Part 2 of 2 Discarding mediocrity for the economic fast track
Part 2 of 2 Discarding mediocrity for the economic fast track
Djisman S. Simandjuntak, Executive Director, Prasetiya Mulya
Business School, Jakarta
After stage one, stage two would follow in form of export-
driven, factor-based growth. Lasting success in the first two
stages of recovery would allow a shift to "imitation-driven"
knowledge economy in stage three, and a full-fledged knowledge
economy in stage four.
What keeps Indonesia away from a sustaining high growth? Why
has it fallen victim to a Syciphean growth? Why is it so
difficult to free ourselves from the trap of the "equatorial
paradox", in spite of a comparatively generous natural endowment?
A generalized answer to these questions is, abuses of an
otherwise good system.
Compliance with good governance would have enabled the
existing system to work better and to deliver prosperity at a
higher pace with a better distribution. Under much better law
enforcement against corrupt and collusive practices in politics,
business -- including banking of course -- and civil societies,
Indonesia might have catapulted itself ahead of the rest of
developing Asia, rather than falling back to the tail-end of the
"flying geese", as other countries overtake it one after the
other. Alas, the law is dull in the hands of Indonesians.
Corrupt and collusive behavior is deeply embedded in our
politics and business. Their history goes as far back as pre-
colonial times. So pervasive is the lawlessness here, that some
scholars find it appropriate to dub Indonesia a "criminal state".
The assumption that, in the hands of Indonesians, power loses its
tendency to corrupt is simply unrealistically heroic.
The economic misery which has afflicted Indonesia repeatedly
in its relatively short history of independence is more deeply
rooted than its failure in implementation. The economic
architecture, which is largely a structure of state capitalism,
is faulty. Therefore, the misery is not going to disappear
permanently by tinkering with the technical issues of
implementation. Indonesia is in urgent need of a new economic
architecture.
I have floated the idea of a Schumpeterian "creative
destruction" in the form of an "open social market economy", in
spite of the rising criticism against neoliberalism. Openness is
called for, because the winners in different episodes of global
competition are usually open economies. Closure may be rewarded
temporarily as it was in the case of Stalinist economies, but
over time it condemns a state to an "endangered species".
In spite of the harsh criticisms against globalization, the
increasing flow of people, information, goods, services and
capital -- in short, globalization -- is inherent in the "gene-
culture" of co-evolution. Our failure to manage this does not
make it evil.
If the vision is to return to a high-growth path in the
nearest possible point in time, and if success in doing so
requires an anchor of stability in environment of the 2004
election year, maintaining the IMF program for another year or
two should be considered seriously.
The market is imperative for success in global competition.
Since time immemorial, traders have conquered impossible terrains
for the sake of an expanding market. Admittedly, Indonesia has
made great strides in the 1980s toward a market economy when it
was confronted with a sudden free fall in the price of oil.
However, most Indonesian politicians and owners of large
businesses are anti-market in their basic attitude, as is
reflected in the lack of strong support for privatization, in
spite of the disappointingly poor performance of state-owned
enterprises (SOEs) in capital accumulation.
Businesspeople understand very well how to exploit such an
anti-market attitude for individual enrichment. Positioning SOEs
and other government agencies as a force to ensure a level
playing field in market competition is illusory.
The language that businesspeople understand best is
competition from other businesspeople. Some of the primal
instincts in humans are indelible, and require as tough a
competition as possible in order to be tempered and prevented
from becoming destructive. Instruments such as competition law
and principles of good corporate governance can only serve as
additional measures to attain this end.
If so, the Indonesian state will have to be reinvented into a
"social state", a state which is fearful of the law as the only
source of its very existence -- focusing on good regulation
rather than ownership of businesses, on social capital rather
than economic types of capital, on tax revenue rather than
property and investment income.
Stripping the state of a large chunk of its business ownership
is perhaps a necessary condition for a successful fight against
corruption, the possessiveness of the central government in
regards lower levels of government and other symptoms of bad
governance.
Finally, the new architecture will have to include an
adequate, built-in system of social protection. Symmetry requires
negative taxes for the poor, while positive taxes are imposed on
wealthy citizens. Social insurance is needed for underprivileged
citizens to cultivate a sense of ownership in the development
process.
Obviously, outlining the steps necessary for change is one
thing, but initiating them is another thing. To climb to a growth
rate of 8 percent a year will take much more than a mere
discussion of architectural changes -- visionary, realistic and
courageous leaders of unquestionable integrity are needed, as
well as a critical mass of a coalition of willing followers.
The journey is not going to be easy.
The above article is an excerpt from the writer's paper,
presented at The Jakarta Post's seminar on Strategy for
Indonesia's Economic Development, on Monday.