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View all search resultsIndonesia badly needs inclusive institutions, not rhetoric
Indonesia’s path to lasting prosperity depends not on the myth of a strongman savior, but on dismantling elite capture to build institutions that are truly fair, accountable and built to outlast power.
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Protesters hold posters, one of which reading “Oligarchic families should be eradicated", on Aug. 23, 2024, during a rally in front of the General Election Commission (KPU) building in Jakarta. (AFP/Bay Ismoyo)
I
n their book, Why Nations Fail, Nobel laureates Daron Acemoglu and James Robinson posed a simple but profound question: Why do some nations thrive while others fall behind? Their answer was neither cultural nor geographical, but institutional.
Nations succeed, they argue, when political and economic power is distributed broadly, when rules are clear and when citizens can participate meaningfully in shaping their future. They fail when power is captured by the few, when corruption and patronage decide outcomes, and when innovation is suppressed in favor of privilege.
More than two decades into democracy, Indonesia now stands at a defining moment between those two paths. The country has achieved political stability and steady economic growth. Yet beneath this surface lies an uncomfortable truth, our institutions - those invisible systems that sustain democracy, justice and prosperity - are only partially inclusive.
Elections are competitive but increasingly transactional. The rule of law exists but often bends to political convenience. The economy is open but still dominated by oligarchic structures and rent-seeking behavior. Indonesia is free but not yet fair.
Extractive institutions don’t just waste public money, but they quietly shape the nation’s trajectory. When political elites capture policymaking, reforms serve short-term interests rather than long-term welfare. When state-owned enterprises (SOEs) dominate key industries without innovation, entrepreneurs lose incentives to take risks. When corruption is normalized, talented young Indonesians learn that loyalty matters more than merit. The result is what economists call “low productivity equilibrium”, an economy that grows, but not fast enough to create prosperity for all.
The weakening of the Corruption Eradication Commission (KPK), politicization of bureaucracy and persistent policy inconsistency across sectors are not isolated incidents, they are symptoms of a deeper institutional malaise. Indonesia risks drifting toward what Acemoglu calls an “extractive equilibrium”, a condition where economic and political power reinforce each other in a loop that resists reform. In such a system, inequality rises, innovation stagnates and trust in government erodes.
We don’t need to look far for examples. The promise of the resource boom in the 2010s faded into the familiar cycle of dependency when abundance of natural wealth becomes trapped in a cycle of exporting low-value raw materials, while failing to develop domestic manufacturing and value-addition capabilities. Meanwhile, R&D spending remains below 0.3 percent of gross domestic product, one of the lowest in Southeast Asia. Without institutional reform, Indonesia risks remaining a middle-income country trapped by its own extractive legacy.
