Economic Transformation Towards a Developed and Prosperous Indonesia

According to the World Bank (2019) that a country can be categorized as a high-income (prosperous) country, when its GNI (Gross National Income) per capita is higher than US$ 12,535.  

Meanwhile, a developed country is a country that is able to meet at least 75 percent of its domestic technological needs by its own citizens, not imported from other nations.  

Such a country is also called as a technology-innovator country (UNESCO, 2010).  In the last three two decades there have been countries with GNI per capita bigger than US$ 15,000 such as United Arab Emirates, Qatar, Saudi Arabia, Kuwait, Bahrain, Brunei Darussalm, and Oman. 

However, since their technological capacity still at the level of a technology-adaptor country where more than 75 percent of their technological needs are imported, these countries are prosperous (rich), but not developed yet.  

Rich nations that rely heavily on the exploitation of their natural resources, not because of their technological (innovation) capacity, would easily slip to become poor due to external (global) economic or political shocks. 

The recent telling example is Venezuela.  Since its oil boom in the mid 1990s to 2012, Venezuela was very rich nation with GNI per capita ranged from US$ 15,000 to US$ 40,000.  Then as oil price dropped dramatically from US$ 120 per barrel in 2012 to only US$ 50 to US$ 60 per barrel in 2013 up until now, the nation has been trapped in poverty.  

Inflation rate is extraordinary high more than 1,000 percent, and the majority of its people facing hard times to get enough food, water, health services and other basic needs.

Despite significant improvement in almost all aspects of human life and development sectors, after 75 years of its independence,  Indonesia is still a developing, high-middle income nation with GNI per capita US$ 4,050 (World Bank, 2020) and its technological capacity at a level of a technology-adaptor country (UNESCO and UNDP, 2020).  

Indonesia is also confronted with a high income inequality (a gap bwteen rich vs. poor population) reflected by its high GINI coefficient of 0.39 (BPS, 2020), and the total wealth of its one percent richest citizens equals to 49.3 percent of the country's total wealth (Credite Suisse, 2012). 

In order to materialize its independece goal as a developed, just - prosperous, and sovereign nation, all Indonesian nation components (government and people) have to work smarter, harder, and more sinergistically to produce a higher and inclusive economic growth, average more than 7 percent per year which enables all working-aged citizens employed and all people prosperous on a fair and sustainable basis.  

Empirical facts have taught us that all nations which have been able to escape a middle-income trap to become advanced and prosperous nations (34 OECD member countries, Singapore, and New Zealand) are those which successfully making its economic transformation.

Basically, economic transformation is a development process to shift a nation's economy from a heavy reliance on the exploitation of natural resources (primary sector) and cheap labor into a knowledge and innovation -- driven economy.  

This involves the reallocation of productive factors from traditional agriculture and fisheries sectors as well as extractive mining sector to envrironmentally friendly and modern agriculture, mining, manufacturing industry (secondary sector), and services (tertiary sector); and the realocation of those factors among industrial and service sector activities.  

If successful in accelerating economic growth, this process involves shifting resources from low- to high- productivity sectors.  More broadly, a high, inclusive and sustained economic growth is associated with the capacity to diversify domestic production structure: that is, to generate new economic activities (sectors), to strengthen economic linkages within the country, and to create national innovation capacities. 

The industrial and modern service sectors typically contribute dynamically to such a diversification procces.  Indeed, the evidence of the past quarter century -- or, indeed, of the post-war era in developing countries -- clearly indicates that rapid economic growth in those countries has been invariably associated with diversification of production into manufacturing and modern services, while slow growth has been usually associated with swelling low-productivity services (UN, 2008).           

As innovation is the foundation which drives a successful economic transformation,  Indonesia from now on must put more earnest endeavours to boost its innovation capacity.  It is noteworthy that innovation should be considered in a broad sense, as development of new economic activities or new ways of doing existing activities. 

In this regard it is important to recognize the role, not only of technological (e.g. new machineries, production technologies, living species, materials, and products) but also of non-technological innovations.

For example, developing new marketing networks and innovations in marketing, as well as the development of new organizational practices or structures are often more important than the adoption of new production technologies, materials, and products. Indeed, the ability to reap the benefits from new technologies frequently depends on innovations in distribution and organization taking place simultaneously. 

In 2019, a nation with the highest innovation capacity is Switzerland followed by Sweden, USA, Netherlands, and United Kingdom.  Indonesia was ranked number-85 from 129 countries surveyed by the WEF.  Within ASEAN region, the most innovative nation is Singapore (rank-8) followed by Malaysia (35), Vietnam (42), Thailand (43), Philippines (54), and Brunei Darussalam (71).  

In order to speed up the improvement of innovation capacity, we have to increase the quality (knowledge, expertise, skills, work ethics, and morality) of human resources through an integrated, comprehensive, and continuous improvement of health, education, and R & D sectors. 

Entrepreneurship and the number of entrepreneurs must also be harnessed and multiplied, from now 3 percent to at least 7 percent of the total population, as a minimum requirement to be a developed and prosperous nation (ILO, 2010).  

Furthermore, a mutual cooperation of pentahelix  (Academician/Scientist-Industry/Business-Government-Community-Media/Jurnalist) should also be strengthened.

If supported by a growth with equity and envrionmentally friendly economic development policy, conducive investment climate, good governance, and political stability, the innovation-driven economic transformation as described above would make Indonesia as a developed, just-prosperous, and sovereign nation in 2045, at the latest.