Economic Crisis and Public Works Projects

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This year is an important year for policy makers for overcoming the global economic crisis that started from the financial crisis in the United States in the early 2008. The policy made in the beginning of 2009 will influence the future of the world's economy. In the United States, people have a high expectation on public works projects proposed by the Obama administration to overcome the economic crisis.

Barack Obama promised to build public works projects, the largest investment since the creation of the interstate highways fifty years ago. Public works projects are believed to revive the economy by creating new employments. In a meeting with Barack Obama in early December 2008, the US governors submitted the public works proposals that are ready to go in total amount of USD 136 billion including roads, bridges, etc. Those projects will create about 40,000 jobs for each USD 1 billion.

Lessons from the Great Depression
The current economic crisis is still less severe than the Great Depression in the 1930s, at least from the unemployment rate. In the 1930s, the unemployment rate reached nearly a third of the American workers. The current unemployment rate in the US at the end of December 2008 was 7.2% which was the highest record in the last 16 years, and this number is still very likely to increase. The current crisis has made economists and politicians think hard to avoid the second edition of the Great Depression.

In resolving the Great Depression, President Franklin D. Roosevelt created the New Deal including the creation of jobs through public works projects in most parts of the US. One of the projects is Tennessee Valley Authority (TVA) that built dam in the Tennessee rivers and several hydroelectric projects in the Tennessee region, one of the poorest region in the US. The history shows that the New Deal was able to address the Great Depression. In addition, TVA was able to create an energy source and 30,000 new jobs and also improve the quality of live of people in the Tennessee region.

An important principle of the programs developed by the FDR administration in addressing the Great Depression is the government intervention to the free market. This principle is an implementation of the advice of John Maynard Keynes, an interventionist government policy. The Keynesian economics will also be implemented by the Obama administration to resolve the current economic crisis.

Lessons for Indonesia
What can Indonesia learn from the global economic crisis? Learning from the success of the New Deal and the implementation of the Keynesian economics, it is clear that the government intervention is very vital to address the current economic crisis.

The budget of development that has been appropriated in the national budget (Anggaran Pendapatan dan Belanja Nasional) should be used for the real sectors, particularly in the regions of high unemployment rates. The public works projects, like TVA, such as dam and irrigation for extensifying agricultural lands outside the island of Java is quite relevant for the current situation in Indonesia. The extensification agricultural lands projects can also be directed to reduce the burden of Java island as the primary provider of the national food and alleviate poverty outside Java island.

If Indonesia wants to copy the green development initiatives as proposed by the Obama administration, Indonesia can develop a mass transportation system and alternative energy innovation projects. In the meantime, the conventional public works projects such as roads and bridges need to be focused on repairing the broken and bad infrastructures rather than developing new infrastructures.

(This post is an English version of the original article that appeared in the daily newspaper of Media Indonesia on January 15, 2009).