Limits to growth?

By webadmin on 06:52 pm Aug 11, 2012
Category Archive

Keith Loveard

A comment by Kalbe Farma co-founder Boenjamin Setiawan in this magazine (GlobeAsia, June 2012) put the argument that corporate growth is a normal and basic biological process. All that company owners need to do is “follow the trend,” said Dr, Boen.  Presumably societies are similar: they just have to keep on doing what seems to work.

Yet growth is not the inevitable outcome of entrepreneurial effort or indeed any type of human endeavor. There is another side to the coin, to the yin and yang of existence. Failure may also occur.

What happens when growth fails? Companies collapse and entrepreneurs and workers lose their livelihoods. For some, of course, life is a constant procession of failures, a situation that in the Indonesian context often gives rise to the expression “the rich get richer, the poor get poorer,” voiced by those who feel themselves to be on the wrong end of the equation.

At the present time, it is still not clear how many Indonesians can expect to get poorer as a result of global problems. How severe will the effect of the eurozone crisis be in Indonesia? How badly will the general malaise in global trade affect the country? These are the questions that everyone is trying to answer.

Some directions are clear. A graph of the price of tin over the past year looks like a roller-coaster: It peaked at around $29,000 per ton a year ago, sank to $19,000 at the end of last year before rising again to $25,500 in mid-February, then sinking below $18,000 at the present time.

Other commodities are seeing similar trends, with the current direction mostly downward. Crude palm oil closely follows the price of oil and has fallen with the price of crude to a current level of around $950 per ton. Rubber prices are at two-year lows.

Not all the news is negative. In April, cement sales were up 12% on-year, and while the monthly figure represented a drop of 4.5% on the March sales level, first quarter sales were up a very solid 18.2% on the same period a year earlier.

It is no surprise, then, that the consensus is that, as a national economy, Indonesia will get through the current downturn without too much pain. That does not mean that Indonesia can afford to sit back smugly and rest on its laurels. Its performance is based very solidly on natural resources, composed of finite minerals and more sustainable agricultural products.

Inevitably, economic actors will be at risk from wild swings in the prices of commodities, meaning that many millions of individuals will suffer considerable pain. The rich may not always get richer, but the poor will almost certainly get poorer.

As I have noted before, it is impossible for everyone to become super-rich. In the case of Java, with its population of around 160 million, not every family can have a ranch-style house and an SUV. They simply will not fit.

Yet the growth of the middle class in Indonesia is part of a worldwide trend in which two or three billion people will achieve the purchasing power that qualifies them for the middle class category. The explosion of four-wheel and two-wheel vehicles on Indonesia’s roads – and the subsequent chaos and stress on public facilities – is just one symptom of an unprecedented level of growth.

It is arguable that there are – in the words of a famous paper issued by the Club of Rome -“Limits to Growth.” That paper maintained that if trends continued – and this was in 1972 – the limits to physical growth would be reached within 100 years. This was very much a Malthusian argument and such arguments are currently unfashionable.

Many believe that a civilization that can reach the moon can also find solutions that will accommodate growing wealth.

The poor: always with us

It is yet to be demonstrated that the growing middle class can exist without a sizeable mass of what for want of a better word we must call the poor. In Indonesia, the current fall in commodity prices once more threatens to send some of the new entrants into the middle class back into the group of have-nots.

In researching this column, I note that a study that followed the Club of Rome’s landmark paper by 20 years, entitled Beyond the Limits: Global Collapse or a Sustainable Future, made exactly the same point that I aim to make: that while growth is normal, it needs to be sustainable.

It is now a further 20 years on and perhaps it is time for another review, but it is highly likely that the conclusions would be much the same. As The Economist noted in a recent edition, there is a risk that ‘growth’ of the middle class – in their billions – “will put more stress on the environment in ways that will curtail growth. That would leave a lot of people poor and polluted – the worst of all possible worlds.”

 Back in Indonesia, the end of the commodities boom will send many people back below the poverty line. To take just one example, the significant fall in natural rubber prices is hurting many smallholders who live not far above that line at the best of times.

As a colleague of mine notes, “more than three-quarters of Indonesian rubber is tapped by smallholders and is characterized by low productivity, which exacerbates the impact of low prices.” And, he adds, much of the product is of low-grade quality, which further depresses export prices, while middlemen take a large chunk of the proceedings for doing very little.

In this situation there are obvious structural changes that need to be addressed. That they have not been addressed over the 67 years of Indonesian independence is an indictment of “the system.” That system favors the owners of capital and penalizes the poor, whose position at the bottom of the pile is self-perpetuating.

Unreasonable wealth?

I am reminded of the gentleman who lives a few doors down my street. He has six cars and a Harley Davison: at a rough count that makes some Rp3 billion crammed into a two-car garage and a small front garden. And, I am told, he works for a company that many believe was responsible for the leak of sizable quantities of hot mud at Sidoarjo in East Java.

To me this is unreasonable. The gentleman may of course have amassed his flotilla of vehicles through independent means, but a question remains of justice and equity. When Indonesia’s ‘system’ of rewards is badly skewed in favor of the rich, there will always be a risk that the poor will resent the rich for commandeering so much of the nation’s wealth. That is a symptom that is not hard to detect on the streets of the capital and other cities.

Beyond the question of equity is that of sustainability. Is this sort of behavior sustainable? While automotive producers would no doubt love to see every family own six cars, this represents a serious waste of scarce resources. At some stage humankind needs to take a serious look at the dominance of growth as the driving force for our species, inhabitants of what is an inevitably finite planet.