Indonesian Living Standards over 50 Years: A Multidimensional Analysis

• Published date: 01 September 2020
• Author: Hal Hill
• Date: 01 September 2020
• DOI: http://doi.org/10.1111/asej.12221

Indonesian Living Standards over 50 Years:

A Multidimensional Analysis

Hal Hill

Received 8 June 2020; Accepted 14 September 2020

There is a continuing debate on the measurement of living standards, especially in

developing countries. The proliferation of social indicators in recent decades,

motivated by both philosophical and pragmatic empirical considerations, has been

illuminating. However,it has also led to some confusion: which indicator or set of

indicators should be used? The most widely used indicator continues to be head-

count poverty, or some ref‌ined variant of it. However, what of the many other

indicators and, importantly, do they portray a similar picture? We illustrate these

issues with reference to the Indonesian experience over several decades. Indonesia

has experienced moderately fast economic growth since the late 1960s and, as a

consequence, headcount poverty has fallen rapidly. Most other social indicators

have also improved. However, the rate of progress has varied, from similarly rapid

improvement to stagnation and in one instance, environmental amenities, to

regression.

Keywords: living standards, Indonesia, education, wages, environment, regional

development.

JEL classif‌ication codes: I00, I31, O53.

doi: 10.1111/asej.12221

I. Introduction

Social scientists and policy-makers have struggled with the def‌inition and mea-

surement of living standards. GDP per capita is a useful f‌irst proxy of a coun-

try’s average living standards. However, levels of economic activity provide an

incomplete picture of human welfare: of the extent of poverty, inequality

between individuals, gender and regions, economic security, socioeconomic

mobility across generations, and a wide range of non-economic indicators, such

as education, health and nutrition. To this list could also be added environmental

amenities and political freedoms. The diversity of these various dimensions of

*Hill (corresponding author): Crawford School, Australian National University, Canberra, ACT,

Australia 2601. Email: hal.hill@anu.edu.au.

I am grateful to the Editor, two anonymous referees and participants at a conference in Tokyo in July

2019 for helpful comments. I thank Chandra Triputra, Pierre van der Eng and Yogi Vidyattama for assis-

tance with data. Thanks are also due to particular individuals for assistance with sections of thep aper.

© 2020 East Asian Economic Association and John Wiley & Sons Australia, Ltd

Asian Economic Journal 2020, Vol.34 No. 3, 249–274 249

living standards, in turn, highlights the challenge that, unlike the level of eco-

nomic activity, which, for all its limitations, is widely proxied by a single indica-

tor (i.e. GDP), there is no comparable, universally accepted single indicator of

living standards.

Several alternative concepts and approaches have, therefore, been proposed.

Most governments have at some stage established commissions of enquiry to

develop a workable def‌inition of what is deemed to be a minimum ‘decent’liv-

ing standard, or a wage level that is considered necessary for basic human sur-

vival. Arguably the most inf‌luential social scientist in the f‌ield, A. K. Sen, has

proposed a ‘capability approach’(see e.g. Sen, 2009). The United Nations has

deliberated on the issue and proposed various measures. These include the

human development index (HDI, 1990), the Millennium Development Goals

(MDG, 2000) and the Sustainable Development Goals (SDG, 2015). The World

Bank has developed international poverty lines, now approximated as US$1.90

and US$3.20 per person per day (in purchasing power parity, 2011 prices) for

low-income and middle-income countries, respectively. There is also the ‘multi-

dimensional poverty index’(MPI), developed by researchers at the United

Nations and the University of Oxford.

Despite these innovations, the dilemma remains. In his seminal volume on the

subject, Deaton (2013, p. 23) characterizes the development challenge as the

‘greatest escape in human history is the escape from poverty and death’.How-

ever, he too is not prescriptive as to the choice of a single indicator. The ques-

tion then is, what indicators should be used as yardsticks of social progress?

While various poverty measures are the most widely used approximation of liv-

ing standards, a more complete picture requires an assessment of a wide range

of social indicators. Moreover, because these indicators measure different

dimensions of living standards, and because they often trend in different direc-

tions, a simple composite indicator may obscure as much as illuminate the com-

plexity of human welfare, particularly where there are signif‌icant welfare gaps

among specif‌ic groups of the population. Therefore, researchers and policy-

makers have no alternative other than to consider a wide variety of indicators.

The purpose of the present paper is to illustrate these issues with reference to

an Indonesian case study. Indonesia is well suited to such a study. In the mid-

1960s it was one of the world’s poorest countries. However, over the past

50 years it has experienced moderately rapid economic growth, with the result

that it was classif‌ied as a ‘miracle economy’by the World Bank (1993). Since

the mid-1960s, it has also experienced two different political regimes: the high-

growth, centralized, authoritarian Soeharto era, from 1966 to 1998, and the

slower growth, decentralized and democratic era since 1999. It is, therefore, pos-

sible to make some general inferences about these two eras. Indonesia is also

the world’s largest archipelagic nation state, and, hence, its governments have

had to grapple with the challenge of subnational development and diversity. In

addition, its socioeconomic database is reasonably comprehensive, enabling lon-

gitudinal comparisons over this period.

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