in that respect
will in the end create problems in the partnership.
It must have been about eleven o’clock when we left the restaurant
to go to one of the Karaoke bars. There, several other friends joined us in
the private room that they had rented for the evening, singing mainly
Chinese songs and drinking large quantities of beer. As time passed,
some friends left and when the bar closed at about 2.00 a.m., there
were ten of us. We ended the evening by having some food at a nearby
foodstall on the street, after which I accompanied Hock and his wife
to their house. After Hock had checked the prices of his shares on the
stockmarket on teletext, we finally went to bed at about 3.30 a.m.
CONCLUSION
The findings of the study presented here show a tendency among the
owners of the combine-harvesters in the Muda area to make invest-
ments in a multiplicity of areas and to participate in a variety of activities
simultaneously. This tendency towards economic diversification is
often achieved through collective forms of organization, especially
through the institution of the extended family and the business partner-
ship. In terms of social and political aspects, the behaviour of these
entrepreneurs is characterized by regional mobility, consumption, an
increasing social distance from the majority of the rural population
and withdrawal from active involvement in local politics.
These findings on the owners of combine-harvesters in the Muda area
are in line with those of several other studies on the rural capitalist
class in this part of northern Malaysia. Regional mobility, for example,

is a common phenomenon within the wider rural capitalist class of the
Muda area, and one that has already been visible for several decades.
There has never been a clear distinction between the rural and urban
economic elite in this agriculturally developed region. Since the 1950s,
there has been a strong tendency among the Malay landlord class to
make their residence in the towns or in their vicinity. Despite this step
towards urbanization, these members of the economic elite remained
strongly based in rural society. Having become a ‘town-based elite
[they] maintained their rural ties either through kinship relations or
ownership of agricultural land’ (Afifuddin 1978: 138). On the other
hand, the earlier shift of residence of the Chinese economic elite to the
urban areas of the Muda area has a more recent counterpart in the
movement of capital from the cities to the countryside. Investments
by urban entrepreneurs in rural businesses has created a situation in
which ‘the origin of the capitalists operating in the countryside [should
not] be sought solely in the villages’ (De Koninck 1992: 138).
When attention is turned to the social behaviour of the rural capitalist
class in the Muda area, there are several studies that confirm the described
changes in social relations and education. De Koninck, for example,
points out the tendency for an increasing number of women in rich
Malay peasant households in the Muda area to find themselves confined
to housekeeping, ‘a process widely perceived as desirable, as a form of
social progress’.11 Others have noted the sending of children to secondary
schools in town, especially to English-language secondary schools in
Alor Setar is becoming more conspicuous among the more affluent
villagers in the Muda area (Kuchiba et al. 1979: 126). On the whole,
there has been a widening social distance between the capitalist class
and the majority of the rural population. The consequences of this
process of differentiation in the Muda area has been shown in great
detail by James Scott (1985) in his study of the ‘everyday forms of
peasant resistance’. The hardening of social relations in the country-
side, as analysed extensively by Scott, is inexorably present among the
selected owners of combine-harvesters. Stimulating agricultural mech-
anization and rural diversification, they think of themselves as important
promoters of economic development in this part of Malaysia. Com-
placent in their knowledge of their provision of employment and

income to the rural population, they are often annoyed by any attempt
at government intervention in the form of minimum wages, licences
or price controls. Although many of them have benefited in the past
from some government support, whether direct or indirect, they consider
any form of state intervention an obstruction to their freedom to
operate their enterprise and thereby as a possible threat to the economic
development of the Muda area.
An important distinguishing characteristic of the business strategy
of the selected owners of combine-harvesters in the Muda region is
their tendency towards economic diversification. This interconnection
between the various sectors of the rural economy – especially agri-
culture and commerce – has been noted by other scholars who have
studied the rural capitalist class in the Muda region before. In their
study on the private contract business in combine-harvesters in 1978,
Rayarappan and Taylor (1980) found many of the entrepreneurs to be
paddy farmers with large farms, while a smaller percentage also operated
sundry businesses or were rice-traders (Rayarappan 1979; referred to
in Ahmad 1980: 193). The relationship between large-scale farming and
ownership of combines is also confirmed by the findings of Muhammad
Ikmal Said who in 1981 conducted a study of 28 farms of more than
25 relong in the Muda region. Out of these 28 farms, the owners of 10
farms had made investments in combine-harvesters between 1975 and
1981, owning 21 combines altogether (Muhammad 1985: 51, 59).12
How should this business strategy and social behaviour of the
owners of combine-harvesters in the Muda area be explained? In line
with the discussions on Chinese and Muslim businessmen in Chapter 1,
studies on the recent rural transformation in the Muda area of northern
Malaysia have been emphasizing the failure of the agricultural intens-
ification programme to set in motion a process of self-staining growth
towards rural industrialization. Most of these studies indicate that the
economic behaviour of rural entrepreneurs of Chinese origin is char-
acterized by commercialism and economic diversification, whereas the
activities of the Malay entrepreneurs are confined almost exclusively
to the agricultural sector. This difference in business strategy between
Chinese and Malay entrepreneurs in the countryside of the Muda area
is usually explained in terms of the implications of ethnic differences in

family structure and of ethnic policies with regard to the agricultural
sector.
The importance of this difference in family structure between Malay
and Chinese entrepreneurial families has been extensively analysed by
Muhammad Ikmal Said (1988) in his study of large farmers in the
Muda area. He explains the superior economic position of large-scale
farming Chinese families compared to their Malay counterparts in terms
of their family structure and developmental cycle. Staying together as
one family for a greater number of years – until the point when the
father dies, or, more usually, when the grandchildren reach adulthood
– and dividing the property among a relatively small number of children
(between sons only) gives the large-scale farming Chinese families the
chance to increase their scale of farm operations, despite the usual dis-
ruption caused by fission of the household. Pertinently, it gives these
families a better opportunity than that offered their Malay counter-
parts to diversify their economic interests by using part of their capital
accumulated in agriculture to establish non-farm activities such as rice-
trading companies, shops, or combine-harvester contracting (Muham-
mad 1988: 138).13
Alongside with this emphasis on differences in family structure,
several studies explain the differences in business strategy between Chinese
and Malay entrepreneurs in terms of the ethnic policies with regard to
the agricultural sector. The protagonists of this view claim that the
tendency towards economic diversification among the Chinese entrepre-
neurs is stimulated especially by the Malay Reservation legislation with
regard to rice-growing land, which restricts the property rights of
Chinese and more or less forces them to divert their economic interests,
while it provides ample opportunities to the rural capitalists of Malay
origin to reinvest their agrarian surplus in the purchase of additional
agricultural land. Moreover, ‘[t]he enormous inflow of government
resources into the region … [as] part of an effort to develop a Malay
middle class within the framework of the New Economic Policy … is
directed towards creating and maintaining lucrative political connec-
tions’ instead of being invested in productive undertakings (Hart 1989:
573; Shamsul 1986).
These authors believe that rural diversification in the Muda area is

therefore no guarantee for self-sustained growth, as a great deal of the
investment is directed towards short-term commercial gains or towards
creating and maintaining lucrative political connections. It is argued
that Chinese businessmen are more interested in quick gains and in
view of their precarious political position prefer financial flexibility,
while Malay businessmen are not interested in pursuing new long-
term investments, but benefit from profitable opportunities that are
allocated through a system of political patronage. What has emerged
as a result of these developments, according this view, is not a truly
capitalist class but ‘an aggressive class of part-time farmers who are will-
ing and able to press for further government favours in the form of
jobs and contracts, but who are certainly not investing in little factories
in the fields, or in local towns’ (Hart 1989: 574).
The findings on the Chinese and Malay owners of combine-harvesters
in the Muda area, as presented in this chapter, show that an agricultural
and commercial background and diversified pattern of investment has
in fact not prevented a great many of these entrepreneurs from making
productive investments in their enterprises. Additional capital was in-
vested to expand the number of combine-harvesters in their enterprises,
to introduce technological adjustments to the combines, to make im-
provements in the workshop facilities by adding a greater assortment
of tools and machinery, and to extend their field of operation to other
parts of Malaysia. Armed with their agricultural and commercial back-
ground they have the knowledge, contacts and experience to operate in
other agricultural-related sectors of the economy, often outside their local
environment. They have purchased agricultural land, set up (inter-
national) trading companies in agricultural products, agricultural
machinery and spare parts, and have invested part of their profits in
rice-mills and in small-scale workshops and factories repairing and
manufacturing agricultural machinery and spare parts. It is therefore the
interconnection between the agricultural, commercial and industrial
sectors of the rural economy that is essential to understanding the business
strategy of these owners of combine-harvesters in the Muda area. A con-
junction which clearly indicates a transition from local, agricultural
entrepreneurship to regional, commercial and industrial businessmen.
Cogently, the findings on these Malay and Chinese rural business-

men also show that ethnic differences in family structure and ethnic
policies with regard to agriculture only partly explain the differences
among the rural capitalist class in the Muda area. It is the close inter-
connection between economic behaviour, ethnicity and lifestyle that
is important to understanding the differences in business strategy, not
only between Malay and Chinese entrepreneurs, but also within the
Chinese community. Reinvestment of surplus in the purchase of agri-
cultural land by the Malay owners of combine-harvesters is undeniably
facilitated by the Malay Reservation legislation, but is also an inevitable
outcome of the fact that these Malay entrepreneurs are usually rural-
based, both in terms of residence, social contacts and leisure time. This
rural-based social life provides them with various opportunities to
invest their surplus in agricultural and agriculture-related activities,
but limits their scope for investments outside the agricultural sector.
This interconnection between economic behaviour and lifestyle is
also visible among the Chinese owners of combine-harvesters. The
family structure and inheritance practices common within the Chinese
community have indeed facilitated capital accumulation by the Chinese
owners of combine-harvesters. Although the Malay Reservation legisla-
tion with regard to rice-growing land has restricted the reinvestment
of this surplus by the purchase of agricultural land, and thereby facilit-
ated diversion of capital, the extent and nature of this tendency towards
economic diversification among the Chinese owners of combine-
harvesters depends to a large extent on their specific lifestyle. It is this
lifestyle which provides them with contacts and opportunities to
invest part of their surplus in activities outside farming. The rural-
based social life of some Chinese entrepreneurs provides them with
various opportunities to invest their surplus in agriculture-related
activities, but limits their scope for investments outside the agricultural
sector. The more urban-based social life of the other Chinese owners
of combine-harvesters has given them the contacts and opportunities
to divert part of their capital to the non-agricultural sector by estab-
lishing workshops and small-scale industries. Most of these companies
are located in the Muda area, which gives food for thought to consider
the question of whether or not agricultural development in the Muda
area has generated self-sustained regional growth and rural diversifica-

tion (see e.g. Hart 1989).
NOTES
1 See for an overview of the economic and social history of the Muda region, for
example Afifuddin (1978), Scott (1985), and De Koninck (1992) .
2 See, for example, the studies by Gibbons et al. (1980), Gibbons et al. (1981),
and Lim Teck Ghee et al. (1982).
3 For a recent overview of this transformation process in agriculture in the
Muda region, see for example Morooka et al. (1996).
4 See, for example, the studies by Afifuddin (1978), Lim Teck Ghee et al. (1982),
Scott (1985), Wong (1987) and De Koninck (1992).
5 Ever since the introduction of combine-harvesters in the Muda region, there
has been extensive discussion on the reasons behind the introduction of mech-
anized harvesting and its consequences in terms of labour replacement. For an
overview of the claims and counterclaims in this debate, among both scholars and the
actual winners and losers in the villages, see Scott (1985: 154–164 and 248–255).
6 This figure is based on data from the Department of Statistics, Division of
Trade, Kuala Lumpur on the number and country of origin of combine-harvesters
imported into Malaysia from 1978 to April 1994. These data show that 1,584 com-
bines were imported during this period, of which approximately 1,257 were of the
larger Western type. Especially during the first ten years, nearly all of these were
operating in the Muda area. Although some of the earlier combine-harvesters are
no longer in circulation, their number is probably not very high because the repair
of combines has reached a high state of perfection in the Muda area, something to
which I return in the second section (page 102). Even if, to be on the conservative
side, I deduct 10 per cent for those combines that went out of circulation and 15
per cent for those that do not operate in the Muda area, I still end up with more
than 900 Western-type combine-harvesters in the Muda area in 1994.
7 Those most actively involved partners in each of the companies have the
largest share in ownership among the partners. Its members are usually (also)
responsible for the external dealings of the company.
8 A large part of the land operated by the 26 families is leased, usually from
small peasants, rather than self-owned. Out of the total amount of 1,129.5 relong
of operated land, the 26 families own 616.5 relong of which 455.5 relong is rice
land and 161 relong is land cultivated with rubber or fruit trees. On average, these
26 families own 23.7 relong of agricultural land per family, out of which 17.5
relong is rice land.
9 With 5.2 combines per company, the average size of the 40 companies selected
is relatively large as compared to the total group of private contractors in this
region. This is partly due to the fact that I purposely selected companies of all
sizes. The average size of the owners of combine-harvesters in the study by

Rayarappan and Taylor (1980: 8) in 1978 was 1.2 machines, while the 20
contractors researched by Mustafa Najimuddin in 1981 owned on average 1.7
machines (1985: 17). This led the latter to remark that ‘it is therefore possible that
there is a slight trend towards concentration of ownership’ (ibid.). Based on data
on 160 regular customers of one of the two largest shops supplying spare parts for
combine-harvesters in Alor Setar in 1994, I calculated an average of 2.7 combines
per company. With 5.2 combine-harvesters per company, the average size of the
selected enterprises is therefore relatively large, but indicates an inexorable
tendency towards concentration of ownership in this line of business.
10 The seventh brand of combine-harvester operating in the Muda area is
Gillian, manufactured in China under licence to John Deere.
11 De Koninck 1992: 179, fn. 8. In this connection, he remarks that ‘(R)espond-
ents over the years made it a point to state that such and such woman did not work
in the fields nor elsewhere but was the serirumah, literally the“princess of the
house”’ (ibid.: 178).
12 A similar finding was reported by Mustafa Najimuddin (1985: 2), whose
sample of 20 contractors in 1981–82 was drawn from a list of big farmers who
owned more than 25 relong of agricultural land.
13 The importance of the difference in family structure between Malay and
Chinese families in the Muda region is also viewed in cultural terms. In their study
on three villages in the Muda area, Kuchiba, Tsubouchi and Maeda emphasized
the prevalence of individualism among the Malays and of collectivism among the
Chinese to explain for the difference in wealth between both groups. They say,
‘[t]his difference seems to be ascribable fundamentally to the difference in ethos
between the two ethnic groups’ (Kuchiba et al. 1979: 93).
CHAPTER 4
Iron Founders in Central Java
IRON CASTING IN A RURAL ENVIRONMENT

SITUATED BETWEEN YOGYAKARTA and Surakarta (Solo), Klaten district
(kabupaten) is one of the agriculturally most developed regions of
Central Java (see Map 4). The major part of the district is an unbroken
plain sloping gently from the northwest towards the southeast. Most
of its agricultural land is fertile and irrigated by water from springs
that are situated on the slopes of the vast mountain area of Gunung
Merapi. Small fields sown with rice, tobacco and sugar cane
predominate in the scenery of this most densely populated district of
Central Java.
Rice is by far the most important agricultural crop in Klaten district
and its cultivation as a commercial crop goes back several centuries.
At the end of the sixteenth century, Klaten was already an important
rice production centre of the Mataram kingdom. At that time, the
kingdom of Mataram was a major rice supplier to cities in Java,
including Batavia (Suwondo 1997: 48). During the period of colonial
rule, the cultivation of cash crops like sugar cane, tobacco and indigo
was introduced on a large scale. To manage this process, private
companies were set up to take control of and stimulate commercial
agriculture in the region. The upshot was that Klaten district is one of the
regions in Java that witnessed a vast expansion of its estate economy
from the middle of the nineteenth century (Schweizer 1988).
To serve this early process of commercialization in agriculture, a
large number of agro-processing factories were established in the late
nineteenth and early twentieth centuries. The drying of tobacco was
one of the activities that were undertaken on a relatively large scale.
149
Map 4: Klaten district
The variety of tobacco produced in the vicinity of Klaten enjoyed a

good reputation. It was used as the outer wrapper of cigars and
exported in large quantities for this purpose (Suwondo 1997: 98).
Iron Founders in Central Java 151
Another important activity in the field of agricultural diversification

was the processing of sugar cane for which Klaten was one of the main
centres in Java. Around 1920, there were 22 sugar mills in Klaten district,
which was more than 40 per cent of the total number of 53 sugar mills
in Central Java at that time, and more than 11 per cent of the total
number of 185 sugar mills in Java as a whole (Daldjoeni 1972: 3).
After Indonesia gained its independence in 1945, the position of
Klaten district as an agriculturally advanced region went from strength
to strength. This was most marked in the early 1970s, when agricultural
development accelerated following the introduction of new rice techno-
logy which included high-yielding varieties and improved farming
methods. Klaten district was one of the first areas in which the Indo-
nesian government applied its Bimas Padi (mass guidance rice intensifica-
tion) programme extensively (Utami and Ihalauw 1972: 19). This
programme was followed by other rice intensification projects that in-
cluded the introduction of new types of fertilizers. These improvements
in rice cultivation converged to bring higher productivity. Similar pro-
grammes to improve agricultural production were undertaken in tobacco
and sugar cane cultivation. In spite of the fact that several tobacco
plantations and sugar factories were closed down since the early 1970s,
cultivation of these two cash crops remains an important aspect of the
agricultural economy of this part of Central Java (Suwondo 1997: 48–
50). At the end of the twentieth century, therefore, Klaten district was
characterized by a well-developed agricultural sector based on intensive
production of rice, sugar cane, and tobacco.
Situated between the two urban centres of Yogyakarta and Surakarta,
Klaten district has also long enjoyed a reputation as a centre of home
industries in the region. These home industries include the production
of batik, textiles, garments, roof tiles, wooden and bamboo furniture,
iron ware for household and industrial purposes, and various types of
food products. Many of these non-agricultural activities are located in
the countryside and are mostly clustered in villages that specialize in one
specific type of activity. Especially in the vicinity of the Yogyakarta–
Solo highway, where many villages are well connected through an
intensive network of metalled roads, trading and industrial activities
make up an important part of the rural economy.
In the recent past, the non-agricultural enterprises in the country-

side were almost exclusively based on household labour, but over time
an increasing number of them have grown from being home industries
into small-scale capitalist enterprises that employ wage labour. Since
the early 1970s, this type of rural industrial activity has expanded
especially rapidly in Klaten district. This development of small-scale
industrial production in the countryside, accompanied by a gradual
increase in medium and large-scale enterprises and trading activities,
has triggered off a substantial shift in the share of the agricultural and
non-agricultural sectors of the economy of Klaten. From 17 per cent
in 1976, the contribution of the business sector to the gross regional
domestic product went up to 34 per cent in 1992 (Suwondo 1997: 51).
This indicates that, although of great importance, economic develop-
ment in Klaten district has not been limited to agriculture or agro-
processing activities, but industry is also playing a major role in the
rural economy of this part of Central Java.
This overall pattern of economic growth through rural diversification
is also typical of one of the subdistricts (kecamatan) of Klaten, Ceper,
which is situated about ten kilometres north-east of the administrative
centre of the district, the town of Klaten. The national Yogyakarta–
Solo highway runs through this subdistrict, which also has its own station
on the Bandung–Yogyakarta–Solo–Surabaya railway line. Although agri-
cultural fields lush with rice and sugar cane dominate the landscape,
non-agricultural activities comprise an important part of the economy
of Ceper. Almost 60 per cent of the working population of this sub-
district is employed in activities outside agriculture, of which half, or
almost 30 per cent of the working population, works either in industry
or handicrafts.1
Although some of this high level of industrial employment in
kecamatan Ceper can be attributed to three large industrial enterprises:
the sugar mill Ceper Baru, a government-owned textile factory, and a
private woodworking factory, but the major part of industrial
employment in the subdistrict is generated by small-scale private
enterprises. There is a concentration of enterprises manufacturing
roof tiles in the village of Klepu and a substantial number of small-
scale textile factories spread over the subdistrict. The most important
industrial activity in kecamatan Ceper, however, in terms both of

number of enterprises and employment, is iron-casting, which is con-
centrated in five adjoining villages. This cluster of five villages, known
by the name of the centrally located hamlet Batur, is situated at a
distance of less than a kilometre from the national Yogyakarta–Solo
highway (see Map 4).
Although situated in an agriculturally prosperous environment,
Batur which lies between the two Central Javanese principalities of
Yogyakarta and Surakarta, has long been a well-known centre of metal-
working in this part of Java. Unlike that of the surrounding villages,
the history of Batur is closely related to industry: ‘Although it may
sound paradoxical, it can be said that industry is the tradition of Batur
society … The people of Batur were born to live off metal. Usually a
village founder’s (tjakal bakal) genealogy goes back to a king (radja),
but in this hamlet genealogies trace back only to a certain empu (master
craftsman)’ (Kuntowidjojo 1971: 49).
Beginning with simple agricultural tools to meet the needs of the
surrounding villages, the craftsmen of this hamlet slowly began to
diversify their craftwork during the colonial period by including the
production and repair of household appliances (kettles and frying
pans) and making spare parts for various instruments and machinery.
In the late nineteenth century, the sugar mills in the region would
occasionally give simple and urgent repair work to local smithies, but
only rarely did they provide them with orders for the replacement of
components. At that time, all the necessary spare parts and machinery
for the agro-processing factories in Java were still imported directly
from Europe. This situation changed during the First World War,
when imports from Europe stagnated and many of the sugar mills
began to run out of spare parts. In desperation several of them decided
to place trial orders with local producers. As Batur had an established
reputation as a centre for metalworking, the craftsmen of this hamlet
were able to acquire their first orders for simple spare parts around
1918 (Soeroto and Hatmosuprobo 1979: 35).
Even though the import of spare parts from Europe was normalized
again by the early 1920s, once they were launched the craftsmen of Batur
could continue to expand their businesses slowly in the years there-
after. With a reputation established by the success of their first orders,

and having the advantage of being able to offer lower prices and shorter
delivery times, they gradually carved out a niche in the production of
less complicated components for agro-processing factories such as
axles, gears and pulleys. In this, they were following on the heels of the
expanding estate economy in Central Java, which generated a relatively
high constant demand for spare parts for sugar mills in the immediate
surroundings of Klaten district. With the bit between their teeth, they
had also started to enter the market for spare parts for textile factories
throughout the whole of Java (Braadbaart 1994: 26).
The disruption of economic life instigated by the world economic
crisis in the early 1930s and the Japanese occupation (1942–45) did not
seem to have had any major negative effects on industrial develop-
ment in Batur. There are even indications that these two events provided
a new impetus to industrial production. Although many sugar mills
had to close down following the onset of the world economic crisis in
the 1930s, those that remained open replaced an increasing number of
their imported and expensive spare parts with cheaper locally made
components and the craftsmen in Batur benefited from these new
orders. Once the pattern had been established when most of the sugar
mills were ready to resume production at the end of the 1930s, they
also approached these new local manufacturers of simple spare parts
for agro-processing industries. A trend which intensified when imports
became impossible following the outbreak of the Second World War
in Europe.
The Japanese occupation of Indonesia provided another new impetus
to iron casting in Batur, especially stimulating product diversification.
After its arrival in Central Java, the Japanese army was quick to
recognize the skills of the iron founders of Batur and forced them to
produce grenade-shells and other simple components to boost the
Japanese war effort. Although the craftsmen of Batur were insufficiently
compensated for their work and suffered occasional hardship, it is an
ill wind which blows no one some good and this type of forced pro-
duction for the Japanese army provided them with an opportunity to
improve their skills in casting different types of products (Nasruddin
Anshoriy 1994).
This newly acquired skill in product diversification enabled the iron

founders of Batur to benefit from the increase in industrial demand
for locally made spare parts in the 1950s. They profited from the fact
that inflation and shortage of foreign exchange greatly reduced the
volume of imported spare parts (Braadbaart 1994: 27). The import-
substitution policy of the newly independent Indonesian government
and its Benteng Programme to support small-scale pribumi entrepreneur-
ship (Robison 1986) provided the business community of Batur with
extra orders and state support for infrastructural facilities.
This period of industrial growth in Batur was interrupted by the
political turbulence and violence which afflicted Indonesia in the early
and mid-1960s. Being one of the communist strongholds of Central
Java, life in Klaten district was deeply affected by the political turmoil
around 1965 (Suwondo 1997: 34–37). Despite the severe disruption iron
casting in Batur quickly recovered from this period. The stabilization
policy of the New Order regime and its insistent emphasis on eco-
nomic development gave the activities of the iron founders of Batur a
new impetus. Economic growth led to an increase in the demand for
both spare parts and finished products for the agricultural and
industrial sectors of the economy. Spurred on by growing prosperity,
the demand for consumer products really took off in the early 1980s.
Developments such as these stimulated the earlier process of product
diversification among the iron founders of Batur who added a wide
variety of new products to their range of iron casting: from shallow
water pumps and pipe-fittings, to ornaments such as mirror frames
and decorated lamp posts.
Following this long-term development in iron casting in Batur,
there were (in 1994) a total of 155 private iron foundries in this cluster
of five villages. As a whole, these companies own 218 factory buildings
in which about 3,200 workers are employed on a regular basis.2 The
logical consequence of the economic concentration is that the
appearance of Batur contrasts sharply with that of the ideal-typical
Javanese village. Instead of gardens and front yards green with palms
and banana trees, so common in most villages in Java, Batur is
dominated by the sights and sounds of industrial production. The
greater part of its residential area is a maze of small alleys in which the
Figure 9: Iron foundry with residential house in a rural environment
houses are packed together, with a large number of factory buildings

fitted in between. The main road through the central hamlet consists
largely of brick walls four to five metres high with iron gates that give
entrance to the factories and residences of their owners. The streets
are filled by the sounds of diesel engines blowing air into the glowing
furnaces that melt the iron and whirr of lathe machines that finish off
the cast products. Resounding from every corner is the sound of scrap
iron, which is an essential part of the raw material used in the
production process, being broken up in front of the factories. During
the day the thoroughfares are thronged with people on bicycles and
motorcycles and in cars on their way to or from one of the factory
buildings. Sometimes a group of women and children can be seen
standing in front of a factory gate, carrying a magnet and a small
bucket, waiting to be allowed in to glean the leftovers from the
smelting process. Finally, there is the sight and sound of loading and
unloading of vehicles in the streets and alleys; sometimes tricycles
(becaks) are used for transport within the village, but it is much more
usual to find trucks large and small parked in front of the factory
gates. In its entirety, the hamlet of Batur is like an industrial island in

the middle of an agricultural environment, with rice and sugar cane
fields surrounding the residential area and its factories.
INDUSTRIAL DEVELOPMENT AND TECHNOLOGICAL CHANGES

All the 155 iron foundries in Batur are privately-owned and the entre-
preneurs are all Muslims. Most of the enterprises have been established
very recently: almost two-thirds (96) have been established since 1970.
Just over half of these (51 factories), or one-third of the total, were
established after 1980. Taking into account of the disappearance of at
least 10–15 factories between 1970 and 1994, this means that the number
of iron foundries in Batur has risen from about 70 in 1970, to 155 in
1994, an increase of almost 120 per cent over a 25-year period.
In total, the 155 iron foundries in Batur employed 3,187 persons on
a regular basis in 1994, which works out at an average of 20.6 employees
per enterprise. The majority of the foundries are small enterprises:
more than two-thirds (106 foundries) employ less than 20 workers, of
which almost half (50), or about one-third of the total number of iron
foundries in Batur, employ fewer than 10 workers. Out of the 155 iron
foundries, 140 specialize in the casting of iron products, 5 specialize in
the casting of aluminium products, while the remaining 10 factories
cast both types of metal.
In 1994, there were two types of ovens or furnaces being used to
smelt the iron – the tungkik and the kopula. Of these two, the tungkik-
type of furnace was the most popular one, being used by 148 of the
150 factories that cast iron products. This smaller tungkik furnace was
introduced in Batur in the early 1960s and replaced the larger kopula
furnace which had been used by some families since the early 1950s. The
tungkik furnace is a steel funnel with a diameter of about 65 centi-
metres and a height of about two metres, in which coke and a mixture
of scrap iron/pig iron and limestone are thrown at the top. By heating
the coke, ventilated by a diesel engine, the mix of iron and limestone
is smelted at a temperature of about 1,100 degrees Celsius with a
maximum capacity of 800 kilograms per hour. The iron funnel is then
turned over, or ‘dives’ (tungkik) as it were, to pour the grey cast iron
into a small manually-operated container (cinthung) lifted by means
Figure 10: Casting of iron in a kopula furnace
Figure 11: Casting of iron in a tungkik furnace

of a long bamboo cane. From there, the molten iron is carried over a
short distance and poured into moulds (tapel), usually made of sand
or sometimes shaped by a moulding press.
In two factories that cast iron, the process is still carried out using
a kopula, while six of the factories which cast iron in a tungkik also
make use of a kopula for part of their production. After it had become
obsolete in the 1960s, the kopula furnace was reintroduced by these
enterprises from the late 1970s for the dual purpose of manufacturing
various types of larger-sized products and enlarging their production
capacity. The kopula furnace is an iron funnel with a diameter about
the same size as a tungkik, but much taller with a height of about five
metres. It can reach a temperature of 1,400 degrees Celsius and is able
to produce up to 1,500 kilograms of molten iron per hour, about twice
the amount that a tungkik produces. In contrast to the tungkik, the
funnel of the kopula does not turn over but remains on end when the iron
is poured. Although it uses a larger amount of fuel and raw material
and requires a more powerful diesel engine to ventilate the heating
process, the production process of a kopula does not differ from that
of a tungkik. Because the quantity of iron cast is much larger, it is first
poured into a larger, electrically or manually operated container (kowi)
carried by two men, from which it is either poured into the smaller
containers that are also used with the tungkik or directly into the moulds
for larger-sized products.
Although iron is by far the most important metal cast in Batur,
there are five foundries that specialize in the casting of aluminium
products and ten factories cast both iron and aluminium. The casting
of aluminium is a relatively recent phenomenon in these villages, intro-
duced around 1975. The smelting process is done using a gas or kerosene
burner that heats the aluminium in a hole in the ground, which is
sometimes bricked. The molten aluminium is then scooped into a manu-
ally operated container from which it is poured into moulds made of
sand. After solidification, the products are taken out of the sand,
cleaned and finished with a small, hand-operated sanding machine.
The separate parts are then welded together and painted.
A large variety of products can be manufactured in these iron and
aluminium foundries of Batur. Products that are cast in the iron
foundries include simple agricultural tools, household appliances such

as frying pans, a wide range of spare parts for textile mills, sugar and
rice mills, stands for scales and sewing machines, pipe-fittings of various
sizes, train brakes and more or less complete products such as floor-
tile and roof-tile presses, drainage filters and shallow water pumps, to
mention but a few. Except for very large products, almost everything
cast in these factories can be produced by using either the tungkik or
the kopula furnace. The products manufactured in the aluminium
foundries include ornaments such as mirror frames, decorated standard
or hanging lamps and large lamp posts for urban street lighting modelled
after the style of antique European lamp posts.
The foundries in Batur usually do not produce to build up their
stock but tend to start production only after receiving specific and
well-defined orders. In most cases, the entrepreneurs request customers
to make advance payments of 30 to 50 per cent of the price when they
place their orders. Because of the custom of not producing for stock,
access to credit is often not a major constraint in this industry. In the
case of the aluminium foundries, customers occasionally approach the
factories directly. To cater for this direct customer trade some enterprises
have a small showroom attached to their foundry where they display a
sample of their wares, but orders acquired in this way make up only a
very small proportion of the production of the enterprises in Batur. In
almost every instance, the entrepreneurs of the aluminium and iron
foundries acquire their orders by making regular trips outside the
village. Most of them spend several days a week outside Batur either in
search of new orders or to collect payments. The smaller entrepreneurs
usually go by car to visit small-scale factories, shops and trading
companies all over Java. The larger businessmen often fly to Jakarta
and other major cities in Indonesia once or twice a month to cultivate
their long-standing business contacts with big customers such as state
enterprises, private conglomerates and municipal corporations.
The raw materials used in the iron and aluminium casting process
consist of coke, scrap iron and pig iron, or aluminium and limestone.
Although in the past there have been some Chinese businessmen who
sold coke and (scrap) iron in Batur, most of the private traders who
have established themselves over the years are local Muslims, several
of them closely related to the larger iron founders. Most of these

private Muslim traders act as local intermediaries who buy their
products from big Chinese trading houses that operate at the national
or even international level. In the early 1990s, three of the larger iron
founders set up their own trading company to import raw materials,
mostly from China. One of them visited China in 1993 and the other
two followed in his footsteps in 1994. The purpose of their trips was
to import coke and pig iron directly, partly for their own foundries
and partly for their trading activities. In both cases, the iron founders
went in the company of an Indonesian-Chinese trader from Jakarta
with whom they had already been doing business for a long time.
This diversification of economic activities among the iron founders
of Batur is especially conspicuous among the younger generation of
entrepreneurs. Some of them have invested part of their capital in the
purchase of trucks, not just to transport the products manufactured
in their own foundry, but also to rent out to other iron founders in
Batur. Others have launched activities that are unrelated to their core
business, such as a wood-carving company, a printing press and a
shop selling consumer goods. By far their most common investment
outside the industrial sector has been in agricultural land. Almost two-
thirds of them own some agricultural land, most of which is located
in the immediate vicinity of Batur. The amount of land is relatively
small, often not more than a few pathok (0.25 ha) with an average of
about three pathok per family. None of the entrepreneurs farm their own
land. They usually rent it out to peasants on a sharecropping basis.
Most of it is located near the roadside and is often bought with an eye
to converting it into non-agricultural land, to be used as the site of a
new factory for the children or to be sold off with profit at a later date.
This relatively low level of economic diversification is related to the
occupational background of the iron founders. The families of almost
all the 155 entrepreneurs have a long history in iron casting. More
than 40 per cent of them belong to the second or sometimes even third
generation of iron founders in their family. And even among those
who belong to the first generation in their family to own a furnace,
there are many whose father or father-in-law was a part-time broker
in iron casting who did not have production capacity of his own but
had his products cast in one of the larger furnaces. Held back by hardly
any work experience outside iron casting, most families have only very
recently started to use some of their surplus to diversify into other
activities, most of these closely related to their core business.
This brief summing-up shows that most of the iron foundries in
Batur are small enterprises and use a relatively outdated smelting tech-
nique, which has even regressed in terms of quality and production
capacity over time. Precarious as this may seem, it does not mean that
there has been no structural industrial development or technological
improvements in the production process of these iron foundries over
the past few decades. There have been various ways by which the owners
of these iron foundries have enlarged the scale of their operations and
introduced technological changes. First, a substantial number of enter-
prises has increased in size and as a consequence of this growth more
than two-thirds of the workforce in Batur is employed in those 49
factories that have more than 20 workers, with an average of 44.8 workers
per enterprise. The 14 largest iron foundries even have an average
workforce of 91.4 per foundry.
Second, as time passes, various technological developments have
been introduced into this rural industrial cluster of iron foundries. In
the early decades of the twentieth century, most of the metalworking
was craftwork carried out by family labour in home-based smithies.
Even at that time, the technique of smelting larger quantities of iron,
partly with the help of non-family labour, was also not uncommon in
these villages. This technique was carried out in a furnace called a besali:
a round-shaped brick chimney heated by charcoal through which air
was hand-pumped by means of a lamus (bellows made of cow hide).
The daily capacity of this besali furnace was around 50–60 kilograms
of smelted iron. In the late 1930s/early 1940s, one of the iron founders
made an important improvement to the besali fireplace – he introduced
horizontally placed, hand-operated bellows made of wood, which
replaced the vertical ones made of cow hide (kulit sapi) that were used
in traditional smithies. This technological improvement increased the
capacity of the besali furnace to about 90 kilograms of smelted iron per
day. Following in the same innovative tradition, it was this pioneering
family who introduced the first machine-operated kopula furnace in Batur
in 1952. This increased the capacity to 1,500 kilograms of smelted iron

per hour at a temperature of 1,400 degrees Celsius.
The introduction of these technological developments meant that
the group of iron founders in Batur was divided into two strata. The
upper stratum consisted of those eight families who owned a kopula
furnace, but the majority of businessmen were small brokers who were
only occasionally able to win orders. When they did so they cast it in
one of the private kopula furnaces or in the furnace of the newly estab-
lished co-operative society. At that time none of these small brokers
derived a sustainable income from iron casting. To supplement their
livelihoods, besides some additional income from farming, many of
them used to operate one or a few handlooms in their front rooms or
on their verandas.
This socio-economic structure of the business community of Batur
changed with the introduction of the tungkik furnace around 1962.
Although this smaller furnace cast iron at a lower temperature than the
kopula furnace – and therefore produces iron of a reduced hardness –
it was in fact a more efficient modification of the kopula furnace. Its
introduction made it possible to cast smaller quantities of iron in a
more economical way, which gave many new families the opportunity
to establish their own iron foundries. This chance was seized especially
by several of the smaller brokers. From eight owner-families of kopula
furnaces in 1958, all of whom added a tungkik to their furnace capacity,
the number of families having their own production capacity increased
to about 70 in 1970. By this time almost all iron was cast in a tungkik
furnace and only rarely was the kopula furnace still in use. As was
mentioned, since the late 1970s some of the larger companies have
reintroduced the kopula furnace, alongside their tungkik, to manufacture
various types of larger-sized pipe-fittings as well as to boost their
production capacity. In the 1990s, four of these larger iron founders
established electrical induction furnaces. One entrepreneur did so in
co-operation with an Indonesian conglomerate, one with Japanese col-
laboration, while the remaining two set up their venture in partnership
with some of their relatives-cum-subcontractors in Batur.
Along with these changes in technology and the subsequent expan-
sion in industrial production, there have been also various improve-
ments in the machinery that is used to finish the cast iron produced in
the foundries over the years. As early as 1955 the Indonesian govern-
ment had already set up a technical support unit in Batur which
included several large machines for finishing. Although a few privately-
owned machines were introduced in subsequent years, by the early
1970s most of the iron products still left the village in a semi-finished
form, to be finished off by the customers themselves or by specialized
workshops outside the region. Following requests from several of the
larger iron founders, in the early 1970s the Indonesian government
decided to donate new machinery to the business community in order
to boost the added value of industrial production in Batur.
In the wake of this support from the Indonesian government, the
number of privately-owned larger types of machinery in the iron
foundries increased more than tenfold in less than 20 years – from 60–
80 machines in 1976 to more than 700 machines in 1994. The upshot
is that more than 60 per cent of the foundries, i.e. 94 out of the 155,
own larger types of machinery such as lathes, drilling machines, milling
machines, scraping machines and welding units. In total these 94
factories own 729 machines, or an average of 7.8 per foundry, of which
almost 50 per cent consists of lathes (362), almost 40 per cent of drilling
machines (287), and the remaining 10 per cent of milling and scraping
machines and welding units (70).3 Interestingly, it has transpired that
those 49 factories that employ 20 or more workers own almost 75 per
cent of the total number of machines owned by the foundries in Batur.
These factories finish their own cast products either in the same building
in which their furnace is housed, in an area marked off only by a small
one-metre high wall, or at a different location in the village.
In 1995, the first computer-controlled finishing machinery was
introduced in Batur by one of the owners of an induction furnace who
needed more sophisticated machinery to fulfil the quality requirements
for the new type of orders he had acquired. His example was quickly
followed by the three other owners of induction furnaces who also
bought several computer-controlled machines for their companies.
Not content with this innovation, all four of them introduced mould-
ing machines in their enterprises to manufacture specialized moulds
for their induction furnaces. The combination of these two techno-
logical changes enabled these four large iron founders to manufacture

more complicated types of products and thereby to enter the stakes for
new markets by supplying goods to large conglomerates and inter-
national companies. Eventually, it turned out that this ability to produce
for customers abroad was one of the reasons why these large business-
men were less affected by the economic crisis following the collapse of
the Indonesian rupiah in 1997.
In short, although most of the iron foundries are indeed small
enterprises and use a relatively outdated production technique – so
obsolescent it even underwent regression in terms of quality and
capacity at one point in time– the findings presented here ineluctably
show that this does not mean that there have been no structural
industrial development or technological improvements in the production
process of these iron foundries. Several of the entrepreneurs in Batur
have been able to increase the scale of their operations over the years
by encouraging internal growth, to achieve which they expanded their
markets and widened the range of their products. There is even more
to it than this. There have been various forms of technological
improvements, both in the production process and in the finishing of the
cast iron produced by these enterprises, as is shown in the following
case study.
Abdul Prasetyo (aged 45 in 1994) and his youngest brother Agus (aged
29) are the owners of the iron foundry Indah Logam in Batur. Their
father was a broker in the 1950s who used to make spare parts for
textile machines, which he cast in the kopula furnace belonging to a
relative. In 1964, Abdul left school at the age of fourteen. When I once
asked him why he had left school at such a young age, Abdul told me:
At that time I was a student in a secondary school in Solo and lived with my
aunt’s family. The PKI (Indonesian Communist Party) was very strong in
Klaten during those years and Solo was the scene of much political violence.
In 1964, my father thought it was too dangerous for me to remain in Solo. He
told me to leave school and to come back to Batur to help him in his business.
The year before his return from Solo, Abdul’s father had con-
structed a tungkik furnace in the building at the back of their house.
For about six years, Abdul worked in his father’s iron foundry before
he slowly ventured to begin a side business of his own. Working with

two school friends from Batur, whose fathers also owned an iron foundry,
he set about running small orders for spare parts by visiting shops and
factories all over Central and West Java. During those years, the three
friends used to cast their orders in their fathers’ foundries, after which
the customers sent their products to specialized workshops in Tegal
for finishing.
By 1973, Abdul and his two friends had a sufficiently regular flow
of orders to start their own iron foundry in a rented building in the
centre of Batur. They also began to take orders that included the
finishing of the products. As they themselves had only one second-
hand drilling machine with which they could undertake some of the
minor finishing work, the larger finishing of the cast products was
subcontracted to a specialized workshop in Solo.
This partnership between Abdul and his two friends ended in 1977.
According to Abdul there were differences of opinion over investments
between the three partners.
I had just been able to get a large order for flat bases of iron from a big factory
in Jakarta. I immediately realized that we could only fulfil the contract if we
could maintain a certain quality in casting and finishing. I therefore thought
that we should not be dependent on others for the finishing part of the
production, but that we should have our own machinery. This would also in-
clude to have a factory building of our own, because the one we were renting
at that time did not have enough space to include a finishing section. My two
partners were unconvinced and thought it was too risky to make such high
investments without knowing for sure whether we would have sufficient orders
in the future. They wanted to continue our business as before, in a rented
building without new machinery. After several weeks of discussions, we decided
that it was better to split up as partners before any problems could arise.
Abdul’s story of the break up of their partnership was only partly
confirmed by his ex-partners. When I met one of them on another
occasion, he told me:
Abdul is a very ambitious man and just wanted to have a business of his own.
Around the time when we got the big order for iron flat bases from Jakarta,
Abdul suddenly indicated that he wanted to leave the partnership and to start
out on his own. It was only afterwards that we found out that he had taken
the Jakarta order with him, not to mention other large customers. This often
happens in our line of business and there is not much you can do about it.
In 1978, Abdul constructed a new factory building on a piece of
land owned by his father, situated along the main entrance road to the
village. In the same year, he also purchased, from the Jakarta company,
two second-hand lathe machines, one drilling and one milling machine.
This outlay was followed in 1984 by three newly imported machines
from China. This extension in his finishing machinery allowed him to
manufacture a larger variety of products, including hand pumps for
which he was able to acquire a big order in 1987.
In 1992, Abdul started a trading company in coke and scrap iron.
This was done in partnership with the son of one of the largest entre-
preneurs in Batur. A few years later this family asked Abdul to join
them as a minor partner in their newly established electrical induction
furnace. Most of the capital and expertise for this factory was pro-
vided by a national conglomerate in Jakarta, with whom Abdul’s partner
had a long-standing business relationship. They offered Abdul a minor
partnership because of his experience in organizing the finishing section
in his iron foundry. As part of the agreement, Abdul’s youngest brother,
Agus, was sent to a steel-casting and machinery course in Bandung,
organized by the Ministry of Industry. After completing this course,
Agus played a major role in the transfer of knowledge during the
initial stage of operation of the induction furnace and also supervised
part of the introduction of the computer-controlled finishing machines
that were brought in around the same time.
In the first instance, the financial crisis that hit Indonesia in 1997,
and the political turmoil since then, incurred a drastic downsizing of
Abdul’s enterprises. This was short-lived and by the end of 1998 it
seemed that Abdul’s business and that of his partner were already
approaching the same level as before the crisis. One of the main reasons
was that they had been able to secure a large order to cast aluminium
sports rims for an Australian company. At that time Abdul also mentioned
that he had just bought three plots of land near the roadside. He had
been able to get them for a relatively low price from iron founders who
were in financial trouble because of the crisis. ‘It is not that I want to
become a farmer’, he told me.
In fact I don’t know anything about farming. My family has always been in
iron casting. Agus and I now have about 5 pathok of land, but we rent it all
out to two farmers in a neighbouring village who cultivate rice on our land.
We use our share of the produce to make food for the workers in our factories.
I plan to convert two plots into non-agricultural land when the economic
situation improves again, because we are thinking of building another
factory for Agus now that he recently got married.
Figure 12: Finishing of cast iron products
INDIVIDUAL FIRMS AND ECONOMIC CO-OPERATION

Independence and self-made entrepreneurship are important aspects
of the image portrayed by the iron founders of Batur. Most of them are
reluctant to admit that they ever received help or support in setting up
or running their enterprises. They are fond of emphasizing that they
started their enterprises from scratch, i.e. without any help from others,
including parents or relatives. In the same vein, many owners are quick
to state that they operate their businesses independently of other enter-
prises, and that they do not make use of partnerships or other forms
of co-operation in any field of activity, either with family members or
with non-family members, at present or in the past.
To a large extent, this image of the independent and self-made iron
founders of Batur is a myth. Although in Batur there are a few cases of
iron founders who do belong to the first generation of industrialists in
their families, who came from relatively poor backgrounds, and who
did not receive much assistance from relatives or other iron founders
when establishing their factories, these cases are clearly exceptions.
Co-operation and support from relatives and from other entrepreneurs

in various fields of activity, both in the running of the enterprise at
present and at the time of its establishment, have been the rule rather
than the exception within the business community of Batur.
Co-operation within the family is an important aspect of the
economic behaviour of these entrepreneurs. An initial indication of
this is the fact that more than one-quarter of the owners (43 families)
live in an extended type of family structure. These families usually
consist of members of three or more generations. One-third of them
(15) do not share a common residence or a common kitchen, but have
set up separate households to run their daily domestic affairs. Staying
together over a period of time has enabled these families to expand
their enterprises, to find the finance to introduce new machinery and
to explore new markets.
Several of the larger and technologically more advanced iron foundries
in Batur are owned and managed by extended families. In most of these
cases the management tasks are divided between the family members,
one or two being responsible for the supervision of the production
process and the finishing department, while the others take care of the
external side of the business, in particular the acquisition of orders. In
some of these instances the family enterprise has been legally split up
into separate units, each owned by one family member. This is usually
done to avoid paying too much tax and to circumvent labour regula-
tions. On paper these units operate independently, but in reality they
function as different departments of one large company owned by an
extended family. Although in the end most of these different depart-
ments indeed become separate enterprises with the split up of the
family property, a process which is not seldom the result of family
quarrels and conflicts, the very fact that they have operated as one large
company for a number of years enables these families to acquire sufficient
capital to divide the property into several independent enterprises.
Enterprises owned and managed by extended families are therefore
not exceptional among the iron founders in Batur. Nor are they a new
phenomenon. An example of an early extended family enterprise in
Batur is the ‘Keluarga’ (family) group which built the first kopula
furnace in Batur in 1952. This family consisted of five households: the
head of the family with his wife and two unmarried children; two of
his married sons with their families; one of his daughters with her
husband; and one younger brother with his family. In 1958, these five
households constructed their second kopula furnace. To house this,
they erected a factory building on the outskirts of Batur, officially
owned by the younger brother. At the height of their economic power,
in the early 1960s the ‘Keluarga’ group owned eight companies: two
factories with a kopula furnace, two enterprises with a tungkik furnace,
two finishing companies, and two trading enterprises. Most of the
adult descendants lived separately with their own families, but they
continued to operate as one extended family as far as most of their
economic interests were concerned. Some members, including the
head of the family, were responsible for getting the orders, which they
then shared among the members of the group and cast in one of the
kopula or tungkik furnaces owned by the family.4
Although the extended type of family is neither a rare nor a new
phenomenon in Batur, the most common type of family organization
among the owners of the iron foundries is the nuclear family. Almost
three-quarters of the entrepreneurs (112 out of the 155) live in nuclear
families (i.e. husband, wife and their offspring). In most cases, these
owners separated from their parents soon after marriage, in terms of
residence, property and business. Hence the large majority of the
entrepreneurs established their foundries at a relatively young age, i.e.
under 30. Although the youngest son in a family sometimes continues
the family’s enterprise, it is not uncommon in Batur to find an old
man running the family’s foundry while all his sons have established
their own factories.
The division of family property in the Muslim business community
of Batur affects not only sons but also daughters, who usually get
shares equal to half that of a son. One of the consequences of this
observation of the Islamic law of inheritance is that, over the past few
decades, there have been quite a few men from outside Batur who have
set up their own iron foundries in Batur with the financial assistance
and personal support of their fathers-in-law. Out of the 155 male
owners of the iron foundries in 1994, 39 were born outside Batur, of
whom 24 are even from outside Klaten district.
These aspects of marriage customs and the division of family

property among the Muslim businessmen in Batur have contributed
to the large proportion of iron foundries owned and managed by
nuclear families. Although this predominance of the nuclear family
form of business organization seems to be in concert with the emphasis
most entrepreneurs place on independence, it does not mean that they
are self-made businessmen who have never received support and
assistance from relatives or friends. This is shown most conspicuously
by the fact that most of the owners were only able to establish their
factories because they received the shares to which they were entitled
in the property of their parents or parents-in-law early. Such shares
often include a piece of land, with or without a factory building,
financial capital and, of paramount importance, a share in the clientele
of the parent’s factory. It is common among the iron founders of Batur
to hand over some of the regular customers of the enterprise to one’s
children as part of their inheritance. This custom dates back to the
colonial period when orders from the sugar mills in Java made up an
important part of the business assets of the most prominent iron
founders. The value attached to this aspect of the inheritance is shown
by the remark made by one of the owners of a relatively large iron
foundry, who stated that ‘clients are as important to iron founders as
land is to farmers; both have to be taken care of in order to get a good
return on one’s efforts. Because of this, children of iron founders inherit
customers, just like children of farmers inherit land from their parents’.
In most cases support from the family is not limited to providing
various types of capital for the new enterprise. Many of the iron
founders have benefited from other forms of assistance from relatives at
the time of setting up their businesses and in the early years of running
them. First, many are able to gain a number of years’ experience in the
foundries of their father/father-in-law or elder brother/brother-in-
law prior to the establishment of their own factory. This gives them
the opportunity to learn the various aspects of the production process
of iron casting. On the management side, it enables them to under-
stand the market and to become familiar with the potential clientele
in the business community of Java. The opportunity is there ready and
waiting for them to be able to establish new business contacts of their
own, some of whom will then become their first clients when they set
up their own enterprise.
Then, many entrepreneurs are supported by relatives during the
period in which they are establishing their company. The assistance of
relatives who have already owned their own businesses for some time
is frequently of inestimable value to people just starting out. Such old
hands can pass on much of what they know. The transfer of know-
ledge and experience in the field of management is encouraged, and new
entrepreneurs are soon initiated in the swing of things, particularly
into ways of circumventing and evading all manners of obligations in
the areas of labour legislation and taxation.
Another way in which relatives help in the initial phase of several
iron foundries is by arranging for some of their workers to be trans-
ferred to the new factory. Casting of iron and the mechanical finishing
of the products are activities that require skilled workers. The judiciously
balanced mixture of iron, coke and lime to be used in the smelting
process is usually not the result of a weighing process, but is achieved
by touch. One of the reasons for this apparently cavalier attitude is
that different products require a different hardness, which calls for a
varying mixture of raw materials. Some entrepreneurs compared the
smelting process in their furnace with the kitchen of a restaurant where
cooking requires the skills of a chef. Lack of skilled and experienced
workers for the casting process and for operating the finishing machin-
ery leads to a high percentage of rejects and consequently to high losses.
To have the opportunity to get experienced workers from another
factory at the time at which one is establishing one’s own foundry is
therefore an important asset to these entrepreneurs.
Finally, in addition to providing support and assistance during the
initial set-up phase, in several instances family members continue to
play a major role for the first few years of a company’s life, particularly
in sharing orders and product marketing. Because of the time and costs
involved in beginning a smelting process, iron casting is only efficient
if a certain minimum weight of products is cast. Another factor is that
it is often impossible to speed up the casting process beyond a certain
level because it usually takes several days to prepare new moulds of sand.
Therefore, both when there is a shortage of orders and when there is a
surplus, sharing of work is a practice used by many iron founders to

achieve some degree of flexibility in production. It is more likely that
those enterprises that are the outcome of a split up of an extended family
will often continue to work closely with the ‘mother’ company in various
ways. The logical consequence is that the transition from an extended
to a nuclear family enterprise is often a gradual process and it is some-
times difficult to determine the exact nature of the relationship between
the enterprises involved.
Co-operation between iron foundries is not confined simply to the
form of assistance, advice and the sharing of orders; in some cases it
has reached the stage of being formalized in partnerships. Although
most of the entrepreneurs emphasize their reluctance to form partner-
ships, or at least do not want to admit to them, this has not prevented
them from undertaking various forms of partnership, neither at present
nor in the past. Most of these partnerships are informal agreements,
often of a short-term and ad hoc nature, set up to undertake a specific
activity. In many cases, the partners involved are related to each other.
One example is that of a founder of aluminium products who set up
a partnership in order to acquire a large order for lamp posts for urban
street lighting from the sultans of Solo, Brunei and a Malaysian state.
This partnership involved two other companies, one owned by his son
and the other foundry by his son-in-law.
In other instances, partnerships are of a more long-term nature.
Some of these involve trading companies in coke and scrap or pig iron.
For instance there was an enterprise set up in 1992 to import raw
materials from Russia and China. This company was founded by four
brothers-in-law, all of them owners of an iron foundry in Batur.
Between 1992 and 1997, they imported coke from Russia and coke
and pig iron from China. Almost all of it was used in their own
companies, and a small residual amount was resold to other factories.
A similar activity was undertaken by two other iron founders in Batur.
Between 1994 and 1997, these two partners went to China several
times to import coke and pig iron. Some of it was used in their own
foundries, some of it resold to relatives in the village, but a substantial
amount was the major commodity in the trading activities of one of them,
who was the second largest private trader in raw materials in the area.
Almost all the private traders in Batur are local Muslims. In 1998,
there were only three partnerships of local Muslim entrepreneurs in
which Indonesian Chinese businessmen were involved. One partner-
ship ran a woodcutting factory located outside Batur. This was
established by a local iron founder and an Indonesian Chinese business-
man from Surabaya. The other two partnerships are ad hoc trading
activities, each of them linking two local Muslim iron founders and one
Indonesian Chinese businessman from Jakarta. In the early 1970s, there
were a few Muslim entrepreneurs who owned an iron foundry in Batur
in partnership with Indonesian Chinese businessmen from Klaten district.
The Muslim iron founders involved claim that their partnership did not
last long because of conflicts over financial matters. They indicated
that the anti-Chinese demonstrations in 1974 (the Malari and the
Bandung riots) had further discouraged them from establishing new
forms of collaboration with Indonesian-Chinese businessmen.
In most instances, business relations between iron foundries in Batur
are not between equal partners but are of a subcontracting nature,
usually involving one larger and several smaller foundries. In some
cases, the smaller subcontracting foundry operates relatively independ-
ently once it has received the order from the larger firm. It buys its
own raw materials, makes its own master copy of the moulds, and
finishes the products on its own machines. More frequently the owner
of the smaller subcontracting firm does not have sufficient capital to
operate independently and acts more like a works foreman. In exchange
for a fixed price per specified piece, he provides space, labour, tools
and supervision, while all other costs such as working capital, moulds
and raw materials are borne by the larger entrepreneur, who often also
takes care of the finishing of the products in his own factory. These
contracts are a convenient arrangement under which a larger iron
founder by contracting out part of the production relieves himself of
the burden of labour management and absorbs fluctuations in orders.
Subcontracting in Batur is not a relationship that exists only between
two factories, nor is it restricted solely to business aspects. In some
cases a whole cluster of iron foundries is interconnected with one
another through subcontracting ties. At the top of such a cluster is one
large iron founder who subcontracts his orders among the other factories,
provides them with working capital, technical know-how and decides

about the transfer of labourers and machinery between the foundries.
There are three such clusters in Batur in which seven, eleven and
sixteen companies are interconnected. A major part of the production
of the leading companies in these clusters consists of large contracts
for products such as pipe-fittings and hand pumps. Some of these
orders are manufactured by the leading company itself, but some are
subcontracted out to the smaller partners in Batur. Under this arrange-
ment the leading foundry provides the moulds, raw materials and
sometimes also part of the labour force. After the pipe-fittings or hand
pumps have been cast in the smaller enterprises they are transported
to the leading factory for finishing and painting. Over and above this
each cluster works closely with one trading company owned by a
relative of the leading entrepreneur in partnership with a private trader.
These trading companies provide the members of the cluster with all
the required raw materials.
The relations between the iron foundries within a cluster are not
restricted solely to business aspects, they also have a social and political
component. The first point to remember is that most of the smaller
iron foundries are owned by relatives of the leading entrepreneur,
among them his sons, sons-in-law and relatives of his brother’s family.
The other enterprises are often owned by persons who used to work
as supervisors in the factory of the leading entrepreneur. Second, the
owners of the leading company not only provide orders, they also give
personal loans and other means of support to their subcontractors.
They often stand surety for bank loans and help them in their contacts
with the local bureaucracy or in their attempts to get their children
admitted to higher education. In return, these smaller iron founders
support the political ambition of the leading entrepreneur. Partly as a
result of their subcontractors’ loyalty and that of their relatives and
friends, two of the leading entrepreneurs held the position of
chairman of the local co-operative society for many years, a matter I
will return to in the fifth section (starting page 189).
Subcontracting relations are not restricted to other iron foundries,
but sometimes also involve large companies or conglomerates at national
and even international levels. Several of these relationships are part of
the government’s bapak-angkat (foster father) scheme, under which

large companies are supposed to act as ‘foster fathers’ to a number of
small-scale enterprises by providing them with financial, technical
and marketing support. Iron foundries in Batur that are involved in
such relationships with national and international (mainly Japanese)
companies belong to the category of larger foundries. As mentioned
above, two of the four enterprises that established an electrical induction
furnace in Batur did so in collaboration with a national conglomerate
and a Japanese company. The other two were not left standing at the
post but were also supported in terms of providing capital loans and
technical know-how by two Indonesian conglomerates (Bakri Brothers
and Astra). Although several of these relationships did indeed begin as
part of the bapak-angkat scheme, these families had business contacts
with companies at the national level prior to the introduction of the
government scheme. They are certainly the smaller business partner
in these ventures, and therefore to a large extent dependent on the
other partners. Despite this, it would give a one-sided picture of their
position to characterize them with the rather derogatory term of
anak-angkat (foster child).
The foregoing analysis indicates the common practice of economic
co-operation among the iron founders of Batur, both within and outside
the family. When we look at the history of their family enterprises,
their partnerships and their subcontracting arrangements, we find
that there have been many changes in these different types of business
co-operation over time. Extended family enterprises expand and then
split up into nuclear enterprises, partnerships are set up and then
break up because of conflicts, and subcontracting clusters expand by
including new enterprises or contract because of conflicts or a decline
in demand. Fluidity and change therefore characterizes the various
forms of economic co-operation among the iron founders of Batur, as
is shown in the following example.
Hartanto Muchtar (aged 56) is the leading businessman in a cluster of

eleven iron foundries in Batur. Four of these enterprises are owned by
his family. Legally, Pak Muchtar is the owner of one foundry only,
while his two sons and one daughter are the owners of the other three
enterprises. Whenever Pak Muchtar refers to these four enterprises, this
does not stop him talking about them more in terms of departments
of one large company than in terms of four separate enterprises.
Together, his four companies have three furnaces and eighteen large
finishing machines. To work these, they employ 75 workers on a
regular basis.
Pak Muchtar established his first foundry in 1971. Since then, he
has set up new enterprises every time his business expanded and he
has needed to construct a new building to increase his production
capacity. Although in the first instance financial considerations were
the main reason behind establishing separate enterprises, this strategy
also became an essential part of Pak Muchtar’s attempt to avoid possible
future problems over the division of property. This is why he built a
bungalow for each of his three children next to their own factories.
Since his youngest son got married and moved out of the parental house
last year, all three bungalows are now occupied. Pak Muchtar and his
wife continue to live on their own in their renovated house at front of
his first factory.
‘Although we all live separately, we still operate as one family’, Pak
Muchtar always emphasized when we talked about his business set-up
and family structure.
The construction of different companies will make it easier for my children
to divide up the property whenever they want to. But, of course, I am only
talking about the distant future. At this moment, we operate as one business.
Our three furnaces are located in the factory buildings of my two sons and my
daughter, and the finishing machines are based in the original factory behind
my house. When we get orders for iron casting, I divide them over the three
foundries and also schedule the finishing work. Suka, Anas (his two sons),
and Istanto (his son-in-law) each take care of the management of the casting
in their own factory, while I keep an eye on the finishing process.
Referring to the division of income, Pak Muchtar once indicated that
each family uses part of the income of its own factory to cover daily
expenditure, but that they decide together on large expenses: ‘we only
live and work separately because it is more convenient, but we are still
one large family.’
Pak Muchtar not only likes to emphasize the family nature of his
company, he also prefers to talk in family terms about the other seven
foundries in his business cluster. Some of these subcontracting relations
go back to 1976 when he received his first large order for pipe-fittings
from a municipal corporation in Jakarta. In order to complete that
order in time, he subcontracted part of it to two of his cousins. When

he was able to secure more orders in the following years, he sub-
sequently expanded the number of subcontractors. Besides his two
cousins, he began to subcontract some of his orders to two distant relatives
and one friend. Over the years, two of his former supervisors have also
started their own foundry as small subcontractors in his business
cluster.
Pak Muchtar’s seven subcontractors act more like his works foremen
than as independent businessmen. Pak Muchtar’s company takes care
of the raw materials and moulds and provides advances to pay for the
labour costs. After casting and cleaning, the products are transported
to Pak Muchtar’s factory for finishing. Whenever we talked about his
cluster of subcontracting, Pak Muchtar stressed the many advantages
it has for both sides of the relationship.
My sons and I are often away from Batur and we therefore do not have the
time to supervise production. By working with several trusted partners, we
are able to be more flexible when there are sudden changes in demand.
Sometimes it is difficult for us to find extra skilled workers and in this way it
is easier because we can draw on a larger pool of labourers. Each partner is
responsible for the work we assign them. If they deliver the products in time
and if these pass our quality control, they are able to get a steady supply of
orders from us. You must have noticed that our partners have more castings
per month than many other foundries in Batur. I treat them as my own
family members and we help them whenever we can. Only yesterday, I went
to a school in Solo to secure the admission for Djufri’s son (one of his former
supervisors), and last year I contributed to the marriage expenses of one of
my cousins.
Since 1989, Pak Muchtar has also organized an arisan (rotating savings
club) for his subcontractors. This arisan has a socio-religious function.
Every month the members come together to contribute a fixed amount
to enable two members per year to make the pilgrimage to Mecca.
During my meetings with some of Pak Muchtar’s subcontractors,
I discovered that there was also another side to the relationship. After
I got to know one of the cousins better, he told me that there had
recently been some problems between Pak Muchtar and two of his sub-
contractors. ‘We are not allowed to undertake any other work without
the prior permission of Pak Muchtar’, this cousin told me.
And even after he has given permission, we always have to give his work
priority over any other when he suddenly comes up with new orders. Last
year, for example, Pak Muchtar told one of our relatives that he was not
allowed to undertake subcontracting work for another large iron founder in
Batur. Preferring to go his own way, this man took the work from the other
businessman and since then he has not received any new orders from Pak
Muchtar. Only two months back, I also had a problem with Suka (Pak
Muchtar’s eldest son). A friend of mine from Solo offered me some cheap
scrap iron. Although I was only planning to use it for one of the orders I had
acquired on my own, Suka told me that I could only buy my raw materials
from their trading company. In the end I thought it better not to buy the scrap
iron from my friend, because Pak Muchtar is my relative and I do not want
to spoil the relationship with him. He always provides me with orders and
these make up the bulk of my business.
SOCIAL MOBILITY AND DIFFERENTIATION

Conditions of employment in the 155 foundries in Batur vary with the
type of work and the type of contract. Most of the 3,000 or so
labourers who are regularly employed in the foundries are paid on the
basis of the number of days worked. There is a snag as usually full wages
are paid only after the workers have completed a specific number of
products or tasks, as a result of which the labour arrangements in these
factories often equal that of a piece rate system.
Alongside the regularly employed workers, there is a large pool of
casual labour which the entrepreneurs recruit when the demand cannot
be met by their own labour force. Among these casual labourers are
small groups of workers who are specialized in operating the furnace
and casting the iron. It is the small enterprises especially that make use
of these groups of specialized workers. These factories also avail them-
selves of the services of local artisans who specialize in manufacturing
master copies of moulds, while their regular labourers shape the moulds
and clean the products.
Most of the work performed in the foundries is heavy, dangerous,
extremely unhealthy and the pay is low. Minor accidents involving
burns occur regularly and many labourers are therefore unable to
withstand the working conditions for more than ten years. Almost all
the workers are men, about half of them below 25 years of age and
unmarried. Women are employed only by the larger firms in which
they carry out administrative jobs or prepare food and drinks for the
workers.
The majority of the workers are migrants who have come from the
poorer regions in the south of Central Java, or from East Java. They are
often employed in small teams headed by a foreman from the same
area, who is also responsible for their recruitment. During their time
in Batur the migrant workers live together in special sheds behind the
factory building and return home only once or twice a year for the
major festivals. Their 24-hour availability for work is one of the main
reasons why the iron founders in Batur prefer migrant labour to local
workers. The entrepreneurs complain that local labourers are often
absent because of social obligations, such as marriages, illness in the
family, or funerals. Migrant labourers who do not have their families
with them in Batur are therefore not distracted by such social duties.
Besides, it is easier to send them home when orders drop or when one
of them suffers an accident.
This ruthlessness was most clearly seen during the economic crisis
that hit Indonesia in mid-1997. In December 1998, about 75 per cent
of the iron foundries in Batur had either closed down, i.e. they had not
cast iron for several months, or had slowed down production to one
casting process per one or two months. Most of the workers had been
dismissed and had subsequently disappeared from the village area.
The owners of the iron foundries claim that the workers had gone
back to their home villages. A search in some of these villages in the
south of Central Java soon showed they were not there. Many of them
had indeed returned after the factories closed down, but they had only
stayed for a very short while. Because their families were in need of
money, most of them had already left their village again after a few
weeks to go in search of work. Their relatives and neighbours did not
know where the workers were at that time. It seems that they were
moving around in Central Java in search of work.
Among the owners of the 155 iron foundries in 1994, almost none
of them performed manual labour in their factories. It was a different
story in the recent past. Until the late 1960s, many fathers of the present
generation of entrepreneurs used to regularly take it in turn with their
labourers to work in the casting process. At the end of the 1990s, only
a few of the very small businessmen occasionally still perform manual
labour. These entrepreneurs also personally supervise the casting and
finishing process, spending most of their day’s work inside their factory
building, sometimes dressed only in a T-shirt and shorts.
The smaller enterprises in Batur do not have separate office space,
except for a desk in the residential house of the owner, which is located
in front of each foundry. Those enterprises that employ more than
20–30 labourers usually have a special office room attached to the
factory building. It is in this office that the owners of these larger
enterprises spend most of their working days when they are in Batur.
Only occasionally do they enter their factory building when the
furnace is in operation.
Whether they are owners of small or large foundries, almost all the
entrepreneurs spend several days a week outside Batur in search of
orders or to collect payments. Except for the very small businessmen,
their trips often cover the whole of Java and sometimes include Bali,
Sumatra and Sulawesi. Among the larger entrepreneurs it is not un-
common to fly to Jakarta several times a month and occasionally to
make foreign business trips to Malaysia, China or some other Asian
country. This geographical mobility among the entrepreneurs in Batur
is not a recent phenomenon but dates back from the late colonial period
when their fathers and grandfathers regularly visited sugar mills all
over Java to secure casting orders for spare parts.
On those days that the entrepreneurs are outside Batur, the internal
management of the enterprise is usually taken over by a younger
relative or sometimes by the wife of the owner. Although almost all
entrepreneurs are men, the role of women in the iron foundries of
Batur is certainly not negligible. Except in the larger enterprises, it is not
uncommon for the wives and daughters of the entrepreneurs to take care
of (part of) the administration. In the case of four iron foundries, the
enterprise is fully owned and managed by a female entrepreneur.
In those 25 larger companies that employ more than 30 labourers,
the wives and daughters of the businessmen do not take any part in the
running of the enterprise. The residential homes of these entrepreneurs
are often situated at a different location in the village and the female
members of these families hardly ever visit the foundry or the office.
Distant relatives or persons from outside are employed as internal
managers or administrative staff, along with several assistants whose
job it is to run all kinds of errands and be at the beck and call of the
owner-managers. When visiting the offices of these larger enterprises,
therefore there will always be several persons in front of the building
or in the front room, waiting to be called in.
Over the years, the iron foundries in Batur have brought prosperity
and luxury to the majority of the industrialists and their families. An
important barometer of their standard of living is the quality of their
homes. A large number of the iron founders live in newly-constructed,
spacious bungalows. Almost three-quarters of them still live next to one
of their industrial premises. Most factories are located in the residential
quarters of Batur where the first iron foundries were established. The
houses in these hamlets stand packed close together. They have no yards
and their walls are separated only by narrow alleys.
The increase in industrial ownership in the 1960s and early 1970s
led to overcrowding as many new entrepreneurs built their furnaces at
the rear of their residences. In the mid-1970s this density of concentra-
tion led to a spread of industrial development to the northern and
southern areas of Batur. More and more entrepreneurs decided to shift
their enterprises to the outskirts of the village. The larger businessmen
among them used this opportunity also to shift the site of their
residential house to a location separate from their foundry, away from
the noise of the diesel engines and the smashing up of scrap iron. The
most popular location for these new factories and residences was the
entrance roads leading from the Yogyakarta-Solo highway to the village
centre. The upshot is that along these roadsides stand large bungalows,
often with expensive cars parked in front of them.
Fifteen entrepreneurs have even shifted (part of) their residence
outside Batur. Some of these families have taken up residence in the
nearby towns of Klaten, Yogyakarta or Solo, and three of the largest
iron founders also own houses in Jakarta. This dispersal of residential
location is partly related to the business activities of these iron founders.
By living in cities like Yogyakarta, Solo and Jakarta, it is easier for them
to establish contacts within the urban-based business communities
there and to visit government offices and large companies. Those three
entrepreneurs who own houses in Jakarta regularly fly up and down
to the capital. One of the sons lives in the house for several weeks on end
to supervise administrative matters, to follow up on newly established

business contacts, or to work out the details of finalized business deals.
Another important reason for the increase in residential mobility
among the iron founders of Batur has a great deal to do with the
education of their children. The level of education of the entrepreneurs
and their family members is relatively high, most noticeably so among
the younger generation. Almost all family members between the ages
of 20 and 40 have completed secondary school education, and a
university degree is no longer an exception among the youngsters below
the age of 30. Over the years, it has become increasingly common for
the iron founders to send their children to schools outside the village
for their primary education. Many of them indicate that the standard
of education in the village schools is much lower than that available in
the nearby cities. Those 15 families who own houses in Klaten, Yogyakarta
or Solo have bought them mainly to provide accommodation for their
school-age children and sometimes also for the offspring of their near
relatives. These entrepreneurs have either moved to the city them-
selves or have asked a brother or sister to move with his or her family
and to take care of the children who are going to school.
A few of those entrepreneurs who send their children to schools
outside Batur give preference to non-Islamic education. These business-
men say that non-Islamic schools in towns like Klaten, Solo and
Yogyakarta provide their children with the opportunity to interact
with other ethnic groups. It is this combination of a better education
and an early exposure to other communities, especially to people of
Chinese descent, that is viewed by these businessmen as important for
business success.
These are the exceptions. Most of those iron founders who send
their children to schools outside the village prefer Islamic education.
Although some send their children to orthodox Islamic schools, the
majority favour modern Islamic education. These entrepreneurs em-
phasize that it is the combination of religion and obedience to rules
that makes this type of education attractive. Discipline and respect for
tradition are viewed by the iron founders of Batur as important means
to inculcate in their children a mentality that prepares them for the
hardworking life as a businessman.
At least 35 of the 155 iron founders had (part of) their education
at a pondok pesantren in Central or East Java, mostly one which was
fairly modern in outlook. Many of them are boarding schools with
high fees. Nine entrepreneurs even attended the same boarding school,
the Pondok Modern Darusslam in Gontor (PMG), Ponorogo. In the
educational programme of this school, Arabic and English take a promin-
ent place. Along with striving to create a sense of ‘Islamic brother-
hood’, the pondok pesantren PMG puts a strong emphasis on discipline
and independence: ‘Discipline is a great mean for progress and develop-
ment of PMG. … Vocational guidance is aimed at creating students to
be self reliance (sic). It is expected that graduates of PMG could (sic)
create job and not be job seeker.’5
This preference for education outside the village, along with the
tendency to move away from the village residential area, has contributed
to a widening social distance between the entrepreneurial families and
the remaining village population. This social difference is underlined
even more sharply by the display of wealth and affluence among these
families, which is most clearly visible in the ownership of expensive,
luxury consumer goods. To own a refrigerator, more than one radio-
cassette recorder and a television set has become commonplace
among the families of iron founders in Batur. About one-quarter of
them also own a compact disc player, a video recorder and a satellite
disk. Another illustration of their high level of private consumption is
the ownership of motorized vehicles such as motor cycles, scooters
and cars. Almost all families have one or more motor cycles or
scooters, with an average of almost two per family. Over and the above
this, two-thirds of the families have one or more cars, with again an
average of almost two per family. Among them, six entrepreneurs own
a Mercedes and two have a BMW.
Following a long tradition, marriages and selamatan (communal
feasts) are important occasions for the richer sections within the business
community of Batur to display their wealth and enhance their status.
Especially among the larger iron founders in Batur it is common to
celebrate marriages of children lavishly and often in two stages. The
marriage ceremony usually takes place in Batur itself. This part of the
marriage is attended by relatives, neighbours, and local friends. The
second and often more expensive part of the marriage is the reception,
which takes place in Solo or Yogyakarta, either in a large marriage hall or
in one of the luxurious hotels. The main reason to organize the reception
outside Batur is to entertain the urban, mostly business-related contacts
of the family. This part of the marriage is therefore attended mainly by
businessmen, government officials and bank employees.
The popularity for organizing the marriage ceremony in two stages
among the larger iron founders in Batur augments the social distance
between the economic elite and the majority of the village population. In
most instances, no transport to Solo or Yogyakarta is organized by the
family of the bride or bridegroom for poorer relatives who do not have
their own means of transport. The poorer relatives complain that this
unmistakably shows that, although they are formally invited, they are not
expected to show up at this more prestigious part of the marriage. Many
of them, therefore, hardly ever attend the reception part of the marriage
ceremony of their more wealthy relatives. Although some react to this
exclusion by ridiculing the display of wealth and status of the larger
iron founders in private conversations, others are unable to hide their
disappointment whenever the issue is brought up in social gatherings.
Traditionally, the organization of selamatan was connected to very
specific events in the life cycle of family members. Over the past few
decades, there has been a change and the iron founders of Batur have
increased the frequency of such occasions by organizing selamatan to
inaugurate new business orders. This practice of organizing selamatan
as a vehicle to display business success is all made all the more conspicu-
ous by the custom to serve expensive ready-made snacks on those
occasions. It is through this use of the traditional selamatan, and the
costs that are involved, that the iron founders of Batur try to parade their
economically superior position and higher social status in contrast to
those who are not able to incur such expenses at such short intervals.
The changes in behaviour and mobility of the families of iron founders
in Batur, in terms of business, education, residence, consumption and
social ceremonies has contributed to an increasing cleft between them
and the large majority of the village population. This is also visible in
their leisure-time activities. Regular outings by car to relatives and
friends in Solo and Yogyakarta at the weekend have become part of the
lifestyle of the families of iron founders in Batur. Among the younger

generation of entrepreneurs, in 1994 there were ten who owned a
Suzuki 125cc off-road motor cycle on which they have monthly outings
in each other’s company and with other youngsters from Solo. Among
this group can also be found several iron founders who occasionally
visit night-clubs and karaoke bars in the nearby cities of Yogyakarta or
Solo, often in the company of other businessmen from the region.
One inevitable result of this mobility in business behaviour and
lifestyle among the iron founders in Batur is that most of the social
contacts of the entrepreneurs and their family members are with
persons from outside the village. It is rare to see the entrepreneurs in
one of the village streets, except in their car either on their way home
or to one of their factory buildings. In general, they show hardly any
interest in the lives of their neighbours or relatives, but spend most of
their time in Batur inside their home or office. They display a patent
lack of interest in the welfare of the village and its population. Earlier
improvements in public facilities in Batur were mostly initiated by the
owners of the larger iron foundries. Financial support from and the
political contacts of these entrepreneurs made it possible to introduce
electricity into the village in 1964 and to asphalt the main village road
in 1967–68. Since this burst, improvements in public facilities have been
few and far between, despite the enormous growth in wealth within the
business community during this period. The shift in residence away from
the village centre and the early availability of privately installed water
pumps among the richer entrepreneurs of Batur are partly responsible
for this lack of concern for the quality of the village roads and the fact
that even in 1994 Batur was still among those villages in Klaten district
that did not have its own piped water system. It seems that over the years
the economic success and social mobility have engendered a supra-
local orientation and regional behaviour among many of the iron
founders in Batur, which clearly sets them apart from the majority of
the village population, as is shown in the following case study.
There are quite a number of newly constructed bungalows alongside

the main entrance road from the Yogyakarta–Solo highway to the village
of Batur. One of these bungalows belongs to Anas Suyadi (aged 37 in

1994). Anas is the owner of Surya Industri, an iron foundry that was
established in 1983 and employs nineteen labourers During its first
years, Surya Industri was located in a rented building in the centre of
the village. At that time, Anas and his family were living in a small
house that belonged to one of his relatives who had recently moved to
Solo. In 1987, Anas constructed his own factory building on the piece
of land that he had inherited from his parents situated along the main
entrance road. In that year he also added a private company trading in
raw materials to his business activities.
By that time, Anas and his wife had three children. They decided to
build a new house next to their factory to which they moved in 1989. The
project turned into a big, luxurious bungalow and is in many respects
a display of Anas’ recently acquired wealth. When taking the northern
entrance road to Batur, it is impossible not to notice its whitewashed
walls and shining roof tiles topped by a parabola. The big iron gate and
the driveway behind it, with parking space for his BMW and Toyota
Kijang, are another indication of the luxurious lifestyle of Anas and
his family. This continues inside the house. The bungalow has a large
living room with all kinds of luxury consumer goods such as a big
leather couch, a large television set, a video recorder, a laser disc and
a compact disc player. The house also contains a modern kitchen at
the back and four bedrooms, all of them with a fully furnished en suite
bathroom with running water from a privately installed water pump.
To look after the daily running of the household, Anas and his wife
employ four servants. Three of them take care of the cleaning, washing
and cooking, while the fourth one looks after their youngest child.
During the day, there are therefore always people in and around their
house. This is even more so in the morning when the driver comes to
clean the cars in the front yard before Anas sets out on one of his
business trips.
During most days of the week, Anas is not in Batur and only
occasionally is he to be found in his factory. At least four days a week,
Anas travels to destinations all over Central and East Java to secure
new orders and to collect payments for goods delivered. Occasionally,
he flies to Jakarta and other major cities in Indonesia to visit the
offices of a national conglomerate or municipal corporation. In
general, his daily routine is rather erratic. On several occasions when
I visited him at home in the morning he received a phone call from
one of his business associates or clients and we subsequently found
ourselves in one of the major cities of Central Java in the afternoon.
Whenever Anas is in Batur during the weekend, he likes to go cross-

country motor-cycling on Sunday with some of his friends from Solo.
For this, he bought a Suzuki 125cc off-road motor cycle in 1993. Every
now and then, their motor-cycle outing is part of a family picnic to
which their wives and children are also invited.
One of the families that often takes part in these picnic-cum-motor-
cycle outings is the family of Agus Hartanto (aged 39 in 1994). Agus
also originates from Batur and with his younger brother, he is the
owner of an iron foundry in the village in which some 22 labourers are
employed. In 1988, he moved to Solo with his family. When I once
asked him why they had moved out of Batur, he answered:
We went to Solo mainly for the education of our children. In Batur, the
standard of education is very low. The teachers are not well qualified. They
pay hardly any attention to discipline and the children are often allowed to
just do whatever they feel like. That is not so in Solo. Here at school, the
children learn discipline and when they complete their education they are
able to gain entrance into a good university in Solo or Yogyakarta. Since last
year, my brother’s son has also been attending this school. To be able to do so,
he stays with us during the week.
Anas’ view on the standard of education is similar to that of his
friend Agus. In 1996 he sent his youngest son to a pondok pesantren in
East Java. Religious motives seemed barely to have played a role in this
choice. Anas is not known in the village for his religious behaviour. On
the contrary, he has a reputation of taking Islamic rules regarding drinking
and fasting lightly. On several of his business trips Anas invited me to
have a beer in a bar, while he did not mind eating during the fasting
month in a restaurant during daytime, as he was at a safe distance from
Batur at that time. When I met him in 1998 he stated that he had sent his
youngest son to a pondok pesantren to provide him with better education
and to have discipline instilled upon him. When I asked him, why he
had not chosen to move to Solo like his friend Agus, he replied:
I do not have a younger brother like Agus who can look after the factory while
I live in Solo. I have to stay near my factory building to be able to check
regularly what’s going on. The main reason that we moved to this location is
that there was no more space in the village. But I must say that an extra
advantage is that we are no longer constantly visited by neighbours and
relatives who want some financial help or support. You must have seen how
much krismon (financial crisis) has affected the lives of most people in Batur.
We feel sorry for them, but we can’t do much about it. By living here, outside
the village, we are at least not constantly bothered by their problems.
CLASS AND RELIGION

An important characteristic of the business behaviour of the iron
founders in Batur has been the establishment of organizations to take
care of their economic interests. Although even in the 1930s there were
already some forms of economic co-operation between the larger
businessmen, the first two organized interest groups among the iron
founders of Batur were established in the first decade after independence.
Following the introduction of the machine-operated kopula furnace
in 1952, there were, as we have seen, nine kopula furnaces in Batur in
1958, of which eight were privately owned. This had already resulted
in an initiative among these private iron founders to set up a buyers’
combine. The production process of the kopula furnace, compared to
that of the besali fireplace, needed a larger amount of raw materials and
with coke replacing charcoal as fuel they needed a kind of raw material
they had never dealt with before. To join forces to face the unknown,
the buyers’ combine Kooperasi BATUR (Bahan Tuangan Rakjat: raw
material poured by the people) was officially established on 1 May
1958, although it had already been active for some years prior to that.
The main activity of Kooperasi BATUR was to purchase bulk coke
and pig iron, which was then sold to its members. The most prominent
positions on the board of directors of this organization were occupied
by the owners of the eight private kopula furnaces, who were among
the wealthiest families in the village at that time. Besides these directors
and their near relatives, membership of this buyers’ combine consisted
of those smaller brokers who were closely related to these families.
Most of these members were followers of the more modern trend in
Islam and preferred public schools to Islamic education for their children.
Many of them were strong supporters of the Masjumi, a political party
of reformist Muslims that was later banned by the Indonesian govern-
ment in 1960. In the 1955 general elections, the hamlet of Batur was
therefore marked as Masjumi-dominated.6
Geographically, the upper stratum of Batur’s business elite in the
1950s – who owned eight of the nine kopula furnaces – originated
from the central and eastern part of the hamlet. The ninth kopula
furnace that was working in Batur in 1958 was located on the border
of central and west Batur and was owned by families most of which
originated in the western part of the hamlet. This kopula furnace,

which was the second one to be established in Batur, belonged to a co-
operative society by the name of Kooperasi Prasodjo. The main initiators
and members of the board of directors of this co-operative society were
small brokers who were, at that time, not able to secure the regular
flow of orders that would make the private ownership of a kopula furnace
economically viable. As a result, in 1953–54 these families decided to
join together to construct their own kopula furnace in the front yard
of one of their members. For that purpose they established Kooperasi
Prasodjo, which was joined by several other families of small brokers.
Whenever its members had collected sufficient orders for one production
process, they would operate their co-operative kopula furnace, for which
they charged each participant an amount per kilogram of molten iron.
At the end of the 1950s, antagonism began to build up between the
prominent members of Kooperasi Prasodjo and Kooperasi BATUR.
Several of the board members of Kooperasi Prasodjo challenged the
legitimacy of the business success of the prominent families of Kooperasi
BATUR. They claimed that these families owed their wealth to the fact
that they had appropriated a disproportionately large share of the sugar
mills that should have been a part of their business assets.
These feelings of antagonism between the board members of
Kooperasi Prasodjo and Kooperasi BATUR arose not only from socio-
economic differences between families; they also coincided with differ-
ences in religious orientation. We have already seen that most of the
members of Kooperasi BATUR, whose families originated from the
central and eastern part of the hamlet, belonged to the category of
reformist Muslims and were strong supporters of the Masjumi. Most
of the members of Kooperasi Prasodjo, on the other hand, were followers
of Islamic orthodoxy. In contrast to the members of Kooperasi BATUR,
it was more common among the members of Kooperasi Prasodjo to
send their children to pondok pesantren in East and Central Java for
their education. It is therefore no coincidence that it was in their part
of the hamlet, the western side of Batur, that the first mosque in the
village was built in the 1920s.
At the end of the 1950s these socio-economic, political and religious
differences within the upper stratum of the business community of Batur
converged in a dispute that involved the two co-operative societies. Follow-

ing a tug-of-war between the board members of Kooperasi Prasodjo
and Kooperasi BATUR over who would be the main host during the visit
to Batur of the former vice-president of Indonesia, Hatta, in September
1958, the attention of the local government of Klaten district was drawn
to the existence of two similar co-operative societies in one village,
something which was forbidden by law. After the irregularity was
investigated, the local government decided in favour of the Kooperasi
Prasodjo, on the grounds that it was the first registered co-operative
society of the two, and subsequently ordered the closure of Kooperasi
BATUR. Protests by the board members of Kooperasi BATUR, who
argued that the two organizations were of a different order – one being
a production co-operative, the other a buyers’ combine – were in vain.
In 1962 Kooperasi BATUR was officially dismantled and succeeded by
an association with the name of GP3T (Gabungan Pengusaha & Perusa-
haan Perusahaan Tjor: Association of iron founders and iron foundries).
Although in practical terms nothing seemed to have changed – the
assets, activities and members of the board of directors of GP3T were
exactly the same as those of Kooperasi BATUR – this dispute intensified
the feelings of antagonism between the prominent members of the
two factions within Batur’s business elite, feelings that would surface
again in a similar setting in the early 1970s.
The change in technology in the early 1960s led to a decline in the
activities of both Kooperasi Prasodjo and Kooperasi BATUR/GP3T.
The introduction of the smaller tungkik furnace paved the way for a
widening of industrial ownership. With many families owning furnaces,
the need for a production co-operative was obviated. Now obsolete,
the Kooperasi Prasodjo became inactive from the mid-1960s. The
same happened to Kooperasi BATUR/GP3. The increase in industrial
production opened up possibilities for private traders in raw materials,
several of them closely related to the initiators of Kooperasi BATUR/
GP3T. Consequently, the buyers’ combine GP3T also lost its purpose
and its market niche, and became a dormant organization.
This state of organizational inactivity among the iron founders of
Batur lasted until the early 1970s. During those years, the Indonesian
government expressed its willingness to donate new finishing machinery
to the business community of Batur. To draw up further details for

this proposal, and particularly to set up an organization to manage the
machines provided by the government, a committee of local entre-
preneurs was set up under the name of ‘Team Partisipasi Proyek Pusat
Permesinan Batur’. Five of the seven seats on this preparatory committee
were occupied by members of the board of directors of Kooperasi
BATUR/GP3T and Kooperasi Prasodjo. During several meetings of
the committee in 1975 and 1976 there were strong differences of opinion
about the form of organization to be set up. To a great extent this
division within the committee followed the division between the members
of Kooperasi BATUR/GP3T, who argued in favour of an association,
and those of the Kooperasi Prasodjo, who advocated a co-operative
structure. With the support of those families who had not been among
the prominent entrepreneurs in the 1950, and following the preference
of the local authorities for a co-operative society, a co-operative structure
was proposed in the final report of the preparatory committee, which
was submitted to the governor of Klaten. In line with this report,
Koperasi Pusat Permesinan Pengerjaan Logam ‘Batur Jaya’, or Industrial
Steel-Manufacturing Cooperative Batur Jaya, was officially established
in 1976. For a fee it offered the finishing of iron products and divided
government contracts and orders from private companies among its
members. Over the years, it received several national awards in the
field of industrial co-operation. Starting with 67 members in 1976,
membership of the co-operative society, Batur Jaya, increased to 126
in 1986 and to 157 in 1994.
The establishment of this new co-operative society, Batur Jaya,
indicated an unequivocal change in the balance of power within the
business community. On the whole, the balance of power within the
upper stratum of the business community of Batur shifted from the
members of Kooperasi BATUR/GP3T to a coalition between the members
of Prasodjo and several newly-emerging entrepreneurial families, many
of whom had scrupulously kept themselves outside the power struggle
between Kooperasi BATUR/GP3T and Kooperasi Prasodjo. This coalition
dominated the first elected boards of directors of the new co-operative
society, Batur Jaya. Many of their families had benefited from the
expansion of industrial development in the 1960s and had invested
part of their capital in the extension of their production capacity and

in machinery for finishing. Their economic rise also set a shift in the
political balance at the local level in motion. While the reformist
Masjumi party dominated the village in the 1950s, in the early 1970s
the Nahdatul Ulama (NU), a political party of orthodox Muslims, gained
a majority in the village, having won the support of members of the
new business elite who even in 1998 still formed an important part of
its local executive boards.
The activities of the new co-operative society, Batur Jaya, have
therefore been closely related to the rise of a new generation of iron
founders who have emerged from families that were of second rank in
the 1950s but who were able to climb to the top rung of the industrial
community of Batur between the late 1960s and in the 1970s. This also
made its success dependent on the immediate interests of this group
of entrepreneurs. This is clearly seen in the position of chairman of the
organization. Between 1976 and 1994, this position was occupied by
two large entrepreneurs, both of whom belonged to the upwardly
mobile iron founders of Batur. After having been in power for almost
fourteen years, the first chairman was defeated in the election in 1990.
Although several families accused this first chairman of having abused
his power by favouring his own enterprise and those of his close
relatives when distributing orders among the co-operative’s members,
he already seemed to have lost interest in the organization, having
become totally preoccupied with his business activities at the national
and international levels. He was not alone in this. A similar loss of
interest in the co-operative was shown by most of the larger iron
founders of Batur, who indicated in 1994 that they were no longer
keen on playing an active role in the organization. They stated that
they did not need the support of the co-operative society since they had
their own machines for finishing and were able to secure a sufficient
number of orders through private contacts. As interest dissipated with
the waning of advantages to be gained, the biannual election to the
board of directors and other meetings organized by the co-operative
society were poorly attended. In 1994, the second chairman of Batur
Jaya stepped down after only four years, indicating that he could no
longer spend the time required by this position. Although the official
membership was at that time 157, not more than 54 per cent of the
enterprises in 1994 – 85 out of the 155 – turned out to be members of
co-operative society Batur Jaya.7
Although the iron founders had hardly any interest in the activities
of the co-operative society Batur Jaya in 1994, several of the larger
entrepreneurs already saw a new need for collaboration at that time.
In 1995, they officially requested the local office of the department of
industry to make out a case at the national level to establish a
laboratory for testing the hardness of metal products manufactured in
Batur. Such a local facility at which the hardness of metal could be
tested is mainly in the interest of the larger entrepreneurs, who are
able to produce with kopula furnaces or who intend to set up electrical
induction furnaces, for which four of them indeed already had advanced
plans at that time. With these considerations in mind, in 1995–96
there were discussions within the upper stratum of the business
community about whether to activate the co-operative society Batur
Jaya or whether to set up a separate, partly government-controlled
institution to run such a laboratory. In the end they decided on a
separate institution as they had lost all confidence in the managerial
ability of the co-operative society. The outcome of their deliberations
was that in 1997 a separate laboratory was set up in Batur with the
financial support of the national government and two Indonesian
conglomerates.
The various organizations and common interest groups which have
been set up by the iron founders of Batur in the course of time there-
fore do not necessarily imply collaboration between equal partners or
small businessmen who join forces. In fact, the reverse is true. Most of
the collaboration between the iron founders has been instrumental in
the process of differentiation within the industrial community. Through
the use of co-operative societies and associations, the elite of large
entrepreneurial families has been able to enhance and consolidate its
economic position and social status vis-à-vis the majority of smaller
businessmen. Cogently, the social history of industrial development
in Batur also shows the existence of various factions within the business
elite. These factions coincide with divisions along family and geographical
lines and turn out to be partly related to socio-religious differences.
All the owners of the 155 iron foundries in Batur are Muslims and
many of them could be called santri Muslims, being strict and pious
followers of Islam. Out of the 155 oldest owners (taking as the sample
the oldest entrepreneur of each firm), 72 bear the title of haji. Some of
them have made the pilgrimage more than once, and three entre-
preneurs have even taken the luxurious and very expensive form of
pilgrimage locally known as haji plus. Most of the larger entrepreneurs
in Batur today are supporters of orthodoxy. This is even more strongly
apparent among those thirty-nine entrepreneurs who were born out-
side Batur, mostly in East or other parts of Central Java. Many of these
iron founders received (at least part of their) education at a pondok
pesantren.
Emphasizing their Muslim background is an important way by
which the iron founders in Batur promote their business interests.
This is shown most unambiguously in the internal management
strategies used by these entrepreneurs. When dealing with workers on
matters related to working conditions and payments, they often play
up the common Islamic background of labour and capital. They claim
that the lack of labour unrest in Batur is the result of Islamic solidarity
between the workers and factory owners. Many entrepreneurs ensure
the orthodoxy of their employees by preferring to recruit part of their
workforce from those areas in Java that have a reputation as strong-
holds of orthodox Islam, such Pekalongan and Ponorogo. This trait is
even more strongly noticeable among those entrepreneurs who were
born outside Batur, many of whom themselves originate from one of
those regions. Not unnaturally, these entrepreneurs use local contacts
in their home area to recruit new workers for their factory. This makes
control over the workforce in Batur easier as it provides the iron founders
with various means through which they can check the behaviour and
activities of their labourers.
A similar utilization of the Muslim background of the iron founders
in Batur is shown in their external management strategies, especially in
their contacts with government agencies. It has already been mentioned
that most of the iron founders in Batur are supporters of the Nahdatul
Ulama (NU). During the New Order period, members of the prominent
entrepreneurial families of Batur occupied positions on its regional
executive boards of Klaten district, and important political and admin-

istrative positions within Batur itself were also monopolized by NU
adherents. This situation seems to have continued in spite of the
political changes that have taken place in Indonesia after 1997–98. In
the 1999 general elections, the village of Batur was marked as dominated
by the Partai Kebankitan Bangsa (PKB). The rise of this NU-allied
political party at the regional and national level, culminating in the
election of Abdurrahman Wahid as Indonesia’s new president, has
helped to stimulate the political ambitions of several of the larger iron
founders in Batur. In 1998, one entrepreneur from Batur was selected
as a member of a ministerial advisory board in Jakarta on co-operative
development, while another was asked to be a member of a ministerial
committee for the development of small-scale enterprises.
Through their contacts within the government at the local, regional
and national level, the iron founders of Batur have been able to benefit
over the years from state policies to promote pribumi entrepreneur-
ship in Indonesia. This sort of policy making began in the 1950s with
the import substitution policy and the Benteng Programme, as a spin-
off of which the business community of Batur received state support
in the form of a technical unit with finishing machinery. A similar
type of state support provided a new impetus to the development of
iron casting in Batur in the 1970s. On this occasion the national
government granted a large amount of finishing machinery to the
newly established co-operative society Batur Jaya. The rapid industrial
growth Batur has witnessed since then has been partly stimulated by
the government policy of directing government agencies and state
enterprises to hand out contracts to small-scale pribumi entrepreneurs,
and of encouraging national conglomerates to establish subcontracting
relationships with this section of Indonesia’s business community.
The various bapak-angkat relationships are in part the offspring of
this policy, while the involvement of the national government in the
setting up of the laboratory in 1997 is another recent example of state
support for the industrial community of Batur.
These strong links between the economic elite of Batur on the one
hand, and government agencies, state enterprises and large private
conglomerates on the other hand, have turned out to be of crucial
importance during the economic crisis that hit Indonesia in mid-1997

and still continues. Although by the end of 1998, about 75 per cent of
the iron foundries in Batur had slowed down production or had
stopped iron casting altogether, the larger entrepreneurs were already
on their way up. At the height of the crisis, several of them paid various
visits to government agencies and private national and international
companies in Jakarta. Through their earlier contacts with high officials
in the private sector and the ministries of industry and co-operation
– contacts that they had often established in their capacity as
representatives of the co-operative society Batur Jaya – they were able
to acquire new, large orders at a time when most of the smaller
businessmen in Batur were being forced to close down their factory.
Among this category of larger entrepreneurs who regularly operate
at the national and international level, there is a relatively high number
of iron founders who originate from outside Batur. These business-
men have a higher educational background and wider work experience
than the majority of the entrepreneurs in Batur. Many of them were
brought up in orthodox religious families in East Java and educated in
Islamic boarding schools. All of them are married to daughters of the
wealthier iron founders in Batur. This marriage to an orthodox Islamic
and highly educated man from outside has added prestige and enhanced
the status of these entrepreneurial families in Batur. The present-day
prominent position of these ‘outsiders’ has created some jealousy within
the local community of Batur, where they are sometimes labelled ‘non-
pribumi’ businessmen. Although orthodox Islamic entrepreneurs are
therefore among the most successful businessmen in Batur, their
economic success is more to thank on their marriage strategy than on
their Islamic background.
The complicated nature of the relationship between Islamic
background and economic entrepreneurship in Batur is also revealed
in the large number of entrepreneurs who bear the title haji. Although
72 out of the 155 iron founders in Batur were entitled to call them-
selves a haji in 1994, no more than 11 of them had made the pilgrimage
before 1980. The remaining 61 businessmen had made the haj only
very recently. In the eyes of many of them, the pilgrimage to Mecca is
part of the outcome of economic success and not so much its cause,
and one through which they can enhance their status within the
community. Although there is therefore every reason to question the
exact nature of the causal relationship between Islamic background
and economic success, making the pilgrimage has provided several of
the iron founders with new business contacts, both in Batur itself and
in the wider region, as is shown in the following case study.
Within the region of Klaten district, the village of Batur has the reputa-
tion of being a concentration of santri Muslims. The image of Batur
among the people of Klaten is one in which almost every adult bears
the title haji. Some even claim that it is custom, when referring to
someone in Batur, to ask the question ‘Pak Haji Siapa?’ (which Mister
Haji?) instead of the usual ‘Pak Siapa?’ (Mister whom?).
One of those haji in Batur is Haji Sutanto (aged 52). Sutanto went
to Mecca for the first time in 1989. In the years before, he had already
postponed it several times. ‘I wanted to expand my factory first and
needed my savings for that’, Sutanto once told me. In his group, there
were more than 80 people from Klaten of whom 14 were from Batur.
When Sutanto showed me the photographs of his pilgrimage to Mecca,
I recognized two other iron founders from Batur. I knew that with one
of them, Haji Hardjono, he regularly shares orders, and they had also
started to buy their raw materials jointly. Although Sutanto and Hardjono
were already acquainted with each other before they went on the
pilgrimage, they only became friends during their trip. There was also
a trader from Klaten in their group who turned out to have many
business contacts in Surabaya. Through him, Sutanto and Hardjono
were able to acquire several new orders for their factories. Sutanto
indicated that there were at least two other partnerships in Batur that
had been born of a friendship established during the pilgrimage.
In 1994, Sutanto was the owner of an iron foundry employing 65
labourers. Since 1984, Sutanto has been a subcontractor for Bukaka, a
large Indonesian conglomerate, for which he produces semi-finished
iron products. One of the directors of this company was Sutanto’s
school friend from an Islamic boarding school in East Java. It is through
this friendship that Sutanto’s foundry received the orders and technical
support from Bukaka, which enabled him to expand his enterprise
thus making it one of the larger iron foundries of Batur. In 1990 Sutanto
was able to get orders from a state enterprise with which earlier on he
had established contacts as one of the board members of co-operative

society Batur Jaya. He subsequently bought a house in Jakarta in order
to be able to mingle more with the Muslim business elite of Indonesia.
‘I fly to Jakarta twice a month and stay there for a few days. I am a
long-standing member of the board of the NU in Klaten and because
of that I know many people in Jakarta, especially in the ministries of
industry and co-operatives. When I am in Jakarta I talk to them and
they inform me about orders coming up in state enterprises’, Sutanto
once told me in 1994.
In Batur, Sutanto is one of those iron founders who openly expresses
his views on the economic policy of the government. He claims, and
many other entrepreneurs in Batur agree with him, that their village
is of great importance to Indonesia’s future. Industrial development in
Batur is the example of successful pribumi entrepreneurship. They are
therefore of the opinion that that they have every right to more state
support and larger contracts from state enterprises and national con-
glomerates. During the visit of the minister of industry to Batur in 1994,
Sutanto was one of the businessmen who brought this up during the
general discussion at the end of the day. He was one of those who
stood up and told the minister that they, as creators of employment
and wealth, deserved much more support from the government, which
claimed that it wanted to promote indigenous entrepreneurs and
eradicate poverty. At the end of his impromptu speech there was loud
applause from the audience.
The economic crisis that has affected Indonesia since 1997 also
affected Sutanto’s business activities. In February 1998, he had almost
decided to close down his factory temporarily because of a lack of
orders. In the preceding months he had approached many of his
contacts in the ministries, state enterprises and private conglomerates.
So far, his efforts had been in vain. The political and economic situa-
tion was too unstable and completely unpredictable. Many companies
had stopped production and no one dared to place new orders. During
one of his visits to the head office of Bukaka, however, Sutanto got
lucky. It turned out that an Australian company was looking for a
subcontractor to produce aluminium products. Sutanto’s friend in
Bukaka asked him to become their partner in this venture. With the
financial support of the Australian company and with technical help
from Bukaka, Sutanto then converted one of his factory buildings in
Batur into a production unit for aluminium products. When I visited
him in December 1998, employment in his enterprise had already
increased to 45 workers and there were even plans for further expansion.
For this, he hoped he could use some of his contacts within the Partai
Kebankitan Bangsa (PKB), of which he had recently become one of
the executive board members at the regional level.
CONCLUSION
The findings of the study presented here show a predominance of
small enterprises among the Muslim iron founders of Batur. Most of
them are owned by nuclear families. Co-operation with other enter-
prises is often in the form of subcontracting relationships in which the
iron founders from Batur are usually the smaller business partners in
the venture. Emphasizing their Muslim background is an important
way by which these entrepreneurs promote their business interests. In
terms of social behaviour, the lifestyle of the iron founders of Batur is
characterized by geographical mobility, luxury and an increasing social
distance from the majority of the village population.
How should these characteristics of the business strategy and
social behaviour of the iron founders in Batur be explained? In line
with the discussions on Muslim entrepreneurship in Indonesia in
Chapter 1, earlier studies on the iron founders in Batur have emphasized
the prevailing ideal of individualism and independent entrepreneur-
ship among Muslim businessmen, highlighting their lack of organiza-
tional skills and their preference for consumption that is responsible
for the non-real and dependent nature of industrial development in
Batur. Based on a short visit in December 1970, Kuntowidjojo, for
example, argued that the iron founders of Batur had already transformed
themselves from craftsmen to industrial entrepreneurs and thereby
succeeded in obtaining wealth through industrial activity. Although
they had achieved this, there had been no further changes in organiza-
tional form nor technological improvements in the production process.
He therefore concluded that the iron founders of Batur are ‘bourgeois’
but of a rural nature:
There have been no efforts to set up different industrial and commercial
enterprises for the increase, extension, and investment of capital. Con-
sumption needs gain importance as a way of acquiring status. … It seems
that their wealth is in the state of being but not in that of becoming.
Therefore, their demands constitute a fixed need. They are satisfied with
particular levels of production and consumption and feel content when
they have attained particular levels of wealth. (Kuntowidjojo 1971: 50)
This situation does not seem to have improved much since then.
Based on a survey conducted in January 1993, Helmut Weber and Musa
Asy’arie concluded that there had been no real industrial development
in Batur since independence: there has only been an increase in the
number of enterprises, somewhat offset by the bankruptcy of several
others, without any structural economic and technological expansion
having taken place. They argued that the main reason for this pattern
of ‘surrogate’ industrial development is the ‘traditional’ orientation of
the entrepreneurs involved. In Batur, the decision to set up a new
factory is not a rational one based on market opportunities, they
argue, but is mainly the result of the right of succession practised
among Muslims. In order to make provisions for old age and to secure
their children’s future, one of the children takes over the family firm
while the other children who live in the village – sons as well as
daughters – are provided with capital to set up their own businesses. The
subsequent increase in the number of factories is further encouraged,
Weber and Musa argue, by the prevailing ideal of independent entre-
preneurship and the relatively low capital requirement, as a result of
which many members of business families and several labourers have
established their own firms. According to Weber and Musa, the iron
founders of Batur have not established any forms of economic organiza-
tion outside the traditional nuclear family firm; they lack a work ethic
– overtime does not have any positive value and working hard without
any consideration of time is viewed as something negative; and they
are consumption-oriented, squandering their surpluses on luxurious
consumer goods. Taken in conjunction with the increase in the number
of factories, these specific characteristics of the Muslim entrepreneurial
families have resulted in a non-productive, non-real or surrogate form
of industrial development in Batur, for which they employ the terms
‘involution’, ‘changeless change’, ‘introvert growth’ and ‘horizontal
expansion’ (Weber and Musa 1993: 145–149, 158).
The findings of the study on the same iron founders presented in
this chapter diverge, to a large extent, from these conclusions. First,
the foregoing analysis shows that the image of the independent, self-
made businessmen is a myth in the case of the iron founders of Batur.
The economically and socially dominant entrepreneurs among this
group of Muslim businessmen have in fact made use of a wide variety
of different forms of co-operation, either simultaneously or successively,
at present and in the past, with regard to purchase, production, techno-
logy, sales, capital and labour. By establishing co-operative societies,
associations, and short-term and long-term partnerships with family
and non-family members and with local and non-local businessmen,
the upper stratum of the industrial community of Batur has been
transformed into wealthy, geographically mobile entrepreneurs well-
provided with capital and characterized by a luxurious lifestyle.
Second, the findings presented here show that, although most of the
iron foundries are indeed small enterprises and use a relatively out-
dated production technique – which at one point in time even under-
went a period of regression in terms of quality and capacity – this does
not mean that there has been no structural industrial development in
Batur. Several of these entrepreneurs have been able to increase the
scale of their operations over the years, either by achieving internal
growth or by establishing linkages with other companies.8 Not only
that, there have been various forms of technological improvements
introduced, both in the production process and in the finishing of the
cast iron produced by these enterprises. Although these changes might
not have been spectacular or have occurred on a large scale, they are
nevertheless significant enough to question the prevailing condescend-
ing notion of Muslim entrepreneurship in Indonesia, which repetitively
stresses the predominance of small stagnant enterprises, devoid of any
structural industrial development or technological improvements in
the production process.
The pattern of co-operation among the iron founders of Batur, as
presented here, does not imply that there have been no conflicts
among them. The foregoing analysis shows the existence of various
factions within the business elite, which coincided with divisions
along family and geographical lines and turned out to be partly related
to socio-religious differences. Those families that made up Batur’s
business elite in the 1950s and 1960s originated from the central and
eastern parts of the hamlet and were followers of modernity in Islam.

Those families that made up Batur’s business elite in the 1970s and
1980s originated from the western part of the hamlet and were followers
of orthodoxy in Islam. On the basis of these findings, there may be
some justification in questioning the relevance of the discussion in the
literature on whether orthodox or reformist Muslims in Indonesia are
more inclined to become successful entrepreneurs.9
This study also shows that activities of entrepreneurial organizations
such as associations and co-operative societies are not constant, but
come and go depending on the needs of the elite within the business
community. The various forms of co-operation among the entrepre-
neurs in Batur do not necessarily mean collaboration between equal
partners or small businessmen who join forces. On the contrary, most
collaborations between the iron founders, as described here, have
been instrumental in the process of differentiation within the industrial
community of Batur.10 Through the use of co-operative societies, associa-
tions, subcontracting relationships and partnerships, the elite of large
entrepreneurial families has been able to enhance and consolidate its
economic position and social status vis-à-vis the majority of smaller
businessmen and at the expense of those working in their factories.
This process of differentiation might not be appreciated from a social
or policy point of view – many small factories are hard put to survive
the present financial crisis, and those labourers who retained their
factory jobs work under extremely dangerous and unhealthy conditions
for very low pay.11 But from the viewpoint of capitalist development
there is nothing ‘blocked’ nor ‘surrogate’ about the rise of this particular
group of Muslim capitalists in Central Java, whose present position is
not a new phenomenon but can be traced back to the economic activities
of their families during the late colonial period and early years of
independence.
NOTES
1 Information from subdistrict office records (monografi kecamatan Ceper),
December 1993.
2 The quantitative figures presented on these 155 iron foundries are based on a
survey I conducted, with the help of three assistants, in February 1994. In this
survey foundries were defined as enterprises in which either iron or aluminium
was cast and which had a minimum regular employment of one non-family wage
labourer.
3 In the survey of the 155 iron foundries, I did not include the smaller machines,
such as hand-operated sanding machines, nor did I count other type of implements
used in the foundries. Therefore the numbers presented here are only an indication
of the total number of machines and implements used in these foundries.
4 This ‘Keluarga’ group of enterprises is also mentioned in an article by Jussi
Soekardi in 1962 on cor logam production in Batur, published in the magazine
Varia.
5 These quotations are derived from the first page of the yearbook Wardun
(Risala Akhir Tahun), Pondok Modern Annual News, Pondok Modern Darsussalam,
Gontor, Ponorogo, Indonesia, 1994/1414.
6 Kuntowidjojo (1971: 51).
7 This figure is based on my survey. The difference between this figure and the
figures provided by the co-operative society is mainly because (1) some of the
registered members have already passed away; (2) some of the registered members
no longer cast any iron; and (3) some of the registered members belong to the
same enterprise (this is to make sure that their enterprise will get a larger share
when orders are distributed).
8 See also the study by Yuri Sato, who emphasizes the co-existence of a
subcontracting system and a putting-out system in the rural cluster of Batur (Sato
2000: 161).
9 In his overview of studies that focus on the relationship between religion and
economic modernization in Java, Irwan Abdullah remarks that in the case of
Mojokuto (Geertz 1963, 1968) and Kudus (Castles 1967) the reformists were the
main actors in economic activities, while the dynamic metal entrepreneurs in
Batur were traditional Muslims. He refers here to the study by Kuntodwidjojo
(1971), whose conclusion is based on the situation in 1970 (Abdullah 1994: 39,
note 22). The historical account given here, however, shows that at different
points of time, both reformist and traditional Muslims were the main actors in the
industrial development of Batur.
10 In his study on several clusters of industrial development in Central Java, one
of them being iron casting in Batur, Henry Sandee (1993) talks of a category of
‘leading’ entrepreneurs, who subcontract part of their orders to smaller
enterprises within a cluster. My findings confirm this conclusion. The study by
Yuri Sato (2000) concludes that there is little evidence of intra-cluster linkages
among the firms because they consider linkages with the outer economy more
strategic. The findings of my study indicate the co-existence and interconnection
between external and intra-cluster linkages in Batur.
11 For an overview of the labour conditions in the iron foundries of Batur, see
the studies by Damanik (1993a, 1993b) and Pande Made Kutanegara (1994).
CHAPTER 5
A Comparative Perspective
THE FINDINGS OF THE THREE EMPIRICAL STUDIES presented in the previ-

ous chapters indicate that there are many similarities in economic and
social behaviour between Hindu industrialists in central Gujarat,
Chinese and Malay entrepreneurs in northern Malaysia, and Muslim
businessmen in Central Java. While earlier studies on entrepreneur-
ship in South and Southeast Asia tended to stress variability, conversely
this study points out that there are striking resemblances in entrepre-
neurial behaviour across the two regions. As discussed in Chapter 1,
these similarities are usually hidden under the variations in analytical
approaches that tend to overemphasize the unique characteristics of
businessmen in India, Malaysia and Indonesia.
In the following section of this concluding chapter, I will begin by
briefly summarizing the similarities in business strategy and social
behaviour of the three groups of entrepreneurs in central Gujarat,
northern Malaysia and Central Java. Following the wider discussions on
entrepreneurship, set out in Chapter 1, I will organize this comparison
of the empirical findings around the four themes of management and
investment pattern, forms of business organization, state-business
relationship, and lifestyle and social status. Although this comparative
exercise emphasizes similarities in South and Southeast Asia, it does
not support the view of a specific Asian business pattern that is divergent
from the rise of non-Asian, especially European, entrepreneurs. In
order to substantiate this view, it is important to point out that the
study of South and Southeast Asian entrepreneurship, as discussed in
Chapter 1, is partly based on unexamined assumptions about the
origin and nature of the capitalist class in Europe, with which they are
205
implicitly compared – mostly in a derogatory way. In the second

section, I present a brief overview of these assumptions.
To what extent are these assumptions valid in the light of the
findings of historical studies on the European industrialists? This issue
is dealt with in the third section in which I discuss some historical
studies on the emergence of the early industrialists in Europe. What
light do these findings shed on the prevailing views on the emergence
of the capitalist class in South and Southeast Asia? In the fourth and
concluding section of the chapter, I question the notion of contrasting
differences between Asian and Western patterns of entrepreneurship.
I argue that, partly because scholars studying Asian society have seldom
made use of new insights used by European economic historians to
question their assumptions about the early industrialists in Europe,
our view on the emergence of the capitalist class in South and South-
east Asia has been partly a distorted one. Fortified by this discussion,
I explore the possibility of developing a wider theoretical framework
for comparative analysis.
SOUTH AND SOUTHEAST ASIAN ENTREPRENEURS COMPARED

As elaborated in Chapter 1, studies on Indian entrepreneurs view a
commercial orientation as the typical Indian style of entrepreneurship.
These studies indicate that considerations of caste, family and kinship
are still very important to the style of management in India. Quite
apart from these inherent characteristics, Indian industrialists tend to
have interests in a number of activities simultaneously and to engage
in a large variety of activities over time. This is partly explained in terms
of their trading background and in terms of the economic structure
and the social setting of Indian society, which encourage rather than
prevent diverse investments and the spreading of risks.
The findings of the three empirical studies of central Gujarat, northern
Malaysia and Central Java indicate that a personalized management
style and diversified investment pattern are indeed a characteristic
feature of Indian industrialists, but are certainly not uniquely Indian
phenomena; they are equally characteristic of the entrepreneurial
behaviour of Chinese and Muslim businessmen in Malaysia and Indo-
nesia. All three groups of businessmen employ relatives and members
A Comparative Perspective 207
of their own ethnic community for specific managerial tasks. The actual
overseeing of the workforce is the responsibility of this intermediate
stratum of supervisors and managers, relieving these entrepreneurs of
the burden of direct supervision. Moreover, these relatives and members
of the same ethnic community often provide access to the relevant
government agencies and business communities with a view to securing
the supply of raw materials, credit and other resources, and promoting
the sale of the finished products. Within this framework, kinship and
ethnicity represent an important organizational basis for entrepreneur-
ship of these enterprises in India, Indonesia and Malaysia.
Quite unambiguously, all three groups of entrepreneurs prefer to
create a distance between themselves and their workforce. Most of
them employ labour on the basis of piece-rate and subcontracting
arrangements, which allow them to hire and fire as it suits them. These
labour relations enable the entrepreneurs to shift the onus for supplying
work and for the terms of employment onto an intermediate group of
subcontractors, or, as far as piece-work is concerned, onto the workers
themselves. Creation of an intermediate stratum and the use of contract
type of labour also partly explains their preference for employing migrant
labourers who, according to the entrepreneurs, are more ‘willing’ than
local labourers to work under agreements of contract or piece-rate. By
organizing the work and the recruitment of labour in this wise, all
three groups of entrepreneurs have transferred the adverse effects of
fluctuations in demand for their products to the labour force, while
still exercising control over the production process.
Economic diversification is also an important business strategy, not
only for the rural industrialists in India, but also for the businessmen
selected in Malaysia and Indonesia. Although there are large variations
among the enterprises, most of the entrepreneurs in the three localities
are able to make substantial profits from their business. Besides re-
investing part of their accumulated surplus in their enterprise, many
families have invested part of it outside the industrial or agro-industrial
sector. A substantial number of them have purchased agricultural land,
set up trading companies, or have invested part of their profits in new
small-scale workshops and factories. Taken as a whole, the findings show
that it is not uncommon for rural entrepreneurs in India, Malaysia
and Indonesia to have more than one economic activity at the same
time, or to be involved in them sequentially, often operating in different
sectors of the rural economy simultaneously: in agriculture, trade
and/or industry.
Another common characteristic of the three groups of business-
men in India, Malaysia and Indonesia is that commercial activities have
been an important factor in this tendency towards economic diversifica-
tion. A sizeable number of them have a trading background or have
undertaken some sort of commercial activities before they started
their enterprise. This has increased the amount of surplus available to
these families and it has given them knowledge, contacts and experience
in operating outside their traditional sectors of agriculture and artisanal
production. This is especially true of the members of the Patidar caste
in the Indian case, for whom agricultural trade has provided them with
both extra capital and has given them the opportunity to establish
economic activities outside farming but closely related to their own
agricultural enterprise. The same applies to the Malay and Chinese
owners of combine-harvesters who have a history of farming and various
kinds of commercial activities. And even in the case of the iron-
founders in Central Java, it turns out that the larger entrepreneurs,
many of whom practise a business strategy of economic diversification,
do not have an artisanal background, but originate from outside the region
and belong to families with experience in other lines of business.
Following the commercial background and diversified pattern of
investments by all three groups of businessmen in India, Malaysia and
Indonesia, it could be argued that commercialism is indeed an important
characteristic of the business strategy of rural entrepreneurs in South
and Southeast Asia. Having said this, it would not be correct to dub
them ‘commercial businessmen’ and conclude that the weakness in
their entrepreneurship lies in their lack of knowledge of and interest
in the technological side of the production process, as a consequence
of which they tend – successively and/or simultaneously – to engage in
a variety of business ventures. As is shown in the analysis of the three
empirical case studies, simultaneous investment in various economic
activities has not prevented many of these entrepreneurs from re-
investing. Additional capital has been invested to augment their outlets,
to increase the size of their enterprise, to expand production, or to intro-

duce technological improvements. Admittedly these changes have not
occurred on a very large scale, but they are nevertheless significant
enough to question the prevailing notion about commercialism being the
characteristic feature of entrepreneurship in South and Southeast Asia.
In terms of forms of business organization, co-operation is what
turns out to be a crucial aspect of the entrepreneurial activities of all
three groups of businessmen in India, Malaysia and Indonesia. As
indicated in Chapter 1, the discussions of the family firm and business
networks in South and Southeast Asia have led to many lively debates.
In the case of overseas Chinese, for example, the social cohesion provided
by the traditional family structure and kinship ties is thought to
promote the accumulation of wealth because of savings on managerial
costs, the pooling of capital and relations of trust within the group. In
contrast to this, studies on Muslim businessmen in Southeast Asia
indicate that their Islamic background is not propitious to successful
entrepreneurship because it does not provide them with instruments
to form and make use of efficient organizational forms and economic
institutions more complex than the nuclear family firm.
The findings of the Chinese, Muslim and Hindu businessmen in
Malaysia, Indonesia and India show that family enterprises, partnerships
and subcontracting relations – not to mention several other forms of
economic co-operation, such as associations and co-operative societies
– are of vital importance to the business operations of all three groups
of rural entrepreneurs. The Indian case shows that the pattern of family
business is not unique to overseas Chinese enterprises. Strikingly, a sub-
stantial number of Muslim businessmen in Malaysia and Indonesia
operate through extended family enterprises, and partnerships are a
common form of economic organization among all three groups of
entrepreneurs. The three empirical cases also establish that businesses
in South and Southeast Asia are not necessarily family based or that
family enterprises and partnerships are fixed entities free of conflict and
immutable. All three studies found patterns of both family and non-
family enterprises and business partnerships that are characterized by
both a kind of jointness and conflict, and by a large number of changes
over time.
Subcontracting relations and networks are another important co-

operative pattern in business organization among the rural entrepre-
neurs in all three countries. All of them tend to develop various kinds
of linkages, partly with larger firms, partly among themselves. The case
of the iron founders in Java, for example, highlights ‘putting-out’ relations
between larger entrepreneurs and smaller businessmen. Among other
advantages, this system allows the former to expand their scale of
operations without increasing factory size. Networks are found to be
crucial for the functioning of many of the businessmen in Malaysia,
Indonesia and India, and while the basis for building up networks varies
(kin, caste, clan, ethnicity), their deployment turns out to be quite similar
across regions. The Malaysian case shows how Chinese businessmen
use kinship and ethnic relations to build up business networks. At the
same time, this case also unambiguously demonstrates that networks
are not really more important for Chinese entrepreneurs than for
those of other ethnic groups, such as the Malay businessmen. In the
Indian and Indonesian cases it initially appears that caste and religion
are central features of business organization, but on closer analysis
these can be seen as just one of the ways in which the wealthy business
class forms networks to strengthen its economic position.1 Cogently,
the differences in lifestyle within the Chinese business community in
the Malaysian case, and its consequences for the functioning of business
networks, again shows that the use of ethnic categories to explain entre-
preneurial behaviour often tends to ignore the existence of hetero-
geneity within a business community.
Given this, it is obvious that the reason for a particular form of
business organization flourishing in one place and not in another must
certainly be more complex than the merely ‘cultural’. Pertinently, the
findings on the rural entrepreneurs in India, Malaysia and Indonesia
indicate that both collective and individual types of entrepreneurial
behaviour are present within one group. It is not so much collectivism or
individualism which explains successful or unsuccessful entrepreneurial
behaviour; of far greater importance is the flexibility to adjust social
and economic forms of organization to changing circumstances in
terms of space and time. Undeniably, the three cases manifest a tacit
contradiction between the actuality of co-operation among relatives
and an ideology of individualism or collectivism. The Muslim iron

founders of Central Java, for example, claim to work alone and attribute
their success to their own efforts, but deeper investigation shows that
they do in fact engage in several forms of co-operation, both within
the family and outside. Conversely, the study of their behaviour in
Malaysia and India indicates that Chinese and Hindu entrepreneurs
tend to overemphasize the use of kinship ties, guanxi relations and
joint-family structures, when in fact the day-to-day running of the
business sometimes shows very little resemblance to these traditional
ways. This indicates that the researcher must be wary of taking such
proclamations by entrepreneurs at face value.
The bulk of the literature on South and Southeast Asian entrepreneur-
ship stresses the symbiosis between entrepreneurs and the state, in
terms of policy making, or the close relations which obtain between
business groups and those who control the state apparatus. Studies on
overseas Chinese businessmen in Southeast Asia often emphasize the
close interaction between state and business to account for their entre-
preneurial success. These studies argue that the intermediate position
between the (colonial) state and the indigenous population goes some
ways towards explaining the inclination among Chinese entrepreneurs
to depend on state support by making use of politically secured eco-
nomic privileges to accumulate capital. Studies on Indian entrepreneurs
and on Muslim businessmen in Southeast Asia indicate, on the other hand,
that their profits are not based on production but are in essence rent
incomes which derive from distorted market mechanisms following a
high level of state intervention and regulations in these countries.
This is perhaps a little too simplistic. The findings of the three cases
in India, Indonesia and Malaysia show that rural businessmen use
various strategies to develop contacts with government bureaucracy and
the politically powerful. One tactic employed by these business entre-
preneurs to promote their interests vis-á-vis the state is the formation
of business associations. In all the three cases, the business groups have
discovered their common interests and organized formal associations
to press their demands on the state. Such associations work to pro-
mote a degree of economic co-operation among businessmen and serve
to represent the business community to outsiders. The Indonesian
case in particular shows that business associations are also an important

arena for factionalism and a means by which larger entrepreneurs are
able to enhance their position in the rest of the business community.
In such an instance, the study of the politics of business organizations
provides an entry point through which it is possible to reveal deeper
lines of division in local society and changes in social alignments.
Although most of the rural entrepreneurs in central Gujarat, northern
Malaysia and Central Java manage to evade taxes and avoid govern-
ment regulations, and although indubitably some have even benefited
directly from government subsidies, they usually have a very negative
attitude towards the economic policy of their provincial and national
government. On many occasions, they emphasize that not only are
their interests not served by government policy, in fact they are being
frustrated. As entrepreneurs they consider themselves to be the back-
bone of the rural economy, providing employment and income for its
population. They are very happy to claim a larger share from the
government budget in terms of subsidies, but they feel strongly that
they should be left alone to run their economic enterprises without any
government interference in the form of labour laws, price regulations,
taxes and so on.
The history of economic development in the three localities in central
Gujarat, northern Malaysia and Central Java shows that government
policies have been pivotal in promoting the growth of small industry,
hence nurturing regional capitalist classes. While acknowledging the
link, it would be a mistake to presume that these small entrepreneurs
depend entirely on state support. The three cases suggest that, even
though there is state support for small industry, many of the most suc-
cessful entrepreneurs have invested in business enterprises independ-
ently. Therefore the three groups of entrepreneurs should be viewed as
agents in capitalist development rather than simply as products of
state policy.
Typical of the behaviour of the three groups of businessmen in
central Gujarat, northern Malaysia and Central Java is the utilization
of various social and cultural strategies to enhance their social status and
to build up social networks that may further their business interests.
As rural entrepreneurs they belong to the newly rich classes in Asia
who often employ their wealth to acquire prestige and power through
investment in various social and cultural activities. Participation in social
activities such as gambling, womanizing and drinking parties helps to
establish personal contacts with potential clients and partners, and with
government and bank officials. Other strategies include membership
of and office-holding in educational organizations, business associations
and co-operatives. The principal goal of these activities is to develop
business contacts, but they are also a splendid way to raise social
standing, which in turn also contributes to entrepreneurial success, as
all three cases demonstrate.
On the whole, the recent economic wealth of the three groups of
rural entrepreneurs in India, Indonesia and Malaysia has brought them
the chance for more luxurious consumption, leisure time, a change in
the nature of the work performed by both male and female members,
and a more supra-local orientation in terms of economic activities and
social contacts. Notwithstanding this tendency towards a more urban
lifestyle and regional orientation, most of these entrepreneurs remain
strongly based in their own local and ethnic community. Among the
entrepreneurs studied, community, family status and family property
are still important social criteria in the selection of both a marriage
partner and a business partner. Not only do they choose business
partners from the same social and ethnic background, but they also
strongly and explicitly emphasize the kinship ties and family relations
that exist between the different partners.
Entrepreneurial development in rural areas may therefore have
various social outcomes, but it usually leads to some kind of economic
differentiation, which may be marked by symbols of social exclusivity,
as the three cases show. In all three settings the entrepreneurial groups
use social and cultural symbols to mark themselves off as separate classes,
such as educating their children beyond the usual standard, adopting
a distinctive lifestyle (often characterized by increased and conspicuous
consumption), and creating exclusive social networks among themselves
and with outsiders. In doing so, they are increasingly differentiated
from the rural communities from which they arose and have more in
common with town-based regional capitalists than with the farmers
and other rural residents in their locality.
‘ASIAN’ ASSUMPTIONS ABOUT THE EARLY EUROPEAN INDUSTRIALISTS

As pointed out in Chapter 1, the characterizations of entrepreneurs in
India, Indonesia and Malaysia as ‘commercialists’, ‘capitalist bureaucrats’,
‘statist capitalists’, and ‘dependent capitalists’ have in common latent
disapproval of the behaviour of the South and Southeast businessmen.
Underlying this common view of a deformed, pseudo- or non-genuine
nature of the capitalist class in South and Southeast Asia is the
assumption that – either at present or in the past, either in Asia or in
another part of the world – there once existed a class of pure, genuine
and true capitalists.2 Without actually referring to the European path
of industrial transition, it is this path and its generation of a class of
industrial capitalists that is frequently invoked as a model or paradigm
for the behaviour of the capitalists operating in South and Southeast
Asia today. It is generally assumed that the early European industrial-
ists, i.e. those entrepreneurs who operated in Europe at the time of the
Industrial Revolution – the mid-eighteenth to the mid/late-nineteenth
century3 – did meet the characteristics of true and genuine capitalists
which the present-day South and Southeast Asian entrepreneurs are
said to be lacking.
I name these assumptions about the early European industrialists
that underlie studies of Asian societies, ‘Asian’ assumptions. By ‘Asian’
assumptions I mean assumptions that underlie Asian Studies, more in
particularly studies in which references are made to the class of Asian
capitalists. ‘Asian’ therefore includes both the studies on Asia by Asian
scholars and by non-Asian, mostly Western scholars.
The ‘Asian’ assumptions about the early European industrialists
are not invented, but often have their origin in notions that can be
traced back in part to debates among European historians about the
nature of the Industrial Revolution in general and the emergence of
the early European industrialists in particular. Central to the ‘Asian’
notion of the Industrial Revolution is the idea that this period in
European history has to be characterized, first and foremost, as a
radical and sudden transformation of society. In this view, the changes
that took place in Europe between the mid-eighteenth and the mid/
late-nineteenth century were sweeping changes which signified a break
with the past in many aspects of economic life. The economic structure
of Europe after the mid-eighteenth century was completely different

from that of the period before. Two of the essential features of this
radical and sudden transformation are generally thought to have been
the emergence of a new production system, the factory, and the rise of
a new producer, the industrialist.
The emergence of the factory-based production system arose from
the demise of the putting-out and domestic system which had been
the dominant forms of production during the period preceding the
Industrial Revolution. The characteristic feature of the putting-out and
domestic system was that production took place in small household
establishments and domestic workshops. These systems of production
were basically a combination of domestic work and commercial
capitalism. At the top were rich men who were given various names by
contemporaries, but who are generally described by historians as
‘merchant-manufacturers’. They either placed orders with master
craftsmen in provincial towns, who then produced the desired goods
in small-scale domestic workshops, or brought in the raw materials
which they distributed to peasant-workers to process in their own cottages,
often using simple machines (Wolf 1982: 270). The characteristic
feature of the merchant-manufacturer was that he did not actively parti-
cipate in the production process. Basically, the merchant-manufacturer
was a merchant, a trader, not an industrialist; he was an organizer of
production and its financing, not a producer (Crouzet 1985: 5–6).
Many of these merchant-manufacturers did not confine themselves
to one line of business. They were often polyvalent, with multifarious
and widespread activities and investments. A number of them had
interests in several industrial concerns at the same time. In addition to
their chief interests, they were also involved in farming, cattle-fattening,
mining, malting, property ownership, retail trade and pawnbroking.
This behaviour could be observed among merchant-manufacturers
large and small, several of whom had their fingers in many pies. The
versatility of businessmen and the absence of specialization in invest-
ment is therefore usually considered a trait which was normal at a
time when functional specialization was little developed, but which
became obsolete with the advent of the Industrial Revolution (Crouzet
1985: 6–7).
Commencing in the mid-eighteenth century, factory-based produc-

tion is generally held to have become the dominant system of pro-
duction in Britain. What was new about this factory-based system was the
concentration of production in organizations under unified technical
management and ownership, the employment of labourers, and the
widespread introduction of technological inventions, especially of
power-driven machinery (Wolf 1982: 274). A vital component in the
factory-based system was the increase in fixed capital at an unprece-
dented scale. From being commercial capital, a preponderant amount
of capital became industrial, and from being floating and circulating
capital, it increasingly became fixed capital, mainly as a result of the
development of machinery, especially steam-power (Crouzet 1972a: 39).
The introduction of this new way of organizing production was
established by a new type of businessman, the industrialist, who at the
end of the eighteenth century was beginning to emerge in his own right
and in growing numbers. This new businessman is generally considered
to have differed from the old type of merchant-manufacturer in many
ways. Compared to the interests of the latter, production lay at the
centre of the industrialist’s work, and not at its periphery. No doubt,
merchanting skills, a sense of market opportunities and an ability to
deal with commercial problems were as important to the industrialist
as they had been to the merchant-manufacturer. In contrast to the
merchant-manufacturer, however, the industrialist is thought to have
intervened much more thoroughly and widely in organizing production.
He was viewed as a ‘practical man’, often his own technical expert
(Coleman 1973: 104).
Instead of dealing largely in liquid resources, as was typical for the
merchant-manufacturers, the industrialists are thought to have created
very great elements of fixed capital and re-embodied them in the
product over future time. They short-circuited and eventually eliminated
the various intermediaries – especially the domestic small master and
the merchant-manufacturer – who, under the domestic and putting-
out system, came between the labourer and the wholesale buyer of
finished goods (Crouzet 1985:9). They organized production, brought
together the capital and the labour force, selected the most appropri-
ate site for operations, chose the particular technologies of production
to be employed, devised new combinations of factors of production,

were sometimes even innovators who initiated decisive economic change
by breaking away from the constant trend towards equilibrium,
bargained for raw materials and found outlets for the finished product
(Payne 1974: 14). In short, it is generally held that the industrialists
who emerged during the Industrial Revolution were setting ‘a new
pattern of the complete businessman’,4 who gathered and merged a
large number of roles in a single person.
Who were these new and complete businessmen, these first indus-
trialists? Where did they come from and where did they acquire their
capital to start their industrial enterprises?
Central to the ‘Asian’ notion of the early European industrialists is
that these industrialists did not belong to the category of merchants or
merchant-manufacturers. There are some indications that, in the early
eighteenth century, large traders who had earned money from the inter-
national trade had invested some capital in industry. ‘The impression
gained from the literary sources is that, in the west of England at least,
the leading textile entrepreneurs were often exceedingly wealthy mer-
chants’ (Chapman 1973: 119). Central to the ‘Asian’ notion is that
such an extension of activity was not common among the European
merchants, nor was it common among the merchant-manufacturers.
On the whole, rich merchants and merchant-manufacturers in Europe
are thought to have rarely invested the profits of their mercantile or
putting-out ventures in industry; it was still rarer for them to be active
partners in industrial firms. It is generally believed that those merchants
and merchant-manufacturers who did own part of an industrial
undertaking were merchants or merchant-manufacturers first and fore-
most, and their industrial activities were of only secondary importance
to them (Crouzet 1985: 8 and 100).
This ‘Asian’ notion that the early industrialists in Europe did not
originate from the ranks of the merchants or merchant-manufacturers
follows Marx’s description of the second road to capitalism according
to which a section of the existing merchant class began to ‘take posses-
sion directly of production’, thereby ‘serving historically as a mode of
transition’, but becoming eventually ‘an obstacle to a real capitalist mode
of production and declin(ing) with the development of the latter.’5
This view has been extended by Maurice Dobb who emphasizes that
even though in the early days of the Industrial Revolution certain sections
of merchant capital did turn towards industry and began to control
production, at most they might have prepared the way for capitalist
industrialization, and may in a few cases have reached it, but they did
not bring about any thorough transformation (Dobb 1976: 161).
Following this line of thought, the instigators of the Industrial Revolu-
tion in Europe are thought not to have originated from the traditional
dominant classes of merchants and merchant-manufacturers but to have
come from those social strata which had so far played a less prominent
role in economic life: the class of independent, self-sustaining yeoman
farmers and small and middle-scale craftsmen. This notion owes a very
great deal to Maurice Dobb’s study in which he argued that it had been
Marx’s first road to capitalism which had been the dominant way in
which the transition from feudalism to capitalism in Europe took place.6
According to this ‘really revolutionary way’, a section of the rural and
urban producers themselves had accumulated capital and had taken
to trade, and in course of time had begun to organize production on
a capitalist basis, free from the handicraft restrictions of the guilds. It
is from the social stratum of independent, self-sustaining peasant-
kulaks and small and middle-scale craftsmen that the early European
industrialists are usually held to have originated. Being ‘new’ men, who
did not originate from the classes that dominated the old social structure,
these new producer-capitalists had every interest in dismantling the
various barriers and guild privileges that were part and parcel of the
traditional domestic and putting-out system of production (Dobb 1976:
277–278).
This idea of the ‘common’ origin of the early European industrial-
ists, as defended most prominently by Maurice Dobb, is closely connected
to a more general belief that the chief agents of productivity in the
early stage of European industrial development were mostly self-made
men. This belief was widely prevalent in the nineteenth century and is
clearly shown in the writings of contemporaries such as Samuel
Smiles, in his best-seller Self-Help, published in 1859, and P. Gaskell in
his detailed account Artisans and Machinery (1836). It is this belief of
the ‘self-made man’ who sprang from a ‘humble origin’ among peasant-
kulaks and craftsmen which has strongly influenced the ‘Asian’ notion
of the early European industrialists. The logical consequence of such
a view, the early European industrialists are held to have been inde-
pendent businessmen. Whatever profits they accrued were the fruits
of their own hard work. There was no government assistance; all of
them had to survive in an open, free market economy characterized by
fierce competition.
Born in humble circumstances (this is a standard expression), i.e. from
modest or even poor families, they had started life as wage-earners, often
working with their own hands; but, thanks to hard work, thrift, mech-
anical ingenuity and character, they had been able to set up their own
business, to develop it and eventually to become wealthy and powerful.
(Crouzet 1985: 37)
Bearing in mind the putative humble origin of the first industrialists

and the fact that the introduction of the factory system is thought to
have required large concentrations of fixed capital, it is therefore
generally assumed that ‘capital had been a serious problem during the
industrial revolution, and that innovators and entrepreneurs had been
hampered by its scarcity’ (Crouzet 1972a: 4). However, ‘of serious short-
age of capital we hear strangely little’ (Wilson 1972: 391–392). Presum-
ably a business was launched with the savings of the industrialist
himself and grew by the assiduous plough-back of profits (Campbell
and Wilson 1975: 15). And indeed, ‘it has often been said that the early
industrialists ploughed back their profits into their business’ (Heaton
1972: 419).
This way of financing industry through ploughing back of profits
was possible because of the stringent frugality and unremitting thrift
these industrialists are said to have widely practised as part of an over-
all sober lifestyle.
Their origins were often humble, and they were as hard on themselves as
they were on others; business was their consuming interest and they
continued to lead the simple lives to which they had been early ac-
customed, practising a stringent personal economy and a rigid austerity,
which maximised their savings. They withdrew from their business each
year only a small part of its profits for their personal needs, or else they
paid themselves a small salary, hardly any higher than a skilled workman’s
wage (Crouzet 1972b: 188).
This practice of taking but a small part of the profits for their personal
needs and leaving the remainder to accumulate in the business led to
constant reinvestment and to a rapid growth of capital.7 Establishing
and expanding an industrial enterprise by saving out of income has
frequently been regarded as the only form that accumulation can take,
or at least the only form it took during the Industrial Revolution
(Dobb 1976: 179).
This frugal living and saving behaviour of the first industrialists is
considered to be the result of a pattern of deferred gratification, which
may be defined as ‘readiness to forgo present gratification in order to
attain greater gratification of the same or another need at a later date’
(Breman 1969: 15). It is this postponement of immediate gratification
in the expectation of increased future benefits which is generally held to
have been a guiding principle among the early industrialists in Europe.
This method of industrial expansion through saving and reinvestment,
although in the first instance imposed by necessity, is said to have
quickly acquired a virtue of its own in the minds of these early Euro-
pean industrial entrepreneurs (Kemp 1985: 20). In this, they followed
the prevalent ethic among the bourgeoisie who are held to have valued
hard work and condemned idleness, and who frowned on spendthrift
behaviour and praised savings (Stearns 1975: 47).
Fine virtues though they may be, frugality and saving of themselves
did not automatically lead to increased production. The regular re-
production of capital by the early European industrialists, involving
the continual investment and reinvestment of capital for the end of
economic efficiency, is therefore usually not associated with a specific
saving and frugal behaviour but with an overall attitude among the
members of this class. Characteristic of this overall outlook, this very
specific kind of ethic is the continual accumulation of wealth for its
own sake, rather than for the material rewards that it could serve to
bring. Weber claims that it is this combination of a work drive and a
sober way of life that is the essence of the spirit of modern capitalism.
Those entrepreneurs who are associated with the development of
rational capitalism in Europe are said to have been characterized in
their behaviour by an integration of the impulse to accumulate with a
positively frugal lifestyle. ‘When the limitation of consumption is
combined with this release of acquisitive activity, the inevitable practical

result is obvious: accumulation of capital through ascetic compulsion
to save’ (Weber 1976: 172).
It is this capitalist spirit, this combination of a work ethos and a
sober way of life, which is usually associated with the category of early
European industrialists. Even though it was part of an overall ethic among
the bourgeoisie of that time, its exemplary protagonists are said to
have been present among those who initiated the process of industrial
growth in Europe. Within the class of early industrialists, the capitalist
spirit is generally thought to have been the way of life, the form of
consciousness that was best suited to the categories of yeomen and small
and middle industrialists, and was not to be found in the ‘hunger for
money’ and ‘greed for gain’ mentality, common among the monopolist
merchants and usurers who dominated the period preceding the Indus-
trial Revolution.
It was Weber who considered that the motivation underlying this
spirit of capitalism was of a religious nature: the Protestant ethic, the
desire to acquire property not for enjoyment but for augmentation in
the service of God and as a sign of His blessing.8 Although he emphas-
ized that ‘we have no intention whatever of maintaining such a foolish
and doctrinaire thesis as that the spirit of capitalism … could only have
arisen as the result of certain effects of the Reformation, or even that
capitalism as an economic system is a creation of the Reformation’
(Weber 1976: 91), religion is often considered to have been of importance
in stimulating the principle of deferred gratification among the early
European industrialists during their initial phase of capital growth.
The fact that many, nay the majority of eighteenth-century industrialists
belonged to noncornformist sects definitely reinforced their tendency to
abstinence, hard work and thrift, and helped to keep them faithful to their
simple and frugal way of life, even when they had made a fortune …, and
to discourage them from conspicuous expenditure or aping the upper
classes; thus religion was a factor in the rapid accumulation of capital
(Crouzet 1972b: 188–189).
In a nutshell, ‘Asian’ assumptions about the early European industrialists

consist of the following characterizations. Industrial growth in Europe
was set in motion by a specific type of industrialist who had a peasant-
kulak/yeoman or craftsman/artisan background and a single-minded

devotion to his business. For him, it was not the process of circulation
that was the decisive factor but it was the production process that lay
at the centre of his activity and concern. Instead of following a policy
of diversification like the merchant-manufacturers had done in earlier
days, the early industrialist pursued a strategy of capitalization with
resolute consistency by focusing all his energy on developing and ex-
panding his business. He possessed a strong work ethos and practised
a stringent personal economy and a rigid austerity. He reinvested the
results of his labour ethos and his sober way of life by expanding
production and realizing continuous technological improvements.
His behaviour was identical to the pursuit of profit, forever renewed
profit, by means of continuous reinvestments of his surplus through
expanding and improving production, all of this with no other purpose
than to generate more surplus on ever-expanding scale.
THE EARLY EUROPEAN INDUSTRIALISTS

To what extent is this characterization of the early European indus-
trialists, on which the ‘Asian’ assumptions are based, a valid character-
ization? At the risk of stating the obvious, it is important to emphasize
that a type of characterization as the one described above basically
ignores the possibility of diversity. Findings gleaned from economic
historical studies show, for example, that the characterization of the
early European industrialists as described above does not give a true
representation of the category of first industrialists in France, nor does
it give a true representation of all the categories of early industrialists
in Britain. Several economic historical studies of France point out that
the first French industrialists – i.e. those operating between ca. 1815
and 1870 – have to be characterized as conservative and consumption-
oriented industrialists who were more intent in enjoying their wealth,
power and prestige, than in pushing up the indexes production.9 With
rare exceptions, French enterprise was organized on a family basis,
mainly restricting its clientele to an intimate circle of friends and relatives.
The French businessman was considered to have been insufficiently
enterprising, preferring security behind tariff walls and seeking support
from the state rather than investing in modern techniques and pushing
into new markets (Landes 1972: 400–406; Kemp 1985: 60–69).
In an almost similar line, economic historical studies of Britain point
at the entrepreneurial failings of the second- and third-generation
industrialists in Britain who operated at the end of the nineteenth
century.10 They emphasize the waning of the entrepreneurial energies
of the founders’ descendants for whom the industrial enterprise ceased
to be an end itself and increasingly became a means for earning money
to support a luxurious lifestyle. With the members of the family more
actively pursuing their own interests outside industry, many of the
industrial firms were gradually allowed to run down. This overall
‘decline of the industrial spirit’ in the later nineteenth century was
caused, in part at least, by the fact that many of the industrial entre-
preneurs were too busy becoming gentlemen, living and spending on
a lavish scale (Coleman 1973: 97). They were often held to have been
more focused on spending their wealth than on earning money through
productive activities (Kemp 1985: 175).
These views of the first industrialists in France and the second/third-
generation industrialists in Britain do to a large extent give a stereo-
typed picture of their behaviour. Economic history with regard to the
industrial revolution in France and with regard to the late nineteenth-
century industrialization in Britain has gone through a process of
renewal and reappraisal.11 Here it is enough to emphasize that these views,
despite their stereotyped nature, point to the possibility of diversity
among the early European industrialists. They indicate that the ‘Asian’
assumptions about the early European industrialists have to be questioned
for at least these two categories of early industrialists in Western
Europe, one of them operating in Britain, the country that was the first
in the world to industrialize. Following this, the test case of the ‘Asian’
assumptions about the early European industrialists seems to be the
first industrialists in Britain, operating between the mid-eighteenth and
mid-nineteenth centuries. These industrialists belonged to the very
first industrialists in the world and are therefore considered to be the
classical case of the emergence of a class of industrial capitalists.12
Before I discuss the findings of various historical studies of these
first industrialists operating in Britain at the time of the Industrial
Revolution, it is important to emphasize that this field of study is still

blighted by a lack of detailed research at the factory level and of reliable
quantitative data on the origin and nature of the industrial entrepre-
neurs.13 On top of this problem of data scarcity and unreliability of the
data used, many studies turn out to be based on biased samples.14 This
in itself should make us suspicious of the validity of the ‘Asian’
assumptions about the origins and behaviour of the early European
industrialists, as presented in the previous section. This suspicion
increases when we take a closer look at the findings of the economic
historical studies of each of the various aspects of the origin and
behaviour of the first British industrialists. In this overview, I do not
pretend to give the subject an exhaustive treatment but focus only on
those aspects of the emergence of the first industrialists in Britain that
are important to understanding the discussion on the nature of the
capitalist class in South and Southeast Asia today.15
In contrast to the notion of the Industrial Revolution as a radical
and sudden transformation of society, recent research and analysis
support the view that industrialization in Britain was a gradual process
during the classic industrial revolution period (Cameron 1985: 2–9;
and O’Brien 1986: 294). This being so the inescapable conclusion has
to be that business organizations and procedures prevalent in the pre-
industrial persisted into the industrial economy where they co-existed
with other forms (Chapman 1973: 123–124; Goodman and Honeyman
1988: 208).
Furthermore, recent insights into the history of technology of the
eighteenth and nineteenth centuries challenge the view of rapid and
universal technical change embodied in conventional notions of the
Industrial Revolution. The substitution of machinery for labour, which
is an essential feature of the Industrial Revolution concept, was an
equally uneven and protracted process as was the introduction of the
factory organization (Goodman and Honeyman 1988: 205–206: Coleman
1973: 103; Stearns 1975: 84: O’Brien 1986: 294). It is equally unlikely
that the early stages of industrialization required such a hefty leap in
investment as has sometimes been supposed. Capital requirements by the
factory entrepreneurs were similar to those of the existing merchant-
manufacturers; a relatively small proportion of their capital needed to
be laid out in fixed plant and machinery (Kemp 1985: 18–20; Crouzet
1972b: 164–165). There is evidence too that many of the first industrial-
ists used various capital economizing devices to escape large outlays of
fixed capital (Heaton 1972: 414–415; Crouzet 1972a: 38).
Payne argues that only a handful of the major pioneers of the
Industrial Revolution would therefore apparently qualify to be called
innovating and genuine entrepreneurs, while the vast majority of such
businessmen appear to have been imitative (Payne 1974: 13–16 and
34–45). The nature of the growth pattern was often conservative, being
frequently characterized by sheer multiplication of existing plants and
processes producing a fairly limited range of related products. Many
small industrialists during the mid-nineteenth century did not even
want to grow because they wanted to remain independent entrepreneurs
who could run their enterprises all by themselves. They were able to
make comfortable profits, which strengthened their resolve not to
increase the scale of their operation beyond the size which would have
involved partially entrusting their businesses to managers recruited from
outside the family circle. All this made possible the continued existence
of numerous small, often weakly-financed family concerns, many of which
chose to specialize in the exploitation of only a limited portion of the
full spectrum of demand for related products (Crouzet 1985).
Instability in production was a common phenomenon among the
first industrialists in Britain. The mortality rates for these firms were
high; getting started was relatively easy, but staying in business turned out
to be much harder. Many bitter individual failures occurred, particularly
during the early decades of the nineteenth century, when many new
firms were established (Stearns 1975: 89). Instability was also common
in the organization structure among these first industrialists. Many
firms were partnerships, often small, family-linked partnerships. A
characteristic feature of these partnerships was ‘their rapid turnover,
the frequent changes among their members; partnerships were un-
ceasingly created, supplemented, terminated. Indeed, their death rate
was high; many factories or works had a chequered history and changed
hands at frequent intervals, while many industrialists moved from mill
to mill – several times in some cases – during their career’ (Crouzet
1985: 59).
All the evidence points to the fact that plurality of interests was
common among the entrepreneurs of the Industrial Revolution. It has
been pointed out that, especially in the eighteenth century, men of
capital were frequently interested in several enterprises of different
kinds. In his study, Industrial Capital and Landed Investment, E.L.
Jones, for example, remarks that ‘the economic interests of the truly
affluent and most powerful in trade, industry, and land did overlap in
England’ (Jones 1974b: 161). Industrial and commercial wealth was
invested in land, while landowning and commercial wealth flowed into
mining and industry (Crouzet 1972a: 54–55). Many of the richer indus-
trialists were as it were brasseurs d’affairs – rich people who had their
fingers in several different pies, who were simultaneously involved
in, say, trade, banking, landowning, mining and industry (Crouzet
1985: 63).
Following this brief description of the economic behaviour of
these first industrialists in Britain, there is a common question which
must be asked about these men: where did they come from and from
where did they obtain their capital to start their industrial enterprise?
Following Maurice Dobb’s view, derived from Marx, the really revolu-
tionary transformation of production and the breaking of the control
of merchant capital over production was accomplished by men coming
from the ranks of former craftsmen. Some of the first industrialists
were indeed craftsmen who had assumed the role of manager and owner
of the means of production by investing their capital in the employ-
ment of other smaller craftsmen (Crouzet 1985: 31). Undeniably the
class of artisans was the breeding-ground for several famous machine-
makers, including the greatest of them James Watt, who was an
instrument-maker before becoming interested in steam-engines. On
the whole, however, the rise among the craftsmen of a richer, capitalist
element did not take place on a large scale.16
It now seems that the role of merchant-traders in the formation of
the industrialist class is not as negligible as has often been main-
tained.17 Their initiative in industrial investment did not come from
the foreign trading companies, but lay with the humbler provincial
middle bourgeoisie, of which the members were less privileged and less
wealthy but more broadly based.18 Though important this category of
traders was surpassed by businessmen who were already engaged in

industry, i.e. by the group of manufacturers or merchant-manufacturers
in domestic production, and owners and managers of already centralized
establishments.19 Pertinently, many businessmen played the dual role
of merchant-trader and merchant-manufacturer simultaneously.20 By
the end of the eighteenth century, for example, many merchant-
manufacturers established spinning mills and calico printing works or
one or the other, while continuing to put out work to domestic
handloom weavers. During this same period, many merchants gained
absolute control over production by becoming manufacturers them-
selves. As a result, merchants and manufacturers were often united in
one person (Wilson 1972: 383).
On the question of the sources of capital, i.e. the financing of
industrial enterprises, both at the time of their foundation and during
their expansion, a large amount of data has been collected by various
scholars. The idea that many, if not most, industrialists were self-made
men – which was a popular view during nineteenth century – was
exposed as a myth by twentieth century economic and social historians.
The number of industrialists, even in the Industrial Revolution, who
began without capital or connections of any kind was a minute fraction
of the whole (Crouzet 1985: 50–51). In many enterprises, capital from
diverse sources was used. Small partnerships were common, usually
consisting of a group of relatives or friends, though sometimes a stranger
was admitted as a sleeping partner (Payne 1974: 18–19; Heaton 1972:
416–417). Most firms were started with initial capital which had been
accumulated through pre-factory system manufacturing or merchant-
manufacturing activities, or through the trading of industrial raw
materials or finished articles (Heaton 1972: 416–417; Crouzet 1972b:
170). Small artisan entrepreneurs for example often obtained outside
help in order to found large factories. ‘Of course we can find some which
were founded solely on “artisan” or “commercial” capital, but generally
speaking an entrepreneur had to rely on various sources to collect enough
capital to found a sizeable new undertaking’ (Crouzet 1972b: 183).
There can no longer be any doubt that the founders of factory
industries obtained capital from diverse sources, but that these sources
were of unequal importance; industry itself supplied most of the capital
for its own transformation, while commerce provided an important

supplementary reservoir. The part played by bank capital seems to
have been very small (Crouzet 1972b: 182–183). Institutional sources
hardly played a role in the supply of capital. Both private bankers and
their joint stock descendants were commercial bankers, not investment
houses (Heaton 1972: 416–417).
Overall, therefore, external supplies of capital were ‘less important
than the personal or family funds which the industrialists scraped
together and ventured in the new productive equipment. The power
of heredity and the vitality of the family as an economic group stand
out whenever we examine the history of the pioneer manufacturers’
(Heaton 1972: 416–417). In order to expand, the pioneer ‘firms usually
borrowed – on mortgage, bond or note of hand – from family and
friends, solicitors and attorneys (or through their agency), or from other
manufacturers or merchants with whom they had connexions’ (Crouzet
1972b: 191). Payne shows that ‘although the firms that were limited
were by far the most important in their spheres of activity, judged by
size of unit and amount of fixed capital, the vast majority of the manu-
facturing firms of the country continued to be family businesses in the
mid-1880s’ (Payne 1974: 18–19). He even suggests that ‘the over-
representation of non-conformists among the entrepreneurs who attained
prominence may be explicable not in terms of their religious precepts,
their superior education or their need for achievement, but because
they belonged to extended kinship families that gave them access to
credit which permitted their firms, and their records, to survive, while
others, less well connected, went to the wall’ (ibid.: 26).
Taken together, these economic historical studies reveal the variety
of the sources of capital which had been used for establishment, the
resorting by the first industrialists to the resources of their relatives
and friends, on a personal basis, and the movement of capital between
various branches of industry. In spite of all these financial sources, it
is often emphasized that what permitted the Industrial Revolution to
proceed at a relatively swift pace was the fact that enterprises increased
their capital by ploughing back the greater part, or even the whole, of
their profits immediately, regularly and almost automatically. Entre-
preneurs who operated at the inception of the Industrial Revolution
are said to have immediately reinvested most of their profits (and even
the interest on capital) in order to finance expansion.
It is probably true that this state of affairs enabled a number of
enterprises – possibly most of them – to finance expansion entirely from
their own sources (Crouzet 1972b: 190–195). However, although there
is every reason to believe that most of the additional capital required for
expansion was indeed provided from the savings of the industrialists,
this does not necessarily imply abstemious frugality and unremitting thrift
as part of an overall sober lifestyle on the part of the industrialist’s
family. In the first industrial period, many industrialists did indeed
live relatively simply: they resided close to their works, often in an
adjacent house; the daily tour of the various departments was part of
their way of life; they spent long hours at work, twelve or more a day,
and closely supervised everything which went on in their factories.
However, ‘once they had built up their businesses and secured their
fortunes, they nearly always relaxed somewhat, withdrawing more
money and adopting a more comfortable way of life. Some of them
bought landed estates and built themselves large mansions’ (Crouzet
1972b: 189). We must therefore not over-emphasize the frugality of these
early industrialists. They were conscious of the need to save money,
for this was the source of investment funds, but they also quickly
espoused new pleasures in the guise of consumers (Heaton 1972: 421).
They were eager to acquire a new standard of living and slowly began
to separate themselves from the rest of the middle class. More and more
successful business families sent their sons to public schools and many
of them bought large mansions in which they employed servants and
pursued a lifestyle of luxury and conspicuous consumption. E.L. Jones,
for example, remarks that
much of the money which passed out of industry into land was
squandered on prodigious bouts of port-drinking, on assemblies, race
meetings, fox-hunts, pheasant battues. Resources were dissipated on un-
productive activities like the gyrations of armies of flunkeys, the sonorities
of private chapel building, the ordered informality of landscape gardening,
the contrived futility of mock ruins and follies. A share of industrially
created wealth constantly disappeared in these bonfires of good living for
a small, landed class or was immobilised in their ornaments (Jones 1974b:
179–181).
During the first phase of European industrialization, the ‘status of

many families which produced industrialists was rather low, and even
when they had made fortunes, industrialists were heartily despised by
the traditional ruling class for their low birth and bad manners, and for
decades they remained beyond the pale of “gentle” society’ (Crouzet
1985: 142). In England, social standing depended to a greater extent
than elsewhere on the ownership of landed property (Habakkuk 1953:
15–16). The purchase of landed estates by the first industrialists was
therefore part of a widespread emulation of aristocratic lifestyles by the
wealthier sections of the entrepreneurial class (Jones 1974b: 160–162).
New aspirants to the landed gentry came from many industries,
sometimes acquiring land by marrying into this class or even from time
to time into the aristocracy, more often by straightforward purchase.
It is evident from the terms of the marriage settlements between aristo-
crats and bourgeois heiresses that considerable material gains were
necessary to induce the great families to contract them (Habakkuk 1953:
18–19). Those industrialists who entered county society through the
purchase of land wanted to seal their new status by reaching new
heights of splendour in their residences, extensive landscaping of their
park, and projects for improvements on their farms (Jones 1974b:
162–178).
These changes in the lifestyle of the members of the industrialists’
families were not restricted to the males only, but affected the life of
the women as well. In his study, Leisure in the Industrial Revolution,
Hugh Cunningham, for example, describes the lifestyle of the middle-
class women in mid-nineteenth century Britain in the following ideal
form:
The perfect lady of the mid-Victorian years removed not only from worldly
concerns, but also from household ones, was a symbol of her husband’s
wealth and status. Conspicuous leisure and conspicuous consumption
were a mark of status, their utility for purposes of reputability lying in the
element of waste common to both – waste of time and effort, or waste of
goods. Dress for women, therefore had to be both expensive and im-
practical for productive labour; designedly uncomfortable, it testified in a
general way to woman’s economic dependence on man, and specifically to
the status of a particular man. These concerns with status led, as is well
known (and was much deplored at the time), to late marriages, so that the
husband, well set in his career, could keep his wife in the manner which
she had been led to expect as daughter (Cunningham 1980: 131).
Overall, consumption and leisure were quickly becoming part of the

lifestyle of the new industrialists. In this, they followed a general pattern
of changes in lifestyle by members of economically upwardly mobile
classes in society, as described by Thorstein Veblen in The Theory of the
Leisure Class. In this study on social climbing in late nineteenth-
century America, first published in 1899, Veblen emphasizes that ‘in
order to gain and to hold the esteem of men it is not sufficient merely
to possess wealth or power. The wealth or power must be put in
evidence, for esteem is awarded only on evidence’ (Veblen 1931: 36–
37). He shows that in many instances conspicuous abstention from
labour therefore became the conventional mark of superior pecuniary
achievement and the conventional index of reputability; and conversely,
since application to productive labour is a mark of poverty and sub-
jection, it became inconsistent with a reputable standing in the com-
munity. Habits of industry and thrift, therefore, were not uniformly
furthered by a prevailing pecuniary emulation. Conspicuous con-
sumption of valuable goods was also a means of reputability. This need
of vicarious leisure, or conspicuous consumption of service, was for
example a dominant incentive to the keeping of servants (Veblen 1931:
38–39; 62–65; and 73–76).
The ultimate industrial consequences of this draining of capital are
hard to assess. The opportunity costs of land purchases were high and
economic growth could surely have come faster without them. While
part of the fortunes made in industry did leak into landownership and
into a conspicuous lifestyle, from the common-sense point of view it
appears that since manufacturing did expand, the counter-attractions
of wealth and rural life may have retarded but could not block in-
dustrialization (Jones 1974a: 105–106; and 1974b: 179–181). Continuous
investments and reinvestments in industry by these early industrialists
therefore did coincide very well with an increase in wealth and
conspicuous consumption.
There seems to be little doubt that social ambition provided an
immensely powerful motor of business activity at the time of the
Industrial Revolution. The pursuit of wealth was the pursuit of social
status, not merely for oneself but for one’s family, and this often meant
the acquisition of a landed estate or the purchase or building of a great
house. Coleman therefore argues that ‘no more then than today was
the maximization of profits an end; it neither was, nor is today, the
only means employed. … The ends are more intangible and varied:
profits are a path to prestige, power, status, personal satisfaction,
adventures made, purpose and achievements gained’ (Coleman 1973:
95–96). In a similar vein, P.L. Payne states that
those who have argued that this pursuit of non-economic ends inevitably
involved a haemorrhage of entrepreneurial talent as the nineteenth
century progressed, should perhaps balance this against what might be
called the demonstration effect of conspicuous consumption or social
elevation on the new men crowding in to emulate those who had already
succeeded. One cannot help believing that many new thrusting firms
would not have come into existence, or small established companies grown,
had not their founders or owners, or their socially ambitious wives, seen
or been aware of the tangible results of commercial or industrial success.
… These manifestations of success served to encourage the others. (Payne
1974: 25–26)
The foregoing social and economic profile of the early industrial

entrepreneurs clearly indicates that many of them were drawn from
exactly the same class as before. The new industrial changes in late
eighteenth-century Britain were linked organically and personally to
an older economic world at every stage (Wilson 1972: 379). Only to
some extent was the industrialist who emerged during the Industrial
Revolution a new man. Continuity rather than discontinuity was the
rule. Many of the first industrialists in Britain originated from the
traditional dominant class of traders and merchant-manufacturers,
who followed a strategy of diversification of their economic and social
interests along with expanding their industrial affairs. Guided by a short-
time horizon, these industrialists often did not reinvest their profits in
the same enterprise but were notoriously quick to spread their risk by
investing in different types of economic activities, either simultaneously
or successively. Mobilization of capital and organization of the work
was often done along the traditional, pre-capitalist lines of family and
kinship. Although many of the first industrialists in Britain followed a
lifestyle of frugality and sobriety, for many others investments of capital
in their economic undertakings coincided with a lifestyle of luxury

and consumption.
IN SEARCH OF A COMPARATIVE FRAMEWORK

It is generally assumed that the emergence of the capitalist class in
South and Southeast Asia is a historically unique phenomenon and
the factors leading to it are so specific that they cannot be compared
with the rise of the early industrialists in Europe. Any comparison of
current industrialization in South and Southeast Asia with the
European path to industrial transition is often regarded as historical
determinism and therefore outrightly rejected.21 To a large extent, this
is of course correct. History does not repeat itself mechanically. A
nineteenth-century pattern of development could hardly be repeated in
detail today. All processes of change have their own prerequisites, which
will differ from country to country and from one time to another.
That the emergence of a capitalist class in South and Southeast Asia
would be an exact duplicate of the rise of the class of industrial
capitalists in eighteenth- and nineteenth-century Europe is of course
ridiculous and should indeed be rejected out of hand.
Having accepted this, there is some danger in arguing that every
comparison of the emergence of the capitalist class in South and
Southeast Asia with the rise of the class of industrial capitalists in
Europe is always to be regarded as historical determinism and there-
fore to be rejected under all circumstances. The rejection of general
theoretical models for comparative study after the 1970s led to a con-
centration of research on Asia in its own right. The subsequent trend
has been to emphasize the cultural uniqueness of business organization
in different contexts, as seen for example in the literature on Indian
business communities and Chinese business networks. Cogently, the
terminology employed to characterize the class of present-day capitalists
in South and Southeast Asia shows that this has not prevented
comparisons with their European counterparts from taking place, but
has ‘forced’ these comparisons to get below the surface and thereby to
become unverifiable. As a result, most references to the pseudo- or
non-genuine capitalist nature of the present-day South and Southeast
Asian entrepreneurs are based on assumptions about the origins and
nature of European industrialists of which the validity is seldom

questioned. Viewing the persistency and value attached to these character-
izations, it is important that these assumptions are made explicit and
are tested on their tenability.
Economic historical studies on the early European industrialists,
as discussed in this chapter, show that most of the ‘Asian’ assumptions
about the European industrialists are not tenable, not even for the
‘classical case’ of the first industrialists in Britain. They point out the
fact that, because of lack of detailed research at the factory level and
because of lack of reliable quantitative data, little can be said with
certainty about their origin and nature. This in itself already casts doubt
on the validity of the ‘Asian’ assumptions about the early European
industrialists. From the findings of the economic historical studies on
different sections of the first industrialists in Britain, as they were
presented in the foregoing section, it appears that these ‘Asian’ assumptions
are based on a stereotyped model and present us with a distorted view
of the emergence of the class of industrial capitalists in Europe.
These ‘Asian’ assumptions/myths about the emergence of the class
of industrial capitalists in Europe have already often been challenged
and invalidated by European economic historians for quite some time.
In his study, British Entrepreneurship in the Nineteenth Century,
published in 1974, P.L. Payne, for example, argues that the pioneer indus-
trialists do not fully deserve the notion of high quality of entrepre-
neurial performance that is usually attached to them. Based on an
overview of the studies available at that time, he questions the assump-
tion that drive and dynamism were characteristic features of the British
entrepreneurs of the Industrial Revolution (Payne 1974: 30–31).
It is a curious fact that studies which have made so many con-
tributions to a revision of old myths regarding the history of South
and Southeast Asia have seldom made use of new insights among the
European economic historians to question their own view of the
origins and nature of the class of European industrialists on the image
of which they have characterized the emergence of the present-day
capitalist class in Asia as being of a deformed, pseudo- or non-genuine
capitalist nature. The fact that scholars studying Asian society do not
question their assumptions on Western society, but accept these notions
as the true image, is not simply a matter of ignorance, but more of a

choice for ideology over knowledge, as argued by Heather Sutherland
(1993). She emphasizes that the common view of Asian ‘economic
backwardness’ as being rooted in the failure of Asian societies to main-
tain the ‘proper’ distinctions between political and economic spheres
is based on ideologically inclined misreadings of European history.
Her conclusion that ‘all too often, our ideas of the past are dominated
by an idea of “progress”, derived from simplified myths about
European industrialization and growth’ could equally well apply to
our ideas of the present: ‘While recent research has modified our views
of those sturdy entrepreneurs who set us happily upon the right path,
the comforting folk-tales still lurk in our memories and influence our
assumptions’ (Sutherland 1993: 11).
It is this simplified image and lack of historical perspective regard-
ing the roots of European capitalist development that has enabled
scholars studying Asian society to conclude that South and Southeast
Asian industrialization seems to merit a terminology specific to the
region. Based on an unchallenged, stereotyped impression of the be-
haviour of the early European industrialists, who are characterized as
true and genuine capitalists, it is relatively easy, but highly questionable,
to argue that the present-day South and Southeast Asian industrialists
should be characterized as a class of deformed, pseudo- or non-
genuine capitalists.
Moreover, our evaluation of the specific characteristics of Asian
entrepreneurs has undergone several changes over time. In the 1960s
and 1970s entrepreneurial characteristics of personalized management,
economic diversification, collectivism, familism, close state–business
relations and an emphasis on social status, were soundly criticized by
both Western and Asian scholars and policy makers who considered
them to be one of the main causes of the backwardness of Asia. These
critics argued that impersonal management practices, individualism,
open competition and frugality were the only ways to compete success-
fully in the modern world economy. Following the rise of East and
Southeast Asian economies, this notion was widely challenged in the
1980s and 1990s. It was then argued that the personalized management
practices in diversified enterprises, collective forms of business
organization along traditional lines, close state-business relations and

an emphasis on social status, have all been crucial factors in bringing
about the Asian miracle. More recently, this view has been challenged
again. The Asian crisis of 1997 seems to have set the stage for a return
to the earlier notion that the specific characteristics of Asian business-
men are responsible for the lack of economic progress in Asia. In these
analyses, the origin of the Asian crisis lies in the inability of Asian
businessmen to practise impersonal management styles, to confine
themselves to one line of business, to operate independently of others
and within a free market economy with minimum government inter-
vention, and to delay consumption expenditures by making sacrifices
now for the sake of future benefits.
These changing views on the behaviour of Asian entrepreneurs
again underline the need to develop a theoretical model for the com-
parative study of regional business classes that can help to explain the
similarities and the differences in their practices and characteristics,
but that is not arbitrarily based on a Western or Eastern model of
economic behaviour.22 Now that a significant body of knowledge about
economic development in Asia has been produced, the time has come
to look again at European history and contemporary developments,
employing insights gained from the Asian experience, and also for
experts on Europe to look at the Asian examples. Such a comparative
analysis needs to take into account the wide diversity in forms of business
organization and entrepreneurship within and between Asia and Europe,
and should look for the conditions that promote or inhibit the growth
of industrial entrepreneurship and investment without relying on Euro-
centric stereotypes of entrepreneurial behaviour. If the processes such
as those described in this book are understood within the overall
framework of the expansion of world capitalism – which while exerting
certain pressures towards uniformity also interacts with local structures
and cultures, thereby producing many variations – we will be able to
account for both similarities and differences in entrepreneurial behavi-
our at various times and places. Therefore, one aim of comparative
analysis should be to describe and account for various forms of entre-
preneurship without resorting to stereotypes of what constitutes ‘correct’
capitalist behaviour or capitalism proper.23
As already discussed, both the structural and cultural modes of

analyses by themselves have proved to be unsatisfactory for construct-
ing such a comparative approach. Both types of explanation, even when
employed in combination, tend to be deterministic, ignoring the role
of human agency. The structural approach views the macro-economic
or political environment as the main determinant of entrepreneurial
development, while the conscious human actor is all but forgotten. In
cultural analyses as well, actors seem to be entirely constrained, although
now by their cultural ‘baggage’. This neglect is curious because the
study of entrepreneurship, which often concerns unusual individuals
and singular success stories, should take the lead in exploring the inter-
connections between individual agency and wider social structures
and cultural traditions.24
The continuing hiatus between structural and cultural analyses
and disregard of agency reflect the failure of entrepreneurship studies
to catch up with recent advances in social theory.25 Two developments
concern us here. First, with the collapse of the traditional boundaries
dividing the social sciences there is an increasing interest in tracing
connections between, for example, the social and the economic. There
is a new awareness that the study of economic behaviour – whether that
of markets, firms, or individual entrepreneurs – cannot be abstracted
from the social institutions and systems of meaning in which it is
situated. In fact, this is an excellent field in which to explore such inter-
connections because business relations are a prime example of economic
activity embedded in social relations. The case studies presented in
this book reflect this understanding by presenting entrepreneurs as
social actors not merely as economic agents. These case studies also
demonstrate the impossibility of carrying on business without the support
of webs of social connections and more or less institutionalized structures,
as well as the central role that trust and familiarity play in maintaining
such relations. This insight serves to shatter the hoary myth of the self-
made man (itself part of early capitalism’s official ideology). As the
three empirical cases in this book demonstrate, entrepreneurs are
critically dependent on others for their success; moreover, they usually
become entrepreneurs as a group of some kind rather than as indi-
viduals. It is important to stress that these characteristics are not

confined to Asian business classes.
A second theoretical development has taken place in the anthro-
pological concept of culture. From a cultural perspective, an entrepre-
neur’s perception of the economic situation is crucial to his actions,
and this perception is filtered through a cultural lens. However, the
prevailing static notion of culture as a given ‘factor’, that either
promotes or inhibits entrepreneurial activity, needs to be replaced by
an understanding that culture is constantly recreated, invented and
negotiated by conscious actors. A ‘culture’ may provide motivation or
an ideological base for entrepreneurship, but an entrepreneurial
culture can also develop as a result of involvement in the market. In
fact, both happen simultaneously; just as culture is never static, the
economic ‘base’ is in constant flux and human actors are constantly
acting upon and reacting to it. Thus, a businessman develops economic
interests within a particular socio-cultural setting and makes decisions
based on his culturally conditioned understanding of his situation,
but at the same time he may transform his cultural orientations, and
those of his community or class, in the cause of his pursuit of his
economic interests. What is needed, then, is a theoretical framework
which integrates the analysis of political and economic structures and
marries an understanding of cultural context with a concept of human
agency. Such a model should enable individual action (the innovating,
risk-taking entrepreneur) to be related to the macro-economic processes
that constitute development, and it should facilitate the analysis of
specific cases without being too context-dependent.
For the study of entrepreneurial behaviour at the micro-level, and
especially as a means of incorporating agency into the analysis, Bourdieu’s
(1986, 1992) theoretical apparatus could be useful. Bourdieu has
shown how in the pursuit of their goals people, though constrained by
their cultural inheritance (habitus) and external structural factors,
employ strategies which are based on the conversion of one kind of
‘capital’ (social, cultural, economic) to another. This approach might
be particularly apt for the study of entrepreneurs. As the case studies
in this book illustrate, it is common practice for businessmen to allocate
resources to the building up of social capital (networks) and symbolic
capital (social status), and in the purchase of socio-political influence

– investments which in turn help in their business activities and in the
further accumulation of economic capital. Thus typical activities such
as the wining and dining of business associates and bureaucrats,
demonstrative expenditures on marriages, and buying the latest model
BMW, can be seen as rational investments in the accumulation of
capital, in Bourdieu’s broad sense of the term.26
While Bourdieu’s theoretical apparatus can help in this kind of
micro-level analysis of entrepreneurs’ activities, it leaves out the link-
ages between the micro- and macro-levels. One scholar who has explored
this problem is Baumol (1990). He argues that the common identifica-
tion of economic stagnation and decline with a decrease in the number
of entrepreneurs or a waning of entrepreneurial spirit is based on
wrong assumptions about what entrepreneurs are doing. Their main
objective is not the well-being of society but their own personal well-
being, defined in terms of wealth, power and prestige. Entrepreneurs
in society, according to Baumol, play a variety of roles, some of which
may not be constructive and which may even be damaging to the
economy. The role perceived to contribute the most to personal well-
being depends on the context within which an entrepreneur operates,
and wealth, power, and prestige are not always acquired in ways that
contribute to economic development.
A third approach to comparative research is the Weberian insti-
tutional approach advocated by Biggart (1991). When social actions
are repeated over time and are assigned similar meanings by self and
others, they become institutionalized; institutionalized action is
economically efficient because making decisions and carrying them
out becomes simpler when the actor can predict and understand the
actions of others. Biggart suggests that societies have varying deep-
rooted ‘institutional logics’ which pattern business relations as well
other social institutions (Biggart 1991: 222–223; Orru et al. 1991).
Therefore the Muslim businessmen in Indonesia operate most fre-
quently in individual enterprises along subcontracting relationships,
the Chinese entrepreneurs in Malaysia organize their companies along
extended family relations and within ethnic business networks, and
the Hindu industrialists in India work within joint-family businesses
and in partnerships with caste-members. Although there are important

differences among these forms of organizations which lead to variations
in labour relations, in the nature of subcontracting relations, in invest-
ment patterns and the like, they are all ‘network logics’. It could there-
fore be argued with Biggart that this approach can bring together both
the micro- and the macro-levels as well as address the problem of
structure and agency by focusing on the intermediate range – the insti-
tutions that shape economic activity and their reproduction through
social action.
By looking at actors’ strategies, which are goal-oriented (aimed at
accumulating power, prestige, wealth), within the context of certain
constraints (the socio-cultural and macro-economic environment), the
actions of individual entrepreneurs or business groups can be integrated
into a more general history and sociology of capitalist development.
Such an approach also addresses the important question of motivation,
which so concerned Weber, for social goals and ideational orientations
are seen to be inseparable from economic strategies of accumulation.
The actions of entrepreneurs, like those of any other social group,
cannot be understood in terms of their economic ‘interests’ alone.
Like everyone else they are also driven by the desire for prestige, social
status, or political influence (or, according to Weber, salvation; cf. Kelly
1992) – all non-tangible goals which are nonetheless salient for them.
A shift from the structural and cultural determinants of entre-
preneurial development towards a focus on human agency leads to the
view that small-scale entrepreneurs are not mere products of wider
economic processes or cultural systems, but are actors who are them-
selves bringing about these capitalist transformations. Businessmen,
small and large alike, act consciously, both collectively and individually,
to further their political, social, or economic goals. The strategies of
the rural entrepreneurs in India, Indonesia and Malaysia, as discussed
in this book, such as social climbing, accumulation of social capital
and development of socio-political influence, are employed by these
businessmen to boost not only their individual interests, broadly defined,
but also those of their own class or social group. If this is so, research
on rural capitalists can provide a means for studying processes of class
formation, which also has economic and political implications for the
societies concerned. A first step towards such an analysis is to acquire

more in-depth knowledge about entrepreneurs in different parts of
Asia and Europe, both now and in the past. I hope that this book has
contributed to that enterprise and will stimulate others to undertake
comparative studies of business entrepreneurship in different regions.
NOTES
1 The difference in emphasis on religion in the description of the three case
studies should therefore not be seen as evidence of differences in religious motiva-
tion between the three groups of entrepreneurs.
2 The argument that follows was published in an expanded version in an earlier
essay titled Asian Capitalists in the European Mirror (Rutten 1994).
3 This period differs for the different countries in Europe. For Britain the Indus-
trial Revolution is usually said to have taken place between the mid-eighteenth
and mid-nineteenth centuries. In other Western European countries, such as France
and Germany, industrialization started later and the Industrial Revolution is
usually thought to have taken place between the late-eighteenth/early-nineteenth
and the late-nineteenth centuries.
4 P. Mantoux, The Industrial Revolution in the Eighteenth Century; An Outline of
the Beginnings of the Modern Factory System in England, revised edition, translated
by Marjorie Vernon (London 1928: 386); quoted in Crouzet 1985: 9.
5 K. Marx, Capital, Vol. III, pp. 388–396.
6 Dobb’s study on the transition from feudalism to capitalism has provoked
varied reactions, many of which have been assembled in one volume by Hilton
(1976). I will return to this discussion in the next section.
7 Crouzet 1972a: 3. Crouzet refers here to T.S. Ashton, Iron and Steel in the
Industrial Revolution (Manchester, 1924), pp. 48, 156–161, 209–211.
8 Weber states that ‘in conformity with the Old Testament and in analogy to the
ethical valuation of good works, asceticism looked upon the pursuit of wealth as
an end in itself as highly reprehensible; but the attainment of it as a fruit of labour
in a calling was a sign of God’s blessing. And even more important: the religious
valuation of restless, continuous, systematic work in a worldly calling, as the
highest means to asceticism, and at the same time the surest and most evident
proof of rebirth and genuine faith, must have been the most powerful conceivable
lever for the expansion of that attitude toward life which we have here called the
spirit of capitalism’ (Weber 1976: 172).
9 See for example the studies by Cameron (1958), Hoselitz (1968), Landes
(1951 and 1972) and Kemp (1962).
10 See for example the studies by Kindleberger (1964), Aldcroft (1964) and
Wiener (1982).
11 Many authors have criticized the retardation or stagnationist thesis and have
pointed at the unreliability of the unflattering portrait of the first French industrial-
ists and the second/third generation industrialists in Britain, to which numerous
significant exceptions can be found. See for alternative viewpoints on the French
industrialists, e.g. Roehl (1976) and Cameron and Freedeman (1983). For alterna-
tive viewpoints on the British industrialists at the end of the nineteenth century,
see e.g. McCloskey (1970) and McCloskey and Sandberg (1971).
12 The Industrial Revolution in Britain was the first in a long line of similar
processes in Europe and is therefore often taken as the classical case or model.
Although today few economic historians are prepared to accept the idea of such a
model and increasingly view ‘the First Industrial Revolution as something of a
special and less of paradigm case for the economic history of Europe’ (O’Brien
1986: 297), it is on this British model, and the notions attached to it, that most
studies on South and Southeast Asia base their conclusions about the deformed,
pseudo- or non-genuine nature of the behaviour of its capitalist class.
13 There have been some attempts to solve the problem of availability of reliable
and unbiased data on capital formation and origin of the first European indus-
trialists. A pioneer and highly suggestive example of an attempt to build up a
representative sample of entrepreneurs is the study by S.D. Chapman of fixed
capital formation in the early cotton industry, published in two separate articles
(1970 and 1973). Another example is Crouzet’s project ‘of building up a “national”
sample, covering the main industries, except mining, including people from all
parts of the country [Britain], and dealing with individuals who were active
between the mid eighteenth and the mid nineteenth centuries’ (1985: 54). Based
on a wide variety of documents and sources, published and unpublished, he built
up two samples of over 200 and 300 persons respectively; one of 316 founders of
large industrial undertakings and one of 226 fathers of founders of large industrial
undertakings in Britain (ibid.: 54–56).
14 In his overview of the literature on British Entrepreneurship in the Nineteenth
Century, P.L. Payne (1974: 24) emphasizes that many studies on the early
industrialists in Britain are founded upon a biased sample, i.e. they do not provide
details of a representative collection of businessmen, but only of those who are
known to have been important or who were sufficiently successful to have created
conditions favourable to untypical longevity; hence the survival of their archives.
15 From early on, the tenability of the notions on which the ‘Asian’ assumptions
about the early European industrialists are based, have been questioned. Some of
the notions that were discussed in the previous section have been challenged right
from the moment they were aired and the discussions that followed have turned
into major debates. Max Weber’s thesis on The Protestant Ethic and the Spirit of
Capitalism, originally published as a two-part article in 1904–05, immediately
provoked a critical debate, which some 90 years later, has still not gone off the boil.
And Maurice Dobb’s Studies in the Development of Capitalism, originally published
in 1946, also gave rise to varied reactions which have become known as the debate
on The Transition from Feudalism to Capitalism (Hilton 1976).
16 Crouzet 1985: 112. It might have been the equation of qualitative significance
with quantitative importance that has led to the notion that the rise among the
richer sections of the craftsmen was the critically important process in the early
industrial development in Western Europe. Dobb himself admits that ‘the details
of this process are far from clear, and there is little evidence that bears directly
upon it’ (Dobb 1976: 134). This made Paul Sweezy remark that ‘…in fact, so little
evidence, even of an indirect character, seems to be available that one reviewer felt
constrained to remark that “it would have been desirable to find more evidence
for the view, derived from Marx, that the really revolutionary transformation of
production and the breaking of the control of merchant capital over production,
was accomplished by men coming from the ranks of former craftsmen”.’ (Sweezy
1976: 53–54).
17 See for example Hagen (1962) and of course the study by Dobb (1976).
18 Dobb 1976: 193. In the case of cotton manufacture, for example, the entre-
preneurs ‘were not the big London merchants of Blackwell Hall, the London cloth
mart, but rather the provincial merchants and their agents or factors involved in
the commercial networks of the putting-out system’ (Wolf 1982: 271–272).
19 In Crouzet’s samples, about one-fifth of the industrialists were sons of persons
already engaged in these kinds of industrial pursuits, while more than one-third
of them were themselves already engaged in such an industrial pursuit at the time
when they became industrialists (Crouzet 1985: tables 2 and 4) These figures fit in
well with those of other writers (see e.g. Coleman 1973; Chapman 1973; and
Goodman and Honeyman 1988).
20 Many of the firms were partnerships with frequent changes among their
members, as I have already indicated. Crouzet emphasizes that the alliance of a
young man’s entrepreneurial talent with the wealth of well-established senior men
was common during the Industrial Revolution. This raises difficulties for establish-
ing the background of the industrialists, in as much as in some cases it is not easy
to ascertain, among a group of partners, who is ‘active’ and who is ‘sleeping’: ‘a
man could be an active partner in one firm and a sleeping partner in another –
which, moreover, could be in a different branch of industry. More than this, the
social background of the managing partners was often lower than, or at least
different from, that of their sleeping associates; in the firm of Newton, Chambers
and Co., the active partners were professionals in the iron industry, the sleeping
partners were merchants and traders. The managing partners were the true indus-
trialists, and it could happen that eventually they bought out their more moneyed
but less active partners and acquired sole ownership’ (Crouzet 1985: 59).
21 Christer Gunnarson suggests that the outright rejection of the European
experience as an object of comparison for developments in Third World countries
can partly be explained by the Marxist and Rostovian connotation such a com-
parison involves. At a general level, both the Rostovian and the Marxist theory on
economic development argued that what the newly industrializing countries are
doing is to follow the road shown by the Western developed countries. It was Karl
Marx who stated that ‘the industrially more developed countries present to the
less developed countries a picture of the latters’ future’. W. Rostow followed a
similar type of generalization in his ‘Non-Communist Manifesto’ in which he
presented his take-off model of industrialization and economic progress in
different stages by making a generalization from one example, England, to claim
validity for all forms of development in the past, at present and the future. By
postulating that only one type of industrialization exists, i.e. the European type of
industrialization, of which the Third World type is a mere repetition, the Marxian
and Rostovian models represented a serious type of misinterpretation and thereby
gave comparative history a bad reputation (Gunnarsson 1985: 189).
22 The argument that follows was developed together with Carol Upadhya and
an expanded version was published in our joint introduction to Small Business
Entrepreneurs in Asia and Europe (Upadhya and Rutten 1997). However, I alone
am responsible for presenting it in its present form.
23 For an excellent example of a detailed comparative analysis of our views on
Asia and the West, see Jack Goody’s The East in the West (1996).
24 Biggart makes a similar analysis of the literature on East Asian economic organ-
ization, but adds a third category. In her succinct characterization, the political
economy approach emphasizes the role of the state in economic development:
‘economy produces and reflects structures of power’ (Biggart 1991: 204). In the
‘market approach’, employed mainly by economists, social organization emerges
from the rational calculation of individuals: ‘economy produces society’ (ibid.:
206). For the cultural approach, which views organizations as cultural systems,
‘society produces economy’ (ibid.: 206). Biggart argues that each approach has its
own advantages in highlighting certain aspects of development or for certain kinds
of analysis, but each also has limitations. The political economy approach lacks a
concept of agency, is reductionist and tends to be teleological; the market approach
is ethnocentric, presuming individuals act in the same way everywhere and are not
influenced by their social or cultural situations; and the cultural approach cannot
explain variation within a cultural region. Biggart advocates the development of
an ‘institutional’ approach, discussed in subsequent paragraphs, that would
combine the advantages of each of the above but overcome their drawbacks.
25 This may be due in part to the fact that the study of entrepreneurship has
always been something of an academic backwater in sociology, and even in
economics. Perhaps because entrepreneurship studies have failed to make much
progress beyond the original paradigms constructed by Marx and Weber, or
because of their close association with Parsonian-style modernization theory and
its conservative political implications, few scholars choose to study business
groups. Yet in the context of the increasingly rapid spread of global capitalism, the
incorporation of more and more people into its markets, and the recent emergence
of several Asian countries as exemplars of market-oriented development, it may
be time to bring these unresolved debates about the origins of capitalist entre-
preneurship back into academic discourse.
26 However, as Smart (1993) points out, this approach can easily lead to eco-
nomic reductionism, which views every social activity as oriented towards utility
maximization. Instead, it is important to keep in mind that every type of capital
is not freely convertible into another, and moreover that some imperatives or
constraints on social action are not economic.
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Index
agricultural development bumiputra entrepreneurs in

in central Gujarat, 41–43 Malaysia, 26, 135
in Central Java, 149–151
in the Muda region, 95–98 caste
artisans and industrial entre- and education, 81
preneurship and industrial entrepreneur-
Britain, 226, 227 ship, in India, 15, 17–19, 33,
Europe, 218, 222 210, 239; ~ in central
India, 15, 17–18 Gujarat, 45, 59–60, 62, 69, 89
Central Java, 153 and marriage, 81–82
Asian crisis 1997 and entrepreneur- Chinese entrepreneurship in
ship, 1, 236 Southeast Asia
Central Java, 165, 167, 180, 197, in Central Java, 160–161, 174
199, 203 debate on, 3, 27–32, 209
Indonesia, 9, 27, 30 family business and economic
Malaysia, 9, 27, 30 success, 3, 5, 28–30, 32, 209;
Asian miracle and entrepreneur- ~ and economic stagnation,
ship, 1, 24, 235 27–28, 32
associations, of businesses in the Muda region, 101–102,
entrepreneurs in South and 112–120, 136–141
Southeast Asia, 209, 211–212 Chinese family business
Muslim entrepreneurs in and economic stagnation, 27–
Indonesia, 23 28, 32, 114–115
rural entrepreneurs in the and economic success, 3, 5,
Muda region, 132–133 28–30, 32, 113–114, 209
rural industrialists in central rural entrepreneurs in the
Gujarat, 78–79; ~ in Central Muda region, 113–115, 239
Java, 175, 189–194, 202, 203 collectivism. See co-operation
commercial orientation/behaviour,
Baumol, William, 239 by entrepreneurs, 206
Bharatiya Janata Party (BJP), 91 central Gujarat, 88
Biggart, Nicole, 239–240 Europe, 216–217
India, 16, 18–20, 206
Bourdieu, Pierre, 238–239 Muda region, 145–146
263
South and Southeast Asia, 208 overseas Chinese business-

see also diversification men, 29
comparison rural entrepreneurs in the
between Asia and Europe, 7–8, Muda region, 101–102, 109–
214, 233–241 112, 116–117, 135, 136, 139,
between South and Southeast 143–146, 206
Asia, 2–7, 32–37, 206–213 rural industrialists in central
consumption, conspicuous Gujarat, 49–51, 55, 58, 88, 89;
businessmen in India, 16 ~ in Central Java, 161, 206
entrepreneurs in South and see also commercial
Southeast Asia, 213 orientation/behaviour
industrialists in Britain, 223, Dobb, Maurice, 218, 226
229–232; ~ in Europe, 222;
~ in France, 222 education
rural entrepreneurs in the industrialists in Britain, 229
Muda region, 126 Islamic schooling in Central
rural industrialists in central Java, 183–184, 188–190, 195
Gujarat, 71, 74, 82; ~ in rural entrepreneurs in the
Central Java, 182, 184–187 Muda region, 135–136
co-operation rural industrialists in central
Chinese businessmen in Gujarat, 69–70, 75, 77, 81, 90;
Southeast Asia, 28–30 ~ in Central Java, 165, 183–
entrepreneurs in South and 184, 188, 189, 190
Southeast Asia, 209, 210– enterprises, size of
211, 235–236, 237 in Britain, 225
industrialists in Britain, 225, in central Gujarat, 45
227, 232 in Central Java, 152–153, 157,
Muslim businessmen in 162
Indonesia, 22–24; ~ in in the Muda region, 100–101,
Malaysia, 23–24 104–105, 108–109
rural entrepreneurs in the entrepreneurship, cultural perspec-
Muda region, 112–120 tive on, 5, 33–34, 210, 237–238
rural industrialists in central Chinese businessmen in
Gujarat, 57–64, 78–79; ~ in Southeast Asia, 27–30, 31–32
Central Java, 169–179, 200– India, 14–16
203 Indonesia, 20–22
Malaysia, 21–23
de-industrialization debate on South and Southeast Asia,
India, 17–18 210, 233
diversification, economic Southeast Asia, 33–34
entrepreneurs in South and entrepreneurship, structural per-
Southeast Asia, 206, 207– spective on, 5, 33, 237
208, 235–236 Chinese businessmen in
Indian entrepreneurs, 19, 206 Southeast Asia, 31
industrialists in Britain, 226, India, 16–20, 33
232 Indonesia, 24–25
merchant-manufacturers in Malaysia, 24–25
Europe, 215, 222 South Asia, 33
Index 265
entrepreneurship, structural and Geertz, Clifford, 22, 34

cultural perspective combined, geographical mobility of entre-
34–36, 238–241 preneurs
ethnicity and entrepreneurship, 207 and fieldwork, 10
in Central Java, 160–161, 174, rural entrepreneurs in the
207 Muda region, 106–107, 110–
in India, 207 111, 119–120, 123–125, 127,
in Malaysia, 207 130–131, 142
in the Muda region, 101–102, rural industrialists in central
113–120, 121, 130–131, 136, Gujarat, 52, 71–72, 74–75,
144–146 82; ~ in Central Java, 181,
in South and Southeast Asia, 182–183
210 government policy, views on
in Southeast Asia, 33–34 entrepreneurs in South and
European entrepreneurship, Southeast Asia, 212
debate on, 214–234 rural entrepreneurs in the Muda
region, 133–135, 142–143
family structure rural industrialists in central
Muslim entrepreneurs, 4–5, Gujarat, 79–81, 84–86, 90, 91
22–23, 170; ~ in Indonesia, Green Revolution
22–23; ~ in Malaysia, 23 in central Gujarat, 43
rural entrepreneurs in the in Central Java, 151
Muda region, 112–113, 144 in the Muda region, 97
rural industrialists in central
Gujarat, 57–59; ~ in Central houses, residential
Java, 169–170, 177 industrialists in Britain, 229
family business rural entrepreneurs in the
Chinese entrepreneurs in Muda region, 123, 126–127
Malaysia, 113–115 rural industrialists in central
entrepreneurs in South and Gujarat, 70–71, 74; ~ in
Southeast Asia, 209, 235– Central Java, 182
236
industrialists in Britain, 225, independence
227, 232; ~ in Europe, 222; entrepreneurs in South and
~ in France, 222 Southeast Asia, 235
Malay/Muslim entrepreneurs industrialists in Britain, 225,
in Malaysia, 23–24, 115 227; ~ in Europe, 218–219
Muslim entrepreneurs in Malay rural entrepreneurs in
Indonesia, 22–24, 169–171 the Muda region, 115
overseas Chinese entrepreneurs Muslim businessmen in
in Southeast Asia, 3, 5, 27– Indonesia, 23–24, 168, 200
30, 32 rural industrialists in central
rural entrepreneurs in the Gujarat, 76; ~ in Central
Muda region, 113–115 Java, 168, 200, 202, 239
rural industrialists in central Indian entrepreneurship
Gujarat, 57–59, 89, 90; ~ in commercial orientation, 2–3,
Central Java, 169–171, 176– 5, 16, 18–20
178 cultural perspective on, 14–16
debate on, 2–3, 14–20, 87, 206 rural entrepreneurs in the

structural perspective on, 16–20 Muda region, 103–105,
individualism, 210–211. See also 137–139, 145
independence rural industrialists in central
industrial revolution in Europe, Gujarat, 51–55, 88; ~ in
main characteristics, 214–216, Central Java, 162–163
221–222 investments, sources of
investments, in agriculture industrialists in Britain, 227–
entrepreneurs in South and 228
Southeast Asia, 207 rural entrepreneurs in the
industrialists in Britain, 229– Muda region, 137–139
230, 232 rural industrialists in central
rural entrepreneurs in the Muda Gujarat, 54; ~ in Central
region, 103, 131,137–138 Java, 161
rural industrialists in central irrigation in agriculture
Gujarat, 49; ~ in Central in central Gujarat, 43
Java, 161, 167 in Central Java, 149
investments, in industry in the Muda region, 96
entrepreneurs in South and
Southeast Asia, 207 joint or extended family
rural entrepreneurs in the and economic diversification,
Muda region, 102, 137–139 58, 64–66, 112–113, 114
rural industrialists in central entrepreneurs in South and
Gujarat, 53–55; ~ in Central Southeast Asia, 211
Java, 162–164, 165–167 rural entrepreneurs in the Muda
investments, in trade region, 112–113, 115, 239
rural entrepreneurs in the rural industrialists in central
Muda region, 102, 137–139 Gujarat, 58–59, 64–66, 89,
rural industrialists in central 90, 239; ~ in Central Java,
Gujarat, 49–50; ~ in Central 169–170, 173
Java, 161
investments, outside agriculture/ labour,
industry/trade in combine enterprises in the
entrepreneurs in South and Muda region, 121
Southeast Asia, 207 contract and piece-rate, 67,
rural entrepreneurs in the 68, 207
Muda region, 102, 138–139 in industrial enterprises in
rural industrialists in central central Gujarat, 45, 66–69; ~
Gujarat, 50–51; ~ in Central in Central Java, 157, 162, 172,
Java, 161 178, 179–180
investments, reinvestments in in South and Southeast Asia,
business 207
entrepreneurs in South and leisure
Southeast Asia, 208 industrialists in Britain, 229,
industrialists in Britain, 228– 231
229, 231, 232; ~ in Europe, rural entrepreneurs in the Muda
216, 219, 220, 222 region, 127–129, 137–141
Index 267
rural industrialists in central mechanization in agriculture

Gujarat, 69, 71–72; ~ in in central Gujarat, 43
Central Java, 185–188 in the Muda region, 97–100,
life-style 105–109
entrepreneurs in South and merchants. See traders and
Southeast Asia, 212–213 industrial entrepreneurship
and ethnicity in the Muda migration. See Patidar community
region, 125–126, 136–141 Muda Agricultural Development
industrialists in Britain, 223, Authority (MADA), 96, 98, 132
229–233; ~ in Europe, 219–
222; ~ in France, 222 Muslim entrepreneurship
rural entrepreneurs in the in Central Java, 160–161, 174,
Muda region, 124–129, 195–200, 200–203
136–141, 210 cultural perspective on, 20–23,
rural industrialists in central 209
Gujarat, 69, 70–73, 74–75, debate on, 3–4, 20–27, 200–
89, 92; ~ in Central Java, 203, 209
182–188 in the Muda region, 101–102,
115, 136–137
lower classes and poverty, views on structural perspective on, 24–26
rural entrepreneurs in the
Muda region, 133, 142–143
rural industrialists in central Nahdatul Ulama (NU), 193, 195–
Gujarat, 80–81, 84–86, 91 196, 199
networks, of businesses, 238
machinery. See mechanization in Southeast Asia, 210
agriculture; technological overseas Chinese entrepreneurs,
development 29, 211, 239
Masjumi, 189, 193 rural entrepreneurs in the
Malay entrepreneurship Muda region, 117–118, 239
in the Muda region, 101–102 New Economic Policy (NEP) in
see also Muslim entrepreneur- Malaysia, 25, 133, 134, 135, 144
ship nuclear family firm
marketing Muslim entrepreneurs, 4–5, 22–
rural entrepreneurs in the 23, 170–171, 209; ~ in Indo-
Muda region, 105–107, 108 nesia, 22–23; ~ in Malaysia, 23
rural industrialists in central rural entrepreneurs in the
Gujarat, 51–52, 56–57, 87– Muda region, 112
88; ~ in Central Java, 153– rural industrialists in central
155, 160, 167, 172–173, Gujarat, 57–58; ~ in Central
marriage and social customs Java, 170–171, 173
Southeast Asia, 213 occupational background
industrialists in Britain, 230 rural entrepreneurs in the
rural industrialists in central Muda region, 103
Gujarat, 81–82, 89; ~ in rural industrialists in central
Central Java, 184–185 , 197 Gujarat, 51, 87; ~ in Central
Marx, Karl, 35, 217, 218, 226 Java, 161–162
Partai Islam (PAS), 134 putting-out in Europe, 215. See

Partai Kebankitan Bangsa (PKB), also subcontracting
196, 200
partnerships reinvestments. See investments,
entrepreneurs in South and reinvestments in business
Southeast Asia, 213 religion and entrepreneurship
industrialists in Britain, 225, in Britain, 228
227 in China/Confucianism, 27–
rural entrepreneurs in the 28, 31
Muda region, 101, 115–117, Hinduism, 15, 17
119–120, 136 Islam, 3–5, 20–22, 189, 190,
rural industrialists in central 195–200, 200–203
Gujarat, 60–66, 89, 240; ~ in Protestantism, 221
Central Java, 163, 166, 167, Southeast Asia, 33–34, 210
173–175, 198 rent incomes
Patidar community Indonesia, 4
economic dominance in Malaysia, 4
Vepargam/Udyoggam overseas Chinese businessmen
(research villages), 45 in Southeast Asia, 31
education, 69–70, 81 rural capitalists, definition of, 9
joint family, 58–59, 89
lower castes, views on, 81, 91 rural diversification, rural
marriage, 81–82, 89 industrialisation, 8
migration, 65, 82–83, 91 in central Gujarat, 41–44
participation in local politics, in Central Java, 151–157
78, 90 in the Muda Region, 97, 143–
partnerships, 63 147
residential houses, 70–71 in Vepargam/Udyoggam, 46–48
social dominance in central
Gujarat, 44–45 social distance
Payne, P.L., 217, 225, 227, 228, entrepreneurs in South and
232, 234 Southeast Asia, 213
politics, participation in industrialists in Britain, 229
entrepreneurs in South and rural entrepreneurs in the
Southeast Asia, 213 Muda region, 128–129, 141
rural entrepreneurs in the rural industrialists in central
Muda region, 133–134 Gujarat, 69–75, 86, 89–92; ~
rural industrialists in central in Central Java, 184–188,
Gujarat, 77–78, 91 200
rural industrialists in Central state intervention and entre-
Java, 175, 189, 193, 195–196 preneurship
poverty, views on. See lower Europe, 219
classes France, 22–223
Indonesia, 4, 24–25
pribumi entrepreneurs in Malaysia, 4, 24, 25
Indonesia, 26, 196–197, 199 overseas Chinese businessmen
‘Protestant ethic’ thesis, 14, 17, in Southeast Asia, 30–31
22, 28, 33, 220–221 South and Southeast Asia, 211
Index 269
state support and industrialisation traders and industrial entre-

in central Java, 164, 176, 191– preneurship
192, 194, 196–197, 199 Britain, 226–227, 232
in France, 222–223 central Gujarat, 87
in South and Southeast Asia, Central Java, 167, 173–174
212, 235–236 Europe, 215, 217–218
status, social, 239, 240 India, 15–19
entrepreneurs in South and South and Southeast Asia, 208
Southeast Asia, 212–213, 235
industrialists in Britain, 229– United Malays National Organiza-
232 tion (UMNO), 133, 134
middle class in America, 231
rural entrepreneurs in the Veblen, Thorstein, 231
Muda region, 125–128, 142 Vepargam/Udyoggam (research
rural industrialists in central villages)
Gujarat, 69–75, 76, 82, 89– caste and landholding, 45
92; ~ in Central Java, 184– industrial development, 45–48
188, 194, 198
subcontracting Weber, Max, 239, 240
in Central Java, 174–179, 198– on Asia, 33, 34
199, 239 on capitalism in Europe, 35,
in South and Southeast Asia, 220–221
210 on Indian entrepreneurship,
see also putting-out in Europe 14–16; on Muslim ~, 22
supervision of work on religion in China/
rural entrepreneurs in the Confucianism, 27–28
Muda region, 122 women
rural industrialists in central and ethnicity in the Muda
Gujarat, 68, 73–74; ~ in region, 127–128
Central Java, 180–181 and fieldwork, 11
see also work, withdrawal from industrialists in Britain, 230–
physical 231
Sutherland, Heather, 235 rural capitalists in Asia, 11
rural entrepreneurs in the
technological development Muda region, 127–128
entrepreneurs in South and rural industrialists in central
Southeast Asia, 209 Gujarat, 72–73; ~ in Central
industrialists in Britain, 224– Java, 181
225; ~ in Europe, 216–217, work, withdrawal from physical
222; ~ in France, 223 industrialists in America and
rural entrepreneurs in the Britain, 231
Muda region, 104, 105, 110 rural entrepreneurs in the
rural industrialists in central Muda region, 127
Gujarat, 53; ~ in Central rural industrialists in central
Java, 157–159, 162–165, Gujarat, 76, 89, 91; ~ in
166–167, 189, 191, 200, 202 Central Java, 180–181
see also supervision of work

Rural Capitalists in Asia

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RURAL CAPITALISTS IN ASIA

NORDIC INSTITUTE OF ASIAN STUDIES

67. Islam and Politics in Afghanistan Asta Olesen

Simultaneously published in the USA and Canada

This edition published in the Taylor & Francis e-Library, 2005.

RoutledgeCurzon is an imprint of the Taylor & Francis Group

© Mario Rutten 2003

All rights reserved. No part of this book may be reprinted or

British Library Cataloguing in Publication Data

Library of Congress Cataloguing in Publication Data

ISBN 0-7007-1626-2 (cloth)

THIS BOOK IS A STUDY on small capitalists and rural industrialists in three

During my research in Indonesia I was affiliated to the Pusat

and Faculty of Social Sciences of the University of Amsterdam, and by

and friends to accompany me to Indonesia, and supported me urging

BACKGROUND AND AIM OF STUDY

and political tensions by offering new opportunities to the middle

preneurship. In this discussion, the dominant notion is that Javanese

strategy to substantiate their view of retarded industrial development

Map 1: Location of study areas

upper castes in the Hindu community; (2) Muslim owners of iron

brief overview of the study of entrepreneurship in South and Southeast

the early industrialists in Europe, I question the notion of contrasting

research in India was followed by two periods of fieldwork in South-

start collecting my data: many of the entrepreneurs made it clear that

Malay. Ethnic background, however, was not a selection criteria in my

The Study of Entrepreneurship

THE PURPOSE OF THIS CHAPTER is to present a brief, selective overview

explain their entrepreneurial success has been on the collective forms

of Hindu religious values with industrial entrepreneurship. Following

and standards in India suffered enormously under British rule, during

entry into the business of manufacturing and to the style of manage-

entrepreneurship is bound to develop. In this approach the develop-

to the economic performance and potential of the Indonesian petty

As part of these early cultural approaches to Muslim entrepreneur-

been held responsible for the predominance of small enterprises

a new enterprise is often not based on an assessment of the market

This alleged inability to co-operate in family enterprises among

their failure to co-operate and for their frequent split-ups. Because of

In his study on the capitalist class in Indonesia, Richard Robison

cultural-oriented notions about Muslim businessmen have continued

unsuitability of indigenous Muslim businessmen in Indonesia and

OVERSEAS CHINESE BUSINESSMEN

like jobs, capital and information has become inefficient in Chinese

wealth because of the savings on labour costs, the pooling of capital,

useful to many Chinese businessmen during the recent financial crisis

specific cultural mentality and entrepreneurial values within the over-

THE NEED FOR A COMPARATIVE PERSPECTIVE

in terms of structural or politico-economic imperatives, while studies

entrepreneurs in cultural rather than in economic terms. To explain

within the Weberian ‘spirit of capitalism’ analysis, we will find that

by impersonal market forces. What is needed is to reconnect the

Southeast Asia have tended to be either too localized or too general,

Rural Industrialists in Central Gujarat

DIVERSIFICATION OF THE RURAL ECONOMY

Map 2: Kheda district

economic growth was interrupted abruptly by famine, plagues, and

agriculture in the Charotar tract received a new impetus in the form

Figure 1: A small-scale factory in an agricultural environment

tion of the rural economy, based to a large extent on a highly developed

of the Patidar community form the large majority of the business

Figure 2: A small-scale floor-tile and marble-sawing factory

Figure 3: A rural industrialist checking the production of floor-tiles in his factory

of 9 enterprises is concerned mainly with the storage and processing