Over the coming days we will see the annual exodus of millions of people from big cities — in particular Jakarta — to their hometowns ahead of Idul Fitri festivities. It is estimated that this year the number of holiday revelers will reach 8 million.
The backgrounds of people involved in this annual event, known as mudik, varies. They can be CEOs, high-level government officials, businessmen, small-scale entrepreneurs or housemaids.
Traveling by private cars, on motorbikes, buses, trains or airplanes, they will stay away between one to three weeks to celebrate the Islamic holiday and reunite with families, relatives and old friends.
The higher the demand, the higher the price. The exodus can cost the holiday revelers three to four times their transportation spending during normal times. Worse, many of them are trapped in severe traffic jams for several hours during their journeys.
Mudik (homecoming) is not simply an event. It can arguably explain much of our current socioeconomic situation. The fact is that for millions of people, urbanization is perceived as a solution to their search for wealth.
There is no choice other than urbanization. If they stay in their hometowns, they will not be able to survive.
This group lives and works in cities in the informal sector without sufficient social protection. Their incomes are also much lower than those of people who work in the formal sector.
However, this is still better than remaining in rural areas where they may earn nothing. A simple explanation for this is the fact that Jakarta has the highest human development index (HDI) and gross regional domestic Product (GRDP) among all provinces.
First, it tells us that decentralization, which has been officially implemented by the central government since 2001, has not worked well in the fair distribution of development across the country.
While around 30 percent of the state budget around Rp 350 billion (US$40.95 million) has been distributed to local governments in the form of regional budgets, this amount has not yet generated the anticipated levels of economic growth, not to mention the central government funding spent at local levels.
Local governments spend a large amount of money financing routine expenditures — among other things for public servant salaries, instead of development projects.
Routine spending reaches 70 to 80 percent of the budget in some regions. As a result, the regional and state budgets have no sufficient multiplier effects in boosting regional economies.
This situation is exacerbated by the misunderstanding of decentralization that local governments should increase regional revenue (PAD) as much as possible. To reach this goal, many local governments have levied various taxes and retributions that in turn hamper their economy.
The taxes and retributions have been met with protests, not only from small and medium enterprise owners nationwide, but also foreign investors.
The ultimate success of local governments in the context of decentralization is how they can improve livelihoods and create employment. And this cannot be achieved while there are complex regulations and excessive taxation.
The high rate of urbanization, as reflected in the seasonal exodus, shows that decentralization has failed so far.
Mudik also tells us that economic sectors beyond agriculture have not been developed well in rural areas. In recent years, among all economic sectors the agriculture sector has absorbed the most workers, proving employment for around 40 percent of the workforce.
Meanwhile, its contribution to the gross domestic product (GDP) has decreased over time to around 13 percent.
The agriculture sector’s contribution to GDP, which is much lower than its share of the labor force demonstrates the low productivity in this sector. It also implies that there is a high rate of underemployment and disguised unemployment in the sector.
Eventually, most farmers earn only a small income. That is why pockets of poverty are much more concentrated in rural areas compared to urban areas.
In 2010, around 9 percent of urban inhabitants were classified as poor, as compared to around 16 percent of inhabitants of rural areas.
The number and share of smallholder and landless farmers has also been consistently increasing over the past 25 years.
This has been happening especially in Java. In reality, it is almost impossible for farmers to improve their livelihood as their production does not reach economies of scale, regardless of their hard work.
Finally, mudik shows the lack of entrepreneurship that Indonesia needs to improve people’s welfare. New growth centers have barely been developed.
The economy still strongly depends on old growth centers that have been developed since the colonial era, such as Jakarta and extractive-industry-driven areas that are rich in mining, oil and gas.
This is related to the long-lasting characteristics of the private sector in Indonesia that is less independent vis-á-vis the government. In general, they are more government driven compared to the private sectors in Europe and the United States, for instance.
To overcome this situation, local governments should take full advantage of the opportunities decentralization offers. Among other things, these governments can reform procedures to get business started.
They should be innovative in creating incentives to grow labor-intensive businesses. They could also endorse small businesses, for example, by helping them to reach big business customers or premium-end consumers in urban areas.
In addition, other economic sectors should be developed in rural areas. Governments could focus on creative industries, manufacturing and trade.
Especially in the beginning phase, the focus should be put on how to create added value for agricultural products and other abundant natural resources in these areas.
Regional governments are the best institution to lead this effort, considering their understanding of local contexts. In the long run, entrepreneurship should act as the engine of development.
To realize this, it is critical to grow entrepreneurship through the formal education curricula so that the spirit can spread nationwide in the future.
By doing so, in the next 10 to 15 years Indonesians who live in rural areas will have a choice as to whether they want to move away to take opportunities in big cities or stay in their hometowns to lead a relatively calm life, and will no longer be cornered. Having a choice means we will be happier, as well.
The writer is a public policy analyst and member of Visi Indonesia 2033.
