Looking for New Growth Model

Kompas/Agus Susanto

Vehicles passing over the Kampung Melayu-Tanah Abang non-toll highway in Casablanca, South Jakarta, on Monday (20/3). The Asian Development Bank encourages the development of infrastructure to maintain the momentum of economic growth and to eradicate poverty.

International Monetary Fund executive director Christine Lagarde in a seminar entitled "High Level Conference Annual Meeting 2018: New Growth Models in a Changing Global Landscape" in Jakarta on Feb 27, said Indonesia and other developing countries in ASEAN need a new economic growth model (Kompas).

Lagarde\'s remark is of course interesting not only to be discussed, but also to find answers related to the new growth model we need. Its importance is at least based on three reasons.

First, the challenges of the shifting and changing global economic landscape, the rapidly growing fourth industrial revolution, the steadily increasing volatility of financial markets and the tightening of trade.

Second, Indonesia\'s economic growth since 2013 has never reached the targeted figure of 6 to 7 percent per year. The economic growth rate which has been achieved since 2013 is only in the range of 5.0 percent. In 2015, economic growth only reached 4.9 percent.

Third, Indonesia has a plan to be one of the 10 largest economies in the world by 2030. So how will the new growth model be chosen and implemented?

Inclusive growth

It will certainly not be easy. The Asian Development Bank (2007) and World Bank (2008), for example, once proposed an inclusive growth model that should be applied by its member countries, including Indonesia. This model is believed to be able to expand the base of economic development more evenly.

With this model, it will not only generate quality economic growth, but also economic growth that can reduce income inequality in households, inequality among regions, effectively accelerate efforts for poverty alleviation and get rid of unemployment.

In its journey, the inclusive growth model has various risks and problems. Adam (2017), for example, noted that it is less effective in resource allocation. The reason, the application of this model is found to be full of sociopolitical interventions, which overcome economic considerations. As a result, the economic growth being achieved is low.

Therefore, as a substitute for the inclusive growth model, a competitive growth model is suggested. With this model, economic growth is expected to be higher as a result of resource allocations in the sectors that are competitive with high productivity.

With such high growth achievements, through processes whose "dripping down" effect will have a positive impact on poverty reduction, unemployment and other social problems.

Again, in its journey, the competitive growth model is also abandoned. This is because the "dripping down" effect process of the competitive growth model has never been able to address directly three national development issues, namely poverty, income inequality, and unemployment. Then what new growth model can be applied here?

Adoption of technology

Prasetyantoko in his analysis (Kompas, March 6, 2018) suggested that the new growth model had to adopt technology. His thoughts were inspired by Schumpeter, which was later developed by Lucas. According to him, the new growth model has to adopt technology, especially on the monetary side, tax reform and structural transformation, which is directed to boost the development of technology-based industries (digital).

Prasetyantoko\'s thoughts are certainly all right. However, the problem is, is it true that with the adoption of the inclusive technology in these three sectors, the growth being achieved will eventually be enjoyed by everyone?

In reality, Rhee (2012) found that technology adoption, globalization and market reform are right on one side and result in high economic growth, but on the other hand they caused inequality and high unemployment in 11 Asian countries, including Indonesia. This is caused by the fact that technology adoption, globalization and market reform have resulted in machinery and skilled manpower being the production engines in Asian countries.

Therefore, the new model of economic growth -- which has to be implemented -- should not be limited to inclusive, competitive and technology adoption alone. The new economic growth model ideally has to emphasize the growth of human resource reform orientation, which is able to compensate for total factor productivity (TFP).

This kind of growth model certainly will not lead to the creative destruction of our economic structure, which is still dualistic. This model can even fortify and is able to accommodate the development of the era of the digital economy.

Various efficient fiscal policies to reduce human resource inequality, interventions to reduce regional inequality, as well as policies that are more oriented to job creation, are policies that should not be missed in the application this model.

In short, the new economic growth model to be applied should not be given entirely to the dynamics of technological development, but must also be adapted to the structure and complexity of the Indonesian economy, which still has a low quality of human resources. Mental revolution is necessary, but not sufficient for Indonesia.

Hopefully!

Carunia Mulya Firdausy, Professor of research, the Indonesian Institute of Sciences (LIPI) and professor at Tarumanagara University