Covid-19 and Structural Historical Aspects of SOEs

ANTARA/SIGID KURNIAWAN

Coordinating Economic Minister Airlangga Hartarto (second right) speaks with National Disaster Mitigation Agency (BNPB) chief Lt. Gen. Doni Monardo (left), State-Owned Enterprises (SOEs) Minister Erick Thohir (second left) and Deputy SOEs Minister Budi Gunadi Sadikin after a meeting with President Joko Widodo on Monday (20/7/2020) at the presidential palace compound in Jakarta. The President has signed a Government Regulation (PP) on the management of COVID-19 and National Economic Recovery that regulates the establishment of the COVID-19 Management and Economic Recovery Committee.

Kompas news (07/21/2020) titled Health-Economy in One Control provides an illustration of President Joko “Jokowi” Widodo\'s political-economic steps without precedent in the "history" of Indonesian economic policy.

As will be reviewed, the duo between Coordinating Economic Minister Airlangga Hartarto and State-Owned Enterprise Minister Erick Thohir assisted by Deputy Minister of SOEs Budi Sadikin reflects the "unconventional" view of the new economic policy. The Covid-19 pandemic, which also has no precedent, has indeed forced the restructuring of the authority of state economic actors.

On what basis should the following description be done? This can be started from the opinion of former Finance Minister M. Chatib Basri, who was also contained in the Kompas news. Chatib Basri gave signal that the "conventional" approach, that has so far been adopted, cannot be ineffective, namely the provision of fiscal "incentives" to boost business performance. In a situation of sluggish demand, this "conventional" action has the potential to miss the target.

Also read : The Long Road to Economic Recovery

In contrast to the 1997-1998 financial disaster, the "Covid-19 economic crisis" substantially reveals another type of problem. If the first took place in a "geographically limited" way, namely only affecting Southeast Asian and East Asian countries, the second happens globally in equal numbers.

If the first still showed "a ray of hope" (because the demand from countries which were not affected by the crisis of exports of goods and services remained high), the second offers a dark "puzzle", namely a matter of certainty when the virus vaccine has not been found.

This dark "puzzle" that has not yet found its definitive answer is holding back the economic aggressiveness. So, not only Indonesia, the global economy, as written by economist A. Prasetyantoko on Kompas on the same day, is predicted to contract 4.9 percent in 2020. This means, except for a "little" fiscal space, the "conventional" policy instruments that have been used to overcome the 1997-1998 financial crisis would not help much to withstand the economic crisis caused by Covid-19.

Also read : Omnibus Law, SOEs and the State

The question is what are the structural implications in the future for the overhaul of President Jokowi\'s hierarchical and “conventional” authority structure in the form of combining health and economic management authority and giving responsibility to the Airlangga-Erick duet? And, because the mainstay is the SOEs under Erick, can the economic hands of the state realize their face and role more differently in the future?

Great demarcation

This great demarcation phrase is "borrowed" by Thomas Piketty from R. Blaufarb\'s book, Great Demarcation: The French Revolution and the Invention of Modern Property (2016). For the context of the historical-structural aspects of SOEs, I use them from the latest “very thick” of Piketty, Capital and Ideology (2020). With great demarcation, Piketty discovered the concept of explaining the radical change of the combined legal system and economy after the "bloody" revolution of France in 1789. The effect had affected the whole of Europe. Through the spirit of "comprehensive reform", while remaining experimental, the French National Assembly as the product of the revolution abolished the ownership rights of the king and royal property and nationalized it into the property of the modern state.

This action affected the political-economic structure of French society. Because of the ownership of the feudal wealth, the "feet of the kings and the kingdom" in the midst of society, as well as the church, were abolished, so that the economic privileges of the dominant groups of the ancient French régime ended forever.

Despite being centuries old, this event is related to the concept and existence of the SOEs. Because, through what Piketty called the invention of property, the revolution introduced a new system of ownership of wealth that was legally endorsed. In contrast to ancient régime, where the king owned all the wealth and distributed it to the feudal lords, in modern times property ownership has shifted to the modern state and private actors.

At this point, we find the relevance of the phrase of great demarcation: the abolition of the "ultimate" old ownership system and the change to the modern one that traces a massive change in the new socio-political and economic history. SOEs, in this system, are in possession of the modern state.

The bourgeois revolution and the state

However, the system and ownership in this new provision are dynamic and, in my opinion, coloring the relations of the two main forces of the modern world: the state and private capital actors. This happens because both the concept and the form of wealth are dynamic and determine who outshines between private and state actors. In an earlier book, Capital in the Twenty-First Century (2014), Piketty described the transformation of the concept and manifestation of wealth from the 19th-century land forms and government bonds to something more complex which, for simplicity, were considered valuable market.

How dramatic this transformation was can be illustrated through the phrase of the struggle between land and fund. The phrase, which was quoted by Niall Ferguson in his book, The Cash Nexus: Money and Power in the Modern World 1700-2000 (2001) from Rural Rides (1831), by William Cobbett, illustrates that government debt holders had demonstrated dominance in the post-great demarcation economy.

The need to finance wars among European countries at that time did not only make the countries "diligent" in issuing debt or bonds, but also provided political protection for the development of stock markets. The transformation toward modern property allowed the accumulation of private property wealth and gave rise to a new group with an unimaginable amount of asset ownership. In 1850-1880, Ferguson wrote, there were 39 people who died in Britain who left a plantation valued at more than 1 million pounds sterling. More than that, there appeared 18 industrialists, 12 bankers, four landowners, two traders, and two ship owners and makers. Their combined wealth reached 57 million pounds sterling, or two-fifths of Britain\'s gross national product. This European historical fact showed the creation of certain social strata with the accumulation of wealth exceeding the state. They, among others, were called the new men and industrial entrepreneur(s) by economic historian Robert L. Heilbroner in his book, The Making of Economic Society (1962). And, with the development of technology that supports the process of industrialization, the accumulation of wealth of the capitalists outside the control of the state grows increasingly large.

Also read : SOE Must be Part of the Solution

SEKRETARIAT PRESIDEN

President Joko Widodo held a meeting with ministers and Coordination Task Force for Covid-19, Doni Monardo at the Merdeka Palace, Jakarta, Monday (20/7/2020). The meeting discussed the formation of the Covid-19 Handling Committee and the National Economic Recovery.

This development did provide the basis for the bourgeois revolution, namely the structural ability of investors in the structure of the new property that influenced state policies to adopt the market system or mechanism. The current of the "pressure" was very strong. This was proven in 1834, when the last "non-market" defense force, the Speenhamland Law, which was made in 1795, was abolished as stated by Karl Polanyi in The Great Transformation (2001 [1944]).

This law was a "fortress" to hold back the European rural people not to be deprived of the membership of the parish (an autonomous region under a separate church) and sucked into the industrial revolution. On top of that, the market system or mechanism were expected not to take workers away. The law, said Polanyi, "effectively prevented the establishment of competitive labor markets." The revocation of the Speenhamland Law has thus been very decisive in the development of private and state capital relations up to the present.

In addition to adding strength with the support of cheap labor, the multiplied profit that resulted from this strengthened the influence of private capital before the state. This, as stated by the economist who received the Nobel Prize in 2001, Joseph E. Stiglitz, in the introduction of Karl Paul Polanyi\'s book, which was re-published in 2001, became the structural basis of the victory of the "market ideology" that still applies today.

Versus the bourgeois revolution?

In the Indonesian context, the Piketty\'s great demarcation effect only took effect in 1958, when foreign companies through the nationalization action by the end of 1957 were confirmed as the state property.

In other words, the great demarcation as a result of the French Revolution in the 18th century gave birth to a conceptual precedent for the birth of nomenclature of state property ownership.

However, the emergence of state wealth in a consolidated form only occurred in 1998 when President Soeharto ordered Tanri Abeng to establish the SOE Ministry. In this context, the decision of President Jokowi to create a "duet" between Arilangga and Erick Thohir to handle the Covid-19 case and economic transformation should be taken seriously. First, the Airlangga-Erick Thohir "duet" provides an illustration of how the state acts in this crisis situation without precedent.

Also read : Loan and Liquidity Restructuring

KOMPAS/TATANG MULYANA SINAGA

Minister of State Owned Enterprises (BUMN) Erick Thohir (left) held a dialogue with West Java Governor Ridwan Kamil at Pakuan Building, Bandung City, Thursday (21/5/2020). Erick handed over food aid and medical devices for handling Covid-19 in West Java.

Apart from its official narrative, this "duet", which is assisted by Deputy SOEs Minister Budi Sadikin shows a "reshuffle" of the structure and hierarchy of economic authority from the conventional one. Second, the economic crisis caused by Covid-19 has paralyzed the economy. A total of 6.2 million workers, National Development Planning Agency (Bappenas) chairman Suharso Monoarfa said in a private conversation, had been laid off recently.

Coupled with previous unemployment, this situation has paralyzed the economy. Meanwhile, funds are piled up in the banking world without productive distribution, the act of laying off workers is holding back personal, household and corporate spending actions (large and small).

In this context, SOEs as the state’s productive assets that have been consolidated, become the foundation. The call of Coordinating Maritime Affairs Minister Luhut B. Pandjaitan to the boards of directors of SOEs to intensify the use of domestic components (TKDN), recently, must be seen from this perspective. That in the "economic downturn", SOEs must appear as the "stronghold" of the state in saving the national economy.

Can SOEs take this rare opportunity to transform themselves more meaningfully?

Therefore, President Jokowi\'s effort to create the Airlangga-Erick Thohir duo with Budi Sadikin acting as an assistant has simultaneously described a new condition: SOE-led Economy. A situation where, in the siege of Covid-19, the "breath" of the national economy is helped by the performance of the SOEs.

However, President Jokowi\'s action theoretically opened up a new opportunity for the transformation of the more meaningful role of the SOEs. In his research report, The Shifting Geopolitics of Coronavirus and the Demise of Neoliberalism (2020), Mohammed Cherkaoui revealed the changes in the spells of laissez passer and laissez faire on rester chez sois, mourir chez soi.

Also read : Economy in the New Normal

If the first two mean individual autonomy for moving and business action without non-market intervention, the second means "staying at home, dying at home". Covid-19, thus, has set a precedent for limiting the expansionary motion of the bourgeois revolution.

Although the autonomy of private investors is maintained, the ability of the mobility of people and goods which is the basis of the strength of the bourgeois revolution has been hindered by the endemic that has remained mysterious until now. On the other hand, the state is structurally driven forward to reduce the victims of chez rester, mourir chez soi.

KOMPAS/JOHNNY TG

Fachry Ali

We all know that, apart from state regulations which are non-economic, the main economic mainstay in preventing mourir chez soi is SOEs, a consolidated state productive asset. Can SOEs take this rare opportunity to transform themselves more meaningfully? Filling in the "emptiness" that bourgeois revolution participant has to leave behind? On top of that, can the Arlangga Hartarto-Erick Thohir duo, along with Budi Sadikin, build something fundamental from the foundation created by President Jokowi?

The last two questions are born on the assumption that the "door to history" is only opened once.

Fachry Ali, One of the Founders of the Institute for the Study and Advancement of Business Ethics (LSPEU) Indonesia.