View Point: Enter the dragon; exit the eagle?

View Point: Enter the dragon; exit the eagle?

Yulia Suryakusuma, THE AUTHOR OF JULIA’S JIHAD

Sumber : JAKARTA POST, 30 November 2011

When European and Western hegemony was at its peak in the 1980s and 1990s, my late husband, Ami, often asked why people studied European languages instead of Chinese or Japanese. “Asia,” he said, “is where the future will lie.” If Ami were still alive, he would be justified in saying, “I told you so” (although Hindi, Korean and Indonesian would have been on his list now too!).

Even the US has cottoned-on now, shifting its gaze from the Middle East (where the Arab Spring is starting to look more like autumn) to Asia. The stable societies in our region continue to enjoy booming economic growth despite Europe and America’s financial crisis (which is not global at all, folks!).

That’s why US President Barack Obama hailed the decade-old “Asia-Pacific century” two weeks ago in Australia. He also announced that the US would establish a new foothold in the most dynamic part of the world by strengthening military ties with its longtime ally Down Under. It will deploy 2,500 Marine Air-Ground Task Force in Darwin by 2017 for the first time since World War II.

This generated speculation, controversy and anxiety. Some viewed it negatively, accusing the US of aggressive imperialist ambitions. They said that the move undermined efforts to make the region more peaceful and could tear ASEAN apart. Another analyst said the US had its sights on Timor Leste’s oil reserves and its troubled Freeport interests in Papua. Even our smooth-as-silk foreign minister, Marty Natalegawa, questioned American motives, hoping the deployment wouldn’t create tensions in the region. Given the US’ reputation as a bullying Globocop, these reactions were not surprising, but were they right?

The Darwin base seems to me to be more recognition of American weakness than a statement of ambition. Surely it is really about the US trying to maintain its dwindling power as China rises? It seems to me that if China thinks the US is trying to encircle them, they’d be dead right.

And you can see why: China is currently the second-largest economy after the US, contributing 30 percent of global wealth. Even by conservative estimates, it’s projected to overtake the US as world economic leader by 2027. China is also the US’ banker as well as the world’s factory floor, with global markets flooded with Chinese goods — and takeovers.

In 2005, MG Rover became the last domestically-owned mass-production car manufacturer in Britain, snapped up by the Nanjing Automobile group. Imagine — the quintessential British sports car is now Chinese, or half-Chinese at least. (Well, better Chinese than belly-up, like the eurozone.)

The point is that almost everyone else in Asia expects China’s financial invasion to be followed by military expansionism. Their shared heebie-jeebies are driving them to band together to contain the dragon. Even Vietnam is burying the hatchet of the Vietnam War and getting cosy with America. Politics do make for strange bedfellows, but is their China-phobia justified?

Maybe — history suggests that every rising imperial power has expressed itself with military force: the Greeks, the Romans, the Ottomans, Russia, Germany, Britain, Japan and America. Why would China be different?

As China builds its military and buys more of the world’s resources to fuel its growth, it is less willing to hear Americans telling it what to do (on the US’ quandary re China, read http://money.cnn.com/2010/05/06/news/international/china_america_full.fortune/). It continues to back its pariah buffer state, North Korea;
it continues to incarcerate dissidents; its threats to invade Taiwan have not been withdrawn. And now, it is making serious claims in the South China Sea.

But while China may be a rising power, the US is still a great power — in fact, for all its many faults and failings, still the dominant global power. It still has the stronger military as well as global reach, with allies and bases all over the world, particularly in regions surrounding China (Japan, Taiwan, Korea, India, etc.).

It is determined to keep China hemmed in if it can. So, like it or not, there is a real possibility of eventual conflict in the Pacific between the eagle and the dragon, as many fear.

Like Indonesia, Australians know that if an attack comes, it will be from the North as in World War II (invasion via Antarctica might be a bit tricky). This means that a “love triangle” between the US, Australia and Indonesia has its own natural geopolitical logic.

Indonesia is of increasing strategic importance to the US because it’s the obvious leader of a regional neutral block. It also controls three vital deep-water passages between the South China Sea, the Indian Ocean and the Pacific: the Lombok, Malacca and Sunda Straits.

Australia is also a natural ally of Indonesia because of the similarities between them — yes, that’s right, I did say similarities. Unlike China, both are multiparty democracies and both have open economies (and have signed free-trade deals with each other).

And whatever misgivings Indonesians and Australians may have about the US, it’s still an open society and a genuine democracy, and China is neither of those things. Shared anxieties about China will make these similarities matter more than differences.

My Chinese calendar says 2012 will be the year of the Dragon. By the looks of it, so will be many other years to come. So Ami was right — start learning Chinese, folks! ●

Asset concentration and quality of growth in Indonesia

Asset concentration and quality of growth in Indonesia

Winarno Zain, AN ECONOMIST

Sumber : JAKARTA POST, 30 November 2011

The list of the 40 richest Indonesians as published by Forbes magazine recently revealed the extent of asset concentration in this country.

According to the magazine, the 40 richest Indonesians possess combined assets worth US$85.1 billion, which accounts for 15 percent of the Indonesian GDP. The top three on the list have amassed $35.1 billion among them.

High asset concentration translates into high inequality of income. This is because the dynamics of the business are such that the higher the asset you deploy, the more rapid your income growth.

As the gap in income distribution among Indonesians is widening, some intriguing questions about government policies are unavoidably raised. If the 40 richest people sold their assets today, they would receive more than the entire tax revenues received by the government in 2010.

This perspective raises the question of the appropriateness of the amount of government tax revenue. Is tax revenue that ridiculously low? The question also indicates the extent of the problem of tax evasion and corruption and how vigorous are the bureaucratic reforms being pursued by the Finance Ministry.

The other question that arises from the above figures is how serious is the government in alleviating poverty? Because, how could the wealth of the three richest Indonesians be so much higher than the state budget allocated for building infrastructure and social spending this year?

The government’s limited spending in fighting poverty, at a time when the richest are racing ahead at high speeds, means that income distribution would continue to widen. The unequal distribution of assets between different social groups is too glaring to escape attention from anybody.

The uneven distribution of wealth started when a group of companies through political connections acquired economic resources and leases from the state. The close links between the state and conglomerates that generated the wealth concentration took several forms.

Private companies benefited from the state-sanctioned barriers to competition, mainly through trade protection. The state also created officially sanctioned cartels, exclusive licensing and public sector dominance by a certain company through a government fiat, control and taxes on intra-country trade.

Additionally, politically connected firms received benefits in other forms such as being awarded exclusive contracts, loans from state banks without having to provide appropriate collateral, bankruptcy bailouts and lax regulation.

There were also several instances where state and military officials, both active and retired, could be found sitting on the boards of private companies. These activities were subject to rent-seeking with heavy losses to either the state-owned enterprises or the state.

As they acquire more assets, they grow faster than other groups. Unequal speeds in growth between various economic groups result in a higher asset concentration in the groups with higher assets at the start.

One of the outcomes of asset concentration is reflected in the Jakarta Stock Exchange, where around 70 percent of the listed companies are family-controlled and about 57 percent of stock market capitalization is controlled by the top 10 families, the highest figure in East Asia.

There are also other forces at work that perpetuate the unequal distribution of income. The decline of productivity in agriculture and in labor-intensive exporting industries during the last decade have forced workers from these sectors to move into the informal sector that offer lower wages. The continuing labor surplus has resulted in the marginal increase in wages for these workers.

The advance in technology has put a premium on workers who have special skills. Those who have specialized skills can more easily enter the job market with relatively higher salaries.

Unfortunately, the majority of Indonesian workers are graduates of elementary school and junior high school and are involved in manual labor with low wages.

One of the devastating effects of the high inequality of income is the sharp social division among different groups in the country. During the strong authoritarian regime of president Soeharto, these social divisions were severely suppressed to give the appearance of social stability.

The loosening of political control by subsequent governments has let loose the forces of social conflict that have been brewing for a long time. The types of conflicts range from armed rebellion in Aceh and Papua, to ethnic conflict in Kalimantan, to religious violence in Maluku, to industrial-related violence in Batam and Freeport mining in Papua and to the numerous strikes by labor unions.

Although the conflict has taken many forms, the underlying cause is basically the unequal distribution of wealth that creates anger, jealousy and resentment among the social groups. As long as the fight over control of economic resources is not settled fairly, tension and violence will persist.

Empirical evidence in the 1970s showed that countries that experienced the sharpest drops in growth were those that had high levels of social division with weak institutions of conflict management as indicated by poor governance and the absence or a lack of rule of law, democratic rights and social safety nets.

The trend toward higher income inequality could be mitigated through setting up a distributive mechanism. The current economic policies have contained some distributive mechanism elements, but they are not enough.

Fiscal policies are not adequately progressive, since Indonesia still adheres to the flat rate regime in its taxation. The tax burden of those in the top income brackets is relatively equal to the tax burden of those in the lower income brackets.

Fuel subsidies are still highly regressive, where 70 percent of subsidies are enjoyed by the rich. Government programs directly targeted to the poor like direct cash transfers, rice for the poor, free schooling and healthcare, have not significantly reduced the number of the poor. Because of the weak distributive mechanisms, the inequality of income is bound to increase.

In the long run, high inequality of income could slow economic growth, since most additional income from growth would be received by a certain group, leaving the majority of people with stagnant purchasing power.

Future policies should be based not only on how much the economy should grow, but also on how the growth in income is to be distributed. ●