RI and globalization debate: Embracing "contract culture"
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