Indonesian business at the crossroads

Indonesian business at the crossroads

By Nabiel Makarim

JAKARTA (JP): Big businesses with considerable assets, like
mining and chemical based industrial companies, are now under
attack and mounting pressure from the government and the public
in the media almost every day.

Managements are being besieged by people demanding lower
production, and even closure; local governments are demanding
more shares; and individuals are offering "protection or else".

A widely read book in business circles, Asian Eclipse:
Exposing the Dark Side of Business in Asia by Michael Backman,
which was most likely written prior to our "reform era", shows
how difficult it is to do business in Asia, particularly in
Indonesia.

But descriptions in the book feel like a Sunday school
compared to the present situation. However, what is evident from
the media nowadays is only the tip of the iceberg. Thousands of
medium-scale business owners, no longer having anybody to protect
them, can only silently wish they could move their assets
somewhere else.

Land, buildings, factories and machinery are now becoming
liabilities preventing large and medium-scale businesses from
moving away. The paradox is that on one hand, Indonesia has
become antibusiness overnight; on the other, it is desperately
looking for new investments.

Some seek explanations for the phenomena in Javanese cultural
roots. Traditionally, businessmen are not considered respectable
in Javanese society. Up until now, and especially in rural areas,
the rich are always suspected to have made a pact with the devil.

The rich in return protect their homes with massive brick
walls, isolating themselves from the rest of the community. And
thus resentment against business is always there, needing only a
trigger to explode. The reform era released this dormant feeling,
which has becomes almost uncontrollable.

While convenient, a cultural explanation does not offer
anything but excuses. The root of the problem lies in the nature
of business relations between the public and government in the
past. Since the 1950s, and especially in the last 30 years,
business developed to be heavily dependent on bureaucracy, mainly
the central government.

Laws were either intentionally or unintentionally made to
inadequately protect business. Compliance with tax, safety, and
environment laws has not been enough. Business could simply not
survive without a special relationship with a certain part of the
bureaucracy.

On the other hand, by paying their dues to the bureaucracy,
business has not been made to comply with regulations. This has
increasingly encouraged business to ignore and even transgress
the public interest and fair business practices. People became
angry but they could not do anything.

And thus, business has lived under protection and is isolated
from the public. The situation was probably similar to the state
of business in 19th century America.

By the end of the Soeharto era, most surviving businesses were
those that chose to have special relations with the bureaucracy,
and were thus more likely to be in the habit of going against the
public interest.

Those that refused to submit to this simple law of survival
were either moved out of the way, unable to develop or simply
died. Enter the reform era, and rule of survival went in the
opposite direction.

Now, the newly empowered public is unleashing its anger on the
legislature, the media and in the streets. Equally, local
bureaucracies ignored in the past are demanding their fair share.

Businesses that survived in the past are now unprepared and
confused. Meanwhile, the central government and, to a certain
degree, local governments are paralyzed, unable to make
decisions, let alone lead. They are caught between maintaining
their populist image and the need to take pragmatic steps.

The stalemate simply cannot go on. In the short term, it is
crippling an already sick economy. In the medium term it further
harms government credibility in the eyes of business and future
investors.

In the longer term, the situation may mean bad relations
between government and business.

Business historian Alfred D. Chandler has argued that the
present adversary relations between the government and business
in the United States has roots in the 19th century, where big
business aggressively evolved, transgressing public and other
businesses interests. A similar trend may happen in Indonesia.

To end the stalemate, the government must assume leadership.
It must make business pay for past mistakes through the courts
and ensure those mistakes are not repeated.

For past violations of environmental laws for example,
companies must be brought to a fair and transparent trial. They
may have to pay compensation, pay the cost of clearing up their
mistakes, or face criminal charges, but not closure or limitation
of production.

Government must encourage business to be an integral part of
its physical and social environment. It must also persuade the
public to accept a positive sum game solution.

Having done this, business will have a choice: repeat past
mistakes by seeking protection from officials or learn from them.
The former alternative is absurd.

The shareholders, for the sake of their own interests, will
not allow this. In the second alternative, business must change
its attitude radically and operate with a different meaning of
profit maximizing principle and become an integral part of
society.

If businesses pay tax, comply with regulations, and maintain
communications with their stakeholders, they must be allowed to
go on. After all, business is also a social asset.

The writer is a member of the Business Competition Supervisory
Commission and a former executive at the Environment Impact
Management Agency.