Part 1 of 2: How rent seeking flourishes in Indonesia

Part 1 of 2: How rent seeking flourishes in Indonesia

Evan Jones, Batam

Rent Seeking: "Whenever you have a situation in which a person
or group is in power over a community, some will seek to obtain
special favors at the expense of others." This newspaper recently
reported that a payment of Rp2,000 (US$2) is enough to get the
driver of Jakarta-Bogor train to make an unauthorized stop.
Wherever we turn, we find people using their official position to
earn extra money in a private capacity. How did this happen?

The historical causes are not well understood. This article
outlines the problem in plain terms and explains how "rent
seeking" behavior came to be almost a cultural norm. The better
we understand how this economic activity infiltrated itself into
the national culture, the better chance we have of finding ways
to eradicate it.

In addition to draining off a large amount of the nation's
capital, rent seeking corrodes social values and paralyses
institutional effectiveness.

Some 400 years ago, the Dutch East India Company (VOC) was set
up as a business to exploit Indonesia's natural resources. So far
as law and order at the local level was concerned, the venture
set a low standard of civil order, just barely enough to allow
the Company's valuable trade goods to be loaded aboard ship and
sent back to Holland without hinderance.

The Company possessed neither the will or nor the means to
directly administer areas under their control. Instead, it passed
the responsibility of civil administration to others. The powers
to collect customs duties, taxes; to officiate at births, deaths,
and marriages; to catch and punish thieves, were delegated to
third parties, offtimes local aristocracy, if not, private
individuals.

These "privatized administrators" devised an ingenious range
of rents, fees and levies to "make money" from their official
powers. Without proper oversight, privately sponsored businesses
flourished until a point was reached, around 1799, that the VOC
collapsed under the weight of it's own mismanagement. Indonesia
continued under Dutch rule for another 150 years, with those same
corrupt and inefficient methods of civil administration still in
operation.

But today's pervasive corruption cannot be blamed solely on
something the Dutch did or did not do a few hundred years ago.
Two other factors help today's rent seekers to flourish:

A. Unrealistic or overambitious laws (and performance targets)

B. Underdeveloped administrative capabilities.

Ever after its independence Indonesia's law makers have been
charged with idealistic regulatory zeal. Gambling should be
banned. Motorists should pass driving tests. Abortion should be
made illegal. Cities should have adequate parks and public
recreation areas. Duties should be paid on imported garlic. Inter
island ships should be Indonesian built and Indonesian owned. The
list of regulatory "what should's" is huge.

The difference between what the laws say and what actually
happens, can be equally large. Especially when the laws of man
contradict the laws of nature. Like all countries, Indonesia has
too many laws that are impossible to obey and too many that are
wildly overambitious in scope. Most of us instinctively know
which ones are useless, but we cannot always distinguish which
ones are morally or socially essential.

Those departmental officials who are empowered to implement
the law, are faced with too many things to do and not enough
resources. They lose their sense of proportion.

Even the simplest of human rights, such as the right of the
new born child to a birth certificate can take some 17 regulatory
hurdles. And each obstacle is likely to have a uniformed rent
seeker ready to smoothen the hurdle for a fee.

Many regulations are so senseless and unenforceable that some
say they must have been made that way on purpose. Take for
example, those rules which prohibit the import of second hand
clothes. What happens? Despite the ban, used clothes from other
countries, are in fact, readily available at affordable prices at
markets across this country. The winners? Poor people who cannot
afford new clothes and certain government officials whose
responsibility it is to enforce these unreasonable and
unenforceable regulations.

The losers? The people of Indonesia, not just because a few
officials got rich on payments from smugglers' payoffs, but
because in breaking the laws they are supposed to enforce, those
officials cannot maintain a sense of right and wrong.

Weak civil administration is another centuries old
institution. The Dutch "administered" the Indonesian islands with
very limited resources. Thereafter, in the crisis years following
the independence, the new republic's founding fathers took over
and operated the same system -- such that is was. Like the Dutch,
they were forced to run the new republic with little or no money.

They had to similarly make do. The Army lived off the land and
fed the troops with various schemes of doubtful legality.

To this day, Indonesia still feels itself too cash strapped to
pay it's civil administrators a living wage.

As a first priority, Indonesia needs a public debate to define
those one or two critical directions upon which the limited
administrative resources of this country would be most gainfully
employed (current government policies are based on dozens of key
directions.) For instance, what are the most socially important
key laws/regulations that should focussed upon? How to abolish
(or neutralize) some hundreds of antiquated or unimportant
regulations which have no immediate bearing on the well being of
Indonesia's people?

But don't forget, it is not the civil servant's role to
determine what is important and what is not -- that is the role
of government and society (including you and I).

The writer is a business analyst.