Are businesspeople ready for globalization?

By Aleksius Jemadu

BANDUNG (JP): As we approach the end of the 20th century, mounting awareness and concern about our international competitiveness seems to increase. We may never fully understand the meaning of the concept of international competitiveness. Yet, as a matter of fact, this concept has become a familiar slogan of politicians and government leaders aspiring to rally support for greater national efforts in succeeding in the global economy.

Questions about international competitiveness have become a regular part of public discourse in Indonesian domestic and foreign economic policies. Has Indonesia lost competitiveness to other ASEAN countries, like Malaysia, Thailand, Singapore, the Philippines, and Vietnam? How much protection should the government give to local private corporations so that they may not lose their competitiveness with their foreign competitors? To what extent are our political and economic structures suitable for global competition?

A nation is said to have a high degree of competitiveness if "it can, under free and fair market conditions, produce goods and services that meet the tests of international markets while simultaneously expanding the real incomes of its citizens" (David P. Rapkin and Jonathan R. Strand, 1996).

This definition consists of three variables: conditions in a country's export markets, the ability to produce and sell goods and services in those markets, and the real incomes, or standard of living, of its citizens.

This article attempts to analyze the suitability of our political and economic structures for a free trade era and economic globalization. It should be noted that economic liberalization at a global level requires progressive transformation from a traditional organization of economic life into a modern one. This transformation involves the creation of a progressive sector in the economy which is characterized by a high level of productive efficiency and economic integration.

There are three forces at work in the process of making the Indonesian economy more competitive in the international market. The three forces are economic, organizational or institutional, and technological. The economic factor includes the basic characteristics of our macroeconomic policies. As far as international trade is concerned, the bottom line of our economic policies has been the expansion of our non-oil exports. So far government's priority has been to create a conducive atmosphere for the expansion of manufacturing industries and to make them highly competitive at a regional as well as global level. The government has spent a considerable amount of investment to advance communications and transportation in order to reduce transactional costs.

There is, however, a concern about the fact that the Indonesian economy has increasingly become high-cost. We have to get rid of a rent-seeking economy if we want to increase the efficiency of our economy. It is often said that our national entrepreneurs are overburdened with illegal payments to government officials to the effect that they are compelled to increase their profit margin by raising the price of their products. This in turn creates an extra burden for domestic consumers because they have to cope with the ever-increasing price of consumer goods. At an international level, Indonesian products could have been more competitive without such irregularities in dealing with government bureaucracies.

Another element in the process of price formation is the salary of industrial workers. There is an increasing tendency that our industrial workers want a bigger share from the expansion of our national economy. The government is now under constant pressure to increase regional minimum wage so that laborers can cope with an urban standard of living. There is also growing pressure from Western leaders and international organizations that Indonesia should improve its record in taking care of the social and economic welfare of its laborers. Indeed, the form of state-society relations (linking government, business, and labor) influences a country's capacity to compete with its neighbors.

The role of businesspeople in expanding our international market share is obviously indispensable. Entrepreneurship combined with skills in trade negotiations and a good command of foreign languages (especially English which inevitably has become the language of the global market) should be promoted. In this regard the role of business associations is critical. In some cases the government can also intervene by creating a supporting atmosphere for national entrepreneurs to grow in. Unfortunately, most of our conglomerates are said to have grown not so much by their skill in business but rather by their close connections to the political elite.

The fact that a merit system is not determinant in the general evolution of Indonesian entrepreneurship should make us worry about the preparedness of some of our conglomerates in coping with highly competitive international traders. So far some conglomerates have survived and have even grown bigger because they have had an ensured domestic source of appropriation. Sustained economic growth over the last three decades has helped create a bigger market for consumer goods. To some extent Indonesian conglomerates have been tremendously benefited by this achievement.

The experience of South Korea in nurturing the growth of its conglomerates teaches Indonesia a good lesson. When South Korea started its process of industrialization in the 1960s under President Park Chung-hee, South Korean infant industries were highly protected. However, in the 1980s, South Korean business groups began to grow and expand on their own. And now they are highly regarded by their counterparts in industrialized countries.

What we can learn from South Korea is the way it institutionalized its "national systems of innovation", defined as "the network of institutions in the public and private sectors whose activities and interactions initiate, import, modify and diffuse new technologies" (Freeman, 1987).

A network approach should be promoted in improving our international competitiveness. Through a network the government and the private sector can build mutual trust and interdependence in overcoming all obstacles in international trade. If our domestic political and economic structures are not part of the solution to the problem, then they become increasingly part of the problem itself. Hopefully not.

The writer is a lecturer at the Faculty of Social and Political Sciences at Parahyangan University, Bandung.