As a result of this, wealth disparity has become greater and greater over time. From 2014 to 2019 alone, the wealth share of the highest 10 percent in Indonesia had increased from 36.4% to a whopping 74.1%. Indonesia’s wealth inequality falls into one of the worst in the world, with implications showing that the wealthiest 1% of the population owned 45% of total wealth (Credit Suisse, 2019). As money breeds more money, those who do not have much to begin with will struggle to accumulate wealth. Coupled with difficulties in borrowing, the wealth gap will only keep growing as the rich get richer and the poor lack the support they need to succeed.
Culture Distribution and Integration
Julius Herman Boeke (1953) highlighted the need to take into account the characteristics of dualistic society if we intend to have a better understanding about the persistence of interregional inequality, and the reasons why a good majority of MSMEs had difficulties to improve their performance. He was a Dutch economist and lawyer who closely studied the concept of social dualism during Indonesia’s colonial period between 1910 and 1929, assigned to improve education, health care, and credit cooperatives. Boeke’s findings stated that the problem lies in the fact that pre capitalist economies such as Indonesia and India were being subjected to the importation of western ideologies such as capitalism and socialism, but left without further institutionalization to support its integration.
Boeke's analysis concluded that the absence of institutions and a brash economic approach clashed with the unexpected response from the indigenous population. It implied a culture-related backward-bending supply curve for labour that was driven by the ‘limited wants’ as well as inelastic demand behaviour among the indigenous social system. Whether or not the policies of the Dutch worked at home didn’t matter since the Indonesian people did not think the same way as them. Traditional farmers and traders did not have visions of grandeur, and were merely just trying to put food on the table. Hence, even as the policies implemented by the Dutch rewarded high income and productivity, the Indonesian people had nothing they wanted to buy apart from basic needs, so they chose more leisure in return. This dualism of economic ideologies later on becomes the reason for the persistence of informal economies in developing countries. Since the development of institutions may differ across cultures, a capitalistic system cannot be easily implemented elsewhere in a top-down manner under such a short time frame.
This capitalistic approach on the indigenous population wants to reflect classical economic thinking (Kaldor, 1956, as cited in Azis, I. J. 2022) that describes how the rich have a higher incentive to save compared to the poor, where a higher degree of initial income inequality tends to result in higher savings and investment, leading to more loanable funds and therefore potential growth. But the modern view as asserted by Nissanke & Thorbecke (2007) is that greater inequality actually causes a lower growth because of disincentives among the rich to invest due to redistributive policies, and underinvestment by the poor caused by imperfect credit markets, exactly the case in modern Indonesia.
Social Capital, Social Policies
Knowing how recognizing the dualism of social capital has a profound impact on MSMEs, the question that remains then is; what are the particular policies that will benefit productivity whilst taking into account this dualism? Azis, I. J. (2024) focuses on improving and bridging the dualisms happening in the participation and coordination of MSMEs, as they were found to be the most important for real improvements in performance. 2 main policies were discussed in his book, Listen and Design, which were namely policies on linkages which intend to create and strengthen interactions among MSMEs and other stakeholders, followed by access to affordable financing that was more relaxed and did not nitpick. Medium enterprises were particularly highlighted for their capability to contribute to exports and could enhance productivity through the use of digital technology and IoT. Digitalization itself as a whole contributes widely to close the information asymmetry between lenders and borrowers as well as improve loan and information access.
Pulling back to the metaphor in the beginning, the development of MSMEs should rather be illustrated as the entire human body itself, not a single component of something bigger. These proprietors are the Indonesian people themselves, and focusing on our economy requires a holistic approach that does not merely assess the numbers being pumped out. Scrutinizing where the developments are happening and actually listening on a micro scale is necessary to gain an understanding of where that development is happening and to properly aid them.
Kennedy Tangestu | Ilmu Ekonomi 2023 | Staff Divisi Kajian Kanopi FEB UI 2024
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