[Call for Commentary] Why Are Political Elites So Inclined with the MSME Digitization Policy?

Author: Maulana Aji Negara
Editor: Alfredo Putrawidjoyo

The development of MSMEs has become one of President Jokowi’s main focuses, as contained in the 2020-2024 Rencana Pembangunan Jangka Menengah Nasional (RPJMN).ⁱ One of the most popular efforts to develop MSMEs is to digitize MSMEs. This can be found, for example, in President Jokowi’s words at the inauguration ceremony for the Opening of the National Coordination Meeting on Digital Transformation and Complete Data Collection on Cooperatives and Micro, Small and Medium Enterprises in 2022. “We must not just be spectators during massive digital trading activities. We have to flood the marketplace. MSMEs and cooperatives must flood the marketplace with domestic products, our MSME products.”ⁱⁱ The concrete form of this is reflected in the many government policies that aim to encourage digitalized MSMEs such as the Kakak Asuh program, MSMEs e-catalog, and the Proudly Made in Indonesia.ⁱⁱⁱ For the government, MSMEs are the pillars of the national economy.^iv It is noted that in 2019 MSMEs in Indonesia reached 99.99% of all business units in Indonesia.^v By utilizing digital technology, MSMEs are expected to be able to expand markets and increase their competitiveness.^vi All of this is done to make MSMEs able to upgrade and positively impact economic growth.

However, the function of the MSME digitalization policy as a lever for the Indonesian economy is doubtful. The domination of MSMEs in the structure of the Indonesian economy is a sign that something is wrong with economic development. This is because MSMEs are included in the unregulated informal sector.^vii Most MSMEs are only vehicles for those who cannot or fail to enter employment in the formal sector.^viii Indonesia is in a decade after the 1998 economic crisis, which resulted in a lack of formal employment opportunities, forcing many people to enter the informal sector.^ix

If Indonesia is oriented toward becoming a developed country, every policymaker should push a pro-manufacturing industry policy. Almost all countries in the world that have succeeded in becoming high-income countries have always started with economic industrialization.^x This is because of “economies of scale”, which describes conditions where large-scale companies tend to be more efficient in production than small companies. Even though MSMEs have been digitized, this does not automatically make MSMEs able to compete with large industries. Large industries’ capital concentration, technology adoption, and organizational capacity remain higher than that of MSMEs.

This paper does not aim to discuss which rationality is more appropriate in the debate above. Putting aside technocratic policy debates, this paper tries to dissect political-economic reasons why political elites often discuss the importance of creating digitalization of MSMEs rather than building large high-tech industries to advance the economy, turning from a technocratic perspective that imagines policy as something purely technical and objective.^xi This paper uses a political-economic perspective that sees policy born out of contestation of power and therefore filled with the interests of the actors within it. This perspective can be used to determine what interests underlie why a policy is chosen while other policies are ignored.

Absence of Interest in Building Large Industries

There are two main reasons why political elites often ‘sell‘ MSME digitization policies. The first reason is that the political elite, who are also the business elite or the oligarchy, do not have an urgent interest in carrying out industrialization policies in a committed manner. This power structure was formed from the formation of the capitalist class created by the New Order through policies on incentives and protection for entrepreneurs close to Soeharto.^xii After Soeharto’s fall, these capitalist classes transformed into oligarchs that adapted themselves to the democratic process and continued to have a strong influence on the power structure in Indonesia.^xiii

Unfortunately, the political elites that are currently entrenched are business elites in the extractive sector whose interest in capital accumulation is stable. This makes them not interested in building new economic engines in large industrial sectors such as manufacturing. After all, their economic desires have been fulfilled because they control natural resources in the extractive industry. This condition can be proven. For example, when Indonesia finished experiencing the 98′ economic crisis, instead of rebuilding labour-intensive industries destroyed by the crisis, the government preferred to depend on the surge in demand and commodity prices (resources boom) as levers for national economic growth.^xiv Lack of attention government in developing large industries tantamount to minimal government efforts in creating formal employment. Departing from this fact, efforts to mainstream MSME development policies can be a means for the government to abandon its responsibilities in creating formal employment. Rather than formulating complex industrial policies, political elites are more interested in making MSME development a solution to various economical problems. At this point, we can find a neoliberal nuance, namely a condition in which the state only plays a role in creating and maintaining the continuity of the free market.^xv This kind of thing also happens with the MSME digitalization policy. Namely, the government only plays a role in ensuring a free and broad market for business actors. Through the use of digital technology and then letting the following process be driven by the ‘invisible hand‘ of the market.

Populist Appeal of MSME Digitization Policy

The next reason political elites love the MSME digitalization policy is that this policy has a populist appeal. MSMEs in Indonesia absorb 96.92% or around 117 million people from the workforce.^xvi Therefore, the success of the political elite in making policies that appeal to MSME actors can become a political voice field for elites in power contests. Moreover, the government’s failure to control the impact of the pandemic has fueled public distrust of the government. Therefore, the elites need policies that positively impact dealing with the effects of the pandemic but also that can protect their image. All of this is embodied in the UMKM digitalization policy, where this policy is the meeting point between community requests and the elites’ efforts to win back the people’s hearts. Through digitizing MSMEs, the elites seem to be showing their seriousness in developing the economy of small communities. Instead of offering pro-industrialization policies to the business elite, the MSME digitalization policy is more pro-poor to the ordinary people so that the common people will feel more cared for. In addition, this condition cannot be separated from the dilemma between the policy cycle and the political cycle faced by political elites in Indonesia. On the one hand, implementing complex policies such as industrialization policies requires a relatively long time. The mass of their leadership as officials are limited, and they only have the opportunity to be re-elected once in the next period. This makes the political elites more concerned with political calculations to gain votes to be re-elected rather than designing long-term policies that are less popular for the people.

This paper is not intended to reject the MSME digitization policy but seeks to invite readers to be more critical in understanding the political-economic factors of a policy. No policy is entirely rational and objective. Public policy is not born from a vacuum but arises from a process of a tug-of-war of interests that we citizens must read critically. Only then can we as citizens be more careful in overseeing a more democratic and appropriate policy process.

[i] Peraturan Presiden RI Nomor 18 Tahun 2020 tentang Rencana Pembangunan Jangka Menengah Nasional 2020-2024

[ii] Kementerian Sekretariat Negara RI (2022). “Presiden Dorong Peningkatan Pelaku UMKM dalam Ekosistem Digital”. Accessed from: https://www.setneg.go.id/baca/index/presiden_dorong_peningkatan_pelaku_umkm_dalam_ekosistem_digital 

[iii] Kementerian Koordinator Bidang Perekonomian RI (2022). Siaran Pers HM.4.6/610/SET.M.EKON.3/10/2022 “Berperan Dalam Peningkatan Pertumbuhan Ekonomi Digital, Pemerintah Dorong Akselerasi Adopsi Teknologi Digital oleh UMKM”. Laman resmi Kementerian Koordinator Bidang Perekonomian RI. Accessed from: https://www.ekon.go.id/publikasi/detail/4662/berperan-dalam-peningkatan-pertumbuhan-ekonomi-digital-pemerintah-dorong-akselerasi-adopsi-teknologi-digital-oleh-umkm 

[iv] Kementerian Koordinator Bidang Perekonomian RI (2021). “Optimalisasi Produktivitas UMKM melalui Go-Digital dan Go-Legal”. Accessed from: https://www.ekon.go.id/publikasi/detail/3016/optimalisasi-produktivitas-umkm-melalui-go-digital-dan-go-legal 

[v] Kementerian Koperasi dan Usaha Kecil Menengah. (2020). “Perkembangan Data Usaha Mikro, Kecil, Menengah (UMKM) dan Usaha Besar (UB)”. Accessed from: http://www.depkop.go.id/uploads/laporan/1580223129_PERKEMBANGAN%20DATA%20USAHA%20MIKRO,%20KECIL,%20MENENGAH%20(UMKM)%20DAN%20USAHA%20BESAR%20(UB)%20TAHUN%202017%20-%202018.pdf   

[vi] Bank Indonesia (2022). “GO DIGITAL STRATEGI MEMPERKUAT UMKM”. Accessed from: https://www.bi.go.id/id/publikasi/ruang-media/cerita-bi/Pages/Go-Digital-Strategi-Memperkuat-UMKM.aspx 

[vii] Nazara, S. (2010). Ekonomi informal di Indonesia: Ukuran, komposisi, dan evolusi. International Labour Organization. Accessed from: https://www.ilo.org/wcmsp5/groups/public/—asia/—ro-bangkok/—ilo-jakarta/documents/publication/wcms_145402.pdf 

[viii] Canclini, N. G. (2019). A culture of informality. Urban studies, 56(3), 488-493.

[ix] Wihardja, M. M., & Cunningham, W. (2021). Pathways to Middle-Class Jobs in Indonesia. Australian Government and World Bank Technical Report. Accessed from: https://www.worldbank.org/in/country/indonesia/publication/pathways-to-middle-class-jobs-inindonesia 

[x] Hauge, J., & Chang, H. J. (2019). The role of manufacturing versus services in economic development. In Transforming industrial policy for the digital age (pp. 12-36). Edward Elgar Publishing.

[xi] Colebatch, H. K. (2005). Policy Analysis, Policy Practice and Political Science. Australian Journal of Public Administration, 64(3), 14–23.

[xii] Hadiz, V. R., & Robison, R. (2013). The political economy of oligarchy and the reorganization of power in Indonesia. Indonesia, (96), 35-57.

[xiii] Hadiz, V. (2003). Reorganizing political power in Indonesia: A reconsideration of so-called’democratic transitions’. The Pacific Review, 16(4), 591-611.

[xiv] Garnaut, R. (2015). Indonesia’s resources boom in international perspective: policy dilemmas and options for continued strong growth. Bulletin of Indonesian Economic Studies, 51(2), 189-212.

[xv] Harvey, D. (2006). Neo‐liberalism as creative destruction. Geografiska Annaler: Series B, Human Geography, 88(2), 145-158.[xvi] Kementerian Koperasi dan Usaha Kecil Menengah. (2020). “Perkembangan Data Usaha Mikro, Kecil, Menengah (UMKM) dan Usaha Besar (UB)”. Accessed from: http://www.depkop.go.id/uploads/laporan/1580223129_PERKEMBANGAN%20DATA%20USAHA%20MIKRO,%20KECIL,%20MENENGAH%20(UMKM)%20DAN%20USAHA%20BESAR%20(UB)%20TAHUN%202017%20-%202018.pdf