Business Environment

POLITICAL ECONOMY APPROACH

 Business Environment Framework

State

Market Society
 Political Economy Approach

 Keywords: Bringing power back in

 Political economy focuses on the instability,
inequality and crisis within the market
 It argues that instability, inequality and crisis are
both causes and effects of free market.
 The core components of the political economy

 Power and exploitation

 Capitalism
 Imperialism, Globalism, and the World System
 Comparison

 Liberal Approach

Self- Self- Self-

Interest Interest Interest

 Political Economy Approach

Powerful

Powerless
 Instability and Inequality as Market Effects

 Capital and labor have mutually incompatible

interests:
- Capital seeks the highest profit vs labour seeks the
highest wages.
- Capital seeks absolute control vs labour looks for
bargaining rights.
 Inequality as Market’s Causes

 To ensure the maximization of profit, market needs

to ensure that there is enough labour ready to be
employed for a minimum wage in the industry.
 To create this, the market has to utilize various
strategies:
1. Changing values  System of use value  System of
exchange value  commodification of labour
2. Destroy the traditional structure  Division of labour
 workers rely on wage
3. Overpopulation  The birth of modern medicine
 Business Environment in Indonesia

Colonial Context
European
State

Chinese

Indonesia
 Business Environment in Indonesia

 The top tier economy comprised manufacture and

plantation
 The second tier of economy comprises:
1. Agrarian merchant  retail import, collection of
produce & moneylending
2. Trade and manufacture  Kretek & Batik
 Competition has been set from the beginning between
Chinese & Indonesia
 To compete with Chinese groups, the indigenous built
Islamic trading groups since 1920s. (ex: Sarekat Dagang
Islam)
 The third tier is the large pool of workers
After independence, there was a question of who
will fill the top tier economy?

The modern business infrastructure exists but the class

of large scale domestic bourgeois/enterpreneur is not
yet solid.

Both the Chinese and Indonesia participated in trade,

commerce, small scale/medium enterprises. Yet these
businesses depended on the large scale-export
industry.
 Rural Economy in Indonesia

Land Owners
Village
Officials

Tengkulak

Loan Sharks

Ijon
Farmers

Poor Farmers
 Business Environment in Indonesia

 As a result, 10 years after independence, the traditional

economic structure remain intact with absence on the
top tier  state took over almost all business sectors left
by the Dutch.
 This rises the competition to access the state especially
between capitalist versus communist parties.
 This Indonesian middle class capitalists face fierce
competition from two sides:
In the urban industrial and service areas, they competed
with the Chinese.
In the rural agricultural areas, they faced threat from
working class peasants.
 From 1955 - 1965

 Communists with all its confidence attempts to

transform the capitalists class. Regardless whether
Indonesian or Chinese.
 This creates a situation that suspends the conflict
between Indonesia and Chinese because they have a
common enemy.
 Do you think now there is a strong entrepreneur
class in that has been able to compete at a global
level in Indonesia?
 Land Ownership in Indonesia

 During colonial time land is regulated and controlled

by the monarchy under the Dutch (VOC and state)
supervision.
 Example: from enforcing crop deliveries to providing
legislation for private ownership
 Agriculture society shaped by commodity production
but where landlord-tenant relationship survives.