From semiconductor makers to auto-parts producers, companies are recognizing multinational production networks are vulnerable to disruption. At least concentrating on China is very dangerous, so they are considering to relocate their factories to safer countries. Top page

（Draft) 31 Oct 2020

Good afternoon. Thank you prof. Wasino, honorable scholars and ladies and gentlemen. It’s my great honor to make a talk in front of you. I used to be a professor of Kobe Univ, faculty of economics. At that time I had lectured on the contemporary political economics of Southeast Asia. After retirement I had concentrated on the research of ancient history of Southeast Asia, especially on the history of Srivijaya.  I have published 2 English books on this theme and my name is known in Indonesia as a historian. But Today I will talk about the Current economic and political situation in the world and Indonesia.

Current economic and political situation in the world and Indonesia.

Now the world economy is in confusion under the Pandemic, Wuhan virus or Covid-19, but before this deadly Pandemic, the world economy had been already in long term stagnation. And now the end of ‘Globalization and Neo Liberalism’ is near at hand.  Actually the USA has given up ‘free trade’.

（Conclusion）

1.The result of globalization.  Advanced countries (the USA, West Europe and Japan) had suffered low growth rate, lost GDP share in the world, no income increment, and high unemployment ratio.

2.. Advanced economies are in long term stagnation for nearly 10 years, before this Pandemic, because, the common people had been paid low wage and house hold consumption had been squeezed. As the result advanced economies got into stagnation.

3.After Pandemic , advanced economies would not revive soon. They must call back their companies from China or diversify their factories to the safer and friendly countries.

4. Advanced countries would establish trade barrier to fend off cheap imports from less developed countries.

5. Less developed countries, except China, will have good chance to invite FDI (Foreign Direct Investment) and they can develop the manufacturing industries.

6. Indonesia has possibility to invite FDI, because Indonesia has large population and natural resources. Indonesia has good working people, with some experience of manufacturing and educational level is comparatively high. The Indonesian government understands how to improve the investment environment for FDI.

(Contents of discussion)

1. Historical view of ‘Globalization and Neo-liberalism’.

2. Nominal GDP share of the world , the Nominal GDP per capita (head) and high unemployment ratio.

3. The result of Neo-liberalism and Globalization, Current economic situation in the world.

4. New movement of capital of advanced countries. After the end of current big recession of the world economy.→Relocation of factories.

5. Merit of manufacturing compared with agriculture

6.Trade between Indonesia and China. Indonesia can substitute of Chinese imports

7. The prospect of Indonesian future

Chapter 1 Historical view of ‘Globalization and Neo-liberalism’.

Historically the world economy had been severely divided between advanced countries and less developed countries. However, recently the position of advanced countries had declined significantly. The common people of the advanced economies are facing not only the deadly Pandemic but also high unemployment, low wage and poverty. 　

During this decade, especially since Leman Shock in 2009, advanced countries have suffered low economic growth, or stagnation. On the other hand less developed countries have recorded significant growth. After 2009, Leman Shock, the growth of advanced countries had suffered low growth rate around 1% level or less and cannot see any sign of higher growth, especially west Europe and Japan. (Around+-1%.)

The common people of these countries are anticipating to terminate ‘Globalization and Neo-liberalism’. The ‘free trade system’, had been destroying the economy of advanced countries.

Table 1 shows uneven growth of GDP (Gross Domestic Production). West European countries and Japan, GDP growth became nearly 1 per cent before Pandemic. In this year, 2020, OECD estimates that advanced countries will experience -5~-10% growth. They may not recover in the near future.

On the other hand especially China had jumped up greatly and some other countries, such as India and Indonesia also recorded higher growth, more than 5 %.

Table 1 GDP (real) growth, %

Source: OECD statistics; the world economy 2020.

Chapter 2.-1 Nominal GDP share of the world (Table2)

The Nominal GDP share of the advanced countries was 81.3％ in 1995, but in 2018, its share declined to 60.3%. They lost 21%.

The most miserable country is Japan. Japanese share was in 1995, 17.6%, but in 2018, only 5.6 %, less than one third.

Euro Area had lost their share too. The share was in 1995, 24.6%, but in 2018 it declined to 16.1%. Even Germany had lost its share from 8.6% to 4.6% during the same term. Other countries had lost 1~2 %.

 The United State of America had not lost so much, 24.6 in 1995 and 24.2% in 2018. But the USA had once over 50% share soon after WWII.

China, on the contrary has gained amazingly, in 1995 Chinese share was only 2.4% and in 2018 jumped up to 15.8%, No. 2 in the world, 10% bigger than Japan. Japan is No. 3, and Germany is No.4.

(NIES countries, South Korea, Taiwan and Singapore had increased only slightly. From 3.4% to 3.5%.)

 ASEAN５ countries has so far increased from 2.0% to 2.7%. Indonesia jumped from 0.8% to 1.2%, biggest gain in ASEAN.

India is also expanding its GDP share in 1995, 1.2%, to 3.2% in 2018 by rapid increase of manufacturing industry. Indian government is now making ambitious 5 years program to expand iPhone manufacturing industries. Actually Apple group are shifting their 8 factories from China to India.

Chapter 2-2 The Nominal GDP per capita (Appendix Table 4).

During 2001 and 2008, in many countries, Per head GDP so far increased. However after 2008, Leman Shock, Par head GDP of advanced countries had not increased. Around 40 thousand US$.

On the other hand, less developed countries well increased. 

The USA increased recently, especially after Trump administration. His major policy was ‘America First, or strong America again’ and he began to attack China and started decoupling policy.

UK has decided to separate from EU to escape ‘free trade’ regime.

China, GDP had jumped up from 2,645 in 2007 to 9,608 in 2018, nearly 3.6 times bigger in 11 years.

India and Indonesia jumped around double.

from 989 US$ to 2,036 US$ more than double in the same term

In Indonesia also nearly double in the same period, from 1,961 US$ to 3,871 US$. However living conditions of the common people of these countries have not improved so much, because income level is still low..

(About China)

The economic strategy of China had been to invite and opened the gate for foreign manufacturing companies, such as Japan, the USA, Germany, Taiwan and S. Korea. As the result China increased its production capacity and exports. However, the contents of Chinese exports are low technology products, such as textile and assembled electronics, iPhone etc. China can not make sophisticated semi-conductor, so China imports them from Taiwan, Japan, the USA and S.Korea.

The Chinese people did not become rich. Recently Chinese prime minister , Li Keqiang revealed that more than 600 million people’s monthly income is only1,000 Renminbi, nearly equal 140 US$. The majority people of China remain poor. On the other hand high officials of Communist Party became very rich and transferred their money to the USA and Switzerland.

Chapter 3  The result of Neo-liberalism and Globalization

 In the advanced countries, income of common people had not increased and consumption of household has been squeezed. That is the cause of long term stagnation, before ‘Pandemic disaster’.

 The main cause of stagnation of advanced countries, the first factor is low priced imports of daily needs. The 2nd factor is lower wage for its workers. The majority of people cannot consume much, due to lower income. This is the cause of low GDP growth of the advanced countries. Before Pandemic, these common people became poor and miserable.

Chapter 4  New movement of capital of advanced countries. After the end of current big recession of the world economy.

4-1)Now is the last stage of ‘Neo-Liberalism’ and ‘Globalization’.

Neo-Liberalism brought the inequality of people of the advanced countries. Majority of people are getting poorer and miserable. Only a few percent rich people dominate majority of the national wealth.

Since the end of 1970s, Neo-liberalism began to dominate world economy.

Thacherism in Britain, and Reganomics in the USA. Neo-liberalism policy had appeared as the solution of stagflation (stagnation and inflation).

The basic policy and philosophy of Neo-liberalism

1) Small government, less tax from rich people. And privatization was promoted.

2) Low wage for working people, and less social welfare for common people.

3) Free import from less-developed countries.

4) Pressure to the trade-unions.

5) Avoiding longer term investment, especially manufacturing industries with large investment. The USA promoted development of big finance companies. Monetarism was advocated. The financial capital (major banks) of the USA now dominates world financial economy. So the money was powered into stock market, 2 or 4 times larger than GDP, which was the cause of ‘bubble economy’, Leman Shock in 2009 and current situation of 2020.

4-2) The effect of ‘free trade’ had been so strong in the advanced countries and they began to counter attack.

China has been the biggest beneficiary of the globalization, or free trade and became the No. 2 economy of the world. However, Chinese Government recently became aggressive and got illusion that they can dominate the whole world. “One band one road” policy is the typical manifest of China. But the real economic power of China is not so strong as they think.

Now the conflict with the USA and other advanced countries became apparent and the USA began to counter attack against China. Trump government now started decoupling policy with China, and the USA started to establish the alternative source of imports.

In 2019, the total deficit of Balance of payment of the USA was 480.2 billion US$. In 2019, the USA decreased import from China 12.7%. USA trade deficit with China was 419.6 billion$ in 2018 and 344.9 billion$ in 2019.(Annex Table 1 & 2)

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4-3). Structural change of the world economy.

In future, after the end of the Pandemic (Wuhan virus), the world economy will be less globalized than before.　Even though, economic recovery may be slow, the economic structure also will be changed.　Major banks will lose their power, after burst of bubble.

In the past, almost all the governments of the advanced countries had supported the free trade systems, but now these countries have to establish some barriers to trade and re-locate some portion of manufacturing industries.

Recently president Trump is insisting US companies should relocate factories from China. From semiconductors makers to auto-parts producers, they are recognizing that existing production networks are not stable and risky. Especially concentrating on China is very dangerous, because China intends to control the world economy.

However the USA understands that if all of the factories go back to the USA, they may face difficulty, because the wage level of American workers is still higher and the USA had lost many of its manufacturing factories. So Trump suggests they should ‘relocate’ to the safer and friendly countries. Now is the chance the global capitalism will be ‘re-balanced’.

Less developed countries have good opportunity to introduce more manufacturing industries now. India, Vietnam and possibly Indonesia have started their manufacturing strategy. Indonesia government is arranging good investment environment.

 Especially Indonesia will have good chance, because Indonesia has plenty of good working force and natural resources. Indonesia has some experience of manufacturing industries, such as cloth making, steel making, automobile assembling and electronics.

4-4). After the end of current big recession of the world economy.

Advanced countries, under the restriction of free trade, the working class will get more jobs and unemployment ratio will be improved, which means that every advanced country will decrease imports and re-start their manufacturing daily needs products.

In less developed countries manufacturing industries will develops by using FDI(Foreign Direct Investment). But foreign companies will be more selective to invest in these countries. Foreign companies will request better environment for investment.

The request of foreign companies to the less developed countries.

To the government;

Clean, transparent and efficient administration, which are necessary to improve management cost, in case of Indonesia, management cost has been relatively high and time consuming.

To the employees

1) Manufacturing skill is requested to make better quality of products, but these high skills will be acquired on the job training (OJT).

2) Skill of communication: English language and the basic skill of computer and internet.

3) Longer time employment: Workers can acquire working know-how and skill of manufacturing through longer term working experience.

Chapter 5. Merit of manufacturing compared with agriculture

Income is of manufacturing industries usually higher than that of agriculture, owing to the difference of productivity.

According to experience, the difference of productivity between manufacturing and agriculture would be more than three times. In case of Thailand, the difference is 8 times. The development of manufacturing industries would affect the agriculture section, and the income of farmers would be improved following manufacturing development.

But agriculture is very important in Indonesia. Agriculture sector should increase productivity and diversify its products.　Village life is also very important for human being. We can live peacefully in village and with large family.

5-1）Economic structure of Indonesia

For these years, the structure of GDP of Indonesia has not changed so much.　The agricultural sector has not changed, the industrial sector decreased and the service sector increased. However much of service sector provided ‘informal jobs’ to workers. The ‘information’ sector, the per head income is biggest, but the number of job is still limited.

Table 4. GDP of Indonesia　（％ of GDP）

Many foreign manufacturing companies （US, Japanese, Taiwanese etc.）will move to Indonesia sooner or later.  Indonesia can develop manufacturing industries considerably and at least can substitute imports of low technology products from China.

5-2) What Indonesian can do in manufacturing industries?

Assembling industries: clothing, apparel, electronics, PC, iPhone

Auto parts, battery for automobile, electric bicycle, Compact passenger automobiles, EV cars.

Chapter６．Trade between Indonesia and China.

Indonesia can replace Chinese imports easily.

Indonesia imports manufacturing goods from China, and exports mainly the primary products and natural resources. Manufacturing goods are assembled with low technology, which will be easily replaced by Indonesian workers.

In 2019, Indonesia imported from China, 45,790 million US$, and exported to China,34,060 million US$, and trade imbalance with China was 11,729 million US$. The major imported items from China, are ‘electrical machinery and textile and base metals. (Table 5-1 &2).

Indonesia exports to China mainly natural resources, mineral ore, pulp and palm oil (recently increased steel).

If Indonesia can establish manufacturing industries, Indonesia can export clothing, sports shoes, auto-parts, personal computers and iPhones to the USA and other countries, because the USA wants to change its supply source from China to other countries.

Table 5-1) Indonesian Imports from China (million US$)

Table 5-2) Export from Indonesia to China (mil US$)

（Source; China Trade Statistics）

Chapter 7. The problems of Indonesia from the foreign companies’ view point. Indonesia has broad room for improvement.

1)      Inefficiency of government administration, which is the cause of corruption and high cost of management.

2)      Non-tariff barriers. (The special standard of Indonesia, different from foreign standard).

This is what Japanese manufacturing companies are often suffering.

3)      Import tax; in case foreign companies for import materials, machines, they must pay their part of income tax beforehand. Tax system is complicated and sometimes the tax will be refunded much later, after hard negotiation with government officials.)

4)      Fair treatment for foreign companies. 100% share will be requested.

5)      Indonesian government should increase ‘vocational school’, like Thailand. Younger generation needs education of basic manufacturing skill and internet. In Indonesia, 40% of the primary education students will get better jobs. They must be given more education of basic skill , know-how, computer knowledge and English.

The students will support the development of manufacturing and communication. In Thailand these graduates of vocational schools are supporting manufacturing industries such as automobile assembling, auto-parts making and machinery factories.

6)      The government has to increase public investment in rural infrastructure and expand the coverage of its agricultural extension program.

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Appendix Table

Source; China Custom Statistics.