Constraints on technology (2)<\/p>\n
By David Ray<\/p>\n
How does Indonesian industry move up the technological ladder?
\nThis is the last of two installments of an article attempting to
\nisolate the four key issues which explain why Indonesia is losing
\nthe regional technology race and what the implications are.<\/p>\n
BANDUNG (JP): 3) Foreign Investment: According to many
\nindustry surveys and studies foreign investment (FDI) has played
\na very minor role in Indonesia's industrial technological
\ndevelopment. In the case of joint ventures, foreign partners tend
\nto transfer only enough technology to the local company to ensure
\nefficient production operations.<\/p>\n
All design or innovative work tends to be carried out by the
\nforeign partners in their home base where the research personnel
\nand infrastructure are of higher quality. Licensing arrangements
\non the other hand tend to engender a higher degree of innovation
\nin the local firm. This is because having bought the technology,
\nthe local firm must adapt and modify the technology itself to
\nsuit local supply and demand conditions and cannot rely upon the
\ntechnical know-how of a foreign joint-venture partner.<\/p>\n
Two key factors prevent Indonesia from deriving greater
\ntechnological benefit from FDI. The first is the low skill and
\neducation levels of Indonesian workers as discussed above. The
\nsecond is the policy environment within which FDI must operate.
\nGiven Indonesia's long and painful period of colonial rule, FDI
\nin the post-independence period has always been a controversial
\nmatter. Throughout much of the 1970s and 1980s strict controls on
\nFDI prevented the development of a number important industries in
\nIndonesia; industries that played a key role in the industrial
\ntechnological development of regional competitors such as
\nMalaysia, Singapore and Thailand.<\/p>\n
The best example in this regard is the case of Fairchild and
\nNational Semiconductors who simply moved all Indonesian
\noperations abroad in 1985 after failing to get government
\npermission to upgrade production facilities.<\/p>\n
This was a major blow to Indonesia's technological development
\nas it is the electronics and computer industries that have driven
\nAsia's move toward more knowledge-based production over the past
\n2 decades.
\n4) R&D Institutions and Government Technology Policy:Public R&D
\ninstitutions have a crucial role to play in developing certain
\ntypes of technology or knowledge that benefit the economy as a
\nwhole. Private firms are usually reluctant to invest in these
\ntypes of technologies because of their inability to internalize
\n(keep secret) the economic benefits of their research.<\/p>\n
In a development context R&D institutions have another
\nimportant role in helping the manufacturing sector --
\nparticularly small to medium producers -- to effectively use
\nmodern technologies.<\/p>\n
In Indonesia the institution charged with this latter role is
\nthe Badan Penelitian dan Pengembangan Industri (BPPI -- Agency
\nfor Industrial Research and Development) of the Ministry of
\nIndustry. Faced with serious resource constraints, however, this
\ninstitutions has yet to prove effective in raising the
\ntechnological capacity of the of the manufacturing sector.<\/p>\n
The lion's share of the government's R&D budget is taken by
\nLIPI (Lembaga Ilmu Pengetahuan Indonesia or the Indonesian
\nInstitute of Sciences) and BPPT (Badan Pengkajian dan Penerapan
\nTeknologi or the Agency for the Research and Application of
\nTechnology).<\/p>\n
However, according to Dr. The Kian Wee (a well known LIPI
\nbased economist) these two institutions have yet to develop any
\nsignificant links with the private sectors. Much of their
\nresources are instead, he argues, channeled to the needs of the
\n10 strategic state owned industries (BPIS) which operate under
\nthe umbrella of BPPT.<\/p>\n
The issue of generating linkages with the private sector is a
\nproblem not only for the institutions mentioned above but also
\nfor the many ministerial and university based research centers.<\/p>\n
It is part of a more wider problem, I will argue, concerning
\nthe type of policy approach employed by the government to
\ngenerate domestic technological capacity. Unlike most other
\ncountries (both developed and developing) technological
\nadvancement in Indonesia is seen to be principally the domain of
\nthe state.<\/p>\n
About 80 percent of all R&D funding comes from the state
\nwhilst 85 percent of all engineers and natural scientists are
\nemployed by the government or universities. Similarly, the huge
\ninflows of budgetary funds into the strategic industries are
\nindicative of the government's commitment to make these state-
\nowned industries the backbone of national industrial growth.<\/p>\n
Clearly the government sees itself as the principal promoter
\nof technological development. Technological development is
\nclearly an important element of economic development. The two
\nhowever should not be equated.<\/p>\n
The development of technology must be driven by economic
\nstimuli for it to generate economic growth. Consider the case of
\nJapan and the former Soviet Union. Technology in certain areas of
\nthe former Soviet economy could match if not exceed that of the
\nUnited States. However, it was the ability of the Japanese to
\neffectively market and commercially apply much lower forms of
\ntechnology that enabled it to become a global superpower.<\/p>\n
Indonesia, however, is yet to develop the right kind of
\nincentive structure that will foster innovation. For a country to
\nsucceed economically, technological development needs to be
\ndriven by the profit-seeking behavior of entrepreneurs and
\nbusinesses in a competitive environment.<\/p>\n
In Indonesia, however, technological development continues to
\nbe driven by politicians and the few scientists employed by
\ngovernment within a non-competitive environment. This suggest
\nthat Indonesia will continue to be left behind by her regional
\ncompetitors in the race toward higher technology-based
\nproduction.<\/p>\n
The writer is a doctoral candidate at the Centre for Strategic
\nEconomic Studies, Victoria University, Australia. He is currently
\nin Bandung carrying out research towards his PhD.<\/p>",
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