The dynamics of change in decentralisation : implications for local government-business relations : a case study of decentralisation in Sidoarjo, East Java, Indonesia

Abstract

This study is about the impact of decentralisation on the business sector in the district of Sidoarjo, East Java, Indonesia. It presents three themes in exploring changes related to business people during the early implementation of the policy: (1) services and local regulations related to the business sector and the business people's responses; (2) corruption at the local level and its effect on business people; and (3) emerging patterns of local government-business relations. In theory, decentralisation can bring the government closer to the people. It will make better information available on the people's preferences for services provided by the government. It will also enhance accountability and reduce corruption in the government since people can more easily control local governments' actions than those of the central government's. Devolving power to the local government will change the relationship structure between government and business. However, in practice, the study found that decentralisation does not necessarily lead to positive impacts on the business sector. Ethnographic approaches were applied to gather and analyse data during the fieldwork. They included documentation investigation, surveys and in-depth interviews. Fieldwork in Sidoarjo was conducted from November 2001 to July 2002. Current issues related to the Sidoarjo government have been explored through Indonesian newspapers up to January 2005. The research found that, in terms of services provided by the local government, the results are mixed. The local government has espoused two contradictory policies. Business-related services have been restructured to encourage the existing business people and to invite new investors. Local taxes and levies have also been reformed to increase local government revenue, but they have at the same time hampered business activities. A certain group of business people can enjoy the facilitation of services, but others do not. Most medium-large businesses suffer a lot from the new local regulations associated with the increases in local taxes and levies, whereas small businesses have not been affected. Business people see corruption as a common phenomenon and regard it as having mushroomed during the early implementation of decentralisation. Actors involved are not only people in the bureaucracy but also those in the local assembly, in NGOs, and journalists. However, corruption is not always seen as a bad thing. The perception of business people towards corruption depends on whether it directly affects their business activities or not. Regarding the local government-business relations patterns, evidence in this study shows that they do not form a simple picture. It depends on what type of business is involved. For local contractors, their relations with the local government have changed. They are not subordinates of the local government any more and they can influence the local government policy openly and collectively through their business representation. Medium-large businesses hold a different model of relations with the local government. They are represented formally in the determination of the minimum standard of wages. Interestingly, the way the. business people respond to the decisions is not collectively through their business representation. Rather, they use individual connections and covert relations with local government officials. In contrast, small businesses are not greatly affected by the policy of decentralisation. The local government has paid little attention to them, and they also do not rely on the local government. In short, whether the decentralisation policy exists or not, their business activities go on as usual. In general, decentralisation has had different impacts on local government regulations related to business activities. However, positive changes in business-related services have been nullified by the increases in local taxes and levies. Corruption has not decreased, but tends to involve more actors at the local level. From the business people's perspective, both changes in local regulations and policies as well as in the extent of corruption have been perceived differently according to the different types of business. Decentralisation has also brought about new emerging models of relations between local government and the business sector. The findings of this research are important for the existing debates on decentralisation. Although decentralisation is believed to improve development at the local level, this is not necessary true in relation to business activities. Devolving power to local governments has produced distortive policies that make it difficult for business people to run their business. The problems of decentralisation come from an unbalanced structure, that is providing local governments with more employees but lacking financial capacity. Local power holders also tend to misuse their power. Show more