Part 2 of 2 Muddling on: A country in search of a strategy

Part 2 of 2 Muddling on: A country in search of a strategy

H.S. Dillon, Political Economist, Jakarta

S.R. Tabor, Economist, Leiden, The Netherlands

Tension has emerged between democracy, human rights and the
preservation of the nation-state at all costs. Rather than
thinking of Indonesia as a sort of forced entity, perhaps it is
time to rethink the rules for this "nation" as a club, where
members wishing to leave should have the possibility to do so.

National development policies, rather than being devised in a
way so as to bribe or force everyone to stay in the club, should
be devised so as to make the nation the sort of place each
citizen wishes to remain a part of.

Making Indonesia a great country, in which everyone has a
place under the sun, is a way of making the club attractive. Who
knows, perhaps if Indonesia were to do very well in the future,
even Singapore and Malaysia might want to "join".

Now, let's turn to the question which enamors mainstream
economists: What about growth? Despite all the rhetoric, there is
no substitute for high rates of economic growth. Deliver this,
and many other problems will simply fade away.

Two decades of China-like growth and Indonesia would be as
affluent as many European states. The question, though, is how to
get from here to there. A few elements are well established.
High rates of productive private sector investment are needed to
drive that process. Improvement in skills and health conditions
are needed to develop a labor force that can create its own
opportunities for progress.

Without business confidence and a big-leap in human resources,
high rates of growth just won't happen. What is needed to
restore business confidence -- who knows? There are long lists
and there are short lists. Eliminating the debt overhang --
public and private -- can't hurt, and this means something other
than the never-ending cycle of rescheduling.

Deregulating where possible and seriously penalizing
corruptors can't hurt, and getting government out of the
businesses (banking, etc.) that it was forced into after the
financial crisis also couldn't hurt.

It is probably high time to take a respite from foreign
assistance -- the mega-project days of the New Order fueled waste
and corruption; the IMF-tutelage days of fragile democracies have
battered confidence and tarnished the nation's reputation.

Maybe it is time to put our own house in order. That could
certainly help to rebuild confidence.

Critical social scientists often ask: What about poverty and
equality? The answer is quite simple -- rural development. That
is where the poor are, and that is exactly where markets --
global, national and local -- are not working well.

Getting agriculture moving will require a "fair trade" policy,
and that means that the cheapest possible food is not in the
national interest. It means that farmers will need to combine to
form viable businesses, and that public/private cooperation for
research, extension and marketing is crucial.

It means that the "rule of law" will have to work in the
countryside, otherwise contract-farming would simply be a joke.
It means that rural assets will need to become bankable
collateral, starting with land.

It means that low-cost rice will need to become a thing of the
past in Java, with the countryside filled with flowers, shrubs
and other high-cost (high value) products. It means that workers
will need to have ownership stakes in the estates, a la FELDA,
and that the days of feudal overlords running rural communities
will be put behind us.

The key variable is rural income -- not commodity production,
and the faster we can raise rural income the better for poverty
reduction, equality and structural change.

Now, an issue dear to our hearts: What about "good
governance"? Many of Indonesia's problems stem from the sad fact
that it has a dysfunctional state. Collective goods are either
missing or are being provided in a bad way.

Many collective goods -- like the "rule of law" -- are
certainly under-provided or ineffectively provided. Other
collective goods -- like health and education -- have extensive
coverage but are of such a distressing quality that the services
provided really are hardly worth their cost.

Anarchy is certainly not an option -- despite what those who
are fond of "doing-your-own-thing" partnerships might suggest.
The costs of trying to coordinate masses of people with differing
special interests is simply far too great without a government
that undertakes to provide "good" collective goods.

During the past five years, we have somewhat rushed to apply
various "fixes" to Indonesia's legendary governance problems.
There are certainly some signs of progress, but not enough to
inspire all that much confidence.

This is clearly an area in which there is scope for
experimentation, for we really don't know what exactly will work.
What will eradicate corruption? What will inspire integrity in
our leaders? What will inspire political parties to act
responsibly? What can be done to ensure that public services are
delivered effectively and efficiently?

Indonesia's experience proves that "good governance"
initiatives that worked in other countries don't necessarily work
terribly well in this setting.

Two clear lessons are emerging: some things simply can't be
fixed, and we need to start over. For example, "central
planning" got out of control, and while it was rather brazen the
decentralization effort was an effort to start over.

There may well be other areas where "governance" simply can't
be fixed, and where the best solution may be to flush away what
we have and start over. Does the judiciary work? Has the way we
elected leaders worked, and can we convince the parties to
practice good governance and field honest, accountable, proreform
candidates in the next elections?

Can we have good governance with the way civil servants are
selected and paid? Maybe starting over makes sense in some
areas. The other finding is that "imported prescriptions" don't
seem to work terribly well in this area.

What we do need to do is find homegrown solutions to getting
collective goods provided effectively and efficiently. If this
takes "command solutions", "participatory solutions" or thousands
of different initiatives, so be it.

What matters most at the end of the day is that we have decent
collective goods, that human resource development takes place and
that economic and social development is built on a crescendo of
rising equity, productivity and prosperity.

With the underpinnings of a strong economy equally benefiting
all, Indonesians could even rediscover their national identity,
and once again walk with dignity. Then the sacrifices made by
the founders of this great country will not have been in vain.