Muddling on: A country in search of a strategy

Muddling on: A country in search of a strategy

H.S. Dillon, Political Economist, Jakarta and S.R. Tabor,
Economist, Leiden, The Netherlands

The Jakarta Post daily is hosting a seminar on April 28 on
Indonesia's development strategy, part of the daily's
commemoration of its 20th anniversary. Rather than launch a
pseudo-scholarly treatise, a question and answer approach might
be the most straightforward way of getting at the root of our
development strategy.

First, what is Indonesia's current development strategy? At
best, it is a hybrid between free market development on the one
hand and a large, lumbering, dysfunctional and indebted state
with heavy involvement in mining, industry and finance on the
other.

It remains centralized in a number of strategic spheres, but
has become highly decentralized in most aspects affecting public
services provided to the public. It is still an economy heavily
based on natural resource exploitation and the first-stage
processing of natural resources (see the barter of rubber and
palm oil for Sukhoi fighter jets).

These, along with trade, continue to be the main sources of
income. It has been an IMF drip-feed economy for the last five
years. Rather than having any meaningful long-term strategies,
the nation has been lurching from one patch-up-the-rot LOI to the
next.

Moreover, with democratization and decentralization, many,
many different development strategies are being implemented
simultaneously -- and often it is difficult to distinguish what
is seriously being pursued from what is being pushed simply to
enrich one nouveau-political-elite or another.

So at the mega-level it is a country still chained to the IV-
bottle of the IMF. It is a country being pulled in many
directions by political parties and special interest groups;
while, at a micro-level it is a country with local government and
the local elite doing their own thing and going in many different
directions.

Second, does Indonesia really need a development strategy?
Some would certainly argue that it does not. The World Bank seems
to think that the basics of sound economic policy and good
governance are known, and the only remaining challenge is how to
put those into effect.

The new development thinking is that "partnerships" are what
matter, which means that encouraging many stakeholders to work
together to solve their common perceived problems is much more
important than having leaders formulate solutions and put the
weight of state and society behind implementation.

Indonesia certainly has many problems that do need solving: a
dysfunctional state; a largely ineffective government and
bankrupt private sector; regional rebellions; poverty and
widespread vulnerability; agricultural stagnation; environmental
deterioration, fractionalized money politics and the rise of
extremism.

One must wonder whether "partnerships" alone will really be
able to tackle this litany of generally agreed upon development
challenges. Related to this is the question of efficiency -- is
tapping local knowledge and the positive spillover from
participatory processes greater than the scale, scope and
intertemporal economies likely to result from applying
"strategic" solutions to these development challenges?

This is an empirical question and given that both sides are
unobservable (we don't know how costly or effective
"participatory process solutions" will be; nor do we know whether
the right strategies will be adopted) we really can't compare the
costs and benefits of a "process-based" versus a "strategy based"
solution.

If, for ease of exposition, one accepts that a "strategy" is
indeed needed, what then might be some of the key elements? Thus
the third question posed is: How can a strategy help in nation-
building? For the past 50 years, keeping the nation together has
been one of the priorities driving the nation's development
strategies.

Linking the regions together through trade and investment;
adopting a national language, pan-territorial pricing; delivering
the same core public services everywhere; using the security
services to maintain the integrity of the nation state; and
fostering "big" development initiatives (rice self-sufficiency,
industrialization) to capture the spirit of society were some of
the nation-building activities.

Part of this was based on the notion that resources and
territory were the real driving forces behind prosperity. The
more minerals, forests, sea and land were exploited, the more
prosperous the country would become.

Well, that has not really worked out. Resource-mining only
took the country so far; it created many opportunities for rent-
seeking and rip-offs, and, ultimately, the overexploitation of
natural resources has put Indonesia on the lowest end of the
development totem pole.

Those countries that develop skills, knowledge and
organization to compete in industrial and service markets are the
ones that have landed on top -- the resource mining countries
still languish at the bottom of the heap.

More generally, one must wonder whether the unitary state can
be preserved. The Soviet empire has collapsed, and the pieces
appear to be doing far better than the whole ever did. The huge
developing economies are in a mess -- India, Pakistan, Nigeria
are hardly bastions of prosperity, peace or stability.

China is performing very well, but the gap between the haves
and the have-nots is widening, freedom is not yet on offer and
the bankrupt state -- if allowed to go under -- could cause that
house of cards to collapse.