Sumitro's advantage<\/p>\n
After having been enlightened by senior economist and former
\neconomics minister Widjojo Nitisastro's speech about conscience,
\nmorality and common sense at the 45th anniversary of the
\nUniversity of Indonesia's Djakarta School of Economics last
\nMonday, we were excited upon learning that Sumitro
\nDjojohadikusumo would be the main speaker at the reunion of that
\nschool's alumni two days later. After all, due to his
\npersonality, integrity and reputation as an intellectual, Sumitro
\nhas the advantage of being able to speak his mind openly without
\nsubtleties and euphemisms.<\/p>\n
True to his form, Sumitro did shoot directly from the hip.
\nAfter he made a rambling comment on Indonesia's low level of
\ncompetitiveness, the gross inefficiency of the economy and the
\nheavy dependence burden faced by productive workers, he plunged
\nhead on to discard as erroneous the views of State Minister for
\nResearch and Technology B.J. Habibie on the concept and role of
\ncompetitive advantage in relation to comparative advantage.<\/p>\n
Sumitro pointed out that Habibie's suggestion that emphasis be
\nput on the development of competitive advantage to the exclusion
\nof comparative advantage, which is based on cheap labor, contains
\ntwo basic errors -- error of fact and error of logic.<\/p>\n
He said Habibie committed an error of fact by suggesting that
\ncomparative advantage is entirely based on cheap labor. Sumitro
\nis convinced the pattern of comparative advantage depends on
\ninteraction among other factors, such as resource endowment and
\ntechnology. In Sumitro's view, Habibie's concept also contains an
\nerror of logic because the promotion of competitive advantage
\nshould not be done a priori to the exclusion of economic
\nactivities which are based on comparative advantage.<\/p>\n
We see this difference of views as a debate between an
\neconomist who, equipped with well-tested empirical evidence,
\nprefers a gradual progression from the prevailing condition
\ntowards competitive advantage, and a technology czar who wants to
\nleapfrog to high-tech industries, such as the aircraft sector, to
\ngenerate as much value added as possible.<\/p>\n
We reckon that what Sumitro means by prevailing condition is
\nthe blunt reality that Indonesia is still extremely short of the
\nskilled manpower, manufacturing technology, financial and
\nmarketing capability needed to enter high-tech industry. If we
\ninsist on leapfrogging to high-tech industry now, any such
\noperations will be isolated from the rest of the economy. Since
\nsuch industry will operate as if on an island separate from the
\nmainstream of the economy it will not have significant multiplier
\neffects on other sectors of that economy.<\/p>\n
Sumitro apparently wanted to point out that comparative
\nadvantage and competitive advantage should be developed
\nsimultaneously in a complementary manner on the basis of the
\nprevailing conditions. Hence, according to his school of thought,
\nIndonesia, with a per capita income of less than US$1,000, should
\nfirst increase its capabilities in mid-tech industry, such as the
\nmanufacture of processing machinery, heavy equipment and machine
\ntools, before embarking on the production of high-tech goods. Put
\nanother way, the progression towards higher value added products
\nshould be done in a gradual manner so that the new industries
\ndeveloped are linked with and supported by existing industries,
\ndomestic human and natural resources, research and development
\ncapacity and services.<\/p>\n
Sumitro stopped short of citing the development of the state-
\nowned IPTN aircraft industry in Bandung as a vivid example to
\nemphasize his point. However, some people are of the opinion that
\nthe aerospace company, despite the successful maiden flight of
\nthe first prototype of its N-250 propeller passenger aircraft
\nlast month, will most likely have to continue to operate in
\nisolation from most other domestic economic activities.<\/p>\n
Many may wonder what the purpose of Sumitro's point of
\nargument is now that the government has already decided to
\nfurther expand IPTN's development of aircraft to include a
\njetliner with a start-up investment of US$2.5 billion.<\/p>\n
Nonetheless, we think that Sumitro's comments can still serve
\nas a warning against further inefficiency or misallocation of
\nresources. Such a warning is timely because the government is
\nconsidering raising the annual economic growth target from 6.2
\npercent to 7.1 percent. Misunderstanding about the concept of
\ncomparative advantage in relation to competitive advantage might
\nresult in the drawing up of an erroneous scale of development
\npriorities geared toward achieving the higher growth target.<\/p>",
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