Politics and Economics in ‘Making the Elephant Dance’

State-Owned Enterprises (SOEs) Minister Erick Thohir once introduced an interesting phrase to the public: "teaching the elephant to dance". We can decipher the message. The "elephant" relates to large companies.

This phrase, as stated by Erick in his honorary doctoral inauguration speech at the School of Economics and Business, Brawijaya University, Malang, on 3 March, comes from a management book by Professor Rosabeth Moss that he studied while in the United States.

Like an elephant with its heavy trunk, a large company may move at such a slow pace it is often late in adapting to the dynamics of the business environment.

Globalization and transformation

In the context of Indonesia and his ministerial work, what Erick refers to as the elephants are state-owned enterprises (SOEs). While imparting his statement, Erick explicitly mentioned three SOEs, which were gas and energy company Pertamina, electricity company PLN, and mining holding company MIND ID. These are what he meant by "elephants" in Indonesia.

Theoretically speaking, Erick says an obese and sluggish company because of its heavy weight "does not have the [ideal] physical build to be able to be agile and be adaptive."

However, theory and logic aside, Erick does not reject the "elephant" SOEs. On the other hand, as he has done for the last three years as a minister, Erick is inclined to create new "elephants" within the SOE cluster. He pointed to the birth of Bank Sharia Indonesia (BSI).

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Scattered in the narrow space of each state-owned conventional bank, these Islamic law-based banks used to be visible more as a group of "mouse deer" in the map of financing institutions in Indonesia. Erick saw this phenomenon as unhealthy because it did not contribute significantly and productively to the formation of financial capital.

This is what prompted him to herd the scattered “mouse deer” into one large container, an entity named PT Bank Sharia Indonesia (BSI). BSI has since developed to become the sixth-largest bank in the country with the projection to enter the world’s top-10 Islamic banks.

The same applies to other SOEs, as found in the pharmaceutical and sea transportation sectors, the latter under the management of PT Pelabuhan Indonesia (Pelindo). The mergers of pharmaceutical companies, as well as port operators have created historical landmarks in the realm of SOEs.

In addition to the economic consideration, against the backdrop of the Covid-19 pandemic, the unification of pharmaceutical SOEs has provided a solid foundation for scientific collaboration at the global level. In a short time, this global scientific collaboration gave birth to European Union accreditation for the PeduliLindungi (care and protect) application.

KOMPAS/HERU SRI KUMORO (KUM)

PeduliLindungi application

Erick says the application has been "accepted as one of the world's best Covid-19 pandemic health monitoring platforms". We see the pharmaceutical sector has made "two-leap" moves: economy and know-how on the one hand and the integration of state-owned pharmaceutical companies into the world health science network. This is something we never imagined before.

The unification of the four Pelindos has followed the same script. Engaging in the port operations separately in Belawan (North Sumatra), Jakarta, Surabaya, and Makassar (South Sulawesi), the four Pelindos used to be under what I call straitjacket management. Under such management, these port operators could hardly expand and exploit potential business resources.

As a result, the four ended up only being local business actors. Their unification in October 2021 has created four national-scale sub-parent companies while still looking out for necessary adaptations and improvements.

These four operators have since made significant progress in the business with holding company PT Pelindo Indonesia, which is informally called "Pelindo Raya" (Great Pelindo), breaking into the world’s top-10 largest freight terminal operators. "Pelindo Raya" president director Arif Suhartono announced on 12 April that it had managed to reduce operational costs (excluding profit) by Rp 1.3 trillion in the first year after the merger.

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These are SOE "elephants" created during the three years of Minister Erick's tenure. Using the concept of eternity plus transformation, this "elephant making" is a business strategy in the face of globalization. Erick has attached “transformation” to create space for flexibility so that the "elephant can dance”, while “eternity” carries an aspired goal for sustainability.

Erick refers to “transformation” as "a change in form, shape, nature or function by adding, subtracting, or rearranging the [constituting] elements". He envisions what he calls “double tornadoes” as the new constructive and dynamic "powering mover" of the SOEs. The result is not only the streamlining of SOEs from initially 114 to 41 stronger entities, but also the consolidation of profits.

SOEs’ generated profits have increased from Rp 124.7 trillion in 2021 to Rp 155 trillion in 2022. That is the fruit of "making the elephant dance". A series of strategic efforts that began with creating an "elephant" and capacitating it to adapt to the global business environment has borne significant economic benefits.

Theoretical reflections

For a theoretical discussion, what needs to be understood from Erick's statement above is that his rejection of the opinion that the way he transforms SOEs is akin to "reviving capitalism and encouraging statism". Instead, he pointed out: "we carry out the transformation of SOEs under the concept of public policy, which is the national interest behind every public policy".

In line with that, Erick added, "SOEs are the locomotive of the national economy".

Given Erick's background as an entrepreneur and graduate of a university in the US, his statement is interesting. The reason is not only is there the very fact showing that by 2022 the total revenue of Chinese state-owned companies listed in the Global 500 exceeded the total revenue of US companies, it implies the affirmation of what is called "constitutional economics".

Erick emphasized, "the breath of eternity and transformation of SOEs is the mandate of the 1945 Constitution". Therefore, despite still being considered important, privatization would no longer be a panacea.

It is in this context that the theoretical discussion over Erick's presentation becomes relevant. First, still with the background of the Chinese economy, his statement reminds us of Rana Foroohar's view. In an article titled "Why China Works?" (Newsweek, 12/1/2013), Foroohar says even though the world was hit by the global financial crisis in 2008-2009, China's economy managed to resist it to grow.

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And, with a bit of mockery, he says that it is because China "is the only one that routinely breaks every rule in the economic textbook". Of course, his intended textbook is one that sheds light on a country’s superiority in the market economy.

Second, Erick's statement has brought us back to Karl Polanyi's work The Great Transformation: The Political and Economic Origins of Our Time.

Polanyi points out that the imposition of a market economy since the Industrial Revolution of the 17th and 19th centuries has given birth to injustices in the modern world. Erick's statement above, therefore, is in line with Polanyi's concept of “embedded economy”, which is an economy in force and effect within the general organization of society. In this embedded economy, as a non-market actor, the state must be active in correcting the tendency of dehumanizing market mechanisms.

Third Way

However, above all, Erick's statement directly or indirectly represents an attempt to remind us of the negative effects of the Third Way’s political economy. As pointed out by Lily Geismer in How Third Way Made Neoliberal Politics Seem Inevitable (2022), this Third Way is an attempt to find a “middle way” between the laissez-faire orthodoxy of the right and the rigid statism of the left.

While the idea of ​​the Third Way was ultimately formulated academically by sociologist Anthony Giddens, its main foundation was lent to the efforts of the US’ Democratic Party under the era of Bill Clinton and the UK’s Labor Party under Tony Blair to expand their influence beyond traditional supporters. These efforts were a response to their respective predecessors, Ronald Reagan and Margaret Thatcher.

However, as a result of the implementation of this seemingly ideal idea, it gave birth to the process of deindustrialization of the two countries. In the nutshell, this condition can be explained as follows.

Erick's statement directly or indirectly represents an attempt to remind us of the negative effects of the Third Way’s political economy.

The two parties were forced to change their "ideology" and relinquish siding with their traditional supporters. They were those from social classes who were reproduced by, in Lily Geismer’s terms, the industrial manufacturing economy and the labor unions during the US’ Great Society and New Deal policies and the UK’s industrial-based affluent middle class after the Great Depression in the late 1920s and 1930s.

Those were supporters of the Democratic Party and the Labor Party. The political domination of the two parties ended when, through neoliberal views in economics, Thatcher and Reagan seized power from the late 1970s and throughout the 1980s in the UK and US, respectively.

In Clinton and Blair's political views, this defeat was the result of demographic changes which left old political ideas irrelevant. In order to attract the interest of a new generation, both abandoned the "populist left" ideology that emphasized the importance of the state’s role in the economy.

This is where the slogan New Economy or post-industrial economy was born in the wake of an action described as a “bloodless revolution” with the theme of expanding opportunity, not government. This theme inspired the slogan of “reinventing government”, which sought to reduce the role of the state and look to policies that supported free trade and strengthened the capital markets as the driving engine of the economy. This meant that both parties were starting to leave their traditional support base and turn to a new, more cosmopolitan generation.

This ideological shift created a political foundation for the US and UK’s deindustrialization. As I once raised in "America and Our Politics-Economy" (Kompas, 15/2/2023), this process of deindustrialization, which took place prominently in the US, caused global economic instability in the world, including in Indonesia.

This is because deindustrialization entailed the elimination of the real sector’s role in the domestic economy in the US and other developed countries. As a result, these countries could no longer be expected to act as the global engine of growth for developing countries, whose economy relied on the manufacturing sector.

In this context, Erick's efforts over the past three years to "make the elephant dance" within the SOE cluster, are politically and economically strategic for Indonesia.

This is because, in the economic context, the establishment of these "elephant" corporations aims to stimulate and foster the real sector-based economic development.

In other words, the process of "making the elephant dance" means ratcheting up SOEs to perform more effectively as one of the driving engines at the domestic economic level. And politically, the "elephant" policy aligns in relevance with Article 33 of the 1945 Constitution.

KOMPAS/JOHNNY TG

Fachry Ali

Fachry Ali, Cofounder of Indonesian Institute for Study and Development of Business Ethics (LSPEU) and Advisor to National Development Planning Minister/Head of National Development Planning Agency (Bappenas)

This article was translated by Musthofid.