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Combining inclusive and open principles for Indonesia’s economy
Indonesia must raise its average economic growth from 5 to 7 percent to escape the middle-income trap by the end of the demographic dividend in 2037.
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Oodles of growth: Workers produce noodles on Jan. 14, 2023 at a factory in Surabaya, East Java. Indonesia must double its average manufacturing growth of 4.5 percent to become a high-income country. (AFP/Juni Kriswanto)
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conomists argued at the 18th International Conference of the East Asian Economic Association (EAEA) on Oct. 21 and 22 that an open economy, the fundamental value of globalization, must be completed with inclusiveness. Globalization can be excessive and increase the economic gap between countries, increasing global tension. When globalization experiences multi-polarization, competition and tension between strong countries increase.
Opening up and economic reforms in 1978 and joining the World Trade Organization (WTO) in 2001 significantly increased China's contribution to the world economy. Data shows China's contribution to the world’s manufacturing exports increased dramatically from 0.9 percent in 1948 to 15.2 percent in 2020. At the same time, the share of the United States dropped from 21.7 percent in 1948 to 8.8 percent.
Given this multi-polarization, in the late 2000s, the world witnessed a currency war followed by a trade war in the late 2010s between the US and China. Nowadays, offshoring of investment from the US to other countries has changed into reshoring and friendshoring. Yet as the world needs globalization and wants to reduce the tension, there is a changing term from the so-called decoupling to a softer one, de-risking. Since the world cannot live without globalization, all countries must cooperate to fill the gap in globalization.
Globalization is not free from inequality, so the world economy needs to adopt other fundamental principles, so-called inclusiveness. If globalization adopts a top-down approach, the economic inclusiveness utilizes a bottom-up approach. The combination of the digital era, which opens economic and commercial participation for everyone and fiscal discipline that shields the economy from the crowding-out situation, has created economic inclusiveness. This inclusiveness enhances local economic involvement, not replacing globalization but completing it.
The economy requires globalization over the role of multinational corporations (MNCs). For instance, in manufacturing production, no country can produce manufacturing products alone, and no manufacturing products are produced without the country's cooperation. Yet the economy also needs the local economy to meet local demand. The global COVID-19 pandemic, which hit globalization and the performance of MNCs hard, has increased global awareness that local economies are mutual to the global open economy.
Globalization, with its open principles, must be completed with local inclusiveness. The first approach refers to the father of macroeconomic thought, Keynes, while the second approach refers to Schumpeter. Open and inclusive are not only solid and complete principles for the economy but also bring down global tensions amid the multipolarization process.
The next question is, is Indonesia's economy inclusive?
