Omnibus Law, SOEs and the State

"What is an omnibus law, Fiq?" That was my question to a member of the House of Representatives for the 2014-2019 period, Teuku Taufiqulhadi.

I asked the question to him because he had cancelled a meeting with me earlier. He said, "Discussing the omnibus law in the land sector."

Since the formation of the Jokowi-Ma\'ruf Amin Cabinet of 2019-2024, Taufiqulhadi has been a special staff member for Agrarian Affairs and Spatial Planning Minister Sofyan Djalil. Taufiqulhadi responded to that in essence, the omnibus law was an effort to create a meungkléh (Acehnese: specific) legal system that applies only to certain regions with the aim of simplifying legal procedures to attract investment.

The precedents are the United States and United Kingdom. However, the most dramatic implementation of the omnibus law took place in China. It began with the efforts of Deng Xioping (1904-1997) through the implementation of an omnibus law in a poor province in China.

The application of this law was realized by giving full authority to the foreign investors who worked without being subject to applicable laws at the national level. In other words, the law in force in the province was meungkléh. With that system, the legal certainty of the existence of foreign investors was guaranteed 100 percent.

"This is the beginning," concluded Taufiqulhadi, "of the rise of Chinese capitalism."

The rise of Chinese capitalism quickly left Japan and rivaled the US in global production. The successful implementation of an omnibus law in one region was applied to another region. It is this success that nullified the solidified influence of ideology (communism) in the economic development.

"In the famous phrase of Deng Xioping: It doesn\'t matter what color the cat is. The important thing is that it can catch mice," said Taufiqulhadi.

KOMPAS/LASTI KURNIA

A worker produces one of a variety of steel fabrication products at PT Waskita Karya Infrastructure’s factory with Computer Numerical Control (CNC) machines and a number of other European-made fabrication equipment in the Modern Industrial Zone Cikande, Serang, Banten, Thursday (5/3/2020).

The state as an actor

If we accept this explanation, apart from all of the technical knick-knacks, conceptually and theoretically, the proposal of the omnibus law, under the coordination of the Coordinating Economic Minister Airlangga Hartarto, to the House is a state effort to become an actor in the economy.

I took this phrase from Theda Skockpol in her writing, Bringing the State Back In: Strategies of Analysis in Current Research. That sentence is an introduction to a collection of books titled Bringing the State Back In (1985). Its essence is a criticism of liberals who negate the role of the state in economic development. By analyzing the magnitude of the role of the state in economic development, even in Western industrialized countries, Skockpol creates the phrase “the state as actors”.

What was to be said in that the contribution of the state, not just the market, is quite large for economic development. However, if we want to continue the conversation that is a bit theoretical in nature, it seems that China\'s omnibus law did not take the model that Robert Wade called Governing the Market (1990). The model that explains the "revolution" of industrialization in East Asian countries, especially Japan, relies on countries that are active for the sake of economic development.

As reflected in the title of the book, the state does not eliminate the role of the market but rather controls it. One manifestation of this is that the state plays a role in determining the industrial sector to be developed and using the idea of economist John Maynard Keynes, creates a banking system as its financial base. The economic expansion of Japan and other East Asian countries is argued to lie in domestic-based creativity under state coordination.

KOMPAS/DAHLIA IRAWATI

Rejection Omnibus Law – Dozens of students from the People Alliance for Democracy hold up posters at a rally at City Hall in Malang city, East Java, on Monday (24/2/2020). The protesters objected to the omnibus bill on job creation, which they claimed would sacrifice the normative rights of the community.

An omnibus law as another "model" takes a different path. The state, as applied by the US and Britain before Deng implemented it in China, tried to become an actor. However, unlike the governing market, the state negotiates with capital owners to invest in their jurisdiction with a legal guarantee (totally) that protects their performance. In this context, the state is not trying to control the market. On the contrary, using the story of the martial arts world on "borrowing power from opponents", the state utilizes "effectively" market forces (capital coming from outside the country) to articulate economically in its territory.

The combination of "trickle down effects" and a series of transfer of knowledge, technology and skills from investor performance does not only provide a material "prosperity" for the people but also strengthens the technical basis of development economics that is capitalist. This is especially happens because the transfer of knowledge, technology and skills ultimately strengthens the technical basis for the independence of a nation that is articulated in the global industrial arena.

Later, as is now happening in China, the state is again taking supremacy to balance market forces (which apply at the global level) and "non-market" forces that apply at the domestic level.

Referring back to the conversation with Taufiqulhadi, the rapid and astonishing progress of the Chinese economy refers to the omnibus law "model" rather than the governing market that guides other East Asian countries. With the strategy of "borrowing the opponent\'s power", in a limited way, under the omnibus law umbrella, as an actor, the state allows market forces to perform optimally in certain regions. Later, as is now happening in China, the state is again taking supremacy to balance market forces (which apply at the global level) and "non-market" forces that apply at the domestic level.

Up to this point, I remember Rana Foroohar\'s writing in Newsweek, January 2009. With the title Why China Works?, Foroohar replied because China "routinely breaks every rule in the economic textbook".

This is a record of the 2009 global financial crisis. While the US and European economic giants collapsed, the Chinese economy grew.

"China is the only major economy that is likely to show significant growth this year," the economic reporter wrote in early 2009.

SOEs, democracy and the omnibus law

If my political-economic interpretation approaches the truth, the omnibus law concept proposed by Airlangga to the House at present can be seen as a reflection of the country\'s "new" awareness of market forces. In simple terms, it can be said that in stages, especially because it is supported by the development of communication technology that crosses the boundaries of the nation-state, the

strength of market actors is inevitable. Therefore, as the "highest" political authority, the state must have an "appropriate" strategy in "dealing with" an unstoppable force. This seems to have motivated the state to become an actor in a "new" form.

The role of the "new" can be seen from the efforts of the state to understand market forces more "realistically". Being realistic here is that the state is structurally no longer in a strong position, as described by Jeffrey Winters in Power in Motion: Capital Mobility and the Indonesian State (1996) in dealing with capital controllers. Referring to Winters, the strong state period over capital controllers even took place only briefly, 1974-1982, when the state\'s political validity was supported by the increase in crude oil prices.

Why the state still survived to the end of the 1990s is because, in my interpretation, the global structure is still relatively supportive. Namely, the World Bank is still an important economic institution for developing countries and morally feels responsible, as seen in the work of Patrick Allan Sharma, Robert McNamara\'s Other War: The World Bank and International Development (2017). Overall, the World Bank still defines itself as a "partner" of developing countries in eradicating poverty and underdevelopment. This is emphasized in the World Bank report written by Lester B Pearson, Partners in Development (1969).

Therefore, even though globalization based on the market economy grew stronger in the 1980s, the World Bank\'s program, such as structural adjustments, really helped provide a "buoy" for developing countries so as not to "sink". In a sense, the domestic capital vacuum can still be supplied from donor agencies under the coordination of the World Bank. Thus, even though the negotiating power of state-capital controllers is weak, the discourse of the market economy has not yet totally performed at the global level.

Today\'s global condition is very different. It means that after the Cold War ended in 1989, non-market interventions in the performance of a global liberal economy shrank dramatically. Winters, in The Financial Crisis in Southeast Asia, said the Pentagon no longer played a role in "regulating" the distribution of global capital because ideological anxieties had disappeared.

KOMPAS/TOTOK WIJAYANTO

People stage a rally to reject the job creation bill in front of the House of Representatives building, Jakarta, Monday (20/1/2020).

Winters\'s writings contained in the Politics and Market in the Wake of the Asian Crisis (2000) even state that it is now the turn of capital owners to demand that the US state "back off" as a regulator of world capital traffic. This structural change in global political-economic power explains why market forces are increasingly unobstructed, and why the role of donor agencies under World Bank coordination is no longer functioning as a "buoy" to prevent the sinking of developing countries in the "ocean" of global market performance.

The application of the law provides legal certainty for their performance.

This structural change in the global political-economic power map makes Indonesia increasingly "realistic". Therefore, the omnibus law is a state action as an "actor" which, as mentioned above, tries to "borrow the power of the opponents" (market forces) to support its existence. Through this law, the state negotiates with market forces, namely large global capital owners, by simplifying legal procedures for the arrival of capital, especially foreign ones. The application of the law provides legal certainty for their performance.

Theoretically, investor trust will not only give birth to a "trickle-down effect" through employment but also a deeper transfer of knowledge and technology and skills to the children of the nation. The "quick" success of this program cannot be based on the current structure and regulatory system. Over the decades that we have been through, the transfer of technical capacity to be independent is not achieved quickly.

The problem is that Indonesia is different from China in a political context. If the state in China is second to no one, in Indonesia this political authority must negotiate with socio-political and economic forces at the domestic level. The democratic system being adopted has placed the state "only" as one of the actors in the composition of the nation\'s political power. Therefore, there are three things that need to be considered for the success of this country\'s action. The first two are conceptual and require political intelligence.

First, the omnibus law can be a creative breakthrough for the state in solving the scarcity of domestic capital supply. It can be called that the omnibus law is a vehicle for the creation of what Doradjatun Kuntjara-Jakti called, in his dissertation The Political Economy of Development (1981), as a big push to eliminate the giant obstacles of economic development. This is important because the current structure and legislation can only bring in small scale capital.

Second, the democratic system actually provides more advantages to the omnibus law compared to China. This is especially true because, although the state initially acted as the initiator, the success of the legislation process was a collective political agreement at the nation level. Therefore, to make it a collective property, openness to conceptual and practical reasons becomes far more important simply than the arrangement. With openness, it does not only eliminate the suspicion of "stowaways", but also increases the participation of the nation\'s children to maintain its success. So, if in China, the omnibus law belonged to the state, in Indonesia, the law belongs to the nation.

Third, basically the solidity of state wealth has been formed since the late 1950s and early 1960s: state-owned enterprises (SOEs). With the formation of the SOE Ministry in 1998 under Tanri Abeng, the wealth that has been solid has become more functional in creating or adding to the country\'s wealth.

KOMPAS/JOHNNY TG

Fachry Ali

While still accommodating foreign capital, this omnibus law, in my opinion, should better take into account the position of SOEs. Even though it is a domestic power, the SOEs are a capital actor that has been available. Over the next five years, SOE Minister Erick Thohir certainly knows what steps must be taken in this omnibus law framework.

Fachry Ali, Cofounder of the Institute for Studies and Promotion of Business Ethics (LSPEU Indonesia)