Why was this?
One needs a doctoral dissertation to find the answer to that. But, this could be important. In the first 20 years of the Suharto era, the commitment to economic development was very strong. We know that under Suharto there was the Berkeley Mafia, namely Pak Widjojo (Nitisastro), Pak Ali Wardana, and others. In the democratic era, creating economic policies is far more difficult. Prior, there was only one important figure, Suharto.
From the political side, democracy is much better. But the political process is more difficult, and far more complicated because there are more veto players, meaning parties who could obstruct policies.
What is crucial in microeconomics?
Globalization. I think it can be considered that Indonesia is missing out. World industrial institutions today are almost all global production networks. The components of your computer were probably produced in 10 different countries. And it was probably put together in China. The country that is well and truly developed today, besides China, is Vietnam. The percentage of world exports for items from Vietnam is far higher than in Indonesia. We know that many multinational companies moved to Vietnam.
Why does Indonesia seem unattractive?
Participation in global production networks depends on the commercial business environment. For instance, this computer has components from 10 countries. This means it has to be sold inter-country rapidly. This calls for very efficient international logistics. We know, according to the World Bank Indicator, the logistics performance index in Indonesia is not that high.
Meaning we are not competitive?
Yes. For example, if compared to Malaysia, Thailand, and Vietnam. They are far more advanced. So multinational corporations, and foreign investors, probably choose locations that are adequate to their needs for global production networks. Let me be frank here: Indonesia is hesitant about the role of foreign investment. These two factors could be the explanation for why Indonesia is missing out on so many good business opportunities.
This is not to criticize, but I am a little concerned about the education sector, particularly primary education. Look at the PISA (Programme for International Student Assessment) comparison created by the OECD (Organisation for Economic Co-operation and Development). The latest PISA results show students in Vietnam are far more advanced than their peers in Indonesia.
Investors probably compare locations A, B, and C. They choose locations that have good education, good logistics, good infrastructure, are open to investment, and have a friendly business environment. Indonesia is okay, but is not as competitive as countries like Vietnam.
