Pancasila, BI and Economy

I agree with the decision declaring June 1 the birthday of Pancasila. Even though the order of its principles is different from when it was formally formulated and as included in the preamble of the Constitution on August 18, 1945, the name and big idea of the state ideology fully belonged to Soekarno.

Its problem was the normative idea about Pancasila circulating before and after June 1 this year - as well as in previous years and possibly also next year: a belief that all mistakes in Indonesia are caused by Pancasila not being genuinely implemented. Pancasila is "glorious" until the difficult attempts are made to translate it into the "concrete reality" of Indonesia.

In my opinion, the best analysis of the "concrete reality" of Indonesia was expressed by the initiator of Pancasila, Soekarno, in his defense speech at the Colonial Court in 1930. While looking at Sriwijaya and Majapahit as forms of imperialism, in a defense entitled "Indonesia Accuses" Soekarno said that even the colonial government was a victim of capitalism and imperialism.

He said, "The allegation that imperialism is government officials, or white people, or the government is all wrong." Because, in the view of Soekarno, capitalism is a "life interaction system arising from a production method that separates the workers from the production tools, so the benefits do not fall into the hands of laborers, but rather into the hands of employers. Capitalism causes accumulation of capital and an 'industrial reserve army' (an unemployed group). Capitalism moves toward 'verelendung'."

The latter means it impoverishes the workers. With this definition, Soekarno concluded: "Capitalism is not a body, not a human being and not a nation." And he continued: "It is a desire, a system that has power over and influences another nation's economy control over the economy or the other nation state." Imperialism is a modern child of capitalism, namely "an effort to expand colony ownership without any limit for the advantage of their own industry and bank capital."

Commercial society

Eighty-six years after Soekarno's defense speech the structure of global power has not changed, only its accessories. It is deeper and more complicated. True, the independence of Indonesia as initiated by Soekarno and Mohammad Hatta in 1945 was subjectivist in relation to the nation's own "political reality". However, structurally, independence was forced to adapt to the "concrete reality" formed by capitalism and imperialism. Here, the state as the holder of political sovereignty must constantly negotiate with the abstract powers of capitalism and imperialism. As a consequence, the maneuver to implement Pancasila has become "narrow". What's the story?

One of them was the combination of consumer society and market society, which became a commercial society. Following the logic of Niall Ferguson in his 2011 book "Civilization: The West and the Rest", the presence of the two communities was the main reason for the close cooperation between technology and capital. The emergence of the textile industry in the 18th century in England not only marked the start of the Industrial Revolution, but also gave people purchasing power.

Through the invention of a weaving factory, production multiplied. This encouraged prices of goods to be lower and more affordable. The wider community of buyers increasingly stimulated capital investment and technological innovation. This was the creation of a commercial society, namely a social community with an underlying transactional mechanism. Here, consumers and producers converged with others without, according to Pierre Manent, an 18th century Dutch philosopher, "having to share a life view".

This remark by Manent, as quoted by Samuel Gregg in "The Commercial Society" (2007), describes how a community would expand to the global level, such as when excessive industrial products cannot be absorbed domestically and give birth to the need to expand outside of Europe. Mercantilism as a business structure born from this process when additional investment capital and advanced technology got political protection from the authorities of respective state powers to expand markets for their industrial products. The birth of the global consumer community under this method was what Soekarno referred to as "imperialism".

With such facts and logic we could conclude that the emergence of a consumer society in Indonesia had been going on for more than 100 years before independence because money had been circulating in unprecedented amounts since 1830 when the Forced Planting System (STP) was implemented by the colonial state in Java. According to Cornelis Fasseur, who was quoted in "The Politics of Colonial Exploitation: Java, the Dutch and Cultivation System" (1992), it was known that 10 million guilders had been circulating in 1840 and 14.5 million guilders in 1860 to meet all the STP's needs. Of course, of that amount, only a small portion remained with Javanese farmers and the native elite. However, the colonial state's system of forced cash payments to farmers for export crops started the cash economy.

The circulation of money increasingly took place through a "liberal" policy started in 1870. Starting at that time, Java and Indonesia as a whole was flooded with foreign private capital invested in the export-oriented plantation system. The "liberal" characteristics indirectly encouraged people to increasingly become members of commercial society. In contrast to the STP, through the 1870 Agrarian Law private investors could directly rent people's lands for 70 years. In the plain view, this process provided an additional flow of money into the hands of the people. However, theoretically this was a process of mental transformation. Following Robert Heilbroner in

"The Making of Economic Society" (1962), the lands that were previously seigniorial holdings of great lords became a commodity through the rental process.

If the demands of Conrad Theodor van Deventer, a member of the Dutch parliament and a spokesman of the Dutch Ethical Policy Movement, had been met, the amount of money circulating on Java would have been greater. Through his writing, "Een Eereschuld" ("Debt of Gratitude") in 1899, the Van Deventer demanded that the mother country (the Netherlands) return 187 million guilders plus 100 million guilders to Java.

The demand was not met, but the Dutch parliament allocated 40 million guilders for agricultural development as part of the implementation of Ethical Politics in 1901. Joining the capital invested by private capitalist groups since 1870, the colonial government's funds clearly added more "liquidity" to the colonial society. In the end, it increasingly strengthened the characteristics of the commercial society in Indonesia.

Role of Bank Indonesia

What is the connection between all of this and the application of Pancasila? Looking at the history of capitalism above, Marxism is not needed to understand it because since its beginnings Indonesia was not formed or controlled by the nation itself. The roots of commercial society were longer than the nation-building process. This caused the state, the holder of political authority, to always conform to the economic process. Kompas' headline on Monday (6/6/2016), "Government Slow to Anticipate Issues", disclosed that the cause of the rising prices of several goods ahead of and on the first day of the fasting month in 2016 clearly showed this. It was followed by a story in The Jakarta Post (7/6/2016): "Food Price Controls Failing".

The intention of President Joko "Jokowi" Widodo to keep the price of meat at Rp 80,000 per kilogram during the fasting month was aimed at reducing the economic burdens of the people. The President's idea actually emphasized Mubyarto's version of the Pancasila economic system as revealed in "Pancasila Economy: Ideas and Possibilities" (1987). Aside from economic stimulus, the commercial system should take into account "social and moral stimuli". However, as reflected in the Kompas news story, "the law of supply and demand" or "economic stimulus" seem to be stronger. In other words, the intention of the "Pancasila country" must be to deal with a reality it did not make.

In this context Bank Indonesia (BI), the central bank, is the holder of monetary authority. In contrast to the Finance Ministry, which holds fiscal authority, as a central bank BI is confronted directly by commercial society, which is not only very dynamic, but was also born long before independence. As seen in an interview with BI's senior deputy governor, Mirza Adityaswara, in The Jakarta Post (6/6/2016), to keep the public calm BI needs its measures to be accurately understood and to be technically feasible.

Although geographically the US Federal Reserve, the US' central bank, is far away from Indonesia, its Federal Open Market Committee's meeting about the possibility of raising interest rates, which is to be held from June 14 to 15, will immediately affect Indonesia's commercial society.

Such a situation is increasingly complicated because the diseases affecting the US economy, which also affect Indonesia, have not been identified. Quoting Greg Ip in the article "Rewriting US Economic History" (The Wall Street Journal, 2/6/2016), the economy is infected by an anomaly. While consumer spending is increasing, investment is shrinking. In the view of Ip, this fact not only shows that a recession that started in 2009 has not yet ended, but that there is a deeper malaise that preceded it or even pushed the financial crisis.

This shows that technical persuasiveness is more needed in policy making than political action. Why? Because no one knows why the growth has stopped, a situation that causes psychological malaise since the recession causes doubts about the future. This is what happened in the post-2009 recession. Even though interest rates fell sharply, investment did not increase. As a result, the growth rate slows. The unclearness of the future reduces the spirit to shop. "Businesses and households' anticipation of less growth in the future," Ip wrote, "explains lackluster spending." Like a vicious circle, the decline in spending threatens growth.

Ironically, political interference, namely the prescription of fiscal and monetary stimulus, is not only ineffective, but even causes new problems. Here, Ip quoted Fed governor Jay Powell: "The long period of low interest rates could lead to excessive speculation (risk taking) and lengthens the high prices of assets and growth credits."

What do we see here? It is clear that the commercial society has its own logic and does not abide by the mechanism. Therefore, do not think about "conquering" it, since even a state as powerful as the US still has to strive to "understand" it. The problem is that the US economic uncertainty that was born from the psychological malaise, as mentioned above, has the potential to affect the Indonesian economy. Here, in an inverted position, the analysis of Soekarno in 1930 of capitalism and imperialism still resounds. If at that time funds of the capitalist countries were used to siphon off Indonesia's economic resources, now, through the possibility of the Fed interest rate hike, US currency funds held in this country might leave. As has been emphasized, the foundation of Indonesia's material reality was not shaped by domestic forces.

The complexity born from the foundation formed by global commercial powers is faced by BI every day. In line with the logic of commercial society, the Fed's interest rate hike has a wide influence. Starting with the outflow of capital, it is followed by the depreciation of the rupiah. The latter leads to higher prices for imported goods and a reduction of foreign exchange reserves. In the end, that leads to the birth of a current account deficit and, as a result, the disappearance of investors' confidence.

Normatively, Pancasila is a political ideology, but its "material reality", which influences the economic fate of the nation, was formed by supra-national powers. BI is at the forefront to face it.

by Fachry Ali

source Kompas, Tuesday, June 14, 2016