Society Magazine

Rules, Red Tapes and a Bad Day

Posted on the 11 July 2011 by Ronnienolan @RonnieNolan

Obtaining a government permit to do business and to build property in Indonesia sometimes (well, most of the time) require less than clear deals. A little lubricant and official friendship goes a long way in getting those permits done within a reasonable time frame. Of course, you can play it clean and get your business permit done and ready in 2 months and a building permit within 5 months. Seems like something someone with plenty of time and stamina could go for.

But really, the enormous amount of documents that you have to fill in, the number of different government agencies that you have to go to and the vast number of regulations dictating business practices and licensing can be a nightmare to anyone new to the Indonesian business scene. If you’ve taken a walk on the streets of an Indonesian city, any street, you might begin to wonder how those multitudes of street vendors obtain their licenses. Well, don’t worry about them. They don’t operate on any licenses and most do not have to pay taxes either. However, any business that have established itself on top of a permanent and registered property definitely require a permit. And this is the first barrier to entry.If you’ve known Indonesia and taken a peek at the lives of its less well-off citizens, of which there are many in the slums of major cities and the rural areas, you might begin to wonder how a country so blessed in natural resources, so blessed that a seed thrown away could grow into a tree in no time and sands of rivers glitter with gold and diamonds, that such a nation’s people could be so poor and deprived. While the explanation for persistent poverty in the country is multifaceted, the dinosaur of a bureaucracy definitely play a major role in suppressing the soul of the nation denying the people their manifest destiny. The people’s right to the pursuit of happiness is definitely very difficult to realize so long as avenues and opportunities for social mobility (vertical mobility) have high barriers to entry.Rules, Red Tapes and a Bad Day                                                    A typical community in the nation’s capital of Jakarta

In the area of business, the existence of a massive and ineffective bureaucracy as well as over-regulation meant that only those businesses that have the best officials for friends and plenty of spare change can expect to go about their business smoothly without all the red tapes making things hard for them. Of course, these high barriers to entry also meant that the few businesses that managed to slip through the bottleneck would play with little competition, creating less incentives for real innovation in the products and services they offer and the work policy they pursue. Only foreign MNCs could offer any real competition to the few Indonesian conglomerates. This environment would also entail certain conditions as I shall explain below.

An over-regulated environment deprives all parties, businesses, the people and the government a share of a bigger and sweeter pie. Why do I say this? Well, let’s begin with the people. The fact that it is difficult to register and operate businesses, with all of its costs and risks, meant that there are fewer businesses that can and do operate. This means a smaller job market, tighter job competition and a weaker bargaining position for workers. As a knee-jerk reaction, the government may then introduce ever more regulations to protect workers’ rights, which will then drive even more businesses down the cliff and put ever more workers out of work. In essence, it becomes a vicious cycle where the people loses due to the lack of employment opportunities and a difficult, risky and costly business environment.

Such a highly-regulated business environment will put most of what would otherwise be law-abiding businesses into semi-criminal organizations. One that makes use of bribes and kickbacks to get government officials off its back. Of course, there’s nothing to say that these businesses would stop just there. Having paid plenty in the way of money on things they should not have paid for, these businesses are definitely keen on recouping their losses. The most likely avenue these businesses will use given the environment is tax evasion. Yes, that’s right, this is not tax avoidance, it’s tax evasion. Tax evasion in a highly-regulated and corrupt environment is done by simply paying a small share of the tax obligation to the tax man. For example, you (a business) are supposed to pay 10% of your revenue as tax. So, you just pay out 2% of your revenue as tax, give the tax magician 1% and he’ll puff your numbers up to 10%. He’ll work the mantras out and walaa! You’ve magically paid all of your tax obligations.

Of course, the fact that big businesses aren’t paying their taxes are unlikely to escape the notice of the people. They know it the hard way.

The over-inflated government bureaucracies in an over-regulated environment tend to suffer from excesses of corruption. The difficulty of getting building projects, public works and business permits created an underground market for people of the officialdom. Many bureaucrats become brokers for those who can pay, smoothing everything for their patrons, whether it is business permits or public work bids (rigging the victory). The end result is that the quality of government services becomes abominable. One, direct services from the government such as registering a passport or death certificate, can take a very long time to process. Two, infrastructures, of which bid for construction was rigged and budget siphoned off by all involved parties, creating a very poor quality of public facilities.

Rules, Red Tapes and a Bad Day

A state-of-the-art bridge in Sulawesi, Indonesia

Rules, Red Tapes and a Bad Day

                                                               Warning: Rusting railroads may give you wings!

Of course, the poor quality of government services and infrastructures, and the widespread corruption, definitely undermine the legitimacy of the government. It alienates the people from their government. And a government that has lost the support of the people has lost its legitimacy to rule since it is the people that hold mandate. This could result in eventual chaos due to the continuous degrading of living standards for the majority despite the rise of some castles in the midst of the slums.

And thus, everybody loses. The government runs out on its legitimacy to rule, the people runs out of opportunities to make a dignified and honest living, the businesses lacks a market of well-off consumers to sell their products and services to.

So, what’s the solution?

Slim down on the bureaucracy.

Really, a vast nation such as Indonesia, with its 18,000 islands, 350 distinct ethnic groups and a multitude of languages and culture cannot be administrated effectively by a big, fat dinosaur. At the same time, decentralization to local politics without slimming down on the regulations and responsibilities of government will only proliferate the same type of big, fat dinosaurs to the local scenes. As such, we end up with not one but many dinosaurs, each doing its best to make life hard for everybody else. This is exactly the scenario Indonesia finds itself in today.

Thus, the first slimming pill we ought to take is the abolishment or significant reduction in the power and scope of most of our ministries, especially those whose roles private enterprises, for or against profit, can provide. This meant the annulment of laws that the government have no need to be responsible for. Thus, as much as possible, all things outside the protection of every citizen’s life, liberty and the pursuit of happiness should be abolished. Government-owned corporations, which has grown fat from monopolies, earning from the people through payment for services and tax revenues, should be privatized and its sectors liberalized to free competition. This will naturally increase quality of services and bring down prices due to a saturation of providers.

Additionally, a smaller government meant that application for business permits become faster and easier. Without the hassles of regulations, businesses will flourish and workers rights and wages will naturally rise as job opportunities outstripped job-seekers and create competition for workers. A wealthier population can then, in time, exercise their will with regards to environmental protection and other things through their advocacy and their Rupiah.

Furthermore, a democratic society built upon the foundations of freedom will naturally yield a populace capable of independent thoughts and actions, leading to a growth in domestic science and technology, arts and aesthetics, and many other fields of learning. This freedom and the additional responsibilities that citizens now bear because of it, will consolidate the unity of the country as each man and woman understands better the importance of his role to his family and community. As such, to welcome a new dawn tomorrow after a bad day today, I vote for freedom.

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