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Omnibus: Need for caution in adopting Chinese labor-intensive model
The Chinese model is highly effective, but it was marked by environmental damage, weak labor protections and the pitfalls of over-centralization.
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Labor with the People Movement (Gebrak) that consist of labor and student alliances march toward the House of Representatives Building in protest at the omnibus bill on job creation in Jakarta on Monday, Jan. 13, 2020. (JP/Moch. Fiqih Prawira)
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dopting elements of the Chinese developmental model has exerted a strong draw for Indonesian policymakers in recent years. Since President Joko “Jokowi” Widodo came to power in 2014, Chinese foreign direct investment (FDI) realization in Indonesia has surged from US$0.6 billion in 2015 to $4.7 billion in 2019, second only to Singapore.
Indeed, for Indonesia’s “infrastructure president”, pragmatic economic cooperation with China has been inevitable. Besides the political symbolism of Beijing as the destination of Jokowi’s first state visit in late 2014, Jokowi visited China three times between 2015 and 2017. There was a timely convergence of interests as China saw Indonesia as crucial to its Belt and Road Initiative project just as Indonesia needed a surplus of Chinese funds to address its urgent infrastructural shortfall.
Furthermore, Indonesia’s policymakers view that there is much to learn from the Chinese model of strong state control and export-oriented industrialization. In late November 2019, Home Affairs Minister Tito Karnavian commented that Jakarta looked like a kampung when compared to Shanghai and Beijing. He extolled the effectiveness of strong non-democratic states like Vietnam and China in promoting economic growth compared to the economic malaise of developed Western democracies.
Unsurprisingly, inspired by the apparent effectiveness of the Chinese model, the recent omnibus bill on job creation exhibits centralizing tendencies designed to address the long-standing problem of conflicting regional regulations, cumbersome permit processes and an uncompetitive wage situation.
The top priority of Jokowi’s second term is to attract the investment needed to accelerate economic growth and create gainful employment for Indonesia’s 7 million unemployed and 28 million temporary workers.
To do so, Jokowi’s legislative agenda, namely two pieces of the omnibus bill on job creation and taxation, are crucial. To promote labor-intensive industrialization, the two omnibus bills offer attractive tax holidays and a separate minimum wage.
To simplify the process of business permits, the omnibus bill on job creation will institute a new risk-based licensing regime that will differentiate licensing requirements based on an assessment on the impact to health, safety, environment, and/or resource utilization.
To support this new licensing regime, the draft law expands the central government’s role in regulatory simplification. It centralizes business licenses across 20 sectors and the conduct of environmental impact analysis (Amdals) while reducing or eliminating the regional government’s role.
It also requires regional heads to form a one-stop integrated service unit using a centralized electronic system, conduct regional spatial planning by referring to the national spatial plan and prohibits regional regulations that contradict higher laws. Administrative penalties against regional heads can be applied for non-compliance.
The strength of an omnibus bill is its greatest weakness— a “grand sweep” strategy to simultaneously amend many laws produce a correspondingly large anti-omnibus bill coalition. The omnibus bill on job creation has incited significant pushback from Indonesian workers, students, environmentalists, journalists, civil rights groups and even regional government representatives.
First, the bill’s drafting process had been dominated by business interests and business associations. Calls for greater transparency, inclusiveness and public participation reflect the limits of a narrow state-business alliance without securing buy-in from other groups in a democratic society.
Second, the various social groups are discomforted by the trade-offs between environmental/labor protections/regional autonomy and the need for investment facilitation. Workers fear the deletion of protections that would affect job and income security. Environmentalists are concerned about reduced penalties for acts of environmental damage while regional governments are concerned that the new provisions contradict the spirit of decentralization.
Third, these concerns have led to plans for mass demonstrations to be held by labor unions across 27 provinces from March 2-10, with significant support expected from students and other groups affected by the bill. The bill’s passage is likely to be significantly delayed. While Jokowi has stated he would like the bill to be completed in 100 days, he has now responded that there are “three, four or even five months” for public consultations and completing the bill.
The controversy over the omnibus bill reflects the fundamental difficulty of transplanting a Chinese style labor-intensive industrialization on surplus labor to the Indonesian context. On one hand, there is no doubt that Indonesia could benefit from job creation and skills and technological transfers to local industries as a result of FDI.
On the other hand, their development requires uncomfortable social change. Careful negotiation, compromise and resolution of grievances through public consultation in the House of Representatives is important if the process is to be legitimate. The omnibus bill will not be passed in its current form and it is highly unlikely to see a repeat of the whirlwind passage of amendments to the law on the Corruption Eradication Commission (KPK) last year.
Three major areas of contention — the loss of regional powers to the central government, labor protections and environmental protections will need to be addressed. This will likely lead to a messy and protracted legislative process. The House is in recess from Feb. 27 to Mar. 22, meaning that discussions of the omnibus bill can only start from end-March.
Prospects for passage of the law remains solid as the government coalition has re-affirmed their strong support for the passage of the bill. The bill could be passed in amended form after a public consultation that satisfies the interests of various stakeholders, passed without the contentious regulations or passed with a grandfathering clause for controversial amendments to the labor law.
The bottom line is that the omnibus bill is a test of whether development can coexist with democracy and regional autonomy. The Chinese model is highly effective however it was also marked by environmental damage, weak labor protections and the pitfalls of over-centralization.
A stronger state apparatus able to plan, coordinate and direct development but one that also incentivizes vertical accountability and deepens local governance and capacity, could better constitute Indonesia’s ideal model.
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Jefferson Ng is a senior analyst at the Indonesia Program, S. Rajaratnam School of International Studies, Nanyang Technological University, Singapore.
