CHANGE AND CONTINUITY IN BUSINESS–GOVERNMENT RELATIONS

An apparent paradox of the business–government relationship in Indonesia is that although business players are often powerful, the collective interests of the business sector are frequently neglected. Is business too influential, or not influential enough? Some voices from the business sector claim that they are at best ignored by the government, and all too commonly preyed upon, subject to burdensome regulation and exposed to illegal extortion by state actors. Yet the government continues to confer privileges on many business people, both in the guise of legally mandated benefits and in the form of informal forbearance and illegal collusion. These privileges almost always come at the expense of public welfare, generating economic inefficiencies and often direct costs to the taxpayer.

The basic features of this chequered relationship date back to the 1950s, and to some extent endure simply because of their self-reinforcing character. But to say that things are bad now because they have been bad for a long time does not capture the underlying conditions that led to this situation, or allow us to identify possible avenues for change. This chapter explores the extent of change in the business–government relationship in recent years. It asks why some legacies from the past have persisted and whether there are other reasons why business–government relations in Indonesia are frequently associated with suboptimal economic outcomes.

While the focus here is on explaining some enduring problems in the relationship, it is important to put Indonesia's performance in perspective. The tendency for business influence to come at the expense of public welfare, while not fixed, reflects a dynamic that confronts all countries. Some features of the Indonesian context raise the costs associated with the efforts of business to seek influence or protection, but the record in many other countries is worse. The Indonesian state has provided the basic conditions for the development of both the economy and private business (Robison 1986). The rise of private investment, particularly from the 1980s, testifies to a business–government relationship that met some minimum, but important, definitions of effectiveness (Hill 1996).