Protectionism hurts small businesses

Protectionism hurts small businesses

JAKARTA (JP): Protection for upstream industries has done more
harm than good to small and medium-sized businesses, particularly
those exporting their products, economist Djisman Simandjuntak
says.

Speaking on the third day of the 21st International Small
Business Congress (ISBC), he said that protectionist measures
inflate costs.

He acknowledged yesterday that protectionist measures, usually
granted to upstream industries, adversely affect the cost
structure of downstream industrial plants unless there is a
compensation scheme.

"The more reliant downstream industrial plants are on exports,
the more harmful the protection will be to them," he said.

He said the steel, chemical and non-ferrous metal industries
are examples in which small manufacturers have been hit by the
protection of large enterprises in the upstream industries.

Furthermore, Djisman said, protectionist measures will make
trade policies discriminatory.

Uniform protection is non-existent and protection, therefore,
causes certain sectors to be treated more favorably than others,
he said.

Conglomerates

A government which promotes local production excessively,
implicitly provides fertile soil for conglomeration. This is what
happened to Indonesia's automotive industry, he said.

Automotive manufacturers are required to engage in progressive
manufacturing in accordance with a mandatory time table. When the
manufacturers of vehicles cannot find enough producers of
components, they decide to diversify manufacturing activities, he
added.

He said that becoming a supplier of large manufacturers is one
of the most realistic paths for small and medium businesses to
grow.

"Ironically, protection tends to make growth less viable for
smaller businesses," he said.

Djisman said that freer trade, therefore, will better promote
the growth of small and medium businesses.

He said that the recent robust recovery in the American
economy is widely attributed to small and medium enterprises.
German and Japanese economic growth has also been widely
associated with a superior network of suppliers consisting of
small and medium businesses.

Besides Djisman, the conference, which was attended by 700
participants from 38 countries, also presented Minister of
Education and Culture Wardiman Djojonegoro and State Minister of
Investment Sanyoto Sastrowardoyo as speakers yesterday.(05)