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Economic oligarchy hinders Indonesia
Harvard Kennedy School of Government experts urge institutional transformation to shed the Indonesian legacy of economic oligarchy and collusive democracy from it’s authoritarian past
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Harvard Kennedy School of Government experts urge institutional transformation to shed the Indonesian legacy of economic oligarchy and collusive democracy from it’s authoritarian past.
Economic oligarchy and political collusion maintained through high barriers to entry, a dysfunctional legal system, patrimonial politics, disempowered citizens and political gangsterism, the experts concluded in a strategic assessment of Indonesia’s development challenges.
A delegation from the Harvard Kennedy School of Government, led by Dean David T. Ellwood, on Wednesday briefed President Susilo Bambang Yudhoyono on the most salient findings of the assessment and its policy recommendations.
The strategic assessment was conducted under the Harvard Kennedy School Indonesia Program and sponsored by the Rajawali
Foundation Institute for Asia, which itself is part of the Ash Center for Democratic Governance and Innovation.
The Harvard team, accompanied by noted Indonesian economists, also presented to the President a copy of the 222-page Indonesian language version of the report on the assessment which was published by the Kompas Gramedia Group with the title Indonesia Menentukan Nasib: Dari Reformasi ke Transformasi Kelembagaan.
“Oligarchy and collusive democracy have left Indonesia ill-equipped to respond to the challenges of globalization,” Anthony J. Saich, Director of the Ash Center, noted at the launching of the Indonesian version of the report.
The report argues that Indonesian businesses must be linked more closely to the international economy, barriers to entry to businesses must be eliminated and the formalization of small businesses should be relaxed.
Putting it briefly, Indonesia must become an efficient part of the global supply chain, otherwise the country will continue to lose ground to China, India, Thailand, Malaysia, Vietnam and even the Philippines in foreign direct investment flows, manufacturing, infrastructure and education, the study concludes.
The report attributes China’s phenomenal economic growth to its emergence as the world’s efficient assembler of components from the rest of Asia and exporter of final products to the Western market.
“Indonesian companies must learn how to compete with China in some products and integrate into the China-based supply chains in others,” the assessment points out.
The report argues that even though domestic consumption generated respectable growth last year when most other economies contracted, within the long term perspective domestic consumption and high commodity prices are not adequate foundations for Indonesia on which it can build an upper middle-income economy.
In so far as Indonesia’s economy remains less competitive, foreign direct investment to the country will continue to be concentrated in natural resource exploitation and the production of consumer goods for domestic market, the report concludes.
“Indonesia is one of the few countries in the world that exports more raw ores than metal,” the report says, pointing out that over-regulation protects existing large firms and penalizes start-ups and small and medium-scale businesses. The Harvard experts cite what American scholar Edward Steinfeld calls “institutional outsourcing”, a concept whereby a government uses international rules and competition to discipline its own state companies and interest groups such as trade unions that resist reform.
“Soon after the wake of the East Asian crisis, China adopted a liberalized foreign investment regime and rules that subject Chinese companies to greater competition,” the report says.
