Constraints on technology (2)

Constraints on technology (2)

By David Ray

How does Indonesian industry move up the technological ladder?
This is the last of two installments of an article attempting to
isolate the four key issues which explain why Indonesia is losing
the regional technology race and what the implications are.

BANDUNG (JP): 3) Foreign Investment: According to many
industry surveys and studies foreign investment (FDI) has played
a very minor role in Indonesia's industrial technological
development. In the case of joint ventures, foreign partners tend
to transfer only enough technology to the local company to ensure
efficient production operations.

All design or innovative work tends to be carried out by the
foreign partners in their home base where the research personnel
and infrastructure are of higher quality. Licensing arrangements
on the other hand tend to engender a higher degree of innovation
in the local firm. This is because having bought the technology,
the local firm must adapt and modify the technology itself to
suit local supply and demand conditions and cannot rely upon the
technical know-how of a foreign joint-venture partner.

Two key factors prevent Indonesia from deriving greater
technological benefit from FDI. The first is the low skill and
education levels of Indonesian workers as discussed above. The
second is the policy environment within which FDI must operate.
Given Indonesia's long and painful period of colonial rule, FDI
in the post-independence period has always been a controversial
matter. Throughout much of the 1970s and 1980s strict controls on
FDI prevented the development of a number important industries in
Indonesia; industries that played a key role in the industrial
technological development of regional competitors such as
Malaysia, Singapore and Thailand.

The best example in this regard is the case of Fairchild and
National Semiconductors who simply moved all Indonesian
operations abroad in 1985 after failing to get government
permission to upgrade production facilities.

This was a major blow to Indonesia's technological development
as it is the electronics and computer industries that have driven
Asia's move toward more knowledge-based production over the past
2 decades.
4) R&D Institutions and Government Technology Policy:Public R&D
institutions have a crucial role to play in developing certain
types of technology or knowledge that benefit the economy as a
whole. Private firms are usually reluctant to invest in these
types of technologies because of their inability to internalize
(keep secret) the economic benefits of their research.

In a development context R&D institutions have another
important role in helping the manufacturing sector --
particularly small to medium producers -- to effectively use
modern technologies.

In Indonesia the institution charged with this latter role is
the Badan Penelitian dan Pengembangan Industri (BPPI -- Agency
for Industrial Research and Development) of the Ministry of
Industry. Faced with serious resource constraints, however, this
institutions has yet to prove effective in raising the
technological capacity of the of the manufacturing sector.

The lion's share of the government's R&D budget is taken by
LIPI (Lembaga Ilmu Pengetahuan Indonesia or the Indonesian
Institute of Sciences) and BPPT (Badan Pengkajian dan Penerapan
Teknologi or the Agency for the Research and Application of
Technology).

However, according to Dr. The Kian Wee (a well known LIPI
based economist) these two institutions have yet to develop any
significant links with the private sectors. Much of their
resources are instead, he argues, channeled to the needs of the
10 strategic state owned industries (BPIS) which operate under
the umbrella of BPPT.

The issue of generating linkages with the private sector is a
problem not only for the institutions mentioned above but also
for the many ministerial and university based research centers.

It is part of a more wider problem, I will argue, concerning
the type of policy approach employed by the government to
generate domestic technological capacity. Unlike most other
countries (both developed and developing) technological
advancement in Indonesia is seen to be principally the domain of
the state.

About 80 percent of all R&D funding comes from the state
whilst 85 percent of all engineers and natural scientists are
employed by the government or universities. Similarly, the huge
inflows of budgetary funds into the strategic industries are
indicative of the government's commitment to make these state-
owned industries the backbone of national industrial growth.

Clearly the government sees itself as the principal promoter
of technological development. Technological development is
clearly an important element of economic development. The two
however should not be equated.

The development of technology must be driven by economic
stimuli for it to generate economic growth. Consider the case of
Japan and the former Soviet Union. Technology in certain areas of
the former Soviet economy could match if not exceed that of the
United States. However, it was the ability of the Japanese to
effectively market and commercially apply much lower forms of
technology that enabled it to become a global superpower.

Indonesia, however, is yet to develop the right kind of
incentive structure that will foster innovation. For a country to
succeed economically, technological development needs to be
driven by the profit-seeking behavior of entrepreneurs and
businesses in a competitive environment.

In Indonesia, however, technological development continues to
be driven by politicians and the few scientists employed by
government within a non-competitive environment. This suggest
that Indonesia will continue to be left behind by her regional
competitors in the race toward higher technology-based
production.

The writer is a doctoral candidate at the Centre for Strategic
Economic Studies, Victoria University, Australia. He is currently
in Bandung carrying out research towards his PhD.