RI and globalization debate: Embracing "contract culture"
Christopher Lingle, Ubud, Bali
As elsewhere, Indonesians engage in debate over the nature and impact of globalization. However, there is a consensus that this process is seemingly irresistible. Because of this irresistibility, it is important to discover the essential elements of these momentous changes.
One good place to start is by discarding an important misinterpretation. Globalization should not be confused with Westernization or Americanization. Perhaps this muddled thinking arises from an observed sense of convergence towards certain norms or rules that are associated with Western cultures, especially concerning commercial considerations.
Promoting this misconception adds to an unwelcome divisiveness. It also implicitly assigns a sense of domination or superiority of American or Western culture over others, itself a patently foolish assertion. Opportunistic politicians can use such divisions to support a "them against us" mentality that can too easily be subverted into militant nationalism or as an excuse to maintain autocratic rule under the heel of local despots. A more appropriate generalization would be that many countries in the world are undergoing "modernization" that is affecting their economies while influencing the force and direction of politics or perhaps even some aspects of culture.
The view offered here is that the observed convergence associated with globalization is a natural and evolutionary procedure that is universal. In this sense, global convergence arises from voluntary choices by citizens and their governments to engage in worldwide markets to achieve some individual and collective goals, including shared prosperity. Indeed, the overpowering nature that some observers find so troubling is actually the outcome of choices made by most other members of their own communities.
Thus, globalization is not the outcome of anonymous, outside and mysterious forces. It occurs because most of ones' compatriots prefer better or cheaper products that are imports rather than shoddy or higher-priced ones produced locally. Of course this also relates to trade in services, but it also involves marginal choices about other arrangements including relationships that individuals engage in with one another and with their governments or other social organizations.
In the end, spreading the benefits of globalization depends upon how well markets function, because competitive markets are a force that empowers consumers and humbles producers. And well- functioning markets eventually require the adoption of a "contract culture". Participation in markets inspires the development of a contract culture where the spirit of compromise becomes part of human interaction. Of equal importance that it introduces a greater understanding and acceptance of accountability as a matter of course. Judging from court records and public announcements, a sense of accountability and individual responsibility is something that is lacking in the many people embroiled in the financial scandals and corruption that permeate the fabric of Indonesian society.
A contract culture exists when parties in an agreement are predictably treated as equals whenever there is a legal dispute or a need for interpretation of the conditions behind the pact. Governments or large corporations should not receive special treatment in the courts over individual citizens while domestic interests should not override those of foreign claimants.
Markets both depend upon and set the stage for the emergence of a contract culture that promotes commercial morality and encourages a wider application of trust. In turn, frameworks of rules evolve to reinforce and reward or punish actions in reference to the agreements. This is an important element of the convergence brought about by globalization.
The impact of the operation of a contract culture is not limited to private contracts concerning commercial transactions. It also covers social contracts like constitutions that specify duties and obligations of citizens and rulers. Viewed from this vantage point, capitalism and free markets are seen to provide a necessary underpinning for democracy's success rather than merely a sufficient one. It is through individualist-based institutions associated with and arising from markets that people exercise true self-ownership to pursue their own chosen goals.
Apart from promoting political stability due to greater fairness, the contract culture is also associated with "middle- class values" like the importance of education, thrift and moral values that promote hard work and honesty in contract fulfillment. The importance of establishing a contract culture cuts deep. It is an intangible element in the measurement of growth factors, but it is certainly an essential element of the institutional framework for an active player in the global economy.
During periods of rapid economic growth, massive cash flows can compensate for some of the inconveniences arising from a weak adherence to contractual obligations. Once an economy reaches a certain level of maturity or begins to lose its comparative advantages, the importance of legal protections becomes clearer. It is the absence of such safety measures that induce investors to undertake reassessments that can lead to the sort of mass exoduses of capital like the one associated with the Asian crises that began in 1997.
In many Asian countries, the dominance of autocratic rule led to an entrenchment of hierarchical power relations that retard the development of a local contract culture. Outside of some former British colonies, few Asian countries have an independent and competent judiciary that issue ruling based upon strict interpretations of a body of law concerning fulfillment of contracts that includes predictable bankruptcy proceedings.
An interesting application of this discussion is the debate over ending the ravages of corruption, collusion and nepotism (KKN) that cripple the Indonesian economy and limit its long-term growth potential. Some clues for the resolution of these nagging problems can be found in the application of the rules behind the logic of a contract culture.
As such, Indonesians should assess the impact of globalization on them by recognizing the benefits from adhering to contracts within a rule of law as they develop a modern market-based economy. Although there will always be transition costs of such monumental changes, the most important benefit is that there will be increased commercial and political accountability that offer greater protections to citizens and consumers. Full engagement of a contract culture is the best way for Indonesia or any other emerging market economy to achieve its enormous potential as a world player.
The writer is Visiting Professor of Economics at Universidad Francisco Marroqumn in Guatemala and Global Strategist for eConoLytics. He can be reached at CLingle@ufm.edu.gt