Why is there so much fuss about, mostly, small companies in the midst of the global financial crisis? Shouldn't we focus on rescuing big companies that employ a large number of people?
A national economy is like a human body; to remain healthy it needs to get rid of old and dying cells and replace them with a new and vigorous business entity. In the best cases, life support would be better than revitalization. In the worst cases, aging cells could turn into a cancer that would weaken and suck energy from the whole body.
In the globalized world, capital can be obtained from banks or investors; production can be outsourced to China; administration can be done in India. But the largest part of the profit goes to the brand owner who focuses on product development and marketing.
Compare top American companies from the last decade to today; Google, Starbucks were not even on the list last decade, while the financial behemoths such as Bear Sterns, Lehman Brothers and Merrill Lynch no longer exist as independent entities today.
Do the same for Indonesia and, except for few who went bankrupt during the Asian crisis, the list today is almost identical to the last decade, with family-base conglomerates, albeit more streamlined, remaining on top of the game.
A global entrepreneurship study by Klapper and Delgado from the World Bank for the period 2003-5 covered 83 countries and concluded that Indonesia is in the group with the lowest entry rate for new industrial companies.
Eurobaromater, a major public opinion survey in the EU's 25 member countries, found in 2007 that 45 percent of Europeans would like to become their own boss. The figure is even higher for young people (15 - 24 years old). The corresponding numbers in the US are 61 percent and 42 percent.
Some would blame Indonesia's feudalistic culture and history, which indeed may play some role, but other changeable and impermanent factors are likely to be in play.
What if someone told you that to start a business it takes two and half months and a total cost of nine months of the average Indonesian's income?
The rational choice is to only start a business when you are sure that you will get a sustained high return, unless you have a way to get around the lengthy and costly procedures.
Thus, the entrepreneur option in Indonesia is heavily skewed toward the rich and highly connected. A deeper look at the National Labor Force Survey (Sakernas) revealed that on average, only an entrepreneur with tertiary education earned a more than average income.
Indonesia is ranked 129th among 181 countries surveyed on the aforementioned survey, on the ease of doing business. The government needs to reduce red tape and complicated bureaucracy.
Ha Joon Chang, the Korean-born economist from Cambridge pointed out in The East Asian Development Experience (2006) that the key to East Asia's achievement is selective government intervention and domestic protection to prepare local companies to compete globally. Large countries should not coddle its major industries with firewalls of protection, since doing so only leads to those companies growing lazy and focusing on milking the domestic market.
We need to look to neighboring Malaysia, where it takes only 13 days to start a business costing less than two months of a Malaysian's average income. They have even had a cabinet level ministry for entrepreneurs since 2004.
Indonesia is behind Malaysia because of using a small country strategy in a large country setting. We need a comprehensive package of financial support, skills training and export assistance for would-be entrepreneurs.
Let's do things right this time and let (at least) a thousand entrepreneurs bloom. The writer is a PhD candidate in economics at the University of Siena, Italy and a lecturer in the Masters in Public Policy program at the University of Indonesia
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