Subordination of the State to Business

In terms of time, by 2021, the age of reform in the country has exceeded two decades and is entering the early years of the third decade.

Observers and academicians have presented various nuances of evaluation in articulating the performance and achievements of reform, especially in connection with the relationship between business and politics in Indonesia. Academicians with positivist views tend to point out that, during the reform period, many improvements were made to the business climate relative to the previous condition (under the New Order era).

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On the other hand, however, quite a number of academicians hold critical views, opining that, during the post-New Order period, the owners of capital (i.e. capitalists) enjoyed greater room in politics. They played the role of not only political party donors but also founders of political parties. The implication is that it was understood these capitalists could eventually control the political party elite occupying strategic posts in state institutions to serve their interests.

New Order business-political ties

In his article titled “Authoritarian State, Capital Owning Class, and The Politics of Newly Industrializing Countries” (1988), Richard Robison points out that among the basic reasons why Indonesia could not build solid economic fundamentals during the New Order era was that the Suharto regime tended to position the business sector as being subordinate to the state.

In Robison’s view, what was meant by subordination of the (private) business sector to the state was that the New Order tended to render the private sector dependent on the state.

In mathematics, it can be analogized that the private sector was positioned as an aggregate part of the state. This condition later worsened further with the presence of what Robison (1998) referred to as politico-bureaucrat entrepreneurs, people who were the children of officials and otherwise shared kinship with or were cronies of public officials.

All this already had very significant implications for the deterioration of the economic fundamentals and the uncertainty over the continuity of the Indonesian economy.

KOMPAS/Lasti Kurnia

SOEs Minister Erick Thohir (center), SOEs Deputy Minister Budi Gunadi Sadikin (right), Bulog Managing Director Budi Waseso (second right), Bulog Director of Operations and Public Services Triwahyudi Saleh (second left) and Bulog Commercial Director Mansur (left) review Bulog warehouses , in Kelapa Gading, Jakarta, Wednesday (3/4/2020). Erick Thohir ensured that the Bulog rice stock was sufficient for the needs before Lebaran and the anticipation of panic as a result of the corona virus.

This is because in a model in which business is subordinate to the state, it can be presumed that the life, growth or ruin of business depends highly on the state. When the state can afford to provide input, business will survive and grow. The reverse is also true.

As such, this type of relationship model between the state and business will be incapable of building the country’s solid economic fundamentals because it does not encourage the birth and growth of independent, outstanding and strong players in the private sector that can face challenges. Further, the presence of independent and strong private players is needed because they are an important component in supporting the strength of the nation’s economic fundamentals.

Post-New Order business and politics

The characteristics of post-New Order business-political ties have undergone many changes, with a tendency to transform from the exclusive corporate model to an inclusive one. But essentially, the arena of Indonesian business and politics still remains characterized by the continued domination of the elite in controlling political and economic resources, which was later referred to as an oligarchy (Hadiz, 2010; Robison and Hadiz, 2004; Winters, 2011).

This condition, which is hard to deny, has opened greater opportunities for the oligarchy comprised of political parties and capitalists to assume a bigger role in controlling post-New Order reform and establishing solid collaboration.

Among the excesses of the reform bias of the (multiparty) political system and the general elections (direct presidential and regional elections) is the birth of transactional politics, a practice that has resulted in high-cost elections. This condition, which is hard to deny, has opened greater opportunities for the oligarchy comprised of political parties and capitalists to assume a bigger role in controlling post-New Order reform and establishing solid collaboration.

KOMPAS/WAWAN H PRABOWO

President Joko Widodo and Vice President Ma\'ruf Amin presides over a meeting to deliver programs and activities in the economic field at the Presidential Office, Presidential Palace complex, Jakarta, Wednesday (30/10/2019). At the first limited meeting with the ministers in the Indonesia Onward Cabinet, the President reminded attendees about challenges in the global economy, the importance of increasing exports and substitution of imported goods, and regulatory issues that hinder investment.

The widespread practice of transactional politics is described in adequate detail by Aspinall and Berenschot (2019) in the book Democracy for Sale. Among others, they mention that democratization in post-New Order Indonesia was very much characterized by clientelism, with the formal political institution constantly overshadowed by informal politics at every level. Then, various material benefits are supplied through personal networks. Politicians obtain the funds they need to launch their election campaigns and win by trading contracts and licenses with entrepreneurs.

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As regards the mode of collaboration between the political party oligarchy and capitalists, Arya Fernandes (Kontan.co.id, 22/2/2020) highlights that there are at least three types of entrepreneurial support behind political parties, which are: entrepreneurs serving as donors of a single party; entrepreneurs serving as donors of several parties concurrently; and entrepreneurs forming their own parties.

Ubedilah Badrun points to at least three big benefits entrepreneurs (capitalists) can secure through this collaboration with political parties. One, they gain the advantage of having access to power. Two, their business interests are accommodated in legislative regulations. Three, they enjoy facilitated access and guaranteed regulatory implementation to their advantage (Kontan.co.id, 22/2/2020).

Important points

Among the underlying salient points to emerge from analysis of post-New Order business-political relations is the strong indication that capital owners (capitalists) acquired greater political room in the post-New Order period, notably through political parties.

Capitalists were able to play the role of not just political party donors, but also political party owners. The implication is thus understood that later, the capitalists are able to control members of the political party elite who occupy strategic posts in state institutions in order to serve their own interests, including access to power, accommodation of their business interests in legislative regulations, and facilitated access and guaranteed implementation of these regulations to their advantage.

KOMPAS/WILIBRORDUS MEGANDIKA WICAKSONO

SOE Minister Erick Thohir, Cooperatives and MSME Minister Teten Masduki, and Trade Minister Muhammad Lutfi watch the grain milling process at the Integrated Rice Processing Center in Kebumen, Central Java, Sunday (23/5/2021). The center was built from CSR funds from Bank Mandiri and PT Pertamina.

The above proposition implicitly suggests that the post-Suharto democratic transition indeed succeeded in freeing Indonesia from New Order authoritarianism, but it later gave rise to an oligarchy of political parties and capitalists that further assumed the role of a shadow state (Hidayat, 2007).

In this manner, the shadow state’s presence is essentially none other than the meeting of two powers. On the one hand, the political elite need funds to ensure the survival of their political parties and gain access to power. On the other hand, the capitalists act as “donors” to the political party oligarchy, on a commitment to secure facilitated access to the desired economic resources.

This conspiratorial relationship between the political party elite and capitalists is believed to have been a determinant factor in the transformation of structures and actors (Durkheim, 1933; Weber, 1947) in the context of post-New Order business-political relations. This transformation is the changing trend in business-political ties from the subordination of business to the state during the New Order era (Robison, 1988) to the reverse, which is the state being subordinate to business in the post-New Order period.

It is therefore unsurprising that entrepreneurs are later able to freely control the authorities through party cadres that occupy strategic posts in the state’s institutional structure.

Mathematically, it can be analogized that the state has been positioned as an aggregate part of the private sector. It is therefore unsurprising that entrepreneurs are later able to freely control the authorities through party cadres that occupy strategic posts in the state’s institutional structure.

This model of the state being subordinate to business is as poor as that of business being subordinate to the state during the New Order period. It is so because business-political relations in the two models are both based on kinship and cronyism, or they involve what Robison calls (1988) politico-bureaucrat entrepreneurs.

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Syarif Hidayat

This condition makes it hard to promote the birth and growth of independent, outstanding and strong business players in the private sector to respond to challenges. Furthermore, the model of the state as subordinate to business could certainly have very significant implications in the deteriorating function of state institutions and uncertainty in the continuity of the national economy, as it is more oriented towards achieving short-term economic and political goals.

Syarif Hidayat, Researcher, Indonesian Institute of Sciences (LIPI); Member, Indonesian Academy of Sciences (AIPI)

(This article was translated by Aris Prawira)