Reconstructing Indonesia: A journey toward dynamic governance
April-July 2016
By: Azhar Kasim

Despite only 70 years of independence, Indonesia has seen dramatic changes befitting a much older nation. On the one hand, in the present reform era, the nation’s government is more democratic, political parties are free of state control and there are more equitable educational opportunities and higher per capita incomes. On the other hand, there have been setbacks: poverty and social inequality are increasing, the quality of education is in decline, rampant corruption remains, the levels of environmental degradation are shocking and there is a disturbing lack of competitiveness in industry. Moreover, the central government in Jakarta is weak, unable to address acts of anarchy and conflicts in the regions, and infrastructure development is still lacking.

The Indonesia Forum Foundation, an organization led by the Indonesian Economists Association, utilizing studies by several universities in Indonesia and the Indonesian Institute of Sciences, set a goal of an $18,000 per capita income in the Indonesian Vision 2030. And why not? According to the World Bank, Indonesia has the 10th-largest economy in the world, and other estimates have it going as high as seventh in the coming decades, behind the likes of China, the United States and India.

Globalization challenges

Wealthy, developed countries can take advantage of, and benefit from, globalization. Developing countries are not yet ready to face globalization, however, and it is perceived more as a threat than an opportunity. There are always exceptions, with China and India being able to compete globally. The consequence of globalization is the emergence of free trade – competition – and in the case of Indonesia that is the implementation of the Association of Southeast Asian Nations Economic Community that came into force on New Year’s Eve.

According to a 2008 Time magazine article on Indonesia: “The country has all the ingredients for success: a stable democracy, a wealth of natural resources and a large consumer market. But Indonesia is not keeping pace with Asia’s [other] booming economies.” Indonesia may be rich in natural resources, but the Indonesian people still have low per capita income. Indonesia is still considered a developing country, while nations such as Japan, South Korea and Switzerland are examples of countries with limited natural resources that still managed to increase social welfare.

One factor that makes these countries more developed is that they have quality human resources and knowledge workers. History shows that the producers of final products, usually developed countries that lack natural resources, are more prosperous than natural resource-producing countries such as Indonesia. For example, Switzerland has a chocolate industry that controls the global chocolate market, as opposed to Ghana and Indonesia, which merely produce and export raw cocoa. Developed countries, even if they have few natural resources, have superior human resources.

Indonesia’s national development has failed to transform the country. There has been insufficient positive impact on community empowerment and participation in economic development initiatives. Many factors influence successful development. One is the effectiveness and efficiency of policies and public administration, in which Indonesia is sorely lacking.

So what’s wrong?

There is a problem with human resources as well as systems. Weak integrity and an unresponsive attitude among government officials, vested interests, corruption and nepotism remain rampant. The quality of Indonesia’s civil service remains low, blighted by incompetence and a lack of professionalism. Public policy and administration systems are based on a “linear” way of thinking, rules-driven with no feedback or evaluation mechanism. Legislation approved by the House of Representatives is unaligned and not harmonized, conflicting with other laws. Development programs are not integrated within the national budget system, internal controls are weak and there is no effectively structured public program evaluation.

Indonesia has the symptoms of a “prismatic society” – explaining the dynamics and administration of developing countries – such as big differences between formal regulations and real practices on the ground. In other words, aside from formal organizations, there are informal ones, or parallel systems, funded by nonbudgetary sources of income, and their very existence is often hidden. We feel this phenomenon, but most people are reluctant to talk about it. There is the problem of low quality within Indonesia’s civil service, including the fact that a merit-based system is still not fully in place. Nepotism and patronage remain deeply intertwined within the civil service culture. There is little good governance, budgeting management is not yet transparent and there’s a lack of community participation. There is also an absence of public accountability or a solid connection with civil society initiatives.

What lessons can be learned?

Knowledge makes the difference between poverty and wealth. And the transition from developing to middle income to wealthy occurs because a new, innovative productivity factor is introduced and, most important, sustained. Knowledge is a base for innovation. For example, Singapore has placed greater emphasis on human resources development, in particular critical thinking, competency building, collaboration skills and character attributes such as mindfulness, curiosity, courage, motivation and resilience. A knowledge-based economy “is an economy in which the production, distribution and use of [applied] knowledge is the main driver of growth, wealth creation and employment across all industries,” according to the Asia-Pacific Economic Cooperation’s economic committee.

How important is knowledge? Forty years ago, Ghana and South Korea had about the same income per capita. By 1990, South Korea’s income was six times higher than Ghana’s. While part of the gap is due to more investment and more workers, half of the reason is attributed to Korea’s greater success in organizing and using knowledge, in particular embracing technology and manufacturing, similar to Germany. And Indonesia has characteristics similar to Ghana, although Indonesia sits much higher on the United Nations Human Development Index.

The World Economic Forum’s Global Competitive Index for 2014-15 shows not much has changed. South Korea ranked 26th, while Indonesia was 34th and Ghana came in at 111.

Of more interest is data on Indonesia from the forum’s Global Competitiveness Report 2013-14, which is compared to 2008-09. It turns out there are symptoms of an anomaly in Indonesia. The comparison shows there were improvements in the performance of the Indonesian bureaucracy, as survey respondents who said that inefficient government bureaucracy was the most problematic factor fell from 19 percent to 15 percent. At the same time, those who felt that corruption was the most problematic factor increased from 11 percent to 19 percent. This tells us that bureaucratic efficiency, or lack thereof, is not always consistent with an increase or decrease in corruption.

In addition, the quality of education is a powerful predictor of the wealth that countries will produce in the long run. Many nations can move from low-income to middle-income status, but as labor costs rise, only countries that boost productivity via improved education and master innovation will develop and avoid the middle-income trap. The quality of education in Indonesia is declining and the country today lags behind other Asian countries in numerous sectors.

Time to change

It is necessary to introduce radical and innovative changes to Indonesia’s governance/public administration in order to transform comparative advantages into competitive factors, so that Indonesia exhibits strong competitiveness in the era of globalization. Hence, the governance system in Indonesia must be changed.

Indonesia needs a knowledge-based and innovative public administration. The state civil apparatus must be qualified, with a merit system in place and, more important, utilized. Applying the principles of good governance, especially transparency and public accountability, is crucial, as is formulating and implementing public policy. The current linear approach should be replaced with an all-round approach to systems thinking; public administration processes as a cycle of planning; organized implementation; and monitoring/feedback for an appropriate evaluation process. Governments must make the right strategy choice to gain leverage and overcome challenges, although choosing the strategy is a dilemma.

One example of successful innovation in local government development in Indonesia is the East Java city of Surabaya. Efforts to transform Surabaya into a “cyber city” have improved the performance of the local government. The application of a government resources management system that includes e-budgeting, e-project planning, e-procurement, e-delivery and e-performance evaluation processes has increasingly benefitted the public through increased local revenues, improved transparency, the acceleration of public services, increased efficiency and an improved utilization rate of resources. The local government also is teaching the public to become technology literate, which can change the culture and mind-set of the city. In the era of globalization, only a knowledge-based economy will win the competition.

Changing Indonesia’s priorities

First, political leadership – strong and visionary political leadership – and strong personal integrity can play a major role in radical change, such as aligning governmental organizational elements to create dynamic governance. It is through the intervention of public policies that more conducive conditions for radical change are made. Transformational leadership that sets an example to the public via moral integrity and efficiency is necessary. The leadership role includes pioneering cultural changes (value changes, paradigm shifts) toward a more dynamic system of good governance. As Lim Siong Guan, former head of the Singapore Civil Service, said, a government “must constantly reflect on itself, anticipate future scenarios, adapt to changing circumstances and have the capacity to respond well to unexpected events.”

Second, pursue the transformative process of administrative reform, including the alignment of mission, strategy, structure, people and culture. Creating a public administration based on meritocracy that is able to create strong organizational capabilities to deliver public services effectively and efficiently is paramount. Public administration must be intensively modernized using information and communication technologies, so it is supported by updated and accurate data for making decisions and providing public services. For example, e–government. Through the application of the merit system and human resources development, public administration must be able to facilitate the process cycle of thinking ahead, thinking again and thinking across to create dynamic capabilities. There must be comprehensive affirmative action, for example, in Indonesia’s Papua region, based on real conditions in the field. Aspiring civil servants in Papua and West Papua provinces should be prepared from the beginning, before they even take the civil service entry exam, to ensure standard competence.

Third, corruption eradication must continue undeterred. The first priorities should be preventive measures to reduce the opportunities for corruption and the reform of the legal system and public administration, which also reduces opportunities for corruption. For example, decision makers could harmonize legislation and apply the principles of presumption of guilt for tax evasion and money laundering. Harmonizing anticorruption policies can serve as a driver for cultural change.

And fourth, Indonesia must better develop its national education system. In the long term, the development of an education system, from primary through higher education, is necessary to close the knowledge gap between Indonesia and developed countries. In particular, the system of higher education must produce a highly skilled work force (“knowledge workers”) and be a pioneer in advancing various fields of science. These highly educated people must be capable of thinking ahead, thinking across and thinking again. National development in Indonesia should prioritize integral human resources development – strong integrity, knowledge and good capabilities. Education development must be adapted to the social, cultural, economic and geographical conditions of the country’s regions to ensure more complete competency.

Developing a country is a “change process” that is dynamic, systemic and has a sustainable cycle of good governance. A governance system will remain relevant and effective if it is always innovative, adjusting and adapting to the changing needs of society within a constantly changing environment. That is especially true if there is a continuous alignment of able people, agile processes and, of course, a strong culture.


Indonesia is in trouble, as it faces multidimensional, protracted problems and continuous vicious circles in almost all areas of the public sphere. Democratic mechanisms to channel the aspirations of average people to public policy makers are not running as they should, mostly because the interests of the ruling elites still dominate the decision-making processes.

Strong and visionary leadership, administrative reform, combating corruption and developing the national education system – and including civil society at every step – can trigger changes that lead to innovative policy development. Indonesia’s national leadership must constantly reflect, anticipate future scenarios, adapt to changing circumstances and have the capacity to respond well to unexpected events. For example, the availability of knowledge workers and the development of infrastructure such as power plants, ports and highways will lower the cost of doing business and attract more foreign and domestic investment. The result will be a stronger competitive advantage for Indonesia. 


Azhar Kasim is dean of the School of Government and Public Policy in Indonesia (SGPP).

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