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.