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Indonesia told to keep up with globalization to foster innovation
Key speaker: Richard Baldwin (left), professor of international economics at the Graduate Institute of International and Development Studies in Geneva and president of the Center for Economic Policy Research (CEPR), gives a public lecture in Jakarta on Tuesday
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span class="inline inline-center">Key speaker: Richard Baldwin (left), professor of international economics at the Graduate Institute of International and Development Studies in Geneva and president of the Center for Economic Policy Research (CEPR), gives a public lecture in Jakarta on Tuesday. Accompanying him is the event’s moderator Chatib Basri. The lecture, held by Panglaykim Foundation and the Center for Strategic and International Studies (CSIS), was themed “Great Convergence: Information Technology and the New Globalization.” (JP/Dhoni Setiawan)
It has been conventional wisdom among experts that in an increasingly globalized world, countries, especially developing ones, are pushed to be open business-wise, because when they become too protectionist, innovations are stifled.
Indonesia is often cited as an economy that has taken a number of nationalist as well as protectionist measures to help grow its domestic industry and reduce reliance on imports over the past few years.
One of them is the rule that requires foreign-branded smartphones sold domestically to use 30 percent local content starting from this year, up from 20 percent last year.
To bank on Indonesia’s lucrative market of more than 260 million people, smartphone companies seem to have no choice but to comply with the rule through sourcing local components or invest in areas like research and development.
Such an inward looking approach to development seems to be outdated when confronted by ideas advocated by notable economist Richard Baldwin, who wrote The Great Convergence: Information Technology and the New Globalization.
Speaking at Panglaykim Memorial Lecture in Central Jakarta on Tuesday, Baldwin, a professor from the Graduate Institute in Geneva, said that governments needed to adjust with globalization in ways that they had not seen before.
Companies in certain industries held a tendency toward natural monopoly and therefore, essentially would not open up themselves even in the wake of globalization and global technological development, he added.
“The advent of ICT [information and communication technology] lowered costs of moving ideas and trade. It then became possible to organize production,” Baldwin said during the event, which was organized by the Centre for Strategic and International Studies (CSIS).
“What should be emphasized is the fact that ideas are crossing borders and not just jobs. If you focus on the jobs aspect only, then you’ll miss the point,” he said.
In Baldwin’s view, regulating resources is essential to governments, because it will reinforce the strength of the public element, which in turn can help foster innovation and move from the domination of a handful of companies in the industry.
In his book published late last year, Baldwin highlighted the significance of global value chains, which have benefited much from technological advancement.
Thanks to the IT revolution, manufacturers can outsource complex business activities from one part of the world to other faraway places. That is how production has shifted from developed economies to developing peers.
Speaking at the same event, former Tourism and Creative Economy minister Mari Elka Pangestu noted that if the government wanted to add value to Indonesian products and its components, instead of imposing certain regulations, it should offer incentives to compliant foreign companies in a way that the human capital was enhanced, and therefore, supported the development.
In order to nurture innovation, it would also have to ensure the business climate is conducive enough for foreign companies to do business here and prepare for necessary basic infrastructure to welcome technological progress.
“Incentives do not always mean tax incentives; they can also come in terms of aspects that attract foreign companies to invest here. Aside from business climate and the readiness of infrastructure, policy certainty is also important. These underlying factors are ultimately more important than merely imposing a law on investors,” said Mari, who is also an economics professor at the University of Indonesia.
With technological innovation creeping into Indonesia as a result of globalization, any attempts to overly lean on national interests would likely be bypassed by technology itself, Mari added.
She also pointed out the lack of government funding for research and development as a major stumbling block to foster technological development in Indonesia.
“For example, many are calling for physical data servers to be placed in Indonesia. But, in the end, physical data servers will later be taken over by cloud technology,” Mari said.
“Our policies so far do not accommodate much innovation, and government support for research and development in universities is still very low,” she added, citing one solution, namely to allocate part of the funds for LPDP scholarships in research and development.
