THE SOCIO-ECONOMIC BASIS
OF THE INDONESIAN STATE
MR. WILOPO
and
WIDJOJO NITISASTRO
(Translated by Alexander Brotherton)
TRANSLATION SERIES
Modern Indonesia Project
Southeast Asia Program
Department of Far Eastern Studies
Cornell University
Ithaca, New York
1959
Price—$1.00
SEAP Publications
Do not remove from room 213
640 Stewart AvenueTHE SOCIO-ECONOMIC BASIS
OF THE INDONESIAN STATE
on the Interpretation of Paragraph 1,
Article 38 of the Provisional Constitution
of the Republic of Indonesia
Mr. Wilopo
and
Widjojo Nitisastro
(Translated by Alexander Brotherton)
TRANSLATION SERIES
Modern Indonesia Project
Southeast Asia program
Department of Far Eastern Studies
Cornell University
Ithaca, New York
1959© 1959 by Cornell Modern Indonesia ProjectIll
PREFACE
Within the intellectual community of independent
Indonesia the public symposium is an important channel of
communication. That held in September 1955 at the University
of Indonesia to which the papers here translated were con-
tributed was of unusual importance because of the subject
discussed and the qualifications of the contributors. Its
significance is increased because of the time it was con-
ducted—a few days before the holding of the nation-wide
parliamentary elections of 1955 and less than three months
before the elections for the Constituent Assembly. Here,
then, was an attempt by two leading intellectuals to present
a reasoned and non-partisan exposition of the general prob-
lems of economic philosophy which would face the constitution-
makers who were about to be elected.
Mr. Wilopo, a lawyer by training, is a former Prime
Minister and a top leader of one of the country's major
political parties, the Indonesian Nationalist Party (P.N.I.).
Before coming to the Prime Ministership he had been Secretary-
General of the Ministries of Labor and Economic Affairs, and
then Minister of Economic Affairs. As head of the cabinet
which held office between April 1952 and June 1953 he had
shown himself particularly concerned with economic problems.
A little more than a year after this symposium was held
Indonesia's Constituent Assembly elected him as its Chairman,
a post which he continues to hold.
Widjojo Nitisastro is a younger man of rather different
qualifications. An outstanding student in economics,
immediately after completion of his master's degree he was
appointed head of the University of Indonesia's Institute of
Economic and Social Research. At the time he presented this
symposium paper his experience had been primarily in the
academic world, but it had not been exclusively there, for
while still a graduate student he had been charged by the
National Planning Board with a number of responsible tasks.IV
The subject matter of this symposium continues to be
of greatest relevance. Whatever the degree of urgency of
day-to-day political and economic pressures in Indonesia, the
importance of defining the nation's long-term socio-economic
goals remains fundamental. And of this obligation Indonesian
political leaders—both in and outside the Constituent
Assembly—are at present acutely aware. It believe that the
contributions to this symposium are helpful to an under-
standing of the problem they face.
In view of the current move to return to the Constitution
of 1945 it should be noted, as Mr. Wilopo pointed out to me
a few days ago, that Article 33 of the Indonesian Constitution
of 1945 is exactly the same as Article 38 of the present pro-
visional Constitution, the article around which the discussion
in the symposium here recorded centers.
Djakarta	George McT. Kahin
March 14, 1959	DirectorAN INTERPRETATION OF PARAGRAPH 1 ARTICLE 38
OF THE PROVISIONAL CONSTITUTION
OF THE REPUBLIC OF INDONESIA
Mr. Wilopo
Contribution to the symposium held in the Assembly Hall
of the University of Indonesia on September 23, 1955.3
Mr. Chairman and Guests:
Firstly I should like to express my pleasure at having
been able to accept the invitation to participate in the
discussion that has been arranged this evening on the fifth
anniversary of the establishment of the Faculty of Economics
of the University of Indonesia. It is all the more a pleasure
to take part in this discussion since numerous prominent
scholars and leading economists and jurists are present.
Tonight I am to speak on the interpretation of the
Constitution in relation to questions of economics, and I
fear that my learned audience will assess my views exclusively
from a scientific viewpoint.
For this reason I wish to make it clear, before pro-
ceeding to deal with the subject of the discussion, that I
realize that my observations will not in every instance
conform to the requirements of scientific method. It must,
of course, be pointed out that there is in practice little
time and limited opportunity for the unhurried reflection
that can produce conclusions of a purely scientific character.
More often than not the pressure of time and events is such
that we are obliged to arrive at a practical or compromise
settlement.
Tonight's discussion concerns the interpretation of
paragraph 1 Article 38 of the Provisional Constitution, the
text of which reads:
The economy shall be organized as a joint
endeavor based on the principle of the family
relationship. (1)
A really satisfactory interpretation of any specific
clause in the Constitution—as is the case with the inter-
pretation of laws in general--can only be arrived at on the
basis of adequate reference materials from the discussions
held in the course of the drawing up of the Constitution.
However, the parliamentary debates do not provide this
material, and the reports that are available of the prepara-
tory exchanges of views do not contain any definite comment
(1) The text of the English translation of the Constitution
available from official sources reads; The national
economy shall be organized on a cooperative basis.4
relative to specific clauses in the Constitution on which
differences of opinion may arise. It was only specified at
the time that the present Provisional Constitution was to be
evolved from an amalgamation of the fundamental provisions of
the 1945 Constitution of the Republic of Indonesia and the
good provisions of the Constitution of the Republic of the
United States of Indonesia; and since paragraph 1 Article 33
of the 1945 Constitution was considered to be a fundamental
provision it was included unchangedas paragraph 1 Article 38
of the present Provisional Constitution.
With the inclusion of this article in the present Consti-
tution—and the inclusion of article 37—as the Government
said in its reply of August 3, 1950 to the report presented
by the Reporting Committee of Parliament, the country’s
economy was not to be based on the^concept of economic liberal-
ism, but instead on an approach that is contrary to this
concept. The original comment which I quote from Professor
Supomo's book "The Provisional Constitution of the Republic
of Indonesia" (page 52), is indeed true.
Article 38 is included in Section VI of the Provisional
Constitution which bears the heading "Fundamental Principles."
Since Article 38 is the only article referring to the economic
system, it is apparent that this article is intended'as the
basic principle of the national economy.
Just because there was full agreement between the
representatives of the Republic of the United States of
Indonesia and the representatives of the Republic of Indo-
nesia there was no exchange of views which might have led
to a detailed examination of the significance and the purpose
of this article.
Time was short as the Constitution was being written,
for the re-establishment of the unitary state was scheduled
for August 17, 1950. To avoid any delay, both the Government
and the majority in Parliament accepted the present Provi-
sional Constitution without exercising the right to introduce
amendments. The Constitution, although not perfect, does
provide the necessary basis for the Government and the
Parliament to pursue a democratic course toward bettering
the lot of the people. It was in these terms that the matter
was put by the Prime Minister of the Republic of the United
States of Indonesia, Mohammad Hatta. I quote these remarks
of his to show the pressure of time and the practical
spirit prevailing during the last days before the birth of
this Provisional Constitution. Consequently, we now have
this basic principle of the national economy which is ex-
pressly anti-liberal, but with little clarification.5
From the very beginning it had been recognized that
the terms of Article 33 of the 1945 Constitution, which
appears in the present Provisional Constitution as Article
38, were of major importance, being intended to replace the
economic principle of a past era with a new principle.
The implementation of liberalism in Asia by the
western nations gave rise to the same features and the same
problems that the practice of this doctrine had evoked in
the European countries--exploitation of man by man, diminu-
tion of liberty for the economically weak mass of the people
and large disparities in the ownership of wealth in the
society. These consequences of the growth of a liberal
economy were explained by Asian leaders in the same terms
as employed in Europe, these explanations being in accordance
with philosophical and economic teachings of universal
relevance.
However, the negative consequences of liberalism in
the colonial countries were far more pronounced and far
more depressing than was the case in Europe, so that the
reaction was inevitably more intense. It was for this rea-
son that, with the achievement of independence, we wished
to change completely the basis of the country's economy.
The pattern of economic development in the past,
particularly since 1870, had produced misery and injustice
among the great mass of the Indonesian people. This
pattern was based on economic liberalism. Article 38 of the
Provisional Constitution formulates a new principle and
this principle is opposed to liberalism. The antagonism
between the principle laid down in Article 38 and the con-
cept of liberalism is not only evident from the Government
statement at the time of the drawing up of the Provisional
Constitution, but is also in conformity with the background
of the Indonesian revolution.
Having established that the principle laid down in
Article 38 is in opposition to liberalism, we can go on to
formulate the intepretation of this article in terms of anti-
liberalism and in relation to those other provisions in the
Constitution which are related to the question of economic
systems. The term "joint endeavor" (usaha bersama) conveys
the idea of a form of enterprise that is quite distinct in
character from that of private enterprise; in the latter all
decisions are in the hands of the entrepreneur and all the
worker's life and work depends on the employer. It is because
liberalism produced a situation in which the workers in
general are subjected to a pressure of social compulsion that
we object to such a system.6
Our ideal is of a type of enterprise in which all parti-
cipants can be freely accorded "to all in accordance with
their nature, aptitude and ability to take part in the develop
ment of the sources of prosperity of the country." These
words are the formulation of the guarantees accorded to the
individual human being in paragraph 2 Article 37. The term
"based on the principle of the family relationship" signi-
fies a basis of collective responsibility directed toward
achieving a common effort which will ensure progress for
each participant. It is in this collectivist feature that
one sees the difference between the envisaged economic system
and the principle of individualism. Economic activity has
no longer the motive of personal gain but rather the motive
of serving the community for the common good.
Encouragement must be given to the development of the
forms of enterprise fulfilling these requirements, particu-
larly where traditional practices exist which can be adapted
to the new concept.
In this respect cooperative forms of enterprise are of
special importance since the population is sufficiently
familiar with undertakings of this nature, and because it
already plays a role in different fields of activity, such
as agriculture, fishing, etc.
Now that it has been demonstrated that the principle
formulated in Article 38 is a rejection of economic liberal-
ism the further interpretation of this article is facilitated.
The term "joint endeavor" indicates the difference with
private enterprise, while the term "principle of the family
relationship" expresses the idea of joint responsibility for
ensuring the advancement of all. The purpose of developing
joint endeavor is not private profit but the advancement of
the entire community. The sense of community responsibility
ensures that justice prevails.
It is, of course, obvious that efforts to develop an
economic system of joint endeavor as prescribed in Article 38
are not to be left to develop of their own accord. By the
terms of this article certain obligations are placed on the
state.
Various clauses in the Constitution impose definite
responsibilities on the state. For example:
Article 20: The right of all residents to freedom of
assembly and association is recognized and shall be
stipulated by law.7
In this case the obligation of the state is clearly specified
It is required by the terms of this provision that the
legislative organs, the Government and the Parliament, formu-
late laws to insure freedom of assembly and association.
Article 30 (paragraph 1): Every citizen is entitled
to receive education.
The obligations imposed on the state by this provision
devolve on various organs of the state and cover diverse
functions. The legislative body draws up necessary statutes,
while both the central government and the regional admini-
strative authorities introduce whatever regulations are
required, also taking direct action themselves or making
preparatory arrangements.
Article 28 (paragraph 1): Every citizen, according
to his ability, has the right to such work as is
worthy of man.
This clause also imposes on the state obligations of a
similarly diverse character. It is a special feature of
state obligations of this kind that they can only be ful-
filled to the extent made possible by the country's economic
capacity and its stage of economic development. The same
condition applies with respect to the obligations of the
state by virtue of the terms of Article 38.
In actual fact this article is an assertion of the con-
viction that the economic system it prescribes is the most
suitable for achieving the desired development of the
country’s economy. Whereas a liberal economy entrusts the
achievement of prosperity to the functioning of private
enterprise, in principle without state interference, Article
38 of the Provisional Constitution provides for a "joint
endeavor based on the principle of the family relationship,"
this pattern to be developed with the assistance and protec-,_
tion of the state.
The envisaged economic pattern of joint endeavor must
be accepted as the guide for all legislation dealing with
economic questions and recognized as the basis for all
policy decisions of the central government and the regional
authorities. All enterprises established by the popula-
tion in accordance with this pattern must be given every
encouragement and assistance.
At the same time, other forms of enterprise, while still
permitted, must not be allowed to obstruct or prejudice the8
undertakings based on the principle of joint endeavor. Failure
to provide this protection would be a neglect of the general
interest.
Whatever measures are taken by the state must, however,
be free of any element of inequitable compulsion, for, after
all, it is the liberty of choice of employment and the oppor-
tunity for the individual to perform work in accordance
with his abilities which ensures the most effective develop-
ment of human energy.
Having now an outline of the obligations of the state
with regard to the development of an economic system of
joint endeavor we can go on to consider whether the stipula-
tions made in the present Provisional Constitution are suffi-
cient to ensure and protect this pattern of economy.
There are two aspects of liberalism which can endanger
this desired course of development, namely, the extension of
private initiative and the power of property rights.
With regard to these two points the provisions of the
Constitution should be more consistently anti-liberal.
In order to understand fully the significance of the
terms of Article 38 it is necessary for us to examine also
other articles of the Constitution, as, for example, the
clauses limiting property rights. Due recognition, it will
be seen, is, in principle, accorded to private initiative.
It may be noted that there is a clause in the Burmese
Constitution reading: "The State guarantees the right of
private property and of private initiative in the economic
sphere."
The exercise of initiative within a joint undertaking
functioning on the basis of the family relationship is to be
commended. However, the exercise of private initiative
functioning on its own should not produce a form of economy
which will make possible the accumulation of wealth such as
to result in the establishment of a monopoly. The provisions
of paragraph 3 Article 37, being designed solely to prevent
the existence of monopolies in the form of cartels and trusts,
are inadequate.
Let us now consider the clauses relating to the right
to own property. The clauses in the RUSI Constitution rela-
tive to property rights contain merely guarantees and pro-
tections, very similar to liberalism. These provisions of9
the RUSI Constitution have been included in the present
Provisional Constitution, but fortunately an additional
clause has been added as paragraph 3 of Article 26: The
right to property is a social function. The primary purpose
of "social function" is the following: property rights may
not be used or left alone in such a way as to be detrimental
to society.
The term "social function" is also employed in the same
context in the Italian Constitution, which, moreover, re-
quires the legislative body to enact laws regulating the
acquisition and utilization of property and defining restric-
tions on the exercise of this right so that the social
function of property owning is ensured and everyone can
appreciate its value (paragraph 2 Article 42).
Does out Constitution tend in the same direction? This
is not clear. The Italian Republic is clearly said to be
based on work.
It is my conviction that the principle laid down in
Article 38 merits our fullest support. The provisions of our
present Provisional Constitution open up the possibility of
our developing an economic system conforming to our ideals.
But it is indeed necessary that additional clauses should
be included which will reinforce the terms of Article 38,
making impossible all methods of abuse of economic power.
A more thorough understanding of the economic ideals
embodied in the present Provisional Constitution may be ob-
tained by making a comparison with the terms of the Consti-
tutions of other countries. The ideal laid down in our
Constitution is of an economic system having the form of a
joint endeavor, in which burdens and risks are jointly
borne and in which the distribution of the fruits of these
efforts are based on justice, resulting from the application
of the principle of the family relationship.
We may compare this with the Indian Constitution which
aims to ensure the development of a social pattern where
justice—social, economic and political justice—penetrates
all the institutions of national life. There are also
various provisions in the Indian Constitution, intended as a
guarantee and protection of the people's economy, which are
clearly meant to check the excesses of liberalism.
Similar clauses are included in the Burmese Constitution
which, however, also provides that material assistance will
be made available to enterprises not operating for individual
profit. Priority is given to "cooperative and similar economic
organizations."10
The provisions of the Brazilian Constitution are framed
with the intention of bringing about social justice by recon-
ciling the liberty of initiative with the increasing value
of human labor. (See Article 145 oi the Brazilian Constitu-
tion. )
Italy is of the conviction that justice will be found in
the principle of work.
The examples I have cited concern only states which,
either because of far-reaching changes occurring in their
societies or for other reasons, are seeking to spread new
ideas among their people, and which are at the same time
opposed to liberalism or at least determined to wipe out its
excesses.
I come now to the final points of my commentary.
Evaluated in relation to other articles, Article 38 of
our Provisional Constitution is, in fact, merely an expression
of beliefs in anti-liberalism or opposition to certain
aspects of liberalism. There is no formulation of a specific
concept which could be taken as stipulating a definite line
of action.
The perspectives envisaged in the terms of Article 38
can be likened to a large river and due to its width the
water is flowing rather slowly. Here and there the water can
certainly be made to pass more quickly. This work of inducing
a swifter current must be constantly maintained. This is
the message I have to bring to the youth, particularly those
who have taken up the study of economics.
The primary consideration is that the principle laid
down in Article 38 can already be used as a suitable basis
for the achievement of our economic objectives.
It is my belief that our people will find it possible
to work faster, so that our history will soon record a degree
of progress of which we can all be proud.
With this expression of confidence in the future I con-
clude my observations on Article 38 of the Provisional Con-
stitution.A SECOND INTERPRETATION
Widjojo Nitisastro13
In contributing to this evening's discussion I wish to
deal firstly with those points with which I can express
agreement in the interpretation of paragraph 1 Article 38 of
the Provisional Constitution given by the main speaker, then
to outline my objections to certain aspects of his interpre-
tation, and to conclude by trying to put forward my own
interpretation of this paragraph.
There are certainly a considerable number of points
made by the main speaker which can be fully agreed with.
As was pointed out,the provisions of Article 38 were designed
to replace the principle of economic liberalism that had
thitherto applied. The concept formulated in paragraph 1
Article 38 is indeed in complete conformity with the princi-
ples set down in the Preamble to the present Provisional
Constitution. Moreover, Article 38 is an affirmation of the
conviction that the principle laid down therein is the
one most suitable for Indonesia.
Furthermore, as the main speaker has pointed out, the
Provisional Constitution, when considered from an anti-
liberal point of view, is not sufficiently definite.
There was another important observation made by the
main speaker with which I am in agreement--namely, that
paragraph 1 article 38 is not identical with the cooperative
principle, in the sense that the cooperative enterprise
should be the sole form of enterprise which can operate
within the economic system as expressed in the Provisional
Constitution. Admittedly, this conclusion was not stated
by the main speaker in so many words, but from the inter-
pretation he gave it was evidently the opinion that he had
arrived at. I will return to this point later.
In criticism of the main speaker’s contribution fo the
discussion it is to be pointed out that his interpretation
was rather vague. This is, of course, understandable given
the lack of clarity in the formulation of paragraph 1
Article 38, but, after all, it is the purpose of an interpre-
tation to remove any ambiguity and to present clearly the
basic idea the ambiguous formulation was intended to convey.
The interpretation we have heard merely indicates the direc-
tion that should not be followed, but does not define the
economic system that should be aimed at.
Moreover, there is an element of paradox in the main14
speaker's interpretation regarding the role of private enter-
prise in the economic system envisaged by the terms of para-
graph 1 Article 38. Submitting the premise that private
enterprise is the fundamental essence of liberalism, he
asserted that, since the concept expressed in paragraph 1
Article 38 in contrary to liberalism, therefore private
enterprise is incompatible with paragraph 1 Article 38. But,
at the same time, the main speaker claims that private
enterprise, although subjected to certain limitations, occu-
pies a recognized place in the economic system as expressed
in paragraph 1 Article 38.
The question consequently arises of whether this incon-
sistency is due to some "inherent contradiction" in our
present Provisional Constitution or is a consequence of in-
adequate interpretation.
In observing an economy one can made a distinction be-
tween state-owned or public enterprises and privately-owned
enterprises, and, in addition, mixed enterprises which are
partly state-owned and partly privately owned. According to
the main speaker's interpretation private enterprise is the
basic element of economic liberalism, and for that reason
is incompatible with the economic system as formulated in
paragraph 1 Article 38. However, the main speaker contended
that the implementation of the envisaged economic structure
did not presuppose the complete elimination of private
enterprises and their replacement by public enterprises; on
the contrary measures would be taken to develop other forms
of enterprises, especially cooperatives, while the continued
existence of privately owned undertakings would be permitted.
Thus,, in fact, private enterprise is regarded as a
necessary evil, which we will not or do not venture to
eradicate since we do not have the conviction that the alter-
native—i.e. an economy consisting of public enterprises only
is indeed a better one. Another conclusion which can be
drawn from such an interpretation is that, as a matter of
fact, we are in doubt as to whether an economy consisting of
cooperatives only is something possible of realization. It
would appear then that if we dare to be frank with ourselves,
we must recognize that the situation presents only an
impasse, since we have no clearly formulated principles to
which to hold. The prospect becomes all the more dispiriting
when we hear the viewpoint put forward that the basic defect
of economic liberalism is the existence of private enterprise
and then turn to consider the developments that are taking
place in our own country. At present we see in our economy
the spectacle of an extraordinarily rapid growth of private15
enterprises impelled solely by the motive of private gain,
a savage struggle for private profit in which all considera-
tions are subordinate to the aim of acquiring a maximum
return within the shortest possible time.
When we examine the whole question more thoroughly we
see that this inconsistency in our attitude towards private
enterprise is a consequence of an inadequate analysis of a
liberal economic system, that is of an analysis which gives
undue emphasis to the forms of enterprise. Although an
important factor in any economic system, the forms of enter-
prise are not the fundamental issue. The basic question to
be considered in the study of any economic system is that
of the operation of the economic process within the frame-
work of the given system. I will deal more extensively
with this point later.
In further criticism of the main speaker's approach
it may be noted that his interpretation was concerned
unduly with the question of redistribution of income, while
little or no attention was given tq a consideration of the
article under discussion from the viewpoint of raising per
capita income, which is in fact a reflection of the rate
of increase in the national income taken in relation to the
rate of increase of the population. When it is a matter of
analyzing an economic system which is intended to provide
a guarantee of successful economic development, the question
of redistribution of income and the question of raising the
per capita income are inseparable. In the course of economic
development both of these ends, redistribution of income and
increasing of per capita income, should be realized con-
currently since they are complementary and integrally related.
Consequently, an analysis of both of these two factors is
essential to the study of economic systems. Redistribution
of income, unless accompanied by efforts directed toward
raising the level of per capita income, would almost certainly
act as a restraint on initiative and thus result in a
general decline in the rate of expansion of production.
Moreover, there would ultimately be a diminution in each
individual's share as a consequence of population increase
if redistribution of income were to be effected without
being related to provisions for raising the average income
level. Conversely, the raising of per capita income without
an accompanying redistribution of income would ultimately
inhibit a rise in per capita income as a consequence of the
declining spirit to work and very possibly also due to the
rise of social tensions.
For these reasons an interpretation of paragraph 116
Article 38 of the Provisional Constitution cannot be arrived
at from an approach which takes into consideration only the
question of redistribution of income.
These are the main criticisms I have to offer of the
views expressed by the main speaker. I will now endeavor to
establish an interpretation of paragraph 1 Article 38, which,
although fundamentally little different from the interpreta-
tion given by him, will perhaps be rather more specific,
and will, I hope, avoid the inconsistency mentioned earlier.
First, let us recall the wording of paragraph 1 Article
38;
The economy shall be organized as a joint endeavor
based on the principle of the family relationship.
The interpretation of this paragraph must be in effect
an analytical explanation of the nature of the economic
system which the wording of the paragraph was intended to
define. And analyzing any given economic system must be
looked upon as describing the economic process taking place
within the framework of the economic system in question.
An interpretation of paragraph 1 Article 38 must con-
sequently comprise a description of the economic process which
would function within the framework of the economic system
envisaged by the terms of this paragraph.
The economic process in a given economic system takes
place within one or more units.
There is hardly need to point out that the term ’’prin-
ciple of the family relationship" used in paragraph 1 Article
38 can not be taken to signify that the family, in the sense
of a biological or social entity, made up of the father,
mother and children, is to be regarded as the (production)
unit concerned.
In my opinion this term must be understood as indicating
that the economic process will take place in one or more
units, which embody features characteristic of the family
relationship. Among the characteristic elements of the
family relationship there is the element of living together,
the element of joint effort by the members for the common
good of the entire family, and the element of distribution
of acquired advantages among the individual members according
to the needs of each member.17
Thus the economic unit or units, within which the economic
process is to take place according to the ’’principle of the
family relationship’’ are to be characterized by the fact of
•	joint efforts to raise the level of living of all members
of the unit and by an equitable distribution among all
members of the benefits derived from these joint efforts,
«	and not by a distribution which benefits certain individuals
or groups only.
Up to this point I do not think there has been any
basic difference between our interpretations of the term
"principle of the family relationship." However, there is
a difference in our interpretations as to the unit or units
within which this principle is to be realized.
Unless I am mistaken the main speaker contended that
these units are enterprises or undertakings, or, otherwise
expressed, that the economic process is to take place within
certain forms of enterprises or certain types of undertakings
functioning on the basis of the principle of the family
relationship. In my opinion the unit or units, which is to
embody the characteristic features of the family relationship,
and in which the economic process is to take place, is the
community as a whole. This appears all the more justifiaBle
when paragraph 1 Article 38 is considered, not out of context
as a thing apart, but in relation to the provisions of
paragraph 2 and paragraph 3 of the same article. As the
provisions of these two succeeding paragraph allocate to the
state an all-important role, the impression is that the unit
which is to be characterized by joint efforts for the good of
all members and by an equitable distribution of the results
of these efforts among all the members is not a unit in the
sense of an enterprise or firm but rather the entity of the
community as a whole.
When the provisions of the three paragraphs of Article
38 are considered together it is obvious that the state
occupies a leading position in the entity that comprises the
community as a whole, the state being the directing agency
guiding the joint efforts toward raising the level of living
and the equitable distribution of the returns from these
efforts.
Thus, interpreted in the context of the other pravi-
sions of article 38 and in the context of the terms of the
Constitution as a whole, paragraph 1 Article 38 can be taken
as meaning that:
The economic system shall be based on the joint18
efforts of the entire community, the objective
being the raising of the level of living of the
community (the increase of per capita income) and
the equitable distribution of the returns derived
from these joint efforts (the equitable distribu-
tion of income), with the state playing an active
role in guiding and implementing economic develop-
ment .
Let us now test the validity of this interpretation by
examining the question in thejlight of economic analysis,
bearing in mind that an inquiry into the nature of any given
economic system is in effect a study of the operation of the
economic process within the framework of the economic system
in question.
Given that the principle formulated in paragraph 1 Article
38 is contrary to the principle of economic liberalism, it
becomes necessary to analyze the operation of the economic
process first in a liberal economic system and then in an anti-
liberal system.
Private enterprise is the legal basis of economic
liberalism. A liberal economic system operates on the basis
of the freedoms inherent in such a system, that is, freedom
of production, freedom of consumption, freedom of exchange,
and freedom of competition. In consequence, the establish-
ment of prices, including wages, is left to the free
play of economic forces. Ultimately this results in the
fixing of prices by the monopoly and oligopoly forces which
come into being by the very reason of the liberties pre-
vailing in such a liberal economic system.
An anti-liberal economic system can be such that the
economic process operates without price mechanisms, since
all enterprise is conducted by the State. In other words,
in an economic structure of this nature there is no place
for private enterprise.
However, an anti-liberal economic system can also be
such that price mechanisms continue to operate, also in the
determination of wages, but under the control of the statej
so that there is a guarantee of equitable distribution of
income through the entire community.
Various forms of control can be exercised: controls in
the field of fiscal policy, budgetary policy, balance of pay-
ments policy, price and wage policy, and so on. Moreover it
is possible to use direct methods to crush the forces of19
monopoly and oligopoly. Under these circumstances the
existence of private enterprise does not constitute an
anomaly. At the same time the existence of collective
and cooperative enterprises constitutes one of the factors
of utmost importance, especially in strengthening the
bargaining position of the small producers in relation to
the middlemen, so that the former are assured of securing
a just return. Moreover these collective and cooperative
enterprises are institutions for mobilizing savings for in-
vestment purposes. Most important, however, is the fact
that, in an economic system of this character the state is
obligated and empowered to play an active role in pursuing
an equitable distribution of income for ail members of
the community.
In this connection is may be recalled that for us any
reference to private enterprise usually evokes the names of
large concerns such as BPM (Royal Dutch Shell), KPM (Royal
Dutch Steamship Company) or Stanvac (Standard Vacuum Oil).
But we forget all too easily that the small peasant with a
holding of no more than 0.1 hectare is also engaged in free
enterprise. Similarly, we often fail to recognize that
cooperatives are also privately owned undertakings (in the
sense of not being state-owned).
Besides causing an inequitable distribution of income,
liberalism also brought about a low level of income in our
economy. The level of income is a matter of output, which
is a function of investment. An economic system based on
liberalism allows complete freedom as regards the volume and
directional flow of investment. This absence of control
of investment creates structural debilities in our economy,
reinforced by sharp short-run fluctuations.
An economic system based on anti-liberalism is one
which ensures structural changes of our economy and which
directs the appropriate volume and flow of investment to
those sectors which ensure an increase in output, and con-
sequently an increase in the level of income. In an anti-
liberal economic system which also abolishes private enter-
prise the only source of investment is public saving. On
the other hand in an economic system which is based on anti-
liberalism but which does not eliminate private enterprise,
although investment comes in large part from the state, a
not inconsiderable proportion of it is contributed by
private enterprise. The essential point is that the volume
and directional flow of investment is not left for private
enterprise to determine, but that this is the responsibility
of the state, for which purpose a variety of policy instru-
ments can be used.20
These are the fundamental aspects of an economic system
based on ant(i-liberalism which does not do away with private
enterprise.
Proceeding from this analysis we can see that paragraph·
1 Article 38, when interpreted in relation to the other pro-
visions of Article 38 and in relation to the full text of the
Provisional Constitution, is to be understood as expressing
the concept of an economic system based on the joint efforts*
of the entire community, with the objective of achieving a
higher level of per capita income and an equitable distribu-
tion of income, with'the state playing an active role in
guiding and implementing economic development. An equitable
distribution of income is one with the highest possible
degree of equality compatible with not hampering the produc-
tion process, but on the contrary allowing the highest
possible rate of expansion of production.
The terms of this interpretation do not make the existence
of private enterprise an incompatible element in the economic
system under discussion. On the contrary, private enterprise
is allocated a specific role. Cooperatives and similar forms
of enterprises are allotted the role of ensuring an equitable
return for the small producers and of acting as an institu-
tion for mobilizing savings for investment. It is thus
evident that the principle of the family relationship cannot
be taken as identical with the principle of cooperative enter-
prise and it is also clear that in interpreting paragraph 1
Article 38 the primary consideration is not the form of
enterprise or the type of undertaking which will operate, but
rather the functioning of the economic process within the
envisaged economic system.
This concludes the outline of my interpretation of
paragraph 1 Article 38. If I have spoken with a pointed
directness I have done so only with the purpose of stimulat-
ing discussion, for it is only by exchanging ideas that we
can come to a full understanding of the significance and
implications of paragraph 1 Article 38 of the Provisional
Constitution.