from their ability to derive efficient outcomes.  However, sustainable resources management 

requires more than simply efficient outcomes, it requires equitable outcomes within and 

between generations. 

The role of policy is to deliver efficient and equitable outcomes by changing inappropriate 

behaviors to more supportive responses.   Policy analysts will need to acquire an understanding 

of human behavior if they are to influence the direction of future behavior change.  Even the 

continuation of market based policy initiatives will ultimately require an increased understanding 

of the underlying determinants of existing and alternative behaviors.   

While market based approaches involve less specification of what economic actors should or 

should not do, they do require knowledge of behavioral determinants.  In this sense, market 

approaches, or economic instruments, require far greater levels of information than do 

regulatory approaches.  An understanding of social norms, incentives and disincentives that 

influence behaviors are fundamental inputs to successful and equitable policy.    

Regulatory approaches specify their objectives and effectively force economic actors to deliver 

a specified outcome.  These approaches require decision makers to select not only appropriate 

outcomes but also appropriate means for achieving those outcomes.  In this sense, command 

and control techniques can provide greater regional flexibility than market based approaches. 

Effective market based techniques are applied universally; they apply across the board to all 

economic sectors in all regions.  However, markets provide a lower cost policy management 

option and reduce the need for monitoring and enforcement.  Markets also reduce reliance on 

bureaucrats to select interventions on behalf of the rest of society by specifying who and what 

should occur. 

Within the Indonesian economy, natural resource sectors contributed as much as eighty percent 

of export growth earnings during the mid 1980 s.  Economic growth continued at internationally 

high levels (e.g., in excess of seven percent in 1996), with about two thirds of export growth 

derived from natural resource sectors.  Labor intensive sectors contributed the least to export 

growth during the 1990 s (James 1996).  While economic benefits have flowed to Indonesia, 

there remain persistent inequities between those who benefit from growth and those who do 

not.  The Article 34 constitutional requirement that the resources of Indonesia be used for the 

benefit of all Indonesians has to a limited extent occurred.  However, the limited growth in labor 

intensive sectors and the likelihood of natural resources scarcity raises questions about future 

sustainability of past economic performance.  

An economy is effectively a transformation process.  Using different combinations of labor with 

resources, the economy produces a range of goods and services.  Countries produce goods 

and services using available ingredients, technology, and management skills.  Producing these 

goods and services in an internationally competitive manner is what underpins the notion of 

comparative advantage.  

Due to the complex nature of the problems confronting society, policy development and reform 

is not a simple or straightforward task.  While the product of policy development takes the form 

of clear and concise statements of what should occur and how this should be implemented, the 

policy development process itself is often confusing and poorly understood. In the next sections, 

the role of policy in economic development and sustainable natural resources management is 

discussed. 

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