The It-Should-Be Indonesia’s Path

According to CIA Factbook, 42.1% of Indonesian labors work in agriculture sector which makes up only 15.3 % of GDP. It is not good figure and wasting the potential labors. The Prebich-Singer Thesis tells that the manufactured goods value tends to increase against commodity value. If now you export 100 units of commodities then you will get 50 units of manufactured goods, in the future for the same level commodities can only be exchanged for less than 50.

It is because of income elasticity of demand for manufactured goods is greater than for commodities especially – food! The poor eats a plate of rice so does the rich. However the rich needs Blackberry, IPad, Kindle, whereas the poor can't afford them. As the income rise, we still eat a plate of rice, but our demand of manufactured goods will inevitably rise.

Given this fact, the urgent policy of Indonesia is to shift the low-waged labors of agriculture sector to higher-waged labors of industry and service sector.

Too many people work in limited area of agriculture resulting in low productivity. If the farmers-to-be work for industry then the few farmers has more agriculture area. Then the agriculture equipment industries should be grown to support the few farmers to manage their farmland. By doing this, the agriculture productivity will beef up and the farmers' income will rise.

Agriculture has ingrained the Indonesians but building industry is different story. Industry needs more skills and good education to support it. This sector is where the valued added products begin. It is not easy for the country like Indonesia to develop industries on its own efforts. Fortunately the globalization offers the great opportunity for developing country to develop the industry sector. Thanks to their success, the salary in developed countries rises to the level that cuts profits so that they have to relocate their industry for the lower-paid labors. The task for developing country is to lure the foreign direct investment. The best way is to prepare economic zones with superb infrastructure and without red tape. Indonesia should prioritize this.

The industrial workers will make money much more than the unproductive farmers. As the few farmers become more productive too, eventually the national income per capita will ramp up.

In a nutshell this is what Indonesia's government should do.

First, to shift massively most of farmers-to-be to industry sector. The rest of farmers will have more area to grow plants. The modernized farming using mechanical equipment should be introduced. The productivity and income of agriculture sector will increase.

Second, to thrive industry sector. The industry for the agriculture equipment is the first thing to do. And then prepared competitive economic zones to lure multi-national companies.

Third, to prepare the post industrial phase through innovation. It is the most difficult part to develop nation because it need skillful workers, best education and the right circumstances to nurture start-ups with new innovative products.