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The Strategy of Growth and Economic Development in Indonesia

Article  in  International Journal of Science and Qualitative Analysis · January 2015

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Puji Isyanto
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Abstract: Economic development became something expensive for countries retarded. Therefore, they must establish a
strategy to overcome barriers that exist in the country. The purpose of this article is to give an overview of the theories and
strategies in economic development so that it can be understood by the reader. Strategies to overcome obstacles and build a
country's economy, among others, is the theory of low-level equilibrium trap, cumulative causation theory, the cycle of poverty,
the strategy of critical minimum effort, and balanced development strategy. These strategies can actually be implemented.
However, not all countries can do so because of various obstacles. It requires a long time and substantial capital expensive
even for underdeveloped countries.
Keywords: Development Economic, Growth Economic, Economic Strategy

Purpose of Article
1. Introduction Provide an overview of the theories and strategies in
Economic countries in the world have different levels. In economic development so that it can be understood by the
this case there is a classification in which there is the so- reader.
called developed countries, countries developing and poor
countries. Developed countries to master the various 2. Discussion
productive sectors which encourages economic growth of the
country. Availability of experts and adequate technological 2.1. The Theory of Low-level Equilibrium Trap
support of developed countries to grow toward the more This theory is the brainchild of R. Nelson. This theory is
advanced. Meanwhile, developing countries have weaknesses also based Malthus hypothesized that the population of a
which causes them difficulty to build its economy. Lack of country will tend to increase when per capita income rises
experts led to natural resources can not be empowered above the level of the minimum subsistence costs. On
maximally. Therefore, the underdeveloped countries to allow Initially, the population is growing rapidly along with the
developed countries to manage their natural resources in a increase in income per capita. However, population growth
cooperative relationship. However, turns the developed rate will start to decline if it has reached the physical limits
countries take advantage of these conditions to obtain profit above as further increases in per capita income. This theory is
profuse. Deteriorating environmental conditions cause similar to the strategy Leibenstein thesis minimum effort
various disaster in underdeveloped countries. It is a challenge critical. According to Nelson, the disease can be diagnosed as
and obstacles faced by underdeveloped countries. retarded the country's economy as stable equilibrium level of
This world is populated by a handful of rich countries. income per capita at or close to the needs cost of living.
They exploit natural resources of underdeveloped countries Nelson In theory, there are four conditions that bring
to be empowered. Furthermore, raw material obtained from technological and social low-level equilibrium trap, namely:
underdeveloped countries is processed into finished products 1. The high correlation between the level of per capita
then resold. income and growth rate population
Economic development became something expensive for 2. A low tendency to use per capita income in addition to
countries retarded. Therefore, they must establish a strategy increased investment per capita
to overcome barriers that exist in the country. 3. Lack of arable land
30 Puji Iswanto: The Strategy of Growth and Economic Development in Indonesia

4. The production method is not efficient profit-motivated capitalist system. Regional imbalances are
Moreover, inaction cultural and economic slowdown is becoming increasingly severe if a region is growing at the
also a factor which became the trap. Nelson uses three types expense of other areas experiencing stagnation. In essence,
of relationship to describe the economic trap at low income the economic development becomes a thing ekspensif and
levels, namely: very long for the underdeveloped countries. This opinion is
1. Revenue is a function of capital stock, the level of reinforced by evidence pointing apparent that Professor
technology, and the size of the population Myrdal's thesis proved to be true.
2. Investments net consists of capital that is created from Professor Myrdal promoted three important conclusions
savings in the form of additional material on the new are:
land area of land that is being processed 1. The world is populated by a handful of countries that
3. With low per capita income, short-term changes in the are very rich and number large state-regara very poor
rate population growth is a result of changes in 2. Rich countries implementing economic development
mortality, and changes in the death rate was a result of pattern continues constantly while poor countries
changes the level of per capita income. However, while progressing very slow and there is even stagnate
revenue per capita reached a level far above the 3. Economic inequality gap between rich countries and
necessities of life. The next increment on a per capita countries poor more and more increase great
income less effect on mortality
In theory, Nelson stressed a number of factors needed to 2.3. The Cycle of Poverty
escape from the trap of low-level equilibrium, namely: The cycle of poverty or the poverty trap that theory circle a
1. The social and political environment that is favorable in set of forces that affect each particular cause a country
country concerned becomes poor and very slow to develop. this matter be the
2. The social structure must be changed to provide greater background to the strategy of balanced development in the
pressure on saving and entrepreneurship. Greater countries develops.
incentive to be given to produce more and to limit the According Nurkse, a country is poor because it is a poor
amount of family. country. There are two types of poverty trap a barrier for
3. Steps should be taken to change the distribution of developing countries, which offers capital and demand for
income, on the same time allows the accumulation of capital. In the event that the capital offers, low income levels
wealth by the investor. caused by low productivity resulting capability people to
4. The government's overall investment program. save too low. This led to the formation of capital in a country
5. Income and capital shall be increased by funds from becomes low. Thus, the level of productivity of a country will
outside country. remain low. In terms of demand for capital, limited market
6. The production technology is more adequate. area stimulants cause low capital investment. Low stimulants
2.2. Cumulative Causation Theory this capital investment is also influenced by the low income
communities due to the low productivity of the public.
In 1955, Professor Gunnar Myrdal promoted that regions Limited formation past capital is a form of low productivity
advanced experience accumulated a competitive advantage due lack of stimulation of investment. Meier and Baldwin
over those areas develops. If an area experiencing growth, added, in addition to the poverty trap above, the poverty trap
the development of will give effect to other areas. Professor also arise due to underdevelopment of society still traditional
Myrdal states that spread impact in underdeveloped countries with natural wealth is still not empowered.
ruled by turning effect. Ironically, market forces and free Thus, it can be concluded that the poverty trap influenced
trade tends to hamper export potential underdeveloped by the following factors:
countries because their products are removed by the product 1. People are not able to manage the savings properly
states forward. 2. Lack of stimulants in terms of capital investment
Relationships cooperation between developed countries 3. Lack of education and knowledge society
with state it led to growing inequality in terms of economic 4. The lack of experts and low skill levels of society.
development. Developed countries obtain dispersive effects
that push the pace of development the country's economy. 2.4. Strategy of Critical Minimum Effort
Instead, developing countries acquire reverse impact of these Professor Harvey Leibenstein found backward country
cooperative relationships that hamper their economic gripped the vicious cycle of poverty that causes them to stick
development. Developed countries have to strangle the around equilibrium level of income per capita is low.
economy of developing countries. They sell their products to Therefore, the strategy critical minimum effort became a way
developing countries at a price which much cheaper so that out of this impasse. By raising income per capita at the level
national and regional products be eliminated. There is no of sustainable development, then the rate of population
denying, developed countries are mastering technology has growth occurs. However, the increase in per capita income
become vicious poverty for underdeveloped countries. It can beyond a certain point would lower fertility rates. When
be said developed countries have haunt underdeveloped construction reached the advanced stage, the population
countries. Regional inequality has a close relationship with
 International Journal of Science and Qualitative Analysis 2015; 1(2): 29-32 31

growth rate will drop. Population growth is a function of 3. Reduced the effectiveness of the factors that inhibit
income per capita. According to thesis Dumont, rising per growth
capita income will reduce the desire for obtain offspring. In 4. Creation of environmental and social conditions so that
addition, increased specialization and mobility economic and economic mobility and social rise
social. Thus, the rate of population growth becomes constant 5. Increased specialization and the development of
and decline. As for the factors that affect the growth of secondary and tertiary sectors
revenue per capita of implementation efforts is a critical 6. The creation of a suitable climate for change is to bring
minimum internal diseconomies of scale and external economic and social change, especially in the
diseconomies of scale. Internal diseconomies of scale as a environment so that declining fertility and population
result of factors production which can not be divided. growth rate
Meanwhile, the external diseconomies of scale as a result of
external dependence, cultural and institutional barriers in 2.5. Balanced Development Strategy
country develops. The entrepreneurs, investors, savers, and The term balanced development was first raised by
innovators an agent population growth. With the presence of Professor Paul N. Rosenstein-Rodan in 1953 who later
such agents, it would appear entrepreneurship, increase introduced by Nurkse on the same year. Theory initiated a
sources of knowledge, skills development society, increase massive boost to create development in Eastern Europe and
the rate of savings and investment. Southeast with large scale industrialization. Balanced
Stimulation of the growth is divided into two, namely: development strategy also called the theory of a massive
1. Stimulation Zero-Sum boost by building a variety of inter-related industries massive
This stimulation does not increase the national income but at the same time. This strategy covers a variety of sectors
are distributive efforts, namely through: complementarity, where construction is done simultaneously
a. Non-commercial activities with a monopolistic and harmoniously. This strategy is intended that the
position, political forces and social prestige development process is not difficult to obtain raw materials,
b. Commercial activity with aggregate source adds expertise, energy resources and markets.
c. Speculative activity by wasting resources According to this theory, in a major development program
entrepreneurship rare is needed thorough in the form of a minimum amount of
d. The net savings activities with social value lower investment. How it works slowly little will not push the
than corresponding private economy to the level of development. In this case,
2. Stimulation Positive-Sum Rosenstein-Rodan distinguish between three kinds of
This stimulation leads to the development of national requirement to an absolute minimum and external economies,
income namely:
From both stimuli mentioned above, the positive-sum 1. Absolute Minimum Requirements in the Production
activities that generating economic development. However, Function
conditions in underdeveloped countries no thus enabling These include a minimum investment requirement of input,
entrepreneurs tend to implement a zero-sum activity. In the output or process. Initial capital in this function, among
underdeveloped countries, there is some influence of anti others, energy, transport, and communications.
change so that pressing per capita income, namely: 2. Absolute Minimum Requirements on Demand
1. The operations of zero-sum intended to defend the In order not to risk his shortage of market or markets, it
rights of economic special restrictions exist through takes a stance. Companies that are interrelated. For example,
economic opportunities which has the potential to companies in the industrial sector and agriculture, foreign
develop and domestic, productive sector and infrastructure.
2. Conservative measures the workers who organized or 3. Absolute Minimum Requirements on Stocks Savings
unorganized which aims to oppose the change Saving is the minimum requirement in the investment.
3. Resistance to new ideas and knowledge as well as When revenue increases, the marginal savings rate should be
appeal classical knowledge and old ideas higher than the average rate savings.
4. The increase in luxury consumption expenditures are With an absolute minimum of three requirements above
essentially private or public unproductive by using and the presence of external economies can be developed,
resources that could used for capital accumulation then the minimum amount of investment is the only way to
5. The growth of the population and labor force growth overcome obstacles to development in underdeveloped
caused by other things remain the same has the effect countries.
that diluting capital available per worker
6. The capital output ratio is high
With the critical minimum effort, the per capita income 3. Conclusion
will rise and tend to raise savings and investment resulting in: Each country can not be separated from economic
1. Expansion of growth agents development. In improving the country's economy, it is
2. The Community contribution per unit of capital to necessary strategies steadily. Besides that, capital or
increase as the ratio of capital output fell investment is a major requirement that must be owned by a
32 Puji Iswanto: The Strategy of Growth and Economic Development in Indonesia

country. sectors are interrelated at the same time. With the presence of
Low-level equilibrium trap theory says the same thing with these industries will create a condition that is mutually
strategies critical minimum effort according Malthus beneficial for every company need each other. In addition, it
hypothesized that the population of a country will increase if takes an absolute minimum requirements so that these
the income per capita increases. Nelson In theory, there are strategies can be fulfilled.
four technological and social conditions that bring trap These strategies can actually be implemented. However,
equilibrium level low. Nelson also uses three types of not all countries can do so because of various obstacles. It
relationships to describe the trap economy on a low income. requires a long time and substantial capital expensive even
In addition, Nelson stressed a number of factors needed to for underdeveloped countries.
escape from the low-level equilibrium trap.
Cumulative causation theory proposed by Professor
Myrdal stated that cooperative relationship between the References
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