Introduction

To developing countries, there will always be some constraints to development, such as limited natural resources, lack of skills as well as underdeveloped human capital.

Theorists have proposed the term “catch up development”, or convergence development theory, as a roadmap for these countries to move up the scale. This idea of “catching up” requires developing countries to copy the developmental policies of their more developed counterparts.

For example, previous decades saw countries such as Japan and South Korea adopting Western countries’ policies such as investing in export-oriented industries. These two governments have actively intervened in their economy, especially through nurturing and guiding the market to support its industrialization. As a result, various industries netted positive benefits, including agriculture, textile, automobile and electronics.

Latin American countries such as Mexico and Argentina have adopted this strategy too, especially in the early phase of national development through their import substitution industrialization. In their context, these governments intervened heavily by stimulating domestic production as a substitute to imported goods, in order to protect domestic industries.

Recently, Indonesia has also come up with its version of catch up strategy by pivoting towards industrial policy. The strategy of which aimed at boosting its downstream industries and shift away from a resources-based economy. This strategy is reflected by the enactment of raw material export ban and local content requirement. It is hoped the country could industrialize and build up the capabilities for high value manufacturing goods such as electronics in the future.

The idea of catch up development is a “grand-narrative” that is used to justify the industrial strategy to further economic development. However, we contend that such a narrative is insufficient to comprehend Indonesia’s move towards industrialization, but rather useful to interpret the country’s evolution of developmental policy.

Development as a Discourse in Indonesia

Discourse on development can be defined as how ideas shape the economic policy of development. It is not firmly fixed, but rather shaped by the contestation of competing ideas.

In the New Order era (1967-1998), the popular discourse on development was characterized as a developmentalist style of economic stability aimed at promoting growth and protecting domestic industries.

To achieve that, the Indonesian government restricted domestic competition, though in practice the move was susceptible to rent-seeking activities by state apparatus, military officers and businessmen within the circle of President Soeharto. These activities ranged from granting protection from imported products, awarding contracts without due process and providing access to cheap loans.

Those policies were heavily influenced by thinkers and technocrats such as Nitisastro and Habibie. However, disagreement and disunity among the technocrats and state bureaucrats at the time resulted in the absence of a clear industrial strategy and low industrial competitiveness.

The 1998 financial crisis forced the Indonesian government to implement reforms in order to secure assistance from the International Monetary Fund (IMF). These reforms led to the  opening up of the Indonesian economy and minimized the role of the state in the economy.

This soon would change during the second Yudhoyono administration, which was characterized by the re-emergence of a developmentalist agenda called “new developmentalism”. This new paradigm was characterized by government intervention in the domestic market, state support for local companies and state-owned enterprises (SOEs) supplied by more orthodox neoliberal policies aimed at promoting foreign investments in manufacturing activities.

This paradigm persists during the Jokowi administration, where it gains popular support. The idea of development in this era is shaped by nationalist and populist discourses and supported by interest of oligarchs.

For example, the discourse of economic nationalism has been amplified especially during the Indonesian government’s success in acquiring 51% of ownership from the largest foreign mining companies, PT. Freeport Indonesia. The timing seems on point, as it was done shortly before the 2019 elections where the usage of economic nationalist discourse helped to bring Jokowi to power for the second time. Such discourses then translated to the country’s developmental strategy in building downstream resource industries.

The Political Economy behind Indonesia’s Industrial Strategy

What is the context behind the nationalist discourse and the return of industrial policy in Indonesia?

From the colonial era, the Indonesian economy has long been characterized by the resource extraction and the dominance of the political and business elites. In the post-New Order era, this pattern of elite dominance persists, whereby oligarchs forge alliance with state apparatus at local and national level, leaders of mass organizations, and sometimes military or police commanders. Such an alliance serves a function to mobilize the masses, becoming some sort of power consolidation that helps power holders such as Jokowi to easily advance and implement his developmentalist policies and agenda.

Another factor is what scholars and economists call a “premature deindustrialization”, a state of the economy when the economic activity moves away from manufacturing production before an economy reaches maturity point.

This particular notion of  deindustrialization is not a rare case in developing countries. Following the 1998 financial crisis, manufacturing value added to the Indonesian GDP dwindled and has never recovered since then. As a result, Indonesia has suffered from “jobless growth” and declining real wages.

There are many explanations for this, ranging from incomplete reforms to financial liberalization policies and to commodity boom.

In the early 2000s, Indonesia experienced a commodity boom, marked by significant increase in commodity prices from early 2000s until early 2010s. The boom was a response to the growing demand in the emerging markets – such as China – to sustain its rapid industrialization.

The rise of China has also squeezed Indonesia’s labor-intensive, low-skilled manufacturing activities. Thus, the Indonesian government responded by shifting away from manufacturing to extractive sectors. The newly attained extractive regime of the 2000s gave way to the rise of oligarchs in certain commodity sectors, such as coal and palm oil.

In the international context, globalization gives rise to the establishment of an international or regional network of production. Nevertheless, comprehensive analyses of the global commodity chains determine that raw material exporter states in a marginalized position. Meanwhile, deindustrialization, alongside the increasing activities of resource extraction, means that Indonesia is becoming increasingly at a peripheral position on the global/regional supply chain.

Indonesia’s open-door policy towards foreign investment during the commodity boom does not help either. Indonesia actively appeals to foreign investors to park their money in natural resource extraction sectors, which require low-skilled workers and large sum of capital but add low value to the Indonesian economy. This has placed Indonesia as a resource exporter country, but one which economy struggles to evolve.

This condition seems to be picked up by the government. From as early as 2009, the Indonesian government through its Law on Mineral and Coal Mining has built a regulation that require the domestic and foreign companies to build domestic processing facilities. This strategy is called resource-based industrialization. The idea is to stimulate manufacturing activities in downstream sectors.

There are many strategies at play to achieve the policy goals of building downstream industries. One of which is mobilizing its state-owned enterprises. For example, PT. Aneka Tambang (Antam), Tbk has been directing its capital to build smelters for processing critical minerals such as nickel and bauxite.

Other than that, through bargaining and political settlements with foreign entities and domestic business elites, the Indonesian government has been successful in pressuring multinational companies such as PT. Freeport Indonesia to agree giving up 51,23% of its ownership to the state-owned PT. Indonesia Asahan Aluminium (Inalum).

The condition above shows that the pattern of alliance between state apparatus-business elite persists and is used alongside the nationalist discourse by the Indonesian government to spur economic transformation to move away from raw mineral extraction towards the domestic mineral processing activities.

Conclusion

The article argues that the return of industrial policy in Indonesia is not simply a matter of economic strategy, but is also driven by various factors. Premature deindustrialization, as a result of the global commodity boom, has caused Indonesia’s economy to lack added value, which thus puts an imperative for bringing back industrial policies.

Meanwhile, ideas on development are internally contested, yet successive administrations have succeeded in defining the discourse of industrialization as the driver of economic development. This discourse has supported the Indonesian government’s legitimacy to enact industrial strategies to catch-up with its developed counterparts. The Indonesian resource-based industrialization strategy is aimed at creating added value to the previously resource extractive regime. However, shifting strategies so far does not translate to the reform of power structure. Using the discourse of nationalist economic development as stated above, the Indonesian government’s strategy has been effective in legitimizing its policy of resource downstreaming.

Introduction

South Korea has experienced significant economic growth over the past few decades, emerging as a global economic powerhouse. However, in recent years, the country has faced the challenge of stagflation—a combination of stagnant economic growth and high inflation.

To overcome this economic dilemma, South Korea has recognized the potential of creative economy as a key driver of innovation, job creation and sustainable growth. This essay will delve into the role of the creative economy in alleviating South Korea’s stagflation, examining its impact on various sectors and its potential for fostering economic resilience and inclusivity.

Creative Economy

Creative economy encompasses a wide range of activities that involve the generation or exploitation of knowledge and creativity, leading to economic value and job creation. It includes sectors such as design, media, arts, culture, and technology. Creative economy is characterized by its ability to foster innovation, nurture entrepreneurship and promote cultural diversity.

South Korea’s innovation in terms of creative economy is not only limited to its pop culture industry, but also other sectors, such as technology and science. We can see the cutting-edge design of every Samsung mobile phones that are highly competitive in various market of the globe. Samsung Galaxy Flip, Note, Fold, and other flagship products frequently top the market.

Furthermore, other cultural products infused with innovation include webtoons by Naver/Line, an online manhwa (manga-like publication) that now become inspiration of several hits South Korean drama. This means South Korea has incorporated its huge pop culture icons into other sectors that and this amplifies its creative innovation to the next level.

Promoting Growth

Leveraging on innovation and technological advancement could be an option to promote growth in South Korea’s stagnating economy. With the promotion of collaboration between creative industries and traditional sectors like manufacturing and services, the country can stimulate economic growth through the introduction of novel products, services and business models. It is worth noting that there is ample opportunity for South Korea’s creative economy to further expand, offering a promising avenue to mitigate the impacts of stagflation.

For example, initiatives like the Creative Economy Promotion Act have facilitated partnerships between startups, corporations and the government to create innovative solutions to societal challenges. The integration of creative thinking and technology can also enhance productivity and competitiveness.

South Korea’s leadership in the technology sector, particularly in areas like semiconductors and telecommunications, can be further strengthened by infusing creative elements into these industries. By incorporating design, user experience and storytelling into technological advancements, South Korea can create products and services that resonate with global consumers, thereby boosting exports and reducing the impact of stagflation.

Another significant role of the creative economy in alleviating stagflation is job creation. The creative industries have the potential to generate employment opportunities, particularly for young people and those with creative skills. By investing in creative education and training programs, South Korea can develop a skilled workforce that is adaptable to changing market demands.

This not only addresses the issue of high youth unemployment but also enhances the country’s economic resilience. Creative industries are often more resilient to economic downturns as they offer diverse job opportunities across various sectors. In times of crisis, such as the Covid-19 pandemic, creative economy can provide a buffer against stagflation by fostering job creation and income generation.  

Cultural Diplomacy and Soft Power

The creative economy also plays a pivotal role in enhancing South Korea’s cultural diplomacy and soft power. South Korean popular culture – including K-pop music, television dramas and films – has gained immense global popularity, contributing to the country’s image and influence worldwide. By capitalizing on the global demand for Korean entertainment and cultural products, South Korea can expand its export markets and reduce its reliance on traditional industries, thereby alleviating the impact of stagflation.

Moreover, South Korea also could expand its network or popular culture into the non-traditional market of them. Southeast Asia, North America and Europe could be the traditional market and still be emphasized for growth, but exporting its K-pop products to less traditional markets such as the Middle East and Africa region could be additional income that generate more growth.

Moreover, the cultural exchange facilitated by the creative economy can strengthen diplomatic relations and promote cross-cultural understanding. Collaborative projects between South Korea and other countries, such as joint film productions or cultural festivals, foster people-to-people connections and create economic opportunities.

Cultural exchanges can diversify South Korea’s export base, reduce trade imbalances and enhance its global presence. For example, Bebas is a film that was jointly produced by Indonesian and South Korean filmmakers. Members of boyband groups EXO and BTS have also been hired for commercial brands ambassadors in Indonesia. Moreover, Indonesian diva Rossa has collaborated with SM Entertainment in making contents.

What Southeast Asian Countries Could Consider

South Korea’s creative economy can potentially contribute to Southeast Asia’s economic growth in several ways.

Knowledge and Technology Transfer

South Korea has a strong base in technology and innovation, particularly in areas like information technology, electronics and manufacturing. Through collaboration and knowledge sharing, South Korea can help Southeast Asian countries enhance their technological capabilities and promote innovation-driven industries. This transfer of knowledge and technology can lead to the development of new industries, job creation and increased productivity.

For example, investment by South Korean companies in Southeast Asian countries could generate ripple effect of growth, such as Hyundai investment in Indonesia that produce Indonesian-based design of Creta and Stargazer vehicles.

Entrepreneurship and Start-up Ecosystem

South Korea’s focus on fostering entrepreneurship and supporting start-ups has been instrumental in its creative economy initiative. Southeast Asian countries can benefit from South Korea’s experience in building vibrant start-up ecosystems, including the establishment of incubators, accelerators and networks for venture capital. This support can encourage local entrepreneurs and innovators, spurring the growth of creative and knowledge-based industries. Examples include Indonesia’s Sinar Mas Land that collaborated with South Korean start-ups.

Cultural and Creative Industries

South Korea’s cultural and creative industries – such as K-pop, K-drama and gaming – have gained global popularity and generated substantial economic value. Southeast Asian countries have their own rich cultural heritage and creative potential. South Korea’s experience in promoting and exporting its cultural products can provide valuable insights and partnerships for Southeast Asian countries to develop and market their own cultural industries, such as a content showcasing Indonesian’ Komodo Island in South Korean-made online game, Ragnarok. South Korean makers knew these potentials deeply, thus incorporated various elements to elevate the marketing of the game. This model could emphasize creative economy in different ways than before and could be an alternative option for Southeast Asian producers.

Collaboration and Investment

South Korea’s management for creative economy emphasizes collaboration between different stakeholders, including the government, private sector, academia and civil society. South Korea can foster partnerships with Southeast Asian countries, facilitating investments, joint research and development projects, as well as technology transfers. This collaboration can enhance regional integration and create a reliable environment for economic growth and innovation. Most Southeast Asian countries still have no integrated or a cohesive creative economy plan; therefore this particular option could be a model for developing a holistic creative economy policy.

Skills Development and Education

South Korea’s focus on human capital development, particularly in science, technology, engineering, arts and mathematics (STEAM) can inspire Southeast Asian countries to invest in skills development and education. By emphasizing STEAM education and vocational training, Southeast Asian countries can cultivate a skilled workforce capable of driving innovation and creativity in various sectors.

Conclusion and Ways Forward

Thus, from pointers above, we could see South Korea’s experience with the creative economy can serve as a alternative role model for Southeast Asian countries in boosting their economy. To conclude, the ways that could be summarized from arguments above are as follows.

Diversification of the Economy

South Korea’s creative economy strategy aims to diversify its economy by focusing on innovation-driven industries and the development of cultural and creative sectors. This approach helped South Korea reduce its heavy reliance on traditional industries and exports. Southeast Asian countries facing stagflation can learn from this and prioritize the development of creative and knowledge-based industries to create new sources of growth and employment opportunities.

Job Creation and Economic Resilience

The creative economy can play a crucial role in job creation, especially in sectors like arts, culture, design and technology. By promoting entrepreneurship and supporting start-ups in creative sectors, South Korea was able to generate new jobs and increase the resilience of its economy. Southeast Asian countries can emulate this approach to stimulate job growth and provide opportunities for their growing populations, helping to mitigate the negative impacts of stagflation.

Export-Oriented Cultural Industries

South Korea’s success in exporting its cultural products, such as K-pop and K-dramas demonstrates the potential of the creative economy in driving exports and attracting international audiences. Southeast Asian countries can leverage their unique cultural heritage and creative talents to develop export-oriented cultural industries. This can boost foreign exchange earnings and contribute to economic growth, reducing the impact of stagflation.

Technological Advancement and Innovation

The creative economy is closely linked to technological advancement and innovation. South Korea’s focus on fostering technological capabilities, such as advancements in information technology, electronics and telecommunications, helped drive its creative economy initiatives. Southeast Asian countries can prioritize investments in research and development, promote innovation ecosystems, and enhance technological capabilities to stimulate economic growth and address the challenges of stagflation.

Collaboration and Regional Integration

South Korea’s approach to the creative economy involved collaboration between various stakeholders, including the government, private sector and academia. This collaboration facilitated regional integration and the exchange of knowledge and resources. Southeast Asian countries can foster similar collaboration among their stakeholders, promoting regional integration and creating synergies that can address the challenges of stagflation collectively.

Lastly, while South Korea’s experience with the creative economy provides valuable lessons, it is important for Southeast Asian countries to adapt these strategies to their unique contexts and challenges. Factors such as cultural diversity, institutional frameworks and economic structures will influence the implementation and effectiveness of creative economy initiatives in each Southeast Asian country.

However, it is important to note that the applicability and effectiveness of South Korea’s management for creative economy in Southeast Asia may vary based on the unique socio-cultural, economic and institutional contexts of each country. Thus, tailored approaches and local adaptations are essential to ensure maximum benefits and successful implementation of creative economy initiatives in Southeast Asia.

In conclusion, the role of the creative economy in alleviating South Korea’s stagflation cannot be overstated. By promoting innovation, technological advancement, and job creation, the creative economy could be another mean for promoting growth. Southeast Asia could follow those steps as South Korea will likely to stay as the drive for Asian cultural economic hegemon.