Economic growth for everybody

The recent World Economic Forum (WEF) in Davos reportedly proceeded in a somber mood. Its founder, Klaus Schwab, known as a die-hard supporter of free market capitalism, accepted the criticism that capitalism was in trouble and needed to be fixed to serve society.

While a global solution looks nice, the world leaders have to understand there is no quick fix, let alone a centralized command arranged through international gatherings, in dealing with crisis and inequality across the planet. These economic troubles are as political as they are economic and very much local as they are global.

One dimension to highlight here is a yawning gap between steps to integrate markets and the provision of tools to survive such integration. The first step has been to promote the free trade of goods and services to heads of state, business moguls, top legislators, prominent trade union leaders and the few brilliant young people invited to the annual event. The second step is to sign agreements among the VIPs. Third, offer a globally-agreed scheme domestically.

Such steps are misplaced. The leaders forget that the world consists of more than 190 sovereign states, with each ruling over territories of different sizes, people and potential. Each country has hundreds of politicians who are looking for opportunities to keep their jobs, and millions of businesses and workers trying to make a living. What is disseminated among the few VIPs can never trickle down simultaneously with the changes.

I believe no one would challenge the beauty of the opportunity to work with people from other parts of the world, traveling and working overseas, earning a foreign-currency-based salary, opening up a business abroad and enjoying the prestige of being citizens of a respected country.

But this does not mean that all people are willing to dive into a world of free-flow goods and services, because not everyone feels ready and equipped to survive the system. Why? Because countries are at different paces and have different priorities in getting their citizens ready for integration.

Diplomats should understand that they are not involved in a profit seeking business enterprise that expects high returns, albeit with big risks. Even business representatives going to such events should understand that whenever they are engaged in global forums, they have to shed some aspect of their business attitude. Finding a common path for common goods cannot be done in bulk, let alone in domination of economic terms.

Economic growth is imperative, but there will not be growth unless there are productive, innovative people who work, pay sensible amounts of taxes, and have the tools to protect themselves from vulnerabilities generated by the market. All of these shall be facilitated if we were to improve socioeconomic equality and, of course, economic growth. In other words, let’s shift the focus of global discourse from the economy to the social dimension; the people.

Human beings have certain economic instincts. They seek profits, survive with limited resources and avoid bigger losses. An economy relies on these instincts. But things like winning a competition, obtaining the largest profit, opening up new businesses abroad, earning promotion and salary increases cannot solely be achieved through individual instinct or capacity. There are many factors that determine output and efforts to gain it should not be placed at the individual level.

The current models and discourse of the open market economy fails in this regard. It sticks to the assumption that gains in the market economy depend on individual instincts and capacities. Worse, this assumption is brought to a multi-country level agreement: The success of a multi-country agreement depends on individual-country capacity and responsibility. Economic growth is always aggregate, so why do you blame the individual’s failure when growth is minus? Whose growth is it?

The initiative of the UN to promote the Social Protection Floor (SPF) should be welcomed as a potential way out of the open market economy mess.

SPF has two elements: service and transfer. Service includes the delivery of water, sanitation and health facilities. Transfer includes the provision of cash transfers to meet minimum needs. The UN, particularly the International Labor Organization, which advocates this, has no particular prescription on the size and mechanism for such service and transfer. The initiative remains on the negotiating table to be ratified later this year.

The appeal of this SPF is the acknowledgement of a community of people who sustain an economy and an effort to calculate the minimum protection needed in the market economy. Juxtaposed with the latest discourse among European Union members, which signal the desire to do welfare reform in the form of benefit cutbacks, this SPF should not be seen as a paradox.

Europeans have their own issue for not joining hands in handling problems of vulnerability and inequality at the individual citizen level, thus their efforts to slash social benefits among members shall not be understood as a failure of social protection programs.

Clearly Asia has a different starting point, and this is where SPF reminds everyone that the market economy cannot sustain itself unless people living in the system are protected socially.

Indonesia must respond appropriately and should know that Asian countries are reacting positively to the SPF.

China has invested time and money in conducting a series of pilot projects in the past decade to anticipate such standards. Since 1999, China has developed a program called dibao for urban and rural communities, which includes a package of security on minimum wages, housing, education opportunity and health. China also allocated US$125 billion for improving access to and quality of healthcare services at the central level.

As far as Indonesia is concerned, challenging homework needs to be completed. At a diplomatic level, a new awareness must be developed on the need to negotiate “social principles and terms” with partner countries. If we are to grow our economy, let’s grow it together and on a solid basis of broad social support from citizens.

The writer is the director of the Paramadina University Graduate School of Diplomacy.