Quality Matters in Growth

KOMPAS/AMANDA PUTRI NUGRAHANTI

Andreas Lako

At the beginning of February 2019, Statistics Indonesia (BPS) released data putting 2018 national economic growth at 5.17 percent, higher than the 5.07 percent measured in 2017. Despite the trend of increasing economic growth since 2016, some people have responded negatively to the latest figures.

The economic growth of 5.02 percent (in 2016) to 5.17 percent (in 2018) is considered too low and of inferior quality. The ideal growth rate, many say, would be 7 percent. Some politicians even berated President Joko “Jokowi” Widodo for failing to lead the state, because – in the 2014 presidential election campaign – he had promised Indonesia\'s economy would grow at 6-7 percent. Is it true that Indonesia\'s economic growth in the 2016-2018 period is not yet ideal and lacking in quality? No, and here’s why:

Quality growth

I think critics have been misguided in assessing the essence of economic growth in the Jokowi-Jusuf Kalla administration. Apart from comparing it only with the magnitude of growth in the SBY-Boediono government, which exceeded 6 percent in 2010-2012, the basis of the assessment is still bound by the old economic growth paradigm based on the greedy capitalist economy. The capitalist economic paradigm assesses the success of a government based on the rate of economic growth achieved in a certain period. The higher the growth rate, the better the performance and vice versa.

Critics of the capitalist economy-based growth regime note that the rate of growth may be obtained in unethical ways, namely by exploiting natural resources, damaging the environment or extorting people. As a result, escalating environmental damage or an increasingly serious social crisis may lie behind high economic growth. The costs and risks borne by the state and the wider community are very large as the socioeconomic gap between groups of people widens and social radicalism arises.

At the Rio+20 Earth Summit in Brazil in June 2012, world leaders agreed to abandon the paradigm of capitalist economic growth, because it seriously threatened the sustainability of the earth, society and economic growth itself. As its replacement, they proposed the Green Economy concept that is more friendly to the environment and community (Lako, 2015). The aim is to produce growth that is more friendly to society and the environment.

The Green Economy concept then encouraged world leaders to formulate the 2015-2030 sustainable development goals (SDGs). The development concept, which states 17 objectives with 169 targets to be achieved, was approved by 193 UN member states (including Indonesia) on Oct. 25, 2015.

Since 2016, Indonesia has included the SDG concept in national development planning and implementation. The new paradigm integrates and takes into account all aspects of regional or national environmental, community and economic interests in an integrated and sustainable manner in national  development governance. The movement, labeled as Go Green, Green Economy, Green Industry, Green Investment, Green Business or Green Management, has intensified in the past few years to realize the SDGs and generate sustainable economic growth or more friendly and fair green growth for the benefit of society and the environment.

Therefore, Indonesia\'s economic growth has actually been more qualified since 2016 than in the preceding years, because growth is generated from a development process that takes into account environmental, social and economic aspects in an integrated and sustainable manner (Lako, 2018).

Boosting green growth

Another important thing to realize is that the Indonesian economy during the Jokowi-Kalla era suffered two serious blows. In the first blow, the Indonesian economy was affected by a global economic recession in the 2013-2018 period. The recession had a negative impact, eroding elements of the national economy. That is why, in the 2013-2015 period, economic growth continued to decline from 6.23 percent (2012) to 5.56 percent (2013), 5.01 percent (2014) and 4.78 percent (2015). Meanwhile, in the 2016-2018 period, even though it was still under pressure, the Indonesian economy improved and grew above 5 percent.

The second blow was the growth of the digital economy (Economy 4.0). Data or information technology-based businesses have developed rapidly in Indonesia since 2014. The impact of this is not only eroding the economic contribution of business entities based on the capitalist economic model (Economy 3.0). It also causes serious stammering on the part of the government in recognizing and evaluating its economic value and regulating its obligations.

This stammering caused the trend of growth in state revenue from taxes during the 2014-2017 period to slow down. This can be seen from the downward trend in the tax ratio from 13.6 percent (2013) to 13.1 percent (2014), 11.6 percent (2015), 10.8 percent (2016) and 10.7 percent (2017). Meanwhile, in 2018, as the government became increasingly skillful at identifying and regulating tax obligations for new economic entities, tax revenue began to increase rapidly. The tax ratio in 2018 rose to 11.50 percent.

The thing we must be grateful for is that, despite being hit by the two blows, economic growth since 2016-2018 has continued to rise and has had a positive impact on people\'s welfare. First, it reduced poverty from 28.51 million people (2015) to 25.67 million people (2018), or down by 11.1 percent. Second, it created jobs for around 8.5 million people and reduced the open unemployment rate from 6.18 percent (2015) to 5.34 percent (2018).

Third, it reduced economic inequality among groups of people. Inequality, as measured by the Gini ratio, fell from 0.402 (2015) to 0.384 (2018). In fact, during the SBY-Boediono era, this ratio had climbed from 0.378 (2010) to 0.414 (2014). Fourth, it increased per-capita GDP from Rp 41.9 million (2014) to Rp 56 million (2018), up by 14.1 percent.

Positive impacts

These positive impacts indicate that the economic growth from 2016-2018 was qualified and equitable.

The reason for this is that the growth was generated from: 1) an SDG-based development process that combined aspects of economic, social and environmental interests in a sustainable manner; and 2) the

development process was hit by a global slowdown. Moreover, this growth also has had a positive impact on reducing poverty, unemployment and social inequality as well as regional disparities. The growth also has had a positive impact on people\'s welfare.

From the explanation above, it can be concluded that the SDG-based development model that began to be implemented by the government in 2016 was appropriate, because it has resulted in sustainable economic growth or quality economy growth. Therefore, if green economic growth or quality economic growth will be boosted, the government must continue to consistently implement the SDGs and make the economic structure and processes greener through national economic governance.

If this is successfully conducted, economic growth in 2019 and the following years will definitely be higher and of higher quality. This green growth will have a positive impact on achieving the 17 Indonesian SDGs for the 2015-2030 period and the ideals of creating a just and prosperous society, as well as a sustainable Indonesia.

Andreas Lako, Professor of Accounting; Head of Doctoral Program of Environmental Sciences of Soegijapranata Catholic University, Semarang