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

Abstract

Purpose 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? Design/methodology/approach 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. Findings 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. Research limitations/implications 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. Practical implications 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. Social implications 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. Originality/value 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.

How does the presidential election period affect the performance of the state-owned enterprise in Indonesia?

“…Therefore, SOE's excellent performance will disappear during the election period. The results of this study are in line with Apriliyanti and Kristiansen (2019) which shows that rent-seeking among political and business elites in the government will hamper the governance and performance of SOE companies. In addition, SOEs are companies that have political connections with the government, so their performance will depend on the strength of their connections (Fisman, 2001;Harymawan & Nowland, 2016;Leuz & Oberholzer-Gee, 2006).…”

“…Sukmadilaga et al (2014) also explained that during the Crisis the government would inject direct subsidies to enable SOEs to maintain their performance. Apriliyanti and Kristiansen (2019) show that rentseeking, collusion and corruption among political and business elites and high-ranking officials in the government detain the reforming of corporate governance of SOEs. Anecdotal evidence shows that the appointments for Ministry of State-owned Enterprises in Indonesia are more political than professional.…”

Corporate Governance, Managerial Diversion, and Indonesian State-Owned Enterprises: A Literature Review

“…So far, these kinds of studies could not be found in Indonesia. There is a study that studies Indonesian business and political connections but not for SOEs (Apriliyanti & Kristiansen, 2018). They found that the check and balance mechanism is not working in SOEs.…”

Corporate governance and financial performance of state-owned enterprises in Kenya

“…Finally, there is doubt as to whether SOE directors appointed by politicians are able to act in the best interest of the citizen and whether there is the autonomy of such directors to perform their work without political interference (Kuzman et al, 2018). Corrobarating this assertion, Apriliyanti and Kristiansen (2019) observe that SOEs are generally exposed to corruption than their private counterparts because of the potential political interference in board composition as well as in business decisions by politicians and public officials.…”