Indonesia must integrate with world to advance

Indonesia must integrate with world to advance

Hans W. Vriens, Managing Director, PT APCO Indonesia, Jakarta

Indonesia is one of the seven least globalized countries,
according to a recent survey of 62 states conducted by the
respected American magazine Foreign Policy. Two neighboring
countries -- Singapore and Malaysia -- rank highest among
developing countries in the magazine's third annual Globalization
Index.

A report by the United Nations Conference on Trade and
Development (UNCTAD) confirms the trend. It ranks Indonesia's
performance in attracting foreign direct investment at 138 out of
140 states, just ahead of Suriname and Yemen; two years ago
Indonesia was ranked at 63. In fact, Indonesia is the only
country in Southeast Asia that, five years after the Asian
financial crisis started in 1997, is still suffering from
negative flows of foreign direct investment (meaning more
investment money is leaving than is coming into the country.)

The fact that Indonesia is deglobalizing seems to be applauded
by many Indonesian intellectuals whose articles regularly appear
on the editorial pages of Indonesian newspapers. Globalization
only works for financial oligarchs, wrote researcher B. Herry-
Priyono recently in this newspaper. Another researcher,
Nurhidayat of the Institute of Global Justice in Jakarta, said
"Free trade won't reduce poverty".

We live in confusing times. "The world economy is undergoing a
transformation that occurs only once every century or two.
Building on revolutionary technological innovation, the
globalization that started in the 1990s is accelerating and
dramatically altering the international division of labor. The
main players are China, India, the East European states and
Russia," according to Eisuke Sakaibara, an outspoken former
Japanese vice minister of finance. The countries he refers to are
not only big but also relatively new players.

This means more competition for Indonesia. Just look at BP,
one of the biggest foreign direct investors in Indonesia. Two
weeks ago it announced plans to invest more than US$7 billion in
Russian oil projects. This is more than double the total expected
investments in the shrinking oil and gas industry in all of
Indonesia this year.

True, the world economy is changing faster than ever before.
In 1985 companies invested a mere US$50 billion in factories,
equipment and offices abroad. By 2000 their foreign direct
investment came to a staggering $1.3 trillion. During the
previous big wave of globalization between 1820 and 1914, it was
people, not capital, that was on the move. In those days, an
estimated 60 million people emigrated from Europe alone with most
going to the United States, Canada and Argentina.

Is globalization good or bad news? For many the answer seems
to be "bad." The usual complaints suggest that the World Trade
Organization is a world government in waiting, and that large
companies are now more powerful than governments. There is the
perception that these companies destroy the environment and are
leading a race to the bottom in labor and environmental
standards. The argument is that developed countries are losing
jobs and workers in the developing world are being shamelessly
exploited. The prevailing mood on the left is anger and despair.

We do, indeed, live in confusing times. Are these prophets of
global doomf correct? Can the arguments that globalization will
lead to a more prosperous future for all the world's citizens be
believed? Sorting out the right answers can be complicated, but
there are reasons to believe that the prophets of doom are
misguided. Sony isn't taking over the world. If it was, why can't
it convince the Indonesian government to act upon its complaints?

For those who struggle to understand the meaning and the
impact of the monumental changes in the world economy and the
process of globalization, they should read: Open World: The Truth
About Globalization. This lucid and persuasive book is written by
Philippe Legrain, a 28-year-old graduate from the London School
of Economics. It is the first intellectually rigorous explanation
written in plain language about why globalization is mostly to be
celebrated, without denying the problems it raises.

Legrain's audience is the well-intentioned reader with
concerns about the poor, the environment, and democracy. He takes
aim at those who blame corporate power and global economic
integration for poverty, environmental degradation and the
frailty of democracy. He convincingly deconstructs arguments of
critics like Naomi Klein who claim that companies run the world,
that their brands are colonizing our minds, and that the shift of
factories from country to country disempowers workers in a race
to the bottom.

Ironically, the opposite is happening. Even the biggest
companies are desperate to avoid adverse publicity. Just ask Nike
or Nokia. Avoiding bad publicity and protecting the value of
their brands means that improvements in working standards and
environmental protection is often led by multi-national
companies.

More economic integration is the only hope for many of the
world's poorest people. According to a study by the economist
Jeffrey Sachs, when he was still at Harvard, poor countries that
were open to international trade grew over six times faster in
the 1970s and 1980s than those that shut themselves off from it:
4.5 percent a year, versus 0.7 percent.

We only have to look at Singapore, Malaysia, South Korea,
Thailand and Hong Kong to understand the benefits of trade and
investments. Burma, North Korea, and Vietnam represent the anti-
globalizers in Asia, though Vietnam recently seems to have
embraced foreign direct investment. These countries, like most
states in Africa, suffer from a deficit, not a surplus, of
globalization.

Fortunately the Indonesian government seems to be taking steps
to emerge from the deglobalizing trap in which the country has
found itself for the last five years. The implementation of the
Asean Free Trade Agreement and the proclamation of 2003 as the
Year of Investment are proof that Indonesia has chosen a road of
further economic integration instead of autarky and import
substitution.

More integration into the world is the only way for Indonesia
to achieve a level of economic growth at which the two million
people who enter the labor market each year will find jobs. Those
job seekers will join with other Indonesians in hoping that the
government's Year of Investment turns out to be more than a
slogan.

PT APCO Indonesia, a wholly owned subsidiary of APCO
Worldwide, a global consulting firm specializing in government
relations and political and economic risk analysis.