The commemoration of National Cooperatives Day in Makassar, South Sulawesi, on July 12-15, 2017, has a special meaning for the national economy, which has been characterized by economic dualism between conglomerates on the one hand and micro, small, medium enterprises (MSME) and cooperatives on the other hand.
The national economy in the 1998 Reform era experienced three major problems: a conglomeration process with business integration from upstream to downstream under a single ownership, a high market share in strategic sectors, and a Gini ratio reflecting a wide gap in income per capita.
As a result of these three problems, the benefits of national economic growth in the last few years have been enjoyed mostly by the wealthiest few. In fact, according to World Bank data, the richest 1 percent of the Indonesian population controls more than half of Indonesia\'s wealth. The welfare inequalityof citizens widened further (Kompas, 9/12/2015).
Wider inequality
The increase in the national output reflected in gross domestic product (GDP) at current prices, from Rp 1.64 quadrillion in 2001 to Rp 3.95 quadrillion in 2007 and to Rp 10.09 quadrillion in 2014, was enjoyed mostly by less than five major players in every business sector.
This can be seen from the growing number of industries that are controlled by one to three large players with the ability to control more than 50 percent of the market share. The market structure in each sector is marked by the presence of big players whose businesses runs from upstream to downstream.
In fact, from a sample of 409 business activities, approximately 55.25 percent – or equivalent to 226 business activities – have a concentration of more than 75 percent. Then, 26.16 percent – or equivalent to 107 business activities – have a concentration level of 50-75 percent. The rest, 18.60 percent, or 76 business activities, have a concentration of less than 50 percent (Haryo, 2015).
It is inevitable that the income gap also widened. The national Gini ratio increased from 0.308 in 1999 to 0.329 in 2002, to 0.364 in 2007 and to 0.413 in 2013. It then fell to 0.397 in 2016.
Compared to other countries in Southeast Asia, Indonesia has the largest GDP but suffers the worst inequality,equaling those in Ethiopia and the Ivory Coast (World Bank, 2015).
The widening inequality is caused by a high market share. This is indicated by the high concentration in various strategic sectors, such as agriculture, industry, trade, telecommunication, and transportation.
Partnership solution
At present, there are approximately 57.9 million national business players ranging from large, medium, small, to micro businesses. Of that number, only about 0.01 percent are big entrepreneurs with a total of 4,968 business units and the rest, approximately 99 percent (about 56 million) are MSMEand cooperatives (BPS, 2016).
Specifically for small and medium businesses, of the existing 3.668 million business units, only 9.89 percent have a partnership with big business players, while the rest – or the remaining 90.11 percent – have none.
As a result, dualism exists in business activities: large conglomerates on the one hand and micro-and small enterprises (MSEs) and cooperatives on the other. Large conglomerates are getting stronger in the marketplace, while MSEs and cooperative enterprises are marginalized in the national economy.
MSEsand cooperatives find it much easier to exit the market (bankrupt) than to survive and transform into medium- and large-scale companies. As a result, it is very difficult to develop MSEs and cooperativesinto medium-scale and large enterprises.
South Korea’s experience can be used as a reference, because the country has been able to shift its economy rapidly from a Chaebol-based (conglomerate-based) economy to one based on MSMEs and cooperatives. In fact, farmers’ cooperatives play a major role in maintaining food price stability in South Korea.
The reorientation of South Korea\'s economic development to one based on MSMEs and cooperatives that partner with large corporations is based on the idea that MSMEs and cooperatives have the flexibility to innovate and adapt to the rapidly changing business environment.
Finally, the direction of President Joko “Jokowi” Widodo and the momentum of National Cooperatives Day can be used to promote equity. The best solution is one based on the spirit of the mutual cooperation as espoused by the founding fathers of the nation, Soekarno and Hatta, to build a fair partnership between large conglomerates with MSMEs and cooperatives.
The principle of gotong royong (mutual cooperation) for large conglomerates, MSMEs and cooperatives to grow together as equal partners should be promoted. A pilot project for business partnerships should be developed in several strategic sectors to overcome inequality while avoiding acute economic dualism.
MUHAMMAD SYARKAWI RAUF
Chairman of the Business Competition Supervisory Commission of the Republic of Indonesia