Toward an
economic natonalism-based
‘redistributive
state’?
|
Fachry Ali ; Director of The Institute for
The Study and
Advancement of Business Ethics (LSPEU Indonesia)
|
JAKARTA
POST, 21 Agustus 2012
Whoever tries to
relate John Berthelsen’s article “Economic
nationalism rises in Indonesia” (The Jakarta Post, June 7) with Trade
Minister Gita Wirjawan’s firm stance on mining exports expressed a month later,
will inevitably ask: Has Indonesia taken
to “economic nationalism”?
Berthelsen listed cases of Indonesia’s current economic policy that have not concealed their nationalistic flavor. They stretch from Bank Indonesia’s effort to hinder the US$7.2 billion takeover of Indonesia’s sixth-biggest bank, Danamon, by Singapore-based DBS Holdings Group through cancellation in April of international tenders for Pelindo 2, the world’s biggest terminal infrastructure project, to curbs on mining exports.
Berthelsen has reason to say that Indonesia’s economic policies have shown increasing “economic nationalism and antipathy toward multinational investment”. Berthelsen’s belief would be intensified had he learned that the government will take full control, as reported by The Jakarta Post (Aug. 4), of the North Sumatra-based aluminum producer PT Inalum.
We can see a connection between Berthelsen’s anxiety and Wirjawan’s stance. Interviewed by Neil Chatterjee from Reuters, Gita bluntly declared “Indonesia is prepared to suffer a drop in mining exports as it seeks to force firms to invest in processing ores into refined metals.” (The Jakarta Post, July 28).
Since Jero Wacik took over the Energy and Mineral Resources Ministry, moves to realize Government Regulation No. 4/2012 have increased, even going so far as setting up a team, led by Coordinating Economic Minister Hatta Rajasa, to renegotiate mining and gas contracts with foreign corporations (Detik Finance, July 14).
This issue begs two questions: Do Berthelsen’s criticisms have reasonable grounds? What does so-called “economic nationalism” actually imply?
Economic nationalism is, the critics argue, a deviation from the pure economy. Taking the 18th-century economist Adam Smith’s invisible hand jargon, this view says that the economy is basically a market system, an efficient and productive allocation of economic resources. This jargon stresses that only through a free market mechanism can we maximize economic output via an optimal allocation of resources. This applies also to capital movement. Practices outside of this sphere are the “impure” economy.
In order to maintain purity, market transactions must be impersonal and guaranteed, with full protection by laws set up for the purpose. In the prevailing global economy, both actors and capital ceaselessly migrate from one lucrative area to another. This smooth flow is facilitated by Adam Smith’s “invisible hand”, which in reality means nothing more than business-friendly policies.
Following this pure market philosophy, economic nationalism is an intolerable deviation. The policy represents a “non-market actor”: the state, which is essentially a political entity, not a participant in transactions.
Economic nationalism is an anomaly, contradicting the concept of impersonality — being both personal and subjective. As a consequence, market distortion becomes unavoidable and players fail to calculate prices fairly and rationally.
However, supporters of economic nationalism have something to offer. From the American Alexander Hamilton in the 18th century to early 20th century, economists like Myrdal and Heilperin, the development of the idea has experienced some ups and downs.
The basis of the concept is that it is necessary to create a national policy for the sake of pursuing valuable, national, social goals.
In the collective work Underdevelopment and Economic Nationalism in Southeast Asia, Golay defines “economic nationalism” as a national policy with the aim of securing national interests, formulated through political processes. Quoting Heilperin, the purpose of the strategy is “to offer escape from disturbing effects of international economic interdependence.”
The pure free market, therefore, stresses the universal and the impersonal: economic nationalism stresses the importance of the nation-state. The system has non-economic goals.
Golay and his associates highlight non-economic factors in newly independent countries that have driven the growth of economic nationalism. Suffering the destructive effects of the colonial economy, these nations have a history of a toothless political sovereignty with no economic control, and of structural inequality between the advanced and underdeveloped country.
From this perspective, the objectives of economic nationalism go beyond material welfare. Implementation of economic nationalism purposely accommodates a sense of justice, the sense of being represented, inclusiveness, sociopolitical pride and satisfaction.
As a fresh reflection on the 2008 global financial crisis this is exactly the economic justice advocated by former IMF director Dominique Strauss-Kahn, few days before being detained for a “personal reasons”. Strauss-Kahn suggested the concepts of social inclusion and social cohesion in economic policies. According to him, pure-economic structural imbalances are the hidden causes of the global economic and financial crisis.
While waiting for a more comprehensive study, it is interesting to see the current implementation of economic nationalism in the Susilo Bambang Yudhoyono administration from the perspective of inclusion and cohesion.
In addition to the material welfare of the populous, this policy has non-economic goals: sociopolitical pride and satisfaction at the national level, with the state is finally able to control its own economic resources.
Equipped with the spirit of Article 33 of the 1945 Constitution, the state is trying to strengthen its control of natural resources. This is done through renegotiation with foreign mining corporations, not
nationalization.
The ultimate goal is to create a distributive economic policy in mining sector.
This policy is increasingly relevant because the unequal distribution of wealth between foreign miners and local people foments a long-standing problem: tense socio-economic and political relations.
Theoretically, this distributive economic nationalism-based policy would make foreign investors unhappy. Yet, in front of all the critics, Jero precisely announced that a France-based nickel manufacture Eramet was committed to invest $5.5 billion in Indonesia (Kompas, July 31). A clear indication of the acceptance of this nationalistic policy.
This foreigner acceptance unveils two important points.
First, it reflects the quantitative strength of Indonesia’s bargaining position. As Berthelsen admits himself, Indonesia is very attractive. Aside to its export potential, the $1.1 trillion of domestic market is highly seductive. This explains why foreign investors are reluctant to leave this country.
Second, this quantitative base opens the qualitative opportunities: increased confidence that democratic political system is compatible with progressive economic development.
Finally, all these turn out to be the strong social, cultural and political capital needed proceed to the realization of the distributive state, as mandated by the 1945 Constitution. ●
Berthelsen listed cases of Indonesia’s current economic policy that have not concealed their nationalistic flavor. They stretch from Bank Indonesia’s effort to hinder the US$7.2 billion takeover of Indonesia’s sixth-biggest bank, Danamon, by Singapore-based DBS Holdings Group through cancellation in April of international tenders for Pelindo 2, the world’s biggest terminal infrastructure project, to curbs on mining exports.
Berthelsen has reason to say that Indonesia’s economic policies have shown increasing “economic nationalism and antipathy toward multinational investment”. Berthelsen’s belief would be intensified had he learned that the government will take full control, as reported by The Jakarta Post (Aug. 4), of the North Sumatra-based aluminum producer PT Inalum.
We can see a connection between Berthelsen’s anxiety and Wirjawan’s stance. Interviewed by Neil Chatterjee from Reuters, Gita bluntly declared “Indonesia is prepared to suffer a drop in mining exports as it seeks to force firms to invest in processing ores into refined metals.” (The Jakarta Post, July 28).
Since Jero Wacik took over the Energy and Mineral Resources Ministry, moves to realize Government Regulation No. 4/2012 have increased, even going so far as setting up a team, led by Coordinating Economic Minister Hatta Rajasa, to renegotiate mining and gas contracts with foreign corporations (Detik Finance, July 14).
This issue begs two questions: Do Berthelsen’s criticisms have reasonable grounds? What does so-called “economic nationalism” actually imply?
Economic nationalism is, the critics argue, a deviation from the pure economy. Taking the 18th-century economist Adam Smith’s invisible hand jargon, this view says that the economy is basically a market system, an efficient and productive allocation of economic resources. This jargon stresses that only through a free market mechanism can we maximize economic output via an optimal allocation of resources. This applies also to capital movement. Practices outside of this sphere are the “impure” economy.
In order to maintain purity, market transactions must be impersonal and guaranteed, with full protection by laws set up for the purpose. In the prevailing global economy, both actors and capital ceaselessly migrate from one lucrative area to another. This smooth flow is facilitated by Adam Smith’s “invisible hand”, which in reality means nothing more than business-friendly policies.
Following this pure market philosophy, economic nationalism is an intolerable deviation. The policy represents a “non-market actor”: the state, which is essentially a political entity, not a participant in transactions.
Economic nationalism is an anomaly, contradicting the concept of impersonality — being both personal and subjective. As a consequence, market distortion becomes unavoidable and players fail to calculate prices fairly and rationally.
However, supporters of economic nationalism have something to offer. From the American Alexander Hamilton in the 18th century to early 20th century, economists like Myrdal and Heilperin, the development of the idea has experienced some ups and downs.
The basis of the concept is that it is necessary to create a national policy for the sake of pursuing valuable, national, social goals.
In the collective work Underdevelopment and Economic Nationalism in Southeast Asia, Golay defines “economic nationalism” as a national policy with the aim of securing national interests, formulated through political processes. Quoting Heilperin, the purpose of the strategy is “to offer escape from disturbing effects of international economic interdependence.”
The pure free market, therefore, stresses the universal and the impersonal: economic nationalism stresses the importance of the nation-state. The system has non-economic goals.
Golay and his associates highlight non-economic factors in newly independent countries that have driven the growth of economic nationalism. Suffering the destructive effects of the colonial economy, these nations have a history of a toothless political sovereignty with no economic control, and of structural inequality between the advanced and underdeveloped country.
From this perspective, the objectives of economic nationalism go beyond material welfare. Implementation of economic nationalism purposely accommodates a sense of justice, the sense of being represented, inclusiveness, sociopolitical pride and satisfaction.
As a fresh reflection on the 2008 global financial crisis this is exactly the economic justice advocated by former IMF director Dominique Strauss-Kahn, few days before being detained for a “personal reasons”. Strauss-Kahn suggested the concepts of social inclusion and social cohesion in economic policies. According to him, pure-economic structural imbalances are the hidden causes of the global economic and financial crisis.
While waiting for a more comprehensive study, it is interesting to see the current implementation of economic nationalism in the Susilo Bambang Yudhoyono administration from the perspective of inclusion and cohesion.
In addition to the material welfare of the populous, this policy has non-economic goals: sociopolitical pride and satisfaction at the national level, with the state is finally able to control its own economic resources.
Equipped with the spirit of Article 33 of the 1945 Constitution, the state is trying to strengthen its control of natural resources. This is done through renegotiation with foreign mining corporations, not
nationalization.
The ultimate goal is to create a distributive economic policy in mining sector.
This policy is increasingly relevant because the unequal distribution of wealth between foreign miners and local people foments a long-standing problem: tense socio-economic and political relations.
Theoretically, this distributive economic nationalism-based policy would make foreign investors unhappy. Yet, in front of all the critics, Jero precisely announced that a France-based nickel manufacture Eramet was committed to invest $5.5 billion in Indonesia (Kompas, July 31). A clear indication of the acceptance of this nationalistic policy.
This foreigner acceptance unveils two important points.
First, it reflects the quantitative strength of Indonesia’s bargaining position. As Berthelsen admits himself, Indonesia is very attractive. Aside to its export potential, the $1.1 trillion of domestic market is highly seductive. This explains why foreign investors are reluctant to leave this country.
Second, this quantitative base opens the qualitative opportunities: increased confidence that democratic political system is compatible with progressive economic development.
Finally, all these turn out to be the strong social, cultural and political capital needed proceed to the realization of the distributive state, as mandated by the 1945 Constitution. ●
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