Corruption, in terms of private gains
were rampant during the regime of Suharto, the then president of Indonesia. But
at the same time the economy was growing at an impressive rate of 8 per cent
(1977-97) and net capital inflow was showing positive signs. Indonesia was
renowned as one of the ‘Asia Tigers’ and ‘high growth developing economy
(HGDE)’. Corruption at all levels were explicit and hence all that the
international investors had to do was to include the expenditure of rent
seeking in their business plan. As against the standard argument of corruption
leading to inefficient allocation of resources and pushing out the investors,
corruption in Indonesia was beneficial to the investors in terms of lax labour
and environmental regulations. Hence corruption was a positive incentive for
investors.
The level of corruption was top down.
In other words the president and his close associates will gain larger share of
the political spoils while the lower level state officials would gain the
least. For instance the top bureaucrats
would create a monopoly market using the policy instrument of regulation and
this market would be exploited by the children of Suharto (e.g. Telecom).
Foreign investors were allowed to do business only when they had sold their
shares to Suharto inc. that is approvals are faster when the family members of
the president were on board of the company.
The formal state framework was
ineffective and lagging in its targets. While the informal, personal political network
comprising of president, his associates, would be politicians, local elites,
top civil servants and retired military men was effective but was corrupt. The
loyal officials of President would super see work limits of their subordinates.
Anyone demanding more bribers or demanding bribes without the knowledge of
higher officials would be publicly punished hence creating fear among others.
This made sure that rent seeking did not interfere with the economic
objectives.
Everyone within the network had a
strong incentive not to go against it. The key feature of this system is
patronage. The top bureaucrats were kept on board by job based incentives and
official rewards. The military men were loyal and were interested in making a
profit. Military was the fundamental aspect of this network. Military budgets
and establishments were the main source of money laundering. The low level
state officials and judges were happy to supplement their low income with small
amount of bribes. People of Indonesia found it costly to revolt against corrupt
officials for the fear of losing the economic opportunities (due to the higher
growth rate in the manufacturing sector).
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