Learning from Sumitro’s Thoughts

On Monday earlier this week, the  School of Economics and Business at the University of Indonesia (UI) organized a public discussion to commemorate 100 years of Prof Sumitro Djojohadikusumo.

A book titled Nationalism, Socialism, and Pragmatism: Economic and Political Thinking of Sumitro Djojohadikusumo written by Prof. M Dawam Rahardjo was discussed during the event. The book review was led by Prof. Prijono Tjiptoherijanto with speakers, among others including Prof. Dorodjatun Kuntjoro-Jakti and Dr. Faisal Basri.

Born on May 29, 1917, Sumitro Djojohadikusumo was the first and youngest Indonesian economist, 26,  to hold a doctorate degree in economics from a prominent university in Europe. He became a statesman at the age of 33 following  his success as  finance minister in five Cabinets in two different eras.

The man, who was born in Kebumen, Banyumas, was also very productive in generating ideas. His writings in the form of articles and books on theories and policies of  economy, finance and development covered the Indonesian economy and development over seven decades.

Pioneer of industrialization

Sumitro was the pioneer of the industrialization program and the concept of government development planning.  The concepts and policies about "People’s Economy" have been initiated for six decades. In fact, his thought and theory of "development economics" came long before of those from international economic experts.

When the United Kingdom decided to get out of the European Union (Brexit) and United States President Trump withdrew from the Trans-Pacific Partnership (TPP) to protect the US economy, the symptom of protectionist policies and nationalism re-emerged in developed countries.

How can Indonesia deal with this situation? Do the spirit of nationalism and the rationality of democracy contribute to the formulation of our economic policy and system and development?

History shows that Sumitro Djojohadikusumo has a role in answering these questions.

Changes in the constellation of today\'s world economy will inevitably force Indonesia to review its economic policies, trade and investment strategies, and long-term development plans.

In this case, we can learn from Sumitro, whose thoughts are very comprehensive in answering the challenges. Beginning with research on the people’s credit that resulted in his doctoral dissertation at the University of Rotterdam entitled “Het Volkscredietwezen in de Depressie” (1943), published in the Indonesian language under the title People\'s Credit at the Times of Depression by LP3ES in 1989.

He then developed his knowledge in banking, international trade and helped his father, Margono Djojohadikusumo, open Bank Negara Indonesia (BNI 1946), which was originally established to become the central bank.

Sumitro became minister of industry and trade in the M. Natsir Cabinet. He launched "The Industrial Urgency Plan" as a solution to the "vicious circle of poverty problem" in Indonesia.

Unlike the concept of Swedish economist Ragnar Nukse, in overcoming poverty, the  industry should be driven through investments from the mobilization of foreign capital, Sumitro prioritizes efforts to accumulate the domestic capital resulting from international trade.

For the formation of capital for domestic industrial development, the then trade minister Sumitro granted a monopoly right to the Indonesian Batik Cooperative Association (GKBI) for the importation of  raw materials for batik so that batik cooperatives could raise capital from profits gained  from distribution of batik raw materials such as mori, which were imported from the Netherland and Japan.

The Industrial Urgency Plan (1951-1952) was known as the "Wisdom of the Bentengl". Benteng refers to the office of the finance minister, which is located near Benteng square in Central Java.

Although the initial discipline of his knowledge is microeconomics (economics of companies and banking), Sumitro\'s writings focused more on macroeconomics. His thinking bridges the economic theory with economic policy for national development. His analysis to understand the socio-economic problems of society became the basis for the policy of economic development.

His books on development economics: Introduction to Economics (1954) and General Economics I: Principles of Theory and Wisdom (1956) are important legacies of Sumitro in the promotion of the development economics theory in Indonesia.

Characterize

As dean and professor of economics, Sumitro succeeded in establishing the trademark of  the School of Economy of University of Indonesia (FE-UI) as "The Jakarta School of Economics (JSE)".

According to Dawam, this showed Sumitro\'s ideological proximity to the British Fabian Society that founded the Labor Party and the university of The London School of Economics (LSE).

There are trademarks of the FE-UI under the leadership of Sumitro Djojohadikusumo. First, developing the analysis of macroeconomic policy and analysis of public economic policy. This became a new branch of economics, which was then called development economics.

Second, fostering  the functional and institutional relationships between the FE-UI and the government. The relationship was pioneered by Sumitro when he served twice as minister of industry and trade (Natsir’s Cabinet) and then finance minister (Wilopo’s Cabinet), as well as the dean and professor of FE-UI.

The concept of Prof. Sumitro has turned the School of Economics into a "think tank" for government economic policy, which is to prepare the formulation of economic policy and development. This is continued by his students.

It has even become a kind of "tradition” of  FE-UI after Sumitro, such as Prof. Widjojo Nitisastro and Prof. Ali Wardhana. When they become state officials, they relied on their lecturers and students to review government development programs through the Institute for the Institute for Economic and Social Research (LPEM), which is the organization of FE-UI.

Dawam Rahardjo carried out studies and research on no less than 118 primary papers (books and articles) and 75 secondary papers written by Sumitro in the 44-year period (19431987). Dawam noted that there were 7 important legacies of thought of Sumitro for the re-thinking of economic theory, economic system and development policy of Indonesia.

Among of these are (1) People’s credits, a popular financing system now called micro-finance as one of the important instruments of poverty eradication; (2) to develop development economics as one of economic branches for developing countries, especially Indonesia, with a focus on policies to combat poverty and people\'s economic and social backwardness; (3) developing small industry and people\'s craft, especially in processed food ; (4) foreign trade policy on domestic products as a source of capital for large-scale industrialization; and (5) pioneering and developing "economic planning systems" by instituting planning agencies to design and regulate the direction of national development.

The mission of the Sumitro nationalism is to change the structure of the Indonesian economy, from colonial to national. From a one-sided economic structure, which relies only on the agrarian sector toward a more balanced structure with a more advanced industrial sector. For Sumitro, efforts to achieve a better and fairer standard of living cannot be simply carried out through  free market mechanisms.

Sumitro believed that the most effective and rapid way to change the economic structure of a newly independent republic like Indonesia was through a national economic plan based on the idea of ​​socialism.

In addition to requiring an active, measurable role of the government through macroeconomic plan and management, Sumitro also sees the importance of the role of the state sector, public policy, and state banks in promoting national economic power.

ISMID HADAD

Founder and Senior Editor of Prisma Journal, Director of LP3ES (1975-1980), Now Chairman of the Association for the Development of Economic and Social Knowledge (Bineksos).