INTERNATIONAL POLITICS: Challenges to Indonesian Business

1. INTERNATIONAL POLITICS: Challenges to Indonesian Business Mohtar Mas’oed Universitas Gadjah Mada 2010

2. GLOBAL BUSINESS ENVIRONMENT Why should we bother?

3. UNCERTAINTY The biggest problem in the decision-making

4. Meanwhile . . . Economics does not help The qualifying concept of ceteris paribus means that you do not need to consider other variables

5. The truth is As business decision-making is affected by many different kinds of “things” or events, decision-makers have to consider many dimensions of human life, physical as well as social

6. Hence, WE NEED TO UNDERSTAND INTERNATIONAL POLITICS

7. CHALLENGES TO BUSINESS RISK OF LOSS OF LIFE RISK OF FINANCIAL LOSS

8. Source: M. A. Wynne & E.K. Kersting, “The Financial Crisis and Deglobalization”. Presentation to Navigatinga Sea of Change Conference, Dallas, TX. November 6, 2009.

9. What are the most challenging international political issues facing business in Indonesia? How does it impact on business activities?

10. POLITICS: REALIST • POLITICS • Struggle for power. • INTERNATIONAL POLITICS • Struggle for power in international arena. • Politics among nations.

11. POLITICS: REALIST (2) • POWER: RELATIONAL • The ability of an actor to get others to do something they otherwise would not do and at a cost to others. • POWER: STRUCTURAL • The ability to narrow the range of choices open to others.

12. POLITICS: REALIST (3) • HOW TO GET OTHERS TO DO? • By having/controlling sources of power, especially the sources of “structural power” • FORMS OF STRUCTURAL POWER? • To set societal agenda; • To devise rules of the game among actors; • To decide how things must be done;

13. POLITICS: REALIST (4) • THE SOURCES OF STRUCTURAL POWER • Security structure • Control over security provision • Production structure • Control over production • Financial structure • Control over credit • Knowledge structure • Control over the creation and dissemination of knowledge, information & technology

14. What are the most challenging issues facing Indonesia today? What is the condition of international politics today? (Global and regional?)

15. What is changing? What stays the same?

16. America Factor:Changing? Into what?

17. THE POST-COLD WAR U.S. • The only military power; • Using it to offset (relative) decline in economic status • Acting unilaterally -- “pre-emptive war”; • Pursuing “resource politics” using the pretext of “anti-terrorism” campaign.

18. USA Under G.W.Bush: The Real Objectives? Short-term:establish new military bases and control over oil economy. Long-term:American “sphere of influence” in the Eurasian “middle ground” between the E.U., Russia, and East Asia.

19. “Next to the U.S. nuclear monopoly, there was no more universally recognized symbol of the nation’s superpower status than its overseas basing system.” -- James Blaker, former Senior Advisor to the Vice Chairman of the Joint Chiefs of Staff, 1990

20. U.S. military bases, 1989 Diego Garcia to south

21. U.S. military bases since 1990 • Gulf War, 1991 2. Yugoslav Wars, 1995-99 3. Afghan War, 2001 4. Iraq War, 2003 “Their function may be more political than military. They send a message to everyone.” --Deputy Defense Secretary Paul Wolfowitz, NYT 2002

22. Wars since 1990 U.S. military power entered the strategic areas. Why? “Humanitarian” interventions to halt aggression & terrorism, topple dictatorships, protect ethnic minorities? (as US Govt claims) Extension of U.S. “imperial” influence in oil-rich regions? (as most critics say) Military & economic counterweight to emerging competitors (EU & Japan, China); control of their oil? (the most possible motive).

24. Control over Oil ”American vital interests in the Central Region are long-standing. With over 65% of the world’s oil reserves located in the Gulf states of the region— from which the United States imports nearly 20% of its needs; Western Europe 43%; and Japan, 68%--the international community must have free and unfettered access to the region’s resources.” --General J. H. Binford Peay III, Central Command (1997) Cited in Blood and Oil by Michael Klare (Metropolitan Books, 2004)

25. Patrolling Oil Routes • Assuring the security of the oil route that crosses many national boundaries = imposing power over other nations

30. Power shift?America in decline?

31. Questions? • Short-term question: “What’s the relative power coming out of the current recession? What is the situation going to be after all the damage is done in 5 years?” • As the current recession tends to be a deep and long one and to hurt everybody, it’s very difficult to predict. • Longer-term question: “What is the distribution of power going to look like in 15 or 20 years? Who’s going to be on top?” • There is clearly going to be a redistribution of power of the world. On a long-term Yes, the US will have to share power with other countries. China & India are in the best position to share power with the US.

32. Is the US in Decline? • It certainly is, in relative, not absolute, sense. • The amount of power that US enjoyed in the post-Cold War era was very unusual. It stood by itself, a giant alone, astride the world stage with no one to check it or balance it. • Now, Asia is on the rise. By 2050 the four largest economies in the world will be 1) China, 2) India, 3) USA & 4) Japan (Goldman Sachs prediction). • So the relative power that America will enjoy in the 21st century will progressively get smaller.

33. The Return of Asia? • As Angus Madison has shown, up to 1820 the two largest economies in the world were consistently China and India. So the last 200 years of Western domination of the world were essentially were an aberration. • What we are seeing remarkably now in the 21st century is a return to the norm, the normal world where China and India once again become the two largest economies. • So the biggest story here is what can be called the “rebirth of civilizations.”

34. The Return of Asia? (2) • Why China is succeeding? Because the Chinese minds are being opened up at a ferocious rate. • What differentiated China and India in 1960’s? India was an open society with a closed mind, while China was a closed society with an open mind. • Indicator: Why are the leading universities in the world, including Harvard, Yale, Princeton, Stanford, rushing to partner universities like Beijing, Fudan, and Tsinghua? • Isn’t it a recognition that these are “world-class” universities with “world-class” thinking going on?

35. Zero-sum Game? • Yes, the US has suffered a tremendous loss of credibility. It has also the problem of indebtedness, especially to China. • But, it’s not a “zero-sum” game. Where one’s loss is somebody else’s gain. • Yes, China holds so many treasury bonds and other kinds of American assets. Will China sell it off one day and US will go bankrupt? • But, China’s economy is so symbiotically connected to the US economy that American problems are dragging China down and China’s recovery will be a function of America’s recovery.

36. Can Asians Learn? • Since the end of World War II, Europe and the Americas have been peaceful and productive. Hundred years of animosity & hostility in Europe has gone. • Can Asians learn from the best practices of the nations in Europe and the Americas?

37. Obama’szeitgeist?What changes?

38. Obama’sInnaugural Address (Jan 20, 2009) “… our power alone cannot protect us, nor does it entitle us to do as we please. . . “

39. China Factor: Emerging and Challenging?

41. Possible flash-points Korea Taiwan Spratley Islands

42. Possible flashpoints Conflict over Spratley Islands, South China Sea

43. Possible flashpoints Korea

46. One Way to Perceive the Issue:To see China as a power in transition togreat power status.In order to secure great power position,the power-in-transition tends to challenge the status-quo (Power transition theory)

47. Power Transition Model RISING CHALLENGER DECLINING HEGEMON GROSS NATIONAL PRODUCT TIME THE CROSS OVER POINT

48. TESTING THE THEORY:China Question (a) • Will China surpass the US? • Is China dissatisfied?

49. Is China powerful? Source: (2001)

50. IS CHINA POWERFUL?