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Introduction

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Employment and Re-Industrialisation in Post Soeharto Indonesia

Part of the book series: Critical Studies of the Asia-Pacific ((CSAP))

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Abstract

This chapter sets the scene for the entire study and provides a broad overview of the issue of employment and re-industrialisation from the perspective of Indonesia’s economic history since the mid-1960s. It concludes that Indonesia cannot follow the policies primarily based on low wages that created the economic miracle of the past to address its more recent development challenges for at least three reasons. First, a democratic Indonesia must respect labour rights and address growing inequality in order to avoid socio-political discontents. Second, it needs to expand domestic demand in a subdued global environment compounded by competition from other low-wage economies, especially within the ASEAN Economic Community. Third, Indonesia must move to a productivity-driven path in order to be able to compete with other low-wage economies. The chapter further concludes that regional diversity offers decentralised Indonesia the opportunity for inter-industry and inter-regional linkages to create internal “flying geese” of dynamic regional economies, and regional minimum wage can be an important policy tool for such re-industrialisation of Indonesia. Finally, this chapter substantively summarises the content of each chapters, including key policy messages derived from the study.

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Notes

  1. 1.

    Benjamin Higgins spent quite a bit of time in Indonesia in the early 1950s as an advisor from the World Bank.

  2. 2.

    Nobel Prize Laureate Gunnar Myrdal also had a pessimistic assessment of the Indonesian economy “adversely affected by the turbulent and erratic course of national politics” (Asian Drama, 1967, p. 368). In the wake of the failed 1965 coup, he wrote, “the Indonesian economy, already near bankruptcy, was utterly destroyed” (p. 379). But he was almost prophetic and thought that only the army led by a “benevolent and enlightened” dictator would be able to restore “a minimum of order” … “stabilize and gradually develop the economy” (p. 380).

  3. 3.

    The common measure of expenditure Gini remained stable around 0.31. However, there are disagreements about the extent to which expenditure Gini can capture the true nature of inequality. Recent research reveals evidence of high wealth and earnings inequality in Indonesia. See Tadjoeddin (2013, 2016a).

  4. 4.

    Regulation of the Minister of Industry No. 41/M-IND/PER/3/2010 on Strategy Mapping and Key Performance Indicators for the Ministry of Industry.

  5. 5.

    In most cases, established by Dutch commercial interests before World War II, and subsequently taken over by the state as part of the 1957–1958 nationalisations.

  6. 6.

    Labour-intensive manufacturing includes food, beverages and tobacco; textiles, leather products and footwear; wood and wood products; and paper and printing.

  7. 7.

    Capital-intensive manufacturing includes fertilisers, chemicals and rubber; cement and non-metallic minerals; iron and basic steel; and transport equipment, machinery and apparatus.

  8. 8.

    See Naudé (2013) and Raz (2013). Concerns on the de-industrialisation have also been featured in popular media, among others, see Bisnis Indonesia, 4 February 2015 (Pertumbuhan Industri Gagal Capai Target, Gejala Deindustrialisasi?), Bisnis Indonesia, 7 May 2014 (Deindustrialisasi Kembali Intai Indonesia), Koran Tempo, 7 November 2013 (Indef: Indonesia Terjebak Deindustrialisasi), Kompas, 22 December 2010 (LIPI: Indonesia Menuju Deindustrialisasi).

  9. 9.

    Formal employment consists of employer and regular wage employment referring to the Sakenas’ employment status 3 and 4 respectively.

  10. 10.

    To investigate the impacts across firms of different size, establishments are classified into three groups:

    “large” (100+ employees), “medium” (20–99) and “small” (5–19).

  11. 11.

    Gini index measures the overall level of inequality ranging from 0 representing perfect equality when everyone has the same level of income and 1 denotes perfect inequality when one person has all the income. The discussion of overall (vertical) inequality in Indonesia, so far, is primarily driven by the evolution of the Gini coefficient of per capita household expenditure derived from the National Socioeconomic Survey (Survei Sosial Ekonomi Nasional—Susenas).

  12. 12.

    A Gini coefficient of 0.4 is regarded as the warning threshold for dangerous levels of inequality. See, for example, Chen (2013) and Yang (2013).

  13. 13.

    Palma index is the ratio of the income share of the richest 10 per cent population to the income share of the poorest 40 per cent population (Palma 2011). Palma index has been assessed to be more relevant for policymaking as it concerns with the particular income segments where inequality is actually located (Cobham and Sumner 2013).

  14. 14.

    See Esmara (1975), Uppal and Handoko (1986), Akita (1988), Akita and Lukman (1995), Garcia and Soelistianingsih (1998), Vidyattama (2013) and Hill and Vidyattama (2014).

  15. 15.

    See Hughes and Islam (1981), Islam and Khan (1986) and Akita and Lukman (1999).

  16. 16.

    Bhinneka Tunggal Ika is the official national motto of Indonesia. The phrase is Old Javanese translated as “Unity in Diversity” (different but one). It is a quotation from an Old Javanese poem Kakawin Sutasoma, written by Mpu Tantular during the reign of the Majapahit Empire sometime in the fourteenth century, under the reign of Hayam Wuruk.

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Authors and Affiliations

  1. School of Social Sciences and Psychology, Western Sydney University, Sydney, Australia

    Mohammad Zulfan Tadjoeddin & Anis Chowdhury

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  1. Mohammad Zulfan Tadjoeddin
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  2. Anis Chowdhury
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Tadjoeddin, M.Z., Chowdhury, A. (2019). Introduction. In: Employment and Re-Industrialisation in Post Soeharto Indonesia. Critical Studies of the Asia-Pacific. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-137-50566-8_1

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