1.2.2  Human and Natural Resources  

Not all resources are the same.  For example, the economy involves a combination of human 

capital or labor with natural capital and man made capital for production of goods and services.  

Here, natural capital refers not only to resources but also the processes and functions linked to 

ecosystems that provide essential life support systems.  Man made capital is the technology 

and manufactured input for economic transformations.  For example, more sophisticated, 

industrialized economies combine increased proportions of technology, infrastructure and 

natural resources to increase labor efficiency. 

There is an almost limitless range of choices for the economy in terms of applying relative 

quantities and types of resources and labor.  It is from these choices that policy makers must 

choose if they are to meet both constitutional requirements and the GOI objectives on how to 

use natural resources in a sustainable manner, while generating high levels of economic 

growth.  Simply having a large set of choices creates a number of public policy issues.  These 

include the extent to which  a natural resources dependent economy can continue to support a 

population that has grown from 60 million to more than 200 million since 1930, and to do so 

without destroying the ecological processes and functions associated with these resources.  

How the value of each unit of resource use can be optimized to provide the greatest benefit to 

current and future generations are two readily apparent issues to be addressed.  Other issues 

include the nature of trade offs that occur between economic growth objectives and allocation of 

different proportions of renewable and non renewable resources, or between natural resources 

and man made resources, as inputs to the economy.  

The nature of these trade offs illustrates the dynamic nature of labor supply in the context of the 

existing Indonesian economy.  The workforce, or stock of human capital, to be employed by the 

economy increases with population growth.  The size of the Indonesian workforce was 

estimated to be 80 million in 1990, and has been predicted to increase to 128 million by the year 

2020.  Faced with a rapid increase in the workforce and a fixed supply of natural resources, 

Indonesia s natural resources based economy will eventually become constrained as the 

amount of available natural resources becomes scarce.  This constraint derives from the 

decreasing availability of natural resources per capita from which to generate an increasingly 

higher level of welfare and income. 

Sustainable development in the context of increasing population requires efficient use of 

resources to capture maximum value of each unit of resource consumed.  Given the non 

renewable nature of many resources and inadequate renewal of renewable resources (e.g., 

from forestry), continued development based primarily on natural resources may not be feasible 

for improving the welfare of Indonesia s society.  Increased welfare gains may not be available 

to policy makers. Under a scenario of rapid exploitation, exhaustion of many natural resources 

will occur, perhaps even during the lifetime of the current generation of policy makers.   

To mitigate potential resources scarcity, increased substitution of man made capital for natural 

resources will be necessary.  Under these conditions, instead of exporting logs, oil, and 

minerals, the economy should aim to add value by combining these raw materials with labor and 

man made capital.  From this scenario, each unit of output contains a lower level of natural 

resources input.  The increased application of labor and man made capital to natural resources 

is the process of industrialization.  Movement to an industrialized economy brings with it new  

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