Political Industry and Political Markets

Because political processes are central to good governance, Indonesian political industry and markets present important macro issues of governance. Considering the political process as an “industry” with a focus on the structure-conduct performance paradigm provides a convenient framework to assess the relationship between political processes and governance.

Like other industrial sectors, domestic political industries must be productive and efficient in order to realize satisfactory outcomes.

An effective political industry must create opportunities for civil society institutions to participate in decision-making that reflects the interests of citizens, and it must also produce a reliable stream of good decisions. While decisions keep the processes of government moving along and ensure implementation of timely reforms, they also must link to outcomes.

So just as many agricultural, industrial, and labor markets in developing countries are chaotic and in need of reform, the political markets could also benefit from reform. Three areas for political industry reform illustrate this point well: competitive arrangements, selection of the chief executives of the organizations (CEOs), and regulatory controls.

First, competitive arrangements in political markets need not just competition, but healthy competition. A central problem with the competitive arrangements in developing country political markets is that too often there is either little effective competition (Indonesia during the Soeharto era)—or too much (Indonesia since the Soeharto era)! When there is too much competition—say, more than 20 parties contesting national elections—the process becomes chaotic, particularly when contrasted to the duopolistic political markets in Western countries or to countries with a Westminster system.

Secondly, the selection process of CEOs in developing countries needs reform. As the leaders of nations, if CEOs are inexperienced at government and if they cannot skillfully manage board meetings (e.g. Cabinet meetings) then governance is likely to suffer. Compared to the rigorous CEO selection process in developed countries, where it is unusual for a person to reach the top without many years of experience and without being closely scrutinized by the national media over a long period, the CEO selection process in developing countries is often poor.

Thirdly, political markets in developing countries like Indonesia operate in an uncertain and rapidly evolving regulatory environment where rules of the game are not especially well known or understood. To be orderly the political market needs clear regulatory rules—and those rules need to be enforced. Electoral commissions must exist in order to conduct free and fair elections, and to take action when there is abuse of the electoral process.

Similarly, regulatory rules must extend to financial flows within political industries. Like private sector firms, political firms should be required to maintain audited internal accounts and publish proper annual financial reports. Related to this is the need to promote a more realistic compensation scale for parliamentarians while avoiding regulation or suppression of nominal salaries. Just as attempts to suppress the price mechanism in foreign exchange markets led to currency black markets in the 1970s, attempts to set incomes below equilibrium prices in political markets encourages the growth of black markets in political activities.

Comment(s)

There are [2] comment(s) for this entry. Post a comment.

1. Peter McCawley, author of this paper
   (posted 30 March 2007 / 11:47:39 AM)
   
   Peter McCawley, author of this policy brief responds to the comment below:
   
   
   
   There seem to be at least two important points which arise from these observations. The first is that while it is certainly true that the three constitutional arms of government are the legislature, the judiciary, and the executive, it is also true that relationship between these three arms of government in Indonesia is as yet rather uncertain. In many areas, the true relationship (that is, the true balance of power) between these three arms in Indonesia is still vague. The relationship between the three arms has varied dramatically in the six decades since Independence in 1945. At times, the executive (in the shape of the President) has been very strong while the other two arms have been weak. More recently, since President Soeharto resigned in 1998, the legislature and the judiciary appear to have expanded their real powers. In short, the definition of the relative powers of real influence and authority in Indonesia between these three arms of government is still, more than is that case in many other countries, a 'work in progress'. The relationships are evolving, and are likely to continue to evolve in the coming decades.
   
   
   
   Second, in practice, other parts of society are important players in the process of governance in Indonesia as well. These other parts of society are generally not specifically mentioned in the Indonesian Constitution but in practice they exercise (to a greater or lesser extent) influence in the broad governance of Indonesian. These groups include the military, the media, and broader parts of civil society (religious organisations, professional groups, trade unions, producer organisations, universities, non-government organisations, think tanks, and so on). Any discussion of governance in Indonesia needs to allow for the role that these other organisations, some of which may be called "non-state actors", play in Indonesian society.
   
   
   
2. golding imoh
   (posted 23 March 2007 / 12:08:30 AM)
   
   The government legislature, judiciary and the executive are the three arms of government we have. The executive that we refer as the president in a country, while the legislature they are the people who enforce the law. Take for instance, if the executive enforces law on the people without passing it to the legislature to confirm it, will it be law? If the legislature makes law and passes it to the executive to sign it, if the executive refuses to sign after 30 days in his office it becomes a law. If the legislature enforces law on the people they want the people to benefit from it and also for the satisfaction of the country.