Since the 1990s, inequality has risen faster in Indonesia than in any other East Asian country apart from China. In 2002, the richest 10 per cent of households consumed as much as the poorest 42 per cent. By 2014, they consumed as much as the poorest 54 per cent. Why should we be worried about this trend? What is causing it, and how is the current administration addressing rising inequality? And what still needs to be done?

Inequality is not always bad; it can provide rewards for those who work hard and take risks. But high inequality is worrying for reasons beyond fairness. High inequality can impact economic growth, exacerbate conflict, and curb the potential of current and future generations. For example, recent research indicates that, on average, when a higher share of national income goes to the richest fifth of households, economic growth slows—whereas countries grow more quickly when the poorest two-fifths receive more.

Poorer households may lack the means to send their children to school and keep them healthy, reducing how productive they become as adults. They may also lack the means to start small businesses. These wide disparities in living standards can lead to social tension, political uncertainty and increased conflict. In Indonesia, districts with higher inequality report 60 per cent more conflict than districts with lower inequality.

Inequality is rising in Indonesia for four main reasons. First, many Indonesian children, especially those from poorer households and in rural areas, do not get the same start in life as those from wealthier families. As a result, they grow up less healthy and less skilled. One third of all differences in adult Indonesians’ living standards today can be explained by factors beyond their control: their parents’ education, where they were born, and their gender.

Second, because only a lucky few leave school with the skills valued in a modern economy, they enjoy high wages from formal jobs. Conversely, the majority of unskilled workers find themselves trapped in low productivity, low wage and informal jobs. This wage gap between skilled and unskilled workers has led to increasing wage inequality over time.

Third, ownership of financial and property assets in Indonesia is increasingly concentrated in the hands of the wealthiest. By one estimate, 50 per cent of all such assets are owned by the richest 1 per cent of Indonesians – this concentration of wealth is among the highest in the world. These individuals enjoy significant incomes from these assets, leading to more inequality. Their children inherit this wealth, growing up more advantaged and benefitting from better jobs.

And fourth, only civil servants and richer households have health and employment-related insurance and pensions, as well as significant savings. When shocks strike – whether related to illness, job loss, or natural disasters – most Indonesians are forced to borrow from friends and family, sell…

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