Inequality in the Democratic Era
Editor’s Foreword
Kompas daily, along with the Asia Institute of the University of Melbourne, held a panel discussion themed “Indonesian Inequalities” on 8 July at the Kompas editorial offices in Jakarta. The panelists comprised Vedi R. Hadiz, John Murphy, Rachael Diprose and Ariane Utomo from the Asia Institute, with University of Indonesia lecturer Inaya Rachmani and SMERU senior researcher Athia Yumna. Coverage on the discussion that appears on page 16 of the 26 July 2019 print edition are provided by Ninuk M. Pambudy, Dewi Indriastuti, Antony Lee and M Zaid Wahyudi.
Indonesia’s economic growth in the past 30 years has led to improved welfare for all citizens. However, this is not distributed equally.
Inequality remains a relevant discussion topic, especially since the 1997-1998 financial crisis that brought about a regime change.
The birth of the democratic era brought new hope for improvements to the lives of the people through political participation in decision-making in the direct presidential and regional elections. This mechanism was expected to lead to equality, as the people could directly elect leaders to represent their practical and strategic interests.
Nevertheless, the data shows that inequality has declined at a slow pace, despite the government’s pledge to provide a variety of social assistance. Data from the Social and Economic National Survey (Susenas) from 2000 to 2018 cited by the SMERU Research Institute reveals that 10 percent of the richest Indonesians owned 30 percent of national wealth, while 40 percent of the bottom population owned only 16 percent of national wealth. The economy has grown at around 5 percent since 2013, while the number of poor people has continued to decrease, albeit at a slower pace, from 12 percent in 2015 to 10 percent in 2018. Meanwhile, the country’s Gini coefficient has dropped from 0.41 to 0.39 during the same period.
Inequality has persisted in Indonesia since the 1970s: The Gini coefficient was 0.39 in 1978, 0.32 in 1980, 0.36 in 1996, and 0.31 in 1999. The Gini coefficient measures inequality and is a ratio with values between 0 and 1. The higher the Gini coefficient, the wider a country’s inequality is.
Following the economic crisis, Indonesia’s Gini coefficient increased to 0.41 from 2011 to 2015. High commodity prices in the global market in the late 2000s and early 2010s contributed to this inequality, with unequal access to natural resources. When the price of export commodities like coal and palm oil declines in the global market, the Gini coefficient also declines. In other words, the effectiveness of social welfare programs in reducing inequality must be reviewed, such as the direct cash assistance and the programs of the Healthcare and Social Security Agency (BPJS).
Social discontent
The SMERU study by Suryahadi et al. shows that the large amount of direct cash assistance for the poor has had limited impact on reducing inequality.
The lack of consistent and dedicated efforts in resolving inequality will give rise to social discontent. The Fragile States Index 2019 of the Fund for Peace shows that Indonesia’s resilience has improved since the previous year, excepting the three issues of potential conflict among the elite, population pressure and social discontent.
Unresolved inequality will hinder economic growth and negatively impact the capacity of economic growth to reduce poverty. A Gini coefficient above 4 indicates the increased possibility of violent social conflict.
The government has strived to improve access and use of economic, social and political resources. In terms of gender equality, the working Cabinet has the largest number of female ministers in the country’s history.
The government has launched a variety of programs to help the poor, including direct cash assistance, the food for the poor program, national health insurance, educational assistance and subsidized interest rates for micro, small and medium enterprises.
Inequality in Indonesia today is addressed mostly through religion, which urges adherents to be patient. At the same time, however, identity politics thrives. People join forces with others who are perceived to share the same identity to fight for their aspirations. Religion is currently the most dominant type of identity.
Resolving inequality
As long as the problems at the root of inequality persist – unequal access to and use of economic, social and political resources – inequality cannot be overcome. This also holds trued for other countries, including wealthy countries like the United States.
The World Bank recognizes at least four causes of inequality. First is unequal opportunity for poor families in accessing government assistance, such as in education and health. Second is unequal employment, in which highly skilled workers earn much higher salaries then unskilled workers who tend to become trapped in low-paying jobs.
Third is wealth concentration in only a few people, who accumulate wealth through financial assets obtained through various illegal means, including corruption, the illegal drug trade and the illicit exploitation of natural resources. Fourth is the more frequent occurrence of economic tremors that increase the vulnerability of the middle class to slip back into poverty.
The large informal sector is a problem for the national social insurance program (via BPJS), particularly in developing pension programs and health insurance.
The government covers the pension premiums for civil servants (ASN) and members of the security forces – the National Police (Polri) and the Indonesian Military (TNI). This leads to inequality for elderly citizens who are not members of the ASN, Polri or the TNI.
In terms of gender imbalance, the appointment of female ministers and electing female lawmakers will not immediately improve female representation in political decision-making. Improvements must also be made in women’s access to decision-making roles at the village and district levels, and in development planning bodies to accommodate the interests of women and children in budget planning and allocation.
At the individual level, marriage can boost vertical social mobilization. The available data shows that people tend to marry within the same ethnic, religious and educational orientation. As a result, it is difficult to resolve urban-rural and employment inequality in the regions.
Resolving wealth inequality requires the bold implementation of structural changes to improve access to economic and political resources, and creating more inclusive policies for more sustainable improvements to wealth and to push for higher economic growth.