When Indonesian President Prabowo Subianto unveiled his Asta Cita framework, he placed food security, energy self-sufficiency, and military modernization at the heart of the nation's development strategy. The logic appears straightforward: if Indonesia can secure its physical sovereignty and stabilize key sectors, economic prosperity will follow. But a closer look at public policy and political economy suggests this assumption is built on sand.
History offers little support for the idea that food resilience, energy independence, or a stronger military can lift a middle-income country out of the so-called trap. These attributes are usually the outcomes of a productive economy, not its starting point. The real foundation of national advancement lies in broad-based prosperity, generated through abundant, high-quality employment.
When most of the labor force is absorbed into productive formal-sector jobs, household welfare improves organically, reducing reliance on government handouts. Just as importantly, a growing formal workforce expands the tax base both horizontally and vertically. A healthy tax base strengthens the state's fiscal capacity, allowing governments to fund agricultural research, accelerate energy transitions, and modernize defense without destabilizing macroeconomic fundamentals.
Ignoring labor-market quality while concentrating on defensive physical sectors risks trapping Indonesia in a vicious cycle: weakening purchasing power, a shrinking tax base, and rising social expenditures that do little to improve long-term productivity. Prabowo's paradigm needs a fundamental rethink. National prosperity does not emerge from physical security alone; labor productivity ultimately generates both wealth and resilience.
Lessons from America to Scandinavia
The United States' post-war golden age, from 1945 to the mid-1970s, shows how near-full employment can dramatically reduce inequality. During that period, gains in labor productivity moved in tandem with rising real wages for middle-class workers. That dynamic shifted sharply after the late 1970s, as labor protections weakened and financial deregulation accelerated. Between 1980 and 2005, labor productivity rose by roughly 71%, yet median real wages grew by only about 14%.
Thomas Piketty's Capital in the Twenty-First Century argued that extreme inequality arises when the return on capital consistently exceeds overall economic growth. Matthew Rognlie later refined this, suggesting that much of the increase in capital's share stems from soaring housing values driven by urban land scarcity, not limitless industrial accumulation. Despite their differences, both point to the same conclusion: when labor markets fail to distribute growth through fair wages, shared prosperity erodes.
Japan offers a powerful counterexample. Under Prime Minister Hayato Ikeda's National Income Doubling Plan, launched in 1960, surplus labor shifted from low-productivity agriculture into high-value manufacturing. During Japan's three decades of rapid expansion, unemployment remained exceptionally low, typically between 1% and 2%. It was this large-scale employment creation and continuous investment in human capital—not merely logistical or physical security—that propelled Japan into the ranks of the world's leading economies.
The Scandinavian social democracies followed a similar path. Denmark, Sweden, and Norway sustain generous welfare systems because broad tax bases and highly productive labor markets support them. Denmark, for instance, maintains one of the world's highest tax-to-GDP ratios, along with substantial personal income tax rates. Why does this model remain politically sustainable? Because most working-age citizens are employed in formal jobs with decent wages, they have both the ability to pay taxes and the confidence that they will receive reliable public services in return.
China's transformation after 1978 reinforces the lesson. Under Deng Xiaoping's leadership, labor shifted from agriculture to export-oriented manufacturing. Tens of millions of rural workers migrated to urban centers and found employment in new factories that became engines of growth. China lifted hundreds of millions out of poverty not through large-scale consumption subsidies, but by integrating them into productive non-agricultural employment that generated sustained income growth.
The informality trap
When these international experiences are compared with Indonesia's labor-market reality, a troubling structural imbalance emerges. Indonesia's economic growth has remained relatively stable at around 5% annually, yet the quality of that growth has steadily deteriorated. Its capacity to generate employment has weakened significantly. Today, every 1% increase in economic growth creates only about 110,000 new jobs. This inefficiency is compounded by Indonesia's persistently high Incremental Capital Output Ratio (ICOR), which hovers around six, suggesting that investment remains expensive and inefficient at generating additional output.
The formal industrial sector's inability to absorb new entrants has pushed a large share of Indonesians into informal employment, where wages are low, protections are minimal, and tax contributions are negligible. This not only undermines household welfare but also starves the state of the fiscal resources needed to invest in the very sectors Prabowo prioritizes.
As recent turbulence at Bank Indonesia shows, macroeconomic stability is fragile when the underlying economy is weak. Similarly, South Korea's experience demonstrates that even technological leaps require a solid employment base to translate into broad prosperity. And Vietnam's diaspora engagement highlights how human capital, not just physical infrastructure, drives growth.
Prabowo's vision, if it is to succeed, must place labor-market quality at its core. Without a strategy to create formal, productive jobs, Indonesia risks building a fortress that protects the few while leaving the many behind. The missing foundation of his economic vision is not more silos or fighter jets—it is a workforce that can power the nation's future.
