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Mining Capital and the Indonesian State

Indonesian sulfur miner carrying their 90-kg-load of sulfur from the floor of the volcano to crater rim

Indonesian sulfur miner carrying their 90-kg-load of sulfur from the floor of the volcano to crater rim, Ijen Volcano, Banyuwangi Regency, East Java (February 9, 2015). Photo by CEphoto, Uwe Aranas, CC BY-SA 3.0, Link.

Arianto Sangadji is a researcher at Celebes Institute in Palu and a research advisor at Aksi Ekologi dan Emansipasi Rakyat in Jakarta, Indonesia.

Historically, considerable amounts of mineral deposits have been attached to particular capitalist territories. This connection between the spatial mobility of capital, led by mining capital, and the fixity of mineral deposits, controlled by the capitalist state as the landowner, is central to the mining industry. Here I examine the state-capital relations in the Indonesian mining industry, starting with a conceptual overview of the key characteristics of the mining industry under capitalism. This is followed by a discussion of the relationship between the state and mining capital in Indonesia throughout the historical capitalist development of the country. I highlight the concentration and centralization of capital in the hands of a few multinational mining corporations, a major industry feature in the archipelago. While these powerful mining firms have generated significant profits, they have been consistently associated with the dispossession of pre-capitalist landowners, massive environmental degradation, and ruthless labor exploitation. As a result, the industry faces resistance from the exploited and dispossessed population.

Major Features of the Mining Industry

To understand the relationship between mining capital and the state, we must first acknowledge the key characteristics of the mining industry under the capitalist mode of production. First, a distinction that sets the mining industry apart from other forms of capitalist operations can be found in the process of mining. As Karl Marx wrote in the first volume of Capital, “the raw materials do not form part of the capital advanced. The object of labor…is not a product of previous labor, but something provided by nature free of charge.” Therefore, under capitalism, the mining industry must be understood as a part of the production of “surplus-value [that] rests on natural basis.” The mining industry affects not just the human body but also nature: “capitalist production…only develops the techniques and the degree of combination of the social process of production by simultaneously undermining the original sources of all wealth—the soil and the worker.” The more accumulation takes place, the more the proletariat and nature come under attack.1

Second, due to the unique technical characteristics of mineral extraction in response to the quality, quantity, and location of mineral deposits, the possibility of extraction is determined by labor productivity and natural conditions. What becomes central to the productivity of this natural-based industry is that the demand for a greater proportion of the fixed elements of constant capital leads to its faster growth in relation to variable capital. One pivotal element of this is that individual capitalists compete against one another to enhance their productivity by employing more advanced devices. This leads to the increasing supply of raw materials on the one hand, and the cheapness of this commodity on the other. The rapid growth of constant capital contributes to the subordination of “living labor” by “dead labor” to increase the appropriation of relative surplus value. All of this results in the centralization of capital, a process through which a tiny number of capitalists extend their effective ownership over the means of production and command subordinated labor in the production process.2

Third, under capitalism, the mining industry results in the systemic destruction of nature, also rooted in the modern system of labor exploitation within capitalist production, with “a tendency toward the amassing of wealth at one pole and the accumulation of conditions of resource-depletion, pollution, [and] species and habitat destruction…at the other.”3 Put differently, nature-reliant productions of surplus value “deplete and despoil the land, while exploiting the worker.”4 As a system predicated on maximizing short-term profit, the speed of accumulation is an unavoidable condition for all capitalists. Thus, they strive to shorten the time span of the production and circulation of commodities, internally related to the devastation of nature.

Fourth, Marx’s theory of rent under the capitalist mode of production, as a social/class relation, illuminates the relations between the state and capital in the mining industry. Under capitalism, rent is a portion of surplus value emanating from exploitation of labor, which also relies on nature; thus the mining industry reflects capital-state relations. The capitalist state (that is, the owner of the land and the minerals in it) and productive capital (that is, the owner of capital) share common interest in extracting minerals for producing surplus value. They then appropriate their own surplus created by surplus labor; the state receives rent and productive capital gets profit. Under neoliberalism, the idea of “neoliberal rent distributions,” highlighting “the declining influence of absolute rent—that is, the power of landed property,” is central. Under the neoliberal doctrine of “risks”—which are increasingly commodified through the hegemony of various financial instruments, such as derivatives—the state is unable to earn more rent, because surplus value is distributed to other factions of capital, such as banks, gambling-like institutions, and other financial instruments. Despite the fact that the state and the other sections of capital compete against each other in order to pump out their own portion of surplus value, they have one goal in common: to generate as much surplus labor as possible. This leads to class struggles between factions of the exploiting class and the exploited class.5

Under hierarchical global capitalism, the theory of rent also helps to illustrate the struggle between the state in the Global South and multinational mining firms headquartered in imperialist states. The state in developing countries attempts to capture a larger portion of surplus value by increasing mineral rent—for instance, through increasing royalties, adding taxes, resizing concession areas, or nationalizing significant portions of equity—resulting in a decrease in corporate profits. However, corporations also attempt to prevent these profits from declining by, for example, using transfer price mechanisms. In reality, the landlord state in developing countries suffers the most from this struggle. The imperative character of global capital accumulation remarkably erodes the state’s sovereignty.6

Historical Capitalism and Mining Capital in Indonesia

Capitalist development in Indonesia has been shaped by centuries of Dutch colonialism and the current features of imperialism. The historical development of capitalism in the archipelago was possible due to the decisive role of the Dutch in the seventeenth century, the early stage of global capitalist progress that brought about capitalism’s expansion in the region. Prior to the development of such capitalist social relations, the Dutch—first via the Dutch East India Company (the Vereenigde Oostindische Compagnie, or VOC), a company-like state, and, later, the Dutch colonial state—played a pivotal role in the long series of so-called original accumulations (original expropriations) in the archipelago. Mass killings, wars, and slave trading were important elements of the Dutch’s long history of abuse, even prior to capitalist accumulation in Indonesia.7

Capitalist social relations started in the mid-nineteenth century following the implementation of the Cultivation System, a system of colonial exploitation that was principally based on the use of forced peasant labor on the peasants’ own land in order to provide agricultural commodities, especially sugar, for the global market. With the emergence of capitalist social relations, starting in Java as part of the sugarcane industry, the formal subordination of labor to capital to substitute for non-capitalist forms of unfree labor (for example, corvée labor) began to take place, although some forms of unfree labor remained. Workers were drawn from available agricultural segments of the reserve army of labor to produce sugar for the global market.8 Starting in the mid-nineteenth century, Dutch capital—both state and private—exploited wage laborers under the regime of global commodity production. However, the remarkable growth of capitalist investments in the archipelago only occurred from the 1890s onwards. These investments extended to the outer islands of Java, focusing on mining, petroleum, and rubber plantations. This moment of expansion is related to imperialism, since monopolistic, multinational capital arose under Dutch colonialism.9

An examination of the postcolonial period of Indonesia reveals the long-term role exercised by global accumulation. Foreign capital has played a pivotal part in generating wealth since the country’s independence in 1945. The disruption of capital circuits occurred in peculiar circumstances, generated by class struggles under the first Indonesian president, Sukarno. However, capital always tries to overcome barriers. This resulted in the killing of 500,000 people in genocides between 1965 and 1966 orchestrated by Suharto, a right-wing military general backed by the U.S. Central Intelligence Agency. This power struggle within Indonesia was not simply a domestic affair; it was part of a U.S. imperial grand strategy at the height of the Cold War. The counterrevolutionary purge immediately put the country under imperialist control. Shortly after the genocides, the global regime of accumulation restructured Indonesia’s national economy and repositioned it in the international circuit of capital while attempting to eliminate any threats to cross-border capital flows. The International Monetary Fund (IMF) and the World Bank pushed economic liberalization, resulting in a prolonged period of rapid economic growth.10

A cyclical crisis of capitalism in the late 1990s triggered the collapse of Indonesia’s long-ruling dictatorship. The IMF blamed acute cronyism and corruption as the cause of the crisis, compelling Suharto and his successors to accept and implement the IMF recipes of further liberalization and deregulation through market-oriented public institutions. For the global ruling class, the crisis lifted barriers to global capital and allowed it to indulge in free exploitation of the country’s economy. Multilateral market institutions imposed economic reform policies that enhanced global accumulation, as seen in the influx of foreign direct investment and cross-border mergers and acquisitions. Despite its messy transformation, the so-called (political) Reformasi of 1998 is nothing but a framework for accumulation. Global capitalism is increasingly regulating the post-Suharto state.

The result is clear. For decades, Indonesia experienced significant increases in its national economy measured by the constant growth of gross domestic product (GDP), which is best characterized as a portion of “the [gross] global product” captured by an individual country. Based on World Bank data, the global average annual GDP growth rate between 1961 and 2016 was around 5.26 percent, and the value of the GDP increased remarkably since the early 1960s. Measured by the 2010 constant (inflation-adjusted) U.S. dollar, Indonesia’s GDP surged from $60.5 billion in 1960 to $1.03 trillion in 2016. This means that the country captured 1.03 percent of the Global World Product in 2016, which was around $77.5 trillion.11

However, the uneven development of capitalism in the archipelago has resulted in a remarkable wealth gap among members of society. The wealth of the “nation” is concentrated in the hands of a tiny and super-rich ruling class. In 2016, GlobeAsia magazine published a special report on the “150 Richest Indonesians,” indicating that their combined net worth was about $155 billion in 2015, or about 17.98 percent of the country’s GDP. In the same year, around 100 million Indonesians struggled to survive on less than $2 per day. In general, the majority of the Indonesian working class—those who actually generate the wealth—suffer from poor working conditions, earn less than a living wage, face uncertainty over employment contracts, and have little collective bargaining power. While the existing system of exploitation concentrates wealth in the hands of the few, it simultaneously keeps the overwhelming majority of workers outside the formal sectors—for example, as members of the agricultural reserve army of labor or the informal urban proletariat. As Marx noted: “Accumulation of wealth at one pole is, therefore, at the same time accumulation of misery, the torment of labour, slavery, ignorance, brutalization and moral degradation at the opposite pole, i.e., on the side of the class that produces its own product as capital.”12

Multinational Mining Capital

Pre-capitalist mining extraction in the archipelago has existed for a long time. Oil extraction was recorded in 954, long before its first appearance in a Dutch report in 1569. Tomé Pires’s Suma Oriental, written in Malacca between 1512 and 1515, mentioned the presence of gold mines around Minangkabau in Sumatra. By the first half of the sixteenth century, the Kingdom of Aceh controlled gold mines in its hinterland and perhaps tin mines in the Malay Peninsula, which were worked by enslaved people who arrived from many other places through a slave trade. In the eastern part of the archipelago, archaeologists found that iron smelting and export occurred in the island of Sulawesi near Katue around the Gulf of Bone by 1 BCE. It therefore is not surprising that people in Sulawesi carried out commercial-based iron mining and smelting in the vicinity of Lake Matano around 1500. This pre-capitalist mineral extraction continued in many places in the archipelago after the Dutch’s arrival. In northern Sulawesi, under VOC control, the province of Gorontalo became the main source of gold for export from the late 1730s. By the mid-1740s onward, the amount of tin delivery slightly increased, especially after the Dutch imposed on the local king—who controlled tin production around Bangka Island—an exclusive contract to trade with the VOC.13 There is evidence that the population extracted and traded gold in this area before the Dutch took control of the trade, and both local and European rulers preferred to use unfree working population instead of employing free workers in the gold mines.14

Capitalist social relations in mining operations emerged later. Since the period of Dutch colonization in Indonesia, mineral rights have been held exclusively by the state. The Dutch colonial state excluded non-capitalist claims on minerals, paving the way for the emergence of the colonial state’s sovereignty over minerals under capitalist logic. Prior to the state issuing its first concession in 1852 to a private company for tin exploitation on Belitung Island, the colonial government had exclusive rights to such exploitation. The colonial administration later passed a special Mining Law of 1899 in order to regulate all mining investment in the late nineteenth century. Having colonized the archipelago, the Dutch also restricted other imperialist powers from accessing exploitable minerals there. For example, the Dutch state blocked a U.S.-based oil enterprise, Standard Oil of New Jersey (now ExxonMobil), from entering rich oil fields in the archipelago in favor of a Dutch-based company, Royal Dutch Shell (now Shell plc). This capitalist feature of state sovereignty over minerals remains in place in postcolonial Indonesia.15

These conditions of state sovereignty permit capital accumulation to take place in the mining sector in Indonesia. From the very beginning, the Dutch colonial state was directly involved in mineral production, especially tin and coal. The active involvement of “state capital” was vital for generating significant revenues for the colonial state. The Dutch colonial state also encouraged private sectors to invest in the mining industry, which in turn benefited the state as a major revenue source. According to revenue reports from the so-called Dutch East Indies using 1848–1940 data, the Dutch government generated total revenues of ƒ2.9 billion from mining investment between 1881 and 1940. Both state and private capital accumulated at a high rate of profit, often through the use of coercive forms of labor control, such as contract “coolies” and convict workers. Long working hours helped increase the extraction of “absolute surplus value.” By the early twentieth century, coal miners in Ombilin, on the island of Sumatra, worked in excess of ten hours per day.16

After independence, multinational mining capital has played a dominant role in the Indonesian mining industry. The first twenty years after independence saw growing anti-colonial and anti-imperialist sentiments that constrained foreign mining investments. The nationalization of foreign assets was one of the major risks that multinational mining capital faced in this period. The state indeed hindered foreign mining investments. In this era, workers’ direct involvement in political struggles reflected the revolutionary attitudes of Indonesian mineworkers during decolonization. This tendency, especially among leftist workers, became stronger during the Sukarno administration. However, during this growing political campaign against imperialism, the Indonesian government settled contract agreements with the world’s so-called Big Three oil companies—Shell, Standard-Vacuum Oil (now ExxonMobil), and Caltex (now Chevron Corporation)—following critical U.S. government interventions. These monopolistic companies remain major players in this sector.17

As a part of 1965–1966 counterrevolutions—the bloody, U.S.-supported purge of Indonesian communists—the Indonesian state strongly favored foreign direct investments in the mining sector. While the militancy of Indonesian mineworkers was defeated under Suharto, a handful of multinational mining corporations, such as Freeport-McMoRan Copper and Gold, Rio Tinto, Newmont, and Inco (all of which operated through subsidiary companies) have continued to benefit from these policies. In the early years of Suharto’s tenure, two large-scale extractive projects under a contract of work were underway. With the support of U.S. imperialism, the process began with the issuance of the first round of contracts in April 1967 to Freeport Sulphur (now Freeport-McMoRan Copper and Gold), a U.S. company operating in West Papua, one of the country’s underdeveloped provinces. This Arizona-based firm orchestrated the region’s incorporation into the global accumulation regime of copper and gold mines. The province then became the most militarized region in the country, stoking the already simmering Indonesian army counterinsurgency against the West Papuans in their long struggle for independence. The second multinational mining corporation benefiting from this new climate of investment was the Canada-based Inco Limited, one of the world’s largest nickel producers for the past century. Inco won its first-term contract of work in the provinces of South Sulawesi, Southeast Sulawesi, and Central Sulawesi under the second generation of terms and conditions after winning against other major bidders. After the contract was secured in the late 1960s, leading Canadian newspaper the Globe and Mail characterized this integrated nickel mining and smelting investment as “an important part of the test for international capitalism in Indonesia.”18

The fall of Suharto’s thirty-two-year military regime paved the way for the state to begin hindering the operations of multinational mining corporations. After enjoying policies favorable for long-term accumulation under Suharto, Freeport Indonesia, a subsidiary of Freeport-McMoRan and Inco Indonesia (itself a subsidiary of Inco Limited), have increasingly faced investment barriers since the introduction of a new mining law in 2009.19

However, the profitability ratios of the multinational mining corporations operating in the country continued to be extraordinarily high in comparison to the top forty mining companies across the globe. Between 2001 and 2011, the yearly average profitability ratio of earnings before interest, taxes, depreciation, and amortization margin was 40 percent for mining operations in Indonesia, compared with 30 percent for the top forty mining corporations globally. In addition, the ratio of net profit margin for these operations was 20 percent in Indonesia versus 19 percent globally, the return on capital employed was 26 percent versus 15 percent, and the return on shareholders’ funds was 35 percent compared to 21 percent. This is an impressive level of profitability. In the case of Vale Indonesia (formerly Inco Indonesia prior to its acquisition by Brazil-based Vale S. A. in 2006), the average profit rate over nine years, from 2003 to 2012, measured by pre-tax profit over market capitalization, was high—15.22 percent. In a single year, 2007, in the midst of a global nickel boom, the rate of profit increased to 16.3 percent. Up until 2011, the ten-year average return on capital employed by Vale Indonesia was about 34 percent. For 2007, the return skyrocketed to 108.2 percent due to the high rate of labor exploitation.20

More recently, a new mining law has been implemented in specific branches of the mining industry, like nickel, allowing in-country mineral processing to be vertically integrated with powerful factions of multinational mining and metallurgical capital. This results from the industry’s capital-intensive structure, which prevents domestic capital from gaining any control. As it has occurred in Morowali Regency in Central Sulawesi province, the 2014 ban on exporting unprocessed nickel from Indonesia has benefited only those that possess huge capital assets—in this case, mostly Chinese-owned private firms—and those that are thus able to build smelters for processing nickel ore deposits into intermediate commodities, such as nickel pig iron, and converting it into stainless steel. Indonesia holds the world’s largest nickel reserves, including the Indonesia Morowali Industrial Park (IMIP), which is owned by China’s Tsingshan Group under the umbrella of China’s One Belt, One Road. With its highly developed nickel processing plants, the Tsingshan Group currently holds the title of the world’s largest integrated nickel producer, from mining to the production of intermediate products and the development and proliferation of derivative industries. This foreign-owned industrial park has also grown into one of the prime hubs for stainless steel-making in Southeast Asia. Together, they form a value chain production for producing multiple commodities generated within a short spatial distance, reducing production costs. With a total investment of $10.2 billion and a total labor force of 60,000, the IMIP’s metal export rose from $203 million in 2015 a record high of $6.3 billion in 2020.21

Indonesia is increasing its stake in the resource market as a major player in the global supply chain of processed nickel and derivative industries, such as the production of stainless steel and metals used in lithium-ion batteries. While the country’s share of the global production of processed nickel was once insignificant, the development of the integrated nickel industry in recent years is significantly changing this reality. This shift started in early 2014, after the government required nickel to be processed domestically. Since 2015, this policy has stimulated a significant inflow of foreign direct investment in the nickel processing industry, leading the country to become a main producer of primary nickel globally. In 2020, Indonesia produced around 636,000 tons of primary nickel, which was mostly nickel pig iron. That same year, the archipelago ranked second to China in primary nickel production. Using huge facilities operated by China’s steel firms, which can produce ferrochrome and nickel pig iron (two key raw materials for stainless steel), Indonesia produced 680,000 tons of stainless steel in 2017, all at the Tsingshan integrated nickel pig iron and stainless steel manufacturing plants in Morowali. The country also fabricated 2.5 million tons of stainless steel, ranking third in global production in 2020.22

IMIP is an example of the Indonesian government’s disingenuous attempt at industrialization due to its reliance on foreign capital infusion. The park is a testament to the resurgence of China as an emerging power with an appetite for cheap raw materials, low-cost labor, dirty energy sources, and reserves for foreign exchange. Rather than local metal companies, multinational corporate giants in the global extractive industry, like Tsingshan, have the advantage. The Wenzhou-based Tsingshan has become a world-class nickel and metal company that practically controls management of the industrial park, its nickel-based processing facilities, and derivative industries through effective domination of voting shares in its projects.

Whatever difference of features there may have been in the Indonesian state over time, multinational mining enterprises have persistently accumulated in the country for more than a century. Large-scale mineral production in Indonesia for global exchange reflects the central role of multinational mining enterprises supported by imperial states. Thus, instead of defending sovereignty in ways that benefit domestically owned corporations, the government favors foreign capital because this investment enables it to pump out lucrative gains in the form of rent—a portion of surplus value. Despite the absence of significant data for the years of the postcolonial era, we can see that from 1996 to 2011, the government of Indonesia generated $17.3 billion in taxes and royalties from multinational mining companies. In terms of individual companies, Inco’s contribution to the Indonesian government between 1968 and 2007 reached $1.3 billion: $993 million in corporate taxes, $127 million in royalties, $86 million in value-added taxes, $73 million in water levies, and $27 million in other taxes. In 2015, Freeport reported that since 1992, it had contributed over $16 billion to the state: $1.2 billion in government dividends, $1.7 billion in royalties, and $13.8 billion in taxes. Emerging from the in-country processing policy on nickel, IMIP’s contribution to the Indonesian government between 2015 and 2020 reached $1.1 billion in corporate taxes and royalties. At the same time, IMIP’s export value was an estimated $17.1 billion.23

Under uneven global capitalism, the ability of multinational corporations to prevent the Global South from benefiting from these windfalls is a central feature of the system. The tax system has become an important vehicle for multinational corporations, who can legally avoid taxation. One of the major features of tax avoidance is global transfer pricing, which is a device that shifts profits through manipulation of cross-border, intra-firm transactions. For instance, a parent company can charge its own subsidiaries and affiliated firms for given services, general administration, insurance, loans, and so on. These efforts offset risk by reducing/avoiding tax and optimizing subsidies. In the mining industry, a high degree of global integration—since mining, smelting, and refining stages of production are owned and operated by the same company—means that intra-firm transactions and transfer pricing are common, taking place through arrangements that range from exports of oil and ores under market price, loan agreements between parent and subsidiary companies, and intra-firm supplies of services and equipment.24

Vale is a striking example in this regard. The corporation’s official reports show the outflow of payments crossing Indonesia’s border that indicates the presence of transfer pricing. For example, between 2004 and 2017, Vale paid $207.1 million to its major shareholder, Inco Limited Canada/Vale Canada, for the so-called “management and technical assistant fees.”25 This amount, on average, is equivalent to 34.06 percent of the corporate income tax paid to the Indonesian government and 46.13 percent of employee costs at the time. The amount itself excludes international inter-firm transactions or value distribution with other Inco/Vale entities. This international mechanism of profit distribution mirrors multinational corporations’ ability to multiply their own profits. The state acts to guarantee this process of profit repatriation under the existing legal framework.

In sum, the Indonesian mining industry reflects a long-term contest between the landlord state and mining capital since the colonial period. At the end of the day, the state has been subjugated to market imperatives. Under the hierarchical structure of global capitalism, the colonial and postcolonial Indonesian state has mainly derived its material power from accumulation (as a source of state revenues) orchestrated by multinational mining capital. This situation has allowed the Indonesian state, under pressure from imperialist states, to provide favorable conditions for accumulation. By acting as regulator, allocator, administrator, and guarantor of private property, the state generally permits global accumulation in the mining industry. In this regard, the colonial state and the postcolonial state in Indonesia share the general feature of the capitalist state, which is “nothing but a committee for managing the common affairs of the whole bourgeoisie.”26

Mining Capital and Environmental Destruction

Given the system’s inherent drive to accumulate capital on an increasing scale, the result is the progressive subjugation of nature. This involves “ecological imperialism,” as the multinational faction of capital plays the decisive role in accumulation. The expropriation of nature has become the underlying feature of global capitalist development in Indonesia. As home to one of the world’s largest expanses of rainforest, the tremendous accumulation of extractive capital leading to large-scale forest devastation, soil and water degradation, and the loss of biodiversity is a striking example. Satellite data suggests that between 2000 and 2012, Indonesia underwent the most deforestation of any country, losing an average of 1,021 square kilometers of forest annually. The main cause of deforestation is capital’s plunder of nature.27

In this respect, I want to draw attention to the remarkable expansion of capital to forested areas in the country within the last five decades. The logging industry, palm oil plantations, and open-pit mining have all contributed to deforestation, causing “metabolic disruptions in the water, soil, and carbon cycles.”28 In the case of the capitalist expropriation of timber, for example, deforestation became a problem when the government turned to log production as a major source of export earnings in the late 1960s. After the ban of these exports in the 1980s, the constant pressure on nature has remained in place, but has shifted to domestic downstream processing for the plywood industry. Granting millions of hectares of the tropical forest to timber concession holders is nothing more than the subjugation of nature to the interest of capital. The same logic is present in the ongoing accumulation related to palm oil plantations, which have been rapidly expanding since the late 1990s.

Another threat to the forest stems from destructive fires linked to palm oil plantation operations. Corporate plantations use these human-made fires—the cheapest way of clearing forest—to lower the cost of production. Between 1997 and 1998, fires burning across the country covered about 9.6 million hectares. In 2015, widespread forest fires were again an issue, especially in Sumatra and Kalimantan, where several prominent corporations were involved. The Forestry Minister accused fifty-five corporations of causing the fires and twenty-three firms were punished for the use of fire to clear land. Lastly, large-scale open-pit mining also results in serious deforestation. The open-cast method is central to mining nickel laterite ores. Because the ore is located close to the earth’s surface, mining these laterites requires massive land clearing and excavation. The removal of millions of tons of soil and the extraction of ore exhaust or destroy the forest. Open-pit nickel mining—from hauling construction materials, clearing the land, extracting ores, and dealing with overburden—drastically damages the forest landscape. This is especially true in Indonesia, the world’s largest nickel mining country, with one million tons extracted in 2021.29 Thus, rather than characterizing it as a purely ecological matter, deforestation is related to class in that it results from a historical feature of labor exploitation that relies on nature. This exploitation is peculiar to the concentration feature of resource-based capital, in which significant spending is necessary to increase the pace of accumulation. The imperative of accumulation quickly undermines the virgin forest ecosystem and blocks its regeneration. Thus, deforestation is a direct result of accumulation.30

We should also consider the crucial implications of the production and consumption of fossil fuels (oil, coal, and natural gas). The burning of fossil fuels as a major source of greenhouse gases has been peculiar to the historical development of capitalism. This suggests that the environmental degradation resulting from industrial activities relates to the circuit of capital. In this light, it is important to look at Indonesia’s carbon dioxide emissions originating from activities related to the country’s growing economic development. Carbon emissions from transportation, manufacturing, electricity, and heat production contributed to 93 percent of total fuel combustion in 2014, an increase from 72 percent in 1971. This figure implies that without burning fossil fuels for energy in the labor process, there would be no commodity production. Although the importance of energy consumption in other industries is recognized, mining and certain branches of manufacturing are the most energy-intensive sectors on which the Indonesian economy relies. The nickel industry, again, is the best example. The extraction of nickel laterites emits a large amount of greenhouse gases. Open-pit mining by itself already consumes a huge amount of fossil fuel in order to power heavy equipment like excavators, bulldozers, loaders, and dump trucks, all of which increase labor productivity, decrease ore grade, and speed environmental degradation. While hosting nickel laterite smelters with more than fifty lines, rotary kiln electric furnaces, and other plants, the IMIP is also home to coal-fired power stations with a combined capacity of 3,500 megawatts. Therefore, nickel laterite processing has a high carbon footprint.31

What needs to be highlighted here is that open-pit nickel mine operations necessitate land-use changes. Most mining companies have officially committed to market-based environmental policies and claim to carry out environmental rehabilitations such as site restoration and reclamation, including post-mining revegetation. Nevertheless, large-scale environmental destruction still occurs. At the local scale, this is primarily due to unsustainable open-pit mining in tropical forests with rich biodiversity. The largest production sites for nickel ores in Indonesia are located in the provinces of Central Sulawesi and Southeast Sulawesi—the provinces with the largest areas of tropical rainforest on Sulawesi Island. Nickel mining in these provinces caused massive deforestation, which reached half a million hectares in 2020.32

Open-pit nickel mining devastates land, vegetation, and living organisms. Since this mining mostly takes place in the uplands, it generates downstream effects for rural populations whose farmland and residential areas are in the lowlands. In Morowali, all nickel firms hold concessions that overlap with tropical forests. These large-scale nickel mining operations necessitate considerable deforestation of the uplands through topsoil removal, excavation of overburden, and construction of roads and other infrastructure. In the rainy season, rivers flow across the landscape with brown alluvial sediment, affecting small-scale agricultural lands. Without seizing the land, open-pit mining methods undermine small-scale agricultural productivity.


The accumulation of capital within the mining industry necessitates the exploitation of mineworkers. Exploitation creates class struggle, a war between capital and labor over the production of surplus value. Indonesian mineworkers have repeatedly confronted capital with different degrees of militancy from the colonial period to the present.

During the Dutch colonial period, mineworkers engaged in spontaneous resistance such as strikes and a series of attacks against high-ranking managers of mining companies. During the first fifteen years of the post-independence period, mineworkers’ resistance turned into class politics under the strong influence of the Communist Party of Indonesia. The resistance included collective attempts to take control of foreign mining operations. Using walkouts, strikes, and other forms of direct action, Perbum, a radical oil workers union, demanded that the government nationalize the existing monopolistic oil enterprises, exacerbating tensions in the years leading up to the 1965–66 mass killings. The Suharto regime fought back, using every means at its disposal to control mineworkers and annihilate radical sections of unions such as Perbum. The killing of communists in the mid-1960s, orchestrated by imperialist powers, ended the militant character of the Indonesian working class. The anti-imperialist legacy of Indonesian mineworkers was effectively decimated. In that period, mineworkers’ resistance had a reputation of spontaneity. These class struggles were largely associated with demands for improved living conditions, including better wages and benefits. The national mineworkers union still recognizes the importance of local struggle, but have been unable effectively to mobilize on a larger scale.33

After the downfall of Suharto’s dictatorship, workers’ struggles—led by both unions and unorganized workers—have been on the rise, especially since the early 2000s. In regions that host multinational mining firms such as Freeport and Inco/Vale, resistance has significantly increased. Recently, the massive progress of the nickel industry in Morowali has triggered increasing collective action, such as strikes, protests, and roadblocks. In general, the workers reject the existing rate of exploitation, demanding an increase in wages and better living conditions. However, the struggle waged by the capitalist class has largely defeated mineworker resistance in Indonesia.34

The accumulation of capital in mining also generates a variety of forms of intense conflict due to the displacement of peasant producers that characterizes both original and ongoing expropriation. Land expropriation is a necessary condition for accumulation, generating a socioecological disruption at the local scale that emerges from environmental degradation, negatively affecting the livelihood of the rural segment of the relative surplus population. Operating in a country with a record of disastrous human rights violations and poor environmental standards, this extractive industry generates land and environmental confrontations that are becoming more common. We have witnessed many examples: Freeport in West Papua, Mobile Oil (ExxonMobil) in Aceh, Inco/Vale in South Sulawesi, and so many others that substantiate the realities of local inhabitants who struggle against this face of land expropriation and capital accumulation.35

In Central Sulawesi, the remarkable flow into Morowali of nickel-based investments has led to conflicts, often violent, arising from displacement. By converting significant sections of formerly agricultural and forested land into nickel mining concessions, the creation of the new landscape of the capitalist production system threatens locals. Nickel mining has disrupted villagers’ livelihoods, in turn fueling organized resistance among peasants since the mid-1990s. In Morowali, farmers mostly refer to their claims as part of the customary rights of Indigenous people, hoping to counter mining corporations and the capitalist state that claim ownership through land titles. Peasants in the Bahomotefe village in Morowali, for example, rejected Inco/Vale exploration projects, indicating that these mining projects were a threat to their livelihoods. The major conflict was over Inco’s use of traditional land, a practice that villagers have protested since 1994. Claiming customary and Indigenous rights is an explicit rejection of the authoritarian character of capitalism, which threatens Indigenous populations, household-based agriculture, and non-capitalist land uses.

Since the early 1990s, Morowali has experienced an inflow of government-sponsored agricultural migrants. These peasants also oppose the expansion of mining capital, especially given overlapping land titles. For example, one of the major destinations for the migrant population was One Pute Jaya village, which overlapped with Inco’s mining area. By 1995, the government decided to relocate about seven hundred households of migrant villagers. For many years, the villagers resisted this relocation project. They employed various tactics, including official letters and direct action, to express their short-term demands to the government. On February 10, 2009, one hundred villagers took direct action at the site of Vale’s field office in Lele village, Morowali, demanding $12,573 per hectare as compensation for their land. Over the next two days, two hundred villagers protested at the office of the Morowali Regent, calling for a moratorium on Vale’s operations. Some of the protests led to violence, such as in February 2012, when three hundred protesters burned down a Vale camp, including five of the company’s vehicles, at Kilometer 9 near One Pute Jaya. They demanded that the company withdraw from Morowali, as Vale’s presence had alienated local farmers from their land.36

During the nickel mining expansion in Morowali in the 2010s, similar resistance frequently erupted. A major protest in Bahumakmur village, mostly by Javanese migrants, followed a devastating 2010 flood. As mining firm Bintang Delapan Mineral—the local partner of Tsingshan—mined in village uplands, the residents demanded that the company take responsibility for the disastrous flood. Peasants crowded into the company’s office, with protesters destroying some of the facilities. The company estimated the losses at around $882,167. This protest led to the criminalization of community activists, and police arrested four villagers, accusing them of being provocateurs.

Above all, the resistance should be seen as part of a spontaneous struggle of displaced peasants. In many ways, the opposition at the village level is not only a manifestation of fear of land seizures and environmental degradation due to enclosures; it is also the peasants defending their lands from the progressive expansion of globalized mining capital. However, the opposition is still too weak to threaten the industry. Peasants’ losses on local battlegrounds against mining operations reflect the capacity of mining capital to overcome land-based barriers related to non-capitalized agriculture.

In sum, capital accumulation and the resistance against it in the mining industry in Indonesia must be understood through the larger lens of the country’s political economy and in relation to the context of global capitalism. This hierarchical economic structure serves capital accumulation and the dominant class to the detriment of mineworkers and the peasantry. These structural settings obstruct significant changes in mineworkers’ living conditions and peasants’ livelihoods. Therefore, future possibilities for a great transformation of living conditions among working populations necessitate not only a battle over wages, working hours, and conditions, but also a battle for toppling the capitalist system of production. This necessary war can only be facilitated by large-scale political struggle that brings together all segments of the subordinate classes—workers and peasants. Finally, this struggle must exist on multiple spatial scales, ranging from local to global resistance.


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  25. Derived from annual reports from Inco Indonesia/Vale Indonesia, 2004–2017, available at
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  35. Leith, Politics of Power; Kirsten E. Schulze,“The Conflict in Aceh” in Oil War, ed. Mary Kaldor, Terry Lynn Karl, and Yahia Said (London: Pluto, 2007), 183–224; Robinson, Stepchildren of Progress; Adam D. Tyson “The Politics of Decentralisation and Indigenous Revivalism in Sulawesi, Indonesia,” PhD diss., University of Leeds, 2008.
  36. Yayasan Tanah Merdeka (YTM), Kronologi Aksi di Kilo 9 (Palu: YTM, 2012).
2022, Volume 74, Number 07 (December 2022)
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