Will wealth redistribution help the economy?<\/p>\n
By Aleksius Jemadu<\/p>\n
BANDUNG (JP): The morally unjust and unacceptable distribution
\nof the burden of coping with the pain of recovering from the
\ncurrent economic crisis has led the Indonesian government to
\nrealize that economic democratization is absolutely necessary. No
\none can deny that almost three decades of growth-oriented
\neconomic development by the New Order government under former
\npresident Soeharto has created an extremely unequal distribution
\nof wealth in this country.<\/p>\n
Within the same period there emerged a high concentration of
\ncapital ownership among a privileged clique of large business
\ngroups and conglomerates.<\/p>\n
For instance, in 1990, 200 business groups controlled around
\none-third of Indonesian GDP. A third of the assets of the top 200
\ngroups were controlled by the country's top five conglomerates
\n(World Bank, 1994). As it has turned out, a large part of
\nIndonesia's unpaid foreign debt -- the debt which has exerted
\nsuch heavy pressure on the economy -- is held by these same
\nconglomerates.<\/p>\n
Thus, in November 1998 the People's Consultative Assembly
\n(MPR) adopted a decree on political economy within economic
\ndemocracy. This is a new commitment at the highest level of
\ngovernment to redistribute the nation's wealth and resources in a
\nmore equitable manner.<\/p>\n
The Ministry of Cooperatives and Small Enterprises followed up
\non this decree by distributing a huge amount of fresh capital
\namong cooperatives and small enterprises.<\/p>\n
In a recent interview with Asiaweek (Dec. 18, 1998), the
\nMinister for Cooperatives and Small Enterprises Adi Sasono
\ndefended this move by arguing that during the New Order period,
\nthe government was overly generous to big business, especially
\nChinese conglomerates, at the expense of the majority of
\n\"indigenous\" Indonesians. Sasono suggested the government had to
\nempower cooperatives and small enterprises by giving them more
\naccess to cheap government credit. This is the main idea behind
\nwhat is called the People's Economy.<\/p>\n
However, while there is no doubt regarding the moral
\njustification of a policy aimed at redistributing resources in a
\nmore equitable manner, many political economists have questioned
\nthe rationality behind this policy given that elsewhere there is
\na strong tendency towards a more market-oriented economy.<\/p>\n
In this era of the free market, it has been said that
\neconomies cannot be managed by benevolence. By doing so, the
\ngovernment would be repeating the mistake made by its predecessor
\nbefore the economic crisis.<\/p>\n
We cannot move from one extreme to another. What is more
\nimportant for our national economy as a whole is to work out a
\nfunctional and productive linkages between cooperatives and small
\nscale business on the one hand and conglomerates on the other.<\/p>\n
In fact, the MPR decree setting out the concept of the
\nPeople's Economy explicitly mentions the importance of such
\nlinks.<\/p>\n
Why are such links necessary? There are several reasons.
\nFirst, if we study the economic history of industrialized
\ncountries like Japan, Germany, and Sweden, it becomes apparent
\nthat their progress has been based largely on mutually
\nreinforcing relationships between large, medium, and small
\nenterprises.<\/p>\n
Thus, the expansion of big business and conglomerates
\nautomatically dragged the other two groups along on its coat
\ntails because of the links between the supply of raw materials
\nand other factors of production, which were provided by small and
\nmedium-sized companies.<\/p>\n
For instance, links between Toyota, Japan's largest industrial
\ncorporation by sales, and hundreds of independent subcontractors
\nand parts suppliers has been the main reason behind the greater
\nefficiency of the Japanese automotive industry when compared to
\nits American counterpart.<\/p>\n
Second, as Indonesia enthusiastically integrates itself into
\nthe global market, the role of large business groups and
\nconglomerates capable of attracting foreign investment and
\npenetrating complicated networks of global trade will remain
\ncritical. They have the capacity, network and resources to make
\nuse of opportunities presented by the global market.<\/p>\n
Furthermore, they have the ability to lobby successfully to
\nwin profitable deals and contracts in the global marketplace.<\/p>\n
Third, according to Francis Fukuyama, social capital is as
\nimportant as physical capital in driving economic progress. By
\nsocial capital he means \"a capability that arises from the
\nprevalence of trust in a society or in certain parts of it\".<\/p>\n
It is argued that moral bonds of trust are crucial for the
\nfacilitation of transactions, empowerment of individual
\ncreativity and the justification of collective action.<\/p>\n
As the world economy moves rapidly towards the primacy of
\nliberalism, there is a real need to preserve and accumulate
\nsocial capital in our society. Any radical departure from our
\ncommunitarian tradition will only increase suspicion and envy
\namong members of society.<\/p>\n
Fourth, the promotion of the role of cooperatives and small
\nbusiness enterprises cannot be separated from the national
\nstrategy to improve our competitiveness in the global economy.
\nStrengthening the financial structure of cooperatives and small
\nbusiness enterprises is one thing, but improving the efficiency
\nof the national economy as a whole is quite another.<\/p>\n
Last but not least, since the allocation of cheap credits to
\ncooperatives and small businesses involves a huge amount of
\npublic funds, the Ministry of Cooperatives and Small Enterprises
\nmust guarantee that it will not just succeed in giving birth to a
\nnew form of rent-seeking economy. If not, it will create more
\nproblems than solutions.<\/p>\n
The writer is a lecturer at the School of International
\nRelations, Parahyangan University, Bandung, and a visiting
\nscholar at the Department of Politics, University of Leeds,
\nUnited Kingdom.<\/p>",
"url": "https:\/\/jawawa.id\/newsitem\/will-wealth-redistribution-help-the-economy-1447893297",
"image": ""
},
"sponsor": "Okusi Associates",
"sponsor_url": "https:\/\/okusiassociates.com"
}