Gray area in business, power

Gray area in business, power

By Makmur Keliat

SURABAYA (JP): There are two depressing facts that most
Indonesians are acquainted with. The first one relates to the
psychological anxiety of people living in urban areas,
particularly those in big cities, such as Jakarta and Surabaya,
and whose dwellings are not located in the housing landscape
determined by the government nor built by real estate companies.

Notwithstanding the longevity of their stay, the government
could easily drive them away from their dwellings in the name of
public interest. It is also common to see that various schemes
for land management cooperation between farmers and private
companies, or between the government and farmers in rural areas,
end in sad stories. Why have such eyesores come into being? Are
they a price Indonesia should pay for its impressive economic
growth?

The second one relates to the way some Indonesian tycoons rise
to power, and there are only a few of them. In fact, most of them
started their business in the early period of the New Order
regime. It is also this regime that has played a facilitating
role in building up their business empire. In the wake of this
paradox, Indonesian economic policy seems to have shifted
gradually, but steadily, towards a stronger market economy.

It has been widely accepted that technological progress is one
of the determining factors behind the rapid expansion of the
modern market economy all around the world. It is this remarkable
technological progress that has created a sophisticated and
complex specialization in the division of labor and produced a
multitude of goods and services. It has also been recognized,
however, that technology itself has plunged the present modern
market economy into a situation that is very vulnerable to
deceptive and unfair acts.

Moreover, interaction between producers and consumers within a
modern market economy is very impersonal in nature. In general,
both of them do not know each other personally, to the point of
"losing face" if one party behaves dishonestly. It is this
attribute that mainly differentiates the basic concept of a
modern market economy with that of a traditional one. In very
elementary terms, a traditional market economy is primarily a
market with a very modest division of labor and product
specialization. The interaction between sellers and buyers in
such a market is personal. In consequence, the likelihood of
indulging in unfair and deceptive acts is relatively low. The
most palpable and classic case of this situation can be easily
found in an isolated village market in which marketers know each
other personally, since they all belong to the same village
community.

One significant distinction between modern and traditional
market economies is the cost of transactions. Since there is
little possibility of cheating, the cost of transactions in a
traditional market economy are very low. There is no urgent need
to work out a budget for the signing of contracts, estimating the
selling and buying price of traded goods or launching
technological innovations. On the other hand, in a modern market
economy, the cost of transactions are very high since various
efforts are made at all costs to prohibit and penalize
counterfeiting, for instance, by introducing intellectual
property rights or producing special products by introducing
concerted technological innovations.

Douglas C. North calls the types of economic organizations
coming out of the traditional market economy, personal exchange
organizations, and those from the modern market economy,
impersonal exchange organizations "with a third party
enforcement" meaning that it is in a state of being considered a
third party enforcement. In other words, a state of being
conceptualized as the sole institution, capable of minimizing
counterfeiting by translating various regulations into a legal
foundation.

However, a transition from a traditional to a modern market
economy, in most developing countries, does not take place
automatically. What has been apparent, in most cases, is the so-
called "impersonal exchange without third party enforcement".
This means that not only has it been incapable of providing legal
certainty, but it has become an interested party in the creation
of weak legal enforcement and it unilaterally imposes a term of
exchange in favor of certain marketers as well.

Under these circumstances, the cost of transactions have also
become higher, but it does not result from technological
innovation. It is mainly due to various economic levies paid to
the bureaucracy. Another end product has been that existing big
business organizations take the shape of modern ones, but they
are, in essence, very similar to traditional ones with a very
limited specialized division of labor.

In the case of Indonesia, such a phenomenon is easy to spot.
There are big companies running diversified businesses ranging
from agriculture to transportation, from real estate to road
construction, from banking to five-star hotels. They are very
much like traders in Dusun Gedang, an isolated village in the
Jambi province in Sumatra. The traders in this village sell
various agricultural products and handicrafts in the village
market simultaneously. Of great significance is that they are
very flexible in their occupation since they could work as
farmers, handicraftsmen or carpenters if they deem it necessary.
The only difference is that they run a business with little
capital and a very limited access to the bureaucracy, while most
big companies in Jakarta are the other way round, i.e. running
and building up businesses by relying on the protection given to
them by the people in power.

The overlapping scope of activities between those who are in
business and those who have power, in turn, has obscured the role
played by entrepreneurs and the people in power. Those in power
could become traders by marketing their powerful position in the
bureaucracy. Likewise, it is equally true to say the opposite,
that is, big businesses could behave like those in power by
misusing its monetary power and its proximity to the bureaucracy.
There has been a vast gray area between those who are in business
and those who have power. It is against this background that land
property rights in Indonesia might have been frequently neglected
and violated. If this is the case, then the existing situation is
certainly unfit for the principles of a modern market economy
since it creates social envy, which could lead to a volatile
political instability and, in consequence, discourage foreign
investors from bringing business to Indonesia.

How can we solve this discouraging situation? Can we merely
rely on the prescription that bureaucracy should behave
objectively while, in reality, bureaucracy itself has become
interested in creating such a social malady?

Without playing down such a remedy, it also seems necessary to
institutionalize community-based organizations among economically
disadvantaged groups in rural and urban areas. Though in
financial terms they have little capital, such organizations, in
the long run, could become appropriate instruments in building
trust and strong solidarity.

In this way, the leading economic power and bureaucracy would
face difficulty in deceiving them. In short, mutual trust and
strong solidarity could be transformed into "large capital", in
social terms, if Indonesia seriously intends to help
disadvantaged groups in the wake of a modern market economy
lacking legal certainty.

The writer is a lecturer at the Faculty of Social and
Political Sciences, Airlangga University, Surabaya and holds a
PhD degree from the School of International Studies, Jawaharlal
Nehru University, New Delhi, India.

Window A: The overlapping scope of activities between those who
are in business and those who have power, in turn, has obscured
the role played by entrepreneurs and the people in power.

Window B: How can we solve this discouraging situation? Can we
merely rely on the prescription that bureaucracy should behave
objectively while, in reality, bureaucracy itself has become
interested in creating such a social malady?