Higher growth vs equity

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.