Indonesia Must Integrate with World to Advance

While many countries experience large inflows of foreign direct investment, Indonesia has a net outflow of investment monies. In two recent rankings, the country appeared at the bottom of the barrel in terms of economic integration with the world. Despite the elation of some Indonesian intellectuals at their country's de-globalized status, writes consultant Hans Vriens, economic globalization is ultimately more helpful than harmful. He believes that Jakarta's proclamation of 2003 as the Year of Investment and the implementation of the ASEAN free trade agreement are positive signs that Indonesia's economic woes will soon be soothed. "More integration into the world is the only way for Indonesia to achieve a level of economic growth at which the two million people who enter the labor market each year will find jobs," says Vriens. "Those job seekers will join with other Indonesians in hoping that the government's Year of Investment turns out to be more than a slogan." – YaleGlobal

Indonesia Must Integrate with World to Advance

Hans W. Vriens
Friday, March 14, 2003

Indonesia is one of the seven least globalized countries, according to a recent survey of 62 states conducted by the respected American magazine Foreign Policy. Two neighboring countries -- Singapore and Malaysia -- rank highest among developing countries in the magazine's third annual Globalization Index.

A report by the United Nations Conference on Trade and Development (UNCTAD) confirms the trend. It ranks Indonesia's performance in attracting foreign direct investment at 138 out of 140 states, just ahead of Suriname and Yemen; two years ago Indonesia was ranked at 63. In fact, Indonesia is the only country in Southeast Asia that, five years after the Asian financial crisis started in 1997, is still suffering from negative flows of foreign direct investment (meaning more investment money is leaving than is coming into the country.)

The fact that Indonesia is deglobalizing seems to be applauded by many Indonesian intellectuals whose articles regularly appear on the editorial pages of Indonesian newspapers. Globalization only works for financial oligarchs, wrote researcher B. Herry-Priyono recently in this newspaper. Another researcher, Nurhidayat of the Institute of Global Justice in Jakarta, said "Free trade won't reduce poverty".

We live in confusing times. "The world economy is undergoing a transformation that occurs only once every century or two. Building on revolutionary technological innovation, the globalization that started in the 1990s is accelerating and dramatically altering the international division of labor. The main players are China, India, the East European states and Russia," according to Eisuke Sakaibara, an outspoken former Japanese vice minister of finance. The countries he refers to are not only big but also relatively new players.

This means more competition for Indonesia. Just look at BP, one of the biggest foreign direct investors in Indonesia. Two weeks ago it announced plans to invest more than US$7 billion in Russian oil projects. This is more than double the total expected investments in the shrinking oil and gas industry in all of Indonesia this year.

True, the world economy is changing faster than ever before. In 1985 companies invested a mere US$50 billion in factories, equipment and offices abroad. By 2000 their foreign direct investment came to a staggering $1.3 trillion. During the previous big wave of globalization between 1820 and 1914, it was people, not capital, that was on the move. In those days, an estimated 60 million people emigrated from Europe alone with most going to the United States, Canada and Argentina.

Is globalization good or bad news? For many the answer seems to be "bad." The usual complaints suggest that the World Trade Organization is a world government in waiting, and that large companies are now more powerful than governments. There is the perception that these companies destroy the environment and are leading a race to the bottom in labor and environmental standards. The argument is that developed countries are losing jobs and workers in the developing world are being shamelessly exploited. The prevailing mood on the left is anger and despair.

We do, indeed, live in confusing times. Are these prophets of global doom correct? Can the arguments that globalization will lead to a more prosperous future for all the world's citizens be believed? Sorting out the right answers can be complicated, but there are reasons to believe that the prophets of doom are misguided. Sony isn't taking over the world. If it was, why can't it convince the Indonesian government to act upon its complaints?

For those who struggle to understand the meaning and the impact of the monumental changes in the world economy and the process of globalization, they should read: Open World: The Truth About Globalization. This lucid and persuasive book is written by Philippe Legrain, a 28-year-old graduate from the London School of Economics. It is the first intellectually rigorous explanation written in plain language about why globalization is mostly to be celebrated, without denying the problems it raises.

Legrain's audience is the well-intentioned reader with concerns about the poor, the environment, and democracy. He takes aim at those who blame corporate power and global economic integration for poverty, environmental degradation and the frailty of democracy. He convincingly deconstructs arguments of critics like Naomi Klein who claim that companies run the world, that their brands are colonizing our minds, and that the shift of factories from country to country disempowers workers in a race to the bottom.

Ironically, the opposite is happening. Even the biggest companies are desperate to avoid adverse publicity. Just ask Nike or Nokia. Avoiding bad publicity and protecting the value of their brands means that improvements in working standards and environmental protection is often led by multi-national companies.

More economic integration is the only hope for many of the world's poorest people. According to a study by the economist Jeffrey Sachs, when he was still at Harvard, poor countries that were open to international trade grew over six times faster in the 1970s and 1980s than those that shut themselves off from it: 4.5 percent a year, versus 0.7 percent.

We only have to look at Singapore, Malaysia, South Korea, Thailand and Hong Kong to understand the benefits of trade and investments. Burma, North Korea, and Vietnam represent the anti-globalizers in Asia, though Vietnam recently seems to have embraced foreign direct investment. These countries, like most states in Africa, suffer from a deficit, not a surplus, of globalization.

Fortunately the Indonesian government seems to be taking steps to emerge from the deglobalizing trap in which the country has found itself for the last five years. The implementation of the Asean Free Trade Agreement and the proclamation of 2003 as the Year of Investment are proof that Indonesia has chosen a road of further economic integration instead of autarky and import substitution.

More integration into the world is the only way for Indonesia to achieve a level of economic growth at which the two million people who enter the labor market each year will find jobs. Those job seekers will join with other Indonesians in hoping that the government's Year of Investment turns out to be more than a slogan.

PT APCO Indonesia, a wholly owned subsidiary of APCO Worldwide, a global consulting firm specializing in government relations and political and economic risk analysis.

Hans W. Vriens is Managing Director of PT APCO Indonesia, Jakarta.

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