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There are many serious policy lessons worth studying in the context of bilateral exchanges between Britain and Indonesia, and one of the most pertinent is the new British government’s recent determination to close its Regional Development Agencies by 2012. The lesson for Indonesia, however, is not in their closure but in their creation and raison d’etre .

In the UK model, nine RDAs were created by the previous Labour government to address economic imbalances across England. Similar bodies operated in Wales, Scotland and Ireland.

Established in 1998 under an act of Parliament, the main aim was to rebalance economic development and regeneration across the traditional north-south geographic divide in the UK.

Then-Deputy Prime Minister John Prescott oversaw a Labour policy flagship in the form of overarching strategic bodies that focussed on business efficiency, investment and competitiveness, enhanced employment and skills and a desire to achieve sustainable development across all regions.

The political rationale was to avoid frequent policy impasses or “horse trading” lotteries in which stronger localities traditionally gained favor over weaker competitors.

Political partisanship and vested interests at town and borough — the equivalent to sub districts in Indonesia — levels tend to run into blocks, delays and hurdles that might not naturally occur at the state level.

Through centrally driven parameters, RDAs are evaluated by top-down performance-related outputs.

In fact the creation of a strategically driven regional body that received its grant funding from a single government budget, as in the UK model, makes perfect sense if the aim of the center is to address disparities without being subject to local interference or narrow agendas.

But in a display of political gamesmanship, the new UK coalition government has, within three months of winning power, reversed this logic and argued that regional inequality has in fact increased as a result of regional development agencies creating unnecessary and expensive layers of bureaucracy, citing the spending of $12.5 billion over the last 4 years.

The new leadership argues that the bulk of contracts seem to be awarded to the public sector and instead of fueling innovation and entrepreneurship, the impact has been to prop up other public sector systems and large companies that stifle growth.

The new Chancellor of the Exchequer, George Osborne, in his budget speech said that the British economy had become deeply unbalanced and a new approach was needed that empowers local leadership, generates local economic growth and promotes job creation in all parts of the country.

What are the development lessons behind these political shenanigans that might be of use for a country like Indonesia, which is both ready for a second generation of provincial decentralization policies and laws and a grouping together of provinces into larger regions?

For Indonesia, with 33 provinces and special autonomous regions spread over thousands of islands, there is a case for arguing that provincial inequalities and broader provincial development should continue in line with new versions of provincial decentralization.

But by grouping provinces into larger units or regions, as defined in recent mid-term planning documents from Bappenas, the state planning agency, any new regional thinking must be thought out carefully.

What are the characteristics of these regions that make them entities? Will working at these levels tackle some aspects of regional inequality or will they be, as was said in the UK, simply another level of bureaucracy?

It goes without saying that one should be very cautious about trying to glean valuable policy lessons from Europe in dealing with regional disparities in Asia.

Regional development in mature economies focuses on a few percentage points of gain as opposed to the much larger growth figures needed by developing economies, given the larger disparities in skills, resources, infrastructure, transportation, educational services, housing supply, employment opportunities and general costs of living.

But there may still be gains to be had for Indonesia.

Regional development agencies could play an important role in ensuring that the natural skew of the land does not result in unmanageable inequalities between regions.

One other obvious gain for Indonesia in adopting a centrally balanced regional development strategy is that, administered properly, it should allow the management of economic growth against rising population and urban-rural development needs across different provinces.

While a UK-type model would not solve everything, it could be adopted as a coordinating structure to provide an effective interface between Jakarta and provincial capitals.

What will matter ultimately is how funds allocated for local economic development play out against regional development demands from the center.

Given Indonesia’s drive towards decentralization and the government’s concerns about regional inequality, it makes sense to adopt, early, a manageable set of parameters that explicitly take stock of regional inequalities in income, access to state services, human rights, security and food so that progress can be measured and adjusted accordingly.

Furthermore, the Indonesian government needs the foresight to not be swayed by political differences on a critical issue such as regional inequality. A 20-year perspective for this kind of development vehicle is not too long.

Should Indonesia choose to adopt a UK-style RDA model, it needs to ensure that these authorities are not solely economic vehicles for development, like a Special Economic Zone, but rather they encompass other aspects of regional development too.

RDAs in the UK have struggled to combine economic and social objectives, and while some economic gains may have occurred, more social arenas were neglected.

In the end, of course, Indonesia’s development choices will be locally and internally driven, but for any state to maximize its potential it needs to move towards a knowledge economy in which development choices are based on new or established knowledge products created locally or adopted from elsewhere.

If Indonesia is to benefit fully from its own recent, and outside, experience, the proof of the pudding will be in the country’s skill at choosing the most appropriate development strategies, structures and models that benefit the maximum number of people, thus ensuring minimal regional disparities and national and regional friction.


Ashish Mishra is the CEO of Strategic Asia Europe. He can be contacted at ashish.mishra@strategic-asia.com.