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)