When Inequality is Inevitable

Inequality is inevitable. However, its existence becomes a scourge for every country in the world if the imbalance that separates the rich and the poor as far west and eastern horizon. As a result, the nation can be ascertained unstable. A melee would be natural in an economy of extreme inequality No country on the earth can realize equal income between its citizen. Even the country with a socialist ideology (politically) such as China.

According to the World Bank, Gini ratio in China in 2015 reached 0.46. On the other hand, the United States with its capitalist economic ideology as well as Germany with its social democratic economy in 2015 has a Gini ratio of 0.41 and 0.30 respectively.

Determinant

Why does inequality always happen? Inequality is due to differences in the ratio of economic development outcomes among economic actors (owners of capital, workers, and traders). In the perspective of the theory of economic growth, the difference in the ratio received by economic actors is due to the difference in the ability of each input in economic growth to create output.

Economic growth theory, ranging from classical growth theory to modern growth theory such as endogenous growth theory, at least classify the inputs of economic growth into three types of capital, including capital and land, labor (human resources) and technology.

Among the three components mentioned above, each element has a different portion in shaping economic growth. This difference will ultimately develop the amount of growth output ratio received by each economic actor in the three inputs are different. As a result, the gap was inevitable.

In medieval Europe, landlords were those who enjoyed the most of their economic output. Also, the kings/nobles who possess taxes from their people. The farmer, the merchant, especially the slave who was still there, was the smallest entity enjoying the ratio of the economy. Thus, extreme imbalances are inevitable.

The French Revolution and the Independence of the United States are one of the desires to get equal rights and opportunities to fare better. Entering the industrial revolution, the economic output ratio began to be enjoyed by technologists and entrepreneurs who applied the innovation to produce goods and services.

 

The real example was Japan through the Meiji Restoration in 1885. The Meiji restoration brought Japan into an era of openness from the closing period in the Tokugawa Shogun before. One of the efforts made by Sakura State is sending his young children to study technology in Germany.

As a result, Japan today could become one of the developed countries thanks to the advancement of its industry supported by qualified human resources. The case of Japan became an example of human capital regarding economic growth theory not only as a worker but also as an instrument to adapt and develop the technology. Application of technology to be one way to achieve the process of producing goods and services more effectively and efficiently.

Until today, technology and innovation have become one of the most reliable instruments by countries with limited access to capital and the absence of natural resources and land to catch up with the economy. Besides Japan, South Korea and Taiwan are two examples of countries that are successfully utilizing technology and innovation for their economic development.

Indonesia’s Context

Referring to the theory of economic growth, income distribution in Indonesia can begin with equal access to capital, access to education, research development, and agrarian reform.

Access to capital can be one way to start reducing inequality. With money, small and medium micro businesses that currently number 80% more than business actors in Indonesia, will be able to increase business capacity.

Access to the capital should in line with improvements in post-production of small medium of entrepreneur access such as market and packaging technology. Increasing the capacity of MSMEs will undoubtedly increase the income for the actors and entities directly involved in it. This revenue increase will indirectly reduce revenue gap.

Second, equality of access to education. The existence of equal educational opportunities for all will make the human resources, especially the lower classes, have access to obtain a decent livelihood. Equity of access to education can also be the entrance to the spread of technological innovation fever and research that could be an economic driver.

Finally, agrarian reform. The reform should consider the Gini ratio of land inequality in Indonesia that reached 0.6 in 2013 (Agricultural Census 2013). Access to evenness of the land will make the farmers, who are currently in the low-income group, could manage the broader area to increase their income.

If all four of the above implemented well, it is certain that inequality is no longer a scourge for development in Indonesia. All that will happen if the Government really has a strong vision and mission to achieve Social Justice for All Indonesian People.

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