Pancasila-based Market Economy

kompas/didie sw

.

Prof. BJ Habibie has stressed the need for the realization of a "Pancasila market economy ". The call was made in his speech at the opening of the national meeting of the Association of Indonesian Muslim Intellectuals, which was opened by President Joko Widodo at the Bogor Palace on December 8, 2017.

What is interesting here? The answer is the existence of the word "market" in the Pancasila economy.

And with the use of the word "market" in it, the discussion and economic debate of the Pancasila economy this time looks different from what happened in the late 1970s to early 1980s. With the latter, due to the Cold War atmosphere, there was the impression of ideological pressure in the "Pancasila economy" debate.

The Pancasila economy is an economic system based on the five principles in the state ideology Pancasila. The term "Pancasila economy" first appeared in an article written by Emil Salim in 1967.

In the sense that although the average Indonesian intellectual was a product of a Western education, the trauma of colonial history under the umbrella of imperialism and capitalism prompted them to interpret the "Pancasila economy" as a reflection of resistance to liberalism.

So, while Emil Salim’s interpretation of the "Pancasila economy" is friendlier to the market system, Arif Budiman emphasizes the element of socialism in it, where the role of the state is still needed.

In spite of the debate, the Indonesian economy is empirically characterized by policies of debureaucratization, privatization and adoption of the principles of the World Trade Organization (WTO), namely the lifting of various economic barriers, subsidies and protection, which are believed to hamper the flow of goods and services globally.

Here, Indonesia has to integrate into the international economy (globalization). So, especially post-Cold War, the Indonesian economic concept has been transformed into a liberal one. The role of the private sector has become dominant. As a result, as is known, this liberal policy ended with a crisis and a change of regime.

Market economy

On many occasions, when giving lectures and seminars, the author often talked, in addition to communism (which is now practically embraced only by North Korea), of the concept of the market economy. However, it should be noted that the word "market" here should be interpreted carefully.

It is true that Western European countries embrace the market system. Nevertheless, their economic activities coexist with the role of the state, which ensures the welfare of the people through a social security system for the entire population, labor mediators and employers, the pioneers of a highly efficient cooperative movement.

The combined roles of the market and the state in this economy lead to lower poverty levels and the prevalence of decent incomes. More impressively, with a "market economy", the performance of the Japanese industries such as electronics, telecommunications, automotive industries were able to surpass their rivals in the United States and Europe in a relatively short period (1970s to 1990s). Why? Because, through what is known as Japan Incorporated, the role of the state in the economy was considerable. Here, the state acted as a medium that actively synergized all available powers in society (private, parliament, research, overseas representatives), which could perform collectively and productively under long-term planning.

Only at the implementation stage did the state hand over all power to the private sector to realize its corporate actions in market mechanisms (both national and global). The result, as stated by a study, along with Sweden, the level of labor welfare in Japan is among the highest in the world even though trade unions in Japan are not as strong as in Europe.

Although the largest economy, and political, military as well as technological power the world, the US market economy is characterized by social fragility. This is because the role of the state in society is minimal. Not surprisingly, since the 2008 financial crisis, the number of homeless has reached 2 million people, about 12 percent, poverty (with a much higher poverty line than developing countries) is about 18 percent, in that country. This occurs because the state is inactive in social problems. The problem of poverty is more a matter of social foundations, such as the Kennedy Family Foundation, Rockefeller and Ford.

During the administration of president Obama of the Democratic Party, the state tried to solve social problems through his health protection concept known as Obamacare. However, under Trump, this pro-people policy was removed through the new tax law.

Asian way

The question is, how about Asia? We need to see the view of Prof Kishore Mahbubani, an intellectual from Singapore\'s Lee Kuan Yew School of Public Policy, which is quite respectful of the US and European view of the market economy in Asia.

According to Mahbubani, Asian countries put the market economy pragmatically in the so-called March to Modernity and predict the present and future trends. According to him, Asia will become the "Center of Civilization and Development", which is now still centered in Western countries.

In his view, Mahbubani says that the success of many Asian countries (Japan, China, South Korea, India, Malaysia, Thailand, Singapore) is due to the implementation of market mechanisms in their economies, which are adopted without abandoning religious and traditional values, and with the roles of state and political democracy unique and varied.

In China, people not only enjoy a much higher prosperity, but have also begun to have real freedom or democratization thanks to economic progress.  According to the author, this type of Asian market economy is separate from the prevailing mainstream in the US and Europe.

In “Political Economy and Development: Theory, Criticism, and Solutions for Indonesia and the Restive Countries” (2014), I describe it as the "heterodox economy". In Indonesia, under Soeharto (1970-1998), although politically authoritarian, the market economy was characterized by the involvement of the state in social welfare. It was carried out through economic and social programs, namely the eight equalization programs, such as the indigenous affirmative policy, Posyandu (community health center), food self-sufficiency program. With these programs, the poverty rate could be reduced to 13 percent in 1998 from 56 percent in 1970.

This could be achieved due to political stability, which helped push up the economic growth to an average of 7 percent and the growth of manufacturing industry to an average of 18 percent. Corruption was rampant, averaging about 30 percent, and its bureaucracy caused a state failure. But since 1998, the economic policies have been more liberal, mainly because of the pressure of the International Monetary Fund (IMF), which provided US$45 billion in loans to cope with the 1997-1998 monetary crisis.

The crisis-generated reforms led to a big-bang in political democracy and press freedom as well as regional autonomy in Indonesia. This affected the pattern of economic policy in which the role of the "market" has grown. In turn, all of this led the dominance of foreign companies, such as in the fields of food, banking, mining, capital market and so on and the increase in imports of goods and services.

So, we can see a paradox. On the one hand, the world was hit by the US financial crisis in 2008 and Europe in 2010, but Indonesia experienced high economic growth, averaging about 6 percent during the Susilo Bambang Yudhoyono administration and about 5 percent under President Joko “Jokowi” Widodo.

This explains why Indonesia joined the G-20 as the 16th largest economy in the world. On the other hand, although the poverty level has dropped to 12 percent, the number of near-poor people (with incomes of US$2 a day) is still more than 50 percent of the population.

The most concerning is the social gap. According to the Central Statistics Agency (BPS), the Gini ratio increased from 0.32 (in 2004) to 0.413 in 2012 (In the last two years there was a slight improvement to 0.397 due to the implementation of BPJS Health and employment implemented since 2014).

Moreover, if based on income data, according to the author, the Gini ratio is estimated at about 0.5, which means the gap is wide. Thus, the high economic growth has been enjoyed more by the richest 20 percent of the population.

Indeed, the growth of the rich in Indonesia is one of the highest in the world. Geographically, as the world\'s largest archipelagic country, with the most heterogeneous ethnic, religious and social diversity in the world, the adoption of a market economy without an active role by the state will only create high economic growth with a range of social and political issues.

Therefore, with the basis of the 1945 Constitution, adopting the Pancasila market economy as stated by Habibie is becoming more relevant.

Pancasila market economy

According to European economic concepts since the Renaissance, the birth of the modern economy was begun with the construction of secularism. This applies to the liberal economic model, socialism-democracy and communism. In this context, religion has been marginalized for about four centuries in the economy.

How can this process be neutralized? The answer is with Pancasila. Here, its four principles (Humanity, Unity of Indonesia, Community and Social Justice) must be based on the One Supreme God. With this perspective, religion should color the Pancasila market economy. Thus, the Pancasila market economy should be a part or similar to the "Asian Way" in which the characteristics of the market / economy and politics / democracy, and the role of the state in the planning, are instrumental (not goals), while economic actors (state-owned enterprises, private companies and cooperatives) follow the market system in achieving prosperity (high economic growth) and social justice (equal distribution of the welfare of all people).

Meanwhile, religion serves as a guarantor of morality of individuals, families and countries. In this context, the spirituality and religiosity of actors (individuals, families and countries) should be reflected in the management of the material world (natural resources and artificial resources, such as technology, management and so on) at both micro and macro levels. Its best practice is Japan where the democratic model is in the form of the Consensus Scenario (not a Conflictual Scenario).

While the economy in general can be run under Indonesia Incorporated and at the micro level, healthy competition remains important. The value of the family with the sanctity of marriage should become the basis of social construction (individuals and families) so that economic activities will not destroy them.

The poor should be under state protection and the middle class should be built under a pyramid structure where the rich and poor should be smaller in number. For Muslim-majority Indonesia, Islamic finance and banking that avoids riba is becoming mainstream and has begun to color economic activities.

Of course, religious energy must play a bigger role in society and the state in order to create peace, tolerance and cooperation in fighting poverty, ignorance, inequality and backwardness. The role of leaders and systems and regulation are crucial in the implementation of the Pancasila economy concept.

And the implementation of the Pancasila market economy should be guided by the main provisions in the 1945 Constitution such as: Article 23 (state budget for the welfare of the people), Article 27 (oriented toward the creation of employment opportunities), Article 33 (state policy guidelines, state-controlled natural resources for the welfare of the people, economic democracy, fairness, togetherness, sustainability and national economic unity) and Article 34 (social security).

How can this be implemented? The leaders and elites have to be responsible, whereas the "super-expensive democracy" that operates today makes it very difficult for the Pancasila market economy to be implemented. So, it should be reformed to make it more conducive for the implementation of the Pancasila market economy. Hopefully.

Didin S Damanhuri

Professor of Economics, Bogor Agricultural Institute (IPB), and expert at the National Resilience Institute (Lemhannas)