Commercial power centers in Indonesia: A new paradigm to analyze the role of business groups in policy making

This study presents a framework to view and a methodology to assess policymaking in emerging market economies. They are based on the analysis of the political activities---i.e., role in and influence on economic policy---of commercial power centers (CPCs), which are defined as:;Any group, combination, or coalition of large aggregate size, that seeks to influence the design and implementation of government economic policies to suit its diversified economic interests.;The analytical approach is three-pronged: (1) Describing and critiquing literature on interest groups, collective action, and economic regulation to develop a model describing the behavioral characteristics of CPCs, which are placed in a quasi-market for political influence. The key insight (derived from work by Gary Becker) is that, if the quasi-market is competitive with free entry and if property rights are well protected through the rule of law, then the activities of CPCs are conducive to more efficient outcomes in the selection of policies. (2) Employing historical analogies appropriate for understanding today's emerging market economies. The analogies are from the early development of western capitalism (11th--16th century) to reflect the institutional development of today's emerging markets. (3) Applying the model to Indonesia to add texture to the analysis and illustrate its usefulness. Four CPCs are examined: the large Sino-Indonesian conglomerates, state-owned enterprises (SOEs), the Suharto family, and the non-oil and gas foreign sector. By articulating CPCs objectives with specific policies (banking reform, SOE privatization, trade and investment deregulation), it is shown that it was virtually impossible for Suharto to deliver on his promises for reform to the IMF. By 1997, the quasi-market had become monopolized by the Suharto kin and Sino-Indonesian CPC and the Suharto regime could not cope with the crisis.;From a general standpoint, two key policy implications derive from the analysis. First, a healthy---competitive---quasi-market for political influence is a prerequisite for the development of market capitalism. Second, a healthy---competitive---quasi-market for political influence is a prerequisite for the development of democracy and parliamentary life .