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.