Getting Reformasi Back on Track

By : John Riady | on 5:00 PM November 21, 2013
Category : Opinion, Commentary

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Words matter. In 1997, the rallying cry for an entire generation of Indonesians was “reformasi ”— a specific and significant choice. It was not “merdeka” — the 1940s battle-call against the Dutch, and not “equality” or “fairness” or “justice” or even “democracy.” It was “reformasi,” a word with precise but multiple layers of meaning. First of all, it meant being gradual and peaceful instead of violent and sudden — otherwise “revolusi” would have been the right word. Second, it entailed a transformation of political institutions rather than a moral or spiritual revival. Third, “reformasi” had embedded within it an idea of progress toward an ultimate destination, of moving something toward an ideal form. Why reform if the status quo is acceptable? In sum, “reformasi” was a highly pragmatic movement to fix political institutions and transform the country into a democratic, better-governed and more prosperous state.

Today we have largely stopped moving. Politics ossified early even as, or perhaps because, ten years of peace and relative prosperity broke out under President Susilo Bambang Yudhoyono. Nearly every possible structural reform to address supply-side constraints was postponed. Coincidentally, external factors like the rise of China led to a boom in commodities, many of which we produce, as well as hard assets, many of which we consume or collateralize (like real estate). This boom was a temporary opiate, and in any case, the benefits were not spread exceptionally widely. There is a poignant phrase that reflects the distance yet to be traveled by Indonesia. In his recent works on the origins of political order, the writer Francis Fukuyama — of “End of History” fame — coined the phrase “getting to Denmark” to reflect the journey of creating stable, peaceful, prosperous, inclusive and honest societies (like Denmark).

“Getting to Denmark” is not primarily an economic problem. Fukuyama did not call the phrase “Getting to Italy” or “Getting to Kuwait,” two countries which are today very rich without being conspicuously stable, inclusive or honest societies. Fukuyama suggests that getting there requires three things: functioning states, rule of law and accountable government. The point of establishing these is to solve the ancient problem of the family in politics, a corruption borne of love. People love their families and will do almost anything for them. So rulers treat the state as an extension of their family, sharing important positions among relatives — a common feature of tribal societies and many parts of Indonesia. Yet patrimonialization is a road that does not lead to Denmark because it prevents a wider civic culture from coming into being.

To solve it you need a strong ruler who can impose his will on powerful families and make them act in the common interest. But a strong ruler can and tends to, over time, favor his own relatives. So we need a strong rule of law, which imposes limits on power and corruption. However, the rule of law itself can destabilize political order by undermining the ability of the ruler to take decisions, and by creating its own elites in the judiciary and the NGOs. Hence the third pillar: accountable government (as guaranteed through properly run elections). This retains a strong state but allows people to change rulers — and the rules — when they no longer work.

In Indonesia in 2013, only one out of those three things — the elections system — are arguably working satisfactorily. The constitutional position of the ruler is not particularly strong (in part because the presidency was weakened to prevent another Suharto) nor have we established impeccable rule of law. As a result, the state is easily pushed in the direction of special interests.

Which brings us to roughly where we are today. The political establishment is mostly concerned about the 2014 elections while the economics profession is worried about how the US Fed’s decision to end asset purchases is going to affect Indonesian stock, currency and bond markets. All are important. However, the more crucial story, it seems to me, is about getting the reformasi story on track after 9 years of complacency. Doing this would solve the economics problem by restoring investor confidence. It also potentially solves the political problem for any politician who can show himself to be a responsible leader.

To this end, there are three things we could do to. First, and most obviously we need to reduce the cost of doing business by lowering the cost of inputs (chiefly electricity, labor and logistics) and by reducing the tax on output (e.g. external duties). This will boost employment, profits, tax and foreign exchange reserves.

Second, we need to accelerate much-delayed civil service reform. The bill now being debated in parliament to replace the 1999 and 1974 laws is a good start because it pushes for a merit-based system. However, to succeed the committee must make many people unhappy, which means it needs backing from the highest rungs of power — an unclear outcome at this time.

Third, and most importantly, we need to accelerate technological transfer, which requires what the economist Ricardo Haussman calls tacit knowledge. Knowledge to produce things is often not available in books but stored in the brains of those who need to use it, and universities, urbanization and the Internet are necessary but not sufficient to transfer this knowledge. Rather, people need to be employed in specific knowledge clusters (e.g. Silicon Valley for tech, or Guangzhou for large-scale manufacturing) and eventually take their knowledge back home. To facilitate knowledge-transfer, we need to boost funding for apprenticeships and scholarships overseas but we also need to ease citizenship laws, which currently are an unnecessary barrier to letting Indonesians live and work abroad.

Reformasi is not a vague, woolly idea. It is a practical, tangible program to get our country moving again. With political stability, favorable demographics, low public debt levels and a reasonably prosperous global economic environment — Indonesia is now entering a golden window of opportunity. This is a 10-15 year window, during which time the difficult reforms must take place. Once this window closes, we may find ourselves stuck in the middle-income trap, and reform will be much more painful, if not politically unbearable.

John Riady is professor of law at Universitas Pelita Harapan’s Faculty of Law, and editor at large at the Jakarta Globe. He can be reached via Twitter @johnriady.

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