Monday, May 26, 2008

Bamboo Chair Industry Reduces Unemployement  

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Agus Maryono
The Jakarta Post/Purwokerto

Kemutug Kidul village in Banyumas regency, Central Java, is a shining example of a village that has overcome unemployment to become self-sufficient. People in this village earn their living by making various kinds of chairs from the bluish-black wulung bamboo. Averaging 1.5 meters in length, the chairs are designed for relaxing and reclining in while reading or watching TV. Chair making has now become the main source of income for 80 percent of the village's 1,300 families.

"This business was originally meant to meet orders from around Banyumas, but with increasing demand we began selling to other cities," said Slamet, 40, one of the locals now engaged in the home industry. Slamet sell to buyers in Bali, Surabaya, Bandung and other cities across Java.

This bamboo cash crop is now at the center of an industry comprising three groups, the first being the workers who build the chairs and are paid according to the number of chairs they complete. This group makes up the majority of the workforce.

"Workers are paid by their output rate. We pay them Rp. 4,000.- for every chair produced," Slamet told The Jakarta Post. Each workers makes on average four to five chairs per day. Employers like Slamet belong to the second group. In the village's home industrial circles, only a small number works as employers.

Handicraft workers make up 60 percent, sellers 30 percent and employers only 10 percent, a total of no more than 70 people," Slamet said. "Employers like myself have five to 10 employers at most. I don't think anybody has more than 10 workers," Slamet said.

No contracts bind the workers because they are paid only for the chairs they complete. Anybody can be an employer and there is no serious rivalry in the village. Slamet said this was due to the almost similar models and quality of goods and their markets. "An employer is someone who buys bamboo in fairly large quantities, about 200 stems at a time, and has tools like machetes and knives," he said.

Two hundred bamboo stems usually suffice for a two-week production run. Slamet buys wulung from the outskirts of Banyumas at Rp. 3,000.- per stem. On average, his workers can produce about 180 chairs from 200 bamboo stems.

The third group comprises the chair sellers. Some of them sell door-to-door around Banyumas, carrying the chairs on their shoulders or in push-carts, while others transport and sell them out of town. "They can sell at any price, as long as I get Rp. 20,000.- per unit," said Slamet.

In Banyumas' traditional markets, the average chair retails for about Rp. 50,000.-. "It's flexible. Sometimes we sell at only Rp. 20,000.- when business is slow and we need money – as long as we make a profit," said Tarmidi, 45, who said he had been selling chairs in Banyumas for 10 years. Tarmidi said he usually carried six chairs on his shoulders around Banyumas from six in the morning until dusk. "I'm very lucky, I sell all six. I sell four chairs on average per day," he said.

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Thursday, May 22, 2008

No Sustainable Growth without Innovation  

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A Reflection on a Decade of Economic Crisis :

Asian economic crisis started in the last quarter of 1997 has proven Krugman's insights (1994) that high economic growth of Asian tigers such as Korea, Thailand and Indonesia fueled mostly by capital investment would be vulnerable in the long run.

On a paper called 'The Myth of Asia's Miracles', Krugman was questioning the validity of such economic miracles really happened in Asian Tiger Countries. His doubt was principally based on the concept of Total Factor Productivity, in which the growth of output is the result of growth of input (labor and capital) and growth of output per input (productivity). Some studies had shown, that Asian Tigers economic growth was mostly input-driven oriented rather than productivity increase-driven resulted from innovation, technological advances, education, economies of scale or any means that keep optimizing the use of input factors more efficiently over time.

Paul Krugman, a noted economist now teaching in Princeton, consistently provoked the idea of driving the economic growth only through 'perspiration', he took example of Soviet Union era which had successfully droved economy through labor mobilization but failed to sustain it because of lack of factors in stimulating 'inspiration' in driving the economy more productively and efficiently. It is interesting enough if we remember Soviet Union was home to brilliant scientists and engineer. Soviet's case was because invention and innovation was not rewarded properly as there was no free market and business competition; practically there were no incentives to develop technology for better lives as all the efforts were oriented to serve military purposes.

While in South East Asian countries' cases, the environment was the opposite to Soviet Union because free market and business competition were present. However as capital input had been continuously injected without developing 'means' to utilize it efficiently, the law of diminishing return to capital applied where additional output rate became slower compared to given additional input rate. In this case we saw many Asian countries were void of such innovation and R&D centers, more miserably we even had seen much of the capital input poured into, not only non-productive but also, speculative sectors such as property though most of the capital was from the borrowings with high interest rates.

Now, exactly 10 years after such blowing economic crisis, ironically Indonesia has not taken serious steps in spurring economic growth through fostering a culture of innovative society. Global Competitiveness Report 2007-2008 finds out Indonesia's ranking in innovation is at 41st out of 131 countries. Comparing with the nearest neighbors, Indonesia's performance is very poor. Malaysia is ranked at 21st, Singapore is ranked at 11th. Even compared to Indonesia's competitors in export-oriented labor-intensive sectors, Indonesia's performance is still weak, such as India is ranked at 28th and China, is currently ranked at 38th.

Though the wound has been healed, the pain is not gone yet. Unemployment is still very high and people under poverty line increasing day by day, signaling current economic growth at 5.5-6.5% is just not enough. Indonesia needs to be back on track of previous 7.5-8.5% economic growth. If productivity increase factors may include technological advance project, in fact we had had some state-funded high tech projects such as aircraft industry development. Unfortunately it was unable to become the motor to stabilize and maintain high economic growth. Some reasons may explain this such as project was owned and run by the Government for political purpose, which made it not possible to be run efficiently and profitably.

The so called strategic industry become meaningless if it was not a waste and Indonesia might benefited much more if invested heavily in oil-refinery industry to avoid today's big import of refined-oil or even better in developing alternative energy sources that would help businesses having decent options during today's skyrocketing oil prices.

For comparison, India performs better after a decade focusing in software engineering and development, while Singapore is approaching a developed-nation status after focusing in biotechnological R&D and in medical services. After aircraft industry failure, Indonesia needs to re-focus in an innovation area to achieve high economic growth, and sustain it, in the future.

The problem now is besides no strategic innovation focus of current economic development; Indonesia also lacks enthusiasm in bolstering spirit of the youngsters, academicians, researchers and businesses to induce innovation out of their mind.

We see Annual Indonesian Film Festival, strangely enough; we have not seen Annual Indonesian Innovation Competition. We ever had Visit Indonesia Year, surprisingly; we never had Innovate Indonesia Year.

If the atmosphere itself is not ready to support innovation, then it is just a dream to have economic growth driven by productivity increase, without this, we should pay attention on what Krugman explained," Productivity isn't everything, but in the long run it is almost everything. A country's ability to improve its living standards over time depends almost entirely on its ability to raise its output per worker." (The Age of Diminishing Expectations, MIT Press, Cambridge, Mass, 1990)

Written by Hery Kameswara, Grant Technical Advisor at SENADA Indonesia Competitiveness Program. This is personal opinion.