6 - Human capital development and gender equality in Indonesia

Summary

The quality of a nation’s manpower resources is the single most important factor determining national competitiveness.

Lee Kuan Yew, inaugural prime minister of Singapore

Indonesia will celebrate a century of independence in 2045 with the aspiration—the Vision of Indonesia Maju 2045—to become a developed country. The National Development Planning Agency, Bappenas, projects that by 2045 gross domestic product (GDP) per capita will reach US$23,000 (Figure 6.1). The middle-income group will comprise 223 million people. Seventy-three per cent of people will live in urban areas, while the poverty rate will be near zero. To achieve this level of development, female labour force participation is projected to rise to 65% by 2045, demonstrating the significant role played by women in realising a more prosperous Indonesia.

To realise the 2045 vision, the government will pursue four main development agendas: improving the quality of human capital, achieving a green and sustainable economy, improving equity and common prosperity, and consistently implementing structural reforms.

Investing in human capital is critically important to advancing a country’s economic development. We should draw lessons from Lee Kuan Yew’s strong belief in this, as he ushered Singapore from a low- to a high-income country. Indonesia already has a promising demographic structure, dominated by productive age groups that account for around 69% of the total population. The middle class accounts for almost half of the population and is on the rise. The government has continued to enhance human capital quality in Indonesia through various policies. Government spending on education and health have been mandated at a minimum of 20% and 5%, respectively, of total spending in the state budget, at both national and subnational levels. Anti-poverty policies along with social assistance programs have also been implemented by the government to improve human capital in Indonesia.

A vast amount of literature has underscored the link between human capital and economic growth. Pelinescu (2015) described human capital as the skills, knowledge or value of people. The role of human capital in economic development is illustrated through the neoclassical growth model (Solow 1956) or the endogenous growth model (Grossman and Helpman 1991; Lucas 1988; Romer 1986). These growth models have shown the significant role of human capital in driving high growth of the economy, in addition to other factors such as technology and physical capital.