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Population
can be a sign of economic power. It offers a sound indicator about the
quality and rate of expansion of an economy. If the population comprises
people in their productive ages who actively contribute to business,
i.e., in the formal sector, the resulting economic power cannot be
questioned.
However, if a population is mostly not productive, as is the case in
Indonesia, does this indicate awesome economic potential? Can we equate
the capability of the country to feed 240 million people with economic
power?
It is reasonable for Indonesia, as the world’s fourth most-populous
nation, to play an influential role in international social and economic
issues. The dynamics of production and consumption in Indonesia influence
the international balance of supply and demand.
Further, since Indonesia is better known as a market than as producer,
any increase in domestic consumption will create incentives to increase
prices internationally. This might in turn stimulate producers to
accelerate production, either by investing more or by hiring more laborers.
Thus the economic engine
is powered.
Recent figures show that 60 percent of that nation’s gross domestic
product (GDP) is based on household consumption. The rest is divided
among government consumption, investment and exports.
In terms of rupiah, Indonesia spent Rp 4,496.4 trillion (US$463 billion)
on household consumption last year, which was a large amount, given the
country’s GDP was only Rp 8,241.9 trillion.
Higher consumption will normally result in higher production through
stronger demand. But this can happen only if there are no obstacles to
increasing production.
Common impediments to boosting production include limited access to
financial service, infrastructure bottlenecks, regulations that
discourage growth or the creation of business and an uncertain social and
political environment. These pitfalls prevent production from expanding,
although the opportunities offered by increased demand are so tempting.
If production cannot cope with the increases in consumption, the ensuing
gap will be filled by foreign producers with imported products, which
basically benefit other countries and domestic consumers. For domestic
producers, this will bring nothing but misfortune.
Unfortunately, this has occurred in Indonesia. We can see this by looking
at the nation’s GDP, which remains dominated by household consumption and
growing imports. In other words, here in Indonesia, consumption is
encouraged instead of production.
However, we are free to choose what is good for us. Either production or
consumption has a good effect on the economy, but, from an individual
viewpoint, consuming is always more convenient than producing. If it was
possible, everybody would consume.
However, if goods and services are unavailable, things will not be easy
for the economy. Somebody has to produce those goods and services, or at
least purchase them from somewhere else. We are accustomed to living in a
generous natural environment.
All our basic needs can easily be met by the environment around us, so it
is not necessary to produce them. It’s all provided by Mother Nature.
Such indulgence prevents us from learning how to effectively produce and
to efficiently consume. We are then recreated as pure consumers. Some
extraordinary Indonesians are able to get out of that stereotype and live
their lives as leading producers. But the spirit of consuming has been
strongly embedded in the Indonesian mind-set, including those in
authority. It is no wonder that the social environment encourages consumption.
The signs are clear. Malls and entertainment centers are always full of
visitors, no matter what season it is. Every weekend, people on frenzies
shopping spree can be seen everywhere.
Financing consumption is easier than financing production. As a result,
many foreign retailers have been enticed to open outlets in the welcoming
market of Indonesia.
Although the government relentlessly promotes productive Case in point is
the energy subsidy, which will reach Rp 300 trillion this year and
encourages people to consume more and more.
At that point, there are at least two contradictory impacts. On one hand,
the public will be inconvenienced by price increase if the subsidy is
reduced. This might result in social unrest that could lead to declining
government popularity. On the other hand there will be abundant amount of
extra money if the energy subsidy is cut that could be reallocated for
other expenditures that would have direct effect on people’s welfare,
such as basic needs and infrastructure.
Subsidies on production exists to reduce production costs. This kind of
subsidy will encourage production activities. But, on the other hand,
subsidies also indicate fundamental problems that hinder domestic
producers from normally activities. It is reasonable and more useful to
promote production while the government resolves existing problems,
rather than to maintain subsidy.
For the moment, production cannot yet cope with the higher consumption.
The World Bank’s Doing Business Index can be helpful for comprehending
the situation. In the most recent index, Indonesia ranked 128th out of
185 observed countries, which is no good.
Our neighbors fared better, with Thailand ranked 18th and Malaysia 12th.
Among 10 indicators observed in Doing Business Index, Indonesia got the
worst score for “starting a business”, which explains why producing is
less interesting than consuming here.
However, consumption is not always bad. Active consumption will stimulate
the wheels of the production machine to spin faster.
But there are also circumstances that prevent that ideal mechanism to run
well. This is where the wheels of production are definitely sluggish, so
they remain slow even if demand is climbing and imported commodities are
flooding the country, which indeed is happening here.
However, every cloud has a silver lining. Under such circumstances, we
are able to play our trump card, which takes form in the axiom that
customer is the king. Producers and merchants always see a proud consumer
as a customer that has to be treated exclusively.
As kings with massive purchasing power, we deserve many privileges. Those
producers and merchants should be aware of it. It is our privilege to
step on luxurious red carpets and to demand various requirements,
including things beyond the context of ongoing transactions.
There is nothing wrong if we ask them to relocate their factories to our
country, so they can deliver fresher products for their valued customers
here. It is acceptable if we request that they look after our merchandise
in their countries, including a guarantee that their markets will absorb
our products. Also, it is fine to ask them to hire our abundant labor
force.
There is nothing wrong with consumption activities. Like production,
consumption is a useful factor that moves the economy. It will be even
more useful if we can play our role as the king of consumption effectively. ●
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