Indonesia’s economic landscape is dynamic, but laced with uncertainties – the most recent of which is the weakening of the Rupiah exchange rate against the US dollar.
In recent years, as the largest economy in Southeast Asia, Indonesia’s focus has been on attracting foreign direct investment – US$88.2tn in 2023 – which mainly centred on a robust downstream policy in the natural resources sector. Amid this growth, there’s a growing interest in revisiting an old thread: the co-operative economy.
Historically, co-operatives appeared after the rise of capitalist enterprises and their expansion came in various modes and at different paces. In Indonesia, co-operatives – or koperasi, as they are known locally – have a rich history too. They date back to the colonial era, in 1886, with the emergence of Hulp en Spaarbank, an institution modelled on the Reiffeisen credit co-operative. Intended to keep people out of the clutches of loan sharks, they developed as a form of self-help during the post-independence era. The goal was to foster the prosperity of the people by structuring the economy ‘as a common endeavour based upon the principles of the family system’, as set out in Article 33 of the constitution.
The sector’s role diminished somewhat over the republic’s 78 years of independence – but now, with rising inequality and a growing emphasis on wealth redistribution, co-operatives are back in the discourse.
Why revisit co-operatives now?
The global economic landscape is increasingly characterised by a rise in protectionist sentiments and the spectre of trade wars. On this basis, Indonesia cannot rely heavily on foreign investment to support its economy: it needs to find domestic alternatives.
Co-operatives can be a major institution for Indonesia’s economic self-reliance: with their focus on member-ownership and democratic decision-making, they offer a compelling alternative to traditional, profit-driven economic models. These days, however, ownership is not the sole relevant factor characterising economic organisation.
Related: Indonesia and Timor-Leste commit to strengthen the co-op region
Much more important is the question of control – knowing who in the final instance decides the process of production. On this, the co-operative model leads the way. Imagine a group of farmers in Java, Sumatra, and Kalimantan forming a co-operative farm – rather than farming in a state-controlled agriculture ‘food estate’ – to negotiate better prices for their produce, or a local co-operative offering affordable groceries and goods to remote areas in Nusa Tenggara, Maluku or Papua.
As opposed to centralised policies that rely on pseudo-macroeconomic numbers, co-operatives may offer sustainable agriculture and fair-trade practices – for instance, they can provide essential services in rural and outermost regions.
Furthermore, co-operatives tend to keep their profits circulating within the local community – which leads to a strengthening of the local economic base. As Zamagni (2021) stated, in co-operative undertakings, people (the members), rather than capital, constitute the focus of productive activity.
This shift in priorities is based on a foundational principle of economic activity that is not individualistic but of an intrinsically relational nature, the aim of which is the maximisation of group interests, including those of large groups that may well reflect the interests of society as a whole (the common good).
Of course, challenges remain. Bureaucracy, a lack of awareness among younger generations, and unfair competition from giant corporations are all hurdles that need to be addressed. Unfortunately, the government hasn’t started to take notice.
What is the solution? There are two pathways forward.
At the devolved level, regional government needs to deliver specific local policy initiatives to amplify and multiply the co-operative movement and offer co-ops greater access to financing and tax incentives.
The second pathway is for Indonesian scholars, youth leaders, social entrepreneurs, innovators, creators, social and local activists to foster the movement. This could be done through study and research, social projects, advocacy on local economy potential, grassroots initiatives, training and capacity building, or public campaigns. And, of course, establishing actual co-ops. All co-operative movements need these things.
Now, the co-operative movement in Indonesia finds itself at a crossroads. The government needs to foster a supportive policy environment and promote innovation within the co-operative structures. There is potential for grassroots, bottom-up efforts at co-op development tie in with government policy, which would help Indonesia unlock the immense potential of co-operativism.
A revitalised co-operative sector could contribute significantly to an inclusive and equitable Indonesian economy — and this is just the beginning of the conversation. As Indonesia continues its economic development, revisiting the co-operative model could be a key strategy for building a prosperous future for all.
Mutianwar Syarahil Mutianwar Efendi, LL.B.
