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Why Indonesia’s omnibus bill will not create jobs and only strengthen the oligarchy

A demonstration against the Job Creation Bill in Banyumas. Antara Foto

The COVID-19 pandemic and demonstrations have not deterred the government and the House of Representatives (DPR) from passing the omnibus bill on job creation. Even though the government had promised to postpone the vote, it accelerated the preparation of this controversial regulation, even when the DPR was in recess.

The tricky and non-transparent political process certainly raises questions. The waves of rejection continued after the passage of the bill, which sets back workers’ rights.

The government argues the legislation is needed to restore the economy. It assumes the easing of work regulations will attract investors, which in turn will promote job creation.

Unfortunately, the Job Creation Bill will not have much impact on creating jobs. Instead, this regulation will strengthen the oligarchy, which relies on the politics of maintaining wealth through lobbying and corruption.

Only benefits the upper class

The government claims this policy design makes investment easier. However, the revision of hundreds of rules in the omnibus bill will not bring convenience, but rather uncertainty in the middle of a recession. The Job Creation Bill is also a misdirected solution because it does not tackle the root of the main problem that hinders business in Indonesia, corruption.

The government argues investment is the key to creating jobs. Unfortunately, investment data indicate that the problem of unemployment in Indonesia is not due to a lack of capital injection. Economist Faisal Basri explains that investment performance in Indonesia is quite good. Investment is continuing to increase, but the absorption of labour has decreased.

Source: Investment Coordinating Board, analysis and graphics by the author., Author provided (no reuse)

To answer why investment in Indonesia does not have an impact on job creation and improve the welfare of workers, the question that needs to be asked is not how to attract investment, but where capital flows.

The latest data from the Investment Coordinating Board (BKPM) confirms the manufacturing sector, which was once a mainstay of the economy, is being replaced by the service sector or the tertiary sector, which is increasingly dominating. The service sectors that absorb the most capital are construction, transportation, telecommunications and financial/banking services.

Source: Investment Coordinating Board, analysis and graphics by the author., Author provided (no reuse)

Capital flows in Indonesia have different impacts in two directions: harmful to the poor and benefiting the elites.

For lower-middle-class workers, this trend tends to be detrimental.

First, the service sector is a capital-intensive and not labor-intensive industry. This means there is minimal labor absorption.

Second, the quality of work relations in the service sector – especially for workers with minimal skills and bargaining power – also tends to be poor. The sector is full of outsourcing, unlimited use of contract labour, and occasional dismissals. Protection of workers’ rights is also minimal. One reason for this is because the worker union movement in this sector is not as strong as in manufacturing.

One example is Gojek and Grab. Tech companies are highlighted as boosting investment in Indonesia and are claimed to be a solution to creating jobs.

Such claims ignore the fact that this business blurs the working relationship between the driver and the company. As a result, workers have no legal protection. Contracts can be terminated at any time; income is uncertain because rates and company policies are continually changing; and there is no opportunity for upskilling or skill upgrades.

Finally, the continuing increase in investment has no impact on improving employment, both in terms of quantity and quality in Indonesia. Let’s compare it to neighbouring countries in Southeast Asia. The average monthly real income received by workers in Indonesia is still the lowest.

Source: ILO Labor Statistics, CEIC Data, analysis and charts by the author

On the other hand, the ones who benefit the most from the increase in investment in Indonesia are upper-class actors, especially conglomerates and politicians who have dominated the socio-economic class structure.

Investment funds mostly flow to infrastructure and building construction projects, as well as the electricity, gas, water, telecommunications, transportation and financial sectors.

Outside the service sector, investment in Indonesia has also increased in the plantation, mining and forestry commodity sectors. Investment in forestry has increased by more than 15 times in five years (2014-2019).

Business in these sectors is synonymous with rent-seeking behaviour. Instead of relying on the creation of capital through production and use of labour, rent-seeking businesses pursue profits by mainly producing and manipulating the distribution of economic resources through political transactions with the political elites involving, for example, cooperative tenders, permits, or concessions of land.

As a result, the oligarchy is getting stronger.

One of the indications of this trend can be seen from the assets of the 50 wealthiest conglomerates in Indonesia, which have skyrocketed while the country’s economy is slowing down. Most of their coffers come from rent-seeking businesses and coalitions with politicians.

The relationship of interests between officials and conglomerates is also getting stronger because almost half of the members of the DPR for the 2019-2024 period are entrepreneurs, shareholders, commissioners and directors in more than a thousand companies that dominate investment flows in Indonesia.

Disastrous policies

This condition does not mean investment in the service sector is always wrong. Capital flows are undeniably necessary for development. What poses a danger is the growth of capital flows based on a weakening of the working class and a strengthening of the oligarchy.

Various studies and public discussions have outlined the points of the omnibus bill that have a negative impact on workers. However, the creation of the Lembaga Pengelola Investasi (LPI), or Investment Management Institution, as regulated in the Job Creation Law has not received much attention.

This new institution is designed to have the authority to coordinate and control the flow of investment funds. Accountability and audits of this institution are not carried out by the Supreme Audit Agency (BPK) but by a public accounting firm.

The supervisory board and chairman of this institution will be filled by officials, such as the Minister of Finance and the Minister of State-Owned Enterprises (BUMN), and appointed by the president.

The presence of such an institution is a cause for concern. It loosens control over the oligarchic politics that underlies the allocation of investment funds, especially if the LPI is a source of “non-budgetary funds”, which are prone to corruption and lack transparency.

The passing of the Job Creation Bill complements the various previous revisions to regulations that have weakened the people and strengthened the oligarchy.

Of course, it is still fresh in our minds how the Corruption Eradication Commission (KPK) was weakened through the revision of the KPK Bill last year. Then came the revision of the Minerba Bill earlier this year, which strengthened the network of mining oligarchs.

The environmental cluster of the omnibus bill also makes it easier to exploit and control land.

Instead of improving the economy, the new law will increase the concentration of wealth in the hands of a few people by consolidating the power of the oligarchy.

This article was originally published in Indonesian

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