Is the power of big conglomerates in Indonesia beneficial or detrimental to Indonesia’s economic growth? Why?

Posted: May 19, 2013 in Issues, Quora Question
Tags: , ,

Answer by Jonathan Marpaung:

Conglomerates, in terms of local corporations owned by Indonesian citizens, are always something to be proud of. Their existence highlights the entrepreneurial spirit of domestic business owners creating long term investments and stable job opportunities for the average Indonesian. Just for this reason these corporations should be fostered and given support by the government to ensure a strong domestic economy.

In today's market, I don't see these companies detrimentally affecting any sector or startups. We should be glad to note that no monopoly or oligopoly exists in any industry, be it telecommunications, agriculture to aerospace. The free market economy has allowed the average consumer to choose from various airlines, hotels, internet service providers, etc creating a competitive atmosphere that forces companies to innovate and maintain excellent services to ensure market share. The anti-monopoly law (UU No 5/1999) protects everyone's right to enter the market with no fear of being bullied out of business by the "big conglomerates"

Comparing our conglomerates to South Korea's state sponsored conglomerates (Chebeol – 재벌) such as LG, Samsung, and Hyundai, there's nothing in Indonesia to make an apple-to-apple comparison with. Park Chung-hee in the 1960s-1970s led South Korea to a period of tremendous economic growth, lifting a nation that had a nominal per capita GDP of $103.88 in 1962, to $5,438.24 in 1989, and reaching $20,000 in 2007. This is despite the rampant corruption that took place during those years and the constant threat of invasion from the north.

Is there something to be learned from them? Yes, a strong economy can be built upon industry that is given freedom to make business decisions on their own guided by the government's blueprint for the economy. Meanwhile they are fully backed by the government in terms of being shielded from foreign threats. I am against State Owned Enterprises (SOE – BUMN), as I believe a government should not be an industry player and a regulator at the same time. Just name any SOE in Indonesia, to see how horrible this business model can get. However the model taken by Korea and China has proven to be more sustainable and allowed their companies to grow into major global players.

Despite that, I think it's a fallacy to say that the Korean conglomerate centered economy is the right model to use in Indonesia. Park Chung-hee made a very very very risky gamble when he decided to entire the entire country's economy on a handful of corporations. If those companies had failed, Korea would not be as it is today. Furthermore the Asian financial crisis showed that the original model has its shortcomings, and the companies were forced to restructure. In today's Korea, economic reform and protection of new small and medium enterprises is a major political issue with conservatives arguing for maintaining the status quo, and liberals demanding a free economy.

So where is Indonesia today? I think right now we have a healthy balance of big conglomerates and small and medium enterprises (SMEs) with the latter category growing day by day. If the distribution of wealth is kept like this, we can avoid major economic depressions or recessions caused by huge corporations or financial markets collapsing due to too much power in the hands of too few people. Indonesia has proven itself to be resilient against global economic disruptions e.g. 2008 Financial Meltdown due to the domestic economy's independence from external influences and capital market. We barely even noticed a crisis existed if it wasn't for the news. But if we were very reliant on big conglomerates and financial markets, then our economy could have been just as affected as the Bakrie family's wealth (http://www.thejakartapost.com/news/2012/11/30/bakrie-out-rich-men-s-club.html).

So what are doing right? Encouraging SMEs and not focusing our economy on a few big companies.
What should we do next? Foster the development of big industry without sacrificing the greater economic picture.

View Answer on Quora

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s