When the majority of Southeast Asian countries began to enact more aggressive responses to the novel coronavirus, Indonesia turned a deaf ear to virus mitigation efforts. As it had no confirmed cases of the coronavirus as of February, Joko Widodo’s (Jokowi) government instead kept pushing extensive economic reform agendas. It submitted a 1,028-page Job Creation Omnibus Bill on 12 February, calling the bill the country’s third great structural reform program after the 1998 International Monetary Fund’s (IMF) Letter of Intent and the 1967 Foreign Direct Investment Law. Despite criticism from the opposition, the president insisted on this neoliberal agenda, claiming that the objective of the bill is to promote more foreign direct investment (FDI) in the manufacturing sector and thus create more jobs.
What effects do neoliberal policies have on political and economic life in Indonesia and state-capital relations in particular? This blog post follows David Harvey (2006) in taking a historical-geographical approach to investigate this question, with a focus on policies put in place in the current president Jokowi’s second term. For many observers, such a bold move to deregulate the economy signals the resurgence of state-led development in a new form. Put differently, what this article would like to argue is that deregulation, an all-encompassing hegemonic ideology rather than simply a policy, has become some sort of ‘banner to unite under’ for the ruling capitalist class in Indonesia. Read More »
Nobel Laureate Esther Duflo once likened the work of economists to that of plumbers – tinkering and adjusting as necessary as they engage with the details of economic policy-making. The implication in this comparison is that economists generally understand economic systems and behaviour – how the pipes come together – and that the main work of the discipline is to fiddle with these components – adjusting the pressure, replacing valves – to see what works and what doesn’t.
A critique of this approach was compiled by Ingrid Harvold Kvangraven here. The primary criticism is that the basic premise is flawed – we do not, in fact, have a very complete understanding of how the pipes come together. Often, we don’t even know where they are. The institutional architecture that determines economic outcomes can vary widely from one country to the next. With so much variation at the systemic-level the utility of “tinkering” at the margins is questionable.
This blog series will interrogate some of the prevailing assumptions about the relationship between state and capital and look at why and in what ways some economies are deeply intertwined with the state. The structural conditions that actually exist in developing economies are often ignored in mainstream economic analyses – the prescription for countries with large state-owned sectors is usually some combination of more market liberalization, less protectionism, better enforcement of property rights. This ignores why the economy is structured that way in the first place, and therefore such prescriptions risk being disconnected from the reality on the ground, and thus ineffective.
Indonesia’s economic trajectory helps to illustrate this point. Despite a long history of sometimes violent anti-communist sentiment, massive portions of the economy are either partially or directly controlled by state-owned enterprises. According to Kyunghoon Kim in 2016 there were “148 SOEs in Indonesia, and their total assets were equivalent to 56.9% of the country’s GDP.” This includes the state-owned oil and gas company Pertamina, three of the four largest banks, the state-owned electric utility PLN which owns the entire national grid, airport operators Angkasa Pura I and II which operate every major commercial airport, the telecom giant PT Telekomunikasi Indonesia and the largest toll road operator Jasa Marga, to name just a few. Read More »