A people-driven approach to strategy

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.