Economic Growth Reaches 5.,61 Percent; IPB University Professor of Islamic Economics Weighs In

A report by the Central Statistics Agency (BPS) stating that Indonesia’s economic growth in the first quarter reached 5,61 percent, the highest in the past 13 years has sparked debate among the public. Some economic observers argue that this growth figure does not reflect the actual conditions of society.

Responding to this, IPB University academic Prof Irfan Syauqi Beik noted that this debate cannot be separated from perspectives on the concept of economic growth itself.

Three Concepts of Economic Growth
Prof Irfan explained that there are at least three basic concepts of economic growth, nemly, classical growth, growth with equity, and growth through equity.

“This is not merely a matter of semantics, but holds profound philosophical significance in the context of economic development. This is because each concept influences the paradigm regarding economic growth, as well as the resulting policies implemented to achieve those growth objectives,” he said.

The first concept, classical growth, focuses on increasing the gross domestic product (GDP). Each year, GDP is driven and increased with a specific percentage target.

“In reality, there is often a trade off between growth and equity. Growth figures rise sharply, but at the same time, inequality also increases significantly,” said Prof Irfan, who is also the Dean of the Faculty of Economics and Management at IPB University.

He explained that this situation arises because the “trickle down effect” mechanism which grants privileges and various incentives to large industries to support the national economy is not functioning. However, this is not balanced by mechanisms for sharing and providing greater access to the general public. 

“As a result, wealth is concentrated solely in the hands of a select few groups, and it is almost always the top one percent of the population that reaps the lion’s share of the economic pie. Growth that is not accompanied by equity creates vulnerability to social unrest and political instability. This is like building a skyscraper on a fragile foundation,” he explained.

Second, the concept of growth with equity. In addition to making growth the primary driver, the government also intervenes through aggressive redistribution policies, such as implementing progressive taxation and social assistance, so that economic growth can be enjoyed more equitably.

Nevertheless, Prof Irfan argues that this concept often treats the poor as mere recipients of aid rather than active participants in the economy. Purchasing power is maintained to stabilize consumption levels, as it is the variable with the highest contribution to GDP. 

“In other words, what is being maintained is the demand side of the economy. Once we move to the supply side, it is the capital holders who remain in control. This is the weak point of this concept that frequently manifests in a nation’s economic reality,” he explained.

The third concept, growth through equity, is considered the most ideal approach. In this concept, equity actually becomes the engine of growth. “Growth through equity will foster economic justice and inclusivity,” Prof Irfan emphasized.

Three Supporting Factors
He explained that this concept is supported by three main factors. First, strong economic resilience through the significant role of small business actors. The economy’s resilience will grow stronger when the contribution of these small economic actors to GDP is significant.

“This means that these MSME actors must be positioned as one of the main pillars of the national economy, and not merely as an afterthought,” stated Prof Irfan.

Second, distributive justice through access to financing and mentoring, and extensive support for productive community enterprises, including the optimization of zakat and waqf instruments. 

“To that end, in addition to government to people transfer programs such as social assistance and the KUR, social funding instruments like zakat and wakaf must be optimized as alternative resources for strengthening the community economy in a way that reflects a sense of public justice,” he said.

According to him, if zakat and waqf are managed well within an integrated ecosystem, they will be able to generate new community-based economic growth centers that are fairer and more equitable, leveraging local potential.

Third, sustainability through investment in education so that communities have better economic capacity. “The poor must be given broad access to the world of education including formal, informal education, and various forms of training and certification so that their capacity can improve,”

He added, “This economic self reliance is what will eventually elevate Indonesia’s economy, which is currently still trapped in the middle income country group.”

Therefore, Prof Irfan emphasized that if we only pursue growth, that approach is outdated. Growth with equity can be a first step, but growth through equity is a superior long term strategy. “Thus, the national economy will not only grow in size but also be structurally strong and socially just,” he said.

He also highlighted that strategic programs such as the Free Nutritious Meals (MBG) and the Red and White Fishermen’s Village (KNMP) have great potential to embody the concept of growth through equity. The condition is that these programs must be supported by numerous small community based businesses.

Otherwise, inequality will grow even greater, and it will be the wealthy who will enjoy the largest slice of the pie,” he concluded. (*/Rz) (IAAS/LAN)