TO ANTICIPATE THE MIDDLE CLASS TRAP

While being gratified by having a strong middle class of high expenditure and supportive to economic growth, the government of RI must still be cautious of having a middle class trap.

               

The middle income trap was defined as a condition where a country expected economic growth stimulus only from the consumption side without having broader multiplier affect until they arrived at a certain point where there capability stopped.

               

A middle class trap could be described as middle income countries being “trapped” in their position and unable to forge ahead to rank with advanced nations. A nation having arrived at a certain income level and being relatively prosperous, but failed to grab the momentum of high level growth so they remained to be stuck as middle income nation. They were never promoted to higher class and were locked in their stagnant position.

               

It should be borne in mind that with settled good income and purchasing power, the middle class tend to be indulged it consumptive activities. This was a positive thing, but to be constantly consumptive might not generate productivity the broadest sense of the word and such could mean high risk for future economic prospect. The specter of economic overheating might lurk in as consumption was too strong on the consumption side with tendency to overlook productively.

               

A good example to learn a lesson from was China who had economic overheating due to up    jump of demand in property. China’s economy had been growing high, around 8% on the average, but vulnerable due to economic overheating. The government of China and the Central Bank of China instantly put brakes on property demand by instructing the big banks there to stop credit for property. Now China’s economy was gradually cooling down.

               

Now Indonesia felt the same way about it. The Coordinating Minister of Economy Hatta Rajasa disclosed that today the government was preparing three strategic measure to keep Indonesia from falling into the middle income trap according to Hatta, the three strategies prepared by the government were :

               

Firstly, the government would continue to build infra structure. World’s Bank’s report disclosed that one of the causes a nation fall into the middle income trap was because that nation had poor infra-structure quality which had its negative impact on economic growth. Now all Indonesia had to do was to better infra-structure quality time after time. The government exercised this through the MP3EI project of 2011-1015 where every economic corridor had sufficient share of high quality infra-structure building.

               

It was right indeed if the government were all out about infra-structure till 2015. Infra structure was the key to great economic development to keep the nation from falling into the middle income trap.

               

Secondly, the second option to be taken by the government was to enhance self reliance in food, because most of the Indonesian people lived on agriculture. The government would always make policies which support development of agriculture so it could bring positive impact to food production.

               

If the agriculture sector were stable, farmers’ welfare would be bettered as their income had increased, enough to fulfill their daily need. Besides, the government ad schemed up policies to minimize dependency on imported food. Somehow food resiliency was so far still and unending polemic.

               

Thirdly, the government planed to give social protection for the poor people. According to the government, increased economic growth generated wider social disparity, i.e. the rich got richer, the poor got poorer. Such must not happen because this was the government’s role to give social protection.

               

The social protection to be given by the government was to increase the number of receivers of scholarship-for-the-poor, to extend people’s Business Credit [KUR], and to apply PNPM. To make sure that this social aid was not mistaken as money politics in disguise, it was advisable for the government to be transparent and be accountable in executing the program.

               

Social Safety Networking Program was commonly exercised in many countries to help strengthening family’s economy and live a decent life. By that social aid, they would have better life expectation whereby to be self reliant in economy. It was their independence which would build aggregate demand so producers could have the zest to expand business.

               

Within this context is was advisable for the government and regulators to driven the middle class to partake in the process by doing business. This country needed more new entrepreneurs who were expected to emerge from the said middle class was not only consumption driven, but also driven by the will to develop business.         

               

Many new business opportunities especially those related to the creative industry could be run by the middle class. This was because they had unique characteristics, i.e. always making innovations and new creations. It was this creativity which was the comparative advantage of the middle class in starting their new business.

               

They had enough skill and education, and all they had to do was to broaden their horizon in entrepreneurship. Support from financial institutions, especially banks, was no longer a problem as banks had a wide variety of products suitable to their need. So they would become resolute business people of the future to sustain Indonesia’s economy in the long run. (SS) 

Business News - June 05,2013