Inequality in : Kuznets Waves or Kuznets Curve?

Dharendra Wardhana1

Affiliation 1Deputy Director of Social Protection at Directorate of Population Planning and Social Protection, Ministry of National Development Planning/Bappenas

Corespondence: [email protected]

Abstract

This paper sets out an argument that Kuznets's hypothesis - either Kuznets curve or Kuznets waves - is testable and might only hold depending upon the context. In order to better understand the proposition of Kuznets and its relevance to Indonesia, it is necessary to consider what happens across long periods (la longue durée) and to comprehend how watershed events affect the economy and the distribution of wealth.

Analysis in this paper relies on various data sources ranging from conventional economic indicators, historical archives, to literary works. Fluctuation and trends on Gini index in Indonesia might not be fully explained with Kuznets hypothesis although several aspects might influence inequality trends.

Keywords: inequality; Kusnetz curve; Kusnetz waves

Doi: https://doi.org/10.47266/bwp.v3i2.67 | page: 168-183 Submitted: June 24th 2020 | Accepted: August 08th 2020 | Published: September 07th 2020

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I. Background Another issue in inequality measurement is on the diverse calculation methods In view of historical analysis, inequality surrounding options of variables on in Indonesia has been invariably perceived as a consumption, income, and assets. The debate consequence rather than a target. Arguably it reached a culmination with Piketty's Capital in appears, inequality—as proxied with indicators the Twenty-First Century (2014), which rattles such as the Gini coefficient or Palma index—is academic discourse. Reviews and criticisms on considered amongst one of the most intractable Piketty's argument revolved around the indicators. The main challenge is that significance of inequality and more aggressively inequality can only be controlled only when on the notion of imposing an inescapable global policy mixture can manage to exert influence high tax for the wealthiest group. towards both lowest and highest income Indeed, topics on inequality are heavily groups. contested. The question of inequality and Before 2015, inequality had been redistribution is central to politics at both local excluded from the national development targets and regional levels. Arguably it seems, ensuing in official planning documents of Government pros and cons arguments seemingly originate of Indonesia i.e. Medium-Term Development from ideological cleavages. The right-wing Plan (Rencana Pembangunan Jangka Menengah (usually free-market) position assumes that in Nasional or RPJMN) and Annual Government the long run, market forces, individual Work Plan (Rencana Kerja Pemerintah or RKP). initiatives, and productivity growth are the sole Instead, the main indicators are largely focused determinants of the income distribution, which on macroeconomic variables such as economic implies a reduced role of governments to growth, inflation rate, current account balance, redistribute wealth. On the other hand, the and trade balance. Further, development traditional left-wing position holds that the indicators mentioned in national development only way to alleviate the disparity of income is plan usually revolve around Human through a social and political struggle, which Development Index (HDI), poverty, and suggests that the redistributive efforts of unemployment rates. Therefore, prior to 2015, government must penetrate to the very heart of indicators reflecting redistribution rarely took the productive process. the attention of policymakers might be simply Until recently, views on inequality are because they were occupied enough in achieving divided into varying perspectives. At the right- targets as reflected with several indicators. One wing position, arguments proposed by factor might point towards topic sensitivity Friedman (1962, 1980) and Mankiw (2013) which relates much with issues of relay similar message and retains the notion appropriateness and legitimacy of one’s asset or that inequality is merely a logical consequence wealth. Another plausible explanation is due to that warrants for less “populist” policies. While the limit in formulating intervention to control at the opposing position, arguments from the variable representing inequality. Unlike Stiglitz (2012), Krugman (2014), and Atkinson poverty or unemployment which both can be (2015) mention the urgency to address addressed through specific programmes, inequality for its negative impact on economic problems and policies pertaining to inequality growth and development. undeniably involve politics more than any other Friedman (1962:6) mentions three policies. significant reasons in dismissing inequality as

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Volume III No. 2 major problems as follows: (1) Some degree of findings will then be compared with Kuznets inequality is desirable in any well-functioning proposition. economic system; (2) a certain degree of inequality is unavoidable under an economic system based on free-market principles; and (3) the actual degree of income inequality in a. Kuznets curve observed market economies, such as the United States, is much less than is commonly assumed (especially when compared to income distributions in non-market economies). It is not unpredictable for authors like Friedman, who proposes a laissez-faire approach to correct inequality in the long run. Meanwhile, Atkinson (2015:23) argues that the rich are getting more productive but also fail to tackle poverty. The economy is Figure 1. Typical Kuznets Curve rapidly changing to leave most people behind. He further elaborates that inequality in The Kuznets curve implies that as a economic resources translates directly into nation undergoes industrialization–and inequality in personal opportunity. Similarly, especially the mechanization of agriculture–the Krugman (2014:2) said that inequality is a drag gravity of the nation’s economy will shift to the that causes extreme inequality depriving many urban areas. This is commonly illustrated with people of the opportunity to fulfill their the case of internal migration where farmers potential. Likewise, Stiglitz (2012) puts forward looking for better-paying jobs in urban hubs the opinion that inequality is self-perpetuating. causes a significant rural-urban inequality gap Its produced by the vast amount of political (the owners of firms would be profiting, while power the wealthy hold to control legislative laborers from those industries would see their and regulatory activity. incomes rise at a much slower rate and Evidently, both camps can agree upon the agricultural workers would possibly see their consensus that inequality can be regarded as a incomes decrease), rural populations decrease as by-product of development yet its inevitability urban populations increase. As depicted in is highly affected by policies and events. While Figure 1, inequality is then expected to decrease there are no specific “anti-inequality” policies, when a certain level of average income is redistributive programmes such as land reform, reached (“tipping point”) and the processes of progressive taxation, and targeted cash transfer industrialization, democratization and the rise towards the poor might have the potential to of the welfare state allow for the trickle-down of address the problem. benefits from rapid growth, and finally increase This paper attempts to review recent the per-capita income. studies and findings on global inequality and Even from its inception in the mid-1950s, relate to the context of Indonesia. Comparing the Kuznets curve hypothesis has been one of different historical periods, this study aims to the most debated issues in development explore any trends, conjectures, patterns and economics. In a nutshell, the hypothesis says confounding factors explaining inequality. The that income inequality should usually follow an

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Volume III No. 2 inverse U-shape along the development from business, economic, and other recurring process. This theory has substantial policy events. However, no single literature touches consequences: if least developed countries upon the possibility of a correlation between (LDCs), are not worried about the short-run Kuznets waves with other cycles/waves. These social costs of development, they should soon include Kondratiev wave, Kitchin cycle, Juglar reach a situation where growth and inequality cycle, or Smihul wave, among others. reduction converge where poverty rates might drop. However, as mentioned by Piketty and Saez (2006:3), Kuznets curve in these days is believed to have double back on itself, especially in the US, with the period of falling inequality during the first half of the twentieth century followed by a sharp reversal of the trend since the 1970s. As a consequence, most economists have become relatively skeptical about Figure 2. Kuznets Waves (taken from universal laws relating to development and Milanovic, 2016) income inequality. However, with no empirical evidence, it would be misleading to conclude Milanovic’s second argument is that that the Kuznets hypothesis is no longer of looking at the developments before the interest. industrial revolution. We find similar waves of inequality; in those days, as the society b. Kuznets waves stagnated, the waves of inequality were not Essentially, what the Kuznets waves driven by technological changes but by adverse model does is simply to generalize the insight events like outbreaks, disasters, and wars as into the technological revolution, which pushes “the great levelers," according to Scheidel society to become more and more unequal. (2017). Therefore, Milanovic (2016:50) argues Currently, we might be experiencing the 2nd that there is a secure link between Kuznets and technological revolution with a massive Malthusian cycles in pre‐industrial societies. transfer of labor from manufacturing industries However, Kuznets cycles are broader because to services. Within this notion, the increase in demographic changes do not necessarily drive inequality is also driven by technological them. innovations. Like in Kuznets's time, those who Further, Milanovic elaborates that achieved certain technological developments Kuznets waves in modern societies are visible first could gain financial advantage and take when plotted against income per capita. The home the considerable rent (first-mover most recent development into account is that advantage). Milanovic (2016:94) argues that inequality mostly driven by technological now we have a mechanism that is somehow innovation and structural transformation (two similar to what we had in the past, which, technological revolutions), globalization, therefore, the second Kuznets waves in the politics, and policies (and conflicts). modern era. At the outset, the form of Kuznets waves finds resemblance with various cycles, ranging

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Volume III No. 2 c. Global trend of inequality such as the collapse of the Berlin Wall at the end of the 1990s and global financial crisis near the As written by Milanovic (2016), global end of the 2000s. More importantly, it covers inequality has dramatically changed in the past the period that may be called high globalization twenty-five years, which has entangled the that catapulted giants like China and probably political issues either at the between-country India to a lesser extent. Deeper integration of level or at the level of the nation-state. emerging economies and communication and Notwithstanding, long term evolution occurs at technology revolution brought about the a within-nation level, and it cycles over the past unprecedented rate of firms relocating for cheap several centuries. labor. Income gaps among nations have evolved Plutocracy and populism affect the global over the past two centuries. In the 1800s, only trend of inequality in the 21st century (Freeland, a few countries had achieved economic growth, 2012). Wealth concentration tends to build the which consequently translates into the fact that "new rich on the block," which does not help to the majority of the population lived in poverty alleviate inequality. On the opposing side, a with an income similar to the poorest countries more potent force of populism represented with today. Analysis from Roser (2016) shows that at maneuvers of right-wing activism seems to the beginning of the 19th century, the vast balance this push. However, most of these acts majority—cover 80%—of the world lived in were simply considered a strategy for large material conditions that are referred to as rousing crowds and soliciting votes during extreme poverty these days. In the next 175 political seasons. years, the world dramatically changed to become more un-equal. The world income II. Trends and development of inequality distribution appeared bimodal with the two- in Indonesia humped shape of a camel. One hump below the international poverty line and a second hump at Historical analysis based on the long-run considerably higher incomes - the world had observation has the potential to provide a more divided into a poor, developing world and a comprehensive and thorough assessment. developed world that was more than 10 - times Perhaps echoing what Rowse (1946) makes a richer. point of the uses of history, its essential value is Later, in the following four decades, the pointing towards a guide to the possible trend world income distribution has again changed of human affairs. Although most have disagreed markedly. The poorer countries, particularly in with a proverb: “l' Histoire de répète” (history the South East Asia region, have caught up. repeats itself), there must be “rhythms, plots, Therefore, the two-humped "camel shape" has patterns, even repetitions” (cycles or waves in transformed into a one-humped dromedary- this regard) which therefore enable us to make shape. Consequently, distribution has also generalizations and to draw lessons to a certain shifted to the right, which implies that the degree. This view later carries historical incomes of many of the world's poorest citizens judgment and law rather far, but it is indeed have increased, and poverty has fallen faster pivotal to drive and shape society's direction. than ever before in human history. From the perspective of longue durée, Income distribution has been changing inequality in Indonesia had shown a fluctuating more pro-poor segments, possibly due to pattern associated with certain significant globalization and significant political events events. In Indonesia (formerly named as Dutch

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East Indies), the relevant information mainly downward curves, could be observed. The long- taken from archives during the colonial period run trend seems to display a U-shaped curve, in the 19th century and analyses on these although the latest period seemingly indicates a documents. Research from van Zanden declining rate. The projection for inequality (2003:19) shows that high inequality in the fin rate is rather tricky than other projections for de siècle period is mainly due to the cleavage in indicators like GDP, inflation, exchange rates, society due to discriminatory policies that were poverty rates, or unemployment rates. common during the colonial period. Arguably, there are relatively more Insights from Leigh and van der Eng confounding variables explaining the degree of (2010:26) suggest that there has not been a inequality and its trends compared to other sustained long-term increase in income socio-economic indicators. inequality in Indonesia. Interestingly, there was an increase in the top 1 percent income share a. Inequality in Indonesia during the during the early 1920s and early 1930s, possibly colonial period caused by adverse changes in markets for Figure 3 also depicts sharp fluctuations of agricultural commodities affecting farm inequality in the late 19th century to the mid- incomes. Meanwhile, in the period 1982-2004, 20th century. The trend and trajectory of the the author found that the top 5 percent income Gini index in this period show dramatic change share was lower than in the early-1930s. In regardless of the data reliability. At the outset, short, comparison of top income shares in this graph conveys a vital message that sharp Indonesia with the available data for other swing of the Gini index at the early periods countries shows that the top 1 percent share in seemingly correlates with a high degree of Indonesia has been higher than in most social stratification in the colonial era and countries and years for which comparable data uncertainty during revolution time. Meanwhile, are available. in the 1970s onwards, the curve is shown less fluctuation, possibly the impact of development, which oriented towards redistribution. However, the central economic policy is typically purposed to promote economic growth. At that time, the community divided into racial differences into at least three distinctive classes: indigenous people, merchants from the

Figure 3. Inequality in Indonesia (1880-2018) Arabic peninsula and East Asia regions, and Figure 3 depicts the trajectory of European descents. A novel titled "Max inequality in Indonesia for extended periods Havelaar” by Multatuli (1868) and Pramoedya using the best available Gini index and its Ananta Toer’s tetralogy (international reprint proxies from various sources. There seems a edition published in 1991, 1993, 1995, 1996) discernible pattern (or waves) in the long curve. vividly portrays the striking gaps between the Although the curve does not resemble what wealthy groups and majority of locals. Both Kusnetz proposes, the pattern worth authors intimately acquainted with the examining. At least six visible curves, i.e., three hierarchy of status (and wealth) in society moving upward and other three moving during colonial times. They grasped the hidden

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Volume III No. 2 contours of wealth and authority with its developed into an independent movement and necessary implications. Protagonist characters revolutionary struggles. like Nyai Ontosoroh and Minke represent Although education policy aims to reduce affluent local elite who strongly express and the gap between classes, rising inequality is demand for progressive changes. inevitable, possibly due to the beneficiaries of These novels supposedly agree that a education programs that mainly focused on typical feudalistic structure reinforced with a specific segments within society. The educated strong tradition of patron-client relationships class were mainly coming from families with tends to widen and maintain the gap. access or related to colonial governments Consequently, capitals and assets concentrated (“priyayi” class). Lower segments of society under the possession of certain groups like might only benefit from irrigation and royalties, charitable groups, merchants, and immigration policies, yet the benefit size might local bureaucrats. On top of that, a highly not be as significant as what education program exploitative policy during British interregnum beneficiaries receive. from 1811 to 1815 and “Cultivation System” Counter-intuitively, inequality seemed to (cultuurstelsel), introduced after the extensive increase at the highest level in the last decade of Java War (Java Oorlog) in 1830-1850, Dutch administration (0.5-0.6). At first, this In contrast, local peasants and increasing inequality runs counter to the notion indigenous people (inlander) suffered from Scheidel (2017) that inequality will be tremendously, and poverty rates soared high decreasing along with long-standing conflicts (although the exact figures barely exist due to and unstable political situations. However, the the lack of data collection). Research notes from trend this decade point towards the declining Van Hoevell (1849) mention hunger and pattern and the peak of inequality rate was extreme poverty frequently, as he witnessed in attained in 1939 and 1942, probably when the many parts of Java island. He even implies that Ethical Policy showed its impact. Moreover, this suffering is a logical consequence out of findings from Leigh and van der Eng (2010) cultuurstelsel as echoed by other findings from indicate that period of significant economic van Soest (1869), Furnivall (1944), Wertheim expansion, primarily based on the growth of (1950), and Boeke (1946). commodity export production, might Meanwhile, in the early years of the 20th contribute to the increase of inequality to some century, the Gini index had decreased degree. significantly when the colonial ruler stipulated Ethische Politiek, which marked the start of new b. Inequality in Indonesia during the development policy encompassing three broad revolution period programs: irrigation, migration, and education. Gini index remained high until Initially designed as policies to compensate Indonesia’s Independence Day. The post- previous highly-exploitative policy, Ethical revolutionary era in the 1950s-1960s is Policy, in no small degree, managed to improve characterized by a declining inequality rate, yet public welfare. This progressive policy - mainly it hardly translates into improving public education - in turn, caused the awareness welfare. Although the newly drafted among the middle class and elites and led into constitution leaned towards socialism principles rising nationalism sense, which eventually with bright highlights on redistribution of

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Volume III No. 2 welfare, social welfare problems such as poverty negative economic growth, rampant poverty, and unemployment persisted. hyper-inflation, and other problems occurring During this era, policies are primarily out of economic mismanagement. This driven by leftists and characterized by hostile eventually set the backdrop to power transition moves such as nationalization of Dutch in 1966 and elevated Suharto as the new leader companies, “confrontation” policy with who embarked on the different sets of policies Malaysia and Singapore, and massive military focusing on restoring economy and recovering expedition following West New Guinea domestic stability. disputes. During this tumultuous period, Observation on Gini index in the period resources were heavily allocated towards of Sukarno’s administration provides cursory defense spending and mass mobilization, while glance that inequality seems to be less programs to improve public welfare primarily problematic although in reality the economic neglected. The decreasing inequality pattern situation did not show real improvement. This might follow the conjecture of “asset reinforces the alternative hypothesis that when decompression causes decreasing inequality” poverty increases, inequality might decrease assumption. This downward trend stayed until but it ends up with “shared poverty”. Although 1975 when the curve began to move upward. shared misery is definitely not a better situation, Generally, in this period, Indonesia was it somehow creates sense of solidarity and ends practically isolated from international trade and up with stability to certain extent. Also, this multilateral cooperation. typical situation correlates with Walter Another exciting novel that is highly Scheidel’s proposition of the assets relevant to describe the situation in the post- decompression as a result of adverse events colonial era is "Sang Priyayi” (written by Umar which keeps inequality in check. Kayam, 1992). It depicts social stratification intertwines with local values embodied from c. Inequality in Indonesia during Orde Javanese aristocratic hierarchy and legacies Baru and Reformasi periods inherited from contacts with colonial rulers. High economic growth during Orde Baru Background and setting of this novel are in line era was undeniably boosted by the windfall of with findings from Clifford Geertz's sky-rocketing world oil prices at the end of ethnographic work titled "Religion of Java" 1970s (Wie, 2012). At that time, Indonesia (1960), which emphasizes cleavage among (along with other OPEC members) was still Javanese society. In short, "social climbing" or considered among the largest oil-exporting social mobility is a result of hard work, countries. The benefits were distributed perseverance, and supports from extended through various programmes in regions mostly social networks with elites at various levels. in rural areas and agriculture sector. However, Sastrodarsono and Lantrip as main characters the success story—partly built on the are described in this novel as people who can importance of economic stability over manage to mobilize upward socially and democracy—had to finish ironically with attached to “priyayi” class as well as to its value, recurring economic downturn in 1997-98 and commitment, and in-group feeling (Fanani, finally with political transition towards 2017). deepened democratisation. Perhaps as predicted by many, the Apparently, the reformasi momentum in Sukarno period ended tumultuously with around mid-1998 had uncovered problems and

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Volume III No. 2 triggered initiatives to reform policies. For the last few years displayed decreasing trend. some observers, the material success of On the rural regions, although the inequality development policies from Orde Baru had had been consistently lower than urban areas, it actually masked many issues like oppressions, also showed increasing trend with the last few human rights violations, and freedom of speech. years stagnated. The fact that urban inequality These problems were then resolved through is higher than rural inequality complies with constitutional amendments and stipulation of Kuznets proposition that economic centres and progressive regulations. higher wages at urban area naturally attracts Fortunately, recovery process and labour from rural areas and ultimately increase political reform did not take long. By early inequality in urban areas. 2000s, Indonesia had managed to devolve much of its responsibilities to local governments while at the same time the country undertook major process of democratisation ultimately implemented with “direct election” mechanism to vote for leaders at the district, municipal, provincial, until country levels. Authoritarian and corrupt system had seemingly been replaced gradually with more democratic and Figure 4. Rural-Urban Inequality in Indonesia clean institutions. Yet, progress on the economic development had been accompanied Some hypothesize that the impact of with growing trend on inequality which began Village Fund (implemented since 2015) had to from 2011 when increasing global price of some extent contributed to if not exacerbated commodity apparently only benefited few top inequality in rural areas, mainly due to the income groups. assumption that these disbursed funds had This increasing trend during this period actually benefited only top income layer in is in line with findings from Yusuf et al (2014). society. This assumption is not necessarily Their estimates suggest that inequality in untrue as corroborated with findings from Indonesia has been rising significantly between Susan and Budirahayu (2017). Their study 1993 to 2013. However, the rise in inequality is evaluates the awareness of the law and practice predominantly visible in the period after the of corruption and development in villages in 1997–98 crisis, or during the reformasi era. Indonesia. Even though the village government Before the crisis, inequality rates were may know about the law on villages, yet they relatively stable and moderate (or at least still do not fully comprehend and practice the declining slightly). principles of good governance particularly on such aspects as transparency, accountability, d. Regional Inequality in Indonesia during and information distribution. Most of the Orde Baru and Reformasi periods village governments do not understand the As intuitively as it happens, inequality concept of entitlement and redistribution either. appears more evident in urban areas—also typical in other developing countries. For the last decade, urban inequality as indicated by Gini index showed increasing trend although in

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decentralization, several regions like and Aceh to large extent receive special additional funding and discretion to retain specific cultures manifested in local regulations. In 2001, the Indonesian parliament had promulgated the special autonomy legislation 1993 for , which was intentionally designed to overcome widespread discontent with central government’s rule since the gradual integration of the province had begun in 1962. Many Papuans had suffered under the tight grip of the Orde Baru’s militaristic approach and they had witnessed desperately as the area’s rich natural resources were extracted largely for the benefit of ’s elite and international investors. 2013 With that background, therefore, Indonesia’s

government and parliament offered to grant Figure 5. Within-Province Inequality in Papua the status of a special autonomy province Indonesia (1993 and 2013) (McGibbon, 2004).

The regulation allows Papua and West Figure 5 clearly indicates increasing drift Papua provinces to receive significant of within-province inequality in the Eastern additional amount of special fund transfers for part of Indonesia (starting from islands of twenty years. While the original intent of this Sulawesi, Maluku, and Papua). In 1993— special autonomy is referring to catch up allegedly the peak time of economic success development progress which had been lagging during Orde Baru era—there were only two for decades, the outcome of this special funding regions with above-average inequality rates i.e. does not really translate into expected Jakarta and Papua (at that time there was only development. one province in Papua island). Meanwhile in This case seemingly reflects sub-optimal 2013, there were at least seven provinces with impact of development spending and the higher than national average Gini index. effectiveness of local governance in Papua Overall, inequality rate at the national level is which cross-cuts with layered and multi- increasing although there are few provinces dimensional problems. While the cause of indicating lower trend. increasing inequality in Sulawesi might be This broadened gap at the regional level explained differently and specifically. One is probably in line with Kuznets earlier possible speculation for the case of Sulawesi is hypothesis that inequality will increase once again referring to Kuznetsian approach accompanying periods of development. which points towards the effect of However, in the context of Indonesia and Papua industrialisation. Unlike other resource-rich for the specific case, the phenomenon of provinces which rely heavily on the extractive- increasing inequality might correlate with the type sectors on tradable commodities like coal, enactment of Special Autonomy Law. While palm oil, and minerals, Sulawesi manages to other regions enjoying “big bang”

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Volume III No. 2 enhance values added on manufactured policies during these periods either did not products at certain degree. Therefore, really effectively address the problem or it industrialisation in Sulawesi and its might require a long time before the impact corresponding effects might be factors kicks in. explaining the increasing inequality between Table 1. Targets and Realisations for Gini 1993 to 2013. Index in Indonesia, 2015 – 2019 RPJMN Realisation Difference III. Development of Inequality and Target Economy 2015 0.40 0.402 0.002 The first observation to make is that 2016 0.39 0.394 0.004 correlation analysis between inequality and 2017 0.38 0.391 0.011 income per capita across periods provides 2018 0.37 0.384 0.014 important findings (Figure 6). Comparing two 2019 0.36 0.380 0.020 different periods characterized by different regimes, policies, and contexts, inequality Figure 6 depicts the correlation between trends had shown dissimilar patterns at inequality and economy represented with the national and at the local levels. At the national Gini index and local GDP per capita, level during the period of Orde Baru or respectively. Correlations at the national and commonly abbreviated as “Orba” (analysed provincial levels are presented in two separate periods between 1970s to late 1990s), the curve panels. Both graphs display completely resembles near-perfectly U-shape which runs different patterns. Overall, inequality is counter with classical Kuznets proposition. apparently lower during the Orba era at both While during reformasi period (observed from the national and provincial levels. The main early 2000s to date), the curve displays upward difference can be seen in the era of reformasi swing with a very steep slope. An important (after 1998) where inequality seems higher at message from these curves is clear i.e. that both levels but shows different trajectory. At inequality is relatively stable during the Orba the national level (left-hand side), inequality era and it jumped high during reformasi period shows upward trend sharply whereas the graph which echoes previous findings from Yusuf et al. on the right-hand side shows entirely different (2014). pattern. While the overall trend of inequality Gini index was adopted as one of the during the reformasi era is indeed higher than national targets for the first time in 2015. that of the Orde Baru. Short observation RPJMN for the years 2015-2019 and annual indicates both fitted curves seem flat with slight RKPs within these periods put inequality into positive slope although probably in the long run attention and the Gini index was clearly the conjecture might appear to resemble the mentioned in the document. Table 1 shows inverted U-shape—close to the image derived targets and realisations for the Gini index as from Kuznets proposition—. A deeper and stipulated in RPJMN 2015-2019. From 2015 broader analysis of confounding factors onwards, deviation from targets had been explaining regional variation on inequality is showing increasing trend from merely two to pivotal. 20 basis points. This widening differences The graph on the left can be associated seemingly conveys the message that inequality with remarkable shifts in policy orientation. In is intractable. Put it another way, it might be the era of Orba, the regime emphasizes

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Figure 6. Correlation between Inequality and Economy redistribution with a focus on agriculture spatially diverse economy than either Thailand development and industrialization. Later, policy or the Philippines. shifts occurred and the accentuation during This important finding on inequality reformasi period is heavily concentrated on fluctuation leads to several hypothesis related certain economic sectors that benefited a few to the proposition of Kuznets waves. However, segments in society. Another factor causing factors explaining the cycles or the waves might higher inequality is the increasing global not be identical. Kuznets waves emphasizes on commodity price which inevitably only benefits the role of technological revolution and the affluent groups. Furthermore, large scale structural transformation while Gini index decentralisation in reformasi period has allowed fluctuation in Indonesia is seemingly more widening gap between region although findings affected by major events resulted from changes from Hill and Vidyattama (2014) argue that on policies and politics. unlike in other very large developing countries, Economic and social indicators generally regional inequality in Indonesia has not risen move in the same direction, in the sense that over the past three decades, reflecting the fact richer and faster-growing regions generally that growth has been reasonably broad-based have better social indicators. But there are across regions. Yet they admit that these trends exceptions indeed. The most important is mask considerable diversity. As a matter of fact, Papua, where the continuing high incidence of Jakarta continues to pull away from the rest of poverty clearly demonstrates that the wealth the country, to an extent that could even generated in its mining enclaves, and to a lesser threaten national cohesion at some point in the extent the major provincial capital of Jayapura, future—hence the motivation to relocate the has had limited spill over effects, especially to capital city to Kalimantan island. In some the more remote and very poor highland region. respects, Jakarta is becoming ‘Bangkok-like’ At the other end of the spectrum, Yogyakarta and tend to leave other regions far behind, continues to stand out as having among the best although Indonesia still has a much more social indicators in the country, even though its

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Volume III No. 2 per capita income is among the lowest, poverty Moreover, with this dense political rates have been relatively high, and inequality context, most social policies merely focus on rates tend to climb in the last decade. the expansion of beneficiaries rather than the quality of its programme. Therefore, it appears IV. Conclusions that scaling up beneficiaries of social policy is probably directed towards garnering votes Indeed, there is still big room for further instead of welfare improvement. Meanwhile, research on testing Kuznets waves in Indonesia. concerning the current situation, a more radical This paper mainly aims to set out a range of approach to addressing inequality is urgently indicative questions. Inequality in Indonesia, needed. Policies such as progressive tax rates, while largely and seemingly can be explained land reform, and other non-conventional with the Kuznetsian approach, is apparently instruments like taxation on inheritance, dissimilar from the trajectories of developed imposing cap ratios on highest-lowest salaries, countries and probably also from other and universal basic income are indeed worth developing countries. Contrasting the image of experimenting with. the Gini index trajectory for both national and As Indonesia is beginning to join the provincial levels leads to the inconclusive group of upper-middle-income economies, the argument whether inequality in Indonesia needs to address wealth disparity among its follows either Kusnetz waves or curves. In citizens increasingly becomes more relevant. another perspective, it poses a challenge for More importantly, issues on inequality touch future research in order to fill in the gap. upon several contexts. Gaps between urban and These days, issues revolve around rural areas are chief amongst the most popular inequality remain unresolved and appear to be research on inequality. Another important gap increasingly high particularly when using commonly researched is the protracted income or assets as proxies. Democratization is disparity between regions in Java island and assumed to have the capability to affect if not outside Java or regions between Eastern and control inequality with the underlying logic Western part of Indonesia. Further analysis on that it pushes local leaders for more the gender disparity also intersects with many redistributive programmes encompassing social issues on inequality at various contexts. policies in various forms (cash transfers, health However, it is not implausible to conceive subsidy, education scholarships, micro credits in the long run that inequality will remain one for small-medium enterprises). In fact, this of the most challenging issues. Particularly opportunity is not fully realized yet by most with the impact of the further technological local leaders to plan more inclusive policies, revolution that is very likely to induce labour- especially for vulnerable groups. Rather, most replacing production factors as predicted by local politics still struggle with issues like Avent (2016) and Schlogl and Sumner (2018). money politics (vote buying), patronage, and Therefore, the most impending consequences of pragmatic approaches in securing elections this future global trend lead to shrinking (Muhtadi, 2019). With this short-term strategy, employment creation and jarring gaps between politicians tend to appease their constituents skilled and unskilled labours. A report from through entitlement programmes without McKinsey (2017) suggests that adaptation to careful design. Therefore, its sustainability and technological change will require higher its effectiveness are questionable. educational attainment or activities that involve

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Volume III No. 2 social and emotional skills, creativity, high-level been perceived as the safest among other cognitive capabilities, and other skills relatively regions in Java. Looking at the aftermath of the hard to automate. massive earthquake in 2006, the community had shown resilience and managed to recover V. Post-Script - Curious Case of quickly. Perhaps, it is the local social capital and Yogyakarta: Unequal but Happy? its manifestations which support the society and defuse conflicts during difficult times. For those who are familiar with Yogyakarta has been known for a long Indonesia socio-economic indicators will time as a prime destination for higher education. consider the quality of life in Yogyakarta as Top ranked universities such as Gadjah Mada, relatively ideal. Positive progress is reflected Atma Jaya, Sanata Dharma, Veteran, with decent indicators on livelihoods such as Muhammadiyah, Indonesia Islamic University human development index, longevity, and attract potential students from regions all over happiness score among others. Yet, most will be Indonesia. Probably unlike in the past, most caught surprised knowing that inequality in students coming from other regions these days Yogyakarta is actually the highest in Indonesia usually are coming from affluent families. from 2017 to 2020. Unfortunately, however, Anecdotal evidence seemingly provides a hint of there is a paucity on research explaining this recent trend that most students coming from phenomenon. A brief study and short outside Java have revealed bold preference to statements from local officials imply that one stay longer (if not permanently) in Yogyakarta possible cause determining this highly unequal after graduation for working or becoming income distribution is the rapid gentrification of entrepreneurs. Consequently therefore, new rural areas—most prominently due to the graduates have the proclivity to accumulate massive development of apartment, shopping wealth and to adjust with modern lifestyle malls, and hotels—which leads to dynamic whereas most locals still maintain their modest changes of rural-urban status. Villages situated way of life. in close proximity with urban areas gradually tend to resemble its characteristics with urban References areas although in the official administrative delineation they are still categorized as villages Ananta Toer, P. (1991) This Earth of Mankind which local officials mention as “urban- (Buru Quartet Book 1). New York: William villages”. Simply speaking, the category of Morrow & Co. urban-villages is simply described as a Ananta Toer, P. (1993) Child of All Nations transitory status between urban and rural. (Buru Quartet Book 2). New York: William Meanwhile rural-villages can be related to the Morrow & Co. rural areas with lagged development and no Ananta Toer, P. (1995) Footsteps (Buru Quartet significant gentrification. According to local Book 3). New York: William Morrow & sources, the numbers of “urban-villages” keep Co. increasing and has the proclivity to outnumber Ananta Toer, P. (1996) House of Glass (Buru “rural-villages” in Yogyakarta. Quartet Book 4). New York: William Within the context of high inequality and Morrow & Co. the disaster-prone region as a backdrop, Atkinson, A. B. (2015) Inequality: What Can Be Yogyakarta might be susceptible to conflict but Done? 1st edn. Cambridge, MA and on the contrary this province has seemingly London, England: Harvard University

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Press. Incomes Over the Twentieth Century: Volume Avent, R. (2016) The Wealth of Humans: Work, II – A Global Perspective. Oxford and New Power, and Status in the Twenty-first York: Oxford University Press, pp. 171– Century. New York: St. Martin’s Press. 219. Boeke, J. H. (1946) Oosterse Economie. Den Haag. Mankiw, N. G. (2013) ‘Defending the one Bughin, J. et al. (2017) Jobs lost, jobs gained: percent’, Journal of Economic Perspectives, Workforce transitions in a time of 27(3), pp. 21–34. doi: automation. New York. doi: 10.1257/jep.27.3.21. 10.1002/lary.20616. McGibbon, R. (2004) Secessionist challenges in Fanani, A. (2017) ‘Identitas dan mobilitas sosial Aceh and Papua: is special autonomy the priyayi dalam novel para priyayi karya solution? 10. Washington DC: East-West umar kayam’, Sabda, 12(1), pp. 42–51. Center. Available at: Freeland, C. (2012) Plutocrats: The Rise of the http://scholarspace.manoa.hawaii.edu/b New Global Super-Rich and the Fall of itstream/handle/10125/3510/PS010.pd Everyone Else. New York: Penguin Press. f. Friedman, M. and Friedman, R. D. (1962) Milanovic, B. (2016) Global Inequality: A New Capitalism and Freedom, Capitalism and Approach for the Age of Globalization. Freedom. Chicago: University of Chicago Cambridge, MA and London, England: Press. The Belknap Press of Harvard Friedman, M. and Friedman, R. D. (1980) Free University Press. doi: to Choose. New York: Harcourt. 10.1017/CBO9781107415324.004. Furnivall, J. S. (1944) Netherlands India: A study Muhtadi, B. (2019) Vote Buying in Indonesia: The of plural economy. New York: The Mechanics of Electoral Bribery. Singapore: Macmillan Co. Palgrave Macmillan. doi: 10.1007/978- Geertz, C. (1960) The Religion of Java. Chicago 981-13-6779-3. and London: University of Chicago Multatuli (1868) Max Havelaar: Or the Coffee Press. Auctions of the Dutch Trading Company. Hill, H. and Vidyattama, Y. (2014) ‘Hares and Edinburgh: Edmonston and Douglas. tortoises: regional development Piketty, T. and Goldhammer, A. (2014) Capital dynamics in Indonesia’, in Hill, H. (ed.) in the Twenty-First Century. Cambridge, Regional dynamics in a decentralized MA and London, England: Belknap Indonesia. Singapore: Institute of Press: An Imprint of Harvard University Southeast Asian Studies, pp. 68–97. Press. van Hoevell, W. R. (1849) Reis over Java, Piketty, T. and Saez, E. (2006) The Evolution of Madoera en in het midden van 1847. Top Incomes: A Historical and International Amsterdam. Perspective. 11955. Cambridge, MA. Kayam, U. (1992) Sang Priyayi: Sebuah Novel. Available at: Jakarta: Pustaka Utama Grafiti. https://www.nber.org/papers/w11955. Krugman, P. (2014) ‘Inequality Is a Drag’, The Roser, M. and Cuaresma, J. C. (2016) ‘Why is New York Times, 7 August, pp. 18–20. Income Inequality Increasing in the Leigh, A. and van der Eng, P. (2010) ‘Top Developed World?’, Review of Income and Incomes in Indonesia, 1920-2004’, in Wealth, 62(1), pp. 1–27. doi: Atkinson, A. B. and Piketty, T. (eds) Top 10.1111/roiw.12153.

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Rowse, A. L. (1946) The use of history. London: between Java and the Netherlands at the Hodder & Stoughton. beginning of the 19th century’, Scheidel, W. (2017) The Great Leveler: Violence Explorations in Economic History, 40(1), and the History of Inequality from the Stone pp. 1–23. doi: 10.1016/S0014- Age to the Twenty-First Century. Princeton 4983(02)00028-1. and Oxford: Princeton University Press. Schlogl, L. and Sumner, A. (2018) The Rise of the Robot Reserve Army: Economic Development, Work, and Wages in Developing Countries. 487. Washington, DC. Available at: https://www.cgdev.org/publication/ris e-robot-reserve-army-automation-and- future-economic-development-work- and-wages. van Soest, G. H. (1869) Geschiedenis van het Kultuurstelsel. Rotterdam. Stiglitz, J. E. (2012) The Price of Inequality: How Today’s Divided Society Endangers Our Future. New York: W. W. Norton & Company. Susan, N. and Budirahayu, T. (2017) ‘Village Government Capacity in the Implementation of Village Law No. 6 of 2015 in Indonesia’, in McLellan, B. (ed.) Sustainable Future for Human Security: Society, Cities and Governance. Singapore: Springer Nature Singapore Pte Ltd, pp. 17–27. doi: 10.1007/978-981-10-5433-4. Wertheim, W. F. (1950) Nederlandse cultuurinvloeden in Indonesie. Wie, T. K. (2012) ‘Indonesia’s Economic Development During and After the Soeharto Era: Achievements and Failings’, in Wie, T. K. (ed.) Indonesia’s Economy since Independence. Singapore: ISEAS Publishing, pp. 69–89. Yusuf, A. A., Sumner, A. and Rum, I. A. (2014) ‘Twenty Years of Expenditure Inequality in Indonesia, 1993 – 2013’, Bulletin of Indonesian Economic Studies, 50(2), pp. 37– 41. doi: 10.1080/00074918.2014.939937. van Zanden, J. L. (2003) ‘Rich and poor before the Industrial Revolution: A comparison

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