Fuel subsidies in Indonesia serve only short-term political interests
Fuel subsidies in Indonesia serve only short-term political interests
Harya Setyaka, Jakarta
Oil to Indonesia has multiple obscene facets. It is arguably a
curse in disguise. It was nurtured to serve as an appalling
instrument of regime maintenance. Debates over whether or not
fuel should be subsidized are actually rooted in our inadequate
understanding of this most controversial fluid.
We have long agreed that, due to its exhaustible nature, oil
should not be taken for granted as a main source of energy. Since
the seemingly irreversible industrial revolution -- alongside the
unfinished project of modernization -- energy has taken over from
land as a determining factor of production. Due to its
transportability and combustion properties, oil has replaced coal
as the main source of energy -- especially in transportation --
since the 19th century. Modern economic development has been
dependent on oil ever since.
Soeharto learned the lesson from his predecessor Sukarno well.
He must not let the people go hungry, for what ever reason, and
the best way to do this was to keep oil prices low. And he did
just that. In doing so, he provided the incentive for even more
rapid urbanization. More and more Indonesians became dependent on
oil.
The low portion of state revenue from tax provided no
incentive for Soeharto and his cronies to really create a people-
driven economic development strategy. There is no representation
without taxation. Economic development and social mobility was
meant only for bureaucrats. The situation was worsened since
defense spending was financed by oil money, and people did not
have representation in the military and police. That was how
Soeharto maintained his regime.
Intellectuals had no option but ennoble Soeharto with their
policy-based knowledge. History and news was written in favor of
Soeharto. Social mobility was only available to those who
acquiesced. The economy was run by the privileged few. The same
thing happened in the Arab-Muslim world.
What Indonesia faces now is a product of three decades of this
false pampering policy. Soeharto kept people from starvation by
using oil subsidies -- not labor productivity, which at the hand
of the undeserving, gets smuggled. Law enforcers, not financed by
taxation, feel that they don't owe anything to the people. This
illegal business is only possible if the price of subsidized oil
is lower than world prices, especially neighboring Singapore and
Malaysia.
Cheap oil for transportation tends to make transportation
systems inefficient, since there is little incentive to promote
sustainable practices. Urban areas sprawl, depriving land for
agriculture, which in turn increases the distance from the market
and induces huge dependency on transportation. Major urban roads
are congested since the economy is largely dependent on motorized
private transportation. We have not even considered the direct
environmental damage. My point is; subsidized oil is being burned
unnecessarily every single day.
The choke on oil will continue as long as China booms. The
manufacturing booms in Japan, Europe and North America also
caused oil crises in the 1970s. This crisis is nothing new, and
was actually quite predictable. This time, Indonesians -- and not
only the government -- need to learn the lesson. The tuition fee
is too expensive to fail this subject.
We don't need to go back to square one. It is more important
to have a complete understanding of the modernization process,
modern economic development strategy, and the nature of oil and
energy. We shouldn't just naively replicate the wealth of the
West without understanding the context within which this wealth
was created.
To be modern vis-a-vis traditional does not just mean getting
a nose job. It is to adapt to a mind-set which should liberate
society from stagnation. People should be enabled to be socially
mobile. Modernization comes from the social contract where a
citizen pays taxes to the state to educate themselves and their
fellow citizens so that he/she can live in an educated society.
The same thing applies for health. It is desirable to live in a
healthy society.
In this way, society has an ability to appreciate democratic
civility and not be easily fooled by the speeches of demagogues
and other totalitarians. This includes paternalistic religious
institutions, yet another curse on this nation. Social contracts
as such will be very important to us, especially if we insist on
keeping the state monopoly over oil.
Along with education and public health, the state should
provide decent paying jobs. There is a lot of potential we could
mobilize to create wealth. We should participate in global trade
as soon as we figure out how we are going to fit into the global
division of labor. This is our homework. Another way is to allow
foreign direct investment. Foot-loose industries desire efficient
global supply chain networks that rely on infrastructure
thresholds. The state should cleverly strategize in this field.
This may hurt local companies who have not been efficient, but
to a larger extent, this will create jobs. An educated and
healthy citizen would have access to decent paying jobs. True
nationality should not be exercised by blocking job opportunities
for the benefit of underperforming local companies.
Finally, it is imperative to understand that oil will not be
able to satisfy greed, only our need. We should not wait until
oil runs dry on us. Oil should be taxed heavily to fund research
into alternative and sustainable energy. Lifting the subsidy will
at least promote a more efficient spatial structure and
sustainable transportation system, and in turn lower oil
consumption.
We need a sustainable energy strategic plan, and a fiscal
space to finance it. Subsidizing oil is only feeding dependencies
in our burgeoning economy. This is not at all sustainable. The
notion of "compensation" for the oil subsidy is truly a public
fallacy. This will only affirm the "right" to subsidized oil,
which is not true. Modern economic development should be based on
dignified human capital, not cheap oil.
The oil subsidy has done much long-term, perhaps
irrecoverable, damage just to service short-term political
interests. We should in fact focus on state investment in
education and public health. Human capital investment enables
more access to social mobility and lessens dependency on oil.
These efforts will truly enable Indonesia to lift the curse
of oil.
The writer is a researcher at the Urban and Regional
Development Institute (URDI) and can be reached at
harya@urdi.org.