Roads to success: Indonesia’s election

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Hello and welcome to the Intelligence on Economist Radio. I'm your host Jason Palmer. Every weekday we provide a fresh perspective on the events shaping your world. There's a whole herd of unicorns out there, that is startups that are valued at a billion dollars. Many are stampeding into stock markets hoping to be the next Google or Facebook. But there's a problem. Lots of unicorns. Business models look shaky. And there's a battle going on in China and increasingly beyond. Two cities are vying to be known as the spiritual home of hot pot, a hands on dish cropping up in more and more of the world's restaurants. But first, Indonesians vote today in a vast election, a mammoth effort in the world's third largest democracy, with 187 million voters choosing local, regional and national officials, including the president. The incumbent president, Joko Widodo, known as Jokowi, held rallies all over the country. He came to power five years ago promising reform, development and an end to corruption. His bid for a second term is something of a referendum on what's been a dynamic presidency. His main opponent is former General Prabowo Subianto. Prabowo tends to appeal to more conservative Indonesians, but both candidates have tried to seem in touch with rapidly urbanizing people wanting a better life, while also speaking to the conservative wing of the country's Muslim majority. Young people in the capital, Jakarta, seem clear about their preference. In a shopping mall. Putri Puspitasari, who's 19, says she's quite happy with the incumbent president. He has a program to help the elderly, she says, and he goes into the field, a reference to his tendency to visit ordinary Indonesians and ask them about their concerns. And Brigul Bagenda, who's 33, says Jokowi's opponent, the former general reminds him more of autocratic leaders from Indonesia's repressive past and that he'd be a step backwards.

People in Indonesia think that this presidency has gone rather well.

Guy Scriven reports for the Economist from Southeast Asia. He's been all over Indonesia's many islands asking people about how politics affects their lives.

Jokowi came into power in 2014 with this plan to spend over $300 billion, largely building thousands of kilometers of roads and railways. And it means a lot more to people than just being able to get from A to B more quickly. When I was in Eastern Java, I spoke to a restaurant owner who told me that the roads built in his local area had allowed farmers get their produce to market much more quickly without the food perishing in the kind of tropical heat. And when I was in kind of West Kalimantan last year, I spoke to a teacher and she told me that a road which had been built in the past few years had allowed her pupils to get to town quicker. And in town there was a university. And so as a result, more of her pupils were kind of applying to university. So roads mean kind of, you know, all sorts of different things to lots of different Indonesians.

But let's go off road, if you will. What other sort of signature achievements has Jokowi got to claim?

His big other set of policies have all been aimed at reducing poverty. So these include things like kind of more scholarships for poor families to pay for their children to get into school, as well as giving more money to the kind of villages. But probably the popular of his anti poverty measures is a kind of large expansion in health insurance. And so now almost over 200 million Indonesians have kind of some kind of health insurance cover, up from about 130 million in 2014.

Right. And with a raft of kind of people pleasing accomplishments like that, he must be doing pretty well in the poll.

Absolutely, yeah. His approval ratings are very high and always have been throughout his presidency and in the polls, he's 20 percentage points on average, kind of ahead of his opponent.

And so with all these achievements behind him, is there anything that's sort of dragging Jokowi down, Anything that worries people about him, or is it just all happy news?

No, I mean, it's not all rosiebkun by any means. People have basically been worried about Jokowi's attempts to ensure that he gets reelected. And some of the ways he's gone about that. He's been rather kind of intolerant of dissent. The police have shut down various kind of opposition movement marches and rallies. They've also kind of arrested several kind of opposition leaders since January on what look like quite flimsy charges. So Jokowi has also been strengthening ties with the military. He's brought into his inner circle several former kind of military generals who were very powerful during the Suharto dictatorship, which ran from 1967 to 1998 and was a kind of deeply autocratic state where the military held a huge amount of power. And so Jokowi's been kind of cozying up to these figures. On top of this, he's also been trying to kind of shore up his support base with Muslims. He's chosen as a running mater a hardline Muslim cleric who has kind of rather conservative views and who is in favor of implementing kind of Islamic law throughout the country and as well as kind of banning homosexual acts and outlawing kind of minority Muslim groups. What all this means is that lots of people who saw Jokowi as a kind of social reformer have become very disappointed by the way he's proceeded.

And how does that play out regionally? I mean, a lot of these tensions may be present also in sort of countries in the region. How is this election more broadly?

The election is very important more broadly. I mean, partly because Indonesia is just such a big country. It's got 265 million people. It is in the top 10 economies in the world when you take into account purchasing power parity. It's also kind of the biggest Muslim country in the world. It's not a country which has a very outward looking or loud or boisterous foreign policy, but it is important.

So people have some cause for concern, but not so much as to outweigh people's sort of how pleased people are with how Jokowi's done.

That's right. That's right. The other option in the election, Prabozam Pianto, is quite a kind of distasteful figure for various reasons. He's also accused of committing kind of various human rights atrocities in the dying days of the Suharto era. He would be more economically interventionalist and nationalist and doesn't really have a kind of set of well thought out policies as Jokowi does. So the argument kind of for Jokowi, despite all the negative things that he's been doing, is really that he has a better choice than Prabowo and also that his pro poor policies and his kind of infrastructure spending really seem to be working well.

And so voters are heading to the polls, have headed to the polls today. How long until we know the outcome and what's the feeling?

Been like so Indonesians are generally quite excited to vote. They've only had democracy really for the last kind of 20 years or so, and they see it as they're very proud to kind of be able to go and cast their ballot and are very excited about doing so. The election commission should release their kind of initial estimates tomorrow, and that should give us a good sense of who's won the presidential and hopefully as well how the kind of political parties have done in the legislative election.

Well, in the meantime, enjoy the atmosphere of people enjoying their democracy and we'll talk to you soon. Thanks, Guy.

Thanks, Jason.

In mythology, the unicorn is a majestic horse named after its single spiral horn. It's a sign of beauty and rarity. So you can see why the tech sector, where engineers and designers produce the magic of the modern age, have co opted the beast as a symbol of achievement. Unicorns are privately held startups valued at more than a billion dollars. Many of these firms are being floated on the stock market for vast sums. Uber will undertake an initial public offering or IPO in May, and its ride hailing rival Lyft has already done so. Airbnb and WeWork could follow, while in China an IPO wave that began last year rumbles on.

So these companies seem to have everything. They have cool brands, cool bosses, and millions of users.

Ludwig Sigele is the Economist's US Technology editor, based in San Francisco.

Even though they're pretty cool, it's not clear whether they're good businesses. They've grown fast, they're considered very valuable, but is not sure whether they can actually make money in the foreseeable future in many cases. So the way this works with unicorns is that they gobble up huge amounts of capital. We're talking billions here. For instance, Uber, the ride hailing company which will go public in early May, has raised $24 billion over its 10 year existence. And so they use this money to actually build their markets. They create their markets. This seems to be all very good for consumers or drivers of cars for that matter, because in a way they all get subsidized from this capital that's being poured into unicorns.

But building markets, subsidizing rides and subsidizing drivers and all of this, that kind of thing leads to extraordinary losses, right?

Yes. And Uber, for example, has made an operating loss of $3 billion last year. But you have to keep one thing in mind. Most of these online markets, and ride hailing in particular, is said to have strong network effects. That means if you're already big, if you have an advantage, you can get even bigger and at some point become the winner in that market that takes it all. So it's basically a race. It's these companies spending a lot of money to become the win that takes it all. And then at some point, once they dominate the markets, increase the rates and make money this way. So these unicorns are actually a very long term bet. These markets are costly to build, but at some point the companies think they can be profitable because they dominate the market.

And yet with those worries in mind, all of these companies still have astronomical valuations.

The one thing to keep in mind is that there's enormous amounts of capital available now for these type of ventures and they're making huge bets on these unicorns. So the combination of network effects and a surfeit of capital created this kind of this herd of unicorns which is now going public. These companies or many of them provide very convenient services. I mean taking Uber or taking Lyft is very, very convenient. Problem I see is at some point they have to raise their rates. And the other problem is whether society is going to be better off. I mean, for example, ride hailing has some drawbacks, increased congestion. I mean there's studies here in San Francisco that traffic is moving slower because ride hailing services, even though they are subsidized, it's hard to make a living on driving for Uber and Lyft. Also, ride hailing is weakening already weak public transport systems in the US in.

Particular, eye watering sums being thrown at tech companies that seem to have a good idea, but with some not sure if this is going to work. Sounds a lot like the dot com boom.

It does sound like the dot com boom, but it's substantially different this time around. I mean people have smartphones now, they're broadband connection. So there's not completely, it can't be excluded that a few of these unicorns will actually be very big and successful companies. So what's happening here is lots of capital betting on these companies which are trying to become winners that take it all or most in some markets.

Yeah. But if this sort of dynamic continues to play out, then that's kind of a recipe for a huge monolithic monopolistic rule over a bunch of different industries. I mean, the regulations for each of those industries will be different. I mean, is this a battle for each part of the world as it gets eaten?

When Uber started, they went into new markets all over the world very aggressively. They didn't even ask regulators whether they were allowed to do this in some cases. And in Some cases that worked and they established themselves in these countries. If you look at, for example, what happened when the E scooter company started deploying their E scooters all over the US Is that the cities pretty quickly jumped in and stopped businesses and reset them and then doled out licenses. And not necessarily necessarily to the likes of, to the biggies, the Birds and Lions, which are the big two big companies that scooter rental companies in the US and so I think city regulators have learned how to deal with these companies and that will slow them down, that will in some ways break the network effect. So again, I think there is somewhat, not somewhat, but there's a strong backlash from regulators going on and I think going forward that will limit how quickly unicorns can grow and also how dominant they can be in their respective markets.

Well, and presumably will scare off all of this easy money that a lot of these companies have been gathering up, theoretically.

But then again, this capital, you have to understand, it's a low interest environment, so there's not a lot of big returns to be had. So this capital is then searching for yield. And even slower growing unicorns could provide a significant return on investment. So as long as that is the case, capital will continue to flow. I mean, things could of course change if there is a crash, if central start raising interest rates, if it becomes a higher interest environment. And that capital would then flow to other opportunities.

So what's the future then with all of that in mind? Do you think we'll have fewer big ones or more small ones or just fewer unicorns altogether?

I think we will continue to have unicorns, but probably not as many. And they may also start to grow a little bit. Kind of how to put this sustainably and not as fast. Learn from perhaps unicorns that have failed. I mean, a lot of really depends on how successful these IPOs are now and how these companies will fare in the next year or two. But my guess is that we will continue to see unicorns, meaning big companies, very big companies that stay private for a long time and then try to make a big splash when they go public.

Ludwig, thank you very much for your time.

Thank you, Jason.

Over on MoneyTalks, our business and finance podcast, my colleague Anne McElvoy has been speaking to Brian Moynihan, the chief executive of the bank of America. There's been much talk recently of how much Mr. Moynihan gets paid. Last year it was 26 and a half million dollars in stocks and cash. But he says his pay was overwhelmingly approved by shareholders.

We had 900,000 different people vote last year in our shareholders meeting. That is not a small sample. 900,000 votes were cast and 95% of 94,8 or something like that approved the compensation. So, you know, this goes to the question of if you believe in capitalism, you believe in destruction, all that stuff. People are paid for success. I went to college and made my way through this company and my teammates did. My job is to make sure it's balanced and fair. 80, 90% of shares showed up in the quorum. There's nobody left out there that hasn't voiced their opinion. And I think that was the policy resolution. If you believe that it's a free market, you should say let the people in the company decide.

Money Talks is out every Tuesday. Subscribe to Economist Radio to hear more. James Miles is our China Editor. He's been thinking about a dish that's appearing on more menus in China and all over the world.

It's a communal experience. Everybody dips into the same broth.

Hotpot restaurants are hugely popular. There are 350,000 of them in China alone. But there's a rivalry for consumers, stomachs and wallets.

In the case of Sichuan hot pot, fiery chilies and numbing peppercorns.

So we all eat some chillies then.

And in the case of Chongqing, hot pot is pretty well exclusively chilli based.

Oh my God, it is spicy.

And you dip in your slices of beef or lamb or pieces of seafood and when ready, pick it out with your chopsticks.

It's quite fun because you never quite.

Know what you're going to fish out.

Part of it is the challenge of the numbing tastes. Part of it is also just the enjoyment of everybody sharing effectively the same dish.

Now, James, you mentioned the Sichuan and the Chongqing versions of this, which is more popular, which is older, which is winning the contest?

Well, this kind of cuisine has spread rapidly across China in recent years as a result of huge internal migration. We've seen tens of millions of people moving around the country from these regions and bringing with them their cuisine. Chengdu and Chongqing now have a bitter rivalry. Chongqing has its own museum. Chengdu recently sold a plot of land to a developer, and one of the conditions of the sale was that the developer must build a hot pot museum there. So we're going to have a rivalry of two museums.

And how did the hot pot tradition get started?

Well, that again, is a question that involves regional rivalries. Every part of China likes to have its own story of how its cuisine developed and mixed into these stories are tales that emphasize what people like to regard as positive traits of people living in those areas. So the people of Chongqing, with their proud revolutionary history, like to emphasize how it was ordinary people who used off cuts of meat and disguised that by devising these chili dishes. Others have different kinds of hot pots, and those have various histories as well, some emphasizing imperial links. A story from another about how pieces of meat were boiled in the helmets of soldiers, so emphasizing the martial background of that particular area. So all sorts of hot pot traditions across China. But it's Sichuan that has really conquered the country.

How do you mean?

You have tens of thousands of these kind of restaurants across the country now hugely popular among young people, particularly those who like to join their friends, have a meal that they feel is shared. About a third of hot potters are said to be aged between 25 and 30. Among these restaurants are Haidi Lau, which is based in Sichuan, but with outlets across the country that offers an extraordinary range of services in addition to the food itself. While you wait, you can get manicures, enjoy board games and free snacks.

Well, and that popularity stretches clearly beyond China as well. I mean, I've had Chinese hot pot. I love Sichuan hot pot here in London.

Well, indeed. And Heidi Lau is now embarked on a global expansion. Last year, it listed on the Hong Kong Stock Exchange, raised nearly a billion US dollars in its ip, and it is opening restaurants in Europe. Now. They are hoping that the experience in China, where many areas have far milder cuisine than Sichuan, but where these Sichuan hot pots have really taken off, this will provide the model for a global expansion that will not only set on fire Western tastes, but also perhaps boost China's soft power with a culinary expansion, uncultured or not.

I'm going to continue eating it. Shall we get some sometime soon?

Well, absolutely. I mean, I'm extremely excited by the impending takeoff of this kind of cuisine in London and really looking forward to it.

James, thanks very much.

Thank you.

That's all for this episode of the Intelligence. If you like us, give us a rating on Apple Podcasts and you can subscribe to the economist@exterator.com radio. Offer 12 issues for $12 or 12 pounds. See you back here tomorrow.