Case Study of Muslim managed Organizations: The Case of Indonesian Development Agenda
In terms of achievement, Muslims in the world are far from the Quranic injunction that they are the best of peoples evolved for mankind, enjoining what is right and forbidding what is wrong and believing in Allah. The study intends to explain why this is so. Using the Islamic perspective of knowledge that every phenomenon has a divine as well as a scientific dimension and taking the Indonesian five- year development plans and their implementation as a case , the study finds that the failure of Muslims to reach their potential is because the Muslim countries, basing their planning on neo-classical economic concepts, employed management paradigms of individualism and materialism, in managing their development . The individualistic approach provides fertile ground for Arrows paradox to reign in the management system, foreclosing coordination and consultation. Coupled with operational materialistic ideology of economic growth with emphasis on the use of physical capital, the twin ideology of individualism and materialism effectively prevented the fuller utilization of human resources, with negative consequences on the achievement of sustainable development objectives especially productive employment .Muslim countries should abandon materialism and individualism as operational ideologies in managing their development.
Keywords: Neoclassical Economics, Individualism, Materialism, Development
While there may be differences in the level of human achievement of Islamic countries in the contemporary world, generally speaking such achievement is far from what is appropriately required of them in accordance with the Quranic injunction of Surah Ali Imran 110 â€œYe are the best of peoples evolved for mankind, enjoining what is right,forbidding what is wrong, and believing in Allah. No Muslim country in the world, large or small, has ever achieved anything near what is achieved by the industrialized non-Muslim countries in terms of human development index or technology achievement.An important indication of this achievement, although far from perfect, is the human development index developed by the United Nation Development Program (UNDP). The highest human development index achieved by an Islamic country, according to the Human Development Report 2005, was 33 by Brunei Darussalam out of 177 countries in the world. Larger Muslim countries like Malaysia, Saudi Arabia, Turkey, Indonesia, Pakistan and Bangladesh are left far behind .The last three are respectively number 110, 135 and 139. Position number one in human development index was achieved by Norway. The relatively low position in human development index reflects lower achievement in health and education. In Pakistan, for example, life expectancy at birth was 63 versus 79.4 in Norway, combined gross enrolment ratio was 35% versus 101 % in NorwayÂ and GDP per capita of US $ 2097Â versus US $ 37.670 in Norway. ( UNDP., 219-223 ). A large number of Muslims are mired in grinding poverty with income below US$ 1 per day. Using US$ 1 per day per capita as the poverty line, in the period 1990-2003, 7.5 % of the population in Indonesia, 3.1 % in Egypt, 13.4 % in Pakistan and 35 % in Bangladesh were below the poverty line. When the poverty line is increased to US$ 2, the proportion of the population below the poverty line increases substantially, with Malaysia 9.3 %, Turkey 10.3 %, Indonesia 52.4 %, Pakistan 65.6 % and Bangladesh 82.8 % (UNDP, pp.227-228). The prospects for the future are not bright. In Asia and the Pacific region, for example, according to the ADB-UNDP-UNESCAP report entitled The Millennium Development Goal, Progress Report in Asia and the Pacific, Indonesia together with Pakistan and Bangladesh are projected to fail to achieve their medium development goal of halving their poverty incidence by 2015 ( Susilo W., 2006, Harian Kompas (Kompas Daily), 6 ).
Why is it that these Muslim countries failed to live up to the Quranic expectation ? Is it because Muslim intellectuals are not aware of the backwardness of the Muslim people? Is it because that the governments of these countries since their independence at the end of the Second World War have not tried hard enough to develop their people? Is it because the ministers who manned the planning agencies or the economic ministries are not crafty enough professionally? The answers to all these questions are no. There have been brilliant analyses of the laggard conditions of contemporary Muslim societies, of the superiority of Muslim economic prescriptions to solve economic and social problems compared to the prescriptions of conventional, neo-classical economics.
The governments of these countries have evolved a series of comprehensive five-year development plans and have implemented them. The ministers are among the best in their generation and they have been highly schooled in the development professions and some of them have had their higher educationÂ in some of the elite universities in the developed countries.. Indonesia has had Prof. Widjojo Nitisastro, the icon of development planning in Indonesia and who, according to Manmohan Singh, Prime Minster of India since 2004, is A Legendary Personality of Asia Anwar, Ananta, Kuncoro, Ed., 2007 , 1 ). Prof. B.J. Habibie, the third President of the Republic of Indonesia, who successfully led the country, in a most turbulent period, to democratic rule is also a world famous aeronautics engineer. The international community like the World Bank and the U.N has helped not only in financing but also in implementing these plans. And yet as we have seen the overall results are not satisfactory.Â Then why ? It is hypotised that from an Islamic perspective these development efforts, as shown by the development plans and their implementations, based as they are largely on neo-classical economic concepts, suffer from three basic paradigmatic management operational deficiencies. First, the plans focus heavily on achieving materialistic objectives in terms of economic growth. Such focus on materialistic objective in the form of high economic growth has resulted in increasing unemployment and poverty and other negative consequences such as corruption.
Such reliance on materialistic objective is anathema to the Islamic world view which requires that human beings be developed in a holistic manner, not only the materialistic dimension but also the spiritual dimension and the dimension of human brotherhood. Second, the organization of the plans for their implementation is based upon an individualistic paradigm, which assumes that the totality is equal to the sum of the individual parts. Each department or program is to be managed independently on its own. The summation of the success of each of the various departments or programs will equal the success of the totality. In practice such an organization becomes the breeding ground for Arrows paradoxes to flourish and stifles coordination with the result that operationally there is a very high level of ineffectiveness and inefficiency. The two management paradigms together promote the third management paradigm, i.e., the view of man as machines to be bossed around and not as full human beings with full potential for the development of their human capital, spiritual capital, social capital and cultural capital. Collectively the three management paradigms have resulted not only in failure to achieve sustainable long-term socio-economic development objectives but also in very high cost of financial capital and natural resources. More fundamentally, even if the materialistic objective of economic growth is achieved, it will not be in a position translate the spiritual advancement so required by the Islamic religion. The promotion of human brotherhood in the society tends to be nullified, with right and wrong, good and bad all tend to be determined by materialistic gain and loss.
It is the basic intent of this paper to show that the failures of Muslim countries to live up to the Quranic expectation is because they have organized their development efforts on the basis of the neo-classical paradigms of individualism and materialism. Consequently if the Muslim countries want to realize the Quranic expectation they have to abandon the individualistic and materialistic paradigms and adopt modes of organization and management, which are consistent with the teachings of the Islamic religion.
REVIEW OF THE LITERATURE
Neoclassical Economic Concepts
Neoclassical economics refers to the general approach of economics with a focus on certain basic concepts about human behavior to bring about an efficient allocation of a societys resources. Efficient allocation of societys resources most importantly depends on the actions of individuals.. In this regard, neoclassical economics makes the basic assumptions that people have rational preferences that can be identified and given value; that individuals have full information about prices, their wants, products and other relevant information past, present as well as future information to enable them to maximize utility and firms to maximize profits.
From these assumptions and the assumption of a fully competitive market, neoclassical economists build a structure to inform on how efficient allocation of resources will be materialized in the society. Households, in the attempt to maximize utility, will purchase, given their limited income and prices of commodities, the basket of goods and services to give them maximum utility.. Firms, on the other hand, will choose a combination of inputs of labor and capital including technology to yield them maximum profits. With perfect competition obtaining in the input markets of labor and capital as well as the output market, a complete competitive market system will obtain. There will be general equilibrium and efficiency in the allocation of resources. Such a state of affairs is normally described as Pareto optimal, that is a situation where nobody can improve his/her position without at the same time hurting the welfare of at least one other person. Labor will get its fair share of the national product in accordance with labors contribution to it. Owners of capital will get also their fair share. There is no exploitation of man by man. The government will need to intervene to overcome various sorts of frictions including market imperfections about structure and information. Such ideas about neoclassical economics may be found in any reasonably good textbook in economics such as that by Case and Fair ( Case and Fair, 1992, Principles of Economics ).
Where does the idea of individualism fit in the neoclassical economics as put forward above? By individualism I mean The tendency to magnify individual liberty, as against external authority, and individual activity, as against associated activity (Catholic Encyclopedia ). The neoclassical economics embodies individualism in the extreme. As already indicated the whole theoretical superstructure of the discipline rests on the basic assumption that individuals possess perfect knowledge for him or her to maximize his or her pleasure in the form of utility. Each individual has to have complete freedom to choose with regards to consumption and production. By extension each individual has to have complete freedom to form ideas and to act in other fields, in politics, in social fields and in religion. In politics, according to John Stuart Mill, there should be minimum government intervention in the affairs of society. After elaborating various reasons why it is bad for a government agency to intervene in the affairs of the community, Mill concludes â€œLaisser-faire, in short, should be the general practice: every departure from it, unless required by some great good, is a certain evil (Mill, 1909, 8).
Islam does not take such an extreme view of the supremacy of the individual versus the totality of society. Each individual will finally be responsible in The Day of Judgement for all his actions in this world; but while in this world the individual is called upon to behave as part of a totality of human beings, whether that totality is the family, the enterprise or the nation. There should be a proper balance between the interest of the individual and that of the totality. Thus, the basic distinguishing feature of the Islamic system is represented in its being based on a spiritual understanding of life and a moral sense of life. A major point of this system is the taking into consideration of both the individual and society, and the securing of a balance between life of the individual and social life. The individual is not considered the central principle in legislating and governing, nor is the large social existence the only thing to which the state pays attention and for whose sake it enacts its laws ( as-Sadr, p.109 ).
What Mill has been talking about was the individualist nature of the government relation with respect to the community outside a government agency. Is this individualist orientation also applies to the community of employees within the government? To help answer this question, one needs to look at the intellectual work of Max Weber. According to a study of Webers sociological work, Webers intellectual perspective about individualism is that it should not be confined to the narrow money-maximizing individual but it should be applied to the whole man. Weber believed ideas about economic conduct could have a power of their own, in addition to, as well as in conjunction with, the unquestioned importance of economic interest. â€œ ( Bendix, 1962, p. 42 ). Indeed it will be surprising if Weber does not consider individualism to be an important factor, given his belief about the ideal capitalism. According to him, ideal capitalism isÂ characterized by private ownership, profit, competition, laissez faire. (Eiwell, Presentation ). Such individualist character of the neoclassical economics is reflected in Webers bureaucracy. According to Weber the ideal bureuacracy is characterized by a system of hierarchy, impersonality, written rules of conduct, achievement, specialized division of labor, and efficiency. Such individualistic tendencies among employees of an organization, tend to turn it into an oligarchy or rule by the few by officials at the top of the organization, as Weber himself admits. These individualistic tendencies will make it the more difficult to realize efficiency.
Arrows Paradox And Individualism.
In fact one has strong reason to believe that efficiency and productivity in the use of resources will be well nigh impossible especially at this time of the information revolution. This is due to the working of Arrows Impossibilty Theorem.Arrows theorem states that there is no general way to aggregate preferences without running into some kind of irrationality or unfairness. The mathematical exposition of this theorem may be seen in the writing ofÂ Geanakoplos.( Geanakoplos, 2001).
But simply the theorem may be put forward by saying if there are two or more people who have to make a priority ranking of three or more alternative courses of action and if they are free to determine a priority ranking among the alternatives, then they will not succeed in producing an agreed upon ranking. A paradox will arise. For example, there are two persons, K and Y. They are to make a ranking of three alternatives A, B and C. Suppose K says A>B>C. Following the principle of transitivity in choice, A>C. Suppose further that Y says B>C>A. choice also meets all the requirements of free choice and the principle of transitivity. As one can see there is a paradox in the ranking of K and Y. The paradox of course may be resolved but the freedom of choice of K or Y or of both will be reduced. It is such paradoxes that have plagued the implementation in organizations.
But why should such paradoxes arise given Webers concept of an organization? In Webers concept, hierarchy means that Every officials responsibilities and authority are part of a hierarchy of authority. Higher offices are assigned the duty of supervision, lower offices, the right of appeal. â€œÂ Furthermore, official business is conducted in accordance with stipulated rules characterized by three interrelated rules â€œ (a) the duty of each official to do certain types of work is delimited in terms of impersonal criteria; ( b ) the official is given the authority necessary to carry out his assigned functions; (c) the means of compulsion at his disposal are strictly limited, and the conditions under which their employment is legitimate are clearly defined (Bendix, 1962, 424 ). Under such an organizational arrangement, it will be difficult for an official to innovate in response to changing circumstances. Each official is put in a cubicle, self-sufficient unto himself, without the motivation to confer with other people horizontally. Hierarchy results in â€œ Fragmented motivation, Fragmented identification, Fragmented trust, Fragmented commitment, Fragmented cooperation, Fragmented information on objective (Leibenstein, 1987,158). So structurally, coordination and innovation will be very difficult to undertake. Hence productivity and efficiency in the total organization will be most difficult to realize.
By materialism I mean what materialists seem to generally agree on its basic meaning.
Materialism, of the kind accepted by many philosophers and scientists, is a general view sbout what actually exists. Put bluntly the view is just this: Everything that actually exists is material, or physical ( Moser, P.K., Trout, J.,D., Editors, 1995, 1). Such meaning of materialism directly denies the existence of God and therefore in direct contradiction to the Muslim faith. Democritus, considered to be the first and the most systematic Materialist, taught that â€œout of nothing comes nothing. The soul is a complex of very fine, smooth, round, and fiery atoms: these are highly mobile and penetrate the whole body, to which they impart life (Catholic Encyclopedia Materialism ). Muslims, however, cannot accept the materialistic definition of the soul. The Quran says: They ask thee concerning The Spirit (of inspiration). Say : The Spirit ( cometh ) by command of my Lord: Of knowledge it is only a little that is communicated to you, ( O men ! ) (Al Quran: 17:85).
Economists may object if one says that neoclassical economics is materialistic in its view of the world. This objection is based on the view that utility may well include such things as spiritual happiness. If some one wants to spend much of his or her time in a mosque praying or some one wants to spend a large part of his or her wealth in the cause of his or her God, this is acceptable in the thinking of neoclassical economics. This acceptability is based on the principle that people are free to choose in whatever ways they deem suitable to suit their taste. Taste is an overarching concept in neoclassical economics to accommodate whatever are the choices made by individuals. So in a philosofical sense one cannot say that neoclassical economics is materialistic in its view of the world.
It is in the pragmatic or practical sense that one may say that neoclassical economics is materialistic. In the concept of wealth, Alfred Marshall, for example, one of the foremost neoclassical economists, defines it to include material goods as well as immaterial goods. But the immaterial goods that are included as wealth are those that are capable of promoting material wealth. In the second class are those immaterial goods which belong to him, are external to him, and serve directly as the means of enabling him to acquire material goods. Thus it excludes allÂ his own personal qualities and faculties, even those which enable him to earn his living; because they are Internal. And it excludes his personal friendships, in so far as they have no direct business value. But it includes his business and professional connections, the organization of his buiseness, and where such things exist the property in slaves, in labour dues, etc. â€œ (Marshall, 1950,.56-57). One may ask, what about skills and knowledge that a person possesess and which may further his external wealth? Marshall admits, reluctantly it seems, that knowledge and skills are wealth but â€œ personal wealth. Wealth simply should always mean external wealth only. But little harm, and some good seems likely to arise from the occasional use of the phrase material and personal wealth. (Marshall, p. 58). Also in the case of collective goods, scientific knowledge is not generally to be regarded as national wealth.
German economists often lay stress on the non-material elements of national wealth, and it is right to do this in some problems relating to national wealth, but not in all. (Marshall, 59 )
So pragmatically then one may say that neoclassical economics is heavily materialistic in its view of the world. This heavily materialistic view is embodied in the very definition of economic growth. Economic growth of a country is defined to be addition to the countrys production of goods and services or national income in a particular period of time. What is national income? It is the loose name we give for for the money measure of the over-all annual flow of goods and services in an economy (Samuelson, 1958, 181). The national income reflects the ways people choose to maximize their present or future utility. Individuals may choose to spendÂ their money on education, health, on the services of club houses providing various types of services for the body, and for various types of goods. The political system that is consistent with free choice in the economic area is a democratic system, in which the people, through a free election choose their representatives who make choices for them in determining government spending.Â These are all consistent with neoclassical thinking so that national income or product per capita reflects prosperity. The higher the economic growth, the higher is the national product per capita and therefore the more prosperous is the country. The prosperity of a country is the sum total of the prosperity of each individual; this is a reflection of individualist thinking about society where the whole equals the sum of the individual part.
World View and Model of Man
Briefly then we may describe the world view of neoclassical economics as a very individualistic and atomistic society. The working of the unfettered markets coordinate the decisions of individuals making their choices. Individuals are assumed to be rational and to possess complete information to make choices. Altruism may form part of individuals choices but these are directed to minimize costs.Â Philosophically, neoclassical economics considers itself to be value free. It is a positive science and strictly differentiates between â€œ is â€œ statements and ought statements. Such philosophical orientation is reflected in the goal, research agenda, themes as well as methodological practices of neoclassical economics. ( Mair and Miller, 1991 ).
Needless to say that such worldview and model of man are anathema to Islamic perspective. The Islamic system requires a balanced treatment with regards to individual and public interest.
Verily Man Is in loss ( Al Quran 103: 2 ). Except such as have Faith, And do righteous deeds, And ( join together ) In the mutual teaching of Of Truth, and of Patience and Constancy ( Al Quran 103 :3 ). Individuals are made up of a lowly component and a divine component and they are capable of making very bad decisions even for their own self-interest. Behold ! thy Lord said To the angels: I am about To create man , from sounding clay From mud moulded into shape; ( Al Quran : 15 28 ). When I have fashioned him ( In due proportion ) and breathed Into him of My spirit, Fall ye down in obeisance Unto him â€œ ( Al Quran 15: 29 ). Humans are assumed not at all all-knowing and they are mandated to seek knowledge belonging to God, to helpÂ fulfill their vicegerent functions satisfactorily while in this world which is a temporary station to the final destination of meeting Him in the hereafter. Proclaim! And thy Lord Is Most Bountiful. He Who taught ( The use of ) the Pen. Taught man that Which he knew not. â€œ ( Al Quran: 96: 3- 6 ). â€œ For to Us will be Their Return; Then it will be for Us To call them to account. ( Al Quran 88: 25-26 ).
Total Factor Productivity : A Preliminary Theoretical Framework
By total factor productivity I mean that part of the growth in total product per capita not accounted for by the growth in total output per capita. In his detailed historical studies of the economic growth of the presently developed nations, Simon Kuznets concluded that the distinctive feature of modern economic growth of per capita product, is for the most part attributable to a high rate of growth in productivity. In one case, Kuznets calculation provides that an annual rate of combined inputs per capita of 0.55 % , compared with a growth rate of per capita product of 2.97 %. (Kuznets, 1976 , 72 ). In other words, the combined inputs of labor and capital is responsible to the extent only 18 % for the increase in per capita product. The paramount role of total factor productivity per capita in the total output growth per capita seems to be well established, although one must say there are some disagreements given the sensitivities of the results of studies to the time periods chosen, to how capital stock is calculated, and other factors. . The basic issue at the moment is what accounts for the growth of total factor productivity per capita ? One basic conclusion, one may say at this time is that it is not due primarily to the material factors of production. Kuznets emphasizes the role of the state in facilitating the flow and application of useful knowledge to the society., aside from its role in the provision of socially required infrastructure and the resolution of conflicts among group interest. ( Kuznets, 346-347 ). Useful knowledge is part of intangible capital or human capital.
However a much quoted study, examining the factors behind the large differences in per capita output between the West ( Western European countries and their off-shoots) and the East ( China, Pakistan, India, Bangladesh, Indonesia, Japan, Burma, the Philippines, South Korea, Taiwan and Thailand.) concludes that it is neither differences in savings rate ( which will enable countries to access physical capital ) nor differences in the stock of technical knowledge could account for the large differences in per capita output. (Presscot, 1997, 1 ). The ratio in per capita output between West and East are large, ranging from 2.1 to 7.5 in the various years between 1820 and 1992. (Presscot, 41 ). In any case one may say that the better a society utilizes its human resources, the greater will be the probability that human based capital will form the greater part of inputs to production processes and the higher will be total factor productivity.
What can one say about total factor productivity from an Islamic perspective ? Prophet Muhammad (pboh), in one of his sayings, advised Maimunah, an ex-slave, who received a goat as a gift, but then the goat died, Why dont you take the skin ? You can make use of it after you cleanse it. The people answered: but this is carcass. Prophet Muhammad (pboh) answered What is forbidden is to eat it. (Khan,1996, 271). This is the principle of efficiency in the use of resources aptly put by Prophet Muhammad ( pboh ). One can therefore say, that from an Islamic perspective, total factor productivity is the variable to maximize, technically speaking, in a socio- economic policy. The higher the total factor productivity in an organization, achieved through Islamically consistent principles and processes, the stronger and the more sustainable will be the organization.
The philosophical perspective employed in this research is the Islamic one, which regards that every phenomenon has two sides to it: the philosophical side and the positivistic side ( as-Sadr ) The philosophical side has connection with the will of God and the posivistic side has to do with the scientific side. The outcomes of events are determined by the working of cause and effect. But the will of God ultimately prevails. The primary source of change resides within man himself. This depends on his relationship with God. If this relationship is good he can bring about the necessary change in his soul to bring about the desired change in the external environment. If it is bad then he will be handicapped to bring about the change. Economic growth as the outside driver of change is contrary to the teaching of the Quran. Real change can only be brought about through changes in what is inside of the human beings. Surah 13: Al Raad ayat 11 says â€œâ€¦Verily never will Allah change the condition of a people until they change it themselves ( With their own souls ). Islam rejects the extreme self-love that is contained in individualism. Instead, Islam requires balance in the life of the individual and that of theÂ collectivity. How is this to be effected ? It is effected, among others, through consultation. Mutual consultation is a very basic approach in the Islamic religion in the management of human affairs especially to overcome differences between people. This injunction is contained in ayat 38 of Surah 42 of the Quran which itself is called Consultation. Those who harken To their Lord, and establish Regular prayer; who ( conduct ) Their affairs by mutual Consultation.
In order to establish the basic intent of this investigation, I examine the Five-Year Plans of Indonesia and their implementation roughly since 1950. However I concentrate in the period since 1969 until the present. For this study I concentrate on the latest Five- Year Plan of 2004-2009. I do this because I think philosophically speaking the present Five-Year Plan is one of a kind with the rest. I take Indonesia as a case study because it is the largest Muslim country in the world and because it has a public and constitutional belief in The One God. Its population in 2005 totals 208.8 million and 182.1 million or 87 % are Muslims (Department of Religion of the Republic of Indonesia, Website )
I did, however, survey the economic development plans of other Muslim countries, such as Saudi Arabia, Pakistan, Bangladesh, Egypt and Turkey.
We will first discuss how the individualistic approach is used in constructing the plan and in implementing it and go on to discuss the materialistic objective of economic growth and the consequent views and treatment of human beings as sources of growth. It is argued that the failure of the five-year development plan to achieve the human objectives of eradicating unemployment and other human objectives is due to these three factors.
Individualistic Approach in Implementing Mechanism
The present five- year development plan 2004-2009 has the objective of achieving economic growth an average of 6.6 % per year during the plan period and at the same time reducing open unemployment from a high of 9.7 % in 2005 to 5.1 % of the labor force in 2009 (Republic of Indonesia, National Development Plan 2004 2009, 34-5 34-6.). The problem is that these targets are not likely to be achieved; in fact there is a small likelihood that they will be achieved. One primary reason is that the individualistic approach used in constructing the plan and in designing the structures for its implementation nurtures the development of paradoxes as expounded by Kenneth Arrow.
There are three main agendas in the present Five Year Plan 2004-2009: agenda to promote a secure and peaceful Indonesia, agenda to promote a just and democratic Indonesia and agenda to promote the welfare of the people. Under each agenda there are groups of activities. Each group of activities is assigned to a chapter in the plan. There are 7 chapters under the first agenda, 7 chapters under the second agenda and 17 chapters under the third agenda. (Republic of Indonesia, Five-Year Plan 2004-2009, 2005). What is striking about the agendas and the groups of activities, from the management point of view, is that these agendas and activities have no common foci. There is no focus for the three agendas. So each agenda is to be managed on its own. Nor is there a common focus in each agenda. This means that each government department assigned to execute a particular group of activities will have to do so without reference to other group of activities in other implementing departments of the government. For example, the Department of Industry, which is charged with implementing Chapter 18 of the plan To Increase The Competitiveness Of The Manufacturing Industry, will have to undertake its activities without a reference to activities of the Department of Agriculture, which is charged with implementing Chapter 19 of the plan Revitalization of Agriculture. Similarly, there are no common foci to which all the activities within each group may refer. Thus, for example, in the agricultural sector, there are 17 programs; but each program will have to work on its own without reference to a common focus, common to all the 17 programs. Briefly then, there is no common area of activitiesÂ of interest for the various parties to talk about for coordination purposes in the planning or in the implementation whether at the agenda stage, at the sector stage or at the program stage. Without such points or areas of coordination, Kenneth Arrows impossibility theorem or Arrows paradox will take hold.
But is there any evidence that such paradoxes exist in the real world of the bureaucracy ? One may refer to policy failures and from there infer the paradoxes that exist. A case in point is the perceived failure of the first one hundred-day program of President Yudhoyonos first one hundred days in office after winning the election for the presidency in 2004. In one poll taken by Tempo magazine, a question was asked to 780 respondents According to you, has President Yudhoyono fulfilled the public expectation in the one hundred days of his administration? The majority ( 73.46 % ) of the respondents or 573 people said No. Indeed it would be a big surprise if the majority gave a positive answer because the 100-day program suffers the same deficiency as the general program of development. In the first one hundred days of the Yodhoyono administration, it is intended to take actions that will promote the realization of three agendas: Agenda 1: To realize a secure and peaceful Indonesia; Agenda 2 : To realize a just and democratic Indonesia; Agenda 3 : To realize a prosperous Indonesia. But one may ask, what is the operational focus of the three agendas in the first one hundred days ? Such operational focus is nowhere to be seen. Because of the short time period, the focus needs to be very sharp and clear. Without such operational focus, Arrows paradoxes will be given full reign in the processes of implementation. The respondents dissatisfaction with the performance of the President in the first one hundred days of his administration gave support to the hypnotized existence of such reign. Without operational focus means that implementation will be marked by absence of identification, trust, commitment, motivation, and information of objectives.
Another evidence of the existence Arrows paradoxes may be gleaned from the performance of the Indonesian palm oil industry. An investigative study reported in Kompas Daily in February 2006 gave the following report: What is happening to the industry at present shows that Indonesia is always one step behind and Indonesian palm oil industry is not capable of facing up to the challenges. Industry circles also complain about the unclear direction of government policy. Unless actions are taken promptly, it is feared that Indonesia will face not only losing its forests and biodiversity but also being in continued position of merely supplier ofÂ raw materials and labor to Malaysia. ( Harian Kompas,Â 2006 ). The unclear government policy prevents industry from making a common agenda to guide operational policies and actions by the various stakeholders, notably business and government. The investigative study further reported about the many paradoxes besetting the industry including problems of allocation of land, of seeds quality and seeds preparation, social problems in connection with farmers, and environmental problems.
Briefly then, the ineffectiveness in implementation of development plan in Indonesia is due to, among others, the paradigmatic weakness in planning and implementation in the form of the individualistic approach in planning and design of implementing mechanism.
High Economic Growth And Failure To Achieve Employment Objective
The Indonesian present five year development plan, as did the past five year plans , gives emphasis on materialistic development in the form of high economic growth. The present five-year plan has the objective of achieving on average 6.6 % growth per year. This emphasis on materialistic objective is highlighted in Chapter 34: Macro Framework and Financing of Development (Republic of Indonesia, 2005). In this chapter it is pointed out that all agendas of the development effort is directed towards achieving high economic growth with the hope of reducing open unemployment from a high of 9.7 % in 2005 to 5.1 % of the labor force in 2009.
Can the employment targets be achieved? Based on past experience it cannot. Since 1968, the New Order government under President Suharto has embarked upon a series of five-year plans with the express purpose of not only promoting economic growth but also eradicating unemployment. One official report says that in the span of twenty-five years, economic growth has been on average 6.8 % per year. Exports value increased 43 times, from US $ 872 million in 1968 to US $ 37.2 billion in 1993/94. The increase in exports has been in the non- gas non-oil sector, which increased from US$569 million in 1968 to US $ 28.2 billion in 1993/94. The non-oil non-gas exports formed 75.8 % of total exports, which should be very favorable to employment creation..Net private investment increased from US $ 65 million in 1968 to US $ 6.7 billion in 1993/94. Foreign investment also increased significantly from only US$ 10 million in 1968 to US $ 2.0 billion in 1993/94. (Republic of Indonesia, Sixth Five-Year Development Plan , 1994/95 1998/99, Book I, 86-87.) Indonesia has beenÂ Â included in the group of Asian economies dubbed by a World Bank Study as HPAEs or High Performing Asian Economies. ( The World Bank , 1993,.65 ). And yet unemployment persistently increased. In 1980, open unemployment totaled 891 thousand people or 1.7 % of the labor force. In 1990, open unemployment increased to 2365 thousand or an increase of 10.3 % per year. In 1995, open unemployment increased further to 6304 thousand people or an increase of 21.7 % per year. The open unemployment in 1995 has been 3.2 % of the labor force. In 2004 the open unemployment has been 10251 thousand or an increase of 17-18 % per year. ( Central Bureau of Statistics of the Republic of Indonesia: Population Census of 1980 and 1990 and Intercensal Population Survey, 1996) The unemployment in 2004 is 9.9 % of the labor force ( Department of LaborÂ of The Republic of Indonesia, 2004 ). It is not only open unemployment, which has increased; but also under-employment defined to be the labor force working less than 35 hours a week has remained on a high level or has failed to decrease. From the figures produced by the statistical office, it has been known that the under-employment as a percentage of the labor force has been 36.5 % in 1980,36.9 % in 1990, 36.7 % in 2000.( Statistical Office of The Republic of Indonesia, various years. ). Both the open unemployment as well as the under-employment is recognized to be important sources of income and other kinds of poverty.
Treatment of Human Resource
Suffice it to say then that high rate of growth of the Indonesian economy has not only been not sustainable but it has failed to bring about the intended change in the economy in terms of alleviating unemployment and poverty. But why has it failed to bring about sustained change and sufficient productive employment despite the relatively high growth ? This has to do with the nature of inputs that propelled the growth. If one examines the input composition of Indonesian economic growth over the years and ask the question how much of it was due to capital growth, to labor growth and to total factor productivity, then one can get an idea of the role of human resource in the growth process. According to one study, in the period of 1972-1990, Indonesian economic growth was an average of 7.2 % per year. Out of this total growth 5.1 % was due to capital growth, 2.1 % was due to labor growth and 0.0 % to total factor productivity. The best that the Indonesian economy has achieved in terms of total factor productivity growth was in the third plan development period (1979/80â€”1983/84 ) when economic growth was on average 8.0 % per year, and out of this 6.2 % was due to capital growth, 1.6 % to labor growth and 0.2 % to total factor productivity growth. (Hasibuan, 1996, 175 ). One may conclude that the growth accounting process of the various periods reveals that Indonesian economic growth was largely due to increases in inputs rather than to an increase of output per unit of input. Had there been significant increase of output per unit of input, economic growth would have been higher for the given inputs of capital and labor. Total factor productivity would have formed a higher proportion in the input composition of economic growth.
How is the treatment of human resource in the present plan ? Under the neo-classical concept of production and organization, human beings are not to be considered as active agents in the process. On the other hand they are to be considered as inputs, as passive agents to the production process whose costs need to be minimized in the effort to maximize profits and promote growth. It is such passive concept of human resource that is embedded in the five-year plan of 2004-2009. If one asks the question, how many per cent of the average 6.6 % growth in the five years 2005-2009 is due to human resource contribution and how much to capital, one will not get an answer from the plan. Even the concept of human resource as a source of growth is not there. Such passive concept of human resource is reflected in the way the plan was created. First of all there is a separation between planning and implementation. There is a group people whose job is to construct the plan and there is another group of people whose job is to execute the plan. The group of people who construct the plan will primarily be the President with the active assistance of the planning agency. Hence Chapter 1 up to Chapter 34 of the plan provides normative targets and activities in the various sectors of the economy during the plan period. Chapter 35 provides norms and guidance to implementers of how the plan is to be executed. The implementers will include the ministers and the personnel in the technical departments and other government bodies including regional governments. But since there is no general operational focus for all implementing units to refer to and since there are no foci of common interest for the President and the various ministers to refer to for each implementing agency, there is no alternative but to refer to the President for all decisions high and low . Consequently the decision system has to rely on command and control.
No less damaging is the impossibility of conducting sustained dialogue with other stakeholders outside the government bureaucracy. For example, to promote industrial employment, there needs to be sustained dialogue between the ministry of industry and the various industry groups in the society. In order for these dialogues to be sustained and fruitful the ministry of industry needs to have focus, which it wants to achieve together with the other stakeholders. Such technical arrangement for implementation and the consequent views about human resource are not conducive for the formation of social capital within an implementing organization and the relation of the organization with the outside world.
What then can one say about managing an economy of a Muslim country like Indonesia from the Islamic perspective? A few fundamental management ideas need to be implemented.
Firstly, Indonesia should abandon economic growth as the operational ideology in managing the economy. Economic growth is needed but it needs to be put as part of a larger, more comprehensive operational vision of development in order to realize prosperity in this world and in the next. For Indonesia it is necessary to adopt the creation of a moral and compempetitive society. Secondly, individualistic approaches in organizing and managing implementation need to be replaced by consultation and teamwork based approaches.
Thirdly, human participants need to be treated and developed fully as vicegerents of God on earth. The technical requirements for the success of achieving vision with the first two management principles elucidated above will include discipline and cooperation, innovation and the incessant learning for the organization as a whole and for each individual member. to improve performance. The technical operational objective is to maximize total factor productivity. The general principles of leadership exemplified by the Prophet Muhammad (pboh), such as honesty, empathy, and intelligence, and consistency will be as relevant now in this information age of theÂ twenty first century as it was then in the seventh century Arabia.
Basic limitations of this study need to be put forward. There is a very voluminous literature about each of the subjects discussed in the survey of the literature. I have surveyed a very limited and selective writings on each. Another basic limitation concerns TFP. While there seems to be general agreement on its importance, there is no avenue in sight of explaining its essence and the cause and effect of it. It is the implied hypothesis of this paper that TFP cannot be satisfactorily explained using the neoclassical economic view of man and the world. But this is something for the future.
In conclusion one may say that if developing Islamic countries want to progressively realize the Quranic injunction â€œYe are the best of Peoples evolved for mankind, enjoining what is right,forbidding what is wrong, and believing in Allah, they need to abandon the use of individualistic and materialistic paradigms in defining and managing their development agendas. On the basis of the experience in Indonesia, the individualistic approach in organizing activities does not allow systematic consultation and coordination among the stakeholders.Many intermediate objectives in the various sectors of the economy are difficult to realize and if they are, this realization will be at a high cost. The materialistic operational ideology of high economic growth as a promoter of social change for a better life for the population has failed in its function. . Unemployment and poverty are in no sight of being eliminated. The reliance on materialistic development means budgetary allocations for human resource development have had secondary priority, which importantly explain the low level in human development index being achieved. The individualistic and the materialistic management paradigms have precluded the development of human resources and intensive utilization resulting in the low total factor productivity as over-all inputs in the development process.
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