Integrating Developmental States and Inclusive Institutions

Inclusive institutions that guarantee equal access to resources, opportunities and rights for all members of society are key.

Photo: Muhammad Ravel/

By: Setyo Budiantoro (Senior Researcher The PRAKARSA)

The victory of Prabowo Subianto and Gibran Rakabuming Raka in the election for president and vice president of the Republic of Indonesia seems to further strengthen the paradigm developmental state (development country) in Indonesia.

This paradigm has proven effective in several East Asian countries, such as Japan, Singapore, South Korea and Taiwan, showing that strategic intervention and the active role of government can accelerate growth and socio-economic transformation. This approach challenges the neoliberal paradigm which believes in a minimal role for the state in the economy.

This right has also been explicitly conveyed by Prabowo on various occasions.

The success of East Asian countries in implementing the model developmental state can be attributed to several key factors. First, the government's strong commitment to industrial and technological development as the main pillar of economic growth.

Through carefully designed policies, the government not only directs resources to strategic sectors, but also ensures the development of an ecosystem that supports innovation and competition.

Second, close coordination between government, the business sector and research institutions creates synergies that enable the transfer of knowledge and technology, as well as the development of local expertise.

Third, implementing progressive education and training policies, preparing skilled workers, and encouraging productivity and innovation.

Clean bureaucracy and institutions

In developmental state, the government plays a key role in guiding socio-economic growth and transformation through regulations and policies. The government not only acts as a supervisor, but also as an active actor who determines the direction of development by providing incentives and restrictions.

These interventions can include fiscal and monetary policies as well as support for research and development of new technologies, aimed at securing the achievement of long-term development visions.

While the aims are noble, excessive government intervention also risks stifling private innovation and creating dependency on government subsidies. Therefore, it is important to set clear limits on government intervention in the economy, ensuring that support for the industrial sector does not hinder healthy competition and innovation.

Model success developmental state also depends on two main prerequisites: the existence of an efficient and clean bureaucracy, and the creation of institutions that enable the government to take an active role in the economy. The presence of these two elements is very crucial. Without it, intense cooperation between the government and the business sector risks ending in collusion and corruption, which will ultimately damage economic health.

Real examples of effective institutions and bureaucracies with high integrity include, among others, the Ministry of Economy, Trade and Industry (METI) in Japan, the Economic Planning Board (EPB) in South Korea, and the Council for Economic Planning and Development (CEPD) in Taiwan. These institutions play a key role in ensuring the success of the model developmental state.

Through hard work and dedication, they show how the integration of a visionary government and efficient policy execution can lead to brilliant progress for the country.

Guided interdependence

In paradigm developmental state there is a middle ground approach, namely the state not only acts as a regulator, but also plays a key role in supporting and directing industrial and technological development. This concept is known as guided interdependence (governed interdependence), which describes the symbiotic relationship between government and the business sector with the dominant role of government.

In this model, the government is not only passive towards the interests of capital owners, but proactively directs the development of industrial sectors that provide broad benefits.

This relationship is interdependent, with the government and private sector complementing each other, but the government plays a more dominant role in guiding cooperation, avoiding rent-seeking practices and short-term interests in the business world.

Thus, the industries developed in this model are not controlled by the lobbying interests of capital owners, but rather are sectors identified by the government as catalysts for broad benefits and advantages for society in general. This approach reflects a focus not only on economic profit, but also on the importance of innovation, collaboration and long-term vision in creating inclusive social and economic prosperity.

Indonesia's real challenges

In the context of guided interdependence, Indonesia faces real challenges in creating effective synergy between the business sector and government. Negotiation practices are often individualistic and lobbying-oriented, tending to replace constructive and productive collective discussions.

Although ideally industry and trade associations function as strategic mediators between government and the business sector, the reality often resembles collusion rather than healthy and effective partnerships. This raises concerns about the integrity and effectiveness of the collaboration being established.

Furthermore, the trend of collaboration leading to collusion shows the formation of extractive institutions, which benefit only a small elite and hinder innovation and economic growth through the concentration of wealth and power while deepening social disparities. This condition will widen the gap between the elite and the general public.

The continuation of this condition risks making Indonesia a negative example, as discussed in the book Why Nations Fail by Daron Acemoglu, which explores extensively why states fail. There it was concluded that extractive institutions were the culprit at the root of the problem.

If this condition persists, the vision to achieve Golden Indonesia 2045 maybe it should be buried. Considering that the population is aging and natural resources are increasingly limited due to exploitation, Indonesia faces the risk of being caught in a trap middle income trap (middle income trap) forever.

Urgent agenda

Inclusive institutional integration, as explained by Acemoglu, is an essential foundation for a country's success.

Inclusive institutions that guarantee equal access to resources, opportunities and rights for all members of society are key to successful development. Through inclusive institutions, the active involvement of various levels of society in decision-making processes and economic development is strengthened, and the accumulation of wealth and power in the hands of a small elite is prevented.

To overcome this challenge, a fundamental transformation is needed in the interaction between the government and the business sector: strengthening inclusive institutions, establishing a clean and disciplined bureaucracy, and adopting cooperative practices that are transparent and oriented towards common development goals.

Inclusive, advanced and sustainable economic development requires a strong institutional basis, where policies and programs are designed to encourage broad participation, prevent wealth concentration and facilitate the fair distribution of development benefits.

Of course, overcoming resistance from interest groups who may feel disadvantaged by system changes improving bureaucratic efficiency and transparency, as well as promoting a culture that supports innovation and economic development, is a challenging task.

However, with strong leadership determination and clear direction—as required developmental state—Indonesia can not only avoid the middle income trap, but is also on an accelerated path to becoming one developed countries and dignity on the global stage.


This article was previously published on by title "The Elderly and the Importance of Comprehensive Social Care Services”. Click to

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