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Risk-based approach in job creation bill lacks rigor
The bill overlooks two things that are addressed in the regulatory policy literature: volatile risk and cumulative risk.
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Workers from the Confederation of Indonesian Trade Unions (KSPI) stage a protest against the controversial omnibus bill on job creation in front of the House of Representatives in Jakarta on Feb. 12, 2020. (JP/Dhoni Setiawan)
D
espite the criticisms laid against the job creation bill, we need to commend the government for its courageous effort, not only to consolidate and harmonize around 70 laws, but also to introduce an overarching risk-based approach to our legal system.
Most critics focus on two primary issues: (1) sectoral issues, arguments of which usually revolve around the “loss of protection”, be it for the environment, labor or certain aspects of human rights; and (2) procedural issues, with many criticizing the “omnibus” legislative process as lacking transparency.
However, few have paid enough attention to the risk-based approach used in the bill, even though this mechanism will fundamentally alter our regulatory system and may even raise question on whether it would be compatible with our Constitution.
Risk-based regulations require the government to prioritize regulatory burdens and resources toward “high-risk” activities. Risks, of course, constitute the “likelihood” and the “severity” of the potential impact of a particular activity: the higher the likelihood and the severity of the impact, the higher the risk.
The resources available to regulators for inspecting and monitoring are always limited. Thus, why spend taxpayer’s money on small risks? Regulations would be more efficient if resources are spent only on high-risk activities — or so the theory goes.
Indeed, the job creation bill follows this approach. Only high-risk businesses will require a license (Article 11) and the level of supervision depends on the level of risk: Hence, the higher the risk, the more intense the scrutiny. This sounds about right, except for the fact that theories on risk-based regulation have moved past this.
The bill overlooks two things that are addressed in the regulatory policy literature: volatile risk and cumulative risk.
