A fresh breeze is
blowing on the face of the Indonesian economy. One that is characterized
by the projected growth of a new class of Indonesian consumers that
seems promising in the years ahead. This new consumer force certainly
brings a positive effect on Indonesia's economic growth as domestic
consumption has always been a pillar of economic support for the
country. Agung Budiono, analyst at Jakarta-based Pol-Tracking Institute, takes a closer look at the topic.
At least two global institutions
conduct research about this new consumer class in Indonesia. First,
McKinsey, that, according to its research released in September 2012,
predicts that Indonesia's consumer class with a minimum annual per
capita income of US $3,600, or a daily consumption rate of about US $10
to US $100, will reach 135 million people by 2030.
Secondly, the Boston Consulting Group
(BCG), which released a report in early March stating a similar bottom
line as well as mentioning an increasing portion of the Indonesian
population that can be categorized as middle-class and affluent consumer
(MAC). MACs are individuals with a minimum monthly income of IDR 2
million (about US $217). BCG expects that by 2020 about 141 million
Indonesians will fall in the MAC category; a number that is almost twice
as much as the current 74 million Indonesian MACs).
The blossoming of this new consumer
class in Indonesia is an important asset for the economy. John Maynard
Keynes explains in his book "The General Theory of Employment, Interest
and Money" that stable, middle-class consumption is required to spur
investments that will drive economic growth.
When examined further, an important
question arises related to the emergence of this new consumer class: is
it able to maintain and strengthen the consolidation of democracy in the
future? Or vice versa? This question is of high importance because the
reciprocal relationship between economic growth and democracy is a
complex one.
In their research, Przeworski and
Fernando (1997) concluded that the level of prosperity of a population
is very influential towards the state of democracy in a country. Their
study indicates that, when a country's per capita income reaches US
$1,000 to US $2,000 (based on purchasing power parity), the life
expectancy of a democracy is 18 years. Furthermore, when a country's per
capita income is in the range of US $2,001 to US $3,000 then the life
expectancy of its democracy increases to 26 years. Lastly, when it
touches the level of US $6,000, then democracy is believed to be
"eternal". Their research, which is often cited by others, was based on a
sample of 135 countries during the period 1950-1990.
According to the World Bank, Indonesia's
current per capita income level stands at US $4,636 (based on
purchasing power parity in 2011). When we apply this figure to
Przeworski and Fernando's categorization above, it means that democracy
in Indonesia should last for at least the next two decades.
In addition, a classical study regarding
the relationship between democracy and economic development (Lipset,
1959), emphasizes the symbiosis between prosperity that is the result of
development and democracy. That relationship implies that a population
of which the majority is rich is more likely to participate in the
country's political domain. The reason being that a rich population
desires to maintain its political system.
However, the relationship between
economic growth and a growing democracy is not always linear. There are
also views that argue the relationship between the two does not occur
directly, but instead through an intermediary, such as access to
education and evenly distributed revenue due to the democratization
drive.
Although Indonesia's growing consumer
class has a positive impact on Indonesia's expanding economy, there are
of course a number of bottlenecks that need to be dealt with. In my next
column I will discuss a number of these bottlenecks, which include
corruption, income distribution inequality, and weak state institutions.
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