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.