A Strong Nation Is Not One That Regulates the Most

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By: Yuri O. Thamrin

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Recently, I read an interesting book published by LSE Press titled The London Consensus: Economic Principles for the 21st Century. This book is edited by several prominent economists and public policy thinkers such as Tim Besley and Andrés Velasco. It attempts to answer one important question: after various global shocks in the last two decades, what kind of economic model does the world actually need today?

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This question arises because the world is indeed undergoing significant changes. Globalization, once thought to bring widespread prosperity, has also resulted in inequality, middle-class anxiety, and political populism. The 2008 financial crisis shook confidence in free markets. The Covid-19 pandemic highlighted the importance of state capacity. Meanwhile, geopolitical rivalries, trade wars, energy transitions, and climate change are making the global economy increasingly uncertain.

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One of the chapters I find most interesting is Chapter 17 on state capacity. Its authors, Dan Honig, Adnan Khan, and Joana Naritomi, present a simple yet very important idea: a successful state is not the largest, the toughest, or the most regulatory. A successful state is a capable state.

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It seems simple, but this is precisely where the problem lies for many developing countries, including Indonesia. Our public discourse has often been trapped between two extremes. Some believe that the solution to all problems is to increase the role of the state: forming new agencies, creating new regulations, expanding state control, or centralizing. On the other hand, some believe the market will solve almost all issues if the state does not interfere too much.

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This chapter is interesting because it tries to move beyond such ideological debates. The authors argue that the most important question is not “how big is the state,” but “how capable is the state.” In other words, the size of the state does not automatically determine its success.

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They provide examples of many countries that appear modern on paper. These countries have complete ministries, coordinating bodies, roadmaps, data centers, and even sophisticated policy terms. However, when it comes to implementation, the results often do not match the initial ambitions of those policies.

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There are countries that excel in maintaining fiscal stability but are weak in education. Some are strong in health but poor in environmental governance. Others are adept at making regulations but weak in enforcement. Therefore, the authors use the term capacities in the plural form. State capacity is not a single entity but different abilities across sectors and institutions.

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One of the sharpest criticisms in this chapter is the tendency of many developing countries to mimic the external forms of institutions in developed countries without having the same substantive capabilities. They call this isomorphic mimicry: appearing modern from the outside, but the actual function may not work well.

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This criticism is very relevant for many countries today. The world is indeed experiencing a kind of “institutional fever.” Everyone wants to have a sovereign wealth fund, carbon exchange, ESG framework, national AI center, energy transition agency, or strategic coordination body. However, success is not determined by the name of the institution. What determines success is the quality of governance, coordination, human resources, and consistency of implementation.

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In the context of Indonesia, this lesson feels important. In recent years, we have seen a growing tendency to use a more centralized approach in managing strategic economics. Downstreaming, energy transition, critical mineral management, carbon governance, and the discourse on single-window exports indicate the state's desire to play a larger role in the economy.

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There is nothing wrong with a strong state role. Indeed, the history of East Asian development shows that an effective state often becomes the engine of economic transformation. South Korea, Taiwan, and Singapore did not develop solely due to free market mechanisms. The state played an active role in industrialization, technology development, and national capacity building.

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However, the important lesson from Chapter 17 is that state intervention will only succeed if the state's capacity is also strong. Without adequate implementation capacity, major policies can result in layered bureaucracy, regulatory uncertainty, weak coordination, and a decline in market confidence.

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In the modern economy, trust is a very expensive asset. Investors may accept strict regulations. Businesses can also adapt to new environmental or governance standards. However, what is most difficult for the market to accept is uncertainty, sudden changes, and signals that institutions are not ready to implement announced policies.

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Therefore, state capacity is not just about power. State capacity also involves bureaucratic professionalism, quality of coordination, meritocracy, institutional credibility, and the ability to learn adaptively. An effective state is not the one that most frequently makes new rules, but the one that can consistently implement rules and is trusted by the public.

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This chapter is also interesting because it rejects the notion that all issues can be resolved through a grand design. The author prefers a pragmatic, gradual approach based on continuous learning. Successful countries are usually not those that believe they know everything from the start, but those that can learn and adapt when facing new challenges.

This may be the most important lesson for Indonesia. Amidst the grand ambition to become a developed country, have a strong downstream industry, and play a strategic role in the global green economy, our biggest challenge may not be a lack of vision. Our biggest challenge is ensuring that our institutional capacity grows as quickly as our policy ambitions.

Because ultimately, a strong country is not the one that regulates the most. A strong country is one that can consistently, professionally, and credibly solve real problems, trusted by both the people and the market.