Indonesia and the Asian Narrative
Technological literacy and equitable access to digitization are the nation\'s most challenging tasks. Indonesia must be one of the reliable information agents of the Asian narrative.
This interesting data is not widely known to the public. In 1700-1850, Asia\'s contribution to global gross domestic product (GDP) almost reached 60 percent. After that, the Asian economy continued to weaken and bottomed in 1950 when its contribution was only 15 percent of the global economy.
After that, Asian economic activity slowly began to expand again. Today, the figure is approaching 40 percent, right back to the decade of the 1850s. The next projection is that in 2050 the contribution of the Asian economy will reach the equivalent of that during the golden period (18th-19th centuries), where its contribution to the world economy will reach 52 percent (Azis, 2021).
Observing recent developments, it seems that these calculations will come true because the economies of China, Japan, India, South Korea and Indonesia continue to grow convincingly, exceeding the economic growth of the US and other European countries. In short, this is the Asian century, in which Indonesia is one of the vital players.
Global political geoeconomics
The invention of the steam engine and electric power fueled the industrial revolution. The timing of the industrial revolution period is not very clear because many sources give different periods. However, the period was roughly between 1750 and 1850.
Starting from Great Britain, the industrial revolution then spread throughout Europe through the adoption of factory mechanization, for example the textile industry. This process is deepened through the creation of trade infrastructure, such as railroads, so that production can be easily distributed, even between countries (Haradhan, 2019).
The deepening of capitalism, which Wallerstein (2000) cites as dating back to 1450, was the main support for the industrial revolution. It is this evolutionary process that marks modern capitalism and a source of economic growth in European countries. The country\'s economic income (GDP) shot up thanks to mechanization, (free) markets and the introduction of a contract system. Private property rights were also introduced massively.
Also read:
> Economic Recovery and Partiality
> Showcase of the Creative Economy
The history of the industrial revolution coincided with Asia\'s decline in the economy due to European pressure. Slowly, the economy in the region took over Asia, which was limping in the face of technological developments and mechanization. Thus, the industrial revolution is not only a symbol of the use of production machines, but also the raw material for knowledge, which is the axis of innovation.
In England, for example, in 1660 the Royal Society of England (Royalsociety.org) was founded. The same institution was established in France. Such institutes have a great influence on the acceleration of economic development. Research is the backbone of innovation and new economic identity in European countries (and later in the US).
This is compounded by the widespread opening of campuses (some of which were even established before the 1750s) as springs of civilization. Knowledge and the economy are fused on two sides of the coin.
The ideology of market-based economic growth has become a champion of economic management, including the liberalization project.
The climax was the victory of the Western Bloc (US and Western Europe) against the Eastern Bloc (led by the Soviet Union) during World War II. That period was not only stamped by the increasingly strong political hegemony by the Western Bloc, but also the fingerprint of the superiority of the market economy (capitalism), which was supported by the use of knowledge, technology and market mechanisms.
Since then, three multilateral institutions have been established as promoters of liberalization, namely the World Bank, International Monetary Fund (IMF) and GATT/WTO (Kloby, 1997).
The ideology of market-based economic growth has become a champion of economic management, including the liberalization project. The theory of stages of development (Rostow), the concept of economic growth based on savings-investment (Harrod-Domar), big-push theory (Rosenstein-Rodan) and the model of capital accumulation (Joan Robinson) became idols of economic development. The theories of development economists quickly spread throughout the world, including Asia.
Four pillars of Asia
Aside from Japan, since the 1990s, many Asian countries have risen to overcome their backwardness. Singapore, Taiwan, Hong Kong and South Korea are known as Asian Tigers, roaring on the global stage. South Korea (whose independence day is close to Indonesia\'s) has consistently been a very strong industrial country along with human investment since the 1970s.
The electronics and automotive industry is one of South Korea\'s stories, following exactly what Japan has done. After that, China moved on and Indonesia itself after the 1997/1998 crisis continued to improve towards the route of economic stability around 2005. China has become a country that manufactures many products (broad-based) without forgetting the medium-high technology industry.
In short, the history of success in Asia (East) is supported by four things: taking advantage of the crisis in developed countries, surfing the waves of globalization, strengthening the economic base and supporting domestic nationalism.
The phenomenon of the newly industrialized countries in East Asia actually comes out of the theory of global capitalism, which places developing (underdeveloped) countries as markets for goods (processed/services) of the developed countries. Likewise, this pattern is contradictory to the dependency theory, which considers underdeveloped countries forever to be the periphery: entangled from developed countries in an asymmetrical relationship. In fact, in its journey, developing countries have not always been the "economic sap" of the developed countries in planning development.
Also read:
> Indonesia, an Advanced Country in 2045?
> Economic Growth toward the End of the Pandemic
In fact, Japan, South Korea and China gave a hard economic blow to the developed countries in international trade. China has since 2010 been the world\'s biggest exporter, overtaking Germany. Mastery of knowledge/technology and the adoption of a market economy (without forgetting the role of an effective government) are the keys to the economic progress of East Asian countries. This is the narrative carried by Asia.
Next, until 2030 there will be at least five global developments. First, China will soon become the country with the largest economy in the world. The economy (GDP) will be controlled by five countries by 2030: China, the US, Japan, India and Germany.
Second, the US and several European countries use more political (and military) instruments and multilateral institutions (World Bank, IMF) as economic impetus in international fora. The population of developed countries is also shrinking, making it increasingly difficult to add weight to the economy.
Third, three main issues are at the center of the battle: democracy, globalization and digitalization. All countries will go to war to win these three games. Fourth, there is fierce competition between conventional and digital money (cryptocurrencies). Digital money will soon be recognized by the authorities.
Fifth, the regions of Africa, the Middle East and Latin America have not yet made a major breakthrough in the world economy. They will play a role after 2035.
Economic instability
Indonesia until 1960 was still a pariah country in the world. At the same time, China is already the world’s fourth-largest economy after the US, UK and France. It was only in 1979 that the Indonesian economy was ranked 20th in the world for the first time. It was also not always consistently maintained because after 1987 Indonesia was knocked out of the top 20.
It was only in 1997 that Indonesia re-entered the “world’s top 20”, but unfortunately the following year it fell again due to the monetary crisis. Indonesia\'s ranking re-emerged in 2008 (10 years post-crisis) and continued to crawl slowly until it ranked 16th in 2020.
Meanwhile, China, after the 1960s, experienced an economic decline until it fell to 11th position in 1979. After that, its position continued to skyrocket until in 2010, when it ranked second in the world (taking over Japan), where it remains today. The same thing happened to India, the size of the economy continued to swell to sixth position (2020) [GoodStats, 2021].
It can be said that Indonesia\'s position is not as stable as that achieved by China. Economic stability has only been experienced since 2005, and even then, with economic growth that has a downward trend (due to the world situation which is also gloomy). Indonesia\'s economic condition is similar to that of Brazil, which was in seventh position and is now down to12th.
Also read:
> Beware of Pandemic-Induced Economic Inequality
On the other hand, since the 1980s, China\'s economy has not faltered so that it continues to grow. In 2020, Indonesia will become an upper-middle income country for the first time. However, due to being hit by the Covid-19 pandemic, that position cannot be maintained in 2021. The economy must grow at least 5 percent so that income can return to the situation before the pandemic.
If the current improvements can be maintained, in 2022 the upper-middle income can be achieved again. Initially, it was predicted that in 2030 Indonesia would be able to rank seventh in the world, but the pandemic variable made it difficult to achieve this target.
Even so, Indonesia\'s bargaining position in international fora remains strong for several reasons. First, about 20 percent of its top tier citizens have an average per capita income of around US$10,000 (almost the same as Malaysia\'s per capita income). Currently, that population number ranges from 55 to 60 million (twice the population of Malaysia). They can become engines of economic growth.
Second, the infrastructure that has been built consistently over the last seven years will roll out the fast turn of the economy in the future. Investment in Indonesia is increasingly tempting, both domestic and foreign investment. One of the proofs is that when the pandemic hit investment performance, it was still growing, based on BKPM data (2021). Third, Indonesia will enjoy a demographic dividend/bonus until at least 2030–2035. This productive age group, coupled with an increasingly good level of education and access to technology, has become the locomotive of a value-added economy.
Indonesian proposal
Observing the achievements made by the Asian (Eastern) countries above, changes and developments in the national economy must also be based on some of these basic requirements, although of course adaptation is needed according to the characteristics of the domestic economy.
The three-dimensional development proposals that must be seriously monitored are technological literacy, investment inclusion and economic democracy. Japan, South Korea, Singapore, Taiwan, Hong Kong and China have made progress in knowledge and technology. South Korea has taken education seriously since the 1970s and China has sent students to developed countries since the 1990s.
Literacy is the key word for the development of processed products that have added value. Japan, Singapore, South Korea and China have the best quality campuses (in the top 25 in the world). Knowledge that is related to the business world (industry) is Asia\'s explosive power that destroys the dominance of developed countries.
The work that must be done regarding investment inclusion is to ensure the character of investment based on these five characteristics: participation, ecology, technology, stabilization and continuity. Participation and ecology are the wings of investment equality. Meanwhile, technology, stabilization and continuity are the wings of investment growth. The two wings will fly the economy. In the end, the economy will lose its dignity if it moves away from the practice of economic democracy.
Also read:
This is not merely a constitutional dictum, but the locus of economic authenticity. The crucial national issue is to divide the means of production so that the people have the pulse and energy to enter the economic arena (equality is a sacred consensus). At the domestic level, the easiest route that can be taken is to make cooperatives/MSMEs and business actors in the basic sector (farmers, ranchers, planters, fishermen) as a mainstream economy.
The problem here is not only how to lay out the foundation of policies, but also dig the “wells” for partisanship.
The rest, half of economic affairs revolve around the production base. Economic expansion largely comes from investment. The government certainly needs to understand the changing economic landscape that affects investment characteristics. First, investment will be increasingly concentrated in capital and technology so that skilled workers become a necessity.
Second, domestic investment focuses on strengthening competitiveness in order to conquer the international market (which is increasingly closed). Third, investment in eastern Indonesia is easier to boost after infrastructure is built, as well as reduce inequality. Fourth, the penetration of foreign corporations (PMA) based on information technology (digital) is getting bigger, so the state should formulate effective and efficient regulations.
Fifth, entrepreneurs are dominated by young people with knowledge and broad access to information. Technological literacy and equitable access to digitization are the nation\'s most challenging tasks. Indonesia must be one of the reliable information agents of the Asian narrative.
Ahmad Erani Yustika, Professor of Economics and Business, Brawijaya University; Senior Economist of Indef; Deputy of Economic Development of the Secretariat of the Vice President of the Republic of Indonesia.
This article was translated by Kurniawan Siswoko.