Solution from Wealth Inequality

Inequitable wealth distribution is unequal distribution of assets among the citizen. Indonesia’s economic boom is further disadvantaging the millions of poor people in the country. The country's economy is growing at about 6 per cent, which is nearly double Australia's growth and second only to China. It shows a good stable economy, but it is not helping everyone. As with other developed countries, Indonesia is becoming gradually more and more unequal. The top 20 per cent hold 80 per cent of the country's wealth (refers to the Pareto Principle). The top 5% of the nation’s earners control half of its wealth, and the top 20% bring in 86% of capital income, including interest and stock market gains. Some scientists say that economic capitalism and new-age feudalism are widening the gap between the rich and poor. The rate of return for owned capital exceeds the overall rate of economic growth. Thus, families and individuals who control wealth will accumulate it at a faster rate than the economy can produce it and so will control a much larger portion of the economic pie. The rich get proportionally richer, and the poor get proportionally poorer. Unless something happens to alter the status quo, this trend will continue. There are many solutions to tackle this challenge. An economist, Thomas Piketty, offered a highly publicized solution: worldwide income redistribution. It is defined as the transfer of income, wealth or property from some individuals to others through social mechanisms, such as taxation, monetary policies, welfare, charity, divorce or tort law. He then espouses a stringent global wealth tax that would allow the government to manually smooth over the wealth gap. He recommends reinstating high tax rates on upper level incomes (progressive income tax system) and increasing inheritance taxes. Based on data, when top tax rates were high from 1933 to 1980, the bottom 99% incomes grew fast while the top 1% incomes grew slowly. In contrast, after 1980, when top tax rates were low, the bottom 99% incomes grew slowly while top 1% incomes grew fast.” Another economist, Joseph Blasi, suggested a corporate profit-sharing, employee stock ownership, and stock option plans in which employees own chunks of the company or take part in its earnings. He obtained his idea from America Founding Fathers’ original vision of widespread land ownership. Broad-based capital ownership, which today is formed in stock, real estate, and other investments, was necessary for the republic to exist. As modernization came, we had to find a way for citizens to have some ownership of the technologies of the future. Though it has been criticized for the risky business of stock, he suggest large government tax incentives for this corporate broad-based profit sharing. Two common types of governmental redistribution of wealth are subsidies and vouchers (such as food stamps). These "transfer payment" programs are funded through general taxation, but benefit the bottom earners, who pay fewer or no taxes. While the persons receiving transfers from such programs may prefer to be directly given cash, these programs may be more palatable to society, as it gives society some measure of control over how the funds are spent. Some other scientists also recommend reducing tariffs on commodities to cut the cost of living, as well as providing more jobs for society. In my opinion, Indonesia desperately needs to overcome the economic and social gap issues with various measures of distribution of wealth. It is argued that the most urgent action today is utilizing the subsidy mechanism to make it more effective and right on target. Apparently, the new elected president, Joko Widodo, made a good step when he insisted on reducing the ineffective petroleum subsidy which consumes about 40% of the state’s budget and always caused a deficit budget balance every year. He argued that the cars and trucks which are owned by the ultra-rich and middle-class have mostly benefited from this gasoline subsidy, instead of the bottom earners which is actually the targeted group of this subsidy. In this way, the money which is taken from the petroleum subsidy will be reallocated to food security subsidy (agriculture and fisheries sectors) and developing small-scale businesses, education, health, and infrastructure. Automatically, providing a bigger budget to those important sectors will encourage economic as well as social development through the provision of jobs for society. Moreover, a big subsidy for the agriculture and fisheries sector will support food self-sufficiency and encourage young people to be farmers, fishermen, or fish farmers, and thus they will be keen to develop their hometowns, instead of going to the city. However, the problems of wealth inequality in Indonesia are not only related to rich and poor people, but also linked with the western and eastern part. It is a fact that country’s development as well as population density is mainly concentrated on the western part, especially on Java as a centre of everywhere, added to a faster-growing Sumatra. As a consequence, circulation of money, jobs, and wealth are located in the western part. It has worsened with the reality that most of the money created from the exploitation of natural resources is abundant in the eastern part, such as oil, gas, and mining, and it is taken to the central government and the biggest part of the money is used for western part development and only a little slice remains for the easterners. As a result, there is a movement in Papua to separate from Indonesia because of this structural injustice. In the future, it will be the task of Joko Widodo’s administration to ensure more balanced development by enhancing the speed of eastern area development, especially in East Nusa Tenggara, Maluku, and Papua, which recently have been significantly left behind compared to other parts. (LFN)