A new paradigm emerges for investments

A new paradigm emerges for investments

By Muhammad Sauri Hasibuan

JAKARTA (JP): The requirements for successful investment have
changed dramatically with the onset of the 21st century.
Investments are no longer the private affairs of the investor but
are becoming affairs of all different groups in society, who are
now stakeholders. New investments have to meet the concurrence of
dominant stakeholders.

Past investments deemed to have been unfairly pursued, have
resulted in stakeholders demanding justice in various forms.
Witness the recent case of Arutmin (an Australian mining
investment in South Kalimantan) where there was a local popular
uprising that disposed of the original owners.

One could add to the list. It arose because of the
government's inability to handle the case properly. Indeed, the
biggest threat to investment at the moment arises from the
inability of the current system of governance to convince various
groups of stakeholders of the necessity and justice of various
investment proposals.

As a consequence of this liability and of past mistakes,
investors are now seen to be in an unfavorable light and even in
direct enmity by many, especially those in the provinces.
Investors are seen as a greedy group of people, caring only about
their narrow self-interests to the detriment of other
stakeholders. What can be done to mitigate such negative
attitudes toward investors as businessmen and to increase the
social sustainability of investments?

There is now a big opportunity for investors to participate in
improving the system of governance and at the same time gain
popular acceptance, especially among those in the provinces. This
is done by investing relatively small sums of money to help
redesign the system of governance in the provinces.

Redesigning the system means uprooting old assumptions and
modes of thinking and behavior. The old framework emphasizes
growth as the operational objective and from this flows basic
policies in terms of resource allocation to support such basic
policies, including those of investment decisions.

The new framework emphasizes the total factor productivity
component of growth as the focus of policies with the expectation
that the new growth will not only be higher, with a given amount
of new inputs, but also more sustainable and equitable.

Providing expertise to locals is one example. To differentiate
the new from the old, one may cite the Total Factor Productivity
(TFP) paradigm.

This new framework should guide companies in making new
investment decisions. The new orientation essentially says that
one needs to emphasize humans as a source of growth. To obtain
sustainable company growth, one needs the empowerment of the
labor force as the source of growth. This implies the promotion
of all types of human capital such as skills and proper
governance. Investors can then maximize inputs without
jeopardizing other stakeholders.

The relevant skills of the labor force are necessary to
promote productivity and efficiency in the use of resources. But,
to have these skills usefully deployed, there is a need for the
suitable arrangement of relations among the people themselves and
between them and the institution in which they operate.

The very concept of TFP also assumes the free flow of
information, transparency and accountability, love of knowledge
and their application, as well as the potential of humans despite
their frailties. One can safely say that there is need for proper
governance in management relations in the traditional sense of
the word, both inside and outside the company, especially with
respect to making investment decisions.

So how could investors participate in improving the governance
system, especially in the region they are investing, so the labor
force could be effectively deployed?

Potential investors can play a role, for example, by
conducting various training sessions to improve local small and
medium-sized entrepreneurs.

Local government used to be responsible for funding training
activities and strategies, but there was not enough participation
from local entrepreneurs.

Training activities might not be very meaningful to the needs
of trainees. A holistic approach is now needed. Since the
government has gone bust, potential investors can play a role.

New training sessions should place importance on
organizational arrangements and how to apply the information and
knowledge gained for the production process of small and medium-
sized enterprises.

In this context, skills refer to the technical skills relevant
to a particular line of business; administrative skills in
resource management; interpersonal skills to promote proper
governance of employees.

Local entrepreneurs would be ready to maximize their TFP by
joining such sessions. Investors could also gain proper public
exposure and insight into the kinds of needed investments
(maximizing the potential of inputs).

Small and medium enterprises would also benefit from
international networks in their desire for a higher share of
international growth markets. Training sessions could become a
model for future business-community partnership.

Investors will eventually be seen as an institution that has
performed responsibly through its contribution of creating good
corporate citizenship.

The writer is an economic observer and business practitioner
based in Jakarta.