Indonesia’s Blessing and Curse

By Emanuel Shahaf
The ongoing discussion about the urgent need to increase the education budget and
VP Yussuf Kalla’s irritation with Indonesian backwardness despite the obvious natural
wealth of the country, as reported in the Jakarta Post, highlights a problem that
is not limited to Indonesia, but harms this country and coincidentally a number of
other Muslim countries disproportionally.
I am talking about Indonesia’s natural wealth, a blessing and a curse at the same
time. Usually when natural resources and the associated extractive industries are
discussed, the emphasis, not only in Indonesia, is on sustainable development and
environmental impact, both catch phrases often used to attempt and control overly
rapid industrialization. But there is a much graver problem with an abundance of
natural resources – their disturbing influence on the development of human capital.
There are other countries in a similar situation whose ample oil reserves obviate the
development of alternative sources of income which in turn would require a serious
and systematic fostering of available human capital. The poor standing of many Arab
nations in the UN’s Human Development Index, the accepted measure for the status
of development of human capital, is an indirect outcome of their oil wealth, a
valuable natural resource whose abundance historically has prevented or deferred
focused investment in human resources.
An additional problem for countries with plenty of natural resources is the fact that
extractive industries like mining and oil production are usually not labor intensive
and therefore countries which derive a large part of their income from those
industries, like Indonesia and Saudi Arabia, happen to have a problem of
Economics is all about incentives and alternatives. At this point in time and as long
as its natural resources are not running out, Indonesia has very little economic
motivation to develop its human capital and all the legislative efforts to force the
government to increase the education budget are likely to be futile or result in minor
improvements at best – the demand for well educated laborers is too limited and for
the time is being supplied by expatriates and Indonesians who studied abroad.
As long as local and international investors and multinational conglomerates will
make easy money from mining metals and coal, drilling for oil and gas and cutting
trees, they will prefer to do that rather than invest in manufacturing industries
whose workers require more of an education, where the return on investment is
lower and slower and the efforts and risks are larger and less predictable because of
international competition. And the government, as Indonesia’s largest employer,
gets its taxes quickly from the multinationals and doesn’t have to involve itself too
deeply in infrastructure building, including education, a prerequisite for the
development of a large and profitable manufacturing industry and the advanced
service industries which it would spawn.
Actually, Indonesia is in a double-bind: Not only do the investors have little incentive
to develop industries that need educated laborers, the population has no good
reason to study or work since salaries are low and if they stay unemployed, the
worst thing that can happen is that they will have to live of the fruits of the land of
which there are many.
The only party who has the duty and the means to deal with this problem is the
government. The government knows that not so many years from now, probably
sooner than later, Indonesia’s natural wealth will start to run out, extractive
industries will start to be less profitable and will pack-up and leave. The government
also knows, that when this happens, it will be too late to restructure the country at
short notice and inevitable economic decline will result. That’s the reason why the
government must start developing education now because it will start paying only
years from today, hopefully before the countries’ natural wealth runs out.
There are quite a few nations very successful economically, with hardly any natural
resources other than their population. Since they have had little choice, these
countries, including Singapore, Japan, South Korea, Taiwan, Israel and many
members of the European Union, have made and continue to make large efforts to
develop their human capital. China and India also have realized the value of
improving the quality of their manpower and are increasing their investment in
education accordingly. Some of these countries could serve as examples on how to
develop the educational system of Indonesia. Only countries that continually improve
their educational systems will be able to maintain or improve their economies and
their international status. Human capital is a natural resource that is never going to
run out.
Will Indonesia know how to act in time? Governments seldom emphasize long term
development – why should a government invest in something if the return on the
investment will come long after its own term has ended? Who will be the President
who is content to see the fruits of his programs harvested long after he has left
As long as the leaders of Indonesia will not address these issues, little is going to
happen and Indonesia will remain a tremendously rich nation with a poor population
and inferior educational standards, a huge waste of potential in economic and human
terms. Remember the saying: If you think that education is expensive, consider

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