nequality issues in Indonesia have become a crucial issue since the 1998 reform. The extreme income inequality in a region will cause negative externalities, for example, with the high crimes rate. However, many have not really understood the effective ways to tackle inequality. Socio-political paradigm in a wrong direction, with the understanding that the inequality must be juxtaposed with extreme equality (typical policies of socialism/communism) is often being put on the table. Meanwhile the economic instruments such as fiscal and equal opportunity can be a solution to reduce the inequality gap. To discuss this issue, Suara Kebebasan interviewed Arief Anshory Yusuf as one of the best experts of economic inequality in Indonesia. Arief is a lecturer at the Faculty of Economics, University of Padjadjaran, and also served as the director of the Center for Economic Development Studies. Arief obtained a doctorate of economics from the Australian National University and had dozens of national and international publications related to the issue of inequality. Check out the interview of Arief Anshory with the Editor of Suara Kebebasan, Rofi Uddarojat.
What is the most noticeable inequality in Indonesia?
Inequality is a multi-dimensional issue. There is an inequality between the rich and the poor, the central area and local area, in the east and the west, and even gender inequality. When looking for the most noticeable form of inequality, I would look at it from its impact. For example the impact of inequality is a social disease that could compromise the structure of society. In fact I feel that there is an increase in crimes rate, increase of stress levels of the society, robbery is everywhere. I think these cases are a form of inequality. The point is that these cases in our daily lives are very saddening.
In Bandung, for example, we could feel the impact of inequality. Bandung’s very high economic growth reached 9%, but poverty in the last 6-10 years is increasing. Something is wrong. Economic growth was not evenly distributed. I myself have conducted a study and calculated the economic growth, which was calculated by GDP. GDP was a simple count, BPS conducted a survey to business units and asked about their sales-turnover, their capital, and the difference of the two is the value added. The value-added components are the salaries and return on capital. The salaries may come from the people who live in Bandung, but its capital return was not necessarily so. I compare it to the level of consumption, according to BPS data it was only 4%. Where did the other 4% go? I predicted if such trend continues, then Bandung would be just like Gotham without Batman, or Beverly Hills where only the rich ones can stay.
What are the main causes and roots of inequality in general in Indonesia?
The causes can be divided into two. The first one, all this time the growth of Indonesia has never been pro-poor. For the people who majored in economics, they would just look at the survey every year on which one is the greater, the growth of consumptions of the poor or the rich. That is all. If the economic growth of 8% or 7%, but the growth of the rich is 20% and 2% for the poor, this means this is inequality-creating. It should have been inequality-reducing, which is on the contrary to what happened. Well, Indonesia is always inequality-creating, the inequality is always widened.
But I think its root cause is the state. State fails to implement justice (equity) in the market system. The role of the state should be to maintain the equity when markets and the economy continue to grow. The only state’s instrument to maintain equity and reducing inequality is budget/fiscal policy. That includes the income, e.g. progressive tax. But the problem in Indonesia is that the people who should pay taxes do not pay taxes. Our tax revenue is still very low. The relatively wealthy middle-class, for example, most of them do not pay taxes. So in reality, our tax revenue is not progressive.
From the spending side, it can also reduce inequality. So far, it is still far away. Lots of budget policies when being analyzed through benefit incidence are still far from good. For example there was a study from the Global Development Network on budget policies in Indonesia. Budget for primary education, for example, is still enjoyed by the poor. But when they are entering middle and high school, the poor do not enjoy the government’s spending on education. When the policy for fuel subsidies has not yet been removed, fuel the subsidies was very inequality-creating, not talking about billions anymore, but already hundreds of trillion for fuel subsidies. Then the state was wrong, because it had not undergone its essential role to reduce inequality.
Approximately, what kind of industrial growth would be good to reduce poverty and inequality?
It depends on when we see it. When it comes to 1-2 years ahead, because there are many poor people in agriculture sector, it should be an agriculture-focused development, for example. But when talking about the next 10-20 years, we cannot depend on farming. It could be labor-intensive industry, because we have millions of informal labors that would need to increase their quality of life. The problem is that in the era of 2000s, when people used to move to the city to increase their standard of living, it is not happening right now. If I look at the data, I would be shocked. For example, real wage is the wage divided by purchasing power. In the villages real wages fell over in the past few years. This is not independent from the manufacturing sector, perhaps due to the impact of the reform, when the labor union is getting stronger then automatically there is an effect on (reduced) employment. When looking at the villages, while the supply of labor increases, its demand is low and real wages continue to fall. That is where the working market is. It really has an impact on inequality. Natural resources are clearly not a sector that is inequality-reducing, but it is capital intensive. If it is capital intensive, then it is clearly inequality-creating. Agriculture sector may be so, but it must be observed that farmers are now the rich ones, or in this case the owner of the land. Meanwhile the poor are the farmhands.
I was very upset with the current government, because the ultra-nationalist point of view is prohibiting imports. They do not think wisely, Ibu Susi (Minister of Maritime Affairs and Fisheries -editor) said that there are hundreds of salt importers, while there are thousands of salt farmers. But do not forget, there are millions of salt consumers. Rice, for example, since 2004 the government has banned rice imports, and almost instantaneously the Indonesian rice price went up to 30% more expensive than international rice price. It very significantly raised poverty.
Related to these problems, do you think that the concept of self-sufficiency is a misconception?
I would agree more with food security and that is the problem now that many people think that food security is the same as self-sufficiency or food self-sufficiency. These are very different. Singapore is a food-secured country, which means there is accessibility or access to food. But what is meant by self-sufficiency in Indonesia would be the same as telling everyone to have a power generator for their own house. That would be impossible, don’t you think? Yet the problem in Indonesia is now that the government shuts down imported goods, this means that the price of rice has gone up to 60% from international price.
Actually, the most natural operation of the market is to be open for imported goods. And besides, the ones who enjoy the rising rice price in Indonesia were not the poor rice farmers. Several studies in Indonesia, which are valid, stated that farm laborers are net buyers of price. They received wages as a laborer, the money is brought to the market to buy rice, and the price of rice has gone up outside their purchase power. I believe that a policy will be biased, when a small but organized group pressures it. This policy will not support the wider public interest. So if you say this “stop import policy” is supporting the farmers, which farmers are you referring to?
Related to inequality, how would the concept of equal opportunity overcome inequality in the context of Indonesia?
I totally agree that the concept of equality of outcome is in contrary to the concept of the caliphate on Earth. Humans became the leader of civilization with the existence of civilization, by way of two things: reasoning and passion. Passion means to want this and that, therefore a man can be innovative. And to help civilization with passions requires an important requirement, which is: meritocracy. If there is no meritocracy, it would not run and there would be no passion. People would be lazy if there is no meritocracy. Therefore the equality of outcome would switch off the passion and meritocracy, and we would not be the human beings who run civilization.
Well, here is the thing. Inequality may arise due to inequality in effort or talent, or inequality in circumstances beyond individual’s control. According to Rawls-ian idea, we know that human beings did not choose on how to be born. So each individual has a different start. Therefore we have to give them the same opportunity, such as in education and health system. For example, people with daily income of IDR 10,000 represents 50% of Indonesia’s population. Imagine if he had children, he would even think of buying milk. However protein is vital for baby’s brain development. If the baby did not have good nutrition, any expensive tutoring would not get him into Unpad (University of Padjajaran). That would happen if the baby was malnutrition from the start. That is one form of Inequality of Opportunity. In the public universities there is an existing program called Bidik Misi, a university scholarship for the poor who turned out to be wasting 30-40% of its budget. Why? Because to obtain the scholarship, the students must passed a test, and they were not able to. Well, we have to enforce the equal opportunity in this case.
The last question is more to the philosophical side, in your opinion, to what extent should the state’s role be?
They simply should be where the market is not able to handle things. Where is it? Justice (equity), the state should participate in establishing justice through fiscal. Secondly, public goods. They could only provide or also produce, and thirdly related to environmental issues and sustainability.
Would you agree with the state’s role in the economic sector, for example through SOEs?
I’m not anti-SOEs, but I am against the non-competing SOEs. A lot of people said that if Petronas came to the market, Pertamina would lose the battle. I say, why should people pay for corporate incompetence? The corporations should compete with the others. SOEs should exist, but do not give special treatment. They have to compete with the others.
There are certain cases that require SOEs to run it, such as the Public Service Obligation and distant eastern regions and difficult to be reached by the private sectors, SOEs should play their part. But if the area is friendly for competition, then there is no need for them. There are two kinds of monopoly; the first one is unnatural monopoly as the early days of aircraft which needed to be ended. But there is monopoly in utility sectors such as water, electricity and those are not open for private companies in a city. This does not mean it cannot be opened for competitions. For electricity operator, why not open this for a competition. So in a city there could be state-owned electricity provider and a private one. Please compete with each other, prove us which one is more efficient.