Bite-size Case Study

Modern informal empires

Published on June 30, 2020 Originally recorded 2011   8 min
An informal empire. This is a term coined by Gallagher and Robinson in the 1950s to describe the informal control that Britain had over countries such as Egypt and several Latin American countries in the 19th and early 20th centuries, even though these countries were nominally independent. Informal empire mended the metropolitan country. Through its companies, it could create stable conditions in a country that facilitated those companies' business operations. Multinationals perhaps no longer act as proxies for their country of origin to the extent that British companies did in the 19th century, and perhaps host countries now find it easier to challenge multinationals operating in their territories. But what Gallagher and Robinson referred to as the imperialism of free trade is this still discernible at a supra nation state level, and the relatively weak leverage that the developing countries have in relation to that of western multinationals, and international political and economic institutions such as the World Trade Organization, the WTO.
However, there are modern examples of informal empire, and Indonesia between 1965 and the early 2000s is one of them. It can be argued that the overthrow of Sukarno, as the Communist president of Indonesia, by Suharto in 1965-6, was carried out with the support of the American and British governments with the purpose of creating conditions within Indonesia that were supportive of the interest of Western multinationals. In the 1960s, Indonesia was a major supplier of raw materials including 85 percent of the world's natural rubber, 45 percent of the world's Tin, and 23 percent of the world's Chromium Ore. When Suharto was in power, western multinationals such as Alcoa, who gained the largest access to Indonesian Bauxite, consolidated their position in the country. Suharto, for example, passed a law allowing the profits of foreign companies to be tax-free for first five years of their operations. Even after the fall of Suharto, when the World Bank offered the new government a financial rescue package. The quid pro quo was so that the Indonesian government should make it easier for multinational food grain companies to operate in Indonesia. Such actions, of course were seen as part of the encouragement of international free trade, but as Gallagher and Robinson long ago pointed out, free trade and informal empire are very closely linked.