A people-driven approach to strategy

By H.S. Dillon

JAKARTA (JP): Although the grandmaster has finally issued a call-to-arms, most of our development economists still appear to be at a loss. They have yet to respond to economic guru Sumitro Djojohadikusmo's call for a grand economic strategy that would lead our country out of this crisis.

The current policy debate remains trivial, fixated on whether or not the ministers of the current cabinet should have met the Letter of Intent targets set with, or perhaps more truthfully, by, the International Monetary Fund (IMF).

The professor has voiced a demand for fundamental change in our development strategy -- based on a careful study into the causes, effects, and implications of the crisis.

This could be a painful process, as it might entail abandoning old ideas to which one has become unduly attached. Academicians are known to be even more conservative than subsistence farmers when it comes to embracing new ideas proposed by their colleagues. This might be the most plausible explanation behind the lack of an enthusiastic response to Sumitro's call.

What actually can an observant bystander take away from the crisis? Perhaps the most important conclusion one could draw would be that injustice in all walks of life was the dominant driver leading to the crisis.

The issues of agriculture-industry, rural-urban, Outer Island- Java, farmers/laborers-conglomerates/officials, civilian- military, women-men, and minority-majority were some of the stylized dichotomies featuring shades of discrimination and injustice.

Another impression of equal importance would be the massive -- and very rapid -- outflow of capital which led to the collapse of the national economy.

When Widjojo Nitisastro and his team of honest, competent technocrats embarked upon rebuilding our economy more than three decades ago, conventional wisdom accepted a trade-off between growth and equity.

Furthermore, the only thing you could share at that time was abject poverty, so went the popular belief. Widjojo had wanted to bake a big cake -- with ingredients borrowed from abroad -- and share it with the people.

With the benefit of hindsight, it is apparent that this well- intentioned professor had very little knowledge of Javanese statecraft.

It is hard to believe that he had ever dreamt that this nice, smiling general, had the capacity to create an empire around himself and his family. Imagine his great surprise and dismay when Widjojo found that the conglomerates, cronies, and kin were devouring his cake while the people had to scramble for crumbs.

What, then, should the grand strategy look like? Well, perhaps we could begin by posing the age-old question "Cui bono?" Whose interests is development strategy supposed to serve, anyway?

Certainly, we do not intend to rebuild all the institutions that were the hallmarks of Soeharto's Indonesia. Not to resuscitate the conglomerates with their empires of forest concessions, trading licenses, family banks, industrial monopolies, and real estate enclaves, all built at the expense of local populations.

Nor to keep voting into office government bureaucrats cum politicians who pandered to Soeharto's greed while enriching themselves beyond compare.

This means that we have to begin by recognizing that the problems confronting Indonesia at present lie in the realm of political economy. Thus, to correct past wrongs, a grand strategy should have as its basic premise a desire to create a more just, egalitarian civil society.

"Development through justice" could well serve as our motto, a variant on the "growth through equity" theme espoused by most forward-looking development economists.

Lessons from our own past, and elements of strategies adopted by democratic and egalitarian countries such as Malaysia and Taiwan should be studied in detail. First of all, however, to borrow economist Sarbini Soemawinata's terminology, we should have "a real solid picture" of our current state of affairs.

Where has the crisis left us? Even prior to the crisis, more than 70 percent of our people were rural residents, 50 percent of our labor force was engaged in agriculture, and 80 percent of the population had enjoyed less than six years of formal schooling.

Now, to exacerbate matters even further, President Abdurrahman Wahid's administration has inherited a huge debt overhang. This involves a massive transfer of wealth from the government to the owners of savings in the banks and shares in the conglomerates, who are able to cash out and leave the government holding the bill.

The Rp 60 trillion annual budget support of bank recapitalisation leaves little room for the government to maneuver. Large parts of the industrial and finance sector are now officially in state hands.

This writer fears that the "fire sale" of these assets will reinforce the worst corruption, and will either "recreate" colonialism (if the vulture funds buy them), ruin the assets (if they are not put under private management quickly), or reward the crooks (if the cronies -- or their proxies -- buy them).

Furthermore, a third of our infants are undernourished, which means their future potential is limited indeed unless this is immediately corrected -- some damage might be irreversible.

The military is accustomed to earning "rents" from the civilian economy, and the budget is in no shape to finance a "normal" military in a democratic society.

Significant parts of the country would prefer their independence, or at least independence from Java's rule. Any efforts to "force" the nation to stay together will inevitably involve human rights violations.

When dealing with all these, we cannot escape the fact that we are now living in a globalized world in which our "terms of engagement" with the world economy are increasingly being dictated by the IMF/World Bank and other multilateral bodies.

What the crisis has hopefully taught us is that foreign capital, especially in big doses, is like heroin. Once you get addicted, it is no longer so sweet, and when you have to go "cold turkey", the after effects can be pretty painful.

That is why a people-driven approach is preferable to building a grand strategy.

How would a such a strategy differ from the other market- driven or technology-driven strategies? Simply put, the formulation of all policies, the choice of technology in all of our endeavors, the design of all our institutions, would be driven by the needs and capacities of our people.

If implemented, this would comprise a big change --- from a system in which "people" give aid to politicians and the conglomerates to a system in which everyone is provided a fair chance to get ahead, and in which progress benefits the nation as a whole.

What would the elements in such a grand strategy look like? A development paradigm which has the "people's autonomy" as its objective, a transformation of extractive institutions into representative institutions, physical and social infrastructure that would link rural and urban centers to create seamless economies, working rural capital markets, and land policies which favor local populations.

It would also need an education system serving as a ladder to carry all the people together to higher plateaus, an industrialization process ensuring that farmers and laborers obtained a fair share of the value-added, and fiscal and monetary policies generating greater justice in all walks of life.

Agriculture and agriculture-based industrialization should certainly be at the center of this grand strategy. The process of enhancing rural labor productivity should be closely liked to rising farm incomes and increasing real rural wages.

This would create a virtuous cycle, with rising incomes and real wages would create an aggregate demand for domestic commodities, products, and services.

If we were honest, we would judge our country's prosperity not by its growth rate, but by farm incomes and the real wage rate of unskilled labor.

Trade, exchange rate, banking and all other policies should be subservient to the overall goal of an "agriculture and agro- industrialization" based strategy. It is on such a people-driven basis that we could regain economic independence and position ourselves properly in the global economy.

The writer chairs the Jakarta-based Center for Agricultural Policy Studies.