Economic Growth Under Authoritarianism and Democracy: The Indonesian Case

Indonesia is one of most striking cases of economic transformation in modern history. At independence, Indonesia was a low-income country subject to centuries of exploitation and resource extraction under Dutch colonial rule. By the 1990s it was one of the Newly Industrialized Economies of East and Southeast Asia. Today, it is a middle-income country, classified by the World Bank as a Lower Middle Income country but not far from Upper Middle Income status. This economic transformation produced a measurable increase of material wellbeing for hundreds of millions of people. Prior to China by the 2010s, no country’s economy had grown so quickly for so long as did Indonesia’s.

Indonesia is also a paradigmatic case of economic growth under authoritarian rule. The New Order regime arose in the wake of the brutal extermination of the Indonesian left, and was headed by a general-turned-president who tolerated only limited organized opposition and almost no anti-regime mobilization for over three decades. Soeharto, though, legitimated his rule as providing stability as the foundation for prosperity and economic transformation, eventually becoming known as Bapak Pembangunan or “Father of Development.”*

Since the collapse of the New Order and the transition to democracy in 1999, following the economic crisis of the late 1990s, many Indonesians have lamented the loss of the feelings of optimism, dynamism, and economic progress under the New Order. Inequality has continued to rise, and the Indonesian economy, today, plainly does not serve all Indonesians equally. And one often encounters a general sense** that the New Order was a time when things were getting a lot better, a lot faster.

(There is something lurking deeper here about how Indonesians recall the terms of authoritarian citizenship, although that is a post for another time.)

One possible explanation for the belief that Indonesia’s economy was somehow more dynamic under authoritarianism is that the New Order actually did create higher economic growth than did its democratic successor. Indeed, this is a view that I have often shared in my teaching and in my research—I do not support authoritarianism, but I nevertheless insist that we must look the facts of economic development under Soeharto squarely in the face. But more than 20 years after the transition to democracy, is it actually true that New Order Indonesia grew faster than democratic Indonesia has since?

As it turns out, no. Prompted by an email exchange among some very respected Indonesia-watching colleagues, I decided to do a proper test of the relationship between regimes and economic growth. To do so, I grabbed data from the World Bank on Gross Domestic Product per capita between 1960 and 2020, measured in constant 2015 US Dollars. This ensures that we are doing the proper comparisons over time, adjusting for inflation and purchasing power (although see the caveat at the very end of this post). I then calculated economic growth as the year on year percentage change, and plotted this series over time by separating out the pre-New Order period (1961-1965), the New Order period (1966-1998), and the post-New Order period (1999-2020). Here is what we see.

The thick lines are yearly growth. The dashed lines are the average within the period in question. And it is clear: average growth from 1966-1998 was no better or worse than average growth from 1999-2020. Measured this way there is simply no evidence that New Order Indonesia grew faster than democratic Indonesia.

We can test this in a regression framework too:

There is no significant relationship between a dummy variable capturing “post-New Order” and economic growth in any of the models. This is true however I model this relationship: M2 above controls for the natural log of the previous year’s GDP in order to reflect the well-known convergence hypothesis of declining rates of growth at higher levels of income, and M3 also controls for the log of Indonesia’s population size.

All in all, I just do not see any evidence that Indonesian economic growth was faster under authoritarianism than under democracy.

This matters, and it doesn’t. It matters in the sense that to understand Indonesia’s political economy, we need to appreciate just how much Indonesia has grown after the end of the New Order. That is a lot of sustained economic growth.

And it matters in a second way too. When you look at the graph above, you also can’t miss that Indonesia’s economic growth has been much more stable under democracy than it was under authoritarianism. That’s not nothing. Indonesia is not lurching from crisis to crisis, the way that New Order Indonesia had a petroleum crisis, then the early 1980s crisis, then the Asian Financial Crisis. People ought to be writing about the general macro-stability of Indonesia’s democratic economic performance, even given a lot of global economic turmoil.

But these results also don’t matter in the sense that the political fact of nostalgia for a sense of stability and order does not depend on whether the economic facts are consistent with it. People will remember the New Order as a time of order; that, truly, was the point.

And the other thing is inequality. That might really be the story of democratic Indonesia’s political economy, how such wealth and prosperity can emerge and persist in a country still beset by serious challenges. That said, it is important to recognize not only that there are so many extremely wealthy Indonesians, but also that there are so many nouveau wealthy Indonesians.

There is an important caveat to all this, though. The data that I’ve used here are derived from the World Bank, which calculates GDP per capita in a lot of different ways but only has real GDP data in US dollar terms. What I would really like to have is the same series, but in the (inflation-adjusted) local currency unit: real GDP per capita measured in constant rupiah. I don’t have immediate access to that, and although I can grab the current data from Indonesian government websites they do not go back in time to the 1960s. So an open call: if you, reader, have access to that data series, I will make the same figure and estimate the same regressions, and report the results here.

NOTES

* I doubt that this was a spontaneous expression of endearment. Someone in the regime probably coined the phrase and then encouraged it to spread.

** Sometimes called “Indonesian SARS”, which stood for Sindrom Aku Rindu Soeharto [I Miss Soeharto Syndrome].

Against Bloodless Liberalism

Liam Kofi Bright wrote a very good explanation for why he is not a liberal. It makes a couple of particularly useful points in service of the broader goal of explaining his rejection of liberalism as “unworkable.” Among others,

  1. liberalism is the default setting of politics, even for the Sanders and Corbyn types on the democratic left. They do not question the core liberal premises of democratic politics. Most everyone is a fish, unaware they are swimming in a liberal sea.
  2. liberalism-as-actually-practiced was simply awful anytime it encountered people living on top of land that contained valuable resources, or who could be compelled to harvest sugar or cotton at musketpoint. It was helpful for liberals to argue that such people weren’t really people, or were not yet complete people.
  3. liberalism as a public philosophy emerged alongside a robust debate about individual virtue. The people arguing the foundations of what became liberalism as we understand it today were not indifferent to moral questions.

Most people who think critically about liberalism understand (2). Perhaps they also remember (3).

(1) is more contentious, but let us grant the point for now, and I do tend to agree with it anyway. It is also true that many self-described “conservatives” are “liberals” in the sense the Bright means it, they simply have different setting on liberalism’s “inequality” dial than do the liberals of the left.

Bright describes this as “liberalism warts and all.” He does suggest that most people who protest that they are not liberals should face up to the fact that they are. But he will not, because he is not! His objections to liberalism are three:

  1. separating the public and private spheres is unworkable
  2. capitalism generates inequality as a matter of course, and
  3. the liberalism that produces comfy livelihoods for some seems to always coexist with exploitation (you cannot name a counterexample).

I think that there is a coherent liberal response to the first of these objections, and I suspect that that response also gets you some of the way towards the other two, although I have not seriously thought out the details of that.

At issue is the question of whether or not liberalism can separate public and private spheres. Here’s Bright:

I think the state has to in fact take a side on contentious issues, there is no neutral position or viable overlapping consensus or anything of the sort (and nor does the liberal historical compromise just so happen to constitute the ideal moral position, as perfectionists bizarrely convince themselves). What made it seem plausible that this was a solution to the problem of the wars of religion was that in fact very substantive consensus did exist among the various dominant Christian sects, and where that agreement wasn’t there they didn’t really feel the need to respect the rights of outsiders (go back and reread Locke’s letters on toleration if you don’t believe me). Or, at least, substantive consensus existed among the restrained class of people that liberalism was willing to consider full persons worthy of consideration. Now we have expanded that class massively, as we surely must, and perhaps with broader social changes bringing more diversity, it is simply no longer tenable to seek to govern in light of a minimalist neutrality. What I think it leads to are just bad faith illusory politics where people must pretend procedural objections when really substantive objections are at stake. Hence lots of absurd claims that bigoted opinions somehow aren’t really opinions and so not covered by free speech protections. Or indeed the constant temptation on the political centre to make any debate into a metadebate about the free speech right to engage in the debate itself, rather than just having the argument they wish have against some point of left-liberal consensus. 

His diagnosis of the problem is correct, but that the idea that this is a problem for liberalism rests on the presumption that liberalism could ever be bloodless or sterile. By this I mean, that it could be grounded on some pre-political consensus of what values were worthy of toleration, from which one could then derive principles that we could use to write rules for how a collection of individuals would govern themselves.

An alternative is to just abandon this whole charade (which Bright also thinks we must do) and to accept that liberals are engaged in an argument about values, and that arguments about procedures will always be grounded in arguments about interests. William Riker* understood this, and many anti-liberals do too. Liberals might own up to the fact that values like bodily autonomy are not inherent moral values for most people. And hence, liberals are engaged both in the construction of systems that protect bodily autonomy and in the cultivation of citizens who hold such values.**

Perhaps some liberals want to believe that there is a bloodlessly pre-political way of constructing a state, but no one else does. Every other theory of the state embodies some sense of either the common good or some normative claim on whose values are the correct or admissible ones. Let liberals propose a set of values too, disagree internally about what exactly they are, and defend their politics as an ongoing project with no fixed endpoint rather than as a normative ideal.***

There two loose ends here, however. One is that an argument against liberalism does not provide much guidance on what ought to replace it. Writes Bright,

We cannot have a neutral public sphere and nor would the greater good just so happen to coincide with what liberals say the neutral public sphere looks like. 

Point taken. But I cannot imagine what kind of human organization would give us a better foundation for society than the perspective that we ought not assume that we can know what anyone else wants. This is kind of like the ur-fact about human collectives, and embracing that has been tremendously beneficial to a lot of people.

The second loose end is liberalism as a theory (normative or otherwise) of world politics. Embedded liberalism, as Sara Goodman and I recently argued, had exclusionary foundations. The history of liberalism as a global political project has been terribly disappointing for most people (although comfortable if you happen to be an American). These are facts. I still don’t yet know if I understand their implications for liberalism as a normative theory of politics in any one country.

NOTES

* Political scientist, not Starship first officer.

** I maintain that this is consistent with Bright’s endorsement of liberalism’s “nominalist vibe,” which I also share.

*** This is where I think a “punch-throwing liberalism” offers a response to Bright’s second and third objections.