Chapter 11

 

This chapter will demonstrate a point already implicit in previous chapters:  answers to crucial questions in ethics and politics turn on answers to questions in the philosophy of science.  What causes what?   On what grounds does one attribute an effect to its alleged cause?   What is possible and what is impossible?  Why?  Why not?   In particular, what are the causes of poverty?  What are the causes of prosperity and economic security?  Much turns on whether it is recognized that the norms that guide human action are causes that explain them.[1]

A guiding principle of social democracy, from its earliest days, has been the idea, expressed in various ways, that the progress of the human species requires a critique and a transformation of the constitutive rules that govern life in a capitalist society.  The constitutive rules to be criticized and transformed include the moral and legal norms governing freedom, property, contracts, sales, credit, and competition.  These rules constitute markets and provide the ethical framework for market behavior.

The historical movements that have inscribed social democracy's name on their banners can be regarded as movements seeking a higher level of ethical life.  Narrow economic rationality, which tends to be defined in terms of calculating optima, where it is deemed optimal to buy as cheap as possible and to sell as dear as possible, is to be broadened by considering other criteria, which also contribute to defining good and bad, just and unjust, right and wrong.

Social democracy means, first, that the rational criteria used to arrive at social decisions are improved by incorporating principles of welfare and justice, and in recent decades, principles of ecology, into decision-making processes.  It means, secondly, giving weight to the voices of common people, and empowering those who labor.  The institutionalization of processes for making social decisions fair and responsible corresponds to the capacity to discern the good, which on the level of the individual is called “conscience.”  The second, the institutionalization of shared governance and democratic participation by citizens and workers in decisions that affect their lives, the shifting of the social balance of power in favor of the power of the people, corresponds to the steadfast will to do the good, which on the level of the individual person is called “character.”

The persisting underlying tendency of social democracy is to improve capitalism and to transform it, until it actually accomplishes the purposes that advocates of capitalism have always ascribed to it --the prosperity and security of everyone.  When such a transformation has been achieved it matters little whether the end result is called democratic socialism or enlightened capitalism.  It benefits individuals and social systems.

As Christian social democrats we identify with early twentieth century thinkers such as Karl Polanyi, Sir Stafford Cripps, Heinrich Pesch, S.J., and Hilaire Belloc[2]; with more recent Christian writers on economics and development such as Charles K. Wilber, Kenneth P. Jameson and Denis Goulet of Notre Dame[3]; and with the doctrinal statements on peace and social justice of the Catholic and Protestant churches.[4]  From such a point of view it is tempting to regard the ethical achievements of 20^th-century social democracy as a resumption of the gradual moral progress of Christendom, which was to a considerable extent interrupted for three hundred years by a suspension of social and moral accountability.       

Pre-20th-century laissez faire capitalism tended to conceive the market as a natural reality that neither could nor should be made answerable to conscience.  Misplaced metaphors--forces as metaphors for patterns of human conduct--disguised the fallacious attribution of consequences of deliberate human action to nature.  The self- interest of privileged beneficiaries of capitalism, and the intellectual prestige economics acquired by imitating natural science, allowed the metaphors to remain misplaced until they were challenged by the social democracies of the twentieth century that built the welfare states of Western Europe and inspired a global movement for social justice with democracy.

Nobody would say, however, that in terms of some measure of moral progress--if such a measure could be imagined--humanity, or Europe, got steadily better from the dawn of history until the beginning of capitalism, and then declined until it began to improve again because of 20^th-century social democracy.  Moral progress often takes two steps forward and one step back, and sometimes one step forward and two steps back.  It is complicated by the fact that what counts as "progress" includes both greater compliance with existing standards and the elevation of standards.  It is further complicated by the fact that there are honest differences of opinion concerning which direction is progress and which direction is regress.

Moreover, nobody would ignore the respects in which it is precisely modernity--and not the revitalizing of ancient and traditional ideals of social solidarity--which defines the ideals of socialism.  Ernesto Laclau and Chantal Mouffe in Hegemony and Socialist Strategy (1985) define the ethical ideology of socialism as a set of chains of equivalence, political democracy, economic democracy, democracy in the family, democracy in schools . . . which add up to a radicalized liberalism.  As they see it, social democracy is a higher form of ethical life because it seizes the best that capitalist modernity has to offer, purifies it, generalizes it, and makes it consistent (176-94).[5]

Credit must be given to the moral advances represented by the liberal ideologies that have accompanied the growth of capitalism in Europe.  Nevertheless, the views of thinkers like Polanyi, who find ideals for democratic socialism not just in radicalized liberalism but also in democratized conservatism, cannot be ignored.  If the rules of liberal ethics function as we have portrayed them in our accounts of social democracy in Sweden and in Austria, then Laclau and Mouffe's radical liberalism is neither workable nor attainable.  Its ethical framework leaves governments and peoples powerless to prevent capital flight.  Capital flight implies the erosion of wages and the erosion of the welfare state.  An ethical framework which puts more emphasis on virtue, on loyalty, and on duties to society and to other people, in other words a conservative ethical framework, is needed to make it feasible to carry out the social planning of saving and investment.

It is true that capitalism is ideologically vulnerable because it contradicts itself when it promises more freedom, more rights, and more equality than it delivers.  Yet it is not true that a workable alternative to capitalism can be constructed just by criticizing capitalism's hypocrisy and demanding that it transform itself to conform to its own ideals. Social obligations, duties, and the functional differentiation of roles are also needed.

Thus the achievement of social democracy in the West--where social democracy is built on a liberal heritage--calls for an Aufhebung in which the liberal ideals of the past few centuries are valued and preserved at the same time that the older ideals, the conservative ideals identified with spirituality and community and family, are reaffirmed, detached from their unholy alliance with free market economics, and synthesized with liberal ideals.  Such a program for a social democratic cultural politics is consistent with the findings of research in the psychology of moral development which show that at higher stages of moral maturity subjects show both greater respect for individual autonomy and greater solidarity with others (see, e.g., Kohlberg 1973: 29-30).  It is consistent, too, with reading the history of European modernity both as the history of the growth of humanitarian ideals, democracy, and the rule of law, and as a relative eclipse of customary virtues of traditional peoples.  In Max Weber's (1958) terms, modernity moved humanity both forward and backward when it replaced custom by economic rationality.  In Sir Henry Maine's terms, there was both gain and loss when status was replaced by contract.[6]  Whatever security, whatever sense of duty and identity, was derived from custom and from status, tended to dissolve as human connections became merely market transactions--a consequence especially disastrous for those who had no money.

The respects in which capitalism has been a step backward in the moral history of the human species form an indispensable part of the picture, even though they are not the whole picture.  Some of them are underlined by the Catholic social philosopher Hilaire Belloc in these terms:

With all these influences increasing throughout three hundred years and becoming riotous today--that is, increasingly feverishly--we have come to the end of a process whereby in the loss of Status and the replacement of it by Contract we have found chaos: a society without bond or cement.  We have further produced an economic state of affairs in which the condition of the mass of men deprived of Status is desperate.  That is why in their persistent efforts to reestablish security and sufficiency for themselves, the modern proletariat is really expressing and apparently beginning to satisfy an appetite for Status (1937: 140).

 

Belloc is at one with many Islamic social philosophers in his conviction that the economic rationality of self-interested individuals is no fit basis for a social order.  Like Mohamed Aboulkhair Zaki Badawi, Abdullahi Ahmed An-Nalim, Isma'il R. al-Faruqui, Ayatullah Mahmud Taliqani, Khurshid Ahmad, M. 'Umar Chapra, Abulhasan Bani-Sadr, and others, Belloc regards liberal individualism as an error into which much of humanity has fallen during the past few centuries.[7]  In some better future age, humanity will outgrow the liberal ethics of modernity.  Although one cannot yet say whether their views will prove to be true about the future, one can say that they are right about the past.

For Plato, for Aristotle, for Augustine, for Aquinas, and for the great majority of major pre-modern European thinkers, as for the great thinkers of Islam and Asia, the improvement of a nation was indistinguishable from the moral improvement of its people.  "Development" in the sense in which post-World War II thinkers regard "economic development" as coming first, and something called "social development" as trailing it, was inconceivable.  Aristotle is a good example.  His ideas were influential in Islam through Avicenna and Averroes, as well as being, through Aquinas, orthodox in the West.[8]  Aristotle thought of politics as an extension of ethics, and of a better polis as one characterized by more virtue and less vice.  Better government traditionally meant better character formation among the governing and among the governed, and better character formation meant more virtue, more solidarity, more devotion to the common good, more stewardship of resources, and less unaccountable exercise of property rights.

For centuries it seemed to be self-evident that the more people valued their souls over their bodies, and the more they followed divine injunctions to devote their lives to service and good works, the better off the political community would be.  When Adam Smith declared that the human desire to do good works was a weak and unreliable motive, and that the prosperity of a commonwealth could and should be built on the strong and reliable foundation of self-interest, he represented the interruption of a long tradition that had assumed, as a premise hardly requiring proof, that the task of politics was moral education.  And that the way to produce a republic that would achieve the common good was to produce citizens who desired to contribute to achieving the common good.  It is true that Plato took considerable pains to refute Gorgias and others who argued that an individual could find personal happiness by pursuing self-interest without caring about the good of others or the good of the state.  But it never occurred to Plato, as it occurred to Smith, that an individual could best contribute to the good of others and to the good of the state by pursuing personal self-interest.

Ancient ideologies of solidarity, in both East and West--the Hinduized dynasties of Java, and the Merovingian dynasties of France are two examples--went together, to be sure, with the widespread practice of violence, cruelty, and indifference.  Service often meant military service to the king or emperor, which meant killing someone else for the glory and enrichment of one's earthly lord, and for a share of the spoils.  Religion and conquest competed and blended as sources of authority, but religion was never merely a consequence of conquest, with no causal efficacy of its own (Geary 1988: 95-116; Wood 1995: 31-52; Pigeaud 1960-1963).[9]  (The Koran, by the way, specifically states that there is to be no compulsion in matters of religion.)  Although history does tend to show that social cohesion provided by religion works in favor of military success, it does not support a vulgar Marxist or vulgar Foucauldian reductionism, which would hold that religion and ethics are nothing but manifestations of non-religious and non-ethical power.  Pre-capitalist religious sages around the world anticipated the cosmopolitan ideals of universal benevolence that would later be articulated in secular forms by the ethical philosophers of 17th and 18th century.  The Koran, for example, repeatedly names Allah as "the merciful, the compassionate."  What pre-capitalist sages did not anticipate, and what the modern West discovered, was that a secular ideology advocating the systematic pursuit of individual self-interest could be the basis for an enduring if not entirely viable social order.

Seen from the perspective of the common tendencies of the world's great pre-capitalist belief systems, the human solidarity advocated by social democrats is not a new idea, and not a local idea.  It is the pretension of economics to be a globally applicable social science, which takes human nature as given, and which does not take the perfecting of human nature through spiritual discipline and the cultivation of ethical ideals to be the central problem of social philosophy, that is a new idea.  It is a new idea that has become credible because of the miraculous practical achievements made under the aegis of economics' theoretical premises.

Assuming that one could somehow disentangle the myriad causal threads that tie modern technology and modern economics to each other, and to attribute historical effects to capitalism itself, as distinct from the growth of scientific knowledge that has accompanied it, then, it seems fair to say, that even leaving out of the equation the miracles due to modern science, that the modern capitalist market has performed miracles that ancient philosophers would not have considered possible.   Plato, for example, proposed an ideal Republic in which every craft worker contributed to the good of the whole by pursuing the specialty he or she was best suited for, under the guidance of the wisdom provided by philosophical guardians (archai). The guardians’ supervisory task was to assure the harmonious dovetailing of each person's work with each other person's work, so that the overall result would serve the good of the whole.  Other ancient sages had similar ideas about how to organize the performance of complementary tasks.

It was not until modern times, however, that scholars came to appreciate the amazing capacity of markets to coordinate human cooperation.  And the tendency to equate "rationality" with "economic rationality," and "economic rationality" with "reliance on free markets" is a modern tendency.[10]  In a famous example, Adam Smith points out that thousands of people cooperate to make a pin, without knowing one another, without having any moral obligations to contribute to one another's welfare, without needing to know anything about how to make a pin except for knowing how to perform one's own bit part, without having any common superior who knows what they all do, and without sharing a common belief system that defines their roles and tasks.  The same market mechanism, illustrated by Smith with the example of pin-making, now structures the global economy--pin-making writ large.  Causes produce effects.  The constitutive rules that create the market, as causes, produce the wondrous phenomena of modern capitalism, as effects.

Humanity is on the road to becoming a company of strangers.  Each one of more than six billion people increasingly relies on all the others for the necessities of life without knowing most of them or caring about them.  Each is connected to all the others through markets, through trillions of purchases and sales.

Social democracy since its inception, and through the thousands of historical successes and thousands of historical failures which it has now registered, has always been a counter-current to a narrow economic rationality that would define the good as acquiescence in market outcomes, given the status quo distribution of property and talents.  Social democracy has always represented a critique of what economists call Pareto optimality, i. e., of the idea that outcomes produced by a free market under ideal market conditions are, by definition, good outcomes.[11]   Social democracy has always represented a consciousness-raising effort designed to make people aware that economic reality is not physical reality.  In this respect the opposite of democratic socialism is not capitalism; it is naturalism.  Its opposite is the idea deeply embedded in economic discourse that the legal and moral norms of property and contract, which establish and constitute markets, are laws of nature.  Unlike vulgar Marxists and vulgar Foucauldians, social democrats believe that ethical ideologies can reshape economic relationships.  This is true whether the ethical ideology is radicalized liberalism, as in the cases of Laclau and Mouffe's or Bowles and Gintis's arguments for economic democracy; or social gospel, as in the cases of Latin American liberation theology, contemporary progressive Islamic writers, or arguments inspired by Karl Polanyi for "re-embedding" economic relationships in social relationships.[12]

Unfortunately, social democracy--especially those forms of it which recognize the impossibility of arriving at socialism by generalizing the ideals of capitalism--suffers from a philosophical weakness.  The philosophical weakness leads to paralysis in practice.  It makes ethical socialism incredible to sophisticated minds.  The weakness is that social democracy's ideals appear to represent parochial, discredited, outmoded, and inoperative traditional religious and philosophical belief systems.  Capitalism, in contrast, appears to be scientific and up-to-date.  It appears to stand for a cosmopolitan economic rationality, valid everywhere and for everybody.  

In Indonesia, the fourth most populous country in the world, there are 250 million people, most of them poor and poorly educated, inhabiting a vast equatorial archipelago, speaking hundreds of languages and dialects, practicing innumerable versions of the majority religion (Islam) and the four other officially recognized religions (Hinduism, Buddhism, Catholicism, Protestantism) and, in secret, many religions and cults that are not recognized.  The economists who arrive from Berkeley, from Harvard, from Canberra, and from IMF and World Bank headquarters in Washington, and the local economists who were mostly trained in the same places the foreign economists come from, appear on the scene as incarnations of a universalistic rationality in a society which threatens to dissolve at any moment into a particularistic chaos.  Throughout the world, not just in Indonesia, ethics and religion seem to be based on local myths.  Capitalism seems to be based on universal science.  Thus social democracy, conceived as an aspiration to a higher ethical life, suffers from the philosophical weakness from which Karl Marx tried to rescue it in the 19th century when he tried to replace socialism's reliance on ethical appeals with a political program based on a rigorous scientific critique of capitalist political economy.

There is another way to look at ethics and religion, and another way to look at economics.  It is not necessary to perceive ethical codes and religious beliefs as local, customary, sectarian, pre-scientific belief systems, which can and should be superseded by modernity, where modernity is equivalent to capitalism, and where capitalism owns "economic rationality."  It is not necessary to view the intellectual framework of capitalism as universal, rational, cosmopolitan science.  Instead, one can view humanity's social nature as universal.  As Thomas Berry has said, humans are biologically coded to be culturally coded (1988: 92-93).[13]  Humans form social relationships.  Humans invent norms and beliefs to govern social relationships.  Humans everywhere internalize conventional group norms.  They renegotiate them and play with them every day.  Seen in this light it is the capacity of homo sapiens to be a creator of culture that is universal.  It is economics that is local and customary, having governed some of humanity some of the time for the past few centuries.

Whether economics is sectarian depends on which economists one reads.  As Amartya Sen (1987) notes, “[E]conomics has had two rather different origins, both related to politics, but related in rather different ways, concerned respectively with ethics, on the one hand, and with what may be called ‘engineering' on the other. . .” (2).  Economics can be conceived either as a branch of ethics, in dialogue with the other branches of ethics, or as a branch of engineering.

Seeing the human capacity to create culture as universal and economics as a particular set of cultural phenomena, strengthens social democracy against the criticism that its ideal of solidarity is an ethnocentric prejudice.  Granted, conceiving an ethic of social responsibility as the implementation under modern industrial conditions of the ideals of West European Greek and Judeo-Christian traditions is clearly parochial.  For Indonesia, where 90 percent of the people identify themselves as Muslims, while perhaps as many identify as Buddhists or Hindus as identify as Christians, an ideal of social unity derived from the Greek polis, the Hebrew shalom, or the Christian agape, might seem to have little relevance.  Yet this is not a reason for dismissing Judeo-Christian or ancient Greek ideals.  From an ethically constructive viewpoint, consigning Greek and Judeo-Christian ideals to the ashcan would do nothing to further ideals like the Islamic zakat, the Hindu moksha, and the Buddhist sangha.[14]  Not only would the denigration of Christianity not further the ideals of non-Christian religions; it would cheapen them.  It would imply that they, also, are nothing but old-fashioned local pre-scientific ideals.

If we shift the focus of our conceptual lenses so that we see the spiritual treasures of the world's civilizations as gifts of God to humanity, then instead of worrying that the uniqueness of each spiritual message impairs its universal validity, we will honor historically existing cultural forms as sources of constructive contributions to the common task of an interdependent species whose members share a common fate.  We have suggested naming this common task "cooperation and sharing."  Antonio Gramsci named the common task as "intellectual and moral reform" to be "tied to a programme of economic reform" (1959: 140).

There is no lack of texts in the world's sacred scriptures to support the idea that people with diverse beliefs should focus on constructive contributions to the common good, and not on quarreling with one another.  For example, in the holy Koran it is written: "We have ordained a law and assigned a path for each of you.  Had God pleased, He could have made you one community: but it is His wish to prove you by that which He has bestowed upon you.  Vie with each other in good works, for to God shall you all return and He will resolve your differences for you" (1956: 85).[15]  Nor is there any lack of ancient texts to provide counterweights and fine-tuning to modernity's emphases on freedom, property, contracts, sales, credit, competition, and markets.  Freedom is tempered by numerous commands to obey God by doing good works, throughout the Koran, throughout the Bible, and throughout other sacred texts.  Property rights are tempered by numerous assertions that humans hold whatever they possess only as stewards.

The ancient texts do not, however, provide much guidance for solving characteristically modern problems: the ethical use of science and technology, the planning of long-term capital investments, sharing the benefits of economies of scale, the functions of prices and profits as signals for choosing what goods and services to produce, the motives and sources of savings and their channeling into productive uses, the organization of pension plans and health plans for millions of beneficiaries, the lifelong education and the continual upgrading of skill levels throughout the population, and the like.  Modern production is, as Ludwig von Mises said, "round-about production" (1951: 114, 510).  It is capital-intensive.  It is information-intensive.  It requires sophisticated technical knowledge, the well-timed commitment of resources over periods measured in years, and the systematically organized teamwork of many individuals.  These combine to create production processes much more powerful than anything ancient peoples knew.  Without them today's large human populations could not exist.

One can say that the ancient texts provide ethical norms for "direct" alleviation of poverty, for example by requiring believers to share wealth.  In modern times humanity is challenged to develop norms for the "indirect" alleviation of poverty through the ethical governance of the processes of research and development, savings, investment, income distribution, and operation of enterprises.

Social democracy is about solving modern problems ethically.   Stated in a very general form, the problem of constructing social democracy can be divided into two stages, or aspects: 1) socialization, so that human impulses--which so often tend toward violence greed, apathy, lying, lust, grand tyranny, petty tyranny, and evasion--are brought under the guidance of cultural norms; and 2) transformation, so that the cultural norms move from dysfunctional to functional.  The critique implicit in the idea of "transformation" is that the conventional norms of modern society stand in need of improvement, even when well-intentioned and well-socialized people follow the "rules of the game."  Conventional market norms are not equal to the task of providing ethical governance of a complex modern economy.  They are, in the idiom of structural-functionalist sociologists, "dysfunctional".  Marxists call them "contradictory".  Amartya Sen has suggested that they are an "irrational rationality."

In Gramscian terms, 1) socialization into conventional norms could be called "acquiring common sense,” while 2) transformation could be called “moving from common sense to good sense.”[16]

To apply and to elucidate the general ideas sketched above, in the specific case of Indonesia, we shall attempt to make a brief sketch of what might be called an inventory of Indonesian cultural resources.  By calling it an "inventory" we do not mean that it will be a complete list of all Indonesia's cultural resources; we simply wish to highlight aspects of Indonesian culture from which the rest of the world has something to learn. 

We mean the phrase "cultural resources" as an exact parallel with "natural resources.”  A resource is something that can be used to meet a need.  The rich volcanic soil of central Java, for example, is a resource that can be used to grow rice, which can be made available for food, thus meeting a human need.  In exactly the same sense, duties imposed by kinship ties, for example the duty to share food with kin, are a resource that can operate to assure that rice is shared.  Kinship implies that rice will be provided, for example, to a sick relative, or to whoever in the family might need food.  A cultural resource enables the social side of a system for meeting needs to function, as a natural resource enables the technical side of the same system to function.

What makes a resource "cultural," as distinct from physical or natural is that it guides human behavior by symbolic means.  (Or, alternatively, by means of "signs," if one adopts C.S. Peirce's terminology.)   It is learned as distinct from genetically inherited.  It depends on cohesive interpersonal relationships, as distinct from individual physical acts.  Although many counter-examples could be given, where symbols, learning, and cohesion have been used to exclude, exploit, and dominate the weak, culture has a tendency—and it has a realizable potential--to establish the strength of the weak.  A cultural resource is able to guide impulse and brute force in ways that work toward building a socially created reality that works for everyone.

 

1. Economic Rationality

 

"Economic rationality" is first on our list of cultural resources of Indonesia.  It has been systematically developed there from the beginning of the Republic in 1949, and the foundation of the School of Economics at the University of Indonesia in 1950.

Although economic rationality is sometimes contrasted with cultural values, it is better thought of as itself a cultural value.  The rational choice of an economic actor is not made on impulse, but guided by symbolic practices, usually by numerical calculations.  The habit of thinking before acting is a good habit, a virtue.  It is learned.  Making rational economic choices only makes sense in a culturally defined institutional context, a market, where there are enforceable rights.

It is true that there is sometimes a thin line to be drawn between greed, considered as an anti-social vice, and a problem in linear algebra which consists in calculating the maximum profit, subject to given conditions and constraints.  It is a thin line worth drawing.  Although the latter might be regarded as the former quantified, the former is nevertheless a character fault, a passion out of control, while the latter is an intellectual exercise, a reasoning process.  The general principles of accounting, and the mathematical techniques of business and public sector planning are intellectual disciplines.  They may and may not coincide in their results with anti-social vices.  In social democracies they do not.

"Economic rationality," like its companions “economic development" and "stability,” is an essentially contested concept.  Nobody (with a few exceptions) is against it.  Almost everyone wants to define it so that it supports his or her conclusions.  Thus like "scientific" and many other essentially contested concepts it is not a concept with a definite meaning.  It is a trophy.  Contestants vie to prove that they are "rational," and their opponents "irrational."  It is an expandable concept.  The hyper-individualism the anthropologist Clifford Geertz found in his study of bazaar traders in a small Indonesian town is a very narrow kind of economic rationality, concerned with maximizing money profits in the short run (1963b: 40-46).  The versions of economic rationality promoted in the infinite pages of the reports published by the International Monetary Fund are somewhat broader but still narrow.  They tend to identify rational choice with choosing what sells, or with what would sell in a truly free market.  Indonesia's National Development Planning Board (known as Bappenas--Badan Perencanaan Pembangunan Nasional) has generally followed the definitions of economic rationality required by the IMF whenever Indonesia has desperately needed to borrow money from it.  But in the late 1970s and early 1980s, and again in the early 1990s, when the Indonesian government as lessor of the nation's oilfields was awash in petrodollars because of high world oil prices, Indonesia could afford to disagree with the IMF.  Bappenas then defined "economic rationality" more broadly, putting more emphasis on national self-reliance and less emphasis on selling Indonesian products in the global marketplace--the former emphasis being, according to the IMF, irrational, and the latter emphasis, according to the IMF, rational.

For a somewhat enlightened World Bank president like Robert McNamara, "economic rationality" takes on a wider meaning.  It includes criteria which on a narrower view would be "social goals" to be traded off against, rather than identified with, "economic rationality."  Indonesia's ideological dance with the World Bank has generally followed the steps of its dance with the IMF.  Sometimes important circles inside the World Bank have defined meeting the basic needs of people as economically rational, and important people in Indonesia have taken the same view, including (when she was in opposition) Indonesia's current president, Megawati Sukarnoputri.  At this time, however, Indonesia is deeply in debt to foreign creditors.  It must earn dollars to service the debt.  Megawati is under pressure to pretend to agree with IMF doctrine about economic rationality, both to get short-term relief from the IMF and to establish and make credible policies that bring in the needed dollars.  This implies using Indonesia's comparative advantage as a low-wage country by keeping wages low, and emphasizing making shoes, textiles and other labor- intensive products for export.

Professor Habibie, on the other hand, who was president of Indonesia for part of 1998 and part of 1999, believes it is economically rational for Indonesia to use government subsidies to develop high-technology capital-intensive industries, such as aircraft manufacture (Robison 2001: 118).[17]   The economists at the Jakarta thinktank called the Center for Strategic and International Studies do not agree with the IMF either.  They think economic rationality for Indonesia consists less in following the price signals transmitted by global markets, and more in adopting deliberate and coordinated long-term national strategies.  They find inspiration in Meiji Japan, and advocate more reliance for foreign funding on the Japanese government and to Japanese investors (Schwarz 1994: 255).

Since independence, the Republic of Indonesia has steadily achieved increasing capacities to plan the use of resources "rationally," whatever "rationality" might mean or might come to mean.  The lack of a single agreed upon definition of "economic rationality" should not be viewed as a problem.  If it were a problem, somebody might solve it.  That would be worse.

One might think, however, that such an expandable, hospitable concept, which anybody can construe as the name of the most efficient way to achieve the objectives she or he values, would play no role in political controversies.  One might think the phrase "economic rationality" would disappear from public debate, since it is agreed that whatever it is, it is a good thing, while the agenda to be debated concerns what is possible and what is impossible, and within the limits of the possible what objectives to pursue, at what cost, at whose cost, with what sources of funding.  Not so.

 

2. Indonesia's Social Democratic Constitution

 

According to its Constitution, written in 1945 and in force today, Indonesia is a social democracy.  If it is not the best social democratic Constitution in the world, it is not because it is not socialist enough, but because it is not democratic enough.  Every citizen has a constitutional right to an education and to a good job.  The Constitution provides for a large public sector, and actuality complies with the Constitution.  There is to be a large cooperative sector. Moreover, Article 33 provides that the entire economy is to be a "joint endeavor" (usaha bersama).  The government has sweeping powers to direct all economic activity.

Given the principles of its anti-liberal (anti-capitalist) Constitution, it was a question in the early days of the Republic whether private enterprise was to be allowed in Indonesia at all.  This question was analyzed at a public symposium in 1955 by Widjojo Nitisastro, a young economist who would later become the director of Balpipenas, and a leading light of the school of thought known as "the technocrats."  The technocrats have been important for many reasons, partly as go-betweens who gave the authoritarian government of General Suharto (from 1966 to 1998) credibility with international agencies such as the IMF, the World Bank, and the IGGI (Inter-Governmental Group on Indonesia, a consortium of aid donors).  Western governments gave huge amounts of aid to Indonesia during Suharto's reign (sometimes 25 percent of the total national budget, and more than half the budget when combined with fees paid by foreign oil companies for the right to extract petroleum from Indonesian territory.  In Indonesia the capacity of the government to collect taxes from its own citizens has been shaky).  Western donors justified giving so much money to a government with a dismal human rights record partly because they considered aid to be a way of increasing the influence of people like Nitisastro, who were looked upon as counterweights to military and crony influence.

Early in his analysis, Nitisastro, who was destined to play such a key role in Indonesia's history, observed that, “...  the forms of enterprise are not the fundamental issue.  The basic question to be considered in the study of any economic system is that of the operation of the economic process within the framework of the given system" (1959: 17).  

Indonesia would later provide many examples of the truth of Nitisastro’s observation.  When Dutch assets were seized in 1957, many of them were taken over and run by and for the benefit of military units, creating an economic sector unique to Indonesia, the military sector.  One of the reforms which foreign donors have urged, via the conduit of the technocrats, has been transparency in the public sector and in the quasi-public military sector, so that planners would at least know where public money was coming from and where it was going.  As Nitisastro’s distinction between "form" and "operation" implies, there is no guarantee that an enterprise nominally in the public sector will act for the benefit of the public.

Nitisastro’s main point in his analysis of the Constitution, however, was not that public enterprises do not necessarily operate for the common good, but rather that private enterprises can--and under the provisions of the Constitution will--operate for the common good.  The key is planning.  The constitutional scheme provides that the government's policy instruments are to be used to guide the ensemble of national economic effort toward the benefit of all.  Nitisastro stated:

. . . [T]he unit which is to be characterized by joint efforts for the good of all members and by an equitable distribution of the results of these efforts among all the members is not a unit in the sense of an enterprise or a firm but rather the entity of the community as a whole.

When the provisions of these three paragraphs of Article 38 are considered together it is obvious that the state occupies a leading position in the entity that comprises the community as a whole, the state being the directing agency guiding the joint efforts toward raising the level and the equitable distribution of the returns from these efforts.  Thus . . . [t]he economic system shall be based on the joint efforts of the entire community, the objective being the raising of the level of living of the community (the increase of per capita income) and the equitable distribution of the returns derived from these joint efforts (the equitable distribution of income), with the state playing an active role in guiding and implementing economic development (Nitisastro, op.cit.: 18-19).  

 

With such words, partly implying and partly asserting that the humanitarian principles of the Indonesian Constitution are best implemented through the rational and scientific management of the entire nation by professional economists, Nitisastro set the stage back in 1955 for enacting in Indonesia a version of one of the dramatic dilemmas of social democracy.  Although the Constitution gives every Indonesian the right to a good job, the good jobs will not exist until there is a large increase in per capita income.  Such an increase will not happen, so the argument runs, until there is something named "economic development,” which requires Indonesia to exploit its comparative advantage as a low-wage nation, with wage levels even lower than those of Thailand and Malaysia.

That the development of the country must happen at the cost of keeping wages low and of allowing unchecked exploitation of natural resources does not seem to be intuitively valid from the viewpoint of common sense norms.  The ordinary people who are told by professional economic experts that "development" must happen before they get the social justice promised to them surely feel cheated.  They know about corruption.  Everybody in Indonesia knows about corruption.  Everybody knows that people use, or buy, political power for the sake of economic advantage.  Everybody sees the lifestyles of people who have money, who are usually the same as the people who have, or buy, political influence.  Although the rational argument for keeping wages low may be, or may appear to be, logically compelling, it is also an argument that functions as a justification, or rationalization, of an unfair distribution of wealth and income.

There is an upside.  The technocrats do not admit that they are not trying.  They officially agree with the Constitution's objectives.  Indonesia is supposed to be a social democracy in which the economy is a joint endeavor whose fruits are equitably shared.  If it were not so, they would not claim, as they do, that Indonesia at times has done better at alleviating absolute poverty than Nigeria, than India, than Brazil, and in general better than comparable third world and OPEC nations.  They claim that their advice, when it has been followed, has on the whole worked for the benefit of the poor, and they claim that the poor have suffered when technocratic advice has been ignored.  If they did not see their economic theories as being a means toward, as distinct from being a substitute for, social justice, they would not be making such claims.

Consequently, if anybody could demonstrate that the suffering of the poor is not as necessary as versions of economic rationality such as those sponsored by the IMF imply, then the Indonesian technocrats should rejoice and happily agree.

The Koran is open to the existence of more than one good faith belief about how to end poverty.  It does not condemn those who fail to find the solution to the problem, but rather those who do not try and do not care.  It states, for example, "Have you thought of him that denies the Last Judgment?  It is he who turns away from the orphan and has no urge to feed the destitute" (1956: 433).[18]

 

3. Family Ties

 

In his recent study of life in Bima, a district occupying the eastern peninsula of the island of Sumbawa, in eastern Indonesia, the British anthropologist Michael Hitchcock (1996) mentions several ways in which family ties contribute to mobilizing resources to meet needs.  Concerning housing, relying in part on an unpublished earlier study by J.D. Brewer, Hitchcock writes:

Men say they prefer to have their sons live near them and it is customary for a father to provide each son with a house.  Fathers like to build their sons’ houses next door; but, given the shortage of land near Bima Bay, this may be impossible, and parents have to contend with any available plot.  Since married couples are expected to own their own homes, fathers struggle to provide the basic amenities, and only the poorest members of society continue to live with their parents after marriage.  If a man is sufficiently wealthy to take a second wife he is obliged, in accordance with Islamic law, to provide his new spouse with her own home: wives expect equal treatment.

The ideal is for a man to begin constructing his son's home when the boy reaches adolescence.  As the structure becomes habitable the boy starts to sleep there and gradually it becomes his permanent sleeping quarters.  The eldest son often shares the building with his younger brothers until they move into dwellings of their own.  The younger sons are expected to vacate the building on the marriage of the oldest brother.  From the moment a boy moves into his new home it is known as a ruka; but it becomes a complete household, uma, when his bride takes up residence (100-01).  

Housing norms in a precinct of Bima are a small sample among many. 

The world over, multitudes of ethical frameworks define kinship.  They guide cooperation and sharing.  The meanings of the vital basic words "good" and "bad" flow partly from their employment to judge performance in kinship.  The verdict "good" or "bad," is often decided conclusively by what a person does or does not do to meet the needs of family members.  There is generally no appeal--no opportunity to reverse the judgment by changing the definitions of the terms.  A good son takes care of his mother in her old age.  A mother who neglects her children is a bad mother.  A good husband repairs the chicken coop, plants a garden (unless it is a culture where only women plant gardens), and--with the help of good brothers and good cousins--digs a well.  A bad husband squanders the family's food money on alcohol and other women.  Good parents take care of their children when they are young, while good children take care of their parents when they are old.  Family ties are cultural resources.  So it goes in diverse contexts for many forms of kinship, including some relationships which have no English names, which are defined in other languages.

Seeing the imperative to motivate the satisfactory performance of conventional social roles, and seeing the correlative imperative to forbid anti-social vices, leads to understanding why religion is an integral part of so many of the survival strategies of the poor, and why it is often closely related to kinship.  God is not useless.

Not surprisingly, resistance to life in the jungle of modern market culture has everywhere relied on invoking older pre-modern ideals, almost always including the invocation of the older ideals of kinship.  The Left calls for brotherhood, sisterhood, fraternite, and sometimes invokes an ideal entity named the family of man or the human family.  To help his readers imagine an alternative to capitalism, Karl Marx described a family: 

For an example of labor in common, or directly associated labor, we have no occasion to go back to that spontaneously developed form which we find on the threshold of the history of all civilized races.  We have one close at hand in the patriarchal industries of a peasant family that produces corn, cattle, yarn, linen and clothing for home use.  These different articles are, as regards the family, so many products of its labor, but as between themselves, they are not commodities.  The different kinds of labor, such as tillage, cattle tending, spinning, weaving various products, are in themselves, and such as they are, direct social functions, because functions of the family, which, just as much as a society based on the production of commodities, possesses a spontaneously developed system of division of labor (1990: 34).

Although the ideal of universal brotherhood and sisterhood, and the simile of a whole nation acting economically like a single family, is a common one, only Indonesia has made it a constitutional principle.  Paragraph I of Article 33 of the Constitution of Indonesia states: "The economy shall be organized as a joint endeavor based on the principle of the family relationship” (Quoted by Nitisastro, op. cit.: 16).  Widjojo Nitisastro, the prominent Indonesian economist already quoted above, interpreted this clause of the Constitution in the following words:

In my opinion this term must be understood as indicating that the economic process will take place in one or more units, which embody features characteristic of the family relationship.  Among the characteristic elements of the family relationship there is the element of living together, the element of joint effort by the members for the common good of the entire family, and the element of distribution of acquired advantages among the individual members according to the needs of each member.  Thus the economic unit or units, within which the economic process is to take place according to the principle of family relationship, are to be characterized by the fact of joint efforts to raise the level of living of all members of the unit and by an equitable distribution among all members of the benefits derived from these joint efforts, and not by a distribution which benefits certain individuals or groups only (1959: 16-17).  

 

Nitisastro’s gloss on the Constitution fits perfectly the definition of social democracy, "society producing for itself," given by Bertrand Russell in his lectures on German social democracy in 1896.   Nitisastro goes on to explain how the anti-liberal (anti-capitalist) economy prescribed by the Indonesian Constitution will work in practice. Its three sectors--public, cooperative, and private--will operate within a legal framework shaped by the nation's public policies.  Thus Indonesia will be faithful to ideals of kinship, at the level of the nation as a whole.  Nitistastro writes:

 

Various forms of control can be exercised: controls in the field of fiscal policy, budgetary policy, balance of payments policy, price and wage policy,and so on.  Moreover, it is possible to use direct methods to crush the forces of monopoly and oligopoly (Ibid.: 18-19). 

 

. . . The level of income is a matter of output, which is a function of investment (Ibid.: 19).

 

. . . The existence of collective and cooperative enterprises constitutes one of the factors of utmost importance, especially in strengthening the bargaining position of the small producers in relation to the middlemen, so that the former are assured of securing a just return.  Moreover, these collective and cooperative enterprises are institutions for mobilizing savings for investment purposes (Ibid.).

 

An economic system based on anti-liberalism is one which ensures structural change in our economy, and which directs the appropriate volume and flow of investment to those sectors which ensure an increase in output, and consequently an increase in the level of income (Ibid.).

In effect, Nitisastro proposes standard social democratic macroeconomic policies, as they have developed in Western Europe and the United States, with an Indonesian twist.  The Indonesian twist is that the family principle, cooperation, is taken to be the basis of it all.  Indonesia is supposed to save as if it were one big family.  Of course some saving will be public, some private, some cooperative, and some done by foreigners--but that is a matter of form.  Nitisastro assures us that what matters is not form, but how the economy operates, and how the economy operates will be guided by public policy.  Similarly Indonesia, following the family principle, is supposed to invest, which will produce increased output resulting in more income.  "Most important, however, is the fact that, in an economic system of this character, the state is obligated and empowered to play an active role in pursuing an equitable distribution of income for all members of the community”  (Nitisastro, Ibid.).[19]

Nitisastro in power, or close to power, from 1966 to 1997, had the opportunity to put his vision of paragraph I of Article 33 of the Constitution into practice.  Officially he and his fellow technocrats were the economic team making policy during most of that period.  It should be mentioned, however, that regardless of the merits of Nitisastro’s vision of orthodox macroeconomic rationality harnessed to social justice goals, it was an uphill battle against corruption to pursue any rational policy.  For example, President Suharto, a virtual dictator clothed in a thin veneer of democratic legitimacy, engaged in nepotism, using his office to channel economic benefits of political power to members of his own family--a mockery of the "family principle" of the Constitution.  In Gramscian terms, regardless of the presence or absence of "good sense," there was a great lack of "common sense."

By any standard, success was modest, even disregarding the denouement in the crash of 1997, from which Indonesia still has not recovered.  In 1994, according to World Bank figures, per capita Gross Domestic Product was still under $700 per year.  Average life expectancy was 60, the lowest in the region, even lower than the Philippines and Viet Nam.  The empirical results have been thoroughly examined by a number of scholars, including two Australians, Hal Hill (2000), who emphasizes the successes, and Richard Robison (1986; 1997), who emphasizes the failures.[20]  

We will not focus on the empirical record, but on a conceptual difficulty.  The conceptual difficulty raises the question whether what Nitisastro proposed is possible.  If what he proposed--macroeconomic management that approximates on a large scale what family solidarity achieves on a small scale--is in principle impossible, then Nitisastro’s technocratic vision needs to be modified, quite apart from what can be learned from the empirical study of the historical circumstances which partly assisted and partly obstructed its implementation.

The conceptual difficulty is that seeking to achieve the equivalent of family ties through macroeconomic management collides with the constitutive rules of modern social order.  There is a mismatch.  There is a questionable attempt to connect fragments drawn from two disparate realms of discourse.

The incongruity of the mismatch should not be surprising.  The modern social order was invented in Europe.  From there it expanded to shape today's global economy.  Its basic normative principles were formulated in the early days of capitalism by reviving the principles of Roman Law--most famously in the Napoleonic codes, Blackstone's Laws of England, and--most directly relevant to Indonesia--Roman-Dutch law.  The Romans deliberately created their jus gentium, the progenitor of modern commercial law, to be a normative framework governing market transactions among people not obligated to each other by kinship ties or common religious faith.  Pacta sunt servanda.  Suum cuique.  Honeste vivere.  The three Latin phrases just quoted, which the Codex takes as its three basic postulates, can be glossed: 1) Respect contracts; 2) Respect property; and 3) Respect persons.[21]  A normative framework for a culture of solidarity it is not.[22]

In a modern framework the state, through its National Development Planning Board (Bappenas in Indonesia) and its other agencies, is not in the position of a patriarchal paterfamilias who is able, like Marx's imaginary collective laborer, to step into the shoes of the head of a peasant family, assign tasks, allocate labor time, and distribute benefits.  The state can, to be sure, grant what in Indonesia are called "facilities.”  It can require licenses.  It can refuse to grant a license unless there is a convincing feasibility study.  It can grant a monopoly, a subsidy, or a tax exemption.  It can require that investment funds be deposited in state banks.  It can require hiring Indonesian engineers instead of expatriates.  It can require any number of permits.  Nevertheless, nothing will happen until investors and lenders decide to call it a go.  They will sit on their property rights and exercise their economic power to do nothing until they are satisfied that the end result will be to obtain for themselves whatever they want. Suum cuique.  Normally they want high profit and low risk.  Charles Lindblom made a similar point when he wrote that “although governments can forbid certain kinds of economic activity, they cannot command business to perform.  They must induce rather than command" (1977: 173).

Consequently, in practice, setting macroeconomic policies for Indonesia is only partly a matter of establishing an ethically valid management of savings, investments, outputs, and incomes.  It is only partly conscientious deliberation among persons acknowledging mutual kinship obligations as members of the same extended family, the family of Indonesians, or the family of humans.   It is largely a matter of making arms-length commercial deals.   The investors and the lenders do not necessarily have to be given everything they want, but they have to be given enough to motivate them to say yes and sign the contract.  What Indonesia has to sell--cheap labor, oil, nickel, gold, copper, cloves, vanilla, nutmeg, tamarind, hardwoods--has to be marketed by playing off potential buyers against each other.  What Indonesia makes for home consumption--rice, beer, cigarettes, cement--has to be coaxed out of the owners of the means of production by creating stable conditions under which they can expect the same high profits and low risks that foreigners are in a position to demand.  (Indeed, in the case of Indonesia, the major players in the domestic market can play the same cards foreigners can play, because they already do business in several countries and they decide from day to day how much business to do in Indonesia and how much business to do elsewhere.)  The powers-that-be in Indonesia have to be given a cut in any major deal, since they have the power to stop others from getting what they want.  That is what it means to be a power-that-is.  There will be no deals, though, and consequently no cuts, unless the owners of property decide to call it a go.  Pacta sunt servanda.  Suum cuique.  Honeste vivere.  They have no moral duty to call it a "go,” and they will do so only if they choose to.

Structuring macroeconomic policy to offer attractive terms to owners of property so that there will be deals, is sometimes called "pragmatism."  Refusing to give investors what they want is sometimes called "being an ideologue.”  These phrases name two horns of a dilemma.  "Pragmatism" falls far short of conducting economic policy in a way that realizes the ideals of the Constitution.  But the most readily apparent alternative, "being an ideologue,” falls short even farther, because it produces no tangible benefits for anyone.

An unfortunate consequence of pragmatically paying what the market requires for the use of savings and other resources is that when it comes time to distribute the increased income resulting from investments and increased output, the ordinary citizen of Indonesia, whose only moral claim on the proceeds is that of a person with needs, that of a member of the family, is last in line.  The investors and the lenders are first in line because they hold contracts saying so.  That was the deal.  If they had not been given enforceable rights to a future income stream they never would have consented to the use of their property for the project.  Pacta sunt servanda.  The market is constituted by rights.  At payoff time rights to payment come first, leaving social justice behind.

There is no way to avoid this conclusion without moving the basic parameters that establish its premises.  There are ways to avoid this conclusion bv moving the basic parameters that establish its premises.  When Lindblom, quoted above, writes about what governments “must" do, it is a soft “must," a "must" deduced from a socially constructed context, not a "must" deduced from hard laws of physical reality.

It is true that physical reality, not just social customs, decree that it is impossible to have investment without savings.  Although the extent to which the relief of poverty depends upon investment is commonly exaggerated by those who see the world through the lenses of economic theory, it is nonetheless the case that it is impossible to solve the problem of poverty without investment.  "A technology that will raise man-hour productivity without net investment has yet to be discovered" (Nitisastro, op. cit.: 19).  It is in general impossible to raise outputs, and therefore impossible in general to raise incomes, without investments.  This is true even if it is granted that a good deal of investment heretofore has been humanly and ecologically short-sighted--even if it is granted that the investments really needed are in sustainable technologies and in human resources to facilitate grassroots community building. 

Other impossibilities, however, are produced by social structures, not natural structures: It is impossible to redistribute wealth and income in ways that do not paralyze wealth and income creation.  It is impossible for a nation dependent on foreign capital to obtain the money it needs on terms not acceptable to foreign owners of money.  It is impossible to pay debts without earning money with which to pay debts.

All of the above are impossible, given the basic cultural structure of the modern world-system.  All is not lost, however, for it is quite possible to extend the limits of the possible.  It is possible to modify the causes of these impossibilities.  Their causes are chiefly (even though not entirely) socially constructed normative structures.  Socially constructed normative structures can be reconstructed to make the impossible possible.

  Nitisastro’s interpretation of paragraph I of Article 33 of the Constitution represents a real possibility to the extent that Indonesia's cultural resources enable its implementation.  A culture of solidarity is required.  There must be some flexibility, some bending, on the issue of property rights, some acknowledgment of a duty to use property for the common good.  More stewardship. More accountability.  More social obligation and less private privilege.  More fiduciary duty and less plenipotentiary right.  There need to be more debt forgiveness and less speculation in land values and financial instruments.  More coordination of human action in the pursuit of common purposes and less maximization of individual self-interest.  More long-term wisdom measured in ecological terms, and fewer short term fixes.  More physical improvement of land and soil and less paper profit.  More accumulation of usable capital equipment, and less whisking off of cash profits to secret accounts in foreign banks.  This paragraph is not meant to be just a list of desiderata; it is meant to be a list of desiderata whose achievement requires a process of intellectual and moral reform that embraces a revision of the constitutive rules that govern life in a capitalist society.

The program that Nitisastro envisioned as a young man appears to be impossible because constitutive rules defining contractual obligations and property rights appear to be laws of nature.  But it is not truly impossible, because constitutive rules are not laws of nature and can be socially reconstructed.

To the extent that savings and investment become capable of going forward without contractual obligations forcing delivery of the bulk of their benefits to property owners, the limits of the possible are extended.  Social justice becomes more possible.  Similarly, to the extent that enterprises can succeed by meeting real human and environmental needs, without necessarily making a profit by selling products for which there is effective demand (i.e., people with money who will buy them), the limits of the possible are extended.

It is clear, however, that many uncertainties must be favorably resolved before the indirect path to poverty relief through savings, investment, and increased output can result in the desired equitable distribution of increased income.  Therefore, it would seem wise to put more emphasis on direct relief.  Sharing resources with those who need them is called “zakat” in Islam.  It is also prescribed by the scriptures of Indonesia's minority religions.  The direct path cannot replace the indirect path, because the population is too large to survive without technologies that require investments, but it can contribute to building the culture of solidarity required to open the indirect path.

In the next chapter we will continue inventory of Indonesia's cultural resources.

Norms are causes.   Norms can change. 

Notes