Resilience to economic shrinking in an emerging economy: the role of social capabilities in Indonesia, 1950–2015

Abstract

AbstractEconomic history has recently emphasised the impact of economic shrinking on long-term economic growth, but economic theories do not provide explanations for how and why some countries avoid economic shrinking. In this case study of institutional change in post-independence Indonesia, we examine how the country managed to reduce the frequency of shrinking during the authoritarian regime and beyond. We argue that the state's autonomy, measured by macroeconomic policymaking, and accountability, measured by food security, were two key social capabilities that enabled Indonesia to reduce the frequency of economic shrinking. During this period, the ‘doorstep conditions’ for the transition into a democracy and stable economic growth emerged. More specifically, Indonesia managed to diversify its revenue base and make public resources more available for the broader common good. Loosening the connection between macroeconomic policymaking and elites opened up greater opportunities for the emergence of private enterprises. However, to date, the country is still far from a full-fledged open access society.