By Purwanto Setiadi, former Tempo journalist and co-founder of CommsLab, a communication ecosystem strategist on sustainable future.
How rent-driven economy erodes a country’s capacity to adapt.
Except during periods of acute crisis—most notably when the Covid-19 pandemic swept the world—Indonesia has appeared to be doing well. The economy has grown steadily at around 5 percent, major infrastructure projects have moved forward, mineral downstreaming has been accelerated, and fiscal conditions are routinely described as “safe.”
History, however, suggests that the collapse of a system rarely announces itself—least of all through official narratives of stability. What tends to happen is more subtle: power does not collapse when economic growth slows, but when growth itself becomes increasingly dependent on rents rather than productivity.
As the year draws to a close, the question is whether Indonesia has built the capacity to adapt, or whether stability itself has become a byproduct of a more efficient distribution of rents.
Rent-seeking, as broadly understood, refers to the efforts of individuals or groups to secure economic gains not by creating value, but by controlling access—through permits, concessions, regulations, or political connections. In economies where such rents are the dominant source of income, growth increasingly reflects wealth extraction rather than productivity. Instead of expanding the economic pie, rent-driven systems redistribute existing resources, divert capital and talent from productive sectors, and undermine incentives for innovation, competition, and public accountability.
In Indonesia, over time, such rent-seeking channels are evident across key sectors: natural resources such as coal, nickel, and palm oil; land and spatial planning permits; infrastructure and procurement; and broad discretionary powers embedded in regulations. As in many countries, this is not an aberration in the system, but rather a structural feature of how the economy and the state interact.
History offers a consistent warning. Systems built on rent distribution tend not to collapse suddenly, but to erode over time.
For example, Spain, at the end of its empire, subsisted on silver mines, while domestic production declined. Pre-revolutionary France maintained elite privileges until a fiscal crisis made reform impossible. The Ottoman Empire’s reliance on tax farming (known as iltizam and later malikâne) weakened its revenue base and administrative capacity. In each case, growth—or at least the appearance of it—coexisted with a declining ability to adapt.
These systems failed not because they stopped extracting resources, but because rent-dependent elites began to resist change itself. When external shocks arrived—war, technological shifts, fiscal pressures—states were no longer able to respond. Power remained centralized, but capacity did not. Indonesia is not fated to repeat these histories, but the structural resemblance is difficult to ignore.
Some of these symptoms are already visible. Governments have changed, but dependence on natural resources remains—and even multiplied. Coal, nickel, and palm oil continue to dominate export earnings, even though the expansion of these sectors is closely linked to large-scale deforestation and environmental degradation.
Other economic activities, such as downstream mineral processing, export bans, and special economic zones, have been enabled by policy choices that concentrate profits among a small number of actors with privileged access. Meanwhile, competition for land use and conversion permits has been decentralized, and state-owned enterprises have increasingly become participants in rent-sharing arrangements in the infrastructure and energy sectors.
With these practices, growth still occurs. But it increasingly depends on approval, access, and proximity to power rather than on innovation, productivity, or institutional learning.
The most immediate cost of a rent-driven growth model is not economic slowdown, but institutional depletion. When access is more important than capacity, policy coherence weakens. Regulations change frequently, enforcement becomes uneven, and legal certainty erodes—not because the state is absent, but because discretion replaces rules.
Fiscal power can also be misleading. Rent from natural resources and one-off revenues may keep key indicators stable, but they weaken the deeper link between taxation and accountability. As a result, on the one hand, the state collects less from broad-based economic activity, while, on the other, it faces increasing demands to manage environmental degradation, infrastructure maintenance, and climate-related disasters.
Over time, this dynamic diverts talent and capital. Instead of driving innovation or increasing productivity, both are drawn to sectors and activities where proximity to power offers higher returns. The economy grows, but its capacity to learn, diversify, and absorb shocks diminishes.
History shows that boom periods are not the times when rent-dependent systems are most vulnerable, but when conditions change. Commodity cycles reverse. Climate impacts intensify. Energy transitions accelerate. What once served as a source of stability becomes a source of tension.
As rents tighten, inter-elite competition intensifies, reforms become politically threatening, and coordination breaks down. Measures that could broaden the tax base, strengthen institutions, or internalize environmental costs are resisted—not because they are flawed, but because they disrupt established channels of access.
This is the moment when a fragile system begins to reveal itself. Power remains visible and concentrated, but the ability to respond—to reallocate resources, enforce rules, or adjust policies—lags behind the scale of the challenges.
Indonesia is not doomed to experience that trajectory. History is not destiny. But history does provide guidance.
The countries that survive are not the ones that grow the fastest, but the ones that maintain the ability to change direction—shifting rents into productive capacity, discretion into rules, and short-term extraction into long-term resilience.
The question facing Indonesia, therefore, is not whether it can continue growing under current conditions; the question is whether its political and economic system can reform itself when growth alone is no longer sufficient.
That choice—between growth supported by access and growth based on adaptability—will determine whether current stability becomes future strength, or a silent precursor to mere erosion.
History doesn’t predict outcomes, but it does reveal certain patterns. One of these is that systems rarely fail when they appear weak, but rather when they perceive themselves to be strong. Growth continues, authority remains visible, and stability is taken as proof of resilience. What quietly disappears is the ability to change course.
Indonesia is not destined to repeat that trajectory. But it is no exception either. The longer growth relies on access rather than productivity, and discretion rather than enforceable rules, the more adaptation is delayed, until it arrives not as reform, but as a crisis.
The real question, then, is not whether Indonesia can continue to grow under current arrangements, but whether its political economy can still choose to change before that option disappears.
