Jobs Should be Top Priority for Development
I've been thinking about development. How will people in the developing world adapt to rapidly escalating technology and a connected digital world? I've spent a lot of time in Africa and started a business in Cambodia. Just for fun, I decided to pick a country I haven't visited (but would like to) and research it. My goal here is to show how to think about what's coming, and how to think practically about what developing countries can do to get ahead. Most of this relies on private money and ingenuity, but all governments will need to accelerate their thinking and improve their services as well.
This is based on my larger essay, The Machine Economy.
Introduction
Infrastructure. Water. Energy. Transport. Health care. Basic services. All these things are important. I argue that jobs are even more important, and jobs will increasingly be number one as technology advances rapidly in the coming years.
In Indonesia, agriculture, manufacturing, and services are all net-export sectors. But that’s a small number of industries dominated by large companies (palm oil, coal, textiles, electronics). Most other industries are a patchwork of much smaller companies and informal workers. In fact, more than half of all Indonesian jobs are informal.
The Bank of Indonesia largely follows the inept inflation-targeting approach of the US, ECB, and BoE. Fortunately, Indonesian interest rates and inflation are fairly low right now. A bigger problem is that the Indonesian government subsidizes fuel for various groups at various times, and the ups and downs of these subsidies cause problems for alternatively the federal budget and consumer prices as they whip in and out of favor.
Unemployment
Indonesia’s unemployment rate is currently around 5 percent, which is essentially full employment. Unfortunately, the lower 50% of Indonesia's population earns approximately $1,500 per year, or about $6 per day. Half of those families only make $1-2 per day. Most have 2-3 children, own nothing, have no savings, and live week to week. This is nothing like India, which has far more income in the lower half than Indonesia does.
Basic services, access to clean water, food, and sanitation will help for sure. But think of a farmer who has to get her produce to market. It would help her tremendously if she had a bike that could carry the load into town. But even with financing, she doesn’t have the cash or the credit to buy the bike. The economics just aren’t there. Everything is at the margin.
Corruption
Indonesia ranks number 115 out of 180 countries in the world on the Transparency International Corruption Index. In a country with plentiful natural resources, corruption can hurt millions and hold the economy hostage to a few powerful government officials. I assume this happens at both the federal and local level. Without improvement here, the future of Indonesia is at risk.
Exports
Indonesia is running a trade surplus and has for years. It is dominated by large industries like energy, agriculture, and timber. How can medium-sized and innovative companies export more? We can learn lessons from all around the world:
Botswana allowed subsistence farmers to get rid of their livestock, combine their land, and provide habitat for wild animals. These farmers formed a collective and owned the animals. They brought in people who knew how to set up a nice game lodge, advertised, and allowed rich US and European hunters to come shoot elephants. Price for one elephant hunting safari is about $80k on average. This money is shared among all the locals and those who work at the lodge. Botswana started this 20 years ago with 15k elephants. Now they have 130k elephants, and all the people have jobs, and the government sees it as a profit center (tax revenue) rather than a cost center. This encourages Botswana’s entrepreneurs to buy land and create large farms that can efficiently feed many more people, so Botswana’s agriculture sector is going the same direction as the United States and Europe - fewer subsistence farms, more specialization, more prosperity for all. It won't last forever, but the income from other countries is the driver of prosperity in Botswana. This is very different from resource and mineral extraction, where the locals usually don't benefit and all the money is made by giant corporations.
Ecofiltro in Guatemala makes water filters for locals that have seen strong demand outside the locality where they are made.
The One-Acre Fund in Africa gives farmers everything they need to create a profitable farm. This is a great model that creates thousands of entrepreneurial farmers. Drive around northern Kenya and you see greenhouses all over - Kenya now exports about $1b worth of flowers a year. This pumps money into the local economy.
Let’s break this down for Indonesia:
Agriculture: The One-Acre fund is great, but in their model, the farms are still too small, so they don’t benefit from economies of scale. They could form farming collectives that have the economics necessary to not only produce food for their communities but also to sell outside their communities. As the farmers are shareholders, they will have an asset that becomes more and more valuable over their lifetimes.
Indonesia's goal should be to help transition at least 50 percent of people out of agriculture, to create large automated farms like we have in the developed world. All countries must get out of the subsistence-farming trap. This means importing or making the machinery to replace human labor.
Indonesia currently exports about $300 million worth of agricultural products. This is a great base to build on. How can the country double its agricultural exports?
Energy: Indonesia needs reliable, affordable energy. The country has significant reserves of coal, oil, and gas and exports all three. Unfortunately, the current energy policy is expectedly poor. Indonesia has a Smart Grid Road Map that involves a lot of decarbonization. Money is coming from the Asian Development Bank and the Japan International Cooperation Agency. There is also a push for EVs. This is bad energy policy created by bad incentives that will be very destructive in the coming years. A recent study published in Nature shows that Indonesian energy poverty has been declining and is currently just over 10 percent of households. The study concludes that getting natural gas to all households is critical.
In addition, Indonesia is already encouraging the development of modular nuclear power. This is fantastic, but it needs much more effort. By reducing regulations and promoting experiments, entrepreneurs from around the world will come set up pilot projects that could turn the country into a technology and energy exporter.
Manufacturing: Most factories are fairly centralized. Is it possible to do local manufacturing and send parts to the larger companies? One example is making micro-taggants that can be added to products to identify them by lot - this has value in several manufacturing sectors. More conventionally, there might be an opportunity to build various parts of the supply chain outside the main centers.
Here’s a simple example: you can take cement, fine sand, rocks, and bits of broken colored glass and make fancy tiles, countertops, floors, and slabs that are in tremendous demand right now. They are often used in office and apartment buildings.
Clothing and textiles are already at international scale in Indonesia. This brings in significant offshore money.
Housing: Indonesia is growing. Indonesians will need more and better housing. Housing is much more affordable and efficient in apartment buildings than in separate housing units. 200 families can live higher quality lives for less money together than apart. Indonesia is large enough to innovate here, with modular, tech, new materials, and other innovations that are already working in places like India.
Backhauling: Getting practically anything from the US and Europe to Indonesia is almost free, because the boats and containers are going back empty anyway. These countries produce substantial waste in metals, wood (pallets), tires, plastic, glass, batteries, electronics, textiles, and others. It wouldn’t be difficult to get contracts to bring a steady stream of these back to Indonesia. The country could focus on one upcycling segment and become the world leader in it.
Tourism: One of Indonesia and Malaysia’s biggest moneymakers. India has several examples of subsistence farmers near nature reserves donating their land to help create a larger ecotourism economy rather than raising chickens and goats. A few have been very successful. Tourist money raises everyone’s standard of living.
Technology: Indonesia probably isn't the next Silicon Valley. But what digital jobs and industries can be created? An example is if a gaming company in Jakarta had a big hit game, then that could trigger the creation of many small studios around the country to contribute. What about the rise of digital twins? Could Indonesian entrepreneurs create companies that properly tag and label everything in virtual worlds? The government isn't going to help here. Indonesian investors should be looking for opportunities that scale.
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Furniture, wood products, and paper: West Elm and other companies in the US sell huge amounts of furniture made in Vietnam, China, and India. The factories are large with huge machines for making fiberboard, veneer, and pressed panels. This seems like a good sector to innovate in, because there is a lot of forest available, there are still opportunities in sustainable forestry, and it turns low-value commodities into high-value, branded exports.
Communication: A country with thousands of tiny islands is poised to benefit from the next generation of satellite and low-orbit connectivity. Both government and private investors should be investing in this area heavily right now, to lay the foundation for communications and a digital economy they will need very soon. There should be an all-out push to get 6G into as many places and devices as possible.
Health care: In his book, The Innovator’s Prescription, Clayton Christensen presents a framework for radically transforming medicine: don’t center on patients, center on conditions and cures. By creating regional “centers of excellence” for cardiology, pediatrics, pediatric oncology, geriatric oncology, arthritis, orthopedics, plastic surgery, Alzheimer’s, birth defects, osteoporosis, etc., you can have world-class people using the most up-to-date methods, metrics, and tools, so you move the patients to the doctor rather than the other way around. Using telemedicine, patients can talk with specialists who are far better than their local doctors. In this way, doctors at the centers can collaborate with their peers around the world to provide the highest level of care possible at the lowest cost. A fantastic example is the story of the Toronto hernia factory by Atul Gawande (be sure to read that).
Local clinics should be standardized, so each one is a copy of the others. This makes training, tools, equipment, supply chain, and communication much easier than a patchwork.
Don't imitate America's broken healthcare system! If you want a system that works, it needs market pricing, not monopoly insurance-driven pricing. The expert on this is John Goodman, his book is called Priceless: Curing the Healthcare Crisis.
Indonesia has the highest reported neonatal mortality rate in Southeast Asia: 177 maternal deaths per 100,000 births and 21 infant deaths per 1000 births. Fixing this will promote better family planning across the country. I believe the proposal for centers of excellence has a good chance to reduce these numbers dramatically.
Thailand and Malaysia have thriving medical tourism industries. Could Indonesia focus on a future service and become the destination for that treatment?
The connected digital economy
Ten years ago, you could say that a person could sit on a mobile phone all day and do something productive - cataloging, tagging, data entry, information processing, etc. That’s gone. Think who uses a phone to make a living now. It’s mostly big companies, big projects, telemedicine, banking, consultants, instructors, insurance companies. It's also app, data, and content creators, whose work can go around the world fairly easily now.
For Indonesia to succeed in the digital world, a connected phone or a laptop must become a business expense that people use to make money. It’s fine to use technology to learn new skills - that can reduce the price of knowledge acquisition. But the money has to come from somewhere.
One thing that won’t work is the Google/Facebook advertising-driven business model for digital services. If advertisers don’t have a robust market of consumers, then those services won’t be available.
But there's a new idea that could be a win/win for both the people of Indonesia and the world. The personal data locker replaces the old advertising-driven digital ecosystem with a service-driven economy that actually adds value. You pay for it, but it pays for itself easily.
As I describe in my book, part of it is building “digital birth certificates” for products and services. There is a patchwork digital ecosystem for product metadata that is currently very difficult to mine, use, and reuse. I describe a way to leverage uniform data standards and descriptors that power sales, service, warranties, recalls, maintenance, resales, and eventually recycling of all products and parts. This is a bottom-up ecosystem that doesn’t exist today. But it could. And if a country like Indonesia got serious about it, that country could incubate a digital ecosystem that could be exported around the world, similar to the way Estonian entrepreneurs created Skype.
The goal of the personal data locker is to eventually be the operating system everyone uses. It could start as a phone app, but at some point a large smartphone company like LG or Samsung could build phones that come with the personal data locker as its native operating system. There are no apps in this system - everything is connected services, and AI fits right in. Here's an overview:
Your personal data locker is your J.A.R.V.I.S. - a personal digital assistant that knows everything about you, works for you only, keeps your information private, and helps you interact with the real world. Once this gets going, Indonesia could be a hub of development, which could put Indonesia on the world tech map. This ecosystem requires new tools, infrastructure, monitoring, security, identification services, and more. Everyone can become a service provider easily and continue innovating, even as AI takes the routine jobs. Learn more about the personal data locker.
Network states
As a result of a very popular book by Balaji Srinivasan, a wealthy American venture capitalist, there are several groups now looking to create their own tiny nation states:
And Charter Cities:
The main one right now is in Honduras. It’s not independent of Honduras, but it has some autonomy:
The Marshall Islands passed a law allowing DAOs in addition to corporations. Indonesia could tie personal ownership of property directly to digital tokens, which would put the country ahead of many others and encourage innovation.
Indonesia, with its 17,000 islands, could auction some number of islands to people to come create their own autonomous area. Rich people would love their own island and a chance to create their own local economy. They would be huge local employers. They could govern it themselves as long as they pay the property tax. Rich people like being together, they like big expensive compounds, fancy yachts, beautiful beaches, and they like community building and spreading the word of their philosophy. They will attract the best and brightest people from around the world. They will create new industries.
Ultimately the government would benefit through increased tax revenues as the local economy grows. It would have to be set up “in perpetuity,” or the wealthy people won’t come invest. It would require quite a bit of legwork to create this ecosystem and sell it to the government and the people of Indonesia. But it could be a new growth area that has many downstream benefits.
Summary
For any country looking to catch up to the developed world, jobs should always be first priority, even ahead of education. The combination of jobs, ownership of assets, and the ability to pay for what they need gives people a bright future they can work toward. It makes the digital economy central to their lives, rather than just for entertainment and gossip.
In the coming decades, many exciting innovations will create entirely new industries. By focusing upstream through the lens of job creation, Indonesia's investors and entrepreneurs will be able to help millions downstream.