Higher growth vs equity

President Soeharto devoted the greatest portion of his National Day Address on Wednesday to recounting the economic achievements over the last 30 years and charting out the economic development agenda for the remaining four years of the current Sixth Five Year Plan, the first stage of the second 25-year development program.

His central theme differed from the main agenda of the various seminars over the past few weeks. The seminars, held to coincide with the 50th anniversary of independence, called for a more vigorous process of political reform to secure sustainable development.

We all agree that by any measure our economic achievements have been quite impressive over the last three decades. Even the international community has praised our economic development as a successful model for other developing countries. These economic achievements have been critical to political stability over the last 28 years.

It is not the objective of this column to discuss how to sequence political reform. However, the experiences of other countries show that as an economy is increasingly based on an open market mechanism, pressures for more political freedom grow stronger. Economic progress creates social differentiation and forces some degree of liberalization, which in turn creates pressures for political reform. Simply put, political reform is vital for sustaining economic development.

We fully agree that the economy should remain a top development priority since roughly 26 million people still live below the poverty line and a large number of others are on the brink of absolute poverty.

We nonetheless have our reservations about the President's suggestion to revise the development targets upward over the next four years based on the country's higher-than-estimated growth over the past five years. His suggestion is indeed well-meaning and an attempt to prevent the people from becoming complacent with the impressive achievements of the past.

Revising the targets upward, however, might result in policies skewed for high growth at the expense of equity. Emphasis on growth will focus attention on the high-growth segments of the economy -- the modern sector -- while the laggard sectors -- agriculture, small-scale and informal businesses and cooperatives -- will remain mostly on the sidelines. Emphasis on growth may also result in a prolonged negligence of the least developed eastern provinces, areas with could disrupt national unity.

A growth-centered strategy might especially be dangerous in view of the already glaringly wide social and economic disparities between the rich and poor. Inequality is not only the most formidable challenge to economic development but a potential threat to the sustainability of the development process itself.

After all, our development base is still rather weak due to the few large groups that dominate economic activities. Economic stability could be put in danger if something were happen to some of the conglomerates.

The gap between large businesses on one side and the medium and small-scale firms on the other will likely widen if the deregulation measures are not coupled with regulations to ensure open and fair market competition. Without competition laws, the cartel-like, oligopolistic practices of the large conglomerates will continue unchecked.

In fact, the number of creative and innovative entrepreneurs -- some of our most valuable assets -- has declined steadily due to a lack of clear-cut competition rules. The real entrepreneurs who tried to stick firmly to sound business practices and ethics have been bulldozed by rent-seekers and opportunists whose bigger assets are political connections and access to the policymakers. University graduates with an entrepreneurial spirit are too discouraged to enter the business world, preferring paid employment.

The excesses of the government-mandated monopolies in various commodities and the privatization of several sectors previously monopolized by the state also contribute to greater social and economic inequities. The privatization process, often carried out by closed negotiation and with no opportunity for competitive bidding, is intrinsically suspect. Waiving competitive bidding, for whatever reason, allows for cost-padding and crony capitalism and can result in private monopolies and new cartels.

The current celebration of our 50th anniversary is an occasion to contemplate more concerted and better-targeted efforts to ensure a more equitable distribution of income and economic opportunities.