Last week I met a former engineer of IPTN (or PT. Dirgantara Indonesia, as it is now called) who told me a heartbreaking story of Indonesia’s failed leap frogging and economic advancement. He came to the UK to study aeronautical engineering, but the Indonesian crisis of 1998 and eventual problem with IPTN/PTDI, forced him to stay in the UK.
His is not the only story. Thousands of IPTN engineers fled the country to serve Boeing or Airbus and live in the US and Europe. Some others live in Asia and Australia and dedicate life for global companies.
Few days ago, the most celebrated architect of Soeharto’s economic development, Prof. Widjojo Nitisastro, passed away leaving behind much praised legacy and mournful disciples and contemporaries. Prof. Widjojo and his colleagues in the government were known as Mafia Berkeley.
Their economic wisdom has transformed Indonesia and own much credits to Soeharto’s economic success. While working alongside B.J. Habibie, these economic technocrats never really supportive nor pleased with his projects. But they could not do anything, as Habibie was Soeharto’s favourite minister.
Habibienomics is simply an idea of pursuing economic advancement by leap frogging development stages. Instead of moving structurally, from agriculture based to manufacturing based, Habibie advocates a technology based economy and leap frogging many stages prescribed by Widjojonomics, or for that matter conventional economic development wisdom.
I find it a hard-to-believe coincidence, to have these two events came to my life almost at the same time. To ‘commemorate’, I dig hard into my old files to find below piece, which I wrote in 1997 as a term paper for the Asean Economics subject during my final semester as an undergraduate. ****
Habibienomics: the Emergence of Unconventional Economic Wisdom in Indonesia.
Introduction
Technology policy, in all its dimensions, is the most debated topics in Indonesia. Much of its prominence is the result of the high public profile of the Minister of State for Research and Technology, Prof. Dr. B.J. Habibie. The minister has clearly enunciated his impatience with more orthodox approaches to economic development, advocating instead the case for an explicitly interventionist technology policy.[1]
Ever since the appointment of the current Cabinet, the Indonesian and western media have repeatedly highlighting the alleged differences in approach between Prof. Habibie and the group economists, known as “Mafia Berkeley”[2], who have dominated economic policy making since 1966. These two competing parties are known as “technologs” and “technocrats”, respectively.
This essay is an attempt to compare these two development views known in the Indonesian media jargon as “Habibienomics” and “Widjojonomics”. The emphasis is, however, on the former, for it is a source of many controversies and being continuously impugned by many development analysts, including the World Bank economists. While that of the latter is nothing but conventional economic wisdom of macroeconomics stability, market mechanism and apparently a neoclassical view. However, the latter view of little interest in this essay.
In addition to that, as Indonesia is moving towards a new era of free trade through AFTA and APEC, it must put a strong hold on ground. It needs to establish a niche between the advanced NIEs who rapidly growing in technological sophistication, and the emerging economies which rely on their low labor cost. In this respect, Indonesia must develop more efficient and sophisticated supply-side capabilities, among which is a stronger technology based. But the question arises, is it a very high technology – at the cost of macroeconomic stability?
“Habibienomics”
“Habibienomics” is basically a human capital and technology led development strategy, which takes the view of “leap forward” in the industrialization process and technological acquisition. This strategy is against the conventional belief that industrialization should take place in stages; from low- to high- technology. The move is completed through an extensive role of high quality Human Resources and development of high technology industries.[3]
In contrast, Widjojonomics[4], which is supported by “Mafia Berkeley” and majority Economic Ministers, stresses a macroeconomic stability, the role of market mechanism, and industrial development (industrialization) by following states in comparative advantage and employment absorption. Yet, this approach which is also found a strong support from the World Bank, will be used only as point of reference and comparison.
a. Human Resources Development
The emphasis on developing a strong and hi-tech oriented human resources has been the strategy and primary jobs of Prof. Habibie, immediately after summoned back by the President in 1974, after 18 years in Germany. His dreams of Indonesia producing its own aircraft and ships apparently require such development. For, no country can rely on (high) technology transfer from the industrialized nations in one piece at a time. The Human Resources Development strategy of Prof. Habibie is implemented through several long-term programs geared at training the Indonesian students in the area of aeronautical engineering and related fields.
1. Program Habibie: Scholarships to the brightest
As soon as appointed as Minister of Research and Technology (Menristek) and subsequently Chairman of BPPT (The Agency for Assessment and Application of Technology), in the mid 1970s, Prof. Habibie started to work on the development of highly skilled manpower in the field on physics, engineering, and obviously aeronautical technology. Through a special fund/program called “program Habibie”, BPPT and his Ministry started to send dozens of best Indonesian students to Germany and Japan. They were selected from all high schools around the country, and would later become the brain power behind all of the Habibie’s projects.
2. ‘Look German’ Educational Policy
The inclination of Prof. Habibie to ‘whatever German’ became more evident when his deputy in BPPT and roommate (when both were students in Germany), appointed as Minister of Education and Culture[5]. Prof. Wardiman’s – the Minister – first reform in the Ministry of Education was introducing and promoting ‘the dual system’ which has been so successful in Germany.
The system aimed at giving students on-the-job training opportunities of about 60% of their study time, while the rest is classroom time. This program, which has been introduced in 1994 with the help of some Germany’s experts, received much supports from the students and sponsoring companies alike, although it is confined only to vocational school and technical colleges.
It is argued that the system will eventually create a pool of students who are well trained to acquired knowledge and technology. They will also be equipped with necessary skills to start working or start their own business, hence will bring down the ever high unemployment rate in the country.
b. High technology projects
Prof. Habibie’s hi-tech philosophy is straight forward. For him, the only way for Indonesia to maintain a trade surplus is to develop its own hi-tech manufacturing capability, and initially protect it from imports. In line with this, he further described labor-intensive/lower technology industries as ‘footloose’, for such path of development is difficult to rely on because it builds on ‘a weak industrial structure’.
As such, through a heavily subsidized body named BPIS – Agency for Strategic Industries, Prof. Habibie pursues his ambitions in the ten-so-called strategic industries. These industries are ranging from Electronics, weapons, shipbuilding, to aircraft manufacturing. However, his favorite ‘brain children’ are PT. IPTN (National Aircraft Company) and PT. PAL Indonesia (National Maritime and Shipbuilding Company).
1. IPTN
The biggest success of the company, so far, is the successful inauguration flight of its own designed N-250 on 17th August 1995, the day of 50th Anniversary for Indonesia. The aircraft is entirely designed by young Indonesian engineers under direct supervision of Prof. Habibie. The Turbo Prop 70-seater model is expected to be delivered for commercial used as early as 1998, and so far, IPTN has been receiving orders from domestic airline companies and abroad.
The next step of IPTN, which is underway, is the N-2130 project. The 130-seater twin-engine jet is being developed by IPTN engineers and to be produced by 2006. The head of design team is the 31-year-old son of Prof. Habibie, who is currently serving an apprenticeship at Boeing Co[6].
However, despite all the success and breakthrough, the company is financially ill and managerially frail. Transparency of its management and financial position has long been questioned by analyst, but Prof. Habibie called such critics as wrong and shortsighted. Although he maintains that IPTN makes an operating profit, but the point of his endeavor, he says, is to enhance Indonesia’s long-term competitiveness by building a deep pool of trained technicians and scientists.[7]
2. PAL Indonesia.
As a maritime nation, Indonesia engagement in ship building industry is economically justifiable. As such, since 1980 the government has invested more than US$360 million in ambitious expansion project of PT. PAL. The company, under the direction of Prof. Habibie, is currently producing vessels of up to 40,000 deadweight tons.
Nonetheless, less emphasis is given to the company’s efficiency and profitability, for direct or indirect subsidies from the government and the captive Indonesian market provided everything that the company wanted. In fact, the latest proposal of Prof. Habibie is to expand PT. PAL operations to build oil tankers for export markets. The US$100-150 million expansion would put PT. PAL squarely in competition with the Japanese and Korean firms which dominated the market for big tankers sized at least 260,000 tons.[8]
Critics and challenges
‘Habibienomics’ found its opponents not only in Indonesia (i.e. ‘Mafia Berkeley’), but also in international arena. Many international institutions and media voice concerns on the direction Indonesian economy is taking. The World Bank, for instance, is anxious with the possible tremendous drain of resources in Indonesia, from effective/productive sector to non productive sector. It warns the country that its “technological leapfrogging policy, which pump government money into targeted industries, have proven costly and ineffective in most countries. The strategy, is also, can not provide jobs that most Indonesians need.”[9]
Another notable critics came from The Review[10], who is alarmed that “Habibie will claim even more of the fiscal pie for his pet projects, many of which are aimed more at instilling national pride than advancing Indonesia’s economy”. Further the FEER noted that “Habibie’s ventures are almost entirely based on import substitution .…Protected from competitors abroad, they have little incentive to produce quality products at competitive prices.”
Likewise, Indonesian analyst like Christianto Wibisono questioned the ability of the country to pay foreign debt with these hi-tech industries, which he called “bonsai industries” – they require a lot of care but never grow big, because about 30% of national budget is coming from foreign debt. Mr. Wibisono, who is the CEO of The Centre for Business Data and Research (PDBI), said that, although (for instance) IPTN has an asset of US$ 1.6 billion, sales have never exceeded $ 95 million. To him, IPTN is just ‘hemorrhaging money’.
Concluding remarks
‘Habibienomics’ is a very costly path of industrialization for the country where most of its population are farmers. Although the structural transformation has been taking place, but most of the Indonesian are living in the rural area and working in the agricultural sector. In addition to this, most of the Indonesians are more in need of jobs, food and other basic necessities rather than national pride that their country is producing aeroplanes. The 25[11] million people who are still living under poverty line, to my mind, should be the immediate target of economic development in Indonesia, hence a more down-to-earth development policy is needed.
The strategy/path is also relying too much on the personal figure of the President and, for that matter, Prof. Habibie. As the President is getting older and losing his popularity among the masses, such dependency on his patronage and ‘protection’ is detrimental and risky. In fact, many young and well educated Indonesians are now questioning such protection given to Prof. Habibie’s projects. They are now aware and more concerns with how the government spend the hard earned money, sometimes from foreign sources.
Nonetheless, the new middle class and young Indonesians are also anxious with the growing gap between the rich and the poor in the country. The booming economy has not increase the well being of the masses, rather those close to the ruling power and the privilege are the major beneficiaries of national pie. Apparently, ‘Widjojonomics’ has a role to play, for during the last three decades it has orchestrated the ‘economic miracle’ in the country. But, it is also the one to blame for the increasing income and wealth disparity.
As such, neither ‘Habibienomics’ nor ‘Widjojonomics’ are the best choice for Indonesia. But then, the question, perhaps, is not ‘what is the best’ for Indonesia, rather, ‘which one is delivering results and initiate progress and equity’. This, is equally hard choice for the Indonesians.***
[1] See Hal Hill (1995), in Bulletin of Indonesian Economic Studies.
[2] It comprises of influential economists – mostly Ministers, who were graduated form UCLA in Berkeley during mid 1960s to 1970s. However, some of the non-UCLA Ph.Ds are also categorized as the Mafia for they share the same ideas.
[3] See Umar Juoro (1993), Profil Indonesia
[4] Named after former Economic minister of different portfolios. Now an Economic Adviser of the President.
[5] It is still a debatable statement, but Prof. Habibie’s influence in the Cabinet is undeniable.
[6] Asian Wall Street Journal, 11-12 November 1994.
[7] Asian Wall Street Journal, 11-12 November 1994.
[8] Far Eastern Economic Review, 13 May 1993.
[9] Fortune, 20 September 1993.
[10] Also known as Far Eastern Economic Review, 29 July 1993.
[11] The current data from National Statistics Bureau (Biro Pusat Statistik)
Originally published on luqyantamanni.wordpress.com, March 10, 2012: view original.
