New commitment made to grass roots economy

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.