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The end of globalization and the future of Indonesia development　Takashi SUZUKI 

Current economic and political situation in the world.

1.    The result of globalization

1)   Nominal GDP share of the major countries.

The world economy have been severely divided between advanced countries and underdeveloped countries. However the position of developed countries declined significantly.

On the other hand the position of China advanced greatly.

We have to observe the table1. Nominal GDP share of the world。The GDP share of the advanced countries was　81.3％ in 1995, but in 2018, its share declined to 60.3%. The most miserable country is Japan. Japan had in 1995, 17.6%, but in 2018, only 5.6 %. European countries had lost their share, but it was not so severe as compared with Japan. For instance, German share was 8.6% in 1995, and in 2018 4.6%. France from 5.2% to 3.3%. UK from 4.3% to 3.3%. United State of America had not lost 24.6 in 1995 and 24.2% in 2018. But USA had nearly 50% share soon after the WWII. On the contrary China have gained amazingly in 1995, Chinese share was only 2.4% and in 2018 was 15.8%, no 2 in the world. 10% bigger than Japan. Japan has the position of No. 3 in the world. NIES countries, South Korea, Taiwan and Singapore increased slightly. From 3.4% to 3.5%. ASEAN５ countries has increased from 2.0% to 2.7%. Indonesia from 0.8% to 1.2%, biggest gain in ASEAN, Vietnam from 0.1% to 0.3%, recently Vietnam is developing rapidly. Vietnam is expanding exports to USA.

India is expanding its GDP share in 1995, 1.2%, but in 2018, 32.%. The manufacturing industries in India is expanding rapidly. As the result of globalization, China has got the biggest advantage in the world. Advanced countries have lost its share greatly.

USA has not lost GDP share so much, but USA has recorded biggest trade deficit.

Table 1 Nominal GDP share of the World (US& Basis)

2）GDP per capita of the past decades.

Table 2 is the nominal GDP per capita

From 2008 or 2009, the nominal per capita of major advance countries had not increased or decreased for nearly 10 years. USA increased after Trump administration. His major policy was ‘America First, or strong America’ and he attacked China. China expanded its economy through exports to USA and Europe. Other advanced countries did not change their economic stance to ‘free imports from other countries. As the result their per capita GDP declined and their people could not have improved their income and poor workers had lost their jobs and getting poorer. In Europe, only Germany slightly increased the per capita GDP, from 44,259 US$ in 2008 to 48,264 US$ in 2018. Other countries, had lost per capita GDP, for instance, UL, 46,092 US$ in 2007 to 42,558 US$ in 2018. France from 44,149 US$ in 2008 to 42,878 US$ in 2018. In Japan, from 39,471 in 2009 to 39,306 US$ in 2018, no improvement for 9 years. In China from 2,645 in 2007 to 9,608 in 2018, nearly 3.6 times bigger in 11 years. In India from 989 US$ in 2007 to 2,036 US$ in 2018, slightly more than double. In Indonesia also nearly double in the same period, from 1,961 US$ to 3,871 US$. The strategy of China invited foreign manufacturing companies, Japan, USA and Taiwan and increased exports. All of the Chinese people did become rich? The answer is not so much, recently Chinese prime minister revealed that more than 600 million people’s monthly income is only1,500 Renmin Yuan, nearly equal 22,000 Japanese Yen or 210 US$. Most people of China remain poor. On the other hand high officials of Communist Party people became very rich.

Table 2  GDP per Capita (US$)

2  The result of neo-liberalism and globalization

      Income of common people relatively decreased and consumption of household has been squeezed in the developed countries. That is the cause of long term recession.

    Gross national production(GNP);

    Production = Investment + Consumption + Exports – Imports +(-)stock

If imports increase, GDP will decrease. If consumption will decrease, GDP will decrease too.

Now advanced countries are suffering from low growth of GDP. The first factor is low priced import. 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 lower GDP growth of the advanced countries. So, the advanced countries are getting into lower growth of GDP, in other words mild recession, before ‘pandemic of the new corona-virus’.

2-1Current economic and political situation in the world.

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 one percent rich people dominate majority of world wealth.

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

Thacherism in Britain, and Reganomics in the USA.

The basic policy and philosophy of Neo-liberalism

A)Small government, less tax from rich people.

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

C)Free import from under-developed countries, such as China.

D)Destruction of trade-union.

E)No long term investment, especially steel industry, but promoted development of big finance companies. The financial capital (major banks) of USA dominates world financial economy.

  2) The effect of ‘free trade’

      Free import from under developed countries→The working place of developed countries decreased, with higher unemployment of working place. As the result, the people of underdeveloped countries are a little happier than common people of developed countries.

 But, excluding China, most of the economic position of underdeveloped countries has not improved so much, because the manufacturing industries have not improved so much.

      If the manufacturing industries would develop in the underdeveloped countries, the common people would get more income and their living conditions would have been improved.

     China has been the biggest beneficiary of the globalization, or free trade and become the No. 2 economy of the world. However, China Government became a little arrogant and got illusion that they can dominate the whole world. “One band one road” policy is the typical manifest of China. But the conflict with USA and other developed countries became apparent and USA began to counter attack against China. Recently, the imports from China have not increased so much, but USA started to establish the alternative source of imports.

  Vietnam is the largest beneficiary of this movement. Vietnam increased exports to USA 10 times since 2005 to 2019, followed by India 3 times. The volume of Vietnam exports to USA is not so big, so USA says nothing to Vietnam today. China remained 1.86 times and Indonesia 1.68 times. But Indonesia has big chance to increase export to USA, because Indonesia has a plenty of capable working force and the natural resources and the base of manufacturing.

3. Structural change of the world economy.

After the world finally finishes the pandemic (Wuhan virus), the world economy will be less globalized than before.

Almost all the governments of the developed countries had supported the free trade system, but now they must erect some barriers to commerce and bring manufacturing home. USA president Trump is calling back US companies and suggesting to relocate factories from China.

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.

If all the joint-ventures go back to the USA, they may face difficulty to employ many workers and their profits may decline due to higher wage. So, they will try to relocate to the better countries. And global capitalism will have to be rebalanced.

Low-income countries will get better chance to become manufacturing countries. Some examples have appeared already, for instance, Vietnam, India and possibly Indonesia.

Indonesia will have bigger chance, because Indonesia has many good working force and natural resources.

After the end of current big recession of the world economy.

A) Developed countries

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

B）Underdeveloped countries　

Manufacturing will develop in these countries, but foreign companies with higher technology will be more selective to invest in the underdeveloped countries. Foreign companies will request the environment of better investment opportunities.

4. New foreign companies will request to the underdevelopment countries.

1)To the government;

a)Clean, transparent and efficient administration, which are necessary to improve management cost. In case of Indonesia, these management cost is relatively high and time consuming.

b)Low tax and tax exemption, but foreign companies willing to pay taxes according to the normal regulations.

 2)To the employees

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

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

C) Longer time employment: to acquire working knowhow and skill of manufacturing, longer term working experience will be necessary.

D) Reasonable industrial relation with union.

5. Merit of manufacturing compared with agriculture

Manufacturing generally needs capitalism system, which is not free from recession.

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

The difference of productivity of manufacturing would be more than three times higher than that of agriculture per capita. As the result, the development of manufacturing industries would affect the agriculture section, and the income of farmers would be improved following manufacturing development.

1）Economic structure of Indonesia

The structure of GDP has not changed so much in Indonesia.　The agriculture sector has not changed, the industrial sector decreased and the service sector increased.

Table 3. GDP of Indonesia　（％ of GDP）

(Source; Key Indicators for Asia and the Pacific 2019, Asian Development Bank)

Many foreign manufacturing companies （US, Japanese, Taiwanese etc.）will move to Indonesia sooner or later. Indonesia has many man-power and they acquire technical skills very easily. As the result, Indonesia can develr, cop manufacturing sectoonsiderably.

Many foreign manufacturing companies （US, Japanese, Taiwanese etc.）will move to Indonesia sooner or later. Indonesia has many man-power and they acquire technical skills very easily. As the result, Indonesia can develop manufacturing considerably.

Manufacturing sector is important, because it increases national wealth and income of the people rapidly. Because productivity of manufacturing is more than 3 times higher than that of agriculture. IT industries are much higher.

2) What Indonesian can do in manufacturing industries?

Assembling industries: clothing, apparel, electronics, PC, I Phone

Auto parts, battery for automobile, electric bicycle,

Compact passenger cars , EV cars,

６．Trade between Indonesia and China

Indonesia can replace Chinese imports easily.

In 2019, Indonesia imported from China,45,790 million US$, and exported China,34,060 million US$, trade imbalance with China was 11,729 million US$. The major imported items from China, are ‘machineries and textiles and base metals=.38.3%, 11.1%, 13.1%.

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

Indonesia can replace imports from China, if the manufacturing level will improve.

Furthermore, Indonesia can export clothing, sports shoes, auto-parts, personal computers and I-phones to the USA and Europe, because the USA wants to change its supply source from China to other countries. Assembling industries will have big chance to export to the developed countries.

Table 4-1) Indonesian Imports from China (mil US$)

Table 4-2) Export from Indonesia to China (mil US$)

（Source; China Trade Statistics）

7. The problems of Indonesia from the foreign companies’ view point.

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 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 keen negotiation with government officials.)

4)     Fair treatment for foreign companies and local companies.

(Appendix data)

There will be some more statistic tables, for instance, the comparison of GDP, Trade statistics of USA.