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Perhaps, it is a bit unnatural if The Jakarta Post
extensively presents a type of news within a day. But, this happened in its
July 29 edition, as this paper published on pages 1 and 3 an extensive story
about Indonesia Asahan Aluminium (Inalum), based in Kuala Tanjung, North
Sumatra.
As we know it, this state-owned enterprise (SOE) has been a joint aluminum corporation between Japanese consortium Nippon Asahan Aluminum (NAA) and the government of Indonesia for three decades.
What is this paper’s reason in exploring this news so extensively?
Our point of view tends to say that it is because Inalum is the only one in Southeast Asia that operates an aluminum smelter.
In addition, it is Inalum that will provide historic corporate experience when the Indonesian government decides to end its three-decade-old international joint venture contract with the Japanese capital consortium in October this year.
The Post assesses it as “a bold action”, for the government determines to take over Inalum’s operation by buying back the Japanese consortium’s 58.88 percent ownership in the company.
By fully owning Inalum, the government would be totally independent not only in administering the company (by increasing its smelter capacity to 500,000 tons of aluminum ingot annually), but also in marketing its product. If previously, almost all of the products were exported, now under a new government plan, the larger part of aluminum will be marketed domestically. This plan, surely, will strengthen the basis of manufacture industrialization in Indonesia.
Above all, however, there is a more fundamental reason: an aluminum-based business strategy launched by the government is an effort to create multiple and unprecedented business opportunity linkages in the near future.
As reported by this paper, the government has prepared a master plan that put Kuala Tanjung as “a host of a range of industrial areas to include aluminum-based, agro-based and maritime industries, as well as exported bonded zones”.
Even by merely using a common sense lens, we can still imagine how wide-ranging the potential is of business and economic diversification that could be created by this government plan — previously just a single SOE (Inalum). Its long term economic effect is that the Inalum-based industrialization process would serve as one of the national economic anchors, based on which myriad autonomous economic activities would grow.
As we know it, this state-owned enterprise (SOE) has been a joint aluminum corporation between Japanese consortium Nippon Asahan Aluminum (NAA) and the government of Indonesia for three decades.
What is this paper’s reason in exploring this news so extensively?
Our point of view tends to say that it is because Inalum is the only one in Southeast Asia that operates an aluminum smelter.
In addition, it is Inalum that will provide historic corporate experience when the Indonesian government decides to end its three-decade-old international joint venture contract with the Japanese capital consortium in October this year.
The Post assesses it as “a bold action”, for the government determines to take over Inalum’s operation by buying back the Japanese consortium’s 58.88 percent ownership in the company.
By fully owning Inalum, the government would be totally independent not only in administering the company (by increasing its smelter capacity to 500,000 tons of aluminum ingot annually), but also in marketing its product. If previously, almost all of the products were exported, now under a new government plan, the larger part of aluminum will be marketed domestically. This plan, surely, will strengthen the basis of manufacture industrialization in Indonesia.
Above all, however, there is a more fundamental reason: an aluminum-based business strategy launched by the government is an effort to create multiple and unprecedented business opportunity linkages in the near future.
As reported by this paper, the government has prepared a master plan that put Kuala Tanjung as “a host of a range of industrial areas to include aluminum-based, agro-based and maritime industries, as well as exported bonded zones”.
Even by merely using a common sense lens, we can still imagine how wide-ranging the potential is of business and economic diversification that could be created by this government plan — previously just a single SOE (Inalum). Its long term economic effect is that the Inalum-based industrialization process would serve as one of the national economic anchors, based on which myriad autonomous economic activities would grow.
By surfing on this wave of lessons, we could jump into
theoretical issues concerning the role of SOEs in the national economy: That
the presence of strong and reliable SOEs is a structural necessity for
developing countries, like Indonesia. How this theoretical statement should be
substantiated?
It is surely that, from a market economic perspective, a SOEs-based national economy has looked suspicious. In a cynical tone, well-known British magazine The Economist calls the SOEs in the emerging markets as “the kind of Hybrid Corporation, backed by the state but behaving like a private-sector multinational.” In other words, the presence of the state into the economy is unhealthy.
That is why, based on this economic conviction, The Economist derides British Prime Minister David Cameron who tried to regulate the price of British electricity. “The market, not the government, should determine the price of electricity in Britain,” snubbed The Economist (Jan. 21, 2012).
However, optimism of the market-oriented policy has tended to squander all economic resources that eroded, as will be seen below, with the American saving capacity.
In one of his writings, a well- known economist, Jeffrey Sachs (The Jakarta Post, Sept. 28, 2012) presents the pre-2008 financial crisis data on how consumptive-driven American economic policies had been. While American health-care cost reached almost 18 percent of gross domestic product (GDP), Canada, the European Union’s Western economies and Japan managed to keep it “below 12 percent of GDP”.
The latest report of the US Institute of Medicine states that “America’s profit system squanders around US$750 billion or 5 percent of GDP on waste, duplication, fraud and bureaucracy.” Furthermore, each of the American citizens, according to Jeffrey Sach, also regarded energy consumption as extravagant, namely about 190 kilometers oil equivalent for a $1,000 of GDP (measured at purchasing power parity). This contrasted with the OECD countries, where, on average, 160 kilometers of oil-equivalent energy were used for every $1,000. Sweden even managed to keep the energy consumption of every one of its citizen at 100 kilometers per $1,000 of GDP.
Our interpretation is that this American consumptive pattern behavior was structured by the market economic oriented policy. From the “neo-liberal regime” of the Ronald Reagan presidency, the US — as stated by Marc Allen Eisner in The American Political Economy: Institutional Evolution of Market and State — had experienced dual deficits: budgetary and trade.
If the deficit in 1981 was 2.6 percent of GDP, for suffering a drop in revenue as a product of recession and tax cuts, in 1982 it reached 6 percent, the highest level since 1946. For a while, budget surplus occurred during Bill Clinton’s second term.
Yet, budget deficit and government debt remained persistent problems for the US. Within a quarter century, public debt would double relative to the economy, rising from 32.6 percent of GDP in 1981 to a peak of 67.5 percent of GDP in 2008. At the same time, the national savings rate dropped from 8.5 percent in 1981 to 2.8 percent in 1993, then improved to an average of 6.1 percent in 1997-2000 — as the nation moved to a balanced budget and surplus.
But as the pattern of high deficits returned, the net national savings rate dropped to average of 2.1 percent, and, Allen Eisner writes, “turned negative in the final year of the Bush presidency”.
This is clearly a neo-liberal induced-consequence. The market economic policy implemented by Reagan since 1981, had not only reduced the role of the state in the economy, but also characterized it by its starking absence in controlling increasingly soaring and unbridled consumption. So, when the American financial crisis attacked this country in 2008, private capital fled. The state was left alone without having control of its own economic resources.
It is in this context we can highlight the importance of SOEs structurally. Under the state control, the SOEs, as the corporations, have political obligation in prioritizing the national economy rather than pursuing self-interest-based material benefits.
The valuable lesson taken from the American economic crisis is that the state cannot force the owners of private capital to make investments in the domestic market — as they calculate that much more lucrative business is abundantly offered abroad, such as in the emerging markets.
The Inalum takeover is a good case taken by the Indonesian government. ●
It is surely that, from a market economic perspective, a SOEs-based national economy has looked suspicious. In a cynical tone, well-known British magazine The Economist calls the SOEs in the emerging markets as “the kind of Hybrid Corporation, backed by the state but behaving like a private-sector multinational.” In other words, the presence of the state into the economy is unhealthy.
That is why, based on this economic conviction, The Economist derides British Prime Minister David Cameron who tried to regulate the price of British electricity. “The market, not the government, should determine the price of electricity in Britain,” snubbed The Economist (Jan. 21, 2012).
However, optimism of the market-oriented policy has tended to squander all economic resources that eroded, as will be seen below, with the American saving capacity.
In one of his writings, a well- known economist, Jeffrey Sachs (The Jakarta Post, Sept. 28, 2012) presents the pre-2008 financial crisis data on how consumptive-driven American economic policies had been. While American health-care cost reached almost 18 percent of gross domestic product (GDP), Canada, the European Union’s Western economies and Japan managed to keep it “below 12 percent of GDP”.
The latest report of the US Institute of Medicine states that “America’s profit system squanders around US$750 billion or 5 percent of GDP on waste, duplication, fraud and bureaucracy.” Furthermore, each of the American citizens, according to Jeffrey Sach, also regarded energy consumption as extravagant, namely about 190 kilometers oil equivalent for a $1,000 of GDP (measured at purchasing power parity). This contrasted with the OECD countries, where, on average, 160 kilometers of oil-equivalent energy were used for every $1,000. Sweden even managed to keep the energy consumption of every one of its citizen at 100 kilometers per $1,000 of GDP.
Our interpretation is that this American consumptive pattern behavior was structured by the market economic oriented policy. From the “neo-liberal regime” of the Ronald Reagan presidency, the US — as stated by Marc Allen Eisner in The American Political Economy: Institutional Evolution of Market and State — had experienced dual deficits: budgetary and trade.
If the deficit in 1981 was 2.6 percent of GDP, for suffering a drop in revenue as a product of recession and tax cuts, in 1982 it reached 6 percent, the highest level since 1946. For a while, budget surplus occurred during Bill Clinton’s second term.
Yet, budget deficit and government debt remained persistent problems for the US. Within a quarter century, public debt would double relative to the economy, rising from 32.6 percent of GDP in 1981 to a peak of 67.5 percent of GDP in 2008. At the same time, the national savings rate dropped from 8.5 percent in 1981 to 2.8 percent in 1993, then improved to an average of 6.1 percent in 1997-2000 — as the nation moved to a balanced budget and surplus.
But as the pattern of high deficits returned, the net national savings rate dropped to average of 2.1 percent, and, Allen Eisner writes, “turned negative in the final year of the Bush presidency”.
This is clearly a neo-liberal induced-consequence. The market economic policy implemented by Reagan since 1981, had not only reduced the role of the state in the economy, but also characterized it by its starking absence in controlling increasingly soaring and unbridled consumption. So, when the American financial crisis attacked this country in 2008, private capital fled. The state was left alone without having control of its own economic resources.
It is in this context we can highlight the importance of SOEs structurally. Under the state control, the SOEs, as the corporations, have political obligation in prioritizing the national economy rather than pursuing self-interest-based material benefits.
The valuable lesson taken from the American economic crisis is that the state cannot force the owners of private capital to make investments in the domestic market — as they calculate that much more lucrative business is abundantly offered abroad, such as in the emerging markets.
The Inalum takeover is a good case taken by the Indonesian government. ●
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