Wednesday, March 30, 2011

Poverty Amid Plenty: The Lurking Dangers of Unequal Economic Growth in Indonesia

With the demise of left-wing movements around the world — except in the more adventurous parts of Latin America and pockets of European academia and trade unionism — calls for greater attention to economic and social inequality have increasingly become the domain of fringe civil society outposts or individual “activists” with an ethnic, gender, cultural or some other agenda. In the days of the global village and the free market, social concerns of economic equality are increasingly being pushed into the background.

This is not surprising. Ideologies wax and wane with the times. The language of self-sacrifice by the few for the good of the many can lose its appeal in a cornucopia of world trade and economic expansion.

Socialism’s decline in the USSR and Eastern Europe and the growth of a China with increasingly capitalist characteristics have robbed political movements everywhere of a working model of how economic growth might be balanced by socialist redistribution.

Why worry about equality when even the most cherished alternative models have bitten the dust? Inequality, as the landed nobility have always believed, is simply a part of human nature. It seems to be part of our very genes.

What’s more, governments who do believe in the promotion of economic equality and social inclusion, in economic justice if you will, and win elections on such promises, frequently find them hard to deliver.

High public expectations on the one hand — fueled by the ubiquity of international travel and interactive media — and shrinking policy instruments on the other, keep governments’ enthusiasm in check once they move from the opposition into the complexities of governing.

Gone are the days when concentrated landholding, a time-honored source of wealth and military power, could be removed by radical land reforms or simply giving away land to the tiller.

Sanctity of property is the mantra of free markets and an attractive investment climate. Governments of the 21st century cannot repeat the policy radicalism of the mid-20th century with impunity. The land reforms of Korea, Taiwan, China and India cannot be replicated in today’s global economy.

A less painful solution to inequality, compared to the physical distribution of assets, was progressive taxation. Those good old days of Fabian socialism are also long gone.

Progressive taxation today runs the risk of capital flight and international ridicule. A low taxation threshold, much of it indirect and regressive, assiduously collected, seems to be the order of the day.

That leaves the solution of ensuring a more equitable provision of essential social services, such as education, health, law and order, disaster relief and poverty reduction-targeted cash transfers.

In essence, this is not much more than the welfare state in modern clothing.

The search is on for smarter policies, to discover how to do more with less, how to keep subsidies targeted and temporary to help the poor climb out of poverty, rather than spending a lifetime on state-run benefit schemes which received so much bad press in the developed West in the 1980s and 1990s.

The problem is not so much with the awareness of the challenges that poverty — and its closely linked condition, inequality — presents for the world economy and individual countries.

Terrorism, transnational crimes, human smuggling and the ragged army of the dispossessed diaspora which swells in numbers with every social conflict from the Congo to Pakistan, Iraq, Egypt, Sri Lanka and Somalia, are all daily reminders that the world is not a fair place, that the poor have few if any options, that the womb of global plenty contains within it the seeds of unfathomable despair.

The lack of political urgency with which the challenges of poverty and inequality are viewed is the main issue. Nowhere is this more true than in developing Asia which, having learned how to sustain rapid economic growth, remains largely in denial about the lurking dangers of economic inequality and injustice.

Sustaining rapid growth means courting global investors who are more concerned with financial returns than the imperatives of a fairer income distribution.

The relentless march of globalized markets has been accompanied by a widening distribution of income between developed and developing countries, between skilled and unskilled workers and between one region and another within the same country.

Despite these questions of perception and political urgency, dealing with inequality remains a challenge that a newly democratic Indonesia ignores at its peril. Political systems are difficult to change, but when they do, political credibility and legitimacy matter more than anything else. Volumes have been written on the challenges which early democracies face.

The debate on the possibilities of democratic, but relatively poor, societies is not an account of history but a manifestation of the dilemmas of policy making in fast-growing economies which are forever torn between growing faster and growing better.

The nostalgia for the benevolent despot, for trains running on time, cheap grain and everyone knowing their own place in the national family tree is alive and well today.

To bury the old political system, the new must bring something more than street demonstrations, party conferences and ministerial scandals. The new democracy needs to win the hearts and the minds of the majority. Injecting economic fairness as well as a political voice is a recipe for doing just that.

2014 is just around the corner. No political party, including the Democratic Party, has fully worked out a program for democratic consolidation. Coalitions are built on what are called “transactional” understandings. Indonesia has come a long way in its efforts to complete a transition to electoral democracy.

As Indonesia’s first democratic wave so painfully illustrated in the 1950s, nothing should be taken for granted. Just as the French Revolution, bloody and driven by raw emotion as it was, led to Bonapartist dictatorship, Sukarno’s post-independence idealism gave way to an open massacre of left-wing sympathizers in the mid 1960s.

Democratic episodes in many other developing countries have been reversed within a few years of their inception.

To sustain a new democracy one needs to understand the economic arithmetic of democracy, a task attempted in Indonesia’s Second National Human Development Report in 2004.

Equality of political status (one-person, one-vote), is by itself not enough to sustain a new democracy. It needs to be buttressed by the idea of equal economic opportunities, and guaranteed rights to education, health, food and physical security for each citizen. A majoritarian political system needs to reflect the economic interests of the majority and not just at election time.

This is easier said than done. Globalization has raised the odds.

Income distributions can worsen quickly and unexpectedly. A look at Eastern Europe, China, India and dozens of others shows how the ground is shifting under our feet even as we gear up to tackle the complexities of income inequality and social exclusion. Today’s economic growth is accompanied with rising inequality, lower employment absorption and a falling elasticity of poverty reduction to economic growth.

It is time to wake up. Economic equality, equally distributed citizen’s rights and the ability of the citizenry to monitor and question the regularity, cost and quality of public services are the essential building blocks of Indonesia’s decade-old democracy.

To ensure that Indonesia does not face its own 18 Brumaire, it is time to get back to basics.

By Satish Mishra managing director at Strategic Asia Indonesia, a Jakarta-based consultancy promoting cooperation among Asian nations.

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