Grounding the Pancasila Economy
Amidst the roaring growth of the economy, a fundamental question has become increasingly relevant: who is this growth actually for? This question is crucial as society experiences a palpable paradox.
On one hand, Indonesia’s economic growth remains relatively stable around 5 per cent, even reaching 5.61 per cent in the first quarter of 2026. On the other, pressure on household purchasing power, particularly among the middle class, has intensified.
This phenomenon reveals that economic growth does not equate to equitable prosperity. While the economy expands, many struggle to afford homes, education, healthcare, or even maintain a decent standard of living. The gap between macroeconomic statistics and micro-level realities is growing starkly.
Amidst this context, the concept of a Pancasila Economy regains relevance—not as ideological nostalgia, but as a pressing need for a more humane, equitable, and collectively welfare-oriented economic system. The anniversary of Pancasila’s birth on 1 June offers a moment for reflection on grounding this concept once more.
The Pancasila Economy is not a new concept; it has long served as the conceptual foundation for Indonesia’s economic development. Yet in practice, the national economy has often drifted too far towards market liberalisation, prioritising efficiency and growth while neglecting equity and social justice.
Consequently, economic growth has not strengthened the socio-economic structure of society. Inequality remains high, the informal sector continues to expand, and the middle class grows increasingly vulnerable. Thus, grounding the Pancasila Economy means restoring the spirit of Indonesia’s economic development to its constitutional ideal: shared prosperity.
The idea of a Pancasila Economy is firmly rooted in Article 33 of the 1945 Constitution. The constitution stipulates that the economy should be structured as a collective effort based on familial principles. Industries vital to the state and controlling the people’s livelihoods must be state-controlled for the greatest prosperity of the people.
From this perspective, the economy is not merely a free-competition arena to maximise individual profit. It is positioned as a tool for creating social welfare. The state must not entirely relinquish economic mechanisms to the market, as markets do not always operate fairly.
The nation’s founders understood that Indonesia could not simply copy Western capitalism or extreme socialism. It requires a middle path aligned with its societal character.
Thus, an economic concept emerged that acknowledges the market’s importance while positioning the state as a guide and guardian of social justice. The Pancasila Economy also carries a moral dimension. Economic activity must not solely pursue capital accumulation but consider humanity, solidarity, and sustainability. Economic gains must not come at the cost of human dignity or environmental damage.
Unfortunately, during development, this orientation has gradually faded. Economic policies are often measured by investment growth, consumption increases, and GDP achievements. Growth has become the mantra, while equity is pushed to the back burner.
Yet, experiences of many nations show that growth without equity breeds social vulnerability. When inequality widens, long-term economic stability is also threatened.
One of the clearest indicators of Indonesia’s fragile economic structure is the pressure on the middle class. For years, the middle class has been seen as the engine of national economic growth, underpinning domestic consumption.
Data from Statistics Indonesia shows that the middle and aspiring middle classes constitute around 66.35 per cent of Indonesia’s population and contribute over 81 per cent of national household consumption.
Household consumption remains the backbone of Indonesia’s economy, contributing around 54-55 per cent to national GDP. Yet behind these figures, worrying trends emerge: the number of middle-class households has actually declined.
Current data shows the middle class has fallen from 47.9 million in 2024 to 46.7 million in 2025. This decline is more than statistics—it reflects a diminishing ability to maintain economic status. Many families once financially stable now face vulnerability from rising education costs, food prices, mortgage payments, and healthcare expenses.
In this situation, the middle class finds itself in a precarious position: not poor enough for social aid, yet not strong enough to withstand rising economic pressures.
This phenomenon shows Indonesia’s economic growth is not yet truly robust. When the productive class faces pressure, long-term economic foundations weaken. Here, the relevance of the Pancasila Economy becomes clear: a healthy system must generate growth while strengthening societal resilience.
Indonesia’s economy has long relied on domestic consumption. Household spending remains the main pillar of national economic growth. On one hand, this is an advantage because Indonesia…