The Limits of Industrialization in Post-Orde Baru Indonesia: State-Corporatism and Technological Inferiority

Defbry Margiansyah
| Abstract views: 1038 | views: 764


As competitiveness gains currency, it compels many governments' concerns in achieving economic resilience to avoid the Middle-income Trap. Indonesia has focused on promoting industrialization and economic diversification as a response to the probability of being trapped. However, it has been shown that the performance of the manufacturing sector in Indonesia has been unsatisfying due to the inability to enhance human and technological competences and managing the transition from labor- and resource-intensive to capital- and technology-intensive industries. This situation signifies the importance of industrial revitalization in Indonesia by strengthening the weakest links, innovation, and human capital through the adoption of capability-focused industrial policy on innovation and technology. This paper examines factors that challenge Indonesia to develop innovation and technological capabilities in the industrial sector and analyze the role of the state in organizing industrial policy based on the adoption of the capabilities-focused strategy within re-industrialization in the democratic setting. Employing Thee Kian Wie’s conditions for industrial technology development and Dani Rodrik’s industrial policy, this study reveals vital factors challenging Indonesia’s efforts on innovation and technological development in manufacturing industries. It also found two ideational factors affecting the Orde-Baru bureaucratic culture and practice remain intact in the policy formulation and implementation, in which those are ultimately obstructing the current industrial policy to achieve the policy goals and right institutional setting.


political economy, democratic governance, industrialization, industrial policy, innovation, technological development

Full Text:



Amir, S. (2007). Nationalist rhetoric and technological development: The Indonesian aircraft industry in the New Order regime. Technology in Society, 29(3), 283–293.

Amir, S. (2012). The Technological State in Indonesia: The Co-constitution of High Technology and Authoritarian Politics. Routledge.

Aroef, M., Djamal, J. S., & Ilwan, H. (2009). Grand Techno-Economic Strategy: Siasat Memicu Produktivitas Untuk Memenangkan Persaingan Global. PT Mizan Publika.

Aswicahyono, H., Hill, H., & Narjoko, D. (2012). Industrialization: Patterns, Issues, and Constraints. In H. Hill, M. E. Khan, & J. Zhuang (Eds.), Diagnosing the Indonesian Economy (pp. 183–226).

Basri, F., & Putra, G. A. (2016). Escaping the Middle Income Trap in Indonesia: An Analysis of Risks, Remedies and National Characteristics. FES Regional Programme Asia. Retrieved from (2013, June 24). Integrasi Kebijakan Industri Harus Cepat dan Mengarah pada Kesejahteraan. Retrieved September 24, 2016, from website:

BKPM. (2014). Realisasi Penanaman Modal PMDN – PMA Triwulan I Tahun 2014. Retrieved from Badan Koordinasi Penanaman Modal RI website:

BPPT. (2011, August). Presiden RI: Kontribusi Inovasi dan Teknologi dalam Pengembangan Kekuatan Ekonomi Nasional [Government]. Retrieved August 26, 2017, from Badan Pengkajian dan Penerapan Teknologi website:

Cann, O. (2016, September 27). What is competitiveness? Retrieved August 19, 2017, from World Economic Forum website:

Cerdan-Infantes, P., Makarova, Y., Al-Samarrai, S., & Chen, D. (2013). Belanja lebih banyak atau belanja lebih baik: Memperbaiki pembiayaan pendidikan di Indonesia (No. 76404; pp. 1–6). Retrieved from The World Bank website:

Chang, H.-J., & Andreoni, A. (2016). Industrial Policy in A Changing World: Basic Principles, Neglected Issues and New Challenges. Cambridge Journal of Economics, 40.

Cohen, J. M., & Uphoff, N. T. (1980). Participation’s Place in Rural Development: Seeking Clarity Through Specificity. World Development, 8(3), 213–235.

Cornell University, INSEAD, & WIPO. (2014). The Global Innovation Index 2014: The Human Factor in Innovation. Ithaca, Fontainebleau, and Geneva.

Cornell University, INSEAD, & WIPO. (2017). The Global Innovation Index 2017: Innovation Feeding the World. Ithaca, Fontainebleau, and Geneva.

Eichengreen, B., Park, D., & Shin, K. (2013). Growth Slowdowns Redux: New Evidence on the Middle-Income Trap (Working Paper No. 18673).

Felipe, J., Ustav, K., & Galope, R. (2014). Middle-Income Transitions: Trap or Myth? Retrieved from Asian Development Bank website:

Gellert, P. K. (2010). Extractive Regimes: Toward a Better Understanding of Indonesian Development. Rural Sociology, 75(1), 28–57.

Hall, P. A., & Taylor, R. C. R. (1996). Political Science and the Three New Institutionalisms. Political Studies, 936–957.

Handayani, T. (2014). Buku saku indikator iptek Indonesia 2014. Lembaga Ilmu Pengetahuan Indonesia.

Im, F. G., & Rosenblatt, D. (2013). Middle-income traps: A conceptual and empirical survey (No. WPS6594; pp. 1–40). Retrieved from The World Bank website:


Investor Daily. (2013, June 20). Konsep Industrialisasi Nasional Harus Terintegrasi. Retrieved from

Isaksson, A. (2007, July). Determinants of total factor productivity: A

literature review. Retrieved from (2010, January 20). SBY Bentuk Sistem Inovasi Nasional. Retrieved September 26, 2017, from website: (2013, January 18). Unilever dan Chandra Asri kantongi tax holiday. Retrieved from

Lakitan, B. (2011). Kebijakan Riset dan Inovasi Nasional. Retrieved from

Lakitan, B., Hidayat, D., & Herlinda, S. (2012). Scientific Productivity And The Collaboration Intensity Of Indonesian Universities And Public R&D Institutions: Are There Dependencies On Collaborative R&D With Foreign Institutions? Technology in Society, 34, 227–238.

Lee, S. S.-Y. (2016). Institutional legacy of state corporatism in de-industrial labour markets: A comparative study of Japan, South Korea and Taiwan. Socio-Economic Review, 14(1), 73–95.

LIPI. (2007, July 1). Presiden: Iptek belum beri kontribusi positif bagi industri [Government]. Retrieved September 26, 2017, from Lembaga Ilmu Pengetahuan Indonesia website:

LIPI. (2016, September 19). Anggaran Riset Indonesia Terendah Di Asia Tenggara. Retrieved May 6, 2017, from

Margiansyah, D. (2017). Disconnecting Technological Inferiority?: Evaluating State Action on Industrial Technological Development in “Post-Orde Baru†Indonesia (Master Thesis). Albert-Ludwigs Universität Freiburg, Freiburg.

Naudé, W. A. (2013). Why Indonesia Needs a More Innovative Industrial Policy. ASEAN Journal of Economics, Management and Accounting, 1, 48–65.

Negara, S., Racine, J.-L., Chen, D., & Kay, L. (2013). Indonesia—Research and development financing (No. 74619; pp. 1–72). Retrieved from The World Bank website:

Okamoto, Y., & Sjöholm, F. (2001). Technology Development in Indonesia. In S. Lall & S. Urata (Eds.), Competitiveness, FDI and Technological Activity in East Asia. Retrieved from

Paus, E. (2017). Escaping the Middle-Income Trap: Innovate or Perish. Retrieved from

Rachmawaty, R. (2017). Ethical Issues In Action-Oriented Research In Indonesia. Nursing Ethics, 24(6), 686–693.

Republika. (2012, September 29). Presiden: Transfer Teknologi Sulit Dilakukan. Retrieved July 26, 2017, from Republika Online website:

Rodrik, D. (2004). Industrial Policy for the Twenty-First Century (SSRN Scholarly Paper No. ID 617544). Retrieved from Social Science Research Network website:

Rüland, J. (2014a). Constructing Regionalism Domestically: Local Actors and Foreign Policymaking in Newly Democratized Indonesia. Foreign Policy Analysis, 10(2), 181–201.

Rüland, J. (2014b). The limits of democratizing interest representation: ASEAN’s regional corporatism and normative challenges. European Journal of International Relations, 20(1), 237–261.

Rüland, J. (2016). Why (most) Indonesian businesses fear the ASEAN Economic Community: Struggling with Southeast Asia’s regional corporatism. Third World Quarterly, 37(6), 1130–1145.

Schmitter, P. C. (1974). Still the Century of Corporatism? The Review of Politics, 36(1), 85–131. Retrieved from JSTOR.

Schwab, K. (2016, January 14). The Fourth Industrial Revolution: What It Means and How to Respond. Retrieved September 23, 2017, from World Economic Forum website:

SCImago Journal Rank. (2014). SJR - International Science Ranking. Retrieved August 26, 2017, from

Shetty, P., Akil, H., Fizzanty, T., & Simamora, G. (2014). Indonesia: The atlas of Islamic World Science and Innovation Country Case Study. San Francisco: Creative Commons.

Talalay, M., Farrands, C., & Tooze, R. (1997). Technology, culture and competitiveness: Change and the world political economy. London; New York: Routledge.

Taufik, T. (2013, April). An Adjustment Reform towards a more Integrated Innovation System Strengthening Indonesia Cluster Policy Context. Technology. Retrieved from

Thee, K. W. (2005). The Major Channels of International Technology Transfer to Indonesia: An Assessment. Journal of the Asia Pacific Economy, 10(2), 214–236.

Thee, K. W. (2006). Technology and Indonesia’s Industrial Competitiveness (No. 43). Retrieved from ADB Institute website:

Tijaja, J., & Faisal, M. (2014). Industrial Policy in Indonesia: A Global Value Chain Perspective (Working Paper No. 411). Asian Development Bank (ADB).

Wijayanti, R., & Nadhiroh, I. M. (2012). Potret Inovasi Industri Manufaktur 2011. Jakarta: LIPI.

World Bank. (2014a). Indonesia - Avoiding the Trap: Development Policy Review 2014 (No. 86025; pp. 1–131). Retrieved from The World Bank website:

World Bank. (2014b). School enrollment, secondary (% gross)—Indonesia | Data. Retrieved August 3, 2017, from,

World Bank. (2014c). School enrollment, tertiary (% gross)—Indonesia | Data. Retrieved August 3, 2017, from

World Bank. (2014d). Sistem pendidikan tinggi Indonesia: Seberapa responsif terhadap pasar kerja? (No. 89222; pp. 1–12). Retrieved from The World Bank website:

World Bank. (2017a). Exports of goods and services (% of GDP)—Indonesia | Data. Retrieved May 26, 2017, from

World Bank. (2017b). High-technology exports (% of manufactured exports)—Indonesia | Data. Retrieved May 26, 2017, from

World Bank. (2017c). Manufactures exports (% of merchandise exports)—Indonesia, Thailand, Malaysia, India, China | Data. Retrieved May 26, 2017, from

World Bank. (2017d). Manufacturing, value added (% of GDP)—Indonesia | Data. Retrieved May 26, 2017, from World Bank website:

Copyright (c) 2017 Journal of Indonesian Social Sciences and Humanities
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.


  • There are currently no refbacks.