New commitment made to grass roots economy

Sri-Edi Swasono, Economist, Jakarta

President Megawati Soekarnoputri and Vice President Hamzah Haz have expressed their determination to develop the ekonomi rakyat (grass roots economy) in accordance with our Constitution. Their statements were accompanied by a strong note that the grass roots economy will be given a substantive and principal role in national development.

In August, the Vice President explicitly stated, "If in the past 32 years we had adopted a development strategy based on the grass roots economy, as recommended by our founding father Bung Hatta, then the Indonesian economy would not have collapsed as it has now". Hamzah was referring to Muhammad Hatta, the country's first vice president.

If we interpret the earlier statements of the President and Vice President, then this implies that the bureaucracy under President Megawati must be ready to make a mental-switch.

During the government of president Soeharto, and then continued by the governments of Habibie and Abdurrahman Wahid, we have witnessed how difficult it was for the Indonesian elite, particularly the mainstream economists, to change their mind-set, which invariably tend to admire the strengths of the big economy and neglect the strengths of the ekonomi rakyat.

Such a mind-set has brought about economic policies based on "the trickle-down mechanism" and neglected the fact that the converse, namely "the trickle-up mechanism", has often occurred. What has been realized is the concentration of economic power in a small group of big businesses. The gap between the haves and the have-nots continues to widen.

By giving the opportunity to certain big businesses that are deemed to have advantages in entrepreneurship, it was hoped that faster economic growth could be generated. We must admit that statistically, GDP growth has been praiseworthy. Yet not many have realized that such high GDP growth has been accompanied by degradation of the environment and the depletion of natural resources.

It is indeed not easy to change such a mind-set. This is substantiated by the collapse of the big economy that had been controlled by conglomerates. Some of the political elite, including mainstream economists, still rely on the benefits of the big economy and continue to admire the advantages of the market economy. They still have confidence in the trickle-down mechanism. Financial restructuring and the issuance of bonds in gigantic amounts by the government are meant to bail out such collapsed big businesses.

Even though in the last three years, no foreign investment inflows have been realized, and in fact are flowing out from Indonesia, domestic banks are still in limbo and can not yet issue loans, and GDP is growing by less than five percent, we have still not been able to convince the technocrats that there are domestic forces that are not big businesses that can still generate growth.

The point is that, the domestic economy can still generate growth internally, through self-empowerment, namely by the small to medium enterprises (SMEs). Naturally, such self-empowerment has not been supported only by financial capital mobilized domestically, but also by the sociocultural capital of the people, who wish to survive and help themselves.

Such sociocultural capital has often been overlooked by mainstream economists in their theory-building and in their economic analyses. This has led to some people believing in "the death of economics". It may be more appropriate to believe in "the death of economists".

It is obvious that small businesses have created employment opportunities for at least 58 million Indonesian people or 90 percent of the total number of people employed.

Promoting the grass roots economy, comprising the SMEs, is of paramount importance to Indonesia. The SMEs have proven their capability of creating job opportunities. In fact, the SMEs have substantiated their sociocultural behavior, which we used to refer as asas kekeluargaan, or brotherhood.

Many people neglect the fact that the ekonomi rakyat is real and concrete. They are people's farms, plantations, fisheries, cattle, poultry, market, laborers, industry, craft, mining and various other types of goods and services, and they are all done by people. There are also people's copra, rubber, tobacco, cloves, coffee etc. We can imagine how many people live in this sector.

The ekonomi rakyat, as mandated in our Constitution, is an economy that enhances the economic capability of the people and comprehensively increases the productivity of the people, thereby increasing their purchasing power.

People is a political concept and not an arithmetic or statistical concept. Rakyat does not necessarily refer to the entire population, rakyat refers to the common people, rakyat refers to the "people at large". The term rakyat is related to the public interest, which differs from the interest of individuals.

The concept of rakyat is related to the collective interest. Some refer to it as the public interest or as public wants, in contrast to private interest and private wants. A debate has also been going for a very long time contrasting individual privacy and public needs (which belongs to the public domain).

Our current big mistake lies in the stance of Indonesia that excessively admires the free market. We have enthroned the free market as being sovereign, substituting and replacing sovereignty of the people. We have enthroned the market as the new idol.

We may have wondered about this admiration, why is it said that the Cabinet must be market friendly, why is it a criteria for becoming an economic minister that the candidate should be market friendly. In fact a certain group of economists expect that even President Megawati should be market friendly. How could we have gone so far astray?

While the contrary is true, namely that it is in fact the market that should be friendly to the people: farmers, fishermen, etc. Why is it that the market in Japan can be arranged to be friendly to its farmers, so that the price of rice in Japan, reaching Rp 30,000 per kilo, does not lead Japanese importers to import cheaper rice from other countries? Why is it also the case that we have to worsen the problems faced by our farmers at the very time when they are harvesting the rice fields, by importing cheaper rice from abroad?

What, then, is the market? Who are the principle actors? Is it not true that now in Indonesia the market is merely: (1) those who control funds (receivers of entrusted funds from abroad, the "compradors", and those who commit corruption, collusion and nepotism (KKN), including the emergency liquidity fund (BLBI) "robbers", etc; (2) those in control of stocks of goods (including stockpiling traders and mortgage lenders); (3) the speculators, both in the general market and in the capital market; and (4) finally, the common people whose buying power is weak.

Therefore, the market must still be overseen, intervened in and managed. One must not fully rely on the market forces. On the contrary, it is the market as an economic instrument that must serve the people and the state.