Dr. Jan Woischik
(Head of Office, KAS Indonesia and Timor Leste)
Konrad Adenaur Stiftung (KAS – www.kas.de/wf/en/), a German political
foundation with offices in more than 80 countries worldwide, the principle of
Social Market Economy is one of its core beliefs both domestically as well as
regarding our international cooperation.
We are convinced that the teachings of the Social Market Economy lay the
groundwork for a relationship between economy and society that allow for
personal freedom and economic success while guaranteeing protection from
radical economy influences. The
overwhelming success story of Germany’s economic, social and political
development over the last 60 years only proves us right. Globally, too, the Social Market Economy may
be a guiding principle for how to combine economic growth and success with
social balance. With growth rate rising
in more and more countries worldwide, the question of how to distribute wealth
in a just way may only get more pressing.
Hence in this course is designed to make familiar with
the principles and core beliefs of Social Market Economy. For this aim, we proudly announce that we
were lucky to have Professor Marcus Marktanner from Kennesaw State University
(USA). He has been a renowned expert on Social Market Economy. He has been so kind to provide a basic
reading that you can find below. We ask
you to have looked at it prior to your participation in the course. In order to discuss the Indonesian economic
model and potential ways of how it could benefit from Social Market Economy.
Anies Baswedan,
Ph.D ( Rector of Universitas Paramadina)
The collaboration of Universitas Paramadina and KAS has
made this workshop possible to promote SEME understanding among Indonesian scholars. As one of many economy concepts, SEME
proposes an alternative concept to policymakers around the world. We have been familiarized with two poles of
economy ideology: socialism and capitalism.
We see the fragility of capitalism market economy form the crisis in
North America and the Europe. SEME emphasizes the balance role of government,
private sector, and the community. We
learned from the previous workshop in 2009-2010 that SEME has similarity with
Pancasila Economy.
We hope the workshop will enlighten you about SEME. Keep in touch with your fellow participants
after this workshop including through social networks such as blogs, facebook,
and twitter. We will be more than happy
to facilitate future engagements among the participants.
Waktu, Tempat, dan Penyelenggara
Bandung, November, 19—23
2012. Padma Hotel Bandung. Konrad
Adenauer Stiftung (KAS) Germany and Paramadina University (Indonesia)
Rincian Kegiatan
H1 (November, 19 2012)
Registration and welcome reception
H2 (November, 20 2012)
Opening Speech (Anis Baswedan, Ph.D,
Rector of Paramadina University)
I. The History of Social and
Ecological Market Economy
1.
The Social and Ecological Market
Economy from a Historical and Comparative Perspective (Prof. Marcus Maktanner)
2.
Group Discussion: Stranded on a
lonely island of how to create a political constitution.
3.
The Social and Ecological Market
Economy: A Model for Indonesian Development (Prof. Dr. Ir. Eriyatno, MSAE –
Intitut Pertanian Bogor)
4.
Video: Comanding Heights: the Battle
for Ideas
H3( November, 21 2012)
II. The Role of the State in the
Social and Ecological Market Economy
1.
Principles of Indonesia’s
Development Success Revisited (Dr. Nuri Effendi, SE, MA, Dean of Economic
Faculty of Padjajaran University).
2.
Group Discussion: How to create an
economic constitution.
3.
Principles of Policy in the Social
Market Economy (Prof. Marcus Marktanner).
4.
Video: Inside Job
H4 (November, 22 2012)
III. It’s Just Social and Ecological
Market Economy, not German Social and Ecological Market Economy
1.
Social Market Economic Through in
Ibn-Khaldun’s Teachings (Prof. Marcus Marktanner)
IV. Market Freedom With and Without Equitable Social
Development
1.
How Equitable Social Development
Increases Market Freedom and Efficiency (Prof. Markus Marktanner).
2.
Video: Life and Debt
H5 (November 23, 22 2012)
V. Will the Global Economic Crisis
Lend Social and Ecological Market Economics a Louder Voice?
1. How Indonesia Weathered the Crisis Storm Since 2008
(Prof. Dr. Djisman S. Simanjuntak, Executive Board of Prasetya Mulya Foundation
and Board of Directors of CSIS).
2. In Light of Recent Food, Fuel, and Financial Crisis, is
classical Economic Liberalism still Feasible?
3. Video: An Inconvenient Thruth
Closing Speech: Totok A. Soefijanto
(Deputy Rector for Academic, Research, and Student Affairs of Paramadina
University)
Ringkasan Materi
Opening
Speech (Anis Baswedan, Ph.D, Rector of Paramadina University)
SEME: Capitalistic approach meets
with socialistic approach.
Indonesia founded by the Social
Market Economy called Ekonomi Kekeluargaan dan Gotong Royong by Moh.
Hatta. Explicitly in 5th Sila
of Pancasila, the social justice, the first priority to build the Indonesia’s
economy. Prof. Mubiarto called the
Indonesia’s Economic System as “Ekonomi Pancasila”.
The challenges is transform and
translate “Ekonomi Pancasila” to the model, equation practice in economic.
I.
The History of Social and Ecological Market Economy
1.1
The Social
and Ecological Market Economy from a Historical and Comparative Perspective
(Prof. Marcus Maktanner)
SEME = Free Market + Equitable Social Development
SEME is similar with Moh. Hatta’s economic concept of
Indonesia.
SEME is different with USA economic development, higher
growth but not equal.
1)
The two questions after the World
War II
a.
Social question of
industrialization, Weimar Republic, Great Depression, and Nazi Terrror.
b.
The economic model that allows
Germany to reconcile.
2)
A schematic overview
 |
|||||||||
|
|
|
|||||||
3)
The legacy of the classical
liberalism
Ø St. Ambrose (367): The Damnable - Private properties as
damnable.
Ø St. Agustine (354—330): The Balance - Find out how much God
has given you and from it take what you need, the remaind is needed by others.
Ø John Scotus: Erigena and Anselum – Self-restraint and the
sub-ordination of state.
Ø Nominalist:
Ø Adam Smith (1723—1790): Moral Philosophy – use scare
resources wisely.
4)
The legacy of the Social Question
No society can surely be flourishing and happy, of which the
far greater part of the members are poor and miserable (Adam Smith). Individual vs State; Socialism vs Liberalism;
Idealism vs Realism.
Karl Marx (1815—1583): Abolish all private property. Capital vs labour. Neglecting human capital.
Otto von Bismack (1815—1898): The first social security
law. Safeguarding individuals from
market failure (Social Market Economy).
Not abonding the market but correcting the market failure.
5)
The legacy of the Christian values
Catholic Social Teaching:
·
Pope Leo (XIII) (1810—1903)
Individuality + Solidarity +
Subsidiarity à Rerum Novarum (1891).
Each needs the other, capital cannot
do without labor, nor labor without capital.
·
Pope Pius XI (1857—1939)
Anti-communist stance.
6)
The legacy of the Weimar Republic
·
Episode 1 (1918—1923)
Build the big industries (steel,
chemical, and mining) to bring up reparation payments after world war I. Tax collected through the creation monopoly
rento and the curtailment of citizen sovereignty. State corporatism.
Industrial sector seen as part of
the state. Government build up the
protection for big company from competition and gives the monopoly.
·
Episode 2 (1923)
Great depression and hyper inflation
·
Episode 3
Post hyper-inflation recovery and
1929 crash.
Dependent on external factors. Economic Slump and the rise of Hitler.
Wilhem Ropke (1899—1966): The
capitalism that anti capitalists rail against was not free market capitalism
but state corporation. Government as the
business partnerships. The first enemy
of Hitler and Nazi.
Ropke is the early of Social Market
Economy, called “Free Humane Economy”.
7)
The value system from a comparative
perspective
Liberalism
|
Socialism
|
Social
Market Economy
|
|
Allocation
(Inputàprocessàoutput)
|
Market
|
State
|
Market
|
Distribution
(The processor)
|
Market
|
State
|
Market
|
Capability
(use scare resources and build the
social development)
|
Market
|
State
|
State
|
(Uweller-Armack): “SME is Ensure the
policy. Allocation through market, distribution through market, but qual
opportunity. Freedom in the market with the balance social development”.
Discussion:
Globalization:
1st wave: State
globalization
2nd wave: Corporation
3rd wave: Digital era
(individual)
·
Social development and social change
arrange by the individual.
·
Individual entering the market and
make some change.
·
No problem with SEME.
SEME is the market liberalism plus
correcting the market failure. Add some
normative approach to fix the market failure with the political policy.
Ibn Khaldun and the social arab
country is similar with SEME. Individual
freedom and social development in the solidarity spirit.
Note:
Indonesia is liberal economy
country, high economic growth and high inequality.
1.2
Group
Discussion: Stranded on a lonely island of how to create a political
constitution.
1.
How determine your government?
2.
How do you make sure that
development is equitable?
3.
How do you take care of the poor and
vulnerable?
4.
How do you avoid corruption?
5.
How do you make sure that there is
no inflation?
6.
How do you protect natural
resources?
1.3
The Social
and Ecological Market Economy: A Model for Indonesian Development (Prof. Dr.
Ir. Eriyatno, MSAE – Institut Pertanian Bogor)
The Strategy to Improve the Wealth
Learn from The Black Monday (October
19th 2008)
·
Stock fell 23%,
·
Bank Bailout IDR6.300Trilyun,
·
Crisis cost (US Government)
IDR18.000Trilyun
·
Anti-Wall Street and Greece
·
Insolvency but not illiquidity
Global crisis à
Casino economy à Bubble economy because of the securities and derivative.
Economic Model:
Y = C + I + G - T + ( X – M )
Y: GDP or GNP
C + I: Household
G – T: Government
(X – M): International transaction
Comparative
Economic System
The economic system that based on local wisdom, people
orientation, and serve to build a better life for everybody. It is not just capitalize the capital and
search for earning only.
The Idea to build the good economic:
a. Build
a strong economic policy.
b. Build
the economic resilience.
c. Build
the self-resilience community.
d. Build
ad good taxes to make the proportional sharing.
e. Financial
market restructuring.
State Resilience
·
Build the home industry
The economic based on
production system not the trading system.
The product made from production process that give the added value from
raw materials. The production done in household
not from factory.
70% of home industries are
women. The products are hand-made and
unique. The products based on local
wisdom.
·
Small Medium Enterprise based on Technology
The youngster are the
prospective solution to build the Comparative Economic System. The SME based on technology push the
creativity and innovation of the youngster.
·
Entrepreneurship
Tri Sakti by Soekarno:
·
Economic independency;
·
Political independency; and
·
Good Character in Culture.
1.4
Video: Commanding
Heights: the Battle for Ideas
After the World War 1, the battle of economic idea are
between (1)Keyness: The Economic Consequences of Peace (Cambridge, London,
England) versus (2) Hayek: Market Works but Government Don’t (Austrian School)
versus (3) Lenin: State Controlled Economy (Leninism Economic). Free market versus comanding heights of the
economics.
·
1923, Hyper- inflation in
Germany. A glass of beers is 1millions
Reich mark, a shoes is 23millions Reich mark.
·
October 24th 1929, US
Capital Market crash and fell down. Hal
of banks in USA closed.
·
1931, Europe, failure of
capitalism. Keyness: the collapse of
capitalistic economic and the democratic government.
·
1933, Hitler elected as the first
Chancellor of Germany. Roosevelt:
regulating the capitalism through Commerce Commission to regulating the industrial. Bring the people to work.
·
1936, General Theory (Keyness)
Government spend the money to reduce employment, giving back the purchasing
power to the people. Work very well in
UK and USA.
·
1941, World War II, Hayek (1944),
too much government control too much power for government. Rejected the Keynes’s idea with the book “The
Road of Serdorm”.
·
1945, the Post WWII Economic,
Bretton Wood, New Hampshire declare World Bank (WB), International Monetary
Fund (IMF).
Churchill
|
Truman
|
Stalin
|
Set up the New Order. Different economic policy, different
way. Fragmanted Europe snf World in 3
groups
|
||
Hayek
|
Keynes
|
Marxist-Stelinism
|
Defeated by the labor party
(Socialist). Anglo Saxon Style and
welfafre state
|
Capitalism and free market
|
Scientific socialism
Planned economy and equalitarism
|
Erhard (1948)
|
||
Free market economist by
Hayek. Free Floating Prices. Germany Social Market Economy.
|
||
·
1947, India free from Great Britain
imperialism. Commanding heights of
economy or central planning economy (Mahalanobis Model) plus heavy
industrialization (investment).
·
1950, Chicago (Workshop System). Chicago School of Economics (Friedman) with
the Liberalism Economic (influenced by Hayek) versus Yale University
(Keynessians) influencing the USA economic policy. American Dream Economic.
·
1971, Stagflation (by Hayek). Stagnation in economy plus high inflation
plus high unemployment. USA use wage and
price control policy by Nixon, UK use mixed economics (wage and price control
and anglo saxon socialism). Rethinking
the conservative system and introduce the Hayek free market system.
·
1974, Hayek won the Nobel Prize. Free market system replacing the Keyness
economic system. UK introduced by
Margareth Thatcher. USA still runs the
regulated capitalism (high inflation and high unemployment). Jimmy Carter change the system by
deregulating the air travel industry.
·
1979, Margareth Thatcher elected. She Introduced the free market to replace the
conservative economic system (Keynessians).
Jimmy Carter (USA) changed the Keynessians system to the Austrian School
of Economic by replacing the Federal Reserve Chairman with the Hayek’s
Disciple. Than Ronald Reagan elected and changed the USA system with the Hayek
and Friedman free market system.
·
1982, The US free from high
inflation (Reaganomics). Low tax rate,
low government expenditure, and regulated to free market. Great Britain reduced the subsidies,
especially in coal mining industry. The Socialist Worker Union did not agree
and make riot for a year. Thatcher won
the war like won the Falkland war.
Privatization of all public service companies.
Free market win and commanding height the economic system
(Reaganomics and Thachernomics). Hayek
and Friedman win against the Keyness and Mar-Lenin now a day, what about next
year?
Commanding
Heights
Note:
Social Market Economy = Free
Market + Social Development.
II.
The Role of the State in the Social and Ecological Market Economy
2.1.Principles of Indonesia’s Development Success Revisited (Dr.
Nuri Effendi, SE, MA, Dean of Economic Faculty of Padjajaran University).
 |
There is no extreme left or right. Almost of the countries in the world
implementing the mixed economic, except north corea.
Background:
Now a day:
1. Europe unfavorable à debt trap.
2. Global economic slowdown, even
China and India.
3. Indonesia is still experiencing a
good and strong economic growth (6.3%).
Good prospects and challenges.
Global Economic:
2008: US, Japan, and Europe dropdown
to minus.
2010: Back to positive but not high
enough.
BRIC: 10 years positive growth.
2011: GDP and fixed asset investment
drop down from 12% t0 7.6% (Bloomberg).
G7 become G20: the role of BRIC and
ASEAN. Developing countries catch up
with the high growth.
Note: Now a day, Rupiah depreciated
by design to push the export, because of deficit currency (import > export).
Indonesia Economic Growth:
Consumption dominated the economic
growth in Indonesia.
Soekarno Era: Command Economic,
sovereign the hyper-inflation (600%).
Soeharto Era: Free market and
investment (developmental).
SBY Era: Consumption era. Informal
sector push economic growth.
Note: Underground economy now a day
is more than 17% of the Indonesia economy.
Macro economy = ( Income + price +
employment) + (distribution + poverty + environment).
2.2.Group Discussion: How to create an economic constitution.
Build the constitutions:
1)
Interfering the government. What do you think?
2)
What economic problems? Does the
state not tolerate? Why?
3)
How do you solve the problem?
2.3.Principles of Policy in the Social Market Economy (Prof.
Marcus Marktanner).
The Economic problem that government interfere:
1)
Market power (price maker) and
abnormal labor supply functions (monopoly).
2)
Against the monopolistic systems,
cartels, and market barriers in perfect competition.
3)
Unequal social development (income
distribution).
4)
Environmental problems
(externalities).
Economic Problems in the Emerging
Country:
1)
Public Sector economy: Education,
health, and public service (human capital investment).
2)
Unfair competition: big company
versus traditional market, MNC versus SME.
3)
Protection for public goods: rice,
gas and oil, electricity, etc.
4)
High cost economic: deregulations
and law enforcement, bad infrastructure, corruption and bribery.
5)
Externalities: income distribution,
natural resources management, environmental problems, and social conflict (fair
distribution).
6)
Support to the local genius
industries and empower local economic.
Classical
Economic
|
SEME
|
Allocation: market constituting principles
|
Income redistribution + fixed the market failure + equal
development
|
SEME: State Constituting Principles
1)
SEME Witnessed: Germany
hyperinflation (big companies and banking industries developed substantial
market power to Nazi) and Stalinism.
2)
Subsidiarity: Pope Pius XI
(1857—1939).
3)
Safeguards of the individuality
principles (Walter Euken, 1891—1950)
è Free price, free trade, free contracts, private property
right, private liability, price stability (independent control bank),
predictability of economic policy.
è Ordo liberalism.
4)
Market constituting principle:
Regulatory Principles
a.
Abnormal Labor Supply Function
Fear that reconstruction generates
abnormal labor supply functions.
High labor supply à
low wage à high working hour (to earn enough wage).
b.
Unequal Economic Development
The market does not guarantee
equitable social development unless people have access to: equal opportunities
and equal capabilities. Need investment
into social mobility.
Note: Inequality implies social
costs (crime, diseases, decay of public infrastructure). Public investment in social mobility surely
will pay a social dividend. Need
political will and government intervention.
c.
Market Power
Cartels, associations, and chambers.
d.
Externalities
The origin of the social and
ecological economic form in 1970’s when the oil crisis. The state supposed to interfere:
a)
Limit stabilization policy
Reference to the great depression is
misleading. Monetary policy oriented at
price stability will only generate real business cycle, which are best taken
care of by the market and automatic stabilization.
b)
Avoid sector interventions
Experience under Nazi regime. Motivations is normally political, not
economic.
c)
Conduct Market Conform Policy
Allocation efficiency must proceed
distributional concerns. Targeting
assistance programs like cash transfer, school and medical vouches are more
efficient than price ceilings and fuel subsidies.
d)
Primacy of Order Over Discretionary
A little bit of inflation lower real
wages and the companies would hire more workers. Sticky for the short run, prove it with
Philips Curve.
2.4.Video: Inside Job
Island is the high living standards. In 2000, geothermal industries grow up and
also the privatize bank. 2008 the banks
are collapse, the unemployment grow up.
2008: Crisis, sovereign 10.000.000 peoples on their job and
saving. 15/11/2008, Lehman Brother and
AIG bankrupt, trigger the financial crisis.
30.000.000 people unemployment and 50.000.000 people drop down to the
under poverty line.
In 1981, Reagen elected as US President. He supported by economist and financial
advisor, called the Reagenomics. In
1990, the financial sector grows up. In
1998, the City Group formed and become the largest financial institution in the
world. In this year, investment bank
make a bubble for internet companies.
Money laundry and derivative investment grows up, no regulation for a
long time. In 2000 to 2003, sup prime
mortgage grow up 4 times.
2001 t0 2007, financial bubble and become the Global Ponzi
Model. Risky (junk) investment supported
by the credit rating agency (S&P, Moody).
2008, the crisis comes because the bubble blowed. 700 billions bail out, 9.000.000 people lost
their house. Merger and acquisition wave
happen, less number of bank and going to monopolistic or oligopolistic.
Note:
Joseph Stiglitz (The Nobel Winner) is the SEME Economist
Financial crisis is the market failure:
1.
No regulation for derivative
securities.
2.
Policy making cooptated by the
financial market actor (the same actor in the few regime).
3.
High risk, high return à
speculative motivation with a gambling method.
4.
Monopolistic behavior: AIG, Lehman
Brothers, Morgan Sachs (investment bank and financial institution) supported by
the ranking institution (S&P, Moody’s).
5.
Derivative: Selling promise of the
future. High uncertainty, low
collateral, and promise high return.
Speculative motive like gambling.
6.
Bubble economic indicator: stock and
money market growth higher than real sector market.
Samuelson says: economic driven by
the Bible, so first branch of economic knowledge is the ethical economic or
economic ethics.
Adam Smith: Wealth of Nation (1st
book) than Moral Sentiment (2nd book).
III.
It’s Just Social and Ecological Market Economy, not German Social and
Ecological Market Economy
3.1
Social
Market Economic Through in Ibn-Khaldun’s Teachings (Prof. Marcus Marktanner)
The Wealth of Nation by Adam Smith is the Anglo Saxon
SEME.
The Al Muqadimmah (1375—1378) the major ideas on economics
and politics. SEME build the system in a
historical context. The Al Muqadimmah is
Islamic context of SEME.
The Methon Denstreit:
1)
Theories are developed as a response
to historical lesson (Schuller).
2)
Economics is based on universal
principles irrespective of historical contextualization (Menger – Austrian
School)
3)
Cologne School (sociological, humanistic,
religious) versus School of Freiburg (principles and theory).
Khaldun and SEME:
·
Derive principles of good policy,
·
Historical context,
·
Close to academic and politics.
·
Equitable social development.
Social Development
Socialism:
State
creates consumptions justice through redistribution
|
Liberalism:
Great
multiplication of the production of all different arts
|
|
SEME:
Market
Freedom + State Protected Equal Opportunity
|
||
Khaldun’s
Value System:
Balance
set up among mankind, civilization, cultivation, and private property rights.
Freedom
in the market and equitable social development.
|
||
Organization of the State
Socialism:
Centrality
|
Liberalism:
Minimalist
state (night watchman sate)
|
|
SEME:
Individuality
+ Solidarity = Subsidiarity
Insulation
from special interest groups
|
||
Ibn
Khaldun:
Dynasty
have finite borizour and eventually come to end because the ruler will be
undermined by special interest groups.
|
||
Role of the Market
Socialism:
No
Market
|
Liberalism:
Markets
are spontaneaus
|
|
SEME:
(1)
Price
stability; (2) predictability of economic policy; (3) private property
rights; (4) private liability; (5) free prices; (6) free trade; (7) free
contracts.
|
||
Ibn
Khaldun: Ordering Market:
(1)
Private
property rights: civilization and wellbeing as business property depend on
productivity and people’s effort in all directions in their own interest and
profit.
(2)
Free
prices, free contracts, free trade.
(3)
Prices
stability: quality of the legal tender
|
||
How to interfere in the market:
Regulatory
|
Supplementary
|
1.
Abnormal
labor supply,
2.
Unequal
economic development,
3.
Externalities,
4.
Market
power.
|
1.
Avoid
sector intervention,
2.
Limit
stabilization policy,
3.
Primacy
of rules over discretion,
4.
Market
conformity.
|
Ibn Khaldun:
1.
The
office of the market supervisor.
2.
Investigates
abuses and applies the appropriate punishments and corrective measures.
|
|
Conclusions:
1.
SEME strongly reflected the Ibn
Khaldun’s economic rather than laissez faire or socialism.
2.
People action need to be “in accord
with the public interest”.
3.
Similarities are high event
separated by more than five countries.
4.
Contextualized in a real world
context, economic and governance problems.
Have not changed much overtime.
5.
Fundamental problems refer to
justice and equal economic empowerment.
6.
Ibn Khaldun is the first thinker of
SEME.
SEME: Historical contextualization
|
Marx and Hegel: Capital versus
Labor
|
Empirical (inductive) approach:
free market + equitable economic and social development
|
Concludes the universal truth
(deductive approach)
|
Pragmatically and practically
model
|
Idealism model
|
IV. Market
Freedom With and Without Equitable Social Development
4.1
How
Equitable Social Development Increases Market Freedom and Efficiency (Prof.
Markus Marktanner)
Cobb-Douglas model (Consumption and Leisure) versus Buchanan
Model (Consumption tide with production - Liberalism) versus Maximum Leisure
(Socialism: joint production with equal consumption).
Socialism
|
SEME
|
Liberalism
|
1.
People
choose more leisure under socialism.
2.
People
produce less under socialism.
|
1.
All
resources dedicated to someone must be constrained.
2.
Everyone
can access the public good equally.
Aggregate welfare maximized.
3.
Equal
access to nontradable market capability facilitators that also assures equal
social development.
|
|
Inequality: (1) primary resources allocation and (2)
economic inactivity
1)
The worst form of inequality is to
try to make unequal things equal (Aristotle).
2)
Nor does the very older nature
permit equality (Aquinas).
3)
Man is born free and everywhere he
is in chains (Rousseau).
4)
No society can surely be floushing
and happy, of the greater part of the numbers are poor and miserable (Smith).
5)
The worker of the world has nothing
lose, but their chains, workers of the world unite (Marx).
6)
Without that sense of security which
property gives, the land would still be uncultivated.
7)
In the demand for home commodities
should be diminished, because of the fall of rent on the part of the landlords,
it will increased in a far greater degree by the increased opulence of the
classes (Ricardo).
Dependency Theory (Kuznet’s Uthesis)
If the rural move to urban à
wages will falling down à profit will growth up à inequality will growth up à
economic activities will falling down à Security will falling down à
the opportunity of civil war will growing up.
Equality versus Efficiency (in the
political economics)
Efficiency
|
Neoliberalism
|
||
High
|
Washington consensus
|
SEME
|
|
Low
|
Totalitarianism (Failed state)
|
Socialism
|
|
Low
|
High
|
Equality
|
4.2
Video:
Life and Debt
The typical problems of economic reforms, Jamaica case
study.
1962, Jamaica independence from Great Britain with the high
financial problem.
1973, Jamaica funding the development by debt from private
banking system.
1976, Jamaica going to IMF and funded on July 1977 with many
conditions. Jamaica must reduce the
government spending, grow up the import, and privatization. The US Multinational Corporation (MNC)
cooptated the economy. Jamaica lose
their agriculture production, local price is more expensive than imported
price, and high inflation. Interest rate
is very high for farmer’s loan, no protection (because IMF not allowed) to
agriculture because of free market.
Rationalization of import regime, new order of trade, no protection for
all sector and free or liberal competition.
The “Banana War” is come. Jamaica
exported the banana to Great Britain and European Union, US protest to the
WTO. US opinion: “against to free
market” but US government protect their market from Jamaica’s banana.
1980, Kingston turning to the free zone for
industrialization. Raw materials came
from US and manufactured in Jamaica than send back the finish good to US. Low wages, low taxes, low cost of good
manufactured, and low cost of goods sold to make the high profit. High
externalities of the free zone are environment and public health. Invasions of McD, imported the chicken meet
directly form US. Local chicken farm, local chocolate ranch, local food and
beverage industry bankrupt. Tourism
industry grow up, high inequality, high crimes. High debt and market
liberalization make the poverty higher.
Debt trap
Social riot Financial
distress IMF
Debt |
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 |
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Tied
to the debt covenant Free
Market (Liberalization)
 |
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No Government Intervention Unequal; market power; monopoly by
MNC;
Environmental
externalities
If the unequal, market power, monopolistic economy, and
environmental externalities happen the government should interventions the
economic and market. The government
makes it balance and do social development or human capital. Free market should support or intervention by
the political policy.
V.
Will the Global Economic Crisis Lend Social and Ecological Market Economics a
Louder Voice?
5.1 How Indonesia Weathered the Crisis Storm Since 2008
(Prof. Dr. Djisman S. Simanjuntak, Executive Board of Prasetya Mulya Foundation
and Board of Directors of CSIS)
Recent Development:
1)
Capita income $3700, growth of GDP
6%.
2)
Strong Foreign Direct Investment
(FDI) inflows and outflows.
3)
Domestic private domestics.
4)
Lowered inflation rate (5%).
5)
Deterioration of inequality.
6)
Primary commodities continue to
dominate goods export with the obvious vulnerability to erratic cycles.
7)
Insufficient investment in
infrastructure due to huge subsidies on current consumptions and transfer.
8)
Return to balance of payments basic
feature that is typical of low middle income economy characterized by current
account deficit.
Domestic Dimension:
1)
Adjust the post crisis
conditions. Government, corporate, and
financial institutions.
2)
Large scale windfall from natural
resources that triggered increases in nominal health, including real estate
assets that allow as new round of leveraging.
3)
Demographic profile that leads to a
relatively high marginal propensity to consume.
4)
Decentralization that helps
strengthens consumer and business confidence.
5)
Residual harvest from 1998 crisis.
6)
Consumption and investment
Information and Communication Technology (ICT).
Telecommunication is the higher growth sector.
East Asia Pull Factor:
1)
The rise of China as center of
economic growth.
2)
Participation in the East Asia
productions networks.
3)
Zeitgeist of economic integration to
East Asia.
RICH Aspirations:
1)
Resilience
Built
in ability to with stand crisis of domestic of external origin.
2)
Inclusion
Better
access to development activities and more equitable distribution of development
outcome.
3)
Competitiveness
Cost
advantage in standardized good and services in differential advantages.
4)
Harmony
Co-evaluation
of diverse gene-mimetic elements of the development process of both competitive and cooperatives natures.
Development Traps (Sisyphean Growth):
1)
Growth is not deterministic. Needs and “escape velocity” before it gets to
a self-sustaining process.
2)
To avoid traps “new propulsion” is
needed any time development arrives at a new threshold. Higher level of human capital.
3)
Sisyphean cycle is not unusual
economic development.
4)
Gathering “escape velocity”: (1)
Acceleration or modernization; (2) development planning; (3) industrial
targeting; (4) growth friendly growth.
Technology Frontier and Human
Capital Accumulation:
1)
Higher perfection, higher
cephalization, nearer to low of least energy.
2)
The wind blogging frontier.
3)
Technology acquisition programs,
national, regional, and global.
4)
Billion dollar question or secret of
progress.
Why Indonesia invested too little in
human capital relative to its neighbors?
Ideology and Pragmatism in
Retrospect:
1)
Continuous debate but consensus
remainly doubly.
2)
Some constitutions but develop
different architecture.
System Reform: Ur-Constants:
1)
Eco physical constant.
2)
Equatorial paradox.
3)
Selfish competitive genre.
4)
Progress, hedonic treadmill,
easterly paradox.
5)
Statistically inexorability.
German:
Good education and adored able
access. The German system is the most
socialistic system in the market system country. Free market plus equitable development.
Indonesia:
The system is not from the firm
system or sustainable system but discretionair system and counter social
policy. Example: Cash transfer is
discretionair system but oil and gas subsidies is counter social system.
Priority Agenda:
1)
Greater trust in market. Price formation mechanism and regulatory
measures to make it less and less imperfect.
2)
Focus of government to create and
manage national common (social and political stability, human capital, and
SME’s focused).
Linkage
the SME’s and Big Company, brand as a flag but the component came from the
SME’s. Eradication of discretionary rent,
creating regulations which normally punish SME’s disproportionaly. Human Capital: health, literacy and
creativity, and entrepreneurship.
The
secret of Japan, Korea, and Taiwan, also China now a day. High wages and high
social income make the multiplier effect.
High production and high consumption.
3)
Adequate social capital formation
and social protection, including social security. Avoid over pricing.
Note:
Part of every rupiah from natural
resources should allocate to the human capital (health, education, and
entrepreneurship). Indonesia’s export
40% came from natural resources, human capital must be high.
Repelita and MP3EI
MP3EI is the plan expansion and
accelerating economic development. The
original version of CSIS: Build the zone or central in the small region like
Jabodetabek, Semarang Raya, Surabaya Raya, and connecting to the world. But the Indonesia government make the “corridor”
the width area all around Indonesia. Not
focus and to width.
Repelita is not operational plan and
only normative programs.
5.2 In Light of Recent Food, Fuel, and Financial Crisis, is
classical Economic Liberalism still Feasible?
German versus USA Economic
Liberalism
1948: Price Liberalization. Fixed the inflation, price and wage controls,
unemployment and black market.
19…: Fall of the Bretton Wood. Fixed exchange rates with USD as the key
currency.
1973: The fall of macroeconomic
management after second oil price shock.
High oil price, low USD, high Germany interest rate. Need strategy to save energy.
SEME in European Union:
Lisbon Treaty: The union shells
establish. High competitive social
market economy.
Euro Crisis: premature currency union. Common currency promotes competitive
convergence through adjustment in labor productivity.
Food Crisis in SEME Perspective:
The case of scarcity: climate
change, population growth, economic development.
The case for insanity: subsidies,
trade regulations, commodity gambling.
1)
World population versus food
production.
2)
Agricultural subsidies versus world
food prices.
3)
Ethanol versus world food prices.
4)
Oil, gas, and fertilizer prices
versus world food prices.
5)
Dollar-Euro exchange rates versus
world food prices.
6)
Globalization going too far.
7)
Wheat stock ratio versus world food
prices. Commodity speculations in the
commodity market or futures market. The
speculations have control to the food stock all around the world.
8)
Gross market value of commodity derivatives
versus world food prices.
5.3 Video: An Inconvenient Truth
Glass house effect cause the global warming.
Catastrophic: hurricane, dawning and landslide, drying, and
gletser meltdown.
Kyoto initiative: USA and Australia did not ratified yet.
Closing
Speech: Totok A. Soefijanto (Deputy Rector for Academic, Research, and Student
Affairs of Paramadina University)
Indonesia economic founding father
cannot implement the concept. Hatta with
the Cooperative and Soeharto with Pancasila Economic. We must make the concept
operationalized.
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