The focus of recent social welfare policy in Indonesia has been on
poverty reduction. High economic growth has been assumed to be a
pre-condition of poverty reduction. For this assumption to be true we
have to assume that economic inequality is relatively constant over
time. This was found to be true in the past because asset ownership on
the one hand and the system of wage payment or bargaining changed very
slowly. This is no longer true today.
There are several reasons. First, globalisation has increased the speed
of asset concentration as well widened the differences between skilled
and unskilled wage differentials. Second, extensive decentralisation
has limited the equalising role of central government assistance.
Indonesian economic performance is dominated by a few resource rich
districts. Third, sources of labour intensive growth such as low
technology goods or green revolution are being reduced. Fourth, the
knowledge economy of the future will continue to widen skill/non-skill
wage differentials.
All of the above require a rethinking of public policy towards
containing inequality. At present Indonesia has no explicit policy to
deal with the possibility of growing inequality. This is a major policy
gap. If ignored it may lay the foundations for major social conflict,
especially in Indonesia’s fast growing urban population. Historical
experience from all over the world suggests that the roots of social
conflict lie not so much in absolute poverty but in sudden changes of
economic situation of specific groups in the population. These groups
could be in the form of a particular class e.g. landless labourers,
middle class etc, ethnic, or religious. Sudden increases in inequality
combined with distress in particular communities and social groups as a
result of fast changing economic circumstances may well increase the
possibility of social conflict. This will in turn reduce investment and
growth making the economic situation even worse.
The
purpose of this paper is to identify the nature of these concerns and
to find mechanisms that the donor community could employ to respond
creatively to the challenges that are likely to emerge in this domain.
