The election of Joko Widodo as Jakarta governor is rightly seen as heralding a new kind of politics. As a political outsider, his fresh approach to practical issues like public transport, flooding and clean water demonstrated a keen familiarity with the concerns of most Indonesians. The campaign itself was positive and youthful, built around a personality that was modest and authoritative. And his victory, despite running with a deputy gubernatorial candidate of “double minority” status (both Chinese-Indonesian and Christian), sends a strong message that democracy is alive.
Significantly, the campaign of the man better known as Jokowi emphasized social welfare. The new governor has introduced the Jakarta Health Card (KJS), which provides free access to medical services, and the Jakarta Smart Card (KJP), which provides a monthly stipend for school fees. Related measures, including low-cost apartments and minimum wage rises, are part of the platform.
The promise of Jokonomics is evident. Increasing the minimum wage, against the persistent lobbying of big business, is a necessary tool to narrow the gap between price inflation and purchasing power. Access to health and education has improved dramatically. This effort at equality of opportunity is important because it allows talent and hard work to be rewarded.
On the other hand, constraints to increased welfare are emerging. City-owned hospitals have been inundated by patients seeking free healthcare, with an approximately 70 percent increase in patients in some wards. In many areas, people waited in lines from 5 AM on.Even deaths have been reported due to inadequate treatment from overcrowding. Such resource constraints are understandable and will take time to catch up.
Another bigger question is fiscal sustainability. Jokowi’s KJS will, in its inaugural year, add to the Jakarta budget around Rp. 900 bn in a total budget of Rp. 50 tn. This figure will undoubtedly grow as we create new capacity to fix overcrowding, and as population ages.
Who will pay for it and what taxes will be raised? With politicians focused on the next electoral cycle and civil servants for the most part lacking sophisticated modeling capabilities, few are thinking about the long term.
Jokonomics is important because it is a microcosm of what is happening on a national scale. In fact, it is part of the broader ramp-up of social spending in Indonesia. In 2004, a law was passed authorizing the creation of the National Social Security System (SJSN), the foundation of the new Indonesian welfare state. SJSN — scheduled for 2019 implementation — encompasses anti-poverty, health and pension programs.
Second, government spending will increase dramatically, from about 19 percent of GDP today to something closer to 30 percent — like Malaysia today. Depending on the number of people to be covered by the programs (as yet undecided), total government spending for pensions, health care and old-age savings could jump by nearly 9 times over 50 years, potentially blowing out the budget. As life expectancies increase and the working population ratio decreases, what seems sustainable at first may become steadily less so.
Third, as the public acclimates to low-priced social services, the programs will develop a prestige and momentum of their own, becoming effectively unrepealable. Future reformists trying to improve the system’s sustainability may be attacked for trying to “privatize” essential services.
Fourth, the state will likely become a major actor in the economy. A vast centralized procurement bureaucracy for all sorts of pharmaceutical, disability care, and financial services will develop, with significant possibilities for corruption and market inefficiencies.
This is a very strong critique of a program that has not, after all, started. But undeniably, this is also the normal way welfare states have developed all over the world, not just in the West but also in Asian countries like India, Japan and Malaysia — all of which have prohibitive debt-to-GDP ratios.
First, the principle of inter-generational sustainability. Fairness and justice are not just about redistribution today, but also about what is fair for our children and their future generations. Subsidizing welfare is pointless if that means consuming future income from the next generation and saddling our children with debt.
An independent commission of experts should be set up to cost social programs, project tax revenues and economic growth — in line with the US Office of Management and Budget. Programs must be revenue neutral: for example, the SJSN should only be rolled out as energy subsidies are eliminated.
Second, we need policies that incorporate market prices to provide a disincentive against overconsumption. This was the fall of the US health care system. Patients weren’t paying for enough of the cost of health care, so they overconsumed, doctors had no competitive environment to keep them innovative, and the hospitals were also happy to keep their beds full.
Third, we need better budget reporting from the state. Without a reliable budgeting system, nothing can be measured, and what isn’t measured, most often isn’t achieved. At the moment nobody can fully track central government welfare spending. The “social assistance” (bantuan sosial) category overstates social spending because it includes education programs (like School Operational Aid, or BOS), but not state pension programs. The other indicator, “social protection” (perlindungan sosial), is too narrow, and does notinclude most welfare programs.
These are massive changes and the next few years are crucial. If we can implement them sustainably, we will have created a more prosperous and fairer society. If not, our failure will haunt us for generations to come.
Today, at Universitas Pelita Harapan, Jokowi will be delivering his first university public lecture as governor. We are proud to welcome him and hope to contribute to his vision for a new Jakarta. We should harness this energy for the betterment of Indonesia, but keep in mind the perils of welfare, lest we fall into the trappings of our European cousins, mired in debt, social upheaval, economic chaos, and
geopolitical decline.
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