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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 worldThe GDP share of the advanced countries was 81.3in 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%. ASEANcountries 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)

 

 

1995

2000

2005

2010

2015

2018

Advanced Nations

81.3

79.1

76.2

65.5

606

60.3

 G7

65.8

65.0

59.8

49.9

46.5

45.9

 USA

24.6

30.3

27.4

22.7

24.4

24.2

  Japan

17.6

14.4

10.0

8.6

5.9

5.9

 UK

4.3

4.9

5.3

3.7

3.9

3.3

 Germany

8.6

5.8

6.0

5.2

4.5

4.7

 France

5.2

4.0

4.6

4.0

3.3

3.3

Italy

3.8

3.4

3.9

3.2

2.5

2.4

 Canada

2.0

2.2

2.5

2.4

2.1

2

2.Euro

 

24.6

19.2

22.2

19.2

15.7

16.1

3.Nies

 

3.4

3.4

3.4

3

3.4

3.5

 Korea

1.8

1.7

1.9

1.7

1.9

1.9

 Taiwan

0.9

1.0

0.8

0.7

0.7

0.7

 Hong Kong

0.5

0.5

0.4

0.3

0.4

0.4

 Singapore

0.3

0.3

0.3

0.4

0.4

0.4

 China

2.4

3.6

4.6

9.2

15.1

15.8

 India

1.2

1.4

1.8

2.6

2.8

3.2

ASEAN5

 

2.0

1.5

1.7

2.5

2.7

2.9

 Indonesia

0.8

0.5

0.7

1.1

1.2

1.2

Thailnd

0.5

0.4

0.4

0.5

0.5

0.6

 Malaysia

0.3

0.3

0.3

0.4

0.4

0.4

 Philippines

0.3

0.2

0.2

0.3

0.4

0.4

Vietnam

0.1

0.1

0.1

0.2

0.3

0.3

Russia

1.1

0.8

1.7

2.5

1.8

1.9

 Turky

0.8

0.8

1.1

1.2

1.2

0.9

 Brazil

2.5

1.9

1.9

3.3

2.4

2.2

 Mexico

1.2

2.1

1.8

1.6

1.6

1.4

 Argentine

0.9

0.9

0.9

0.6

0.9

0.6

World Total

100

100

100

100

100

100

 

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$)

2001

2003

2007

2008

2009

2013

2018

UK,

24278

30438

46,092

43,283

35,169

42,767

42,558

Germany

22965

19564

40,470

44,259

40,672

46,545

48,264

Netherlands

24979

33182

47,782

53,125

48,078

51,592

53,106

France

21920

29064

40,488

44,149

40,693

44,105

42,878

Italy

19610

26164

25,641

38,382

35,073

35,220

34,260

Spain

14985

21027

32,133

34,959

31,877

29,238

30,697

USA

35309

37474

46,337

46,901

45,674

52,737

62,606

Japan

32215

33221

34,264

38,216

39,471

40,490

39,306

Taiwan

13061

13304

17,154

17,399

16,353

21,888

24,971

Korea

10176

12710

21,653

19,162

17,110

25,890

31,346

Canada

23062

27354

43,243

44,981

39,599

52,497

53,108

Mexico

6216

6220

9,777

10,262

8,188

10,764

9,807

Norway

37611

48784

82,349

93,351

76,791

102,722

81,695

China

928

1131

2,645

3,404

3,739

7,081

9,608

Russia,

2100

2984

9,153

11,701

8,614

15,997

11,327

India

466

553

989

1,065

1,058

1,486

2,036

Indonesia

775

1092

1,916

2,237

2,327

3,684

3,871

Thailand

1863

2264

3,918

4,300

4,151

6,154

7,187

Malaysia

3746

4253

6679

8071

6917

10,700

10,942

Philippines

922

993

1,624

1,842

1,748

2,768

3,104

 

 

 

 

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 countriesThe 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.

 

China trade with major countriesmillon US$,%

 

 

2010

2016

2017

2018

2019

18/17

19/18

USA

EXP

283,303

385,085

429,755

479,423

418,674

11.6

-12.7

 

IMP

102,038

134,402

153,943

155,096

122,714

0.7

-20.9

 

B/L

181,266

250,682

275,812

324,327

295,959

17.6

-8.7

Germany

EXP

68,047

65,214

71,144

77,550

79,774

9.0

2.9

 

IMP

74,342

86,073

96,954

106,334

105,108

9.7

-1.2

 

B/L

-6,295

-20,859

-25,810

-28,784

-25,335

11.5

-12.0

UK

EXP

38,771

55,689

56,721

56,559

62,406

-0.3

10.3

 

IMP

11,304

18,653

22,314

23,879

23,897

7.0

0.1

 

B/L

27,467

37,037

34,407

32,679

38,509

-5.0

17.8

France

EXP

27,654

24,657

27,669

30,678

32,992

10.9

7.5

 

IMP

17,144

22,478

25,795

32,220

32,581

24.9

1.1

 

B/L

10,510

2,180

1,874

-1,542

411

 

 

Netherland

EXP

49,706

57,450

67,135

77,850

73,957

16.0

-5.0

 

IMP

6,477

9,790

11,244

12,330

11,206

9.7

-9.1

 

B/L

43,228

47,659

55,891

65,521

62,750

17.2

-4.2

Italy

EXP

31,141

26,361

29,171

33,173

33,499

13.7

1.0

 

IMP

14,011

16,704

20,427

21,063

21,412

3.1

1.7

 

B/L

17,130

9,657

8,744

12,110

12,087

38.5

-0.2

EU

EXP

311,235

339,048

372,042

408,632

428,700

9.8

4.9

 

IMP

168,477

207,970

244,874

273,533

276,596

11.7

1.1

 

B/L

142,758

131,078

127,167

135,099

152,105

6.2

12.6

Japan

EXP

121,061

129,261

137,324

147,083

143,270

7.1

-2.6

 

IMP

176,707

145,525

165,652

180,580

171,762

9.0

-4.9

 

B/L

-55,646

-16,264

-28,328

-33,496

-28,492

18.2

-14.9

S.Korea

EXP

68,771

93,708

102,751

108,789

111,001

5.9

2.0

 

IMP

138,399

158,868

177,508

204,639

175,575

15.3

-14.2

 

B/L

-69,628

-65,160

-74,757

-95,850

-64,574

28.2

-32.6

Taiwan

EXP

29,676

40,374

43,990

48,647

55,081

10.6

13.2

 

IMP

115,644

139,217

155,386

177,598

173,002

14.3

-2.6

 

B/L

-85,968

-98,844

-111,396

-128,951

-117,921

15.8

-8.6

India

EXP

40,919

58,390

68,064

76,705

74,827

12.7

-2.4

 

IMP

20,841

11,757

16,344

18,838

17,987

15.3

-4.5

 

B/L

20,078

46,633

51,720

57,868

56,840

11.9

-1.8

Australlia

EXP

27,226

37,287

41,440

47,338

48,205

14.2

1.8

 

IMP

60,866

70,666

94,822

105,452

121,432

11.2

15.2

 

B/L

-33,640

-33,378

-53,382

-58,113

-73,227

8.9

26.0

Saudi

EXP

10,367

18,649

18,220

17,444

23,856

-4.3

36.8

      Arabia

IMP

32,814

23,615

31,764

45,891

54,182

44.5

18.1

 

B/L

-22,447

-4,965

-13,544

-28,448

-30,326

110.0

6.6

G/Total

EXP

1,577,824

2,098,154

2,263,522

2,487,401

2,499,029

9.9

0.5

 

IMP

1,395,099

1,587,419

1,840,982

2,135,637

2,077,097

16.0

-2.7

 

B/L

182,725

510,734

422,540

351,763

421,932

-16.8

19.9

 

 

 

China trade with ASEAN10

100万ドル、%)

 

 

2010

2016

2017

2018

2019

18/17

19/18

 

Export

19,747

37,187

38,706

42,893

45,595

-5.9

6.3

Thailand

Import

33,200

38,679

41,580

44,632

46,158

-3.3

3.4

 

Balance

-13,453

-1,492

-2,874

-1,739

-563

208.7

-67.6

 

Export

23,806

37,663

41,725

46,403

52,134

-11.0

12.4

Malaysia

Import

50,410

49,213

54,302

63,222

71,828

-12.0

13.6

 

Balance

-26,604

-11,549

-12,578

-16,819

-19,694

-14.6

17.1

 

Export

21,973

32,115

34,764

43,209

45,644

-5.3

5.6

Indonesia

Import

20,777

21,393

28,552

36,162

34,061

6.2

-5.8

 

Balance

1,195

10,722

6,212

7,048

11,582

-39.1

64.3

 

Export

11,541

29,833

32,044

35,062

40,747

-14.0

16.2

Philippine

Import

16,205

17,375

19,231

20,607

20,205

2.0

-1.9

 

Balance

-4,665

12,458

12,814

14,455

20,542

-29.6

42.1

 

Export

23,114

61,100

70,994

83,900

97,870

-14.3

16.7

Vietnam

Import

6,980

37,126

50,331

63,959

64,134

-0.3

0.3

 

Balance

16,133

23,974

20,663

19,941

33,735

-40.9

69.2

 

Export

32,348

44,476

45,020

49,165

54,726

-10.2

11.3

Singapore

Import

24,710

25,948

34,223

33,715

35,215

-4.3

4.4

 

Balance

7,638

18,528

10,796

15,450

19,511

-20.8

26.3

 

Export

3,480

8,189

9,009

10,553

21,313

-50.5

102.0

Myanmar

Import

964

4,096

4,527

4,688

6,387

-26.6

36.2

 

Balance

2,516

4,093

4,483

5,865

14,926

-60.7

154.5

 

Export

1,348

3,929

4,784

6,011

7,985

-24.7

32.8

Cambodia

Import

94

830

1,008

1,377

1,444

-4.7

4.9

 

Balance

1,254

3,098

3,776

4,634

6,540

-29.1

41.1

 

Export

138,207

255,988

279,120

319,244

359,425

-11.2

12.6

ASEAN

Import

154,569

196,219

235,696

268,628

282,042

-4.8

5.0

 

Balance

-16,362

59,768

43,424

50,615

77,383

-34.6

52.9

 

 

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.

 

BUnderdeveloped 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.

 

Table2, Comparison between Agriculture & Manufacturing in Indonesia

 

 

 

 

 

2000

 

2010

 

2015

 

2018

 

Agriculture

Labour(1000)

40,677

 

41,495

 

37,750

 

35,703

 

 

Output(mil Rp)

216,800

 

956,100

 

1,555,200

 

1,900,300

 

 

1000Rp/head

5.330

100

23,041

100

41,197

100

53,225

100

Manufctrng

Labour(1000)

11,6420

 

13,824

 

15,621

 

18,251

 

 

Output(mil Rp)

385,600

 

1,512,800

 

2,418,900

 

2,947,300

 

 

1000Rp/head

33,121

621

109,433

475

154,849

376

161,487

303

(Source) Key Indicators 2019; Asia Development Bank

 

 

 

 

 

 

 

1Economic 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

 

2000

2005

 

2010

2015

2016

2017

2018

15.6

13.1

        Agriculture

14.3

13.9

14

13.7

13.3

45.9

46.5

        Industry

43.9

41.3

40.8

41

41.4

38.5

40.3

         Services

41.8

44.7

45.3

45.4

45.2

(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$)

 

 

2011

2018

2019

19/18

VI

Chemicals, fertilizers

2,552

4,196

3,849

-8.3

VII

Plastics, rubber

967

1,961

2,168

10.6

XI

Textile, clothing, silk

3,292

5,063

5,091

0.6

XIII

Stone, glass, ceramic

465

975

2,047

109.9

XV

Base metals

2,805

6,011

5,995

-0.3

72

Iron & Steel

828

2,194

2,049

-6.6

XVI

Machinery, Electronics

9,909

16,157

17,543

8.6

84

Machinery & parts

5,584

7,974

8,721

9.4

85

Electrical machinery, parts

4,325

8,182

8,822

7.8

XVII

Vehicles, aircraft,vessels

1,598

1,867

1,807

-3.2

XVIII

Optical, clocks, musical insr

1,155

1,124

1,208

7.5

 

Total

23,555

38,851

41,020

5.6

 

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

 

 

2011

2018

2019

19/18

19/11

III

Animal, vegetable oil

3,553

3,528

3,950

12.0

11.2

V

Mineral, ores, oils

16,530

13,977

13,362

-4.4

-19.2

VI

Chemicals, fertilizers

2,214

2,534

2,449

-3.4

10.6

X

Pulp, paper

1,382

2,968

2,709

-8.7

96.0

XI

Textile, clothing, silk

478

935

943

0.8

97.3

XII

Foot-ware, umbrellas

120

670

814

21.5

577.1

XV

Base metals

837

3,600

3,989

10.8

376.6

72

Iron & Steel

10

2,932

3,156

7.6

32,115.2

XVI

Machinery, Electronics

2,239

1,858

1,790

-3.6

20.0

84

Machinery & parts

798

381

475

24.9

-40.5

85

Electrical machinery, parts

1,440

1,477

1,314

-11.0

--8.7

 

Total

27,353

30,071

30,005

-0.2

9.7

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.