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Achieving national prosperity through behavioral insights and adaptive leadership
The World Bank reports that Indonesia ranks relatively low in legal enforcement, with prolonged judicial processes and weak contract enforcement.
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Nurturing children: Banyuwangi Regent Ipuk Fiestiandani (right) talks about how to help local children develop during a dialogue with village heads and community figures on May 6, 2024 held at the East Java regency’s culture and tourism agency. (Antara/Banyuwangi government’s public relations)
I
ndonesia stands at a crucial juncture, with the opportunity to transition from a middle-income to a high-income economy. However, this journey requires more than economic policies alone; it demands structural changes within institutions, an evolving role for businesses, adaptive leadership and an understanding of the behavioral nuances that drive decision-making across society.
Nobel laureates Daron Acemoglu, Simon Johnson and James Robinson have shown that inclusive institutions lay the foundation for national prosperity. Adding insights from behavioral economists, such as Dan Hill, Tim Harford and Richard Thaler, can equip both public and private sectors with the tools needed to foster a sustainable and inclusive economy that benefits all Indonesians.
According to Acemoglu, Johnson and Robinson, sustained prosperity is rooted in inclusive institutions, meaning those that secure equal opportunities, uphold property rights and promote widespread investment. These are in contrast to extractive institutions, which concentrate resources and power within elite circles, stifling broader economic growth and innovation. In Indonesia, the middle-income trap presents a significant challenge, where economic gains are not yet deeply rooted in equitable prosperity.
A critical step for Indonesia is to strengthen the rule of law. Transparent and consistent legal frameworks protect citizens’ rights and ensure businesses of all sizes can operate in a fair environment.
However, the World Bank reports that Indonesia ranks relatively low in legal enforcement, with prolonged judicial processes and weak contract enforcement. Addressing these issues, including rooting out corruption, would foster a more reliable business environment and encourage long-term investment in the Indonesian economy.
Investment in human capital is also essential. Indonesia, with a population of over 270 million, has a significant labor force but faces a shortfall in education and skill levels. For instance, the 2018 PISA rankings showed Indonesian students performing below the global average in literacy, mathematics and science, a clear signal that more resources are needed in education.
Programs such as the 2019 pre-employment card offering subsidized training are steps in the right direction. However, improving access to quality education and vocational training, especially in rural areas, remains necessary to create meaningful employment opportunities and enable Indonesia’s shift toward more value-added industries.
