Abstract
AbstractEconomic history has recently emphasised the impact of economic shrinking on long-term economic growth, but economic theories do not provide explanations for how and why some countries avoid economic shrinking. In this case study of institutional change in post-independence Indonesia, we examine how the country managed to reduce the frequency of shrinking during the authoritarian regime and beyond. We argue that the state's autonomy, measured by macroeconomic policymaking, and accountability, measured by food security, were two key social capabilities that enabled Indonesia to reduce the frequency of economic shrinking. During this period, the ‘doorstep conditions’ for the transition into a democracy and stable economic growth emerged. More specifically, Indonesia managed to diversify its revenue base and make public resources more available for the broader common good. Loosening the connection between macroeconomic policymaking and elites opened up greater opportunities for the emergence of private enterprises. However, to date, the country is still far from a full-fledged open access society.
Highlights
While it is a truism that no country can increase its living standards without economic growth, it is evident that all countries, throughout history, have the capacity for growth
To pin down analytically sound and operationalisable measures to employ for contemporary and more short-term analyses, we adopt a social capability approach as a way to capture the possible changes in doorstep conditions that we argue strengthen the resilience to shrinking
These are: (i) transformation, which captures the completion of the agricultural transformation; (ii) inclusion, encompassing the fall in poverty, widespread access to productive resources and the opening up of the economy, implying that the growth process has the potential to be pro-poor and participatory; (iii) social stability refers to the arrangements constructed to curb social and political conflict; (iv) autonomy, which we understand to be the ability of the state to keep vested economic interests at bay while at the same time being sufficiently aligned with powerful actors for mutual commitment to development policies and goals; and lastly (v) accountability, which is understood to capture the quality of governance and provision of public goods
Summary
While it is a truism that no country can increase its living standards without economic growth, it is evident that all countries, throughout history, have the capacity for growth. Following Andersson (2018), we deconstruct the concept of social capability into five empirically operational and interconnected parts These are: (i) transformation, which captures the completion of the agricultural transformation; (ii) inclusion, encompassing the fall in poverty, widespread access to productive resources and the opening up of the economy, implying that the growth process has the potential to be pro-poor and participatory; (iii) social stability refers to the arrangements constructed to curb social and political conflict; (iv) autonomy, which we understand to be the ability of the state to keep vested economic interests at bay while at the same time being sufficiently aligned with powerful actors for mutual commitment to development policies and goals; and lastly (v) accountability, which is understood to capture the quality of governance and provision of public goods (cf Besley and Persson, 2013). Accountability represents the policies and principles applied to the use of public resources that serve to increase the productive potential and living standards of a broad cross-section of society
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