"A Tale of Two Countries"

By Amy McCreedy

Peter Lewis: Associate Professor, School of International Service, Amercian University; Woodrow Wilson Center Fellow

Commentators:
Charles A. Cadwell: Vice President, University Research Corporation; International Director, IRIS Center
Marina Ottaway: Senior Associate, Carnegie Endowment for International Peace

According to Peter Lewis, not everyone understands why he is fascinated by comparing Indonesia and Nigeria. When he explains his project, "About a quarter of the people nod . . . a few people say, 'Wow, what a great idea,' and virtually everybody else says, 'Huh?' " After all, the two countries—geographically and culturally remote—seem to have little in common at first glance. But in fact, striking similarities exist that offer not only a meaningful basis for comparison, but also provoke important questions about the very nature of development.

Both are large states, regionally dominant. Indonesia has 200 ethnic and linguistic groups, while Nigeria has at least 250. Both are oil exporters with colonial legacies. Both have experienced a recent transition to democracy, in which transitional governments gave way to controversial presidents in the late 1990s.

With such similar backgrounds, why have the two countries followed such different paths? In 1965, Indonesia's real per capita GDP was $606, Nigeria's only slightly higher at $624. By 1995, the figure in Indonesia had climbed to $2497, while in Nigeria it had reached only $940. Moreover, Indonesia has seen a tremendous growth in manufacturing, while Nigeria still relies almost exclusively on oil exports.

According to Lewis, lucky geography (being in the "good neighborhood" of Asia) is partly the reason for Indonesia's relative success. But it is not the whole explanation. The main factor is the type of economic organization and domestic institutions. This is not to say that Indonesia is less corrupt than Nigeria, but the system under Suharto allowed for more predictable outcomes and stable expectations, which encouraged Suharto's cronies to invest their gains within the country's borders. In Indonesia the leaders were unified under an overarching authority, confident that they would be around to benefit (handsomely) from the country's development. In doing so, they had an interest in protecting property and promoting growth. They implemented good policies such as a balanced budget rule and full convertability of assets, which attracted foreign investors. The military and technocrats worked together with multilateral organizations, and used the Chinese minority as an "engine of growth."

The Nigerian system, by contrast, was more anarchic. Elites were fragmented and insecure, believing that their best interests lay in extracting as much wealth as possible and removing it from the country. Thus a "bonanza atmosphere" prevailed, fueled by the windfall from oil exports. Hostile competition between major ethnic groups exacerbated the problem.

Lewis concluded that many developing countries are capable of accomplishing what Indonesia did. Contrary to current rhetoric, a government does not have to stamp out corruption in order to give its economy a boost. Even a few basic macro policies can achieve a surprisingly high level of growth. (Lewis hastened to add that a democratic system is capable of stabilizing expectations as well as—or better than—an authoritarian regime such as Suharto's.)

Commentator Marina Ottaway of the Carnegie Endowment largely agreed with Lewis's conclusions, adding that the international community should "do less rather than more" to help countries develop. That is, donors should not try to accomplish too many goals simultaneously. "Development does not take place only in perfect countries. If that were true, no country would develop." Moreover, Ottaway maintained that "transparency" tends to be over-emphasized—after all, Indonesia managed pretty well without it. But Lewis pointed out that Suharto's system ultimately failed because it was too opaque to survive globalization, although it did succeed in bringing the nation to the point where integration into the global system was possible and imminent.

The second commentator, Charles Cadwell of the IRIS Center, stressed the importance of prioritizing. For example, to create a stock market without a good court system makes little sense—yet countries are doing this all over the world. Leaders must pay more attention to fundamentals, such as constitutional design. In the case of Indonesia, local leaders must be made more accountable to local citizens before the devolution of power can effectively take place.

Cadwell's main criticism of Lewis's two-country comparison was its narrow range. More countries need to be studied to achieve a big-picture understanding. However, he agreed that Lewis's work is an important contribution to determining what is most crucial for successful development.