Politics, business and the state in post-Soeharto Indonesia.

• Author: Fukuoka, Yuki
• Position: Report

In Indonesia, the process of reformasi (i.e. reform), which started with the fall of President Soeharto in 1998, has led to the ascendance of business in the political arena. A growing number of entrepreneurs-turned- politicians have captured the power of office, taking over positions which had previously been held by bureaucratic elites. In the literature, the ascendance of politically assertive business is often associated with the emergence of a less interventionist state and political democracy. While the authoritarian state may play a significant role in the development of national capitalism, it is argued, as capitalism "matures" what was set up to speed up development becomes an inhibition to growth. (1) Consequently, the old state must be reformed to establish the common conditions for all capital, which entails the restriction of the political capacity of the state to intervene in the market. Elsewhere in Asia, crucial to this process was democratization, or the expansion of electoral politics, as it enabled business to use representative institutions to penetrate the state. This facilitated a gradual power shift from dirigiste bureaucratic elites, who had previously held strategic positions within the state, to business elites. The increasing influence of business caused a shift in the prevailing policy outlook as dirigiste thinking came to be replaced by a more liberal view. Such a redistribution of power within the state redefined the role of the state in the market, which then facilitated the transformation of a developmental state to a regulatory state. (2) Has the experience of Indonesia presented another case of such a transition?

The article argues that while the fall of the Soeharto regime should also be seen in the context of the changing relationship between the state and business, it has not taken the form of the transition to a regulatory state. In Indonesia the presence of the patrimonial state prevented the growth of an advanced form of capitalism and the Indonesian bourgeoisie continued to depend on state patronage for their success. In this context, democratization was induced not by disagreement over economic policy but by the skewed distribution of state resources. Towards the end of the Soeharto era an increasing number of business elites were left out of Soeharto's patronage networks, which were increasingly dominated by a narrow circle of his cronies. This generated a growing sense of resentment among business elites. Against this backdrop, the fall of Soeharto and the subsequent expansion of electoral politics enabled business elites to regain access to patronage. This has facilitated not the emergence of a regulatory state but the transformation of the patrimonial state. Drawing on the typology of state offered by Paul Hutchcroft, the article argues that political transition in Indonesia presents a shift from a patrimonial administrative state, where politico-bureaucratic elites based in the state enjoy the upper hand against business elites, to a patrimonial oligarchic state, where business has an economic base independent of the state apparatus, but access to the state is nonetheless the major avenue to wealth creation. (3)

The article is structured as follows. The following section briefly reviews the literature on state-business relations and highlights the tendency to associate the ascendance of politically assertive business with the emergence of not only a less interventionist state but also political democracy. In particular, this section looks at Kanishka Jayasuriya's insight that so-called "democratization" in East and Southeast Asia presented a gradual power shift from bureaucratic elites to business elites, which then facilitated the transformation of a developmental state into a regulatory state. (4) The third section goes on to explore what this means in the context of Indonesia and suggests that, while democratization in Indonesia should also be understood in the context of the changing relationship between the state and business, it represents another kind of evolution different from what Jayasuriya envisaged. This section also proposes an alternative way to conceptualize change in the Indonesian context with a greater emphasis on patronage than economic policy as a primary factor accounting for the ascendance of business. The fourth section looks at the transformation of the patrimonial state in the post-Soeharto era, analyzing the way in which democratization not only enabled business to regain access to patronage but also changed the old hierarchy of state-business relations. The final section sums up the findings of the article.

Politics, Business and the State

In the existing literature, the emergence of an independent and politically assertive business has been associated with the emergence of a less interventionist state and political democracy. Barrington Moore Jr.'s now classic study proposed that Western democracy was the consequence of capitalists colliding with the absolutist state over the traditional, feudal barriers the former posed to capitalist advance. Motivated by material interest, capitalists mobilized their economic power to create institutions and impose parliamentary control over the state. (5) In the West, capitalist classes were largely nurtured without state protection, and Moore was circumspect about the applicability of his "no bourgeoisie, no democracy" thesis outside the Western context, where circumstances were different. Yet, subsequent research explored the role of the bourgeoisie in non-Western contexts and pointed to the growing contradiction between rational capital and the authoritarian state that imposes constraints on emerging capitalists. For example, looking at a number of late industrializing countries, Nigel Harris argued that the growth of business led to changes to state policy and in the nature of its relationship with business:

What was set up to speed development becomes an inhibition to growth as capital develops, as output diversifies, as businessmen are increasingly drawn to participate in the world economy, and as the need for the psychological participation of a skilled labour force supersedes the dependence upon masses of unskilled labour: capitalism "matures". The old State must be reformed or overthrown, to establish the common conditions for all capital: a rule of law, accountability of public officials and expenditure, a competitive labour market and, above all, measures to ensure the common interests of capital can shape the important policies of the State [...] business can apply pressure, just as John Hampden challenged Charles I on what became later the issue of "no taxation without representation". (6) Such presumed link between increased rationalization and democratization was further explored by other researchers, who suggested that the institutionalization of formal democracy, if not Western "liberal" democracy, is indispensable for business to reshape the function of the state in the market. (7) Kevin Hewison et al., for example, argue that "there are significant contradictions between authoritarianism and market capitalism [...] the new relationship between market capitalism and the state requires mechanisms of accountability inimical to the most authoritarian regimes". (8) More explicit in this respect is Jayasuriya. Looking at a number of East and Southeast Asian states, Jayasuriya argued that democratization had the effect of mobilizing private capital, which has sought a greater political role and a less interventionist state in the economic sphere. It took the form of increasing involvement of business in policy making through the establishment of institutionalized structures for public-private consultation on key economic policies. It also involved the expansion of electoral politics, which has enabled business to use representative institutions to penetrate the state. Through such avenues business has not only offered political support and financial and intellectual inputs but also pushed to further economic reforms. (9) A key indicator of such a shift is the emergence of a regulatory state, which is characterized by the rise of regulatory institutions for indirect market intervention, such as the Central Bank and also the judiciary, and the corresponding decline of institutions for direct market intervention. (10)

In Taiwan, for example, the growing importance of the parliament provided business with a new opportunity to pursue influence buying. The past practice of selectively incorporating particular business leaders by bureaucratic elites was phased out, and a more inclusive approach was adopted in which the new generation of business elites were systematically brought into the political arena. (11) Similarly, in South Korea, the political democratization process opened the way for the politically compliant chaebols to challenge the authoritarian state. With the expansion of electoral politics since 1987, business elites have come to assert their political views even more aggressively, with increasing pressure put on the state to provide the former with an environment in which they prosper and with institutions that would allow them to influence important economic policy making. (12) The increasing influence of business in East Asia generated a shift in the prevailing policy outlook as dirigiste thinking came to be replaced by a more liberal and pro-business view. Consequently, key state institutions were transformed to curtail the influence of the state, spelling the end of the strategic interventions of the state through industry and trade policy. As the role of the state in the economy was increasingly transformed from a developmental to regulatory function, established agencies, such as the Economic Planning Board of South Korea, which was once hailed as a "super ministry" for strategic intervention, became less central to the formulation of economic policy. (13)

...