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Jakarta Post

Indonesia and the new multipolar world order

  • Dato Sri Tahir

Jakarta   /   Mon, January 18, 2021   /   03:26 am
Indonesia and the new multipolar world order US President Donald Trump meets with China's President Xi Jinping at the start of their bilateral meeting at the G20 leaders summit in Osaka, Japan, on June 29, 2019. (REUTERS/Kevin Lamarque)

After World War II, we indulged the Pax Americana, a period of development and peace with the United States as its superpower. Before the pandemic, no other party possessed the hard and soft power comparable to the US. However, the COVID-19 crisis has proven to be a black swan event that has generated complex consequences.

While the US and the European Union are grappling with the pandemic, China appears to have regained a normal life and its economic activities are rapidly expanding. A new multipolar order dominated by the three parties – the US, EU and China – is looming, and Indonesia must be ready to seize its benefits.

Strong research and development and the capitalist system have given the US a hold on high-tech and high-value-added segments. Giant corporations (FANGAM: Facebook, Amazon, Netflix, Google, Apple, Microsoft) have thrived to give birth to elite techno-oligarchs like Jeff Bezos and Elon Musk. In 2019, the annual revenues of the largest corporations were estimated at US$14 trillion.

Despite its supremacy in high-tech industries and the weight of its economy, the US has accumulated $27 trillion in debt, which is about 120 percent of its GDP. The largest holders of US debt are Japan and China, followed by EU countries.

Income inequality in the US is also growing. Small corporations and the poor are lagging far behind. People in high-tech industrial centers tend to be rich and lean toward the Democratic Party, while those in real industrial centers like rural Indiana and Ohio are poorer and Republican-oriented.

With FANGAM focusing on digital services, the US real sector has increasingly been marginalized. This trend has become a source of weakness. During the pandemic, the manufacturing capacities of low-tech and low-value-added segments like tissue paper and personal protective equipment failed to meet demand in a time of necessity.

The accumulating impact is that the US economic recovery path is predicted to follow a K-shaped model. This means there are two trajectories of economic growth that are increasingly distant. The first group will rise quickly and become richer, but the second group, namely the middle and lower-middle class, will get poorer.

The combination of a K-shaped recovery, swelling government debt, income disparities in the population, corporations and regions, populist policies, the polarization of the Democratic and Republican camps and the continuing pandemic could lead to a multidimensional crisis. Without corrective measures, this will mark the beginning of the withering of the US.

On the contrary, China is predicted to experience a V-shaped recovery, which means its economy will rise quickly and sustainably. At the corporate level, although we often hear about China’s giant high-tech corporations, China has maintained its low and medium-tech industries. China is capable of producing goods ranging from toys to jet fighters.

During the pandemic, China sent aid and exported low-tech goods such as tissues, masks, plastic bags, etc. while meeting its domestic needs. Its digital service-oriented industries, Baidu, Alibaba, Tencent, Huawei, Xiaomi (BATHX), too, are closing their gap with FANGAM.

China’s solid control of low-, medium- and high-tech industries, its mass infrastructure development and its political stability will further support quality economic growth. In fact, as the world witnesses a rise in the proportion of poor people, in November 2020 President Xi Jinping announced his government’s success in alleviating poverty.

If we compare the GDP proportion of the US, EU and China with the world’s GDP prior to the pandemic, we can see stagnation in US and EU growth, while China’s economy tended to expand. The pandemic is likely to further this trend, and it is only a matter of time before China gains not only hard power but also soft power. Then the new multipolar world order will become a reality.

In this multipolar situation, Indonesia will have huge capital at its disposal to not only recover from the pandemic but also to take advantage of the shifting global landscape for several reasons.

First, Pancasila and the Constitution provide strong foundations for a free and active foreign policy and the country’s participation in maintaining world peace.

Second, as a democracy sitting in a strategic location of the Indo-Pacific region, Indonesia can serve as a strong stabilizing element. The shift in the world’s balance of power will sharpen the rivalry between the US and China in Southeast Asia.

The South China Sea, through which 60 percent of maritime trade passes, will heat up. Small countries leaning toward the US, such as the Philippines, could be used as a proxy to trigger the destabilization of the South China Sea just to disrupt China's trade flow.

However, China will not hesitate to defend its interests. In ASEAN, China has found allies in small countries like Cambodia, Myanmar and Laos. Therefore, China needs a friend with more weight, namely Indonesia. Here, we can take advantage by asking China to invest heavily and transfer its technology to strengthen Indonesian industry.

Furthermore, Indonesia also needs to continue infrastructure development and to raise the quality of its human resources. Data shows that around 60 percent of our workforce has only a primary education. Enhancing the quality of manpower requires not only curriculum reforms but also vocational education that involves industry as end users.

As the whole world is printing money, foreign funds will enter Indonesia. They must be directed toward long-term investment in the real sector, not just in the capital market where it will only be hot money. We have the Job Creation Law, which must be enforced to attract investment in the real sector to create new jobs.

Our real sector should be developed in various lines ranging from low to high tech. Learning from China’s experience during the pandemic, the diversity of industries matters. Two thirds of Indonesia's territory is ocean, an advantage that eludes other countries. The empowerment of fishermen, marine-related industries, tourism and deep-sea oil and gas industries will accelerate quality economic growth.

Indonesia also has extensive rainforests, which the world needs as its lungs. We can capitalize on this in negotiation and cooperation with the US and EU. The US president-elect, Joe Biden, has signaled a foreign policy direction that will care about the environment and climate change.

On the financing side, many central banks have lowered interest rates, meaning that the world is entering an era of cheap loans. Indonesia must be able to negotiate low interest rates and restructure existing debts in this regard.

Finally, the government needs to strengthen development planning. Institutionally, the National Development Planning Board needs more capacity and authority and ministries and state institutions need measurable key performance indices so that their progress can be accounted for.

Clearly, Indonesia can harness the new world order to promote quality and equitable development.


The writer is founder of Mayapada Group. This article first appeared in Kompas.