The illusion of being equal, prosperous and employed
This year was a special year for Indonesia: per capita GDP reached beyond $3,000 for the first time in Indonesia’s history.
Some economists believe that $3,000 is a psychological level at which GDP growth tends to continue, often at a faster pace. At this level of earning, people have significant disposable income that will stimulate consumer demand and produce growth in the supply of goods and services, en route to a larger economic pie.
Per capita GDP is one of the most important macroeconomic indicators; it is the mother of all indicators. If per capita GDP grows, it is very likely other macroeconomic indicators will also improve.
In line with the increase in per capita GDP, Indonesia’s unemployment rate, poverty rate, GINI index, foreign reserves, trade balance, exchange rate, public debt ratio to GDP and capital market index, also show encouraging development. On various occasions, the president and ministers have quoted these figures to explain their achievement in economic areas.
However, despite these encouraging figures, people still feel that their lives are not better off. A gap exists between statistics and reality. People are unhappy with the situation and some prominent figures accuse the government of lying to the public, a serious accusation.
Poverty, unemployment, inequality
In addition to per capita GDP growth, the poverty rate, the unemployment rate and income inequality level are other important indicators. They are associated with the living conditions of the masses and disturbances of these three factors could create political instability, as shown by the recent uprisings in North Africa and the Middle East.
Referring to the official figure, the poverty rate in Indonesia decreased from 16.7% in 2004 to 13.3% in 2010. Over the same period, the unemployment rate went down from 10% to 7.4%. These are great achievements. However, attention should be focused not only on the figures, but also on how the indicators are measured.
Indonesia’s government defines the poverty line as monthly per capita income of Rp211,700 or $24. This means that a single person who earns more than $24 per-month – lower than the World Bank threshold of $38, is not considered poor. The sum of $24 is equivalent to the price of 10 Big Macs, the cost of a taxi ride from Jakarta to Soekarno-Hatta Airport, or the price of one local-branded pair of blue jeans. This is a very low standard.
The unemployment rate is another controversial indicator. Each country has a different definition of unemployment. Indonesia use the International Labor Organization (ILO) recommendation for measuring unemployment, which means that those who worked at least one hour last week are considered as employed. However by working for an hour a week, people will not be able to survive. This is far from realistic.
Inequality in income distribution is commonly measured by the GINI index. The lower the index, the more equal a society is. Indonesia’s GINI index has continuously decreased from around 39 in 2005 to around 37 recently. Referring to this index, Indonesia is a more equal society than the US, Turkey, Russia, Brazil, Thailand, Malaysia, China, Singapore or the Philippines. However, if we travel all over Indonesia, we can feel that inequality exists everywhere.
The GINI index is probably the best inequality measurement available. However, it is not without faults. The index categorizes the population into five baskets of income category from the 20% richest to the 20% poorest, then measures the inequality among those baskets. It doesn’t capture inequality within each basket. Issues arise since in Indonesia extreme inequality occurs, especially within the basket of the 20% richest where national wealth is concentrated.
According to Merrill Lynch, the wealth of the 43,000 richest Indonesians (0.02% of the total population) is equivalent to 25% of GDP. The 40 richest Indonesians have wealth equivalent to 10.3% of GDP. According to Jeffrey Winters, if we use concentration of wealth as a measurement, wealth in Indonesia is three times more concentrated than in Thailand, four times Malaysia and 25 times that in Singapore. This finding contrasts strongly with the picture depicted by the GINI index.
To define, measure, manage
Management 101 introduces basic principles for us to be able to manage things well. It says that someone should be able to define a subject in order to be able to measure progress. Valid progress measurement is important for someone to be able to manage the subject successfully.
In the case of unemployment, poverty and inequality reduction in Indonesia, it seems that we have no problem in defining what are poverty, unemployment and inequality. Unfortunately we still find difficulty in finding the right measurement to monitor progress due to ineffective policy and management strategies.
The indicators for unemployment and poverty are too low and too easy to achieve, while the indicator for inequality does not depict the reality. They will make us feel complacent and distract us from working harder to improve the situation. We really need to raise the bar.
I believe the government realizes this phenomenon and it is about time it implemented more realistic measurements. This might bring an end to the continuous improvement seen in poverty, unemployment and inequality data.
However, reality is more important for people than statistical data. If the government does alter its measurement standards, people will applaud it. They will not believe that the government has any intention to mislead the public, as accused by some public leaders. Otherwise people will perceive that the government puts too much effort into image-building, and more people will believe that the accusation is accurate.
Wijayanto is a vice rector at Paramadina University. He is also the co-founder and managing director of Paramadina Public Policy Institute. He can be reached at firstname.lastname@example.org