A.

Abstract

Indonesia is an archipelagic country consisting of thousands of large and small

islands with a stoic area of approximately 2 million km² and the fourth most populous
population in the world after China, India and America. Fertility or birth is one of the
factors increasing population in addition to migration, the number of births every year
in Indonesia is still large, the number of babies born after 2000 is still many in number
each year the number of babies born in Indonesia reaches around 4.5 million babies.
This high birth rate causes the explosion of population in Indonesia. This large
population certainly causes many problems, including poverty, education problems,
and others. Things like that, which trigger social inequality in people's lives. This gap
is triggered by the existence of rampant poverty and lack of employment.

B. Preface
- Definition of poverty

Michael P. Todaro define absolute poverty as the number of people who are
unable to command sufficient resources to satisfy basic needs. They are counted as the
total number living below a specified minimum level of real income—an international
poverty line.

- Definition of inequality

Based on world bank, Inequality is a broader concept than poverty in that it is

defined over the entire population, not just for the portion of the population below a
certain poverty line. Most inequality measures do not depend on the mean of the
distribution; this property of mean independence is considered to be a desirable feature
of an inequality measure. Of course, inequality measures are often calculated for
distributions other than expenditure—for instance, for income, land, assets, tax
payments, and many other continuous and cardinal variables.

A popular measure of inequality is the Gini coefficient, which ranges from 0

(perfect equality) to 1 (perfect inequality), but is typically in the range of 0.3 to 0.5 for

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per capita expenditures. The Gini coefficient is derived from the Lorenz curve, which
sorts the population from poorest to richest, and shows the cumulative proportion of
the population on the horizontal axis and the cumulative proportion of expenditure (or
income) on the vertical axis. While the Gini coefficient has many desirable
properties—mean independence, population size independence, symmetry, and Pigou-
Dalton Transfer sensitivity—it cannot easily be decomposed to show the sources of
inequality.

- Definition of development

Michael P. Todaro explain that Development is not purely an economic

phenomenon but rather a multidimensional process involving reorganization and
reorientation of entire economic and social system Development is process of
improving the quality of all human lives with three equally important aspects.

- Growth and Inequality

Having examined the relationship between inequality and levels of per capita
income, let us look now briefly at the relationship, if any, between economic growth
and inequality. During the 1960s and 1990s, per capita growth in East Asia averaged
5.5% while that of Africa declined by 0.2%, yet both Gini coefficients remained
essentially unchanged. Once again, it is not just the rate but also the character of
economic growth (how it is achieved, who participates, which sectors are given
priority, what institutional arrangements are designed and emphasized, etc.) that
determines the degree to which that growth is or is not reflected in improved living
standards for the poor. Clearly, it is not necessary for inequality to increase for higher
growth to be sustained.

- Bad Effect Of Inequality

There are three major which bad effect of inequality. First, extreme income
inequality leads to economic inefficiency. This is partly because at any given average
income, the higher the inequality is, the smaller the fraction of the population that

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qualifies for a loan or other credit. Indeed, one definition of relative poverty is the lack
of collateral. When low-income individuals (whether they are absolutely poor or not)
cannot borrow money, they generally cannot adequately educate their children or start
and expand a business. Moreover, with high inequality, the overall rate of savings in
the economy tends to be lower, because the highest rate of marginal savings is usually
found among the middle classes. Although the rich may save a larger dollar amount,
they typically save a smaller fraction of their incomes, and they almost always save a
smaller fraction of their marginal incomes. Landlords, business leaders, politicians, and
other rich elites are known to spend much of their incomes on imported luxury goods,
gold, jewelry, expensive houses, and foreign travel or to seek safe havens abroad for
their savings in what is known as capital flight. Such savings and investments do not
add to the nation’s productive resources; in fact, they represent substantial drains on
these resources. In short, the rich do not generally save and invest significantly larger
proportions of their incomes (in the real economic sense of productive domestic saving
and investment) than the middle class or even the poor. Furthermore, inequality may
lead to an inefficient allocation of assets. High inequality leads to an overemphasis on
higher education at the expense of quality universal primary education, which not only
may be inefficient but is also likely to beget still more inequality in incomes. Moreover,
high inequality of land ownership—characterized by the presence of huge latifundios
(plantations) alongside tiny minifundios that are incapable of supporting even a single
family—also leads to inefficiency because the most efficient scales for farming are
family and medium-size farms. The result of these factors can be a lower average
income and a lower rate of economic growth when inequality is high. The second
reason to be concerned with inequality above the poverty line is that extreme income
disparities undermine social stability and solidarity. Also, high inequality strengthens
the political power of the rich and hence their economic bargaining power. Usually this
power will be used to encourage outcomes favorable to themselves. High inequality
facilitates rent seeking, including actions such as excessive lobbying, large political
donations, bribery, and cronyism. When resources are allocated to such rent-seeking
behaviors, they are diverted from productive purposes that could lead to faster growth.

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Even worse, high inequality makes poor institutions very difficult to improve, because
the few with money and power are likely to view themselves as worse off from socially
efficient reform, and so they have the motive and the means to resist it. Of course, high
inequality may also lead the poor to support populist policies that can be self-defeating.
Countries with extreme inequality, such as El Salvador and Iran, have undergone
upheavals or extended civil strife that have cost countless lives and set back
development progress by decades. High inequality is also associated with pathologies
such as higher violent crime rates. In sum, with high inequality, the focus of politics
often tends to be on supporting or resisting the redistribution of the existing economic
pie rather than on policies to increase its size. Finally, extreme inequality is generally
viewed as unfair. The philosopher John Rawls proposed a thought experiment to help
clarify why this is so.

C. Case Study

Inequality in Indonesia that Continuous to bloom

The level of poverty in Indonesia pre Soeharto era was the highest number in
the history of the Indonesian economy, which reached almost 50% of the total
population. The level of poverty was successfully suppressed by the government in the
Soeharto era to reach 11%, this is the aftermath of an average economic growth
increasing in the for three consecutive decades to 7%. This increase in growth can be
achieved due to direct and indirect strategies through efficient poverty reduction
programs.

However, in 1997/1998 the level of poverty returned to the position of 19.9%

due to the monetary crisis of Asia. This percentage of poverty continues to decrease
under 15% since 2009 and in 2016 to 10.9%. This is a form of the government's
seriousness in handling the welfare problems of its people. However, the government
still has to work hard in solving poverty cases in a country that is rich in all these
resources.

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 In contrast to the poverty rate that crept down, Indonesia's Gini coefficient
continued to rise. It can be concluded that the level of inequality in Indonesia continues
to experience a surge. In some sources, this is due to Indonesian billionaires growing.
In 2002 there was one billionaire Indonesian, but in 2016 it had reached twenty people.
An expert of world poverty, Jeffry D Sach, said that 4 rich Indonesian billionaires were
equal to a hundred middle to lower class people. Also, the interest earned from the
wealth of Indonesia's richest people reaches 1000 times the amount of money spent by
the poor over a year. In the financial industry, according to OJK data, 50 conglomerates
control 70% of Indonesia's financial industry assets or Rp6,300 trillion of the total
assets of Rp9,000 trillion. When looking at the publication of the 10 richest people in
Indonesia or the 50 richest people in Indonesia, the assets of these people continue to
increase every year. While the near-poor community groups are easily thrown into the
poor because of infertile government policies. There is a real gap between the rich and
the poor. This has become the best evidence that economic growth in Indonesia is only
enjoyed by the rich.

Sumber: BPS

Based on the table above it can be observed that Indonesia's relative poverty
rate continues to decrease, while the Gini ratio of the level of inequality has increased.
This shows that by decreasing the level of poverty and increasing economic growth is

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 not the main cause the level of balance to come down, in other words these three
variables have very little correlation or none at all. This is because the level of
inequality is measured based on the gap or the distance of the high income population
and low income population.

In the case of Indonesia, the Gini ratio continues to increase despite economic
growth improve caused by the periods of democracy and decentralization that allowed
the public to enrich themselves. Another reason is in Indonesia the gini ratio is also
closely related to the movement of commodity prices. The rising trend of the nation's
gini ratio in the 2000s came amid the commodities boom, while the gini ratio stabilized
after commodity prices collapsed in 2011. Therefore, rising or falling commodity
prices apparently particularly affect the top 20 percent of the Indonesian population.
Lower commodity prices weaken this group's incomes and purchasing power. Besides
the nationwide inequality in Indonesia, there also exists a high degree of inequality
among the various regions within the country. For example, the island of Java,
particularly the Greater Jakarta region, contributes about 60 percent to the total
Indonesian economy. Direct investment is also highly concentrated on this island
causing rising inequality between Java and the outer islands.

Although the variables of economic growth and inequality do not directly affect
each other, however, a country that has a relatively low level of inequality will
experience faster economic growth, and the opposite. Therefore, reducing the level of
inequality in people's income is an important agenda for the government. In addition,
there are several things that are the reason why inequality is a bad thing and must be
minimized, including:
1. Extreme income inequality leads to economic inefficiency. This is partly because at
any given average income, the higher the inequality is, the smaller the fraction of the
population that qualifies for a loan or other credit. Indeed, one definition of relative
poverty is the lack of collateral.
2. Extreme income disparities undermine social stability and solidarity. Effected the
schism of nation.

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3. Extreme inequality is generally viewed as unfair. The philosopher John Rawls
proposed a thought experiment to help clarify why this is so.

Some effort from the government that could handle this condition (the inequality) is :
1. Encouraging the development of labor-intensive sectors (particularly the agriculture
sector and manufacturing industry). To achieve this, it is important to attract direct
investment in these labor-intensive industries (implying the government needs to
continue its focus on improving Indonesia's investment climate).
2. Meanwhile, the government needs to focus on the development of new economic
growth centers outside the island of Java in order to reduce inequality (structurally)
among the various regions. Infrastructure development in the remote regions is one
strategy to achieve this (which will cause the so-called multiplier effect). Lastly,
education and health should also be improved nationwide as higher education and
healthy lifestyles tend to lead to higher incomes.

D. Conclusion

Inequality occurs because of the many poor people and unemployment in

Indonesia. Actually Indonesia is able to become an advanced country and become a
country that is able to prosper its people. Because Indonesia has very rich and abundant
natural resources, but why is there still a very striking inequality. This is a big question
that needs answers and bright spots. This is a duty for the government and us to be able
to improve the welfare of society and minimize inequality in this country.

Bibliography

http://b-ok.xyz/book/3552852/c8e8ba

www.bps.go.id

https://www.indonesia-investments.com/id/keuangan/angka-ekonomi-
makro/kemiskinan/item301

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