Sterilization, in the family planning context, involves an operation on the reproductive organs of a man or woman with a view to terminate permanently his or her capacity to produce a child. Female sterilization or tubal ligation of women for medical reasons has been performed in Singapore since the early post-war years, though on a very limited scale. Since its inception in 1949, the Family Planning Association (FPA) was quite often confronted by women seeking sterilization because of medical, social, or economic reasons. As a matter of policy, the Association could not accede to these requests for sterilization, but referred the more deserving cases to the Kandang Kerbau Hospital where each case was considered carefully on its own merits. For instance, among the referred cases, thirty women were sterilized in 1958 and twenty-seven in 1959. The position, up to the late 1950s, is one where voluntary sterilization was performed discreetly, on a small number of women, without much publicity or public attention. Most of them were sterilized on medical grounds and only a handful on social or economic grounds, provided they already had a large family of at least more than six children.

The idea of adopting voluntary sterilization as a means of population control was first openly advocated by Professor B.H. Sheares, a Professor of Obstetrics and Gynaecology at the University of Malaya in Singapore, in an exclusive interview with the local press on 18 June 1959. This was after he had earlier presented his views in a paper delivered at the Conference of Planned Parenthood, organized by the International Planned Parenthood Federation, in New Delhi from 14–21 February of the same year. He reiterated his stand that the answer to the population control problem in Singapore lay in voluntary sterilization and not so much in contraception. He was, however, careful to clarify that he was speaking only from an academic point of view and had no intention of influencing government policy or action. Nonetheless, the public statement of such an eminent academic in the newspapers could not but result in considerable public discussion on the pros and cons of using sterilization as an accepted method of population control.

The economic policy shift towards trade liberalization and decentralization has occurred globally. State restructuring should be viewed as a window of opportunity to promote regional development balance. However, presently there is a widening gap in regional developments due to the varied levels of local capacities. There were severe regional disparities between the eastern, western, and central regions. It is a reflection of the central government's imbalanced development policies which were put in place ever since the New Order regime had come into power.

This chapter documents the process of establishing institutions and looks at the transition period between the New Order regime and the decentralization period. This chapter explores institutional arrangements at the national level and between the central and regional hierarchies for the New Order regime. Consequently, the chapter elaborates on the politicaleconomic changes towards the end of the New Order and the critical juncture at which institutional change could be seen as a possibility. Apart from examining the institutional arrangement for regional development in the New Order regime, this chapter argues that institutional arrangements between the central government and regions have influenced the economic divergence in terms of regional development as well as variations in the growth rate for the current regime. The long-standing authoritarian institutional arrangements have been institutionalized into the bureaucracy and political landscape, and this has altered the way politicians pursued policymaking at both the national and local levels. It is for this reason that the last part of this chapter expounds on the paradox of state restructuring decentralization processes. The paradox is that even as the government underwent decentralization, a certain level of centralized coordination was required in order to capitalize on AFTA agreements as a way to accelerate regional development.

THE LINEAGE OF REGIONAL CRITICAL ANTECEDENT INSTITUTIONS: THE NEW ORDER REGIME

Following the socio-political riots of 1965, the new regime ruled Indonesia for more than thirty years (1966–98). The authoritarian New Order regime under President Suharto was enveloped by a political image which evoked a free pluralistic society, symbolized by the parliamentary (Dewan Perwakilan Rakyat or DPR) general elections every five years (Canonica-Walangitang 2004). The general election became a political theatre as the MPR re-elected President Suharto by acclamation in six consecutive elections.

The impact of AFTA on regions based on the number of industries in 1993 and 2005 is not significantly different. The figures show that the number of firms that gained from tariff elimination and reduction to less than 5 per cent has declined between the years. However, there is a significant increase in the number of firms that gained from tariff reduction where the tariff is higher than 5 per cent. This indicates that AFTA significantly reduces the tariff rate for the tariff group that is higher than 5 per cent. Specifically, the sub-sectors that benefit the most are food industries (International Standard Industrial Classification/ISIC 31) and other industries, including light equipment (ISIC 39). The table indicates that the CEPT tariffs are significantly lower than the MFN tariffs — the tariff for metal products (ISIC 37) have even been eliminated since 2005 in Indonesia. The tariff on paper products (ISIC 34) had the most reduction with an average of 35 per cent in each period. Table E.4 also notes the changes in average tariff rates and growth for each sector in the manufacturing industry. From the table, it can be argued that the liberalization in Indonesian industries have started since the early 1990s, and reached its peak during the second half of the decade.

Using historical institutionalism theory, the qualitative analysis proposes the argument that the regional economic variation in Indonesia is related to past institutional capacity. Following historical institutionalism, the analysis was concerned with the components of the framework, including critical antecedents, critical junctures, and reproduction of institutions, as adapted from political science (Hall and Taylor 1996; Skocpol 1979; Thelen 1999; Pierson 1996).

RESEARCH PROCEDURE

The analysis of historical institutionalism and economic growth was illustrated with a context-based strategy and decision-making, as well as with networks and conflicts between actors. This illustration was directed towards the specific place of the Batam and Bandung municipalities in post-trade liberalization and decentralization. Furthermore, the case study was contextualized by connecting the analysis at this level of institutional evolution and policy innovation with key issues that occurred at higher governance levels and external processes that determined economic growth. This includes the supranational, national, and regional levels that were influenced through formal, informal, and cultural rules.

In institutional analysis, narratives are essential to contextualizing and constructing empirical situations (Healey, 2007). In this sense, narratives are sequences of connected events and the relationships between events and their consequences. After constructing such narratives, interpretation and conclusion are generated with coding techniques. This approach, as with other qualitative methods, is expected provide insights that combine the effects of several factors and ‘multiple conjectural causation’ (Silverman, 2005).

To gather such narratives, semi-structured interviews were conducted with experts including government officers at all levels, NGO officials, and international consultants such as the APCO Worldwide and ASIA Foundation. All categories of interviewees represent agents at different stages of the institutional process. Thus, each category of interviewees shows the roles, influence, path dependence, and path breaker that contributed to the regional economic growth differences. The interviews normally lasted for approximately 60 minutes.

The interviews aimed to acquire historical data and reveal the individual subjective experiences of the respondents who were involved in institutional building. Emphasis was placed on institutional building, network, and discourses that prompted the actors to innovate economic policies. Furthermore, the interviews explored how the respondents constructed policies, networks, and innovation that determined innovation in policies. The information from the interviews was analysed using the standard coding technique and compared with other sources such as field observations, official documents, and newspapers.

This chapter examines the theoretical understanding and discourses regarding the impact of institutional changes. However, current regional development and economic literature neglected to provide an explanation on the divergence of economic performance at the district level. This chapter attempts to provide an exploration of contemporary development theories and debates on the politico-economy, governance, and institutionalism as a way to explain such dynamics in Indonesia. A research framework was then put into place in order to study local development processes.

I first revisited theoretical perspectives on neoclassic theories and followed by the divergence theories section. Then the role of institutionalism in economic geography and the construction of an empirical research framework was discussed. The final section addressed research summaries and emphasizes the importance of place-specific policies to enhance local economic performance.

REGIONAL DEVELOPMENT DEBATE: CONVERGENCE OR DIVERGENCE?

The theories on development convergence were premised on the neoclassical perspectives that economic development is accelerated by an open market and free trade. By allowing labour and capital — the factors of production — to be mobilized to the locations where they can be most efficient, these events would lead to the new spatial and international divisions of labour (Perrons 2004, p. 134).

The neoclassical approach posited the traditional convergence of local economic development (Williamson 1965) (Figure 2.1). In this literature, economic growth was the core subject of economics and focused on the long-term decrease of disparities in income per capita (Pike, Rodríguez- Pose and Tomaney 2006). Economic growth theory postulated diminishing returns condition suggesting that world economy will be convergent as poor regions grow at a higher rate than the developed economies.

The basic idea of neoclassical theory was one of diminishing returns. Early nineteenth century economists, including Thomas Malthus and David Ricardo, introduced the concept of diminishing returns with regards to the process of economic growth. This concept simply explains that economic growth must be quantified in real terms of per capita income to represent real purchasing power per capita.

There are limited studies on developing countries that question the impact of devolution and trade liberalization on regional economic growth (Logan 2008; Rivas 2007; Rodríguez-Pose and Sanchez-Reaza 2005). This study thus aims to complement existing literature by analysing the economic impact of devolution and trade liberalization during the state-restructuring period in Indonesia between 1993 and 2010. The effects of devolution, ASEAN FTA variables, and selected control variables on the growth of district GRDP are observed using econometric analysis. The research finds that there is evidence of regional convergence throughout the periods under observation, but while devolution has significantly increased economic divergence, the ASEAN FTA appears to have an insignificant impact on Indonesia regional economic growth.

This chapter is divided into five sections. The next section discusses the econometrics model and data construction. The third analyses the ordinary least square (OLS) and panel regressions for four periods: the pre-decentralization period (1993–97), transition period (1998–2001), early decentralization period (2001–05), and advanced decentralization period (2005–10). The final section presents discussion and debates on regional disparities in Indonesia.

STUDIES ON INDONESIAN REGIONAL ECONOMIC CONVERGENCE

Decentralization proponent literature emphasizes that decentralization promote efficiency on decision-making and planning (Calamai 2009). For instance, Tiebout (1956) argues decentralization brought citizen participation into planning and decision-making through the ability of people to move between regions to choose the public service and taxes that suit them. Thus, decentralization introduces market-like solution to local public goods problems and the provision of public goods and services through the preferences of individual by market mechanism. As a result, efficiency of public goods is achieved as there is a large variety of local institutions, not merely the central government (Rondinelli 1989, p. 59).

Many studies of convergence determinants seem to point to similar findings (Akita and Alisjahbana 2002; McCulloch and Syahrir 2008; Resosudarmo and Vidyattama 2006; Vidyattama 2013). First, the Asian Financial Crisis (AFC) was found to contract economic growth and to cause persistent economic disparities. The divergence of regional development continues after the fall of the New Order regime in 1998 to the early period of the AFC as poorer regions were badly affected and hindered in its development growth.

This chapter explains the findings obtained from the quantitative study through a regional institutional analytical tool, which combines economic performance and historical institutionalist approaches to investigate institutional antecedents, path dependences, and political shocks. There is a difference on the manufacturing analysis scope in Batam and Bandung based on the type of economic structure that is under observation. In Batam, the manufacturing industries are historically spillovers from Singapore and other countries and are dominated by medium and large manufacturing firms. In Bandung, the creative city analysis focuses on creative industries that are dominantly small and emerging firms.

From the findings in this chapter, I argue that regional disparities and variations in Indonesia, inherited from the past institutions, have shaped current institutions through path dependence, and were further disparaged by the state restructuring.

Using case studies from Batam and Bandung to illustrate my findings, the chapter is organized as follows. The first section discusses institutional changes and adaptations during the post-decentralization period that have occurred in the forms of dispersed institutional layering in relation to politics, economics, and ethnics. The second section examines the development of manufacturing and creative industries in Indonesia, by discussing the antecedent institutions and developments in the manufacturing city of Batam and the creative city of Bandung. Using these two case studies, I analysed the impacts of decentralization and ASEAN FTA on regional development.

THE TALE OF TWO SECTORS: MANUFACTURING AND CREATIVE INDUSTRIES

Manufacturing in Indonesia

The impact of state restructuring institutional change on manufacturing industry is an important study because decentralization changes the manufacturing policies and AFTA trade tariff directly affect the manufacturing production. Since the pre-decentralization period, the industry faces ongoing problems that include: (1) persistent high degree of labour intensity, (2) inconsistent policies, and (3) land acquisition issues.

First, while the high degree of labour intensity in manufacturing may increase labour absorption rate, its value-added is insignificant, and has little impact on technological and knowledge spillover in Indonesia. Wages and consumption also remain low for the workers.

Second, the changing policies meant inconsistency and insecurity for foreign direct investments (FDIs). For instance, the report by KPPOD (2007) points out that decentralization has not improved public services at the district level despite the shifts in business and investment procedures.

This book is an attempt to decipher regional district economic disparities during the state-restructuring events that occurred after the entry into the ASEAN Free Trade Agreement (AFTA) in 1992 and the governmental decentralization policy in 1999. Following the financial crisis in 1997, Indonesia's political arrangement shifted from a centralized regime to a decentralized government system. The new system delegates political, administrative, and fiscal autonomies to provincial and districts level. The decentralization process increased the Indonesian administrative size from 26 provinces with 292 districts in 1997 to 33 provinces with more than 491 districts in 2012.

This book examines the determining factors for Indonesia's development from a centralized government regime to the state-restructuring period. This book has adopted an empirical approach by using growth theory and the historical institutionalism approach in order to examine the impact of state restructuring. However, the impact would be determined by institutional capacities and the governance level of local governments to exploit opportunities from state restructuring processes as it would affect the rate of growth and economic development.

State restructuring refers to the creation of more logical organization where the state operates more efficient and effective (Young 2002). In this sense, the book defines state restructuring as a politico-economy shift of state organization and operation through two events (AFTA and decentralization) that accelerates state management and service delivery through the participation of stakeholders, management of production factors, and state administration to achieve development goals. This study worked with the hypothesis that decentralization and AFTA would provide local district authorities ample opportunities in which to accelerate economic growth through authority over resource allocation and mobility. Furthermore, state restructuring provided opportunities in which to accelerate economic growth through the promotion of property rights and lower transaction cost. The book investigates how the state restructuring policy would affect regional economic convergence and what are the economic growth determinants. The main argument for this book is that state restructuring institutional changes would be able to explain regional economic divergence through path dependence and inherited past institutions within individual regions.