JP\/7\/DHARMA<\/p>\n
For better living standards,
\nforeign investment is not the answer<\/p>\n
Siwage Dharma Negara
\nIndonesian Institute
\nof Sciences (LIPI)
\nJakarta<\/p>\n
The continuing decline of foreign direct investment (FDI) in
\nIndonesia has led to a drop in total FDI approvals by 11 percent
\nfor the first nine months of this year, compared to the same
\nperiod last year. Domestic investment approvals also plunged by
\nabout 70 percent during the same period.<\/p>\n
The worst was yet to come, with Japanese technology giant Sony
\nCorp. announcing plans to transfer its production line to a
\nMalaysian plant, which would cost some 1,000 jobs.<\/p>\n
That number is not significant when compared to the estimated
\n40 million unemployed people in the country, or even compared to
\nthe two million lost jobs following the Oct. 12 terrorist strike
\nin Bali. However, the bandwagon effect of Sony's move might
\ninduce similar action by many other multinational and domestic
\nenterprises.<\/p>\n
Despite abundant resources, about 15 percent of Indonesia's
\ntotal population, or 33 million people, live below the poverty
\nline. More than half of this number can be classified as living
\nin extreme poverty. Half of the total population of 220 million
\nis very close to the poverty line, hence making them extremely
\nvulnerable in the event of another economic crisis.<\/p>\n
It has become painfully evident that despite the surge in
\ncapital inflow, through direct foreign and domestic investment,
\nin the past decade, mass poverty still exists, more people are
\nunemployed or underemployed, absolute poverty is increasing and
\nthe distribution of income and assets has become more unequal.
\nMoreover, inequality in the distribution of human development
\npersists and environmental degradation has accelerated as a
\nresult of efforts to maximize short-term growth.<\/p>\n
So to what extent should we worry about the recent decline in
\ndirect foreign and domestic investment, while those investments
\nhave not significantly improved the living standards of the
\npeople? Studies show that how capital is allocated is more
\nimportant than the level of capital accumulation. Indeed, it is
\nthe allocation of capital that should become our primary concern
\nfor future development strategies.<\/p>\n
We have been trapped too long by the old paradigm that capital
\naccumulation is the central focus of development. Development is
\nassociated with an increase in per capita real income. Hence, as
\nthe population was increasing, the emphasis had to be on a rapid
\nrate of growth or gross domestic product (GDP).<\/p>\n
The flow of investment has been misallocated for the sake of
\ncapital owners, despite the main development goal of distributing
\nresources equally among the people. Learning from history would
\nmean the need to move beyond concentrating on growth per se;
\nchanging our myopic view into a longer-term perspective and
\nadjusting emphasis from production toward living standards. The
\nlatter can only be achieved by accumulating and improving social
\ncapital.<\/p>\n
It is true that both foreign and domestic investment can bring
\nbenefits, e.g. bringing in fresh capital, new technology, new
\nknowledge and management, and creating employment opportunities,
\nbut it may also be overly capital intensive when there is surplus
\nlabor, as is the case in Indonesia.<\/p>\n
Multinational enterprises may exhibit costs to the host
\ncountry that mount over time -- costs that are too often
\nneglected as short-sighted policymakers chase short-term gain.<\/p>\n
Indonesia is not poor because of the vicious circle of poverty
\nbut because of poor policies created by leaders aiming for
\npolitical popularity. The post-1997 Asian financial crisis shows
\nthat differences in policies are responsible for the disparate
\nperformances of Indonesia with respect to other countries struck
\nby the same crisis.<\/p>\n
Markets, prices and incentives have long been abused based on
\npolitical ideology. Although the rationale for government
\nintervention had been to remedy market failure, lack of
\ncapability in implementing what was planned have made matters
\nworse. Leadership and improved institutions are important
\ndeterminants in making policies work. Both are part of the social
\ncapital needed for sustaining any development strategies.<\/p>\n
An expert has defined the importance of social capital as the
\nsocial and cultural coherence of society, the norms and values
\nthat govern interactions among people and the institutions in
\nwhich they are embedded. Meier (2001) explained that social
\ncapital can be attributed to transparency in decision making, an
\nefficient administrative system, effective accounting, a reliable
\nlegal system, avoidance of corruption, good corporate governance,
\nsocial cohesion and state capability and credibility.<\/p>\n
All in all, unfortunately, these are not well developed, if
\nnot completely omitted, here despite several decades of physical
\ndevelopment. Therefore social development through improving
\nsocial capital is also crucial for better living standards in
\nIndonesia.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/jp7dharma-1447899208",
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