Reimagining the role of the state in a divided economy

[ad_1]

Jakarta(ANTARA) –
[In1945mostoftheworldwaslivinginpovertyasaresultofwarandcolonialruleToavoidasimilarsituationduringtheinterwarperiodtheUnitedStatesanditsalliesdesignedanewinternationaleconomicsystemtoensureeconomicstabilityandthefreeflowofcapitalandgoods[1945年，由于战争和殖民统治，世界上大多数国家都生活在贫困之中。为了避免两次世界大战期间出现类似情况，美国及其盟国设计了一个新的国际经济体系，以确保经济稳定以及资本和商品的自由流动。

The postwar period marked the rise of the liberal economy as the primary guide to global prosperity. Despite its flaws, the liberal economic system has delivered on its promise. Over the past four decades, it has accelerated global growth and significantly reduced global poverty.

As we entered the 21st century, the global economic landscape began to change and growth slowed.

The latest data from the World Bank shows that of the 107 countries classified as middle-income countries in 2000, only 16 will be able to enter the high-income club by 2023, and the rest will find it difficult to climb the development ladder.

Economists are concerned about the prospects for future economic growth. After the 2007-2008 global financial crisis (GFC), the world economy has become more divided and distrustful. Global capitalism looks fragile and depressing.

Even the United States and Western countries, which are regarded as the biggest supporters of free economy, seem to have deviated from the track of free economy by formulating protectionist policies.

In addition, rising geopolitical tensions have heightened concerns about the interconnected economy. For low- and middle-income countries, a divided world means limited room for growth, higher barriers to the spread of knowledge and technology, and greater vulnerability to future risks posed by climate change and artificial intelligence.

The World Bank has provided a “prescription” for middle-income countries to get out of their economic difficulties in its World Development Report 2024. These ideas are neither new nor novel.

They proposed a classic development approach that focuses on three growth drivers: investment, technology injection and innovation. The report emphasizes that middle-income countries must undergo two economic transformations to achieve sustainable high income.

The first transformation should focus on investment and technology transfer to promote domestic industrial development. After mastering the technology, we should focus on innovation to increase product added value and achieve global technological leadership.

The World Bank warns middle-income countries not to bypass the initial economic transformation. Shifting from investment-driven growth to innovation-driven growth could lead to an economy with a weak foundation that is insufficient to support long-term development.

Brazil was on the right track after entering the middle-income stage in the 1970s, but later failed due to insufficient technological quality and a weak economic foundation.

Indonesia escaped from low-income country status in the 1980s, but has yet to reach upper-middle-income status despite the formulation of the “Golden Indonesia 2045” vision. The future remains uncertain as the country’s per capita gross national income is below the upper-middle-income level of US$4,256 to US$13,205.

The World Bank says that on current trends, it will take Indonesia 70 years to reach a quarter of the United States’ current per capita gross national income ($65,103 in 2015 constant prices).

Assuming other countries also achieve growth, it will be difficult for Indonesia to close the development gap if it adopts the same economic strategy.

The World Bank’s recommendations for middle-income countries to move toward high-income status do not adequately emphasize or explicitly mention the importance of proactive governments in stimulating economic growth.

In a crisis-ridden world, the need for the state to play an active role in shaping the economy has become increasingly apparent. It is hard to imagine that middle-income countries can catch up with high-income countries if the state remains on the margins of the economy, acting only as a regulator.

A proactive state is essential to driving innovation, as Maria Mazzucato’s book The Entrepreneurial State demonstrates. From the Internet to semiconductors, many technologies have been developed with strong state involvement, demonstrating the important role that the state plays in shaping the economy.

For example, the U.S. government played a major role in early semiconductor development through the Defense Advanced Research Projects Agency (DARPA), which funded research, connected academics and entrepreneurs, and matched startups with investors.

DARPA also helps semiconductor companies commercialize their products by awarding government contracts. In doing so, DARPA has successfully created a system underpinned by the free flow of knowledge and competition among companies.

Historically, countries have taken risks by making early investments in cutting-edge technologies when private companies are reluctant to commit resources.

If the role of the Indonesian government is crucial, how should the government proceed? Despite familiar industrial policies such as tax incentives, subsidies and special economic zones, the structure of the economy has not changed. Policy evaluation is crucial.

Indonesia can take at least four steps to respond to the assessment. First, Indonesia must determine which industries to prioritize to make the most of its limited resources. Indonesia can focus on industries that “should be its comparative advantage,” such as marine industries and green technology.

Second, the Indonesian government should use various policies to support private enterprises, but it should not blindly encourage enterprises. Instead, it should choose enterprises with development potential and willingness to innovate to avoid resource mismatch.

Third, the Indonesian government should work to integrate into global value chains to promote technology transfer. Finally, Indonesia and other middle-income countries may need to rethink how to design fiscal and monetary policies to promote economic growth.

*) Baginda Muda Bangsa is a political economist at LAB 45

The views and opinions expressed on this page are those of the author and do not necessarily reflect the official policy or position of ANTARA News Agency.

[ad_2]

Source link