It all starts with the basics

By webadmin on 08:16 am Nov 06, 2011
Category Archive

Farid Harianto

A recent visit to Orlando, Florida provided first impressions about life in the US and about the looming economic crisis in the country. Orlando in early September seemed deserted, with the summer peak season just over.

The main attraction of Orlando, the magic world of Disney, was not spared from the effect of the crisis. Disney World’s parking space was only less than one-fifth occupied, much less than a normal early September. There were only short queues for any ride in the park, making the visit more bearable amid the heavy rain in the city.

Universal Studios provided a similar sense of abandonment. The only attraction that drew many visitors was the new Harry Porter showcase. Similarly, the parking lots were only lightly occupied.

A short ride to Tampa, a city on the Gulf of Mexico, also brought a gloomy feeling. Many beach houses were marked with “for sale” or “foreclosure” signs, a grim reminder of the on-going mortgage market collapse in the US.

A trip to New York City in the same month gave a very different impression. The traffic was still bad, and finding a taxi on a rainy day was next to impossible. Any attempt to book a table for dinner at Marea, a high-end Italian restaurant on Central Park South, was futile unless one did so about a month in advance. The lust for a fresh interpretation of Italian coastal cuisine was entirely spoiled.

Even finding a seat at decent restaurants in SoHo was quite an affair, as if the whole city of New York was immune to the very crisis being felt in Orlando and other parts of the US.

Life in the US in general is so well structured and predictable and, hence, one must go to entertainment parks like Disney World or Universal Studios to experience the thrill of drama and its intensity.  Or you go to movie theaters to buy artificial excitement.

In New York City, daily life is a drama in itself.  A mother from Queens recently reported to the police that she had lost her iPhone. When she told the police that the thief emailed her his picture, they thought she was joking.

In another story, a troubled teen was convicted of butchering a cousin in a fit of jealous rage and then stealing her sneakers. He was given the maximum sentence for a juvenile.

Life in Main Street or Wall Street is just like a stage show. Crime and violence are part of the daily menu and even on social network websites. Frauds are chronic on Wall Street and, once in a while, surface to the public in gargantuan proportions.

What about life in Jakarta? Stress in Jakarta starts and ends with traffic jams. In between, many households need to have double incomes to meet their daily needs. It is no accident that Jakartans are simply stressed out.
 
Data from the Ministry of Health shows that in 2010, 11.6% of the population suffered from some kind of mental disorder. The figure for Jakarta was higher at 20% to 25%, over half of whom never receive any treatment. The statistics also show that there is one suicide every other day in Jakarta.

With such a backdrop, life can be draining but can also offer ample opportunities for excitement. The curtain is set for the unfolding drama. Like life in New York, the drama and the thrills are embedded in our own daily life; we don’t need to go to the movies to find artificial excitement.

Colossal social laboratory

In the post-Suharto era, Indonesia has experimented with massive reform in every walk of life. Politically, it has transformed itself from an authoritarian regime into a model democracy, and from a centralized into a far more decentralized government.

Economically, Indonesia has adjusted from being a basket case, one of the hardest-hit economies during the 1997 crisis, into one with a strong position to weather the current global economic crisis, as the latest World Bank report indicates.

Students of politics are fascinated by what happens in Indonesia. The supposedly presidential system of government is co-opted by much stronger parliamentary pressure, with no single political party dominant. 

Money politics has so far painted an ugly picture of adolescent democracy. When politics is in flux and has not reached mature equilibrium, arbitragers and power brokers are rampant and money and politics collide. As a result, the parliament and political parties are consistently perceived, survey upon survey, as the most corrupt institutions in the country.

Often, parliamentary sessions obnoxiously resemble a comedy of errors, as they deliberately attack one institution after another under the pretext of protecting ordinary people from abuse of power.

The comedy becomes more absurd when political elites myopically focus on winning the battle of every emerging issue, without clarity of policy options. Political discourses are mostly dictated by yesterday’s headlines rather than by any national agenda.

The comedy of errors is not limited to the realm of politics. Law enforcement has for long been known for its opaqueness. Getting justice from the courts is an uphill battle, but when the Corruption Eradication Commission (KPK) sets an amazing record of convictions, it becomes the target of political attacks from every corner.

The jury is still out on whether Indonesia can wipe out graft and become a more civilized society.

Regional autonomy is another unprecedented experiment. With the explosion of new local governments, Indonesia has today close to 500 districts and municipalities and 33 provinces.

Such an explosion demands a new breed of bureaucrats that is in short supply. As a result, many local governments are mismanaged and only about 10% are considered to have strong institutional capacities to provide quality services for people. Many elected mayors and heads of districts commit graft and are put in jail.

Everything for everyone

Another behemoth in the making is the over-ambitious social security system under the Social Security Law of 2004. The intent is noble and just, namely to provide the basic needs of foods, healthcare and education for the most vulnerable segment of our society, the poor and the disabled, and to provide protection for workers during transitional adjustment as a part of the globalization process.

Actual implementation, however, needs to be balanced with fiscal capacity and the supply side of the social service providers.

The list of social entitlements currently being deliberated in the parliament is growing by the day, from free healthcare for the poor, free education, low-cost housing, protection for the disabled, elderly care, maternity and so on.

One starts to wonder where the list will end, while people start thinking that these entitlements are their basic right under the constitution, without bothering to consider who will pay for them.

As it stands today, only about 10 million taxpayers (about 4% of the population) and – even worse – half a million individual taxpayers contribute over 90% of personal income tax. As the larger part of the population does not pay taxes properly, including many of the politicians, no wonder almost everybody wants to have a long list of social entitlements for free.

All these massive undertakings, from universal coverage for healthcare to 12-year mandatory schooling, require massive resources: money, human capital and infrastructure, be it physical or social infrastructure.
 
The financing of this experimentation rests on the politics of the national budget: what are the priorities for expenditure, and how we can expand government revenue without incurring a severe penalty for earning more. On the revenue side, the need to expand the tax base is obvious. It boils down to increasingly bringing the informal economy — estimated at 50% to 60% of the total economy — into the formal mainstream.

On spending priorities, we need to rethink our focus on education (about Rp280 trillion for 2010), energy subsidies (about Rp240 trillion), infrastructure (Rp100 trillion) and poverty alleviation (about Rp50 trillion).

Putting too many resources into fuel subsidies clearly hurts the other programs, particularly infrastructure development and poverty alleviation. A better rebalancing is therefore imperative, and that means reducing fuel subsidies by increasing fuel prices.

More problematic is the human capital requirement to support this massive social experiment. The current government seems to have difficulty in getting good members of cabinet from the existing talent pool, as indicated by the constant need to reshuffle.

In the healthcare sector, even if the government has the money, universal coverage is simply impossible in the medium-term. The supply of medical doctors (general practitioners or specialists), nurses and hospitals is very limited and cannot be expanded overnight.

In education, the source of human capital, we have the money, since the constitution mandates a fixed 20% of the annual budget for education. Yet, about half of the school buildings in the country require extensive repairs.

The number of PhDs in the country is about 8,000 to 9,000, less than in Singapore. In effect, there are only three to four PhDs for each university in Indonesia. The production of scientific research and the number of patent applications is simply too trivial to have any meaningful impact.

When the Ministry of State-Owned Enterprises (SOEs) wishes to revamp the management of SOEs, it runs to the same list of a small number of people again and again. The talent pool is too small and does not expand.

The real challenge then is how to enlarge the talent pool, by improving education and lifetime training and development within SOEs. The same applies to improving the number and quality of bureaucrats at the central and local levels, through systematic talent scouting and training and development.

Hold on to the basics

The ongoing socio-political experimentation in Indonesia will take years if not generations for the dust to settle and reach equilibrium. In the meantime, markets will continue to twist amid fears of euro-zone meltdown and political quagmire and looming recession in the US.

Our strong macroeconomic fundamentals with prudent fiscal management so far have helped Indonesia to be in good position to deal with external shocks. Our foreign exchange reserves, now more than double the level during the 2008 financial crisis, also help. Yet we have not seen the worst yet in Europe or in the US, and we need to be vigilant about its repercussions in Indonesia.

The very basic asset needed to deal with the crisis is to instill market confidence.  The government needs to have a coherent strategy to deal with external shocks, and to communicate well with the markets to boost self-assurance.

We need a credible face to calm the market with a well-stocked arsenal to tame the crisis. We need to tell our credible story of readiness. And we need a clear protocol to deal with the crisis; with the rejection of the draft law on financial stability by the parliament, we currently do not have such a protocol.

In the long run, we need to invest heavily in both physical and social infrastructure. Improving our transportation and logistics system will not only boost efficiency, but also open up opportunities in the hinterland. Our roads and seaports are largely inadequate and highly congested.

The government’s determination to build double-track railways in the northern corridor of Java is to be applauded. When it is completed in 2013 and with PT KAI’s procurement of hundreds of locomotives from GE, freight capacity will jump by over 40 times, providing a boost to the system.

In social infrastructure, providing education and healthcare for all should be the priority. That translates to a massive influx of good-quality teachers, professors, PhDs, engineers and scientists. We need thousands more hospitals, clinics and laboratories spread all over the archipelago. This means that we need to revamp the cartel-like dominance of the medical profession.

In the bureaucracy, we need a large pool of talents with a systematic program to identify and nurture good civil servants. To do all of these things, we need to minimize wasteful energy subsidies and eliminate graft.
 
These are very basic steps, and no politician of any sort will in their right mind oppose such a basic policy framework. What we need is a conductor to orchestrate our energy to do these basic things.

Many previously successful organizations and their leaders find themselves in a slump. They forgot the basics of what made them successful in the first place.  Because the basics of anything are usually very fundamental, once they are mastered they become boring, so people start improvising and getting away from the basics to enliven things a little, do things differently. They start cutting corners and, the next thing you know, they’re in a slump.

We need to master and hold on to the basics. We also need a dream of a prosperous Indonesia that we can live in our daily life. We need to build the Magic Kingdom of Indonesia from the basics.

And, as Walt Disney once put it: “I only hope that we don’t lose sight of one thing — that it was all started by a mouse.”  The mouse is so ordinary, a rodent and so basic, yet it has created a prosperous kingdom that the world envies.