POLITICAL ECONOMY DYNAMICS IN MAINLAND AMERICA
ARIZONA STATE UNIVERSITY
POS 485 - POLITICAL ECONOMY
WEEK 4
6.1.
WILL THE OBAMA ADMINISTRATION BUILD UNITY IN THE AMERICAS?
After the beginning of April, Barack Hussein Obama visited Europe Obama first attended the
G-20 Summit in the UK in his capacity as head of state, the NATO Summit in Strasbourg,
France, marked by the return of France to NATO after President Charles de Gaulle declared
his exit from NATO more than 40 years ago, the United Europe Summit in Prague, Czech
Republic and approached the Islamic world through Turkey for 2 days which brought out the
discourse, that America will never go to war with the Islamic world, and visited neighboring
Mexico before the swine virus, then this time, Obama rekindled friendship with the countries
of the Americas starting with Venezuela. For more than 100 days of his administration, his
balance sheet has been dominated by foreign relations with key partners and immediate
neighbors.
A. The moment the Monroe Doctrine was abolished:
His visit to Europe was a historical moment and erased the bad memories of the Monroe
Doctrine, a doctrine put forward by American President James Monroe who in his discourse
on December 2, 1823 stated that all European countries' interventions in the Americas were
considered as aggression, including in America's backyard, Latin America. If any American
country was attacked by another, then the United States and other American countries were
obliged to help it. A doctrine that had a double meaning towards Cuba and never materialized
during the Malvinas (Falkland Island) war between Britain and Argentina in 1981.
B. Normalization with Venezuela:
In the context of the Summit of the Americas, there are interesting events and notes that
should be observed before and after the Summit. First, the Summit of the Americas in
Trinidad & Tobago in the third week of April served as a moment for the Obama
administration to re-establish its governmental relations, which had been tenuous and even
severed since the eight years of the George W. Bush administration. Bush with Central and
South American countries such as Nicaragua, Venezuela, Equador, Argentina, Brazil, Chile.
While meeting Venezuelan president Hugo Chavez, on Friday, April 17, 2009, Obama stated I
am your friend, while shaking hands, Chavez stated I received president Bush 8 years ago but
after that, our relationship became disconnected. The normalization of America and
Venezuela is marked by the immediate opening of embassies in each country, after September
2008 when American diplomats were unilaterally expelled by Chavez. While giving Obama a
book entitled "Open Veins in Latin America" which discusses the plundering of natural
resources in Latin America in the 15-20th century. Secondly, Central and Latin America have
been the subordination or even the backyard of the United States as a consequence of the
Monroe Doctrine in 1823. Therefore, it is only right that Chavez expects the Obama
administration to no longer consider Latin America as its backyard. Obama, in his meeting
last Friday, promised to make Latin America an equal strategic partner without junior and
senior partners. Third, the Summit of the Americas this time was marked by the loss of
America's prestige as the world's financial center after the subprime morgage crisis. However,
the country's military dominance remains a superpower and plays a political role on the
American mainland and internationally, although it has tended to become egalitarian in the
100 days of its administration and the dictating attitude of its government has almost
disappeared. Fourth, this summit has a high bargaining position for Latin American
countries, mainly from the independence of Latin American countries from the pressure of the
Washington Concensus, especially the IMF and World Bank for their shrinking loans and
mutually beneficial renegotiation of their energy resources with multinational companies
operating in their territory. Fifth, this summit is characterized by the increasing dominance of
Bolivarism in Central and South American countries such as Venezuela, Bolivia in Latin
America and Nicaragua, Honduras, in Central America and the Dominican Republic, Saint
Vincent in the Caribbean sea.
C. Normalization with Cuba?
Will the Obama administration normalize relations with Cuba, which have been severed
since February 7, 1962? Since 47 years ago, the John F. Kennedy administration placed a total
embargo on trade with Cuba as a consequence of the cold war due to Cuba's perceived
unilateral rapprochement with the Soviet Union. Today, the Obama administration has not
taken any meaningful steps towards lifting the embargo. In fact, Obama himself stated that the
removal of the embargo will be the next step in the future, after last week, some restrictions
on trade with the island nation were removed, such as the removal of the ban on Americans of
Cuban descent sending money (remittances) to their families in Cuba. The Obama
administration seems to be taking a cautious and gradual step with Cuba, especially
considering the discontent of its supporters at home, some of whose families are victims of
the repressive regime of Fidel Castro, as opposed to the bleak life and future of the country's
people in the cities in front of Miami such as Havana, Pinar de Rio, Ciego de Avila, Santiago
de Cuba, as well as Guantanamo, which is an American prison on mainland Cuba, although in
fact, Central American countries, the Caribbean region neighboring Cuba and the South want
drastic steps to completely remove the embargo. Amidst the high bargaining power of these
Latin American countries, the Summit of the Americas faced the threat of a boycott from
bolivarian countries that refused to sign the joint communiqué at the summit. These countries
expressed dissatisfaction with the stalemate in negotiations to lift the embargo on Cuba.
Despite the threat of boycott, we need to positively welcome the Obama administration's step
forward that no longer dictates in its foreign relations. Hopefully this egalitarian attitude will
also apply to the APEC meeting in Singapore in November 2009, because since the 2000
summit in Brunei, APEC has arguably not improved significantly due to the Bush
administration's dictatorial attitude.
6.2.
THE RISE OF BOLIVARISM IN THE AN- DES MOUNTAIN REGION:
The Andes, a name we're all familiar with. The mountains which extends from Columbia,
Ecuador, Chile, to Punta Arenas and Ushuaïa in the southern part of Argentina bordering
Chile. A name once immortalized in the failed economic cooperation pact between Columbia,
Ecuador, Chile, Bolivia, Paraguay through the Andean Pact. The failure was not only due to
the homogeneous products of the Andean mountain countries, which are based on agriculture,
but also because the countries of the region had only one market mouth, the United States.
The economic revival of the Andean region is actually a starting point to erase the bad
memories of the Monroe Doctrine in the region, a doctrine put forward by American President
James Monroe who in his discourse on December 2, 1823 stated that all European countries'
interventions in the Americas were considered as aggression, including in America's
backyard, Latin America. If any American country was attacked by another, then the United
States and other American countries were obliged to help it. A doctrine that had double
meaning towards Cuba and never materialized during the Malvinas (Falkland Island) war
between Britain and Argentina in 1981. The loss of the Monroe Doctrine was initiated by
first, Rafael Corriera, President of Ecuador who did not renew the contract of the American
military base, replacing it with an international port base.
Second, the revival of Los Olomos, Peru. Los Olomos is simply a giant dam sourced from
the mountains of eastern Peru. However, because its function is to supply water to the western
region of Peru by passing through an 18 km tunnel, with a rock structure that is hard and
prone to earthquakes, Los Olomos is special because it can prosper the Peruvian people in the
Pacific part of the Andes mountains. Anyway, Machupitchu II was born in Peru.
Third, Chile. So far, we only know Marcelo Salas, who has played at Marseille, Lazio and
Juventus, or Colo-Colo who has been Toyota Cup finalist in 1991 before being defeated by
Red Star Belgrade (Sverna Svedza). So far, we know Chile as one of the international tourist
destinations such as Easter Island, the Aconcagua mountain range, which was once the
background of a cigarette advertisement in Indonesia, but look at what is contained in the
bowels of the Chilean earth, even though for the past two days, several TV stations in Europe
have presented a reality show of the rescue process of 33 Chilean miners starting from the age
of 31, to the last miners' leader who is 54 years old. President Sebastian Pinèra and the last
rescued miners' leader have shown us how to be a leader who solves the nation's problems.
Apart from the fact that he has everything, including the owner of a private TV station, but his
ability to encourage his people to try to unite to save 33 workers, despite borrowing NASA's
help, spending up to US $ 20, - million, not including camping in the mine area, reading
letters from surviving workers, to deploying underground endoscopic cameras is a unique and
happy lesson, because even those of us who watched live had tears of sadness mixed with joy
to imagine how the mine workers, presented food in the bowels of the earth to their colleagues
and the president who waited until the last miner was safe.
6.3.
OBAMA AND UNCLE'S BACK PORCH SAM:
In early April 2009, Barack Hussein Obama visited neighboring Mexico before the swine
virus. For some, the visit was normal as a head of state. Moreover, it followed the Summit of
the Americas in Trinidad & Tobago. At that time, Obama rekindled friendship with the
countries of the Americas in the southern region, starting with Venezuela. During the Bush
Junior era, the relationship was less harmonious, as Latin America was still perceived as
Uncle Sam's backyard due to its heavy dependence on markets in the northern hemisphere.
A. Normalization and Partnership Align:
Historically, the Summit of the Americas in Trinidad & Tobago was the starting point for
normalization and building equality in the Americas. The summit, which took place in the
third week of April 2009, served as a moment for Obama to re-establish the long-standing
relationship that had been severed since the George W. Bush administration.
W. Bush with several Central and South American countries. The normalization with
Venezuela was the starting point for Obama's first visit to Brazil, Chile and El-Savador from
March 19-23, 2011.
Two years ago, while meeting Venezuelan president Hugo Chavez, on April 17, 2009,
Obama declared I am your friend, language reciprocated, Chavez declared I received
president Bush 8 years ago, but after that, our relationship became disconnected. The
normalization of America and Venezuela was marked by the immediate opening of embassies
in each country. In September 2008, American diplomats were unilaterally expelled by
Chavez. While giving Obama a book titled "Open Veins in Latin America" which discusses
the plundering of natural resources in Latin America in the 15-20th century AD.
This visit is meaningful because, firstly, Latin America has been a subordinate and even
shadowy backyard of the United States. This was a consequence of the James Monroe
doctrine on December 2, 1823, which stated that all European interference in Latin America
was considered aggression. Indeed, at that time, Latin American countries had almost no
power, including economically, due to the import substitution strategy promoted by
structuralists such as Raoul Prebisch, Celso Furtado, Andre-Gunder Frank and Samir Amin.
However, the current conditions are certainly different from the economic side, which is
marked by the economic revival of the region led by Brazil.
Second, this visit was clearly marked by the loss of America's prestige as the center of the
world's financial empire after the subprime morgage crisis. However, the country's military
dominance remains a superpower and holds a political role on the American mainland as well
as internationally. Although currently The U.S. has become less egalitarian and less dictatorial
and lost its military base in Ecuador after Rafael Corriera's contract was not renewed, but the
U.S. still has a reserve military base in Colombia, which has often been a problem with
Venezuela.
Third, the visit has a high bargaining position for Latin American countries. In terms of
independence, Latin American countries can be said to be free from the pressure of "the
Washington Concensus" mainly the IMF and World Bank for their shrinking loans and
mutually beneficial renegotiation of their energy resources with multinational corporations
operating in the region. From the 1980s to the end of the 20th century, the region was known
as the MBA countries as Mexico, Brazil and Argentina became heavily indebted due to
domestic political instability and the tequila effect of the 1994 debt crisis in Mexico due to
the collapse of tesobonos and cetes, two Mexican government bonds in US dollars and pesos.
Fourth, this visit is characterized by increasing bolivarism in Central and Latin American
countries. In fact, Central American countries, especially the Caribbean region neighboring
Cuba and Latin America, want drastic steps to completely lift the embargo on Cuba, amidst a
high bargaining process in these countries.
B. Cuba is bypassed:
For almost two years now, the Obama administration has not normalized relations with
Cuba. Diplomatic relations have been severed since February 7, 1962, when the John F.
Kennedy administration placed a total embargo on trade with Cuba as a consequence of
Cuba's perceived unilateral engagement with the Soviet Union. To date, the Obama
administration has not taken any meaningful steps toward lifting the embargo. Obama himself
has only thrown heaven's wind that the removal of the embargo will be the next stage in the
future. In April 2009, several restrictions on trade with the island nation were lifted, including
the removal of a ban on remittances to Cuba. Obama seems to be taking an uncertain and
gradual cautious step with Cuba. This is because He certainly does not want to lose the votes
of his supporters in his country, some of whose families are victims of the repressive regime
of Fidel Castro. The omission of this embargo is inhumane because it is in line with the bleak
life and future of the people of the country in the heart of the Caribbean. Hopefully, the
Obama administration's egalitarian stance will become universal in the Latin American region
before it is overshadowed by the post-Che Guevara, anti-capitalist generation that has
emerged in the social democratic countries of the European Union.
POLITICAL ECONOMY DYNAMICS IN CENTRAL ASIA, SOUTHEAST ASIA AND
EAST ASIA
7.1.
DISASTER IN LAKE ARAL AND ISLAMOPHOBIA:
Is there a connection between the disaster at Lake Aral and Islamophobia? It is a question
that, if you think about it, is either far-fetched or deliberately made up to increase negative
sentiment towards Islam in mainland Europe. However, if you look at European TV channels,
the terms terrorist islamique, or les rebellions islamiques cuacasiennes (Islamic rebels in the
Caucasus highlands) or la montée de fondamentaliste islamique (the rise of the Islamic
fundamentalists) are some of the terms that are deliberately invented to evoke the horror of a
violent Islam. Claire, our French teacher in Montpellier in 1992, asked some of us Muslim
students why Islam is always identified with violence, while during the 6 months you lived in
Montpellier and interacted with us, we saw your friendly behavior. We united to explain the
essence of Islam and the role of the international Jewish media to straighten out the distorted
information. This Islamophobia has also reached Central Asia, where Lake Aral is located.
The lake, which covers the same area as the landmass of Central Sulawesi (68,000 km square)
although it remains a memory and a nostalgia. According to Google, the lake used to be the
world's largest inland fishing industry and even prospered the surrounding communities in the
cities of Aralsk and Novo Kazavik. Tragically, the two cities that were once located on the
shores of Lake Aral are now further apart, with approximately 114 km separating them. The
Soviet Union's irrigation program by diverting the main sources of Aral lake water, the Syr
Darya (Syr river) and Amu Darya (Amu river), has led to the catastrophic destruction of not
only flora, fauna and other ecosystems, but even a barren desert with a pungent smell and dust
scattered in summer. Even the photos on the site show ships that were once sunk at the bottom
of the lake very clearly.
One of the TV channels of the French-German cooperation TV Arte (www.arte. tv) based
in Strasbourg last year mentioned that the Soviet Union's irrigation project, not only failed for
the country, but caused disasters in five Central Asian countries (Kazakhstan, Kyrgyzstan,
Turkmenistan, Tadjikistan, Uzbekistan). Being a failed program, Michael Gorbachev
immediately stopped the program midway, but it was too late, irrigation could not be enjoyed,
the Aral lake or Aral sea also experienced degradation and destruction of the ecosystem that
languished incomparably. Worse still, the TV station reported the dumping of industrial and
nuclear waste into the lake that was once the belle of Central Asia. In fact, the results of
NASA (National Aeronautic Space Administration) photos on the Google site say that the
water discharge is only 10 percent of its original area.
As if paying for the mistakes of the Soviet Union in the past, TV station Arte reported that
Russian mayors are currently building irrigation networks from Siberian rivers such as the
Irtish River, Ob River, Oba River through to Central Asian countries where construction is
underway. Only behind the purpose of irrigation construction, the TV network implicitly
reported that the hidden purpose of irrigation construction is that the Russian mayor wants to
stem the emergence of terrorists from the Central Asian country because it borders
Afghanistan and Iran, which can spread to Russian territories such as Astrakhan, Dageztan,
such as the Chesnia uprising, and in the past, Taskent was the capital of Uzbekistan and
Buchara City was the center of al-hadith education and the birthplace of the narrators of the
hadith of the prophet. The true purpose was not disclosed while damming the Syr Darya and
Amu Darya.
On the other hand, it seems that France was able to convince Tadzikistan of this condition
by letting its airport in Dussanbe be rented as one of the French military bases in Asia like in
Dubai or in Djibouti City, on the shores of the Gulf of Aden. Actually, that is the main
purpose in damming the Aral lake. Presumably, God's warning in AR-RUM verse 41 will
certainly be a reflection for all of us "there is destruction on land and in the sea caused by
human hands".
7.2.
ASEAN ECONOMIC COMMUNITY 2015:
In three days, the ASEAN Economic Community 2015 enters a new era. This era is part of
economic liberalization in ASEAN based on a common market. Various questions have long
been raised both among the public, private sector, government and non-governmental
organization activists. Is our country ready or is it just a fan or loser of neighboring countries
that often play pranks on Indonesia? What benefits will Indonesia get? Could it be that
Indonesia is just becoming a new target market for other ASEAN member countries because
the domestic demand is large? Then this is what encourages heavy imports that burden our
trade balance?
The ASEAN Blueprint towards the ASEAN Economic Community (AEC) 2015 was
signed at the Thirteenth ASEAN Summit in Singapore in November 2007. However, the
process leading to the signing of the blueprint had begun at Bali Concorde II in October 2003
which became one of the three pillars of ASEAN Vision 2020 in addition to the ASEAN
Security Community (ASC) and ASEAN Socio-Cultural Community (ASCC). The ultimate
goal of ASEAN Vision 2020 is 'to create a stable, prosperous and highly competitive
economic region in which there is a free flow of goods, services, investment, skilled labor and
a freer flow of capital, equitable economic development and reduced poverty and socio-
economic disparities in the year 2020' (www.aseansec.org).
To achieve the ASEAN 2020 vision, the 2007 Singapore Charter is supported by four AEC
pillars, namely first, ASEAN as a single market and international production base which
includes five important elements namely the free flow of goods, services, investment, skilled
labor and freedom of movement of capital. Second, ASEAN as a highly competitive region
which includes six important elements namely competition regulation, consumer protection,
intellectual property rights (IPR), infrastructure development, taxation and e-commerce.
Third, ASEAN as a region of equitable economic development which includes two important
elements namely small and medium enterprise development and ASEAN integration
initiatives for ASEAN underdeveloped countries such as Cambodia, Laos, Myanmar and
Vietnam. Fourth, ASEAN as a fully integrated region in the global economy which includes
two important elements namely economic cooperation outside the region and ASEAN's
increased participation in global production networks.
After eight years of the strategic schedule for the ASEAN Economic Community, the
roadmap to AEC 2015 is evolving. Since the preferential tariff agreement (1977) followed by
AFTA (1993), intra-ASEAN trade has only accounted for an average of 25 percent of
ASEAN's total trade and Gross Domestic Product. Meanwhile, intra-EU trade, NAFTA,
Mercado Common del Sur (MERCOSUR) reached 67 percent, 45 percent and 15 percent
respectively. On the other hand, the share of intra-ASEAN trade to ASEAN Gross Domestic
Product is also only around 25 percent. Compared to the European Union, NAFTA,
MERCOSUR, this value reaches 38 percent, 10 percent and 4 percent, respectively.
By 2010, the Common Effective Preferential Tariff (CEFT) was only 0.9 percent, down
from 4.4 percent in 2000. Currently, the AEC 2015 targets set out in the Singapore charter
have been achieved 73.6 percent. The achievement includes the first pillar has been realized
82 percent, the second pillar 50 percent, the third and fourth pillars have been achieved 100
percent each. In the context of AEC 2015, the author's review only focuses on the first pillar,
namely becoming ASEAN as a single market and regional production base.
The ASEAN Economic Community is a replication of the European Economic Community
(EEC) in the past. Various obstacles will be faced by ASEAN in realizing the AEC in the
form of first, there are differences in the background behind its formation, namely the
dominance of the spirit to maintain regional stability is more dominant than the desire to
realize economic progress. Second, ASEAN is weak in terms of institutions because
experience shows that ASEAN is not a supranational economic institution like the European
Union that can oblige and bind members to implement macroeconomic policies uniformly.
Third, the realization of AEC was accelerated from 2020 to 2015 only because of the threat of
increased economic progress of China and India, which are ASEAN's main competitors both
in the East Asian market, especially Japan, as well as in the EU and US markets. Fourth,
there are wide development disparities among the ten ASEAN member states. Singapore is
the most developed country in ASEAN. Malaysia, Thailand, Philippines, Indonesia are
developing countries, while Cambodia, Laos, Myanmar and Vietnam are poor countries in
ASEAN. Fifth, ASEAN does not have a prime mover country that plays a major role towards
AEC 2015 like the role played by Germany and France in the European Economic
Community (EEC). This is because ASEAN is experiencing a leadership crisis and no country
stands out as a prime mover due to its voluntary nature. Sixth, ASEAN countries are more
focused on pursuing policies based on their own national interests rather than shared regional
interests. Seventh, since the share of intra-ASEAN trade in both total regional trade and GDP
is only 25 percent, although ASEAN members do not compete in the ASEAN region market,
these countries compete intensely in the markets of Japan, China, the European Union and the
United States. Eighth, the author's research shows that in ASEAN, based on trade data of
ASEAN countries, the actual complementarity index of trade products based on the three-digit
Standard International Trade Classification (SITC) is very high approaching an index of 100.
This means that the future of AFTA is very promising. However, this is not enough to realize
AEC 2015 as a single market and production base due to the homogeneity of each country's
trade products that encourage competition among ASEAN countries themselves.
To analyze Indonesia's challenges towards the Economic Community As ASEAN 2015
takes the form of a single market and production region, it is worth looking at the five
elements of AEC 2015. First, the free flow of goods. Since the entry into force of AFTA in
1993, intra-ASEAN trade has remained static at below 30 percent of total trade and GDP.
Although intra-ASEAN trade has increased, Indonesia's contribution to intra-ASEAN exports
was only 14.6 percent in 2011, and Indonesia's trade balance has been in deficit with ASEAN
with an increasing trend in November 2015. This indicator shows that during the
implementation of AFTA, Indonesia's foreign trade performance was very inferior compared
to other members. The policy implication is that, currently There are signs that Indonesia has
become an easy target for the products of other ASEAN member countries, and this
phenomenon has even led to the deindustrialization of the manufacturing industry, MSMEs as
a consequence of the flood of products from these member countries.
However, of course, we cannot ignore the benefits received by Indonesia in the form of
efficient impacts. The removal of tariff and non-tariff barriers encourages Indonesian
producers to make profits because their products are competitive in the ASEAN market. For
consumers, they benefit from having goods that are abundantly available at low prices. We
see this in the electronics and information and communication technology industries. As the
country with the largest ocean area, Indonesia can benefit from a fisheries industry based on
comparative advantage. Of course, it must be supported by the government's partiality for
traditional fishermen who have been marginalized in the midst of modern equipment owned
by fishermen from neighboring countries. In addition, our Navy is able to secure our seas
from the looting of fishermen from neighboring countries that harm Indonesia, which
generally occurs every month which ends with "BER". The policy of the Minister of Maritime
Affairs and Fisheries to sink foreign fishing boats must have a deterrent effect on foreign
fishermen who enjoy stealing fish in Indonesian waters.
We are not blind to the potential for competition with Malaysia on rubber products and
wood products which are two of the twelve priority products in the Common Effective
Preferential Tariff (CEPT) mechanism in addition to agricultural products, air transportation,
automotive, e-ASEAN, electronics, fisheries, health, logistics services. So far, ASEAN's
export products are dominated by electronics, oil and its derivatives, machinery which has led
to competition among ASEAN countries in the markets of Japan, America, the European
Union and China.
In accordance with the roadmap towards AEC 2015 that relies on the ASEAN single
market and production base through economic integration, Austria (2004) found that trade
integration occurred in the five founding countries of ASEAN. However, for Indonesia, trade
integration only occurred in health care products, rubber products, electronics and automotive.
As for Malaysia, trade integration occurs in agriculture, fisheries, health care products, rubber
products, wood products, textiles and textile products, electronics, ICT and automotive.
Malaysia's high trade integration indicates that the neighboring country is more prepared than
Indonesia to anticipate the single market and regional production base according to the
Grubel-Lloyd index.
Second, relying on the services sector in the form of tourism, health, aviation, logistics,
international trade in the services sector in ASEAN is only dominated by Singapore, Malaysia
and Thailand. The share of Singapore, Malaysia, Thailand in ASEAN services trade reaches
45 percent, 18 percent and 21 percent respectively. Meanwhile, Indonesia's share of services
trade in ASEAN only reaches 7 percent (www.aseansec.org). This means that Indonesia is
again behind and has not anticipated the AEC 2015. Specifically, intra-ASEAN tourism is
dominated by Malaysia, Singapore, Thailand and Indonesia. However, in 2006, Indonesia
occupied a much lower Travel & Tourism Competitiveness Index (TTCI) (rank 60) than
Singapore (rank 8), Malaysia (rank 31), Thailand (rank 43) in line with the low tourism
promotion budget which only reached US$15,- million, Singapore (US$60,- million),
Malaysia (US$50,- million) and Thailand (US$70,- million). In the health sector, Singapore,
Malaysia, Thailand are the main destinations for health tourism for Indonesians. Every year
the revenue from health tourism reaches US$482 million in ASEAN with a division of
US$420 million for Singapore and US$40 million for Thailand, the rest is Malaysia, where
70-80 percent of patients come from Indonesia. In aviation services, in ASEAN, Singapore is
the most liberal country in this industry. Indonesia should be able to take advantage of
domestic airline services whose passenger flow is increasing every year. The ASEAN Open
Sky Policy has two sides of the coin for Indonesia. On the one hand, this policy can encourage
population mobility between islands as well as connectivity between cities in Indonesia and
stimulate the development of hotels, the tourism industry, producers and distributors of goods,
catering. On the other hand, Indonesian airspace becomes a target for neighboring airlines to
gain sustenance, especially low cost carriers. In the logistics sector, so far in ASEAN,
Singapore's dominance has not been shaken.
Third, relying on investment elements, Indonesia must improve infrastructure availability,
macroeconomic stability, basic health and education, and exchange rate volatility. This is
reasonable because the World Bank says Indonesia's competitiveness is still below Singapore,
Malaysia, Thailand and the Philippines.
Fourth, on the element of perfect capital mobility, the financial markets of Singapore,
Malaysia and Thailand are more advanced than Indonesia. This is a challenge for Indonesia,
especially in strengthening and developing capital market integration and increasing capital
flows in ASEAN through capital account liberalization. So far, relatively speaking, financial
markets have not become a source of finance because the dominance of the banking sector as
a source of finance is still dominant in Indonesia.
Fifth, the relatively low level of education and skills of Indonesian workers compared to
Singapore, Malaysia, the Philippines and Thailand. The number of skilled Indonesian workers
only reaches 4.3 percent of the 1000 workforce, much lower than Malaysia which reaches
32.6 percent (Kompas, Friday, September 27, 2013).
The 2015 ASEAN Economic Community is only one of several stages towards economic
integration. As an intermediate goal, the AEC theoretically allows the ten ASEAN members
to evaluate their readiness. The benefits of efficiency, accumulation and agglomeration are in
sight (Krugman; 1990). However, if it remains unprepared to anticipate the swift flow of
liberalization in ASEAN, then Indonesia will become the main market for other countries'
products which will increase imports and further increase Indonesia's trade balance deficit and
cause exchange rate volatility pressures that can make the rupiah free fall against the US
dollar.
Compared to neighboring ASEAN countries such as Singapore, Malaysia, Thailand, our
country still has a competitive disadvantage among all elements of the first pillar of AEC
2015. Port costs in Indonesia are still among the most expensive in Southeast Asia. If in
Indonesia, operational costs at the port reach 19 percent of the total cost of business entities,
then in Malaysia and Thailand it only reaches 8 percent. In Singapore, the cost only reaches 5
percent. Cost and time The processing of investment documents in Indonesia is still the most
expensive and lengthy in Asia. The cost of investing in Indonesia is behind Lebanon, Yemen,
Saudi Arabia, United Arab Emirates, Laos.
In addition, the homogeneity of ASEAN member countries' export products is an obstacle
for Indonesia. This is because although competition does not occur intra-ASEAN, ASEAN
countries compete in markets outside ASEAN such as in Japan, USA, China and the
European Union.
So far, both Indonesia and other ASEAN member countries except Singapore have
experienced trade deflection, namely export products from non-AFTA countries entering the
AFTA region through Singapore, which has long applied a 0 percent tariff, then heading to
the final destination of other AFTA member countries. The stage towards economic
integration is no longer mandatory through customs uniformity (custom union), but directly to
the common market as a concrete manifestation of the ASEAN economic community in 2015.
7.3.
HEALTH TOURISM IN ASEAN AHEAD OF MEA 2015:
In three days, ASEAN member states will enter a new phase of regional economic
cooperation in the form of comprehensive liberalization of trade systems and certain service
sectors. Of the 12 priority sectors in the vision of realizing the ASEAN Economic Community
(2015), there are four service sectors that have been gradually liberalized since 1995 and are
targeted to achieve full liberalization by 2010, namely tourism, health, aviation services, and
e-ASEAN. Meanwhile, logistics is targeted to be fully liberalized by 2013. However, the AEC
vision is not without criticism, due to ASEAN's dominance at the political rather than
economic level.
In contrast to the trade liberalization negotiation process in the ASEAN Free Trade Area
(AFTA) framework, where the mechanism emphasizes on simplifying the trade system
through tariff and non-tariff reductions, the ASEAN Framework Agreement of Services
(AFAS) or framework agreement in the services sector aims to improve the efficiency and
competitiveness of the ASEAN services industry through diversification of production
capacity, increased supply and distribution of services among intra-service providers and
extra ASEAN and remove barriers to trade in services among members (ASEAN Secretariat;
2008).
The services liberalization round of negotiations was conducted through the reduction of
barriers in the context of four modes of supply from service providers to service users, namely
(i) remote provision of health services; (ii) health tourism; (iii) presence of foreign services in
the country; (iv) export of medical personnel.
First, telehealth services are services that capitalize on the opportunity of advances in
information technology in order to save operational costs by taking advantage of comparative
advantages in developing countries. The Philippines capitalized on this opportunity by acting
as a subcontractor to 25 American service companies that deliver medical transcription
services to the United States. The Philippines' advantage lies in the availability of English-
speaking medical personnel, although exports have only reached US$10 million, but provide a
great opportunity because imports of this service in the United States reach US$13 million per
year (Arunnanondechai-Fink; 2007). Outside of the Philippines, other ASEAN member
countries, including Indonesia, have not been able to capitalize on this opportunity due to
laws protecting the confidentiality of patient data, which is a barrier to this mode in addition
to English language skills.
Second, health tourism is provided by service providers in foreign countries to consumers
in other countries after the consumers have physically traveled to the service provider's
country. Three ASEAN countries have been particularly prominent over the past few years
such as Mouth Ellizabeth Central Hospital (Singapore), the island of Penang (Malaysia), and
Bangkok City (Thailand). Each year, 60 percent of health tourists in Thailand come from
Indonesia, while in Singapore this number reaches 45 percent of the total health tourists. In
addition to taking advantage of the opportunity of tourists from the middle to upper class from
Indonesia, Indonesian residents in the Sumatra region take advantage of this opportunity
because of the easy access without visa administrative procedures such as those utilized by
residents of the Riau Islands Province for health tourism in Singapore, Penang, and Johor
Bahru. When these tourists have returned to their home countries, especially Indonesia,
Hospitals in Bangkok, Singapore, Penang, Johor Bahru continue to do remote control even
after the patient has been declared cured as experienced by some colleagues in Tanjung
Pinang and Batam. A pattern of learning that follows health care in social democratic
countries. The Philippines and Vietnam, despite having limited equipment, are not lagging
behind in providing this service by opening up access to specialist eye care and plastic
surgery. Vietnam, on the other hand, opened up access to patients from Cambodia.
Presumably these two countries are taking advantage of language and service opportunities in
neighboring countries. Then what about our country? Indonesia, must first provide excellent
service for its own people, especially access and service behavior of medical personnel which
has become a complaint everywhere in addition to handling the invasion of pharmaceutical
company agents who try to work with medical personnel in the name of health services. The
existence of the Health Social Security Organizing Agency (BPJS-Health) is an institution
that guarantees people's health as long as it does not make the state budget allocation collapse.
Third, commercial presence is a service provided with
the presence of foreign service providers in Indonesia. A clear example is "Parkway Group
Healthcare", one of the largest financiers from Singapore working with several hospitals in
Indonesia, Malaysia, India, Sri Lanka and the UK, especially in urban areas to meet the
demand of the upper middle class who are reluctant to travel for health.
Fourth, the export of medical personnel is the direct provision of services in the form of
foreign medical personnel who have certain skills, for example there are currently doctors
from India and China practicing in Indonesia although they must pass medical certification in
Indonesia. After 2010, doctors from these countries will flood Indonesia, but this is
complementary, because Singapore is also short of doctors who are filled by doctors from
Malaysia and the Philippines, while Malaysia which is also short of doctors because they
work in Saudi Arabia and the United Arab Emirates is filled by doctors from India and
Indonesia. In Indonesia, 47 percent of doctors are concentrated in Java.
Each year, health tourism revenues reach US$482 million in ASEAN with US$420 million
going to Singapore and US$40 million to Thailand, with the rest going to Malaysia. The
White Elephant country is currently running a universal health care scheme that covers 80.4
percent of its population and has been running very well since its launch in 2001. In ASEAN,
most of the health costs come from neighborhood expenditure except Thailand and Malaysia
where the government sector accounts for 67.5 percent and 53.7 percent of total public health
costs, respectively.
7.4.
NUCLEAR STIGMA: BETWEEN TCHERNOBYL AND FUKUSHIMA:
In this world, there are 443 nuclear reactors spread across 30 countries. Of these, 50
nuclear reactors are in Japan, 104 in the United States and 58 reactors are in France. In the
course of nuclear reactor history, there were three nuclear disasters that had occurred on earth
before the Fukushima nuclear disaster a week ago. First, on March 28, 1979, precisely at
Three Mile Island. This disaster stemmed from a series of failures to cool the reactor.
Fortunately, the radioactive spread only occurred inside the nuclear installation. However, as
a consequence, 140,000 people must be willing to be moved, especially those who live within
a radius of 50 km around the reactor. The first nuclear disaster was categorized in level 5 of
the hazard interval 0 to 7. Second, the Tchernobyl disaster, Ukraine which occurred on April
26, 1986. Reactor number 4 exploded during a test run. This means that it has not yet
produced benefits and has caused prolonged danger until this moment. This is probably the
biggest nuclear disaster during human civilization. More than 25,000 Tchernobyl residents
lost their lives, tens of thousands were disabled for life and contaminated three-quarters of the
European continent. The disaster was in the 7th highest category so far. Third, on September
30, 1999, the Tokaimura nuclear disaster. This disaster is officially the result of human
error. As a result, two nuclear technicians lost their lives, 600 people were exposed to
radiation and 320,000 people had to be evacuated. The Tokaimura disaster was category 4 Of
course, there are differences between the Tchernobyl and Fukushima disasters.
First, in terms of causes, Tchernobyl was caused by human error. In contrast, the
Fukushima disaster was caused by the domino effect of the earthquake through the tsunami.
Secondly, in the Tchernobyl disaster, the government of the former Soviet Union lied to
the public. Not only that, they blocked access to information that could have prevented
casualties. On May 2, 1986, six days after the disaster, the only access to information was a
NASA satellite photo that only suggested something had happened on the Botnie Sea coast.
The government of the former Soviet Union reported only two fatalities. The name
Tchernobyl was not as well known as it is today. The disease of lying to the public spread to
its close ally ex East Germany. The findings of East German nuclear experts such as Professor
Klaus Kock, Dr. Sebastian Pleibeil who were shocked by the spike in radioactive radiation in
East Germany, Belarus and West Berlin were never followed up. Similarly, the findings of
French female biologist Michèlle Ravasi backfired on her in the form of angry actions by
vegetable, fruit and dairy farmers. Only Italy, Germany and the Scandinavian countries
explained the truth to their people and took precautions. On the other hand, in the Fukushima
disaster, we can access updated information at any time, although we may not necessarily
believe 100 percent of the reality. This is where the role of the government is to disclose as
clearly as possible without causing unrest as we have seen.
Third, in the vicinity of the Tchernobyl reactor, residents never The cost benefits of
nuclear energy are socialized, let alone preventive exercises in the event of a disaster. Sense of
crisis is not created at all, especially in a country that recognizes repressive power centralism.
Even the late country invited international bicycle racers to race in Kiev with the theme of a
peace race which is only about 100 km from the center of the disaster. In contrast, the faces of
the residents around the Fukushima reactors looked as if they had been evacuated. Not only
are they used to the reality of living around a nuclear energy plant, but their esprit de corp
deserves a thumbs up. Perhaps this is the legacy of Bushido that has been embedded since
Shogun Tokugawa during the Meiji restoration. Moreover, the Japanese population had
experienced two atomic bombings during World War II. Although the consequences, more
than 215,000 residents around 20 km of nuclear plants must be evacuated.
Fourth, it seems that in the minds of the residents of Fukushima prefecture, there is a
logical consequence that must be accepted between energy needs and consequences. If the
Tchernobyl disaster reached level 7, while Fukushima is currently one level below. It is
certainly our hope that various nuclear technicians from various countries can quickly deal
with it during these few days. Currently, there is a debate between the use of uranium and
thorium reactors to be built in Bangka Belitung, as we have learned in high school specifically
U236 and U238 . Unfortunately, the stigma of the dangers of nuclear radiation is more dominant
than the benefits received. This is because many babies born 25 years ago were born with
mental disabilities, suffered from tyroid cancer, leukemia, because radioactivity is odorless,
tasteless and colorless. Not to mention that the ranks of anti-nuclear mothers are very strong
in parts of Europe since 25 years ago.
In fact, nuclear plants account for 15 percent of the world's electricity. France as the
world's second power in the nuclear field alone relies heavily on this energy. 75 percent of
France's electricity comes from nuclear. In this country, it is not that there are no accidents.
Nuclear accidents in this country have never reached level 4. In October 1969, the Saint-
Laurent des Eaux nuclear reactor in the Loir et Cher region, central France, had a tolerable
accident. In March 1980, there were also anomalies (level 1) and incidents of level 2 and 3.
However, everything was contained. It is only the inhabitants of this country who are alarmed,
because the author's domicile is surrounded by four nuclear plants: Bugey, Saint-Alban, Cruas
and Tricasth with an average age between 15-32 years. Moreover, in a region traversed by the
Côte d'Azur Mediterranean medium-category earthquake fault, which could at any time have
effects similar to those in Japan.
Political Economy and Development Concepts
3.1.
Introduction:
In Chapter 1 and Chapter 2 we have discussed the definition of economics and the basic
principles of economics. From the principles of economic principles, mainstream economists
then build mathematical models to develop economics, this book will not explain the model
model, because this book is aimed at political science students, so the next chapter will
discuss more economic problems from the political aspect as a form of power relations. This
chapter will discuss what political economy is and the definition of development itself. The
definition of political economy is divided into at least two main schools and the definition of
development also varies depending on which school is adopted. The first definition defines
political economy as a rational choice approach to studying political phenomena. As
discussed in chapter 1, if economics is understood as a method or approach then economics
can explain and model many things, including politics. If politics is understood as a study of
power relations, then power relations studied with an economic approach as a rational choice
approach are called political economy. That's how an economist can talk about political
phenomena. In fact, if we open the syllabus of many of the world's top universities such as
MIT (Massachusetts Institute of
Technology), this definition of political economy is the core of their study.
This textbook will explain the concepts of economics and development. In full, this
textbook in chapter 3 explains the following:
1)
Political economy concept and definition of development
2)
Schools of Development Political Economy
3)
Classical School of Political Economy
4)
The School of State Intervention in Development
5)
Alternative Approaches: Developmental Theory and Post-Dependency Theory.
6)
Neo-Classical Perspective
7)
Washington Consensus
After studying this chapter 3, students are expected to understand political economy and
development, as well as the schools of thought.
3.2.
Presentation
3.2.1.
Schools of Development Political Economy
3.2.1.1.
Classical School of Political Economy:
The important role of markets in promoting economic development and wealth can be
traced to Adam Smith's notion in "The Wealth of Nation" known as "The invisible hand". His
famous line said, -It is not from the benevolence of the butcher, the brewer, or the baker that
we expect our dinner, but from their attention to their self-interest'. Others who further
developed his ideas were David Ricardo (1772-1823), Jean- Baptise Say (1767-1832), and
Robert Malthus (1766-1834). Based on this perspective, the pursuit of self-interest by
individual economic actors generates welfare. The result is created by competition in the
market. In their efforts to generate income, producers try to supply cheaper and better goods,
eventually making their goods cost as little as possible, thus maximizing national spending.
Most Classical economists assume in Say's Law, which argues that supply makes its demand.
The reasoning behind the idea of welfare is that every economic activity generates income
equal to the value of its output (H. Chang, 2014, p. 88).
Many authors have challenged Smith's claim to the idea of an invisible hand. For
example, John Maynard Keynes argued that the invisible hand or market mechanism cannot
fulfill the condition of full employment. To do so, government intervention is required. More
details on Keynes' ideas are in the next subtitle.
In addition, the classical perspective rejects the idea of government intervention, such as
protectionist policies. As a critical response to mercantilism, the classical perspective
promoted the idea of free trade initiated by David Ricardo. David Ricardo developed the
theory of comparative advantage. According to Ricardo, countries should specialize in a few
products that have comparative advantage rather than trying to produce all kinds of products.
With specialization, production will be more efficient; there will be more capacity for
development, and scarce resources can be used more effectively (Willis, 2011, p. 33).
The main drawback with this theory is that it avoids the importance of industrial
upgrading for economic growth and development, when we look at the relationship between
developing countries that have a comparative advantage in natural resources and developed
countries that have a comparative advantage in technology (Lin & Chang, 2009, pp. 488-492).
In the 1960s, the Japanese government was advised by some classical orthodox economists to
agree to free trade and eliminate policy protection for the automotive industry. They said
Japan and Korea at that time had no specialization in the automotive industry because they
had no comparative advantage in this sector. If Japan and Korea had followed this idea, now
Japan and Korea would not have been the world's largest automobile exporting country. There
would be no giant companies, such as Samsung or Hyundai in Korea today because Koreans
only produced wigs or wigs as their comparative advantage at the time (Chang, 2007, p. 109).
The classical theory also does not see the importance of the government's role in creating the
development and industrialized countries that have been successfully implemented in East
Asian countries. The emergence of industrialized countries such as Japan, South Korea, and
Taiwan is proof that the role of the state has a vital role in development.
3.2.1.2.
The School of State Intervention in Development:
There are two kinds of theories debating whether the state needs to intervene to promote
development. First, in some western countries, this concept is known as Keynesian Economic
Theory. Second, "in the Third World it is known as the
-The -developmental state‖ is a conception that parallels Keynesianism, which draws from the
idea of the importance of the role of the state, but differs in some ways, such as the idea of the
developmental state during the post-World War II years (Peet & Hartwick, 2009, p. 63).
In contrast to the perspective of classical economists, Keynesian economists put forward
the idea of state intervention to develop welfare rather than laissez-faire or invisible hand
mechanisms. John Maynard Keynes with his influential 1936 book, "A General Theory of
Employment, Interest, and Money", argued that the government can intervene in the market to
promote economic growth either through fiscal or monetary policy. For example, fiscal policy
mechanisms such as increasing government spending can encourage production in meeting
the demand for government goods. As a result, they will stimulate new jobs and will shift the
aggregate demand curve due to higher income.
On the other hand, if the economy is overproduced (inflationary gap), when real GDP is
above potential GDP, in order to push the economy to its potential GDP, the government must
reduce government spending. A decrease in government spending will reduce the production
of goods due to a decrease in aggregate demand. As a result, in the long run there could be a
decline in inflation. In the long run the economy will shift to meet their potential equilibrium
or potential GDP. (Mankiw & Taylor, 2014, pp. 637-675).
The emerging context of Keynesian economics is related to what happened in the
economic crisis known as the Great Depression in 1929 to the 1930s. Keynes' ideas were then
-drawn up in the post-war period in the form of state intervention in development‖ (Willis,
2011, p.35). In the United States, his ideas were adapted by the Roosevelt administration with
the new deals policy. Roosevelt increased spending to stimulate economic recovery from the
recession.
However, Keynes' theory does not speak directly to the development context; it only
focuses on explaining how to deal with a great depression or economic recession as a short-
term response rather than development issues in terms of technological progress or
institutional change. In the long run, he said 'we are all dead' if we follow his ideas. For the
long term, in relation to development, technology and demography are the basic requirements
for development progress to improve welfare (Chang, 2014, p. 115).
In the context of East Asian countries, some countries have adopted the idea of -the
developmental state‖. According to Chalmer Johnson (1982), Japan and other East Asian
countries' rapid industrial development was the result of government intervention rather than
the power of market mechanisms to achieve developmental goals. Furthermore, Robert Wade
(1990, p. 7) argues that the success of Taiwan, South Korea, and the Japanese economy is the
result of government intervention to build international competitiveness in domestic industry
rather than the free market.
However, the idea of state intervention in development does not only come from Asian
countries. The idea of state intervention in The first modern world came from US President
Alexander Hamilton with his policy of protecting small industries. Hamilton argued that
countries that wanted to develop into industrialized countries needed to protect their small
industries from competitors who already had large companies. Hamilton recommended a
series of measures to achieve US industrial development at that time, such as protection with
tariffs and import bans, subsidies, export bans on vital resources, import liberalization and
tariff rebates on industrial inputs, copyrights, prizes, and patents for inventions and
innovators; regulations on standardization of imported products, and construction of
transportation infrastructure (Chang, 2007, p. 69).
In addition, the application of small industry protection is not unique to Asia. Many
countries became industrialized and developed countries by using small industry protection
policies at the beginning of their industrialization era rather than free trade policies, except
Hong Kong and Singapore. In the UK for example, the Walpole Act of 1721 was a type of
policy aimed at protecting British manufacturing industries from foreign competitors (Chang,
2007, pp. 60-67). This was also the case in France and Germany. Moreover, no country
among today's rich nations has ever been protectionist, like the UK or the US, with the brief
exception of Spain in the 1930s. France, Germany, and Japan - three countries that are often
regarded as the main proponents of state protection, continuously had lower tariffs than the
UK or the US until the latter two switched to free trade following their economic dominance
(Chang, 2007, pp. 76-77). It is ironic then that they preach the mantra of free trade when
previously these countries were very protective in their policies.
On the other hand, many experts argue that the state intervention strategy will not work
in some countries. In some studies, it has been argued that the emergence of corruption,
cronyism and nepotism in this model is the main problem. In South Korea for example, there
are a group of large family business conglomerates called Chaebol that have ties to the
government and receive economic privileges, such as subsidies and monopolies. This was the
main reason behind the Asian financial crisis in 1997-98 (Park & Yuhn, 2012) (S.-J. Lee &
Han, 2006). In addition, Sundaram & Gomez, (2000), for example, argue that the state
interventionist development model is fragile for rent-seeking activities in Malaysia. The state
intervention model also creates corruption or crony capitalism, such as in South Korea and the
Philippines (Kang, 2002).
Furthermore, critics of neoclassical economists also argue that the state intervention
model of development not only provides rent-seeking activities and crony capitalism, but also
low incentive conditions to encourage research and development (R&D) and technological
innovation from the government. As a result, industrialized countries based on research and
development will not be established due to the lack of incentives. The neoclassical
perspective argues that the best way to stimulate innovation and R&D is to use patent policies
and intellectual property rights (Rosenberg, 1974). This is the main reason some countries
have less capacity in research and technology as this kind of thing lacks incentives. As a
result, developed countries, such as the US, pushed the application of the patent system to
other countries through the GATT and now the WTO forum (Mazzoleni & Nelson, 1998, p.
273). They also argue that newly industrialized countries become industrialized not based on
innovation and R&D created by their people, but based on the imitation of other countries'
technological products. However, this argument is considered true when we look at those
countries that only developed their industries at the beginning of their industrial state era such
as Japan, South Korea, and now China. However, the UK, the US and other countries also did
the same in their new industrial era (Chang, 2002, pp. 13-58). Today we can see that
Samsung, Toyota, Hyundai have developed technology without copying the products of other
western countries, although they did copy in the beginning.
According to the neoclassical viewpoint, there is a concept they call government failure.
The term 'government failure' refers to 'a situation in which political forces and incentives
distort decision-making so that decisions are made contrary to economic efficiency' (Mankiw
& Taylor, 2014, p. 254). There are several kinds of government failure, including public
choice theory, which means the analysis of government behavior and the behavior of
individuals who interact with the government. This theory assumes that government choices
in policy are not based on rational analysis, but as a response to public pressure or moral
panic propagated by the media (Mankiw & Taylor, 2014, p. 255). As a result, a policy will
never achieve its maximum benefits if it is unpopular due to the government's actions to gain
political incentives from voters. However, this is only the case in democracies with free
elections. In Asia, they have different political conditions; it can be identified why
authoritarian states or authoritarian bureaucracies with a single party system or party
hegemony can more easily avoid the complexity of the public policy making process, and can
concentrate on the technocratic correct public interest in their policies without much debate,
to get the maximum benefit from the policy. In China for example, the government easily
implements 'rational-based policies' due to the lack of incentives for politicians caused by the
authoritarian political system.
In summary, there are several theoretical weaknesses when we discuss the state
intervention approach. First, both the developing country and Keynesian perspectives ignore
the idea of bad conditions or bad institutions (inclusive or extractive). It can be inferred that
government intervention or market force models can be good policies if applied in good
institutions. On the other hand, state and market forces can also be bad policy if there are bad
institutions Corrupt. State development in Indonesia, for example, became a worse policy due
to cronyism and corruption. In contrast, Japan, South Korea and Taiwan became
industrialized countries because of their well-institutionalized state-building models. Several
sections of this chapter discuss the institutional theories that have emerged in the development
discourse).
3.2.1.3.
Alternative Approaches: Developmental Theory and Post-Dependency Theory:
Alternative political economy theories, such as Postcolonialism (and in its development called
post-development) also pay attention to the issue of how to make development better and
some criticize development as an approach. The idea of post-development can be identified in
the work of Arturo Escobar (1994), James Ferguson (2002), and Wolfgang Sachs (2009). The
main argument of this perspective is that development (as distinct from imminent
development-what people do) is a construction of Western hegemony. According to them,
sustainable development is no different and may even be worse, given that most global
environmental degradation has been driven by consumerism and industrialization in the West
(Morse, 2008, p. 341).
They further argue that his idea of development embodies a form of colonialism and
eurocentrism. Furthermore, Escobar with his theoretical anthropological approach, in his
study in Colombia, claims that development is a highly technocratic approach adopted by the
Breton Wood Institutions, the US government, and other northern institutions in the post-
second world war era. It is the result of the problematization of poverty that occurred in the
world during this time (Willis, 2011, p.28) (Escobar, 1994, Chapter 2) (Esteva, 2009).
Another study from a post-colonial or post-development perspective was also conducted
by Abrahamsen (2000) who studied the development of practices in Africa with a
Foucauldian development critique approach. He also criticizes the notion of good governance
suggested by the Bank. World and IMF in Africa. It argues that Structural Adjustment
Programs (and good governance as part of it) that require African Governments to cut social
services, eliminate food subsidies, and maintain low wages to invite foreign investors to
create economic and political crises in Africa rather than prosperity. However, the main
drawback of this approach is that this kind of theory only offers the destruction or
deconstruction of the grand narrative by tearing apart what is currently practiced in
development without providing policy alternatives or solutions (Morse, 2008). However,
difficulties arise when there are few challenges made to do or to implement what policies they
do suggest to eradicate poverty, preserve the environment, to obtain better education and
health. Secondly, if the theory of development practice refers to industrialization, there is no
bias in geographical context as post-development. Most developed countries, including those
in Asia, undertook the same policies as the protection industries at the beginning of their
industrial development era (Chang, 2002b).
Some Marxist scholars have also contributed to the development discourse. For example
as an anti-thesis of modernization theory, some Marxist scholars, such as Andre Gunder
Frank, Saamir Amin, Paul Baran, promoted dependency theory. This theory argues that some
Southern countries have such poverty problems because of exploitation by Northern
countries. According to the definition given by Kaufman, Chernotsky, & Geller, (1975, p.
304), dependency theory is derived and rationalized from Vladimir Lenintheory of
imperialism and remains economic in nature. The basic idea is the industrialization of a few
industrialized, "metropolitan" countries, as a consequence. The formation of those "satellite"
countries that are trapped through the global division of labor becomes a subordinate
apposition in the "world capitalist" economic system. The satellite-metropolitan connection
reflects a dependent system rather than an interdependent system, since satellite states lack the
resources to create or choose alternative methods of responding to the constraints imposed on
them from the international environment. Dependent states are, in other terms, powerless to
exercise significant influence over the basic policies that affect their domestic economies;
"Issues of what to produce, how to produce, and from whom are all shaped directly or
indirectly by international structures and processes".
Marx also argued that progress or prosperity could be achieved or attained using class
struggle, capital accumulation and the technological process. He was the first to say that it
was the technological process that was an important factor for improving welfare. Marx
argued for the importance of a theory of interaction between technology, which he called the
forces of production (including machines and human skills), and institutions, which he called
the relations of production (property rights, labor relations, and the division of labor). While
Marx had talked about this first, other economists were just beginning to tackle it (Chang,
2014, p. 98). Marx argued that, "institutions that once enhanced the development of a
society's productive capacity can turn into obstacles over time" (Chang, 2011, p.482).
Although, Marx did, indirectly, mention the importance of institutions, the theory does not
fully explain what kind of state or institutions can be beneficial to development and how to
measure or evaluate them.
However, in Marx's earlier theory of the bourgeois state, Marx had argued indirectly
about "bad institutions" that the state is an instrument of the ruling (bourgeois) class to uphold
and ensure the stability of the class structure (Hay, Lister, & Marsh, 2006, p.61) (Hay et al.,
2006, p.154). However, this definition is not free from criticism. Marx did not consider the
fact that the state is not always a 'bad' institution in class struggle societies as he claimed. In
addition, In fact the predictions of state collapse during the collapse of capitalism have not
come true. On the other hand, the idea of a proletarian state as some Marxrevisionists argue is
woefully inadequate in the case of the Soviet Union.
In short, an alternative approach called post-development theory has deconstructed the
idea of "development" as a Western or European bias. However, several criticisms have been
pointed out. First, they deconstruct the idea and do not provide solutions in addressing some
basic needs issues, such as poverty, lack of human development. Secondly, Europeans claim
weak arguments when we see similar experiences between European countries and Asian
countries in developing their industrialization. Furthermore, the Marxist viewpoint also
indirectly mentions the need for intuition in improving welfare, however this view has not
mentioned what kind of institutions are related to bad or good institutions and how to measure
them.
3.2.1.4.
Neo-Classical Perspective:
The basic idea of neoclassical or neoliberal assumptions is utilitarianism that people are
selfish and tend to maximize their utility unless there is a market failure when some
government intervention is required. Unlike the classical perspective that sees society as
social classes between capitalists- workers- and landowners, the neo-classical view argues
that society is based on individuals interacting to maximize utility. They assume that
individuals know what they should do, so leave them alone except when there is a market
failure. Another difference between classical and neo-classical is that neo-classical economics
shifts the emphasis of the economy from production to consumption. Classical economics
denies that the heart of economic activity can be production. In contrast, neo-classical
economics argues that the heart of economic activity turns to consumption (Chang, 2014, p.
92).
In framing the welfare problem, both neo-classical and classical economists argue that
the free market is the best way to achieve welfare. They argue that under conditions of perfect
competition, price discovery yields a long-run set of prices that satisfy the supply and demand
equilibrium for all goods in production and consumption. As a result, in the long run, both
supply and demand allocate resources efficiently, as they minimize production costs and
maximize consumer utility. Finally, all production actors receive profits equal to their efforts.
According to this assumption, this is the best of all possible ways to achieve welfare-efficient,
satisfying, and full of social justice when everyone gets what he or she earns. (Peet &
Hartwick, 2009, p.48).
However, market failure occurs when the market cannot achieve the conditions of
perfect competition that should provide government intervention according to the neo-
classical point of view. This kind of market failure, such as monopoly, negative and positive
externalities, asymmetric information, and inequality. Negative externalities became popular
among environmental economists who argued that there may be social costs, such as pollution
from market activities that should be regulated by the government. The policy instrument they
suggested to compensate for these costs is quite well known as a carbon tax. On the other
hand, property rights are a policy instrument for positive externalities when there are positives
from firms in research and development (R&D) activities (Chang, 2014, pp. 94-95).
The biggest criticism of neo-classical economics is in their assumption of Bentham's
utilitarianism that rational humans maximize their utility (homo economicus). According to
Herbert Simon (Simon and Newell 1972) who put forward the theory of 'bounded rationality',
for example, said that humans are not fully rational. Rationality is not perfect. It is limited by
-the ability of people to formulate and solve problems complex and processing information'
(quoted in Richard Peet and Elaine Hartwick 2002, p. 49). Simon's work was later developed
by Stiglitz with asymmetric information theory. Critics also argue that the rational choice
assumption not only provides an inaccurate understanding of human behavior, but also
ignores some important driving motivations, such as ideology, ethnicity, morality, in the
motivation of human behavior (Sen, 1977).
Another criticism is about the role of the market and the neglect of government
intervention. Not every country has succeeded through free market mechanisms in building its
prosperity. In East Asian countries, government interventions such as protection of small
industries and subsidies to farmers and industries have played a positive role. Singapore for
example, as Chang said:
"If you only read The Economist or the Wall Street Journal, you will only hear about
Singapore's free trade policies and its friendly attitude towards foreign investment. This might
lead you to conclude that Singapore's economic success proves that free trade and free
markets are best for economic development - until you also learn that almost all land in
Singapore is owned by the government, 85 percent of housing is provided by a government-
owned housing agency (the Housing Development Board) and 22 percent of national output is
produced by state-owned enterprises (the international average is around 10 percent)" (Chang,
2014, p. 38).
Overall, both perspectives reviewed so far, however, suffer from the fact that there are
institutions that influence how markets work. The classical economic approach has avoided
the role of government institutions in developing a fair market. Moreover, neo-classical
economics has mentioned about state intervention in the market. However, it does not cover
what kind of institutions can be beneficial for development. For neo-classical economics, the
unit of analysis for economic activity is the individual and not the interaction between
institutions, such as the rule of law and the individual. Then, criticism also arises with the
assumption of rational human behavior; Humans also not only behave with the assumption of
rational choice, but variables such as ethnicity, religion, morals are also human motivations in
behavior and action.
3.2.1.5.
Washington Consensus:
Subsequently, in the development of the discourse the ideas of neo-classical, or as it was
called -neo-liberalism economics were implemented and prominently represented as the
Washington Consensus (Fine & Rose, 2001, pp. 4-6). This idea was later put forward by the
World Bank, which was the effort of economist John Williamson in 1989. He said that it was
what the US government and the Bretton Woods institutions (Bank-IMF) meant by policy
reforms at the time in Latin America. The Washington Consensus was a kind of 'one-stop list'
from both the IMF and the World Bank to facilitate free market conditions in some countries
that needed financial assistance from the Bretton Woods organizations.
Eventually, however, the Washington Consensus (WC) was modified or (at some
points) rejected. These modifications came to be referred to as the "post-Washington
Consensus" based on several criticisms of this general checklist. The first problem with this
checklist is the issue of poverty rights. In Indonesia, property rights can be enforced by
dictators, such as Suharto rather than by the rule of law as the IMF and World Bank suggest.
This means that the Washington consensus has avoided important factors, such as political
institutions and corruption issues.
The context of specific geographies or specific countries has also been avoided by the
WC (Wshington Consensus). Privatization in a rent-seeking economy creates monopolies, in
Mexico for example, Carlos Slim with ties to politicians was able to buy the state-owned
telecommunications company and monopolize the telecommunications sector in Mexico.
Carlos Slim developed his telecommunications monopoly during the Presidency of Carlos
Salinas de Gortari. Salinas is appreciated as a reformer in this era, bringing a wave of "market
reforms", as suggested by the IMF and World Bank as the Washington Consensus to Mexico,
such as the privatization of telecommunications. These policy reforms can be interpreted as an
attempt by him to develop new political conditions by producing a group of wealthy
oligarchs, who were politically obligated to him (Acemoglu & Robinson, 2012, pp. 67-75).
In the end, the then President of the World Bank, Wolfensohn (2004), said that "The
Washington Consensus has been dead for years (Wolfensohn in Sumner & Tiwari, 2009, p.
27)." After the Washington Consensus died, several attempts were made to find a new
consensus, and then the importance of the institution emerged. More recent attention has
focused on providing inclusive institutions. A more detailed description of institutions is
given in the next chapter.
3.3.
Summary:
To measure the economic condition of a country, it can be measured by the amount of
consumption of the people of a country, which means the same as the income of a country.
Returning to the example of a weak economy due to falling palm oil prices which impacted
on the sluggishness in the market. To move the economy because of cheap palm oil, the
government has a program to turn palm oil into fuel oil. This also means that there will be
income for oil palm farmers who are expected to also shop for clothes sellers in the market.
3.4.
Task/Exercise/Experiment:
•
Explain the theory of comparative advantage developed by David Ricardo
•
Some criticism has been pointed out based on an alternative approach called post-
development theory that deconstructs the notion of "development" as a Western or European
bias.
•
Do you think the heart of economic activity is production or consumption? Explain!
•
How do you think the welfare problem in Indonesia is framed?
