The Industrial Revolution 4.0: Has the Indonesian Hype Gone too Far? (III)
- Gerry Christopher
- Jan 18, 2019
- 9 min read
Updated: Feb 17, 2020
Looking into the Future
Shall Indonesia Carry On?
Piles of issues surrounding both Indonesia’s education and labour sectors seem to suggest that the government should scale down its 4IR hype. The stellar growth of e-commerce also looks to mask another challenge: promoting inclusivity to small and medium businesses (SMEs) is still far from solved. A dilemma then surfaces: should the government completely fix the core issues plaguing both education and labour – the absolute prerequisites for high-quality, productive human capital – and play a catch-up role? Or, should it risk pushing forward with its current ambitious strategies?
The answer, I argue, lies in identifying the suitable priorities in each domain. The current developments clearly show that the progress of the digital economy and digitalisation of conventional industries differ – applying the same principle will not yield optimum outcomes. This could lead to counterproductive repercussions – with growing inequality being one of the major threats. As Schwab admitted in his piece, pushing technological advancements will greatly benefit investors, innovators, and tech-savvy individuals. On the other hand, people with moderate skills and education will be left behind as technologies could easily substitute their roles.
The examples above imply sharp segregation in Indonesia’s human capital. Highly-educated, technological-savvy individuals are concentrated in urban areas, particularly Jakarta and Surabaya. Smaller cities, such as satellite cities in Java, often have moderately-skilled workers who are well-suited for manufacturing and other labour-intensive industries. On the other hand, rural areas contain the highest number of less-educated individuals, who often are confined to traditional agriculture, fishery, and warungs.
Taking Manufacturing Step by Step
The Making Indonesia 4.0 should be appreciated: it shows the government’s understanding of manufacturing’s sheer contribution to the Indonesian economy. Manufacturing was the engine of Indonesia’s stellar growth between 1970s-1990s (Hill, 2018; Kumar, 1993), signalled by a huge jump in total factor productivity (TFP). However, the growth has been sluggish after the turn of the century. Commodity boom and China’s rise have eroded the confidence in manufacturing; coupled with the current less-open regime (as compared to Suharto years), Indonesia has missed the chance to join the global production network.
Indonesia’s current lack of workforce competitiveness reflects the main consequence of the neglected growth. Improving this factor, hence, should be the ultimate priority – the history has even shown it. The role of human capital in TFP growth between 1970s-1990s far outweighed physical capital (Timmer, 2006). Remarkably, when billions of foreign direct investments were pumped to increase the physical capital, the human capital growth was triggered by a far simpler factor: basic educational attainment. While providing simple education to the workforce has already created such a profound impact, imagine the impact that could be brought by a demographically favourable workforce receiving high-quality education: empowered by technological disruptions, the potency is boundless.
With this concept in mind, the relentless push for technological innovation in manufacturing, I argue, should be the second priority. Two reasons back up this thought. First, the modern technologies will not yield maximum outcome if the individuals operating them are not qualified, implying a poor investment return. Second, an excessive emphasis o developing cutting-edge technologies means that there will be fewer resources to give a more vital and relevant education to the workforce. This might include proper and equal training in using the current technologies across all businesses, regardless of their size. Considering the still-low education level, ensuring that the workers are fully proficient in conducting ongoing processes would have boosted productivity more effectively than implementing a complex technological change.
Removing regulatory obstacles also bears the similar importance with technological innovation – in fact, they should be conducted concurrently. As regulations often act as a deterrent to productivity increases, business-friendlier rules evidently signal government’s support to increase the industry output. Jokowi’s administration, fortunately, has started scrapping the unnecessarily complex rules. Waves of “economic packages” have then induced more investment [1] – one of the clearest signs of industrial expansion and upgrading.
The first priority, undoubtedly, is fixing the education system – starting from spending the budget effectively. As Kurniawati (2018) concluded, with such a humongous budget, the tiny improvement in the education quality is “unjustifiable”. The government has done reasonably well in improving educational access [2], yet the PISA and TIMSS scores have been hugely disappointing. As revealed earlier, improving the quality is not an easy feat: from modifying the curriculum to overhauling teacher recruitment and training, the complexity of this issue deserves as much attention as the 4IR.
A continuously low quality, I am afraid, will reduce the 4IR to a meaningless rhetoric. While Indonesia’s neighbours move into the next income level after making most of 4IR in enhancing their manufacturing, Indonesia might be left pondering why it could not replicate their success.
Digital Economy: Focusing on the Grass-roots Businesses
Three years ago, before I left for Hong Kong to start my undergraduate degree, I remembered how people, particularly from the supporters of the status quo, tried to drag GO-JEK to the court due to its presumed “unfair business activities”. When I returned in late November 2018, astoundingly, GO-JEK has entrenched to the life of urban dwellers, resembling how We-Chat conquers the Chinese consumers. This shows that Indonesia’s tech-savvy community is not short of motivations and ideas – despite huge hurdles, they somehow manage to succeed.
In other words, the government’s attention should not be spent in nurturing them: they have the relevant skills to self-sustain. Hence, providing reliable digital and physical infrastructures as well as easing the regulations should be enough to support their further growth [3]. Instead, promoting the inclusivity of the digital economy to the SMEs should be on the top of its agenda. The government, on a more positive note, has duly acknowledged the importance. Making Indonesia 4.0 enlists nurturing the SMEs as one of its 10 strategies. On the other hand, numerous local governments have started encouraging them to use the digital platform. East Java, for instance, initiated a cooperation with Bukalapak – Indonesia’s leading e-commerce startup – to help SMEs market their products (Pandia & Basyari, 2018). West Java took the same step by signing a memorandum of understanding with Bukalapak (Fikri, 2018).
While the awareness has developed, the road to fully integrate SMEs into the digital economy is daunting. Ministry of Cooperatives and SMEs, cited from KataData, that as of 2018, only 4.6 million out of around 63 million small businesses entered the online platform. A simple survey by Deloitte in 2015 also showed that only a small portion of businesses with an online presence integrate their social media and e-commerce well. The rest simply either have a static online presence (i.e. a simple website) or a limited interaction on social media.
The government faces numerous challenges to reverse this trend. Helping businesses to adjust their products so they are well-suited to the online demand become the most significant issue, especially with the lack of training and education of most of these entrepreneurs. Providing sufficient financial support – along with advice on how to use it – is another critical point to ensure their survival in the increasingly competitive digital ecosystem.
Closing Remarks
As this three-part essay draws to a close, a resounding conclusion could be made: in the current state, Indonesia is highly unlikely to reap the maximum benefits of the 4IR. Regardless of how intense the government campaigns for it, if Indonesia’s human capital does not significantly improve, Indonesia will certainly be left behind. Therefore, to succeed in this transformative era, improving educational quality could not be compromised. It, in fact, should have been included in the 4IR hype train as it is an inseparable aspect.
Oddly, however, the education seems to perpetually stall: the national examination is a source of sensation every year with its unexpected yet often less-substantive twists, while corruption looks to be incurable. The same situation applies to health: unorganised and directionless.
A glimmer of hope still exists, though. In the digital economy realm, the government at least understands the magnitude of promoting digital inclusivity to small businesses. Besides actively preparing them, the government is enthusiastic in providing reliable tools to support the growth – pushing hard to improve the ease of doing business ranking, expansion of the broadband network, and endless infrastructure projects signal the government’s seriousness.
While the digital push is essential, improving the manufacturing sector gradually is even more critical. One must remember that manufacturing still contributes hugely to GDP – over 20% in 2017 as reported by the Ministry of Industries (Gareta, 2018). By firstly allocating more resources in training the workers – especially that the demographic dividend is just around the corner – will bring a substantial impact on the economic growth as previously shown in 1970-1990 manufacturing boom. Then, newer technologies could be implemented in stages – synchronised with the increment pace of the workers’ quality. This will ensure that every effort in implementing technological change – which is certainly difficult in a more rigid environment like manufacturing – yields the maximum productivity. Meanwhile, simplifying regulations and devising business-friendlier rules will provide another boost that justifies the investments for technological transformations.
Excessively pursuing research and development, therefore, could result in a lost opportunity in gaining the maximum benefits from this gargantuan sector. With a still-poor fundament, it does not make sense to aim to become the most innovative player in the region. Indonesia could simply “copy” technologies from the developed countries in the time being – a strategy that has been masterfully proven by China as it experienced formidable economic growth in the past few decades.
No one could rebuff the notion that the 4IR brings opportunities – anyone who does is either outdated or simply too afraid to change. However, as I plead throughout this essay, a wise approach is required if Indonesia wants to get something out of it. It does not matter which pathway is eventually chosen by the government – it could even be totally different from my realistic approach. One thing for sure, a clear head is needed to tone down the excessive hype that might cloud the government’s judgment, and a pure willingness to implement the necessary changes.
For now, I could only hope – a hope that Indonesians will not regretfully ask “what could have been”. Instead, they will confidently resound “what we have done.”
Special thanks to Professor Prema-chandra Athukorala, Deasy Pane, and Madeleine Setiono for their invaluable feedback on this mini research.
[1] According to Indonesia Investment Coordinating Board (BKPM), the total investment (domestic and foreign) in 2013 reached Rp398.6 trillion. In 2017, the figure almost doubled to Rp692.8 trillion.
[2] In 1999, only around 37.5% of the population aged 15 and above completed at least 9 years of formal education, and 11.23% of the population has not gone to a formal school at all. In 2017, the figures stood at 57.8% and 2.91% respectively (BPS, 2018).
[3] The government has initiated a positive trend on this issue, indicated by an increase in Information Communications and Technology Development Index (IP-TIK) from 3.88 in 2015 to 4.99 in 2017 (Mediana, 2018).
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