RI must develop policies to escape crisis<\/p>\n
Akhmad Rizal Shidiq, School of Oriental and African Studies,
\nUniversity of London<\/p>\n
Hidayat Jati, in The Jakarta Post on July 29, wrote that
\ndespite the recent corporate governance crisis in the U.S., we
\ncould still learn from the U.S. experience in the virtue of
\ncompetition, creative destruction and how modern capitalism and
\ndemocracy saves the economy.<\/p>\n
However, from the series of disclosures and punishment dealt
\nout to those company crooks, it seems that was what at work was
\nnot the competitive market but the bureaucracy. And as expressed
\nby Thomas L. Friedman in the New York Times on July 28, it was
\nPresident George W. Bush's undue trust in his people -- CEO
\ncronies -- rather than the bureaucracy, that stimulated the
\nscandals.<\/p>\n
Moreover, the latest crisis shows the relationship
\nparticularly between the financial market and the state under
\nmodern capitalism.<\/p>\n
The more developed a country's capitalism -- marked by the
\ncomplexity of, for example, financial market transactions and
\nsophisticated accounting practices -- the more it requires a
\nstate that works. This is counterintuitive to the perception of
\nminimum state intervention and liberalization as the essence of
\nmarket capitalism.<\/p>\n
In the U.S., we see the Stock Exchange Commission, the state
\nbureaucracy, which acts effectively in guarding the economy. Such
\na paradox also explains why President Bush -- rather than letting
\nthe market clean up its own problem -- had to speak on Wall
\nStreet to calm the market by claiming that "the American economy
\nis the most creative and enterprising and productive system ever
\ndevised". Yet he also launched a kind of state intervention, the
\ntough new enforcement initiatives for reform.<\/p>\n
While it is often argued that the market did well in the U.S.
\nto punish the bad guys as shown by the immediate drop of stock
\nprices for those scandalous companies; it is that very market
\nthat boosts those bubble stock prices without any reliable base
\nexcept the company's ability to create a sophisticated accounting
\nfinancial statement. Then how does the financial market work?<\/p>\n
The description by economist John Maynard Keynes harks of a
\nbeauty contest. In the 1930s, the British Sunday newspaper used
\nto publish several pictures of young ladies, which readers would
\nchoose from. Readers who voted for the one who got the most votes
\ncould win a prize. Their basis for selection was only a guess on
\nthe majority's preference regardless of their own judgment.<\/p>\n
Replacing the readers and the ladies with most financial
\nmarket players and the companies' stocks respectively, we have
\nthe nature of Wall Street and other financial centers.<\/p>\n
Because of the similar guessing involved, the state is needed
\nto secure market expectations to be based on more or less
\naccurate information -- in the form of reliable accounting and
\nregulators' agencies. They are important to ensure that the
\nmarket works properly; to cope with information problems; and to
\nminimize conflict among the owners of production factories.<\/p>\n
So while the U.S. and Indonesia similarly have all of those
\ndirty practices among politicians and company crooks, what
\nIndonesia does not have is clearly a state that works.<\/p>\n
When comparing the market-state relationship between the U.S.
\nand Indonesia, there are two notes for Hidayat Jati's arguments.
\nFirst, the concept of competition and creative destruction; and
\nsecond, the historical context of comparing the two countries.<\/p>\n
Capitalism can be explained by competition or creative
\ndestruction. Yet the former sees the beauty of capitalism as the
\nefficiency of resource allocation through a price mechanism. In a
\nperfect market, consumers always have the lowest price as the
\ncompetition pushes all producers to set a zero profit.<\/p>\n
The latter sees the source of capitalism progress as a series
\nof temporary monopolies and oligopolies as a reward for
\ninnovators.<\/p>\n
Politics is never comparable to the perfect competition. To
\nsome extent politics requires the concentration of power -- an
\nalliance that never reaches efficiency. Blaming this typical
\nmarket imperfection as the source for a lack of political
\naccountability is then implausible.<\/p>\n
And how would temporary monopolies be prevented from being
\nexcessive? The U.S. experience shows us that it is the state
\ninstitutions, rather than market mechanism, that must be enacted
\n-- the anti-trust law and limited patent in economics, for
\ninstance.<\/p>\n
In comparing Indonesia with the U.S., surely it is less
\nmeaningful to compare the two countries at present since the two
\nare at different stages of development.<\/p>\n
Cambridge University economist Ha-Joon Chang cited recently in
\nthe Guardian daily that in 1880, when the U.S. income level was
\nsimilar to Indonesia's today, the U.S. was among the countries
\nwith the highest protection tariffs. Most of its citizens could
\nnot vote and vote buying as well as electoral frauds were
\nrampant. There was no open civil servant recruitment, no
\nbankruptcy law and no acknowledgment of foreigners' copyright.<\/p>\n
In short, the U.S. was fraught with the same substandard
\nfeatures plaguing developing countries. Yet it was also the
\nfastest growing country in the world, which eventually became the
\nrichest.<\/p>\n
Liberalization and all that is associated with American
\ndemocracy did not automatically exist in the early days of its
\nindustrialization. The experience of the U.S. and the earlier
\npattern of development of "East Asia tigers" shows that
\nliberalization is not a panacea for economic growth. Even at a
\nmore established economic stage, the role of the government is
\nvery crucial, particularly during the crisis.<\/p>\n
This historical perspective and an assessment of Indonesia's
\ndevelopment phase shows a changing relationship between the state
\nand the capitalists. At an early stage, the state is deeply
\ninvolved in creating property rights and the emerging capitalist
\nclass that will lead to capital accumulation and economic
\nprosperity.<\/p>\n
All countries started from a very messy situation, which
\ninvolved the massive transfer of rents, corruption and briberies.
\nYet it is more interesting to study what features make the state
\nin some countries able to manage the socially beneficial rent-
\nseeking process that brings economic growth; rather than simply
\nimporting the typical U.S. institutions of today and hoping they
\nsolve all the problems.<\/p>\n
To have the bureaucracy and state work effectively is highly
\nrelated to changes in society and the stage of capitalist
\ndevelopment. Therefore, it is up to Indonesia, based on the
\ninterplay between the state and the market, to design the
\ndevelopment policies to escape from economic and political
\ncrises.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/ri-must-develop-policies-to-escape-crisis-1447893297",
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