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Living with Oligarchy: The Clothing Business in Provincial Indonesia

Rochman AchwanDepartment of SociologyFaculty of Social and Political SciencesUniversity of Indonesia, Indonesia

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Previous Theories on Indonesian Economy

The State (Schiller and Schiller, 1997)The Market (Papanek, 2006)The Culture (Geertz, 1963)

Guiding Theories

Politico-business oligarchyEmbeddedness

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Politico-business oligarchy

The thesis of politico-business oligarchy provides a concrete and empirical explanation of historical power struggle within the economy and between economic and state actors.

The state and its officials are highly embedded in the economy which consists of large corporate capital, play crucial roles in shaping contemporary Indonesian history (Robison, 1986: 9).

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Embeddedness

Fred Block and Peter Evans (2005) view that the state, the economy, and the society are mutually embedded. And this embeddedness is dynamic and it changes overtime through institutional innovation that may be led by the state, the industry or the society.

Moreover, the embedding three institutions may bring about positive and negative consequences for economic performance.

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Negara

MasyEkonomi

Ideal Embedding State, Economy and Society(Block & Evans)

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Central QuestionsThe thesis of politico-business oligarchy and the thesis of embeddedness.

The disappearance of economic power of provincial clothing entrepreneurs – as oligarchy thesis found – has brought about different processes of extension, depletion, and move out of clothing business networks.

Personal business networks – not power networks - have become a dominant organising principle of clothing business in the province.

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Site of Research

Bali and Pekalongan (Central Java). Both are historically the strongholds of clothing producing areas.

Bali and Pekalongan were dubbed respectively as success and failed stories of liberalisation of clothing industry in the 1990s and 1960s.

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The Concept

Elaboration of the theses of politico-business oligarchy and embeddedness

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Local Institutional Issues

Industrial OrganisationThe Typology of Clothing EntrepreneursDecentralised and Centralised Power Relations

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Industrial OrganisationPekalongan clothing industry

Two types of organisation: hierarchical (large) and assembly (medium & small enterprises).

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The clothing industry in Bali

Long-established organisation of assembly enterprises.

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The Typology of Clothing Entrepreneurs

Engagement in trading before entering the clothing industry and Voluntary decision to become a clothing entrepreneur are more important than other typology of entrepreneurs in securing strategic positions in the textile/clothing economy

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Decentralised Power Relations

In the post-Soeharto era, the organisation of the Pekalongan clothing industry has been transforming from a hierarchical structure into an interdependency of actors running different sized enterprises.

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Two dominant business relationships in Bali

Personal business relationships Informal business group

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State Policy and Large Clothing Firms

ACFT agreement in January 2010Tax incentivesModernisation of production machinery

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Dimension State-CapitalInst EmbeddednessStrong Development state;

Politico-business oligarchy

Weak Liberal state

Inst Capability Strong Institutional innovation

Weak Institutional crisis

Matrix: Embedding State-Capital

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Concluding Remarks

Weak institutional embeddednessNarrrow and unstable business networksCrisis of embeddedness

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Elaboration

The thesis of politico-business oligarchy and its reconstitution in the post Suharto era are not only important to identify the dominant operation of macro institutions but also the operation of power relations in Indonesia.

The oligarchy thesis informs how the historically predatory dominance of state-capital has made the feebleness of economic power of provincial clothing entrepreneurs.

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The weak institutional embeddedness that characterised structural relationships between state-capital and provincial entrepreneurs has brought about the latter to form narrow and unstable business networks. Such type of networks is not durable and easy to be destroyed by waves of economic uncertainty. This is why provincial entrepreneurs unable to significantly innovate their technology and business relations.

Crisis of embeddedness becomes a major feature of current Indonesia’s clothing industry. This crisis is marked by the emergence of unusual state-clothing industry alliance to resist global pressures.