Passenger shipping in Indonesia: applying principles of economic development to increase productive capacity

Sitting in a sleek but overpriced cafe in Labuan Bajo, I read a fascinating article by Ben Bland on the history and future of Indonesia’s state-owned marine passenger line, Pelni.

Featured in Monocle magazine, the article contained a multitude of perspectives: manager, customer, and maritime employees themselves. The information was gleaned not only from interviews, but also from the author’s own lengthy passenger journey on a Pelni ship, Bukit Siguntang.

The story was of particular interest to me, owing to my recent reading. I am on the final few pages of Ha-Joon Chang‘s most recent book: Economics: The User’s Guide, and this article closely relates to some of Change’s arguments. In the book, Chang effectively argues the need for developing countries to achieve not just economic growth, but to concurrently build their economies’ productive capabilities. He explains this as the difference between the oil boom, of, say, Equatorial Guinea (with, as Chang acknowledges, significant accompanying economic growth and increase in average incomes), to the development of a country like South Korea, whose government actively intervened over the last half-century to establish long-term industries, both through state-ownership as well as public support of private enterprise.

The article describes Pelni as running an annual loss of 70 million British pounds, a significant amount currently subsidized by the Indonesian government. In an interview with the incoming CEO, Pelni’s strategy is described (at least publicly) as loss reduction through eliminating various inefficiencies (mostly unspecified). While the lack of specificity brings some skepticism, I laud the practice. Why?

What are the options? Losses could be reduced through selling off or shutting down unpromising sectors or routes, and refocusing with a “streamlined” business. Alternatively, in recognition of the intense competition that Pelni faces from budget airlines, the entire company could be sold off, whether for asset salvaging or for continued maintenance under private ownership. In eschewing these two (relatively common) options and offering continued subsidies while the company achieves profitability, this is a tacit recognition from the government that their state-owned transportation company has public utility. To use Chang’s language, it provides citizens with the ability to develop their productive capacity.

In one particular story, Bland explains how a middle-aged woman is using her trip on Bukit Siguntang to buy a power generator and a water pump to start a motorcycle (whose ubiquity is unquestioned) washing business. Although I am wary of the glorious anecdote of the overnight entrepreneur, the story is not without relevance. Indonesia is a remarkably fractured country, geographically. Wealth and access to resources are distributed somewhat unequally across its many islands. As described in the article, passengers riding on Pelni’s ships regularly do so to remit or transport goods. Having a state-owned transportation system which can access many of the less frequently traveled destinations allows those areas to have a better shot at developing themselves economically – however they may end up doing so.

Additionally, as a state employer who works across a vast landscape, it could also provide feasible employment, advancement and training. Perhaps young Indonesians from Nusa Tenggara or Papua could more conceivably see themselves working for a company which is at least familiar from their home island, rather than an unfamiliar business based in a stronger economic region, like Java. This last point, however, is based on conjecture and I would not stand behind it as readily as the above arguments.

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