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.