T

he impacts of technology on global economic development have been transformational. Technological changes and innovations have significantly improved various aspects of human lives and created new opportunities for income and wealth expansion. As in many success stories, however, these positives have also been followed by less encouraging signs, with the implementation of suitable policies often acting as the divider. There is no specific policy approach that can act as the panacea to the challenges posed by technological advancement and absorbance.

In Indonesia’s case, an interesting story has unfolded. The effects of technology on productivity in Indonesia have varied across sectors, levels of income and even across regions. For example, as much as we want it to be otherwise, the manufacturing sector in Indonesia is often not successful in optimizing technological advancements.

The manufacturing sector, generally regarded as the top beneficiary of technological improvements, still relies on conventional production methods and has displayed a relative lag in technological innovation. The service sector, on the other hand, has been far more successful in embracing technological advancements. Digital technology, for example, is now the backbone of many service activities in Indonesia such as trade, finance and even in transportation businesses.

However, the challenge in Indonesia goes beyond just sector absorption of technology; it also encompasses income and regional discrepancies. The largest segment of Indonesia’s population that already uses e-commerce, for example, are those already in the higher income bracket or with higher education levels. A similar statistic is also evident if we compare regions. Java has derived greater benefits from technological improvements compared to Kalimantan or Papua. These conditions pose the risk of increasing inequality in Indonesia. In light of this, we should ask ourselves, “Is technological progress and innovation a blessing for Indonesia?”

Technology is constantly being tested and replaced by newer innovations. We live in a world where our technology is far more complex than it was just 5–10 years ago. In some parts of the economy, the effects technology has had were previously unthinkable. Not many people could have predicted that an online transportation sharing company (Uber) or an online hospitality service (Airbnb) would be valued at more than US$30 billion in less than 10 years.

The rise of new start-ups and technology companies does have positive impacts. However, we are now looking at technologies that are able to not only improve productivity and reduce costs, but also change the conventional pricing model, and thereby cause disruptions. If these disruption are not managed properly, they could create an uneven playing field for business and create larger divisions in society, with rising inequality.

We need to acknowledge that the current government has been moving in the right direction by building mass infrastructure such as roads, airports and other forms of connectivity. This will surely help to create more opportunities for Indonesians to improve their productivity.

Moreover, the consistent 20 percent budget allocation for education also signals a positive commitment of the government to improving the quality of the country’s workforce despite the fact that, in the long run, this percentage will need to be reviewed as the profile of the Indonesian economy and population evolves.

In the short term, however, what needs to be worked for is the creation of a level playing field to ensure that the benefits of technological advancement are felt equally by both workers and capital owners.

Out-of-the-box taxation policies are, therefore, surely needed to achieve this. This is not a mundane challenge, even for policy makers in advanced economies.

It is clear there must be a good and balanced combination of policies across fiscal, monetary and real sectors. Nevertheless, for Indonesia, investment policies that are conducive for both startups and foreign investment also matter. As an emerging economy, Indonesia still needs foreign direct investment as a source of fresh funds and as a training ground for local businesses and industries.

In this regard, Indonesian policy makers should see to it that the sectors open for foreign investors will not kill domestic businesses. A more open investment climate will allow Indonesia to catch up with the technology of overseas competitors. Indonesian policy makers need to make sure this transfer of technology actually happens.

What needs to be included in future policy frameworks, however, are measures to make sure all Indonesians have the same opportunity to access technology. Policies need to be non-partisan and promote healthy competition; not confront conventional or online businesses, nor choose profit growth over employment creation or economic productivity while ignoring growth quality.

Accordingly, policies also need to make sure that small businesses and the vulnerable parts of society are not left behind. These two groups, unlike big corporations and large taxpayers, have less ability and bargaining power to lobby their grievances to policymakers.

With Indonesia’s growing interest in technology, it is important to make sure that the use of technology can help create more sustainable economic growth and help reduce inequality, not the opposite.

Technological development presents issues that are linked to many aspects of our lives.
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The writer is an analyst at the Fiscal Policy Agency, Ministry of Finance. This is a personal view.