Sustainability, Flexibility and The Role of Government

It is self-evident that there are many articulations of sustainability; especially so in Indonesia, with its strong dependency on natural resources. The history of the palm oil sub-sector is a case in kind both in terms of the role of government as well as in terms of difficult and sensitive issues, all related to sustainability. The case of the palm oil sub-sector is a very important one for a number of reasons.  Aside from the obvious reason of the sheer economic size and importance of the sub-sector, it is also very instructive how the long term policy has been shaped and influenced by changing paradigms, as well as by paradigms and policy instruments remaining the same.

the classic policy instruments are land concessions and license

As a Leading current economist (Thomas Piketty) has noted, license and concession lie at the core of hard core capitalism and are the basis of many a great fortune today. This is an historical fact in the history of Western Europe, the USA and elsewhere. It is simply a function of a government finding itself in a position where it can give out land and license, lacking capital to do much more, and therefore needs to rely on private companies. This scenario certainly applied to Indonesia in the New Order regime. In Indonesia, license and concession have always been accompanied by payments of many kinds, the ethical evaluation of which has changed over time.

….. and labour supply and smallholders

Another element of government policy which is constant and historically quite unique is the government policy of moving households in newly opened areas – supplying labour to the investors, under the Nucleus Estate and Plasma approach, where companies were compelled to put land into the hands and management of smallholders. This was supported through transmigration, both local and interregional. Local transmigration has played a major role in establishing and consolidation the palm oil sector, and that it has led to the creation of a class of middle income farmers in Indonesia, an achievement sought after by many land reform projects which almost invariably failed around the world. Indonesia succeeded in it, taking a very pragmatic approach, making companies pay for the public good of employment.

…. And a shift to more solidly grounded sustainability      

A paradigm shift towards sustainability lies at the core of the more stringent rules applied to license and concession. The pressures exerted by NGOs such as Green peace was certainly important, but was basically a push within a much broader flow of pressures leading to the adoption of sustainability government wide. In the years 2000 and onwards also some companies developed their own policies regarding sustainability and CSR – and currently rules and regulations come not only from the Government but also from a process of self-control, responsibility and sustainability which is now including all the main large corporations of palm oil production. In these years taxation regulations expanded, together with the application of more stringent rules adhering to the sustainability concept.

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