Canberra's mistakes not good example for RI<\/p>\n
Dealing with the possibility of newly owned government assets
\npresents a number of dilemmas in balancing equity and benefit to
\nthe overall community. Following on from Kwik Kian Gie's
\n\"Insight\" analysis in The Jakarta Post on Tuesday, Sept. 1,
\neconomist Martin O'Shannessy and crosscultural specialist Rob
\nGoodfellow argue that Indonesia should avoid the mistakes made by
\nAustralia at all costs.<\/p>\n
WOLLONGONG, Australia (JP): If Bank Indonesia does confiscate
\nthe assets of liquidity support defaulters and gain significant
\nassets for the government, several thorny problems will present
\nthemselves in making the greatest use of the assets for the
\nIndonesian people.<\/p>\n
Ultimately, the people are the owners of the assets because it
\nwas public money that propped up New Order liquidity in recent
\nyears. This debt now needs to be repaid if the companies involved
\nare unable to trade on.<\/p>\n
However, as we saw in Kwik Kian Gie's article, deciding on how
\nto redistribute assets in a noncommunist economy is a major
\nheadache. On the whole, direct asset redistribution has been
\nshown to fail in Indonesia. Land and asset redistribution under
\nIndonesia's first president, Sukarno, did not improve the
\nproductivity or overall well-being of the people, and similar
\npolicies are unlikely to do so in the future.<\/p>\n
The mechanisms available to effect redistribution present
\nadditional problems. The methods that would provide the highest
\noverall return, such as selling assets to the highest bidder,
\nwould, of themselves, create inequity for the poor. Direct
\nredistribution of assets to the poor or selling assets to them in
\na protected market carries the risks of asset devaluation and
\npossible discouragement of the workforce.<\/p>\n
From a policy perspective, the search for a mechanism to give
\nthe best outcome for the Indonesian people will present a number
\nof blind alleys that should be avoided.<\/p>\n
The Australian experience shows that income redistribution, as
\nan alternative to asset redistribution, appears initially
\nattractive. Arguments in favor of this include the view that on
\nthe one hand asset redistribution will send negative messages to
\ninvestors and on the other income redistribution is more flexible
\nbecause it can be directed as needed rather than being a once
\nonly chance to establish a fair pattern of distribution.<\/p>\n
Both arguments are sound in theory. In practice, they are
\nirrelevant because of the ultimate truths of welfare
\ndistribution. In Australia, it has become clear that welfare
\nsystems stay in place once they have been introduced because
\ntheir removal becomes politically unpalatable and
\nbureaucratically difficult to accomplish. While there is
\nflexibility to add new systems or to include new groups, there is
\nrarely the ability to go back. This leads to high taxing
\ngovernments, which are also unattractive to investors.<\/p>\n
A more pressing problem for countries like Australia is the
\nfact that our welfare system has created an underclass of people
\nwho are unable to break out of the welfare system.<\/p>\n
According to Australian professors Castle, Chaudhri and
\nNyland, social security systems designed after World War II on
\nthe assumption of a fully employed economy have failed to adjust
\nto modern employment structures where long-term unemployment
\nremains a feature. This has led to the development of an
\nunderclass excluded from the work force and dependent on social
\nsecurity, charity or crime.<\/p>\n
Social problems associated with this class are great and
\nextend to every city and country town in Australia. A sharp
\nexample can be seen by examining a particular group, which is
\nunkindly referred to as \"brides of the state\". These women eschew
\nmarriage as the welfare system in effect pays them to have a
\nnumber of children outside of marriage to different fathers.<\/p>\n
This particular system of welfare began as a means of income
\nredistribution aimed at preventing the children of widows (in
\nparticular war widows) from starving. However, it has now become
\na permanent disincentive to work and marry.<\/p>\n
A combination of inappropriate policy design and the
\nmotivation sapping effects of easy and permanent welfare have
\ncreated a blind alley in Australia, a blind alley that Indonesia
\nshould avoid.<\/p>\n
An additional imperative is to avoid asset redistribution,
\nwhich is both ideologically irksome and practically cumbersome.<\/p>\n
This need is highlighted by the work of Prof. John Glynn of
\nthe Sydney Business School who recently contributed to a seminar
\nin Australia in which he highlighted the importance of foreign
\ncapital investment in Indonesia over the next 25 years.<\/p>\n
Glynn believes Indonesia can enter the top five manufacturing
\nnations in the world by 2020 because good labor prices, location
\nand population size all favor manufacturing investment within the
\nAssociation of Southeast Asian Nations (ASEAN) generally and
\nIndonesia in particular.<\/p>\n
The change will require a number of conditions including
\npolitical stability, preeminence of the rule of law, bureaucratic
\ntransparency and policy predictability. Willingness to
\nredistribute assets will not be seen as complying with these
\nconditions by the companies who will need to investment in
\nestablishing manufacturing capacity.<\/p>\n
So if asset redistribution has already failed, and income
\nredistribution carries hidden social and moral costs, how is any
\ncountry to deal with the reenrichment of the population in a
\nsituation such as that faced by Indonesia today?<\/p>\n
An alternative might be to consider a regeneration loan
\nprogram based on the sale of confiscated assets.<\/p>\n
The plan could work by selling assets to the highest bidder on
\nthe open market, thus maximizing the cash return to the
\ngovernment and avoiding asset devaluation. Money raised could be
\nplaced into a fund. This would provide low interest loans to
\nindigenous businesspeople who have limited assets. This aspect of
\nthe scheme would counter the main sources of economic damage
\narising from krismon (monetary crisis), which are capital
\nshortage and crippling interest rates.<\/p>\n
The other problems of asset redistribution and the potential
\nto create a welfare underclass would also be avoided.<\/p>\n
A corollary to this approach is being explored with some
\nsuccess overseas. In Australia, the proceeds of theft are seized
\nand liquidated. The money raised is placed in a fund and used to
\nassist the victims of crime.<\/p>\n
So systems can be developed to handle redistribution without
\nencountering the problems of the past. However, the greatest
\nbenefit of the scheme suggested will not be counted in economic
\nterms.<\/p>\n
According to a number of Australian economists and
\ncommentators, including the two of us, a major contributor to
\neconomic growth in the first quarter of the third millennium
\nwill be the entrepreneurial drive of the population, which arises
\nfrom their high economic and social aspirations. If any recovery
\nscheme is to be put in place, it must not damage this motivation.
\nIt must not pay people to stay away from work or business. It
\nmust reward those who wish to work, invest and enter the middle
\nclass.<\/p>\n
In the final assessment, what should be done with liquidity
\nsupport defaulters is a decision for the Indonesian government
\nand people. It is hoped that the mistakes made by Australia in
\nthe construction of its welfare system over the last 50 years can
\nbe avoided for the benefit of the whole people of Indonesia.<\/p>\n
Martin O'Shannessy is CEO of IRIS Research, an economic
\nresearch institute operating on the campus of the University of
\nWollongong. Rob Goodfellow is a crosscultural management expert
\nwho specializes in bilateral Indonesian-Australian relations. He
\nis a sessional lecturer in business ethics in Dr. M.A. Adnan's
\nInternational Program in the Indonesian Islamic University,
\nYogyakarta.<\/p>",
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