In defense of a
\nconstitutional economy<\/p>\n
A. Irmanputra Sidin
\nJakarta<\/p>\n
The Constitutional Court has, in the last two weeks, issued
\ntwo historic decisions in the economic sector, namely
\nconstitutional reviews of Law No.20\/2002 on Electricity and Law
\nNo.22\/2001 on Oil and Gas.<\/p>\n
The main basis of the reviews is that \"branches of production
\nthat are essential to the state and dominate the livelihood of
\nthe masses shall be controlled by the state. Land, water and the
\nnatural resources contained therein shall be controlled by the
\nstate and utilized to the maximum benefit of public welfare\"
\n(Article 33 paragraphs (2) and (3) of the 1945 Constitution).<\/p>\n
Article 33 of the 1945 Constitution specifies the
\nconstitutional economic system founded on state control to the
\nmaximum benefit of public welfare. The constitutional economic
\nsystem in the concept of essential production is relative. An
\nextreme example is chili, which is now seen as unessential, but
\nwhen some day this spice becomes indispensable to the majority of
\nIndonesians, and the chili market gradually turns unfriendly,
\nchili production will be vital and controlled by the state for
\noptimal public welfare.<\/p>\n
The same is true of the control concept, in which the
\nauthorities as an entrepreneur or mere regulator, or as a pro-
\nmarket government, are not imperative. If the state can make the
\nmarket in favor of the people, pro-market management is not a
\ntaboo, but if the market is against the masses then the state
\nwill have to account for it.<\/p>\n
The state-control concept guarantees availability, national
\nresilience, equity, accessibility and justice so that a commodity
\ncan be optimally consumed or produced for the greatest extent of
\npublic welfare (i.e. pro-people). This is in line with the
\nconcept of Jeremy Bentham that \"the fundamental object of the
\nlegal system is the promotion of happiness into four subsidiary
\nends: Subsistence, abundance, security and equality\".<\/p>\n
In the Constitutional Court decisions on the reviews of the
\nlaws, the court interprets state control as originating in and
\nbeing derived from the concept of people's sovereignty. The
\npeople, through the 1945 Constitution, give their mandate to the
\nstate, covering not only the authority over regulation, but also
\nover policy, direction, management and supervision for the
\nachievement of maximum public welfare.<\/p>\n
Therefore, none of the business organizations or entities in
\nthe republic can claim to be the sole inheritor of the state's
\nauthority over the management of this constitutional economic
\nsystem, except the state itself under the principle of people's
\nsovereignty in this constitution-based country.<\/p>\n
Factually and normatively, electricity and oil\/gas are at
\npresent categorized as essential branches of production. This is
\napparent in the considerations of both laws, which reflect their
\nparadigm. The next question is: After establishing the paradigm
\nof essential products in the laws, does the judicial concept of
\nthese laws, in linear terms, contain the gist of the
\nconstitutional economic system?<\/p>\n
The consideration and main articles of the Electricity Law
\nstipulate that the supply of electricity is realized through
\ncompetition and transparent methods under a sound business
\nclimate, according to rules that give equal treatment and
\nopportunity to all players interested in the electricity
\nbusiness.<\/p>\n
The power-supply business divisions comprising generation,
\ntransmission, distribution, sale, sale agency, market management
\nand power-system management are to be handled by different
\nbusiness units, which can be private companies (i.e. unbundling
\nsystem). Transmission and distribution are not for competition
\nbecause their priority goes to state-owned enterprises (BUMN),
\nwhile the rest are contested by all business enterprises. The
\nstate under this law, namely the government\/regions and the
\nElectricity Market Supervisory Board, only has the dominant role
\nof planning, regulation and supervision.<\/p>\n
By the paradigm of this law, it can be noticed that state
\ncontrol is at a minimum amid the domination of competition and
\nthe unbundling system. The consideration of the Constitutional
\nCourt decision on the Electricity Law cites an example that in
\nBritain, whose system is far more developed, private companies
\ntend to reintegrate after the British government's previous
\nunbundling through a restructuring program. Recently, four
\ncountries -- Thailand, South Korea, Brazil and Mexico --
\npostponed or canceled their restructuring of the electricity
\nsector.<\/p>\n
Imaginably, by the unbundling system and the market (supply
\nand demand) dogma that consumers have the right to obtain
\nelectricity at a \"proper price\" (Article 34 of the law) amid
\nminimum state control, people's sovereignty over prosperity will
\nlose its guarantee. The (market based) \"proper price\" is not
\nautomatically an affordable (pro-people) price. The market regime
\nwill turn into a \"Dracula\" after sucking the blood of the state
\nin its minimized position. In this normative condition, state
\ncontrol has no capacity to create maximum public welfare so that
\nthe Electricity Law must be declared totally ineffective by the
\nConstitutional Court.<\/p>\n
The case is different from the Oil\/Gas Law, where the
\nnormative paradigm of state control reflected in its
\nconsideration and main articles specifies that strategic non-
\nrenewable natural resources in the mining jurisdiction of
\nIndonesia constitute national assets. These assets are controlled
\nby the state as a mining concessionaire, by setting up an
\nexecuting body to control the upstream business (exploration and
\nexploitation) through cooperation contracts, which at least
\ncontain the terms that the government retains resources ownership
\nuntil the moment of relinquishment. Operational management
\ncontrol is conducted by the executing body; and capital and risk
\nare entirely borne by business enterprises (BU) or permanent
\nestablishments (BUT).<\/p>\n
It is also affirmed that upstream business and downstream
\nbusiness (processing, shipment, storage and trade) activities can
\nbe handled by state-owned enterprises\/regional enterprises,
\ncooperatives, small-scale enterprises and private business
\ncompanies, whereas permanent establishments set up and domiciled
\noutside Indonesia can only handle the upstream sector.<\/p>\n
However, does this state-control paradigm perfectly cover
\nloopholes in the Oil\/Gas Law so that the pro-people principle is
\nguaranteed? It seems that some rats are yet to be eliminated
\nwithout burning the granary infested. The Oil\/Gas Law stipulates
\nthat \"the minister shall determine the business enterprise or
\npermanent establishment that is authorized to carry out
\nexploration and exploitation business activities...\" (Article 12
\nparagraph (3) of this law). The phrase \"is authorized\" in the
\nlegal sense is the delegation of authority that can render state
\nauthority impotent.<\/p>\n
Also, business enterprises or permanent establishments shall
\ngive up, at most, 25 percent of their production to domestic
\nsupply (Article 22 paragraph (1) of the law). The phrase \"at
\nmost\" may legally allow a private\/foreign business enterprise to
\ndeliver only 0.000001 percent of its output to the people.
\nDoesn't this provision provide no pro-people guarantee? So, both
\nstipulations can frustrate the constitutional economic system,
\nunless the two phrases are declared invalid.<\/p>\n
The same applies to the provisions that oil\/gas shall be under
\na sound and proper market mechanism, and that the social
\nresponsibility of the government shall be limited to certain
\ngroups (Article 28 paragraphs (2) and (3) of the law). Pro-market
\narrangement is not tabooed as long as the market is accessible,
\nbecause a proper level is not automatically affordable (pro-
\npeople).<\/p>\n
Moreover, the state should be responsible to the entire
\npopulation rather than certain groups only, which reduces
\naccountability. When oil\/gas on the market is not pro-people, the
\nstate must be held responsible. Unless the above two provisions
\nare abolished, the government may evade its responsibility while
\nthe oil\/gas market is against the masses today.<\/p>\n
In conclusion, we are aware that the collusion between the
\nauthorities and entrepreneurs so far has tended to undermine the
\nconstitutional economic system. This is not always due to the
\nlegal instrument but has more resulted from the personal and
\ncollective behavior or the culture of graft, which brings
\ninefficiency and losses to state enterprises.<\/p>\n
However, the problem involves the regime of criminal and other
\nrelevant codes rather than the Constitutional Court regime, so
\nthat severe punishments for such offenses should be promoted,
\nwhile avoiding any misdirected blame.<\/p>\n
The writer is an assistant constitutional judge and lecturer
\nof constitutional law at Indonusa Esa Unggul University, Jakarta.
\nThis article expresses his personal view<\/p>\n
2. Barlev -- Hypermarkets: Lessons from abroad
\n1 x 30<\/p>\n
Lessons learnt for hypermarkets<\/p>\n
Barlev Nicodemus
\nBrussels<\/p>\n
An article that appeared in The Jakarta Post on Dec. 20
\nattracted my attention. The article, When violence is used to
\novercome big business, shed light on an issue that is very
\ncrucial to all of us. The writer said small suppliers were
\ncomplaining about the number of hypermarkets around Jakarta, and
\nwere afraid of being displaced by these massive retailers.<\/p>\n
These hypermarkets are supported by multinational companies
\nwith unlimited capital and world-class management. Because they
\nbuy goods directly from producers in huge quantities, they
\nreceive price reductions, which they then pass on to customers.<\/p>\n
It is no surprise then that hypermarkets can provide goods at
\nlower prices than smaller retailers. This is the key to the
\nretail business. Under these circumstances, small suppliers and
\nretailers really have no way to compete.<\/p>\n
This is clearly understood by the governments of the countries
\nfrom which the hypermarkets come. In their home countries,
\nhypermarkets are allowed to open stores only on the outskirts of
\ncities. The reason is straightforward: to protect local or small
\nretailers.<\/p>\n
Customers therefore have to drive quite a long distance to
\nreach the hypermarkets. They have to spend more time and money to
\nobtain the cheap goods. We have here, as the economists say, an
\nopportunity cost. As time is in short supply, the more time they
\nhave to spend getting to the hypermarket, the less time they have
\nfor other activities.<\/p>\n
As a result, people will tend to go to smaller stores in their
\nneighborhood rather than to big retailers. Only when they have
\ntime will they go to the hypermarket. Obviously, this policy
\nhelps small shops survive and grow.<\/p>\n
As a student abroad, I never saw a hypermarket located in the
\nbusiness center of a city. Take a look Carrefour, for instance.
\nHere in Brussels, you will not find a hypermarket in Rogier (a
\nbusiness center similar to Kuningan in Jakarta). You will only
\nfind them in suburban Brussels, standing on a crossroad.<\/p>\n
In fact, that is how Carrefour got its name. The French word
\n\"carrefour\" means crossroad, and the store took this name because
\nthe markets are typically built on a crossroad.<\/p>\n
This same situation occurs in the Netherlands, where another
\nbig retailer, Makro, operates.<\/p>\n
However, the situation in Jakarta is completely different.
\nCarrefour, for instance, has opened stores in many strategic
\nlocations, such as Kuningan, Harmoni and Ratu Plaza. People can
\neasily reach these locations even when they are on the way home
\nfrom work. There is no disincentive to shopping at a hypermarket.
\nIn other words, here in Jakarta we have conditions that would be
\nunacceptable even in Carrefour's homeland.<\/p>\n
More surprisingly, Makro does not have seem to have the same
\nprivileges as Carrefour. Their shops typically are located on the
\noutskirts of Jakarta, such as in Ciputat, Kampung Rambutan or
\nMeruya.<\/p>\n
Since we have two different situations, which one is correct
\nunder the law?<\/p>\n
I would suggest the problem here is a lack of laws, not merely
\nthe implementation. The fact that President Susilo Bambang
\nYudhoyono plans to issue a decree in the future to regulate
\nwholesalers, as the article in the Post said, is clear evidence
\nof this. There is currently a lack of regulations. The absence of
\nlaws has led to the two completely different treatments discussed
\nabove. Whoever can pay more will probably receive more
\nprivileges. Consequently, we cannot say big retailers are
\noperating under the law because the law is not there.<\/p>\n
Another point I would like to put forward is the way foreign
\ninvestment is perceived. There is generally an overreaction to
\nforeign investment, which is clearly needed to create jobs.<\/p>\n
However, this does not mean Indonesia cannot develop its own
\ndomestic firms. The authorities must realize that when large
\ncompanies enter a country, they can stifle local firms.
\nTherefore, protecting small shops is not a mistake. It is an
\nacceptable practice, even in developed countries.<\/p>\n
There is no reason to worry that such a policy would reduce
\nforeign investment. Indonesia does not want \"a winner take all\"
\nsociety, which would only lead to disempowerment and
\nimpoverishment. Let us hope this belief will underpin all of the
\nregulations on foreign investment.<\/p>\n
The writer is a student at Katholieke Universiteit Brussel and
\ncan be reached at BarlevNicodemus.Marh@student.kubrussel.ac.be.<\/p>",
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