Pancasila Economics - Where does it stand?

Pancasila Economics - Work in Progress, or Work Suspended?

The idea of Pancasila Economics is unique in the history of economic thought. Eventually, not many countries can pride themselves with the development of a distinct national economic model motivated by a country’s very specific historical and cultural context. For comparison, both classical economic liberalism and socialism were not developed as country-specific concepts. Rather, they used, and abused, national experiences as strawmen for the development of seemingly universal philosophies. Pancasila Economics was always supposed to be rooted in Indonesia’s specific historical and cultural context to serve Indonesia.

The Pancasila state ideology can be thought of as Indonesia’s normative compass, supposed to show the economic system its direction. Unfortunately, the compass’s needle has been wildly spinning since independence. Sukarno’s “Old Order” and Suharto’s “New Order” each gave Pancasila a very different political interpretation, leaving Pancasila economics regularly in troubled waters. Liddle (1982, p. 96) notes that if a widely accepted set of ideas lacks clear specifics, politicians with their own agendas will try to frame their values as the true essence or authentic interpretation of the dominant ideology. This is exemplified by Suharto’s Demokrasi Pancasila, where he so tightly linked his policies to Pancasila that there was little space for debate about what it truly meant. In contrast, Pancasila Economics remains more open-ended. The government has not attempted to attach a specific ideology to its economic policies, allowing for a wider discussion. This statement regarding the state of Pancasila Economic research seems still widely true even today.

According to Liddle (1982), Pancasila Economics has two major interpretations. Chronologically, these are (1) the Sukarno-influenced anti-capitalist and nationalist, (2) the Suharto-influenced Bappenas (standing for Badan Perencanaan Pembangunan Nasional, Ministry of National Development Planning). The Sukarno-influenced anti-capitalist and nationalist perspective emphasized the “common endeavor” of Article 33 of the constitution, promoting cooperatives, central-planning, a focus on basic needs, and restrictions on foreign ownership. Bappenas technocrats under Suharto argued for a state-regulated private enterprise system, seeking a middle way between a completely free market and a command economy, with both market elements and government planning, skepticism of cooperatives, and more openness towards foreign capital.

Mubyarto

Within Pancasila Economic thought, Professor Dr. Mubyarto stands out as a towering figure in the development of Pancasila economic thought. His intellectual journey began at Gadjah Mada University in Indonesia, where he honed his economic foundation. He then broadened his horizons by pursuing graduate degrees in the United States, a Master's from Vanderbilt University and a PhD from Iowa State University. Returning to Indonesia, Mubyarto rejoined his alma mater, Gadjah Mada University, where he took the helm of the Center for Pancasila Economic Studies. His influence, however, extended far beyond the academic realm. Mubyarto actively served as a trusted advisor to the Indonesian government, offering his expertise to shape the nation's economic landscape.

Mubyarto humbly rejected the title of "founding father" of Pancasila Economics. He saw himself as a torchbearer, carrying forward the ideals enshrined in Indonesia's constitution, Pancasila. These ideals, championed by Indonesia's founding fathers, President Soekarno and Vice President Mohammad Hatta, expressed skepticism towards unfettered capitalism (laissez-faire). Both leaders envisioned a system that blended central planning with decentralized implementation through cooperatives. This, they believed, was the key to achieving the goals outlined in Pancasila, particularly principles like achieving a "civilized" (Principle 2), "just" (Principle 5), and "democratic" (Principle 4) society. Central planning, in their eyes, offered a mechanism to address emerging social inequalities, a safeguard absent in laissez-faire capitalism. The combination of central planning with decentralized implementation, they argued, ensured everyone had a voice, fostering a democratic society.

However, this framework did not explicitly address the principle of "unity" (Principle 3). Here, Mubyarto carved his own legacy. He believed Indonesia's true challenge to unity wasn't its diverse tapestry of ethnicities, languages, and religions. Mubyarto, like Soekarno and Hatta, firmly embraced secularism. Instead, the chasm between the living standards of urban and rural areas posed the greater threat. Mubyarto questioned the central government's ability to effectively address the needs of rural communities through top-down planning alone. This critique, documented by Dick and McCawley in 2005, offers valuable insight. The authors reference his 1968 lament regarding Jakarta's lack of understanding and competence in fostering rural development. The timing of this critique, coinciding with the end of the Soekarno era, suggests Mubyarto held reservations about Soekarno's economic policies, despite agreeing with the Pancasila ideals.

Mubyarto's disillusionment further deepened with the economic policies of Suharto's New Order, particularly "the top-down, materialistic and pro-market policies" implemented during that period. Therefore, ascribing purely socialist leanings to Mubyarto would be a mischaracterization of his true development agenda. His advocacy for collaborative decision-making within small cooperatives doesn't equate to traditional socialism. After all, cooperatives are commonplace in market economies, especially in rural areas. Similarly, attributing a fondness for Suharto-style capitalism to Mubyarto falls short. For Mubyarto, Pancasila economics was supposed to be a practical and implementable ‘Third Way,’ not an enslavement to any economic ideology.

Key Characteristics

So what characteristics best describe Mubyarto's Pancasila Economics? McCawley (1982) summarizes its main features in five key points:

(1) The “role of state enterprises and especially of cooperatives would be important. In sectors where these institutions could not operate efficiently, private enterprise would be permitted to have the major role. In all sectors economic enterprises would be expected to operate on “harmonious and family principles” (asas kekeluargan dan prinsip harmoni), and not on the basis of conflicting personal interests.”
(2) “In contrast to the capitalist system where (it is alleged) economic incentives are designed to motivate selfish and individualistic “economic man”, in a Pancasila economy incentives would operate on the basis of social and religious values as well as economic ones. In other words, “higher motives” would be encouraged rather than simply relying on the “lower motives” which underpin the operations of capitalist societies.
(3) “Egalitarian principles supporting greater social equality would be given high priority.”
(4) “The creation of a “strong national economy” (perekonomian nasional yang tangguh) is seen as important. A Pancasila economic system would openly recognize the need for an appropriate degree of economic nationalism in a developing country such as Indonesia, both because domestic political considerations demand a display of national independence and because domestic entrepreneurs are unlikely to be able ever to compete successfully with either domestic Chinese firms or foreign competitors unless they are given effective support for a period of consolidation.”
(5) “A balance would be found between decentralisation of economic decision making and strong national planning. On one hand, economic enterprises such as cooperatives would facilitate a high degree of decentralisation, but have the advantage that they are not the atomistic highly individualistic units found in textbook liberal capitalist economies. On the other hand, strong national planning is also regarded as desirable. Former Communications Minister Frans Seda reflected the consensus when he said that in a Pancasila economic system “...the formulation of economic activity and production must be carried on with social supervision and evaluation so as to reflect economic democracy” and that “...economic production and planning institutions will be needed which allow for representative social participation in the planning process.”

Pancasila Economics: A Balancing Act

The five pillars of Pancasila Economics, as outlined by McCawley (1982), paint a picture of a system seeking a middle ground. It avoids both the excesses of unfettered markets and rigid central planning. Harmony and family principles (asas kekeluargan dan prinsip harmoni) guide economic behavior, prioritizing collaboration over individual gain. Social and religious values are seen as motivators alongside economic incentives, fostering a sense of community and ethical conduct. The system prioritizes equitable social development, ensuring all Indonesians benefit from economic growth. Nurturing a strong national economy involves a degree of economic nationalism, particularly during the development of domestic industries (infant industry protection). Finally, the principle of subsidiarity emphasizes empowering smaller entities to handle tasks they can manage effectively.

If one were to summarize these five points in a few key words within modern economic language, one could also say that within a Pancasila economic system:
(1) Markets are tolerated, unless they fail, and the preferred economic actor is a cooperative.
(2) The idea of the human being is one who is guided by religious values.
(3) Inequitable social development is not tolerated.
(4) Indonesia’s development should start with infant-industry protection.
(5) A political structure in line with the principle of subsidiarity.

As Dick and McCawley (1982) correctly highlight, Mubyarto’s economic concerns are not uncommon. In fact, the entire history of economic thought is loaded with concerns towards unfettered market liberalism. As an applied economist, Mubyarto should not be labeled with ideological jargons, but as someone who deeply cared for Indonesia’s equitable social development. Mubyarto was seeking for a “Third Way” to pure capitalism and socialism - a way that is not plastered with ideological cobble stones, but technocratic ones.

For Mubyarto, practical, not ideological, matters mattered. As Dick and McCawley (1982) highlight, Pancasila Economics is particularly in need of solutions to the problems of equitable social development, market power within existing economic structures, especially those exercised by foreign economic actors, corruption, and the development of a domestic entrepreneurial class. These are all concerns, which are quite universal to newly developing countries and which cannot be effectively addressed within an ideological debate, but only a practical policy dialogue.

A Way Forward?

Unfortunately, concrete economic policy advice is absent in Mubyarto’s writings. Liddle (1982) notes, that after “several readings of Mubyarto’s writings and others’ commentaries, it is unclear to me in what sense this amalgam of received ideas (e.g., capitalism always means that “the strong drive out the weak”), romanticism (the village is still the locus of the true Indonesian gotong royong personality), moral appeal (if we act like our idealised ancestors all will he well), and straightforward advice to economic planners (decentralise) constitute an “economic system”. And to be fair, Mubyarto himself has not made grandiose claims for his ideas. Still, it is a fact that his Ekonomi Pancusila was for the first nine months of 1981 a major centre of media attention and debate among Indonesia’s intelligentsia. Why?”

Liddle (1982, p. 99) also provides a possible explanation, which he sees in a contrast “between the political strength and popular weakness or Bappenas economic doctrine, on the one hand, and the popular strength and political weakness of the nationalist and Islamic ideological traditions, on the other.” Mubyarto’s writings on Pancasila economics then became a platform for oppositionists to safely articulate their discontent with Suharto’s regime. In sum, by the 1980s, Pancasila Economics had been instrumentalized by two sides. Politically, Suharto tried to frame it according to his guided top-down capitalist ideas. Sincere ideologically unbiased attempts to advance Pancasila Economic as a discipline were hijacked by political oppositionists to Suharto. During his career, Mubyarto had found himself regularly between a rock and a hard place.

In this regard, Liddle (1982, p. 100) notes that: “To understand the significance of Mubyarto’s Ekonomi Puncasila it is important to be aware that he straddles the nationalist (including at least for purposes of temporary political convenience the young Muslim intellectuals) and New Order camps. In my judgement, his critics have concentrated too much on the Sukarnoist resonance and “economic system” aspects of Ekonomi Pancasila and not enough on the intellectual and political bridging role which he appears to be trying to play within the system. [...] But they miss what I judge to be an important part of Mubyarto’s purpose, which is to employ some powerful political symbols (those obsolete nationalist ideas) plus contemporary academic theories to lobby for certain major changes (not all of which fit the standard nationalist paradigm).”

Since the reform period, Pancasila Economics as an independent research discipline has lost momentum. Since the 1990s, no major economically holistic academic thrust seems recognizable. While publications with a Pancasila Economic reference are still being generated, their focus is widely scattered around topics such history, education, and intellectual influences. A focus on how to implement a Pancasila Economic system in terms of principles of economic policy is still largely absent.

Since 2017, Indonesia has celebrated Pancasila Day on June 1, the day when Sukarno gave his “Lahirnya Pancasila” (Birth of Pancasila) speech in 1945. Then President Jokowi, the new holiday’s initiator, called on all Indonesians to embrace the Pancasila values, leaving some Indonesians uncomfortable. Eventually, Suharto, while not officially celebrating Pancasila with a holiday, put a lot of emphasis on indoctrinating Indonesia's school children with a detailed set of specific items under each of the five Pancasila pillars.

Of course, there is a big difference between a public holiday and a school curriculum with the first leaving much more room for open debate. It is probably safe to say that Jokowi’s intention was to initiate such an open debate and to clean Pancasila from its reputation as being nothing more than a vehicle for political instrumentalization. As the Jakarta Post in an editorial on May 31, 2017 concludes, in response to a ban of the Islamic Hizbuth Tahrir Indonesia organization on grounds of violating Pancasila, “efforts to ensure inclusiveness by reducing the social economic gap, is a much better way to convince Indonesians why Pancasila should remain the “cement” binding the archipelago.” A revival of Pancasila Economics with such a socioeconomic objective and without any ideological labels would surely be a welcomed voice in Pancasila Day celebrations.