In defense of a

In defense of a
constitutional economy

A. Irmanputra Sidin
Jakarta

The Constitutional Court has, in the last two weeks, issued
two historic decisions in the economic sector, namely
constitutional reviews of Law No.20/2002 on Electricity and Law
No.22/2001 on Oil and Gas.

The main basis of the reviews is that "branches of production
that are essential to the state and dominate the livelihood of
the masses shall be controlled by the state. Land, water and the
natural resources contained therein shall be controlled by the
state and utilized to the maximum benefit of public welfare"
(Article 33 paragraphs (2) and (3) of the 1945 Constitution).

Article 33 of the 1945 Constitution specifies the
constitutional economic system founded on state control to the
maximum benefit of public welfare. The constitutional economic
system in the concept of essential production is relative. An
extreme example is chili, which is now seen as unessential, but
when some day this spice becomes indispensable to the majority of
Indonesians, and the chili market gradually turns unfriendly,
chili production will be vital and controlled by the state for
optimal public welfare.

The same is true of the control concept, in which the
authorities as an entrepreneur or mere regulator, or as a pro-
market government, are not imperative. If the state can make the
market in favor of the people, pro-market management is not a
taboo, but if the market is against the masses then the state
will have to account for it.

The state-control concept guarantees availability, national
resilience, equity, accessibility and justice so that a commodity
can be optimally consumed or produced for the greatest extent of
public welfare (i.e. pro-people). This is in line with the
concept of Jeremy Bentham that "the fundamental object of the
legal system is the promotion of happiness into four subsidiary
ends: Subsistence, abundance, security and equality".

In the Constitutional Court decisions on the reviews of the
laws, the court interprets state control as originating in and
being derived from the concept of people's sovereignty. The
people, through the 1945 Constitution, give their mandate to the
state, covering not only the authority over regulation, but also
over policy, direction, management and supervision for the
achievement of maximum public welfare.

Therefore, none of the business organizations or entities in
the republic can claim to be the sole inheritor of the state's
authority over the management of this constitutional economic
system, except the state itself under the principle of people's
sovereignty in this constitution-based country.

Factually and normatively, electricity and oil/gas are at
present categorized as essential branches of production. This is
apparent in the considerations of both laws, which reflect their
paradigm. The next question is: After establishing the paradigm
of essential products in the laws, does the judicial concept of
these laws, in linear terms, contain the gist of the
constitutional economic system?

The consideration and main articles of the Electricity Law
stipulate that the supply of electricity is realized through
competition and transparent methods under a sound business
climate, according to rules that give equal treatment and
opportunity to all players interested in the electricity
business.

The power-supply business divisions comprising generation,
transmission, distribution, sale, sale agency, market management
and power-system management are to be handled by different
business units, which can be private companies (i.e. unbundling
system). Transmission and distribution are not for competition
because their priority goes to state-owned enterprises (BUMN),
while the rest are contested by all business enterprises. The
state under this law, namely the government/regions and the
Electricity Market Supervisory Board, only has the dominant role
of planning, regulation and supervision.

By the paradigm of this law, it can be noticed that state
control is at a minimum amid the domination of competition and
the unbundling system. The consideration of the Constitutional
Court decision on the Electricity Law cites an example that in
Britain, whose system is far more developed, private companies
tend to reintegrate after the British government's previous
unbundling through a restructuring program. Recently, four
countries -- Thailand, South Korea, Brazil and Mexico --
postponed or canceled their restructuring of the electricity
sector.

Imaginably, by the unbundling system and the market (supply
and demand) dogma that consumers have the right to obtain
electricity at a "proper price" (Article 34 of the law) amid
minimum state control, people's sovereignty over prosperity will
lose its guarantee. The (market based) "proper price" is not
automatically an affordable (pro-people) price. The market regime
will turn into a "Dracula" after sucking the blood of the state
in its minimized position. In this normative condition, state
control has no capacity to create maximum public welfare so that
the Electricity Law must be declared totally ineffective by the
Constitutional Court.

The case is different from the Oil/Gas Law, where the
normative paradigm of state control reflected in its
consideration and main articles specifies that strategic non-
renewable natural resources in the mining jurisdiction of
Indonesia constitute national assets. These assets are controlled
by the state as a mining concessionaire, by setting up an
executing body to control the upstream business (exploration and
exploitation) through cooperation contracts, which at least
contain the terms that the government retains resources ownership
until the moment of relinquishment. Operational management
control is conducted by the executing body; and capital and risk
are entirely borne by business enterprises (BU) or permanent
establishments (BUT).

It is also affirmed that upstream business and downstream
business (processing, shipment, storage and trade) activities can
be handled by state-owned enterprises/regional enterprises,
cooperatives, small-scale enterprises and private business
companies, whereas permanent establishments set up and domiciled
outside Indonesia can only handle the upstream sector.

However, does this state-control paradigm perfectly cover
loopholes in the Oil/Gas Law so that the pro-people principle is
guaranteed? It seems that some rats are yet to be eliminated
without burning the granary infested. The Oil/Gas Law stipulates
that "the minister shall determine the business enterprise or
permanent establishment that is authorized to carry out
exploration and exploitation business activities..." (Article 12
paragraph (3) of this law). The phrase "is authorized" in the
legal sense is the delegation of authority that can render state
authority impotent.

Also, business enterprises or permanent establishments shall
give up, at most, 25 percent of their production to domestic
supply (Article 22 paragraph (1) of the law). The phrase "at
most" may legally allow a private/foreign business enterprise to
deliver only 0.000001 percent of its output to the people.
Doesn't this provision provide no pro-people guarantee? So, both
stipulations can frustrate the constitutional economic system,
unless the two phrases are declared invalid.

The same applies to the provisions that oil/gas shall be under
a sound and proper market mechanism, and that the social
responsibility of the government shall be limited to certain
groups (Article 28 paragraphs (2) and (3) of the law). Pro-market
arrangement is not tabooed as long as the market is accessible,
because a proper level is not automatically affordable (pro-
people).

Moreover, the state should be responsible to the entire
population rather than certain groups only, which reduces
accountability. When oil/gas on the market is not pro-people, the
state must be held responsible. Unless the above two provisions
are abolished, the government may evade its responsibility while
the oil/gas market is against the masses today.

In conclusion, we are aware that the collusion between the
authorities and entrepreneurs so far has tended to undermine the
constitutional economic system. This is not always due to the
legal instrument but has more resulted from the personal and
collective behavior or the culture of graft, which brings
inefficiency and losses to state enterprises.

However, the problem involves the regime of criminal and other
relevant codes rather than the Constitutional Court regime, so
that severe punishments for such offenses should be promoted,
while avoiding any misdirected blame.

The writer is an assistant constitutional judge and lecturer
of constitutional law at Indonusa Esa Unggul University, Jakarta.
This article expresses his personal view

2. Barlev -- Hypermarkets: Lessons from abroad
1 x 30

Lessons learnt for hypermarkets

Barlev Nicodemus
Brussels

An article that appeared in The Jakarta Post on Dec. 20
attracted my attention. The article, When violence is used to
overcome big business, shed light on an issue that is very
crucial to all of us. The writer said small suppliers were
complaining about the number of hypermarkets around Jakarta, and
were afraid of being displaced by these massive retailers.

These hypermarkets are supported by multinational companies
with unlimited capital and world-class management. Because they
buy goods directly from producers in huge quantities, they
receive price reductions, which they then pass on to customers.

It is no surprise then that hypermarkets can provide goods at
lower prices than smaller retailers. This is the key to the
retail business. Under these circumstances, small suppliers and
retailers really have no way to compete.

This is clearly understood by the governments of the countries
from which the hypermarkets come. In their home countries,
hypermarkets are allowed to open stores only on the outskirts of
cities. The reason is straightforward: to protect local or small
retailers.

Customers therefore have to drive quite a long distance to
reach the hypermarkets. They have to spend more time and money to
obtain the cheap goods. We have here, as the economists say, an
opportunity cost. As time is in short supply, the more time they
have to spend getting to the hypermarket, the less time they have
for other activities.

As a result, people will tend to go to smaller stores in their
neighborhood rather than to big retailers. Only when they have
time will they go to the hypermarket. Obviously, this policy
helps small shops survive and grow.

As a student abroad, I never saw a hypermarket located in the
business center of a city. Take a look Carrefour, for instance.
Here in Brussels, you will not find a hypermarket in Rogier (a
business center similar to Kuningan in Jakarta). You will only
find them in suburban Brussels, standing on a crossroad.

In fact, that is how Carrefour got its name. The French word
"carrefour" means crossroad, and the store took this name because
the markets are typically built on a crossroad.

This same situation occurs in the Netherlands, where another
big retailer, Makro, operates.

However, the situation in Jakarta is completely different.
Carrefour, for instance, has opened stores in many strategic
locations, such as Kuningan, Harmoni and Ratu Plaza. People can
easily reach these locations even when they are on the way home
from work. There is no disincentive to shopping at a hypermarket.
In other words, here in Jakarta we have conditions that would be
unacceptable even in Carrefour's homeland.

More surprisingly, Makro does not have seem to have the same
privileges as Carrefour. Their shops typically are located on the
outskirts of Jakarta, such as in Ciputat, Kampung Rambutan or
Meruya.

Since we have two different situations, which one is correct
under the law?

I would suggest the problem here is a lack of laws, not merely
the implementation. The fact that President Susilo Bambang
Yudhoyono plans to issue a decree in the future to regulate
wholesalers, as the article in the Post said, is clear evidence
of this. There is currently a lack of regulations. The absence of
laws has led to the two completely different treatments discussed
above. Whoever can pay more will probably receive more
privileges. Consequently, we cannot say big retailers are
operating under the law because the law is not there.

Another point I would like to put forward is the way foreign
investment is perceived. There is generally an overreaction to
foreign investment, which is clearly needed to create jobs.

However, this does not mean Indonesia cannot develop its own
domestic firms. The authorities must realize that when large
companies enter a country, they can stifle local firms.
Therefore, protecting small shops is not a mistake. It is an
acceptable practice, even in developed countries.

There is no reason to worry that such a policy would reduce
foreign investment. Indonesia does not want "a winner take all"
society, which would only lead to disempowerment and
impoverishment. Let us hope this belief will underpin all of the
regulations on foreign investment.

The writer is a student at Katholieke Universiteit Brussel and
can be reached at BarlevNicodemus.Marh@student.kubrussel.ac.be.