Editions : July-September 2018

JOURNAL | INDONESIA 360 By: Keith Loveard

Education is, more than ever, a hot issue within Indonesian development discourse, with many voices calling for a greater focus on vocational training within the school system so that more semi-skilled workers will be available for industry. Yet at the same time, the nature of economic development is changing to a degree in which it is pertinent to question whether jobs of any sort will be available for the country’s so-called demographic bonus.

In the debate on education, supply issues and demand considerations emerge. The situation is sufficiently fluid that any redirection of the country’s education system risks heading in the wrong direction. In recent years, changes in the banking industry and payment systems have cut out tens of thousands of jobs. Investment in post-Soeharto Indonesia is far more capital- than labor-intensive, and the number of jobs created for each dollar of foreign investment is falling. Despite its low labor costs, Indonesia is no longer the favorite for labor-intensive industries such as textiles and footwear, with countries like Bangladesh able to offer better deals. Yet it has not reached a level of educational achievement from which it can compete on an equal footing with Vietnam for more high-tech work.

In theory, Indonesia should be able to take manufacturing jobs from China as the East Asian giant’s labor costs rise, but a flood of Chinese-made ceramic tiles into the country in recent years, stunting the growth of the local sector, demonstrates that China is not yet ready to hand over much of its manufacturing industry. The onward march of machine learning and artificial intelligence will inevitably impact Indonesia. In the West, autonomous vehicles are making rapid advances and it is feasible that they will be commonplace within a decade. That will create a new wave of unemployed: hundreds of thousands of professional drivers. Critical to Indonesia’s economic trajectory is the right type of education for a changing world, and at the moment it is hard to see that policy makers are looking in the right directions.

Setting the right direction

In a society with one of the fastest rates of urbanization in the world, it is important that Indonesia get its education system right if it is to succeed in avoiding the middle-income trap, at which development stalls well below the level at which a strong middle class becomes a major driver of economic growth. A World Bank report titled “Indonesia's Urban Story,” released in June 2016, stated that cities in Indonesia were expanding at a rate of 4.1 percent per year. It estimated that by 2025 – now just seven years away – about 68 percent of the population would be living in urban areas. The size of urban areas increased by around 425 square miles between 2000 and 2010 – second only to China – according to the report.

Combine poor education standards with a high level of urbanization and a lack of jobs, and the result is a potential security nightmare with far higher levels of crime, the creation of no-go areas where gangs rule and the potential for urban insurrection. As the British ambassador to Indonesia, Moazzam Malik, recently put it: “If Indonesia doesn't achieve its potential, you will see people trapped in poverty. You’ll see people who are left behind, now there will be other consequences that flow from that, political consequences, security consequences, potential instability both internally and indeed regionally.” Malik sees that outcome as a worst-case scenario and believes the real outcome will be less negative. But negative evidence continues to pour in, the most recent a World Bank report released on March 15 that defined Indonesia’s education system as below average compared to 29 countries in East Asia and the Pacific.

The report, titled “Growing Smarter: Learning and Equitable Development in East Asia and the Pacific,” said that Indonesia, alongside the Philippines, Malaysia and Thailand, scored below the average of 406 points, underperforming Singapore and Vietnam. Middle-income Vietnam performed above the World Bank's expectation with 525 points, placing above the average level or equal with higher-income countries in East Asia such as China, Japan and South Korea. The scoring in the report was based on research about learning outcomes conducted by the Program for International Student Assessment of the Organization for Economic Cooperation and Development (OECD), and the Trends in International Mathematics and Science Study in 2015.

During the report’s release in Jakarta, Amer Hasan, a senior economist with the Education Global Practice of the World Bank, said Vietnam scored better than most of its peers in Southeast Asia for maintaining high standards in education budget spending and teacher training. Indonesia should have done better given that the country allocates 20 percent of its state budget annually for education, he said. But while students stay in school longer and the disbursement of education funds is more efficient, Indonesia’s education system lacks teacher reviews and feedback from students during the learning process. Top-performing educational systems, the report noted, spend efficiently on school infrastructure and teachers, have recruitment processes to ensure the best candidates are attracted to teaching and provide a salary structure that rewards teachers with proven classroom performance.

Supply-side problems

The research suggests that good teachers are the key to a good education, and that Indonesia’s poor record on education is to a large degree the result of poor teachers. That makes it impossible to suddenly turn around and say: “We’re going to teach our children to think critically and be creative.” The teachers have to be retrained first, and who is going to train the teachers in a nation with such low standards?

It’s not hard to find critics of Indonesia’s education system. In a March 13 post on the Strategic Review website (sr-indonesia.com), Duncan Graham described it as a system “stumbling for first gear.” He pointed out that as the fourth-largest nation in the world by population, it could not claim a single Nobel Prize. “The message is clear: striving for intellectual excellence has not been Indonesia’s top priority.” Plans for improvement and to provide help to disadvantaged communities are “buckets and spades to flatten the Mount Bromo of past apathy.”

Graham noted that a 2016 OECD survey found that “the typical Indonesian adult living in Jakarta, who has completed tertiary education, has lower literacy proficiency than the typical Greek or Dane who’d completed only lower secondary schooling.” This, Graham quoted Dr Lant Pritchard of the US nonprofit Center for Global Development as stating, “means the disadvantaged are getting a terrible education [essentially none at all] and the advantaged a bad [or mediocre at best] education.”

A recent study by Inadata Consulting found that 75 percent of high school students in Indonesia did not possess the organizational capacities needed by employers. As many as 60 percent of students did not have the required level of problem-solving skills, and there wasn’t a single school where, on average, students had a high degree of critical thinking. Another study found that Indonesia sat at number 60 out of 61 countries surveyed for the interest in reading books, often a spur to creative thinking. 

Sparse good news

There is some good news, although it often gets lost in the negative publicity. Six vocational high schools in Batam, in the Riau Islands, have introduced digital economy courses in a cooperation program between the Ministry of Research and Technology and Higher Education, Singapore Polytechnic and the Singapore-based Temasek Foundation. The program is specifically designed as a training for trainers course, with 65 teachers currently involved from across Sumatra and Java.

The American Chamber of Commerce in Indonesia (AmCham) is pushing for an apprenticeship program in the financial services sector. A paper produced for the program notes that apprenticeships were first encouraged by the former education minister Wardiman (1993-98) after getting personal experience of a similar program in Germany, but his enthusiasm was not picked up by his successors. “Ongoing complaints about the scarcity of talent emanating from Indonesia’s financial and banking sector should seem to justify a renewed approach to the regulatory environment, and a re-opening of discussions about a broad and inclusive apprenticeship scheme,” AmCham argues. “Companies licensed to do business in Indonesia's financial services sector should be obligated, without exception, to subscribe to an officially sanctioned apprenticeship scheme.”

Peter Meyer, the chair of AmCham’s services committee, who has been trying to pursue the apprenticeship idea with the Indonesian government and business, says he was told by senior Indonesian Chamber of Commerce and Industry officials in a meeting that Indonesians weren’t really interested in anything that didn’t produce immediate results. That makes any significant changes to education something of a nonstarter. While Meyer continues to believe that apprenticeships are an important factor if Indonesia wants to improve the skills of new workers, he notes that there is no system in place to support them. There are, for example, very few associations to represent trades. This means there is no authority to provide certification or set standards for any training.

Meyer agrees that Indonesia’s commitment to education looks good on paper, with 20 percent of the budget having to go to it. Yet in many regions, positions as teachers are handed out by victorious electoral candidates. Those who win such positions get salaries, but do not feel obliged to work as teachers. One further negative of the lack of training, he adds, is the very high level of hijacking of competent staff. Human resources officers confirm that retaining talented younger staff is a constant headache. Institutions that do provide good training can expect to be constantly targeted. Meyer points to Citibank, the effective alma mater of a very large number of Indonesian bankers in the past.

Demand-side issues

During a visit to Jakarta in February, Christine Lagarde, managing director of the International Monetary Fund, noted that new economic development paradigms were required due to the uncertainty caused by technological change. Quoting McKinsey, the management consultancy, she noted that as many as 60 percent of current jobs would cease to exist. That will mean for many a world without work. Just what you do all day is unclear. Be creative? Good, but what do you live on? Some countries are discussing a basic living wage for all their people. But while Indonesia is building a social support system, it will not be able to afford a basic living wage at the level of countries such as Finland.

A lot of people may get left to hang around on street corners fomenting civil disobedience and rebellion. In Indonesia, they could try to get money as drivers for Grab or Go-Jek, but there is scant evidence that the gig economy can really propel people dramatically up the value chain.

Stefani Ribka, a journalist with The Jakarta Post, in an article last November, noted that the “the digital revolution will continue robbing people of jobs but considerably improve business efficiency at the same time.” It will be very hard for business to refuse to join the move to Industry 4.0, also known as the fourth industrial revolution, and deny itself the increased efficiency it brings.

 “While no exact figure exists on the number of jobs that have been lost as a result of automation and mechanization, latest Central Statistics Agency (BPS) data shows that working hours in the formal sector are decreasing and the number of informal jobs increasing,” the article stated. At the same time, “the number of informal workers increased by 2.74 million people to 72.67 million as of February from the same month in 2015.” In one little-known example, Ribka stated that state-owned PT Telkom had cut its work force by half, to 15,000 people, through early pension plans and job transfers to its subsidiaries. “In the early 2000s, it launched integrated mobile apps that allow employees to electronically submit work reports and implement administrative routines faster, scrapping various manual jobs usually done by administrative officers.”

Industry 4.0 could be coming in time for a perfect storm for Indonesia: the disappearance of jobs, the rapid increase in urbanization and the arrival of the demographic “bonus.”

The economist A Tony Prasetiantono, writing in Kompas on April 10, cited the Jeffrey Sachs Center as looking on the bright side. The member states of the Association of Southeast Asian Nations, it argues, according to Prasetiantono, with a population of 629 million people, mostly below the age of 30, and with 90 percent of 15- to 24-year-olds familiar with the Internet and the digital world, could generate additional output of $1 trillion by 2025. But the International Labor Organization states, according to another citation from Prasetiantono, that Indonesia, the Philippines, Thailand, Vietnam and Cambodia will shift 56 percent of jobs to automation during the next few decades. Prasetiantono does note that President Joko Widodo is alert to the problem and has nominated five industries as test beds for Industry 4.0: food and beverages; textiles and garments; automotive; chemicals; and electronics. But it is not yet clear what can be done to create work in these or other industries. As Prasetiantono wrote: “Does Industry 4.0 represent opportunity or threat? No one can be certain about that. Both outcomes could emerge together.”

Impressive ‑ and scary

Ambassador Malik, in a recent address to the Jakarta Foreign Correspondents Club, said his visits to schools, colleges and pesantren across the country both impressed and scared him. “I’m impressed by some talents that I met and some fantastically capable young people, but equally, I am also scared by the question whether these worthy young people are being equipped to compete in their region and indeed in the global economy in coming decades.”

He pointed out that the critical issue for Indonesia was whether it was going to realize its potential of becoming the world’s fifth-strongest economy or “get stuck” at around nine or 10. “The difference in those, the living standard for Indonesia between number 10 and number nine is enormous,” he noted. Human resources are critical, he stated, not only to obtain 7 percent economic growth but, most important, to sustain it.

At the moment, Malik argued, education is not producing people who suit the employment market. “Amongst the unemployed, there is a very heavy majority of people with education, with qualifications, but who are continuing to be unemployed,” he said. “And the issue here is not spending on education, because again, if you look at the budget data, what you see is that Indonesia spends about 20 percent of its budget on education. The figure shows a very heavy majority of people with education, with qualifications, but unable to get a job.”

Talking to employers produces the same conclusions, he said. “What they tell you is that amongst their skilled workers, 70 percent of the staff … lack basic skills in math and literacy; they tell you that 50 percent of the skilled workers lack critical thinking skills,” he said. “And if you turn to the manager and professional level in the same cohort of firms, those that are export oriented, you find that 70 percent of them tell you that the manager and professionals lack basic skills – English, math and literacy – and that 90 percent lack critical thinking skills.”

Malik’s recipe for change is to internationalize the education system, and President Joko, to his credit, is making some moves in that direction. The British ambassador says the president told a recent gathering of rectors that they had to acknowledge they needed help. “If you can raise quality by yourselves, that’s fabulous. If you can’t, we should open the door and invite foreign partners in because competition will be good for you,” the president said. Reuters reported on April 5 that Joko had instructed his cabinet to open the university sector to 100 percent foreign investment and allow overseas institutions to open campuses in Indonesia. The chairman of the Indonesia Investment Coordinating Board, Thomas Lembong, reported the president as stating: “We’re going to go from zero percent to 100 percent foreign ownership allowed overnight." 

A new presidential regulation relaxing the requirements for foreign workers could also provide new impetus, but it still remains to be seen whether bureaucrats will respond positively to the order from Joko.  Another factor on the side of change is Indonesia’s parents. They recognize that education is critical for their children’s future and many are prepared to pay to send them to schools that have more enlightened curricula, and also to enroll them in after-school lessons where students’ skills are boosted.

This does, however, cement social immobility into the system. Those that can afford to give their children additional coaching are the middle class and rich. The poor put up with substandard schools where teachers often never bother to turn up. That too feeds the hypothesis that increasing inequity is almost inevitable in the Indonesia of the future, presenting a recipe for social instability or an alternative of a heavy police state engineered to keep the poor in their place.

 

Keith Loveard is senior analyst at Jakarta-based Concord Consulting. 

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