The development of the Indonesian service sector: a first analysis of the estimates

The Development of the Indonesian Service Sector, 1900-2000: A Historical National Accounting Approach
By Daan Marks

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International Institute of Social History (IISH)

Amsterdam, the Netherlands

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Paper prepared for 1^er Congreso LatinoAmericano de Historia Economica (CLADHE)

Session 14: Historical National Accounts: New Achievements, New Challenges
5-7 December 2007, Montevideo, Uruguay.

1. Introduction

“We need statistics not only for explaining things, but also in order to know precisely what there is to explain. […] It is impossible to understand statistical figures without understanding how they have been compiled.” (Schumpeter 1954, p. 14)
As can be deducted from the quote above historical national accounts are a useful tool for measuring economic growth, but cannot be more than a starting point for analysis of the economic development process. Furthermore we need to study carefully how they are constructed. In this respect Krantz concludes that ‘processing national accounts data along methodically proper lines can create new analytical purposes’ (Krantz 1983, p. 131).

Taking to heart both Schumpeter’s and Krantz’ recommendations, the aim of this paper is to provide an analysis of the quantitative development of the Indonesian service sector between 1900 and 2000. This will be done, as Schumpeter would have wished, based on a careful and transparent reconstruction of the Indonesian service sector within the framework of national accounts. Hopefully this not only brings to light, as Krantz suggested, some ‘new analytical purposes’, but can also answer the underlying question in this paper. That is, whether Indonesia can be classified as, what Kuznets (1966, 1973) would call a ‘modern’ economy, that is an economy with sustained growth in national income per capita accompanied by important structural changes.

The remainder of the paper is organised as follows. In the next section I discuss the estimation methods adopted to arrive at the service sector estimates.¹ Section 3 will deal with the reliability of the various estimates. Then an overview of the development of the occupational structure is discussed. In section 5 the estimates for the different service sectors are presented. Section 6 combines the ingredients of section 4 and 5 by analyzing the development of labour productivity in the service sector in a comparative perspective. Section 7 concludes.

2. Estimating the service sector within the framework of national accounts

“National economies cannot be observed directly, but can only be observed via the national accounts. National accounts statistics make the size, development and composition of these national economies visible by translating them in monetary terms indicating their economic importance. The national accounts is therefore often referred to as the barometer of the national economy.” (Bos, 2003, p.41)
The System of National Accounts (SNA) consists of a coherent, consistent and integrated set of macroeconomic accounts. It provides a comprehensive accounting framework within which economic data can be compiled and presented in a format that is designed for purposes of economic analysis, decision-taking and policy-making (United Nations, 1993). This section briefly discusses the methods and sources used to estimate the various service sectors within this framework of national accounts.

For the colonial period estimation had to be done more or less from scratch. For the period since independence official estimates made by the central bureau of statistics (BPS) combined with input-output tables produced every five years since 1975 were used as starting point.

2.1 Transport and communication

According to the System of National Accounts, the output of transportation is measured by the value of the amounts receivable for transporting goods or persons. In economics a good in one location is recognized as being a different quality from the same good in another location, so that transporting from one location to another is a process of production in which an economically significant transformation takes place even if the good remains otherwise unchanged.

2.1.1 Rail transport

Using the production approach current price estimates can be derived from the profit and loss accounts of the different railway companies. During the colonial time the State Railway Enterprise (Staatsspoorwegen, SS) was the most important, but not the only provider of railway services. The two other main providers of railway services were the Deli Spoorweg Maatschappij (DSM) and the Nederlandsch-Indische Spoorweg Maatschappij (NISM).

The prime source for the reconstruction of railroad transport in the framework of the national accounts is Statistiek van het vervoer op de spoorwegen en tramwegen met machinale beweegkracht in Nederlandsch-Indië (1900-1914), and Verslag betreffende het spoor- en tramwegwezen in Nederlandsch-Indië (1915-1930). This source gives detailed information on total revenues, expenditures, and number of passengers and goods transported. Estimates on the cost structure are obtained from annual reports of the above mentioned railway enterprises (i.e. SS, DSM, and NISM).²

In Indonesia’s official national accounts, which have been published annually since 1958, railway transport is estimated first in current prices using the Railway State Enterprise annual reports.³ Gross value added at constant prices is then obtained by extrapolation, using passenger and ton-kilometer weighted composite indices as the extrapolator.

2.1.2 Road transport

Road transport is much more difficult to estimate, since one cannot simply rely on annual reports. Therefore different methods have to be explored.

Traditional road transport

According to the 1930 population census 166,521 persons (or 0.27 per cent of the total population or 52.66 per cent of people working in the transport sector) were working in the sub-sector road transport. With 15,000 of them working as a taxi-driver (see below) and 65,000 working for bus and truck companies (3 per bus/truck) this would mean that 95,000 people were working as drivers of traditional means of transportation. It is unlikely that they earned significantly more than an unskilled labourer. Therefore it is assumed that on average someone working in this sector earns a wage close to that of an unskilled labourer (CEI Volume 13, p. 111, 120).

Transport by car

The source Statistiek van het taxi-verkeer in de stad Soerabaja (Statistics on taxi-traffic in the city of Surabaya) gives information about the revenues earned by taxis. Gross revenues were estimated between fl. 15 and fl. 20 per day in 1929, with an average of fl. 17.50. So if all taxis were in use together they earned 843 x fl. 17.50 = fl. 14,752.50 per day or fl. 5,384,662.50 on a yearly basis. With 258,489 inhabitants this means that on a yearly basis per inhabitant fl. 20.83 is spent on transport by taxi. Moreover, if we look at statistics on the automobile-services in 1931, we also find average earnings per day per car of fl. 17.17 (SJO, 1935, p. 339).

Operating expenses for a taxi-driver consisted of three kinds, fuel, rent, and maintenance. A taxi used at the most 40 liter a day or roughly 14,600 liter a year, so all 843 taxis together used 12,307,800 liter per year. Since a liter of gasoline in 1929 cost fl. 0.23 total expenditure on fuel amounted to around fl. 2,830,794.