The logics of political business in state-owned enterprises: the case of Indonesia

Abstract

The purpose of this paper is to illuminate the hidden process of collusion among power holders in state-owned enterprises (SOEs) in an emerging economy, which endures despite comprehensive reforms towards democracy and good governance. Why are mechanisms of checks and balances not functioning in the way they should? The analysis is based on in-depth interviews with board members, executives, politicians, bureaucrats and representatives from auditing boards involved in the management of SOEs in Indonesia. The findings reveal practices of collective conservatism, reciprocal opportunism and normalisation of corruption. The costs of getting into powerful positions are so high that conglomerate business owners gain control over the management of SOEs. The authors use the terms “wall-building and gatekeeping” to explain such cases. There is a continuous process of wall building and gatekeeping occurring among business oligarchs, bureaucrats and elected politicians in Indonesia. New entrants into the system are co-opted by the established elite. This study shows collusion, rent-seeking and corruption among political and business elites as well as top officials in the government hinder good governance reforms in state-owned Indonesian enterprises. Collusion and illicit business practices in SOEs are clearly grounded on wall building and gatekeeping. Tackling this problem is a precondition for good governance and an improved legal and regulatory business environment in Indonesia. The ideal separation of powers and the checks and balances for good governance apparently need more than a democracy to break through. A further strengthening of the free press and critical academics will be one crucial contribution. There is generally a lack of understanding of the context of corruption, such as the influence of institutional and organisational structures. The topic of corruption is also under-researched due to the difficulty of finding empire evidence. This paper contributes to explaining why new political and organisational structures, such as a democratically elected parliament and a particularly designed corruption eradication commission, are not able to hinder rent-seeking practices and illicit political business in state agencies.