Government-Business Relations in Policymaking During the New Order Indonesia

Theories of Pluralism

Pluralism focuses primarily on understanding the political behavior of a state or group. It gained popularity in the United States in the 1950s and 1960s and played an important role in helping make sense of the policy process. It eschews institutional study, traditional elite theory, and Marxist critiques of political power, but adopts the liberal democratic model and explains the competitive struggle between various groups for political power. It views government as the primary source of decisions about how society’s affairs are to be organized and argues that the government, to a certain degree, is responsive and accountable to its citizens for those decisions (Dahl, 2005; Hirst, 2005; Lundberg, 2014). Pluralists accept that “groups wield significant amounts of power and therefore are important in determining policy outcomes” (Smith, 1993, p. 15).

Yet, pluralists acknowledge that not all groups have equal power because institutionalized groups prevent outside groups from having access to policy processes, and the impact of a group on policy depends on its resources. Variations in resources can lead to one group having greater influence than others. They also highlight the internal and external constraints preventing one or more groups from achieving too much power. External constraints exist in the form of countervailing powers that come from an alternative counter-group, whereas internal constraints are important counterweights that exist within the government (Lundberg, 2014; Smith, 1990). Pluralists emphasize that inequality and constraints of power, access, and resources are key to explaining state/group relations (Cigler et al., 2015; Lundberg, 2014; Maloney et al., 1994; Walker, 1991).

David Truman also suggested that effective access of various interests to the policy process could lead to governmental policy decisions. The effectiveness of access is determined by the group’s strategic position in society; its deference, legitimacy, and extent of group membership, including government officials; and the group’s internal characteristics, including preferences, organizational characteristics, cohesion, leadership, size, and resources. The nature of governmental institutions that either help or hinder the group’s admittance to the policy table is also an important factor in effective access (Lundberg, 2014; Maloney et al., 1994; Walker, 1991). If an organization mobilizes and seeks access to decision-makers and its efforts to reach out are met with the decision-makers’ recognition, then that recognition may constitute an important first step toward access to decision-makers (Binderkrantz et al., 2017). Thus, interest group recognition is fundamental for understanding the role of elites in shaping patterns of interest representation and private actors’ access to and role in decision-making (Ibenskas & Bunea, 2021).

Truman, Galbraith, and others have suggested that the state is a neutral referee with competing interests. By considering the interests of groups, it pursues public interests and treats groups as important indicators of the concerns of different constituencies. The state does not simply decide the winner in pressure group competitions but attempts to ensure that the game is played fairly. As a neutral referee, the state does not solely stand in the fray of conflicting interests. It also is attentive and receptive and will intervene to stop conflicting players and pressure groups (Brass, 2023). Accordingly, pluralists argue that power is distributed roughly equally, the state is neutral, and access to the state is relatively open (Brass, 2023; Jordan, 1990; Smith, 1990, 1993).

According to the pluralist perspective, “power in democratic societies is widely dispersed and. . . various resources are available to different groups [that] allow them to influence policy” (Smith, 1993, p. 25). In response to societal pressures (activities and claims), the government often changes its form, institutions, and functions; such changes are made following decisive encounters with external societal forces. Many have criticized pluralists, however, for analyzing the resources and behavior of groups without paying sufficient attention to the state’s structure, ideology, and interests. They have failed to consider state actors’ ability to make policies independent of groups. Rather, the groups’ influence is not derived solely from their resources, but from the organization and policy framework of the government (Brass, 2023).

Despite this critique, pluralism did not collapse but evolved into neo-pluralism. Neo-pluralists acknowledge that state agencies have their own interests and, in some areas of government, closed policy communities occur because of the domination of insider groups (Brass, 2023). Consequently, this affects the equilibrium and stability of liberal democracy. Social pluralism also has faced entrenched political inequalities and the decline of public culture. Although pluralism faces these weaknesses, neo-pluralists contend that power remains fragmented, and the state remains the primary and responsible executive of societal organization (Brass, 2023).

According to pluralists, because businesses have greater resources than other groups, they will employ tactics such as funding campaigns to influence public opinion and develop contacts within legislatures to influence laws and linkage indirectly with the executive. Nonetheless, this effect was not completely dominant. Business group influence depends on how it is organized, its resources and tactics, and the extent of its influence in particular situations. Business deployment techniques, such as lobbying, contacts, and letters, seek to influence policy outcomes (Dür, 2008; Eising, 2007; Hojnacki & Kimball, 1999; Jesus, 2010; Mahoney, 2007; Marshall, 2015; Rasmussen, 2015). Moreover, McKay (2012, 908) found “surprisingly little relationship between organizations’ financial resources and their policy success—but greater money is linked to certain lobbying tactics and traits, and some of these are linked to greater policy success.”

These reasons are why close relationships between business sectors and governments can be established and why the business sector appears to have more advantages in developing links with the government than other groups. The business sector has a privileged position because it plays a key role in the economy, thus affecting the lives of many people and the economy as a whole. Governments usually need successful economies to survive, so they are receptive to the interests of the business sector (Marsh & Lewis, 2014; Williams & Collins, 1997). Another reason is that the business sector is an unequal player in the normal mechanisms of democratic politics, not because it has substantial financial and organizational resources, but because it operates in the private economic sphere of activity, where it exercises extensive discretionary power independent of electoral controls (Steven, 2016). A study of the lobbying success of citizen and economic groups in Denmark and the UK found that different types of groups may be successful based on differing dimensions of influence. Economic groups engage more in “insider” politics affecting policy decisions, while citizen groups engage more in “outsider” politics affecting agenda setting (Binderkrantz et al., 2017).

Theories of State Autonomy and Capacity

Authors of pluralist theory maintain that society or interest groups have the power to affect the interests of the state (Hale et al., 2015; Smith, 1993). However, the authors of state autonomy contend that the state or state actors have their own interests and abilities to transform the interests of societies or groups into policies. The state acts in accordance with its preferences, diverging from the demands of the most powerful groups in society (Brunila, 2023; Geddes, 2023; Smith, 1993). This is in accordance with corporatist discourse, which emphasizes that the state is an autonomous, independent actor; it cannot be passive or neutral and is not simply reactive or responsive. The state is an interlocutor that has distinctive coercive powers and administrative autonomy, and it has its own interests (Domhoff, 1996, 2017; Hamilton, 2014; Schmitter, 1983). In addition, governments, as organizations that control territories and people, may formulate and pursue goals that do not directly reflect the demands or interests of social groups, classes, or society (Held, 2013; Skocpol, 1987). The state constructs a society rather than society’s interests (Cerny, 1990; Held, 2013; Smith, 1993). These arguments highlight concepts of state autonomy.

According to the concept of state autonomy, the state plays an important role in establishing its own goals. The policies that it makes do not reflect the demands of groups but are the result of how state actors perceive their interests and problems and how they think these problems should be solved. Leading officials may act to pursue transformative strategies that differ from social forces because of the linkage of the state to transnational structures and the international flow of communication and state efforts to spur reforms for the basic need to maintain control and order (Domhoff, 1996, 2017; Jessop, 2016; Skocpol, 1987). The Weberian–Hintzean perspective delineates some features of the state that help explain autonomous state actions, including states’ extra-national orientations, the challenges states face in maintaining domestic order, and the organizational resources on which collectivities of state officials draw and deploy (Evans, 1985; Skocpol, 1987; Skocpol et al., 1985).

The state can act autonomously depending on its capacity. State capacity refers to its capability to penetrate society and allocate societal resources to achieve certain goals (Besley & Persson, 2009; Geddes, 2023; Mann, 1986). A few basic factors underpin state capacity such as sovereign integrity and stable administrative and military control of a given territory, which are preconditions for the ability of any state to implement policies. Loyal and skilled officials and plentiful financial resources are also basic features of the state’s effectiveness in attaining a wide range of goals (Domhoff, 1996; Skocpol, 1987; Skocpol et al., 1985). State capacity is a multidimensional concept, consisting of three most common dimensions: coercive capacity, administrative capacity, and extractive capacity (Hanson & Sigman, 2021; Skocpol, 1987; Soifer, 2012). Coercive capacity is a state’s ability to use force to make citizens obey. Administrative capacity refers to the state’s ability to design and implement policies, and extractive capacity is the state’s ability to obtain societal resources to support its ruling. Although these dimensions have different conceptual lenses, they are interconnected. A capable state contains an autonomous bureaucracy with the qualified ability to design and implement policies that possesses the ability to penetrate society and use coercive force if necessary to extract and reallocate resources to support its ruling (Yen et al., 2022). The concept of a policy instrument is also relevant; the state may have several at its disposal. Many studies on state capacity have demonstrated how states use policy instruments to achieve particular goals (Peters, 2018; Skocpol, 1987). In European states, certain instruments address urban crises, such as central planning agencies, state-controlled pools of investment capital, and directly administered national welfare programs (Bengston et al., 2004; Skocpol, 1987).

State despotic power refers to authoritarian and infra-structural power, denoting the state’s capacity to penetrate society through administrative machinery and relationships with groups (Domhoff, 1996; Jessop, 2016; Ma & DeDeo, 2018; Mann, 1986; Smith, 1993). Sometimes in a particular area, state actors are dominant; however, in others, groups may dominate. By pursuing specific interests, state actorst confront groups with alternative interests (Domhoff, 1996, 2017; Hamilton, 2014). In this case, the state’s influence must be included in the policy equation. Yet, the state is often not an equal partner. It has authority and control, which allow the state to override groups (Domhoff, 1996; Ma & DeDeo, 2018; Skocpol, 1987; Smith, 1990).

Policy networks are also an important means of understanding the relationship between the government and groups (Fischer & Miller, 2017; Jann & Wegrich, 2017). Policy networks are formed when groups and the government exchange information. This exchange can be minimal, such as consultation and submission of a paper, or very intense, with groups having institutionalized access to the government. The relationship between the government and groups does not involve pressure groups outside the system lobbying the government to achieve specific goals; this relationship is one of the dependencies. They mutually depend on each other for resources. When the government wishes to achieve specific goals, groups to influence policy, and while developing and implementing policy, the government also needs assistance from groups (Coxall, 2014; Fischer & Miller, 2017; Jann & Wegrich, 2017; Malatesta & Smith, 2014; Maron & Shalev, 2017; ; Marsh & Rhodes, 2002; R. A. W. Rhodes, 2006, 2013; R. A. Rhodes, 2017; Smith, 1993; Tjosvold et al., 2008; Watts, 2007; Weiss, 1995).

In addition, policy depends not only on the power of external groups and how they influence the state but also on the type of relationships that exist between groups and state actors. Policy is made within institutions that structure the interests of the state and pressure groups. Institutional structures such as bureaucratic agencies, legislative committees, and appellate courts are arenas for contending with social forces and standard operating procedures that define and defend interests (Baggott, 1995; Coxall, 2014; Fischer & Miller, 2017; Jann & Wegrich, 2017; March & Olsen, 1983; Smith, 1993; Watts, 2007). In a policy community, state agencies have greater control over policy issues; however, policy is often limited to what is acceptable for a consensus on policy options (an important part of the policy community). The policy community can exclude certain policy options by making them unacceptable (Atkinson & Coleman, 1992; Marsh & Rhodes, 2002; Wilson, 2013; Wright, 1988).

Cammack (1990) focused on state power but linked state actors to their position in society. Statist theory suggests that the state or state actors constitute groups’ behaviors and roles in society (Cerny, 1990; Jessop, 2016; Mitchell, 1999) and use groups to pursue their own goals. According to statist theory, power often lies with the state rather than with groups or individuals in society (Jessop, 2016; Mitchell, 1999; Smith, 1993). In contrast, state interests are not developed in a vacuum but result from interactions with society, because politicians and bureaucrats live in society and their perceptions of state interests are influenced by their social interactions. Thus, state autonomy and capacity develop through relationships with, not opposition to, groups (Jessop, 2016; Skocpol, 1987). However, the notion that in the modern state, the government intervenes in all areas of society, while groups have regular and institutionalized access to it, might be questioned because group access can work in two ways. The first is to enhance state capacity, whereas the second is to undermine this capacity to push an autonomous agenda (Jessop, 2016; Maron & Shalev, 2017; Mitchell, 1999).

In addition to this argument, neo-liberal strategies have reversed state autonomy and capacity. Neoliberalism revived the classical form of liberalism as it was built on a combination of classical liberal philosophy and neoclassical economic theory. It criticizes the statist form of Keynesian and social democracy and emphasizes the role of private property and the market in supporting social well-being and the critical role of political liberties. Neoliberalism posits that private property, freedom of exchange, and the actions of autonomous individuals through voluntary interactions are the cornerstones of an effective social structure or order. Meanwhile, the government’s role is limited to setting rules that enforce property rights and help voluntary interactions flourish (Kim, 1999).

Neilson (1998) notes that, for neoliberalism, the relationship between state autonomy and state capacity is not simply one of mutual reinforcement. In neoliberalism, state autonomy is strengthened by increased independence from democratic pressures; however, this also narrows the scope of the state’s capacity to intervene in social and democratic practices. The increased independence of the state from democratic pressures implies that neoliberals seek to liberalize political elites; yet democracy remains a major constraint on such an idea. As Vowles and Roper (1997, p.103) note, “. . . for neo-liberals, [democracy] is a constraint upon the plans of liberalizing political elites. Yet the major agents of 20th-century democracy, political parties, remain important in determining public policy outcomes, particularly if they are strong and have close ties with organized interests that are themselves imbedded in class formation.”

Brief History of the Soeharto Presidency

Soeharto is an important historical figure in the New Order Indonesia. In history of leadership in Indonesia, he was recorded as a successful member of the Indonesian National Army (Tentara Nasional Indonesia, or TNI), not only because he reached the highest military rank as a great general but also because he performed well in every military task before and after Indonesian independence. His highest career achievement in the military was his appointment as the commander of Komando Strategis Angkatan Darat (Kostrad), the Army Strategic Command, from mid-1962 to 1965, followed by Minister and Chief of the Army when the March 11, 1966, Letter of Order, Super Semar, was issued (Abdulgani-Knapp, 2007). In 1966, under pressure from political parties, students, and armed forces, he was pushed to become president, replacing President Soekarno, because Soeharto was regarded as a successful general who defeated G30S PKI 1965 (Gerakan 30 September PKI 1965/30 September movement) led by the Indonesian Communist Party-PKI) when six TNI generals were kidnaped and killed. Second, he maintained the nation’s stability from societal and students’ movements against the G30S PKI revolution and President Soekarno, who was assumed to be involved in the revolution (Abdulgani-Knapp, 2007). Third, Soeharto saved the nation from the threat of communist ideology. With his special character and attitude, his firmness as a leader, his prestige, and his captivating smile, he was called the smiling general (Jenkins, 2015).

Soeharto is the second and longest-serving president of Indonesia, having ruled the country for 32 years. His regime was called the New Order Era, a name that firmly contrasted with the Soekarno Old Order (Cribb, 2010; Johansson, 2019). The New Order Era began when the March 11, 1966, Letter of Order, the Super Semar, was issued, and ended with Soeharto’s resignation on May 21, 1998 (Alkatiri, 2013). During his presidency, Soeharto received praise and criticism for his success in developing the nation and authoritarian rule. His development programs – including attention notable economic development, equity, and social and political stability – appeared to work well, and the rice self-sufficiency program created stability in food prices (Booth, 1998). Yet he also ruled with repressive practices, which produced many human rights violations, such as those in East Timor, military operations in Aceh and Papua, the mysterious shooter, and the case of activists’ abduction. He is respected as a successful leader capable of creating prosperous economic conditions for Indonesia, although he worked with repressive styles toward those whom he assumed threatened his leadership system and power (Kirana, 2019). He was one of the most complex and important Third World leaders of the post-Second World War era. At the same time, he achieved far more for the country in material terms than others, such as Soekarno, who had been Indonesia’s president since the proclamation of independence in 1945, Ho Chi Minh, Jawaharlal Nehru, and Gamal Abdel Nasser. Soeharto’s combination of authoritarian rule and firm economic management, fortuitously assisted by a resource boom and quadrupling oil prices, made Indonesia a mendicant among nations and gave it a foothold in the global economy (Jenkins, 2015). The authoritarian rule of Soeharto could have reflected, for instance, that in 1966 to 1981, he focused on development, which prioritized economic growth and political security and stability. Thus, he sought to limit every movement from various ideologies and religious and political organizations that he considered an imminent threat to the political stability and power of the New Order (Amir, 2003; Winsidi et al., 2020). Figure 1 and the overall descriptions below detail President Soeharto’s system of presiding over the country during his New Order regime.

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Figure 1.

President Soeharto governance under the New Order Regime.

Moreover, the notable characteristics of Soeharto’s governmental system over the lengthy New Order Era, including authoritarian and developmental regimes, require further exploration at this stage. Through the authoritarian regime, Soeharto took some strategic policy actions to (1) limit pluralism by only allowing political participation in two parties and one group [the United Development Party (PPP), Indonesian Democratic Party (PDI), and Golkar]; (2) legitimize his power through nationalism, anti-communism, and developmentalism; and (3) depoliticize the people through floating mass theory. However, in 1998, authoritarian stability and security policies were eliminated when the nation began foillowing a democratization system (Kawamura, 2008; Sato, 2019). Then, through the developmental regime, Soeharto attempted to mobilize national resources based on developmentalism and the sharing the results of developmentalism among the people. Furthermore, to maintain stabilization policy in the developmental regime, he demanded intense support from the military and security organizations and the interior administration. To support such an aim, he sought to intensively control the military and domestic security through organizational reform, personnel assignments, and regional command of the armed forces; he also used interior affairs bureaucrats to conduct administrative and political supervision at the regional level in cooperation with the military (Kawamura, 2008; Sato, 2019).

Another prominent feature of Soeharto’s regime was a patrimonial system of governance. This system largely derived from Soeharto’s ability to bestow patronage in return for the loyalty of his immediate subordinates, to use the sanction of refusing patronage where necessary, and to personally control its key aspects. This system extended through lower levels of government, including governors, district heads (bupati), subdistrict heads (camat), and even village heads. This system was primarily strengthened by the president’s possession and control of immense financial resources from regular budgetary sources (increasing oil and tax revenues) and irregular revenues or off-budget funds derived mainly from state corporations and other government agencies and probably private businesspeople in return for licenses, concessions, and privileges. In the 1980s, this system became increasingly apparent with the emergence of large conglomerate corporations headed almost entirely by crony capitalists (nearly all Sino-Indonesians) with strong connections to the palace. The wealthy conglomerates that emerged in the 1990s were closely connected to the president or his family. During this era, simply no alternative sources of political protection or patronage existed that were comparable in magnitude to Soeharto’s power; in contrast, in the Soekarno era, the system retained a degree of pluralism (Mackie, 2010). The ultimate fall of the Soeharto regime in Indonesia led to its transformation from a patrimonial administrative state to a patrimonial oligarchic state. Democratization changed the old hierarchy of state-business relations in the distribution of patronage (Fukuoka, 2012).

Evidence also shows that the oligarchic governance system was an important characteristic of Soeharto’s regime. Oligarchs can be seen, first, from the political side, in which oligarchy is a concentration of power in a handful of elites who manage the government with their connections, and second, from the political economy side, in which oligarchy is a power relation that focuses economic resources on a handful of parties (Pratama et al., 2019). Soeharto’s dictatorship indeed became the basis for him to develop what was famously called sultanistic oligarchy or sultanistic rule. In operating sultanistic rule, he sought to tame the ultra-rich personally, create the country’s oligarchs practically, control them like a mafia godfather, and subvert competing bases of independent power across the economy and bureaucracy (V. Hadiz & Robison, 2004; V. R. Hadiz & Robison, 2013; Winters, 2013). Indeed, Soeharto developed and entrenched political oligarchic groups in Indonesia’s social and political structures, and even local politics were influenced by oligarchic groups (V. R. Hadiz, 2004). Regarding the political economy, by encouraging an early business partnership between private commercial sectors, notably ethnic Chinese Indonesians, and the generals, Soeharto developed three significant groups of oligarchs. The first group included erstwhile Chinese Indonesian traders who emerged by the mid-1970s. The second group was the pribumi (indigenous Indonesians) businesspeople who appeared in the early 1980s when Soeharto paid more attention to them through instruments such as Team 10. Finally, Soeharto’s children were the last group, arosing later in the decade (V. Hadiz & Robison, 2004; V. R. Hadiz & Robison, 2013; Winters, 2013). Yet, the emergence of this third group weakened Soeharto’s New Order because his grown children not only had easy access to their father but also could disrupt the system of wealth defense and oligarchic taming based on the politics of proximity to the dictator. They also trumped all other channels of security for oligarchs and rapidly became the most predatory and disruptive force within Indonesia’s oligarchy (V. Hadiz & Robison, 2004; V. R. Hadiz & Robison, 2013; Mietzner et al., 2014; Winters, 2013). Meanwhile, Soeharto refused to limit or punish his children; thus, other oligarchs no longer turned to him to safeguard property, enforce business deals, limit predation, or manage risks, which mostly came from Soeharto’s children themselves. Not only did Soeharto’s children engage in predatory behaviors that threatened domestic and foreign oligarchs and weakened the economy but a broader group of predatory actors connected to the children also participated in some acts (Winters, 2013).

During the New Order Era, then, Soeharto adopted various policymaking mechanisms when the nation experienced certain economic challenges. Such mechanisms included liberal growth policies, nationalist growth policies, familialist distribution policies, and socialist distribution policies. For example, liberalist growth policies were adopted in economic downturns and times of crisis, whereas nationalist growth policies surfaced when the economy was strong. A socialist distribution policy also was adopted when the economy was strong; however, it continued to be used on a smaller scale during other periods (Kawamura, 2008; Sato, 2019). Furthermore, although Soeharto had policymaking groups with different orientations that he always involved in policymaking, he had the final authority to decide the groups granted a policy initiative. For example, technocrats’ groups, including Bappenas (the Indonesian Ministry of National Development Planning), the Coordinating Ministers for Economy, and the Ministry of Finance, were charged with drafting liberal growth policies, socialist distribution policies, and macroeconomic management policies, overcoming economic crises and providing government grants to technocrats and the political elites for use in massive national projects. Then, technocrat groups, including the Ministry of Industry, Pertamina (the State-Owned Oil Company of Indonesia), the State Ministry of Research and Technology, and the Strategic Industries Management Agency, received institutional space to handle nationalist growth policy and to draft policy without interference from technocrats. Finally, direct policymaking groups, such as Soeharto’s children, the surrounding political elite, and entrepreneurs, all of whom had personal links, often used such direct connections with the President to receive permits, prioritize the allocation of interests, and provide funds to political elites in return (Datta et al., 2011; V. Hadiz, 2005; Kawamura, 2008; Sato, 2019).

The sophisticated political system of New Order Indonesia, based on an authoritarian, centralized, and protectionist state, effectively led to the secure dominance of the bureaucratic elite and the emergence of predatory patronage networks, which created a distinctive system of collaboration between the state and holders of capital, notably Indonesia’s Chinese business sector. Patronage networks allowed a small group of ethnic Chinese businesspeople to establish economically powerful conglomerates that dominated the private commercial sector at the time (Chua, 2008). The ethnic Chinese conglomerates, which were composed mainly of Sino-Indonesians or people of Chinese origin living in Indonesia, participated fully in the economy through the mobilization of their capital (Johansson, 2019). The evolution of ethnic Chinese business activities in Soeharto’s regime is difficult to separate from the influence of state policies and the behavior of the political elites. In reality, the relationship between Chinese big businesspeople with Soeharto’s regime is consistent with a model of patron-client behavior and crony capitalism networks. The accommodation, protection, and access the regime provided fostered the economic capitalization of Chinese businesses in Indonesia, mainly due to mutually beneficial factors (Ikhsan et al., 2017). This type of ethnic Chinese conglomerate was the initial group of business elites in Soeharto’s regime and then expanded significantly; however, two other key groups of business elites grew from this and became increasingly important. First, a growing number of pribumi businesspeople exercised more influence on the regime, and second, Soeharto’s children became more involved in a range of business-related activities (Johansson, 2019). Thus, during Soeharto’s regime, the three most important and influential types of conglomerate organizations were ethnic Chinese conglomerates, pribumi business conglomerates, and Soeharto’s family businesses. Among them, ethnic Chinese businesspeople became large and powerful conglomerates; however, they represented no political threat to Soeharto because they were from a relatively small minority. In contrast, economically powerful pribumi businesspeople, freed from reliance on government largesse, could outgrow the need for Soeharto’s favor and become a potent political faction. It is difficult to say if Soeharto viewed his actions in those terms; however, the top pribumi businesspeople certainly did (Mackie, 2010; Schwarz, 1995). In the mid-1980s and the 1990s, ethnic Chinese businesspeople owned approximately 70% to 75% of the domestic private capital (R. Robison, 2009).

Since this group occupied an important place in Soeharto’s New Order, it may be helpful to recall the colonial relationship between China and Indonesia. Historically, Chinese Indonesians have been part of the life of Indonesian society since their two major migrations into Southeast Asia in the late 13th and early 15th centuries. Initially, they came as traders but gradually became a dynamic and multifarious community. With the arrival of the Dutch in Indonesia in the mid-16th century and the establishment of the VOC, they evolved as a stable feature of the Indonesian political and economic community. During the Dutch colonial period, Chinese Indonesians helped maintain links between the harbor kingdoms of North Java and West and South-East Sumatera, and by the beginning of the 18th century, they had become the predominant commercial minority in Indonesia. Since they played intermediary roles among Dutch colonials, Javanese aristocrats, and the masses, many European colonials identified them as outsider entrepreneurs (Lan, 2018; Lloyd, 2001). During the colonial era, the Dutch, as powerful rulers, skillfully created a specific economic, social, and political structure in which the Dutch were the top economic, social, and political elites, with other groups (e.g., Chinese, Arab, Indian populations) making up the middle class, and pribumi people, or traditional (feodal) elites, occupied lower levels, functioning as producers of natural resources. After Indonesian independence in 1945, the structure persisted in both Soekarno’s Old Order and Soeharto’s New Order. Under the New Order, Chinese Indonesians were subject to negative images of their economic, social, and political practices and were treated as “others,” marginalized people who were cast as the source of various problems; they became the scapegoats of riots and economic crises (Sahrasad, 2019).

In addition, with the expulsion of the Dutch from Indonesian economic life in the 1950s and the takeover of the state by the new Indonesian intelligentsia, competition between the Chinese and a newly indigenous entrepreneurial group began to appear (Lan, 2018; Reid, 2001). Perhaps the view of capitalism, which Soekarno associated with alien evil, and the context of global politics, which was divided between capitalist/anti-communist and communist blocs, led to the 1965 tragic event of PKI that placed the Chinese in Indonesia as the fifth column for Communist China (Coppel, 2008; Lan, 2018). However, opening up to foreign investment and rapid economic growth under Soeharto provided unprecedented opportunities for Chinese-Indonesian businesses to grow, particularly those crony capitalists who had been involved in shady business with Soeharto-related military units. This reality resulted in pribumi people resenting Chinese Indonesians, reactions that accumulated until it exploded in the tragic events of May 1998 when many Chinese Indonesians became victims of violence and rape. The rise of the indigenous middle class marked the greatest danger for Chinese Indonesians as outsider entrepreneurs, particularly because the two distinct middle classes were in direct competition over a shrinking pie (Coppel, 2008; Lan, 2018). The combination of China’s global connections and Indonesia’s political and economic dynamics placed Chinese Indonesians in the vulnerable position as racial and class enemies suspected of manipulating the global financial system that catalyzed the economic crisis and depression in Indonesia in 1997 (Lan, 2018; Reid, 2001).

Changing Episodes of Economy and Policymaking

Indonesia proclaimed its independence on August 17, 1945, immediately after World War II ended. Then, in 1966, the New Order Government began to rule Indonesia and shifted economic policy prescriptions from socialist to capitalist/free market. Controlling inflation, reestablishing ties with the international donor community, and rehabilitating physical infrastructure were the highest priorities (Hill, 2000; Kuncoro & Resosudarmo, 2006). With Soeharto announcing economic policy reform that aimed to eliminate the existing system of multiple exchange rates and import-export controls, balance the budget, control inflation, and seek foreign aid, the government began to apply guided economic liberalism. By decontrolling the economy, foreign exchange and import-export procedures were simplified, while balancing the budget to cut subsidies and government employment and rein in credit expansion. Restricting credit expansion was politically easier to accomplish because the business community was small and unorganized for political action (Bresnan, 1993). The international donor community provided foreign aid, and ties with the US, Japan, and the non-communist nations of Western Europe were reestablished, since those countries were the principal markets for Indonesian exports and debt repayment would be easier (Bresnan, 1993). Table 1 and this section describe changing economy and policymaking in Indonesia under the New Order Regime.

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Table 1.

Changing Economic Episodes and Policymaking.

Time periods	Economic episodes	Key changes in policy making
		Leading actors in policy options and adoptions	Policy options/adoptions	Policy Effects
1966–1972	Economic distress; failure in exchange rates; import-export controls; government budget balance; inflation control; and foreign aid	New Order government; Indonesian economists; international donor community; foreign investor; ethnic Chinese businessmen	Liberal economic policy; free market policy; capitalist policy	Economic rehabilitation and recovery: simple exchange rates and import-export procedures; balanced government budget; successful foreign aid relations established with US, Japan, and non-communist nations of Western Europe; government economic program favored foreign investors and ethnic Chinese businessmen over pribumi businessmen; decreased inflation; growth in domestic and foreign investments; growth in the economy at an annual rate of 6.6%
1973–1984	Quadrupled oil prices in 1973	New Order Government; economic nationalists; indigenous businessmen; ethnic Chinese businessmen	Economic regulation policy; greater government intervention in the economy; import substitution policy; president’s decree that prioritizes private businessmen	strict limit on foreign investment and trade (automobiles and textiles); successful protection of state enterprise and domestic industries; Malari riots and protests; increased attention to development of private business interest
Mid-1980s–Early 1990s	Decline of economic growth; rising external indebtedness; falling oil prices; impact of world economic crisis on Indonesia	New Order Government; indigenous businessmen; technocrats; ethnic Chinese businessmen; large conglomerates (Chinese and Soeharto’s son); Chamber of Commerce and Industry; Association of Indigenous Businessmen; Supervisory Council of Chamber of Commerce; private companies; Team 10	Liberal economic policy; deregulation policy: trade reform, banking reform, and foreign investment reform; foster parent program	opportunities for manufacturer gain; rising dominance of ethnic Chinese businessmen; growth of private sector, economy, and large conglomerates (non-indigenous businessmen and Soeharto’s children); annual economic growth averaged 6.7% from 1987 to 1992; anti-conglomerate issues; Chinese-indigenous tension; demands for greater access to private businessmen in the economy; introduction of cooperatives to address solution to anti-conglomerate issues; strong economic performance
Mid-1997–May 1998	Financial crisis; decline of foreign capital inflows; pressure on exchange rate; slow growth of manufacturing sector and oil exports; a climbing consumer price index; rising unemployment; company closures	New Order Government; students; public; indigenous businessmen; ethnic Chinese businessmen; Chamber of Commerce and Industry; Association of Importers Indonesia	Short-term economic management through IMF agreement for economic assistance; comprehensive reform program	Economy remained under pressure; student protests and mass riots against the government; Soeharto’s resignation on May 21, 1998; slow economic recovery

New liberal economic reforms were implemented from late 1966 to 1972, with little government intervention. Professor Mohamad Sadli observed that the New Order economic ideology has been half-hearted and ambivalent because a strong strand of socialist thinking remained among Indonesian officials and intellectuals, inspired by the ideals of the struggle for independence. However, economists emphasized alternatives to both private and public ownership (Hill, 2000). Moreover, these new economic policies led to the rehabilitation and recovery of the Indonesian economy from late 1966 to 1970. Inflation dropped quickly, both domestic and foreign investors grew, and the economy grew at an annual rate of 6.6%, with a recovery growth rate of 10.9%in 1968 (Hill, 2000; Kuncoro & Resosudarmo, 2006). These were indications that the introduction of orthodox monetary and fiscal policies, the government’s clear commitment to economic orthodoxy, and its ties with the international donor community had been successful.

During the late 1960s and early 1970s, the government’s economic programs favored foreign investors and ethnic Chinese businesspeople. Japanese, American, and European investors were more likely to choose ethnic Chinese businesspeople as business partners than pribumi businesspeople because they had more entrepreneurial skills. It was evident that this was not only because pribumi businesspeople were a relatively small group with little entrepreneurial experience but also because they had no financial networks of their own, which in turn made them unable to mobilize the capital required by the government credit program (Wie, 2006).

From 1973 to 1984, the Indonesian government regulated and implemented larger economic interventions. Quadrupling oil prices in 1973 drove the government to impose strict limits on foreign investment and trade (notably automobiles and textiles) to protect state enterprises and domestic industries and favor private business interests. The Malari riots of 1974, an indication of public unhappiness with the rising dominance of foreign investors and ethnic Chinese businesspeople, intensified the implementation of such restrictions and protections (V. Hadiz, 2005; Hill, 2000; Sato, 2003; Wie, 2006). During this period, the government also adopted import substitution that began with consumer goods, followed by intermediate and capital goods, and sought protection through tariff and non-tariff barriers, excessive administrative procedures, and government intervention (Fane, 1996).

Meanwhile, whether indigenous businesspeople were involved in the Malari protest was less clear; however, this event drove the government to favor indigenous business interests. Immediately after the Malari riots, the government issued rules requiring foreign investors to speed up the process of joint ventures with local investors and introduced subsidized lending programs to indigenous businesses (V. Hadiz, 2005; Sato, 2003; Schwarz, 2018). The government’s efforts to transfer equity to indigenous businesses did not end after the Malari riots. With oil wealth and the increasing influence of economic nationalists, the government increasingly focused on balancing redistribution of resources between indigenous businesspeople and their ethnic Chinese counterparts. In the early 1980s, President Soeharto issued several decrees that prioritized weak economic groups, mostly pribumi businesspeople, in obtaining government contracts (V. Hadiz, 2005; Sato, 2003; Schwarz, 2018).

By the mid-1980s, Indonesia had swung back to a more liberal regime in response to the decline in the country’s economic growth, rising external indebtedness, falling oil prices, and the world economic crisis of the early 1980s. From the mid-1980s to the early 1990s, the Indonesian government introduced economic reforms (deregulation), including trade reforms, to dismantle trade monopolies, as well as reforms in banking and foreign investment. Trade reform simplified administrative procedures for imports and exports, lowered tariffs, dismantled non-tariff barriers, and introduced non-oil exports. Under the foreign investment reform, foreign investors’ capital markets were opened, and investment restrictions geared toward the liberalization of domestic and foreign ownership were loosened. In addition, banking reforms eliminated barriers to bank credit allocation and state banks’ interest rates, while foreign and private banks were allowed to open (R. Robison, 1992; Rosser, 2013; H. Soesastro & Basri, 2005; Wardhana, 1998).

Although economic reform and the emergence of a liberal economy were supported, problems remained for indigenous businesses. Downstream manufacturers sought a more liberal economic regime and welcomed the deregulation and erosion of trade monopolies, which sustained high input costs throughout the 1980s. For them, deregulation provided good opportunities for more substantial manufacturing gains (R. J. Robison, 1982; R. Robison, 1992, 2009). Leaders of indigenous businesspeople also supported the efforts of technocrats to liberalize the economy; however, they believed that deregulation would pave the way for the rising dominance of ethnic Chinese businesspeople throughout the economy. At this point, indigenous business people thought that the assistance of technocrats was the only way to end the special treatment enjoyed by a few of the largest Chinese operators. However, as the former relied heavily on state intervention and protection, especially technocrats, to enable their survival even before economic deregulation, idigenous businesspeople saw a serious threat if deregulation eliminated technocrats’ role in the economy (Schwarz, 2018; M. H. Soesastro, 1989).

Indonesian economic reforms in the late 1980s had significant effects on the economy. While economic reforms reduced the government’s role in the economy, they also increased the private sector, economic growth, and the number of large conglomerates. With deregulation, the number of areas in which foreign investments were prohibited decreased from 209 to 20. The number of new private banks rose from 63 in 1988 to 174 in 1991. In 1989, the government offered to sell 17 Indonesian companies, including banks, insurance companies, steel producers, oil services, ship repair companies, and pharmaceuticals, which reduced its share of state-owned enterprises (SOEs), sold them, and went public through the stock market (Hill, 2000; Wang, 1994; Wie, 2006). Meanwhile, Indonesia’s annual growth from 1987 to 1992 averaged 6.7%, achieved without buoyant oil revenue, and the economy effectively weathered the 1980s debt crisis. By the early 1990s, Indonesia had become a significant industrial exporter (Hill, 2000).

With deregulation, as many as 25 large conglomerates emerged, mostly dominated by non-indigenous businesspeople. The top seven were owned by Sino-Indonesian individuals or families, while under President Soehar four were owned by President Soeharto’s son, and the other two were among lowest ranking (Hill, 2000). Business groups also emerged accordingly. Meanwhile, strong criticism against the rapid growth of business conglomerates and demands for wealth-sharing increased, as deregulation seemed to benefit only wealthy businesses, including President Soeharto’s family and Indonesia’s wealthy Chinese population. This criticism was fueled by these wealthy businesspeople having a major stake in the government program of industrial promotion and protection and acquiring a major interest in extensive business dealings because of their close connection to political power (Bresnan, 1993). By the late 1980s, the anti-conglomerate debate had broadly strengthened among the leading pribumi businesspeople, aiming to criticize the leading ethnic Chinese businesspeople and the president’s relatives, who were often accused of violating fair competition. More broadly, it was another way to express resentment toward Indonesia’s political system, which conferred major advantages on the business elite (Schwarz, 1995, 2018).

Anti-Chinese opinions in Indonesia are not new and had been a source of major conflict since colonial times before intensifying in the late 1980s, as leading pribumi businesspeople felt treated less equally than Chinese conglomerates. It was unsurprising that anti-Chinese sentiments made strong indigenous resentment a serious social problem in Indonesia. Schwarz (1995, 2018) found that top indigenous business leaders, and even senior government economists, saw indigenous resentment as not a real concern. The special assistance of President Soeharto to the biggest Chinese-owned firms, including Liem Sioe Liong, Bob Hasan, and Prajogo Pengestu, reflected the President’s pride in the competence and entrepreneurial skills of ethnic Chinese businesspeople. The top indigenous businesspeople were pained when they heard the President say that pribumi businesspeople cannot be trusted, repay loans, work hard, or keep secrets. Many viewed Soeharto’s patrimonial style as an important contributor to Chinese-Indigenous tensions.

The criticism and protests of pribumi businesspeople of President Soeharto’s provision of economic advantages to ethnic Chinese businesspeople intensified. An offcial of the Chamber of Commerce and Industry, a preserve of pribumi businesspeople, commented that the problem the centralization of capital and ownership in a small group of Chinese firms. He added that the government should provide incentives for ethnic Chinese businesspeople to go public and establish a trust fund to buy and hold shares temporarily if the public was not ready. The official also stated that it was time to think about anti-monopoly and antitrust legislation to protect small businesses from unfair competition (Bresnan, 1993). In July 1991, a group of 17 prominent pribumi businesspeople visited the President, protesting the flow of offshore and state bank loans to Chinese conglomerates and demanding greater access for pribumi businesspeople (R. Robison, 1992, 2009).

Probosoetedjo, who headed the Association of Indigenous Indonesian Businesspeople and the Supervisory Council of the Chamber of Commerce, was the most vocal critic. In December 1993, he published a review of the Chamber of Commerce’s activities, which painted a bleak picture of an economy dominated by Chinese businesspeople, assisted by corrupt government officials and gullible technocrats. The review also claimed that large business sectors dominated the industry from upstream to downstream and that each deregulation package had worsened the economic imbalance, because it allowed big businesses to grow through unfair competition. Top pribumi businesspeople protested not only economically but also politically. They observed that many ethnic Chinese businesspeople had direct and personal connections to political powers (Schwarz, 1995, 2018).

With intensifying Chinese–Indigenous business tension, mainly over wealth inequality, coping with this problem became a major concern for the government. In January 1990, President Soeharto called for cooperatives to share wealth as mentioned in the 1945 Constitution. The President appealed to private companies to transfer up to 25% of their equity to cooperatives. As the cooperatives could not afford to buy shares, the President suggested that the firms lend money to the cooperatives so that they could buy them. Most Chinese leaders, however, agreed to transfer only 1% of their shares to the cooperatives. Introducing cooperatives as a solution to anti-conglomerate issues was largely ineffective because the social gap remained deep, indicating that cooperatives did not affect patterns of wealth distribution or eliminate economic inequality (Bresnan, 1993).

The government tried to narrow the ethnic gap in economics. One effort was to encourage the winners of government contracts to replace imported materials with domestically produced goods whenever possible. Another initiative was Team 10 was headed by Soedharmono, the powerful state secretary and chairman of the ruling party, Golkar, with Ginanjar Kartasasmita as the vice chairman. Indigenous businesspeople found that Team 10 had significantly helped them with capital-forming opportunities and functioned to counter the President’s favor for Chinese conglomerates. Since its disbanding in 1988, the government established another program called the Foster Parent Program, which closed in 1980 but was resurrected by Industry Minister Hartarto in 1990. Under this program, large Chinese-owned firms were urged to help small indigenous firms use them as suppliers, distributors, subcontractors, and retailers (Schwarz, 1995, 2018). This program was implemented because many larger indigenous businesses became increasingly involved in cooperation and joint ventures with Chinese conglomerates. Anti-Chinese rhetoric among indigenous businesspeople also began to soften. However, leading Chinese-owned firms disliked the Program, finding it vague and confusing, while leading indigenous-owned companies consideed it patronizing and insulting (Schwarz, 1995, 2018). Such objections produced difficulties and inefficiencies in business relationships.

Throughout the New Order regime, economists, nationalists, and businesspeople evidently influenced the government’s economic policies. Economists and nationalists were bureaucratic agents of the state. President Suharto entrusted economists, who were mostly US-trained (originally Professor Widjojo Nitisastro and Ali Wardhana, in the finance ministry) and subsequently other technocrats with broad mandates to determine economic policies, notably during the late 1960s and the mid-1980s, when the economy was distressed. As they were students of neoclassical economic theory, monetary and market policy were prominent approaches (Bresnan, 1993; Kuncoro & Resosudarmo, 2006; Resosudarmo & Kuncoro, 2006).

The other two groups that often competed with technocrats were economic nationalists and businesspeople. Economic nationalists were inclined to the idea of more active government intervention in the economy and prioritizing indigenous businesspeople to catch up with their ethnic Chinese counterparts. Sutoyo, Habibie, Harmono, and Kartasasmita fit this group. The businesspeople comprised the second group; they were less motivated by ideology or policy considerations than by the desire for profit and wealth. They always had easy access to government contracts and state bank credit because of their links with the government. “The Timber King” Bob Hasan, Liem Sioe Liong, and the Relatives of Soeharto were examples.

Despite anti-conglomerate problems, Indonesia exhibited strong economic performance from 1987 to early 1997. Indonesia likely was the most serious cause of the mid-1977 financial crisis in Asia. The rupiah suffered a severe depreciation of 80% between July 1997 and January 1998; inflows of foreign capital declined, putting pressure on the exchange rate; the growth of non-oil exports and the manufacturing sector slowed; oil exports grew sluggishly; and the consumer price index increased (Hill, 2000).

Although the government made short-term economic management decisions through an agreement with the IMF for an economic assistance package and an attempt to stabilize the rupiah, the Indonesian currency remained under pressure. The continuing financial crisis and rising unemployment rate due to the closing of many Indonesian companies worsened the Indonesian political and economic situation. From February to May 1998, students protested against the government, urging not only the resignation of President Soeharto, assumed to be incapable of managing the crisis, reducing corruption, cronyism, and nepotism, and undertaking comprehensive political and economic reform (Suryadinata, 1999). Meanwhile, the public blamed the ethnic Chinese, who became the scapegoats of the crisis (Crouch, 2010; Purdey, 2006). The Indonesian financial crisis, coupled with student protests and mass riots in mid-May 1998, led to President Soeharto’s resignation on May 21, 1998.

The new government, under President B. J. Habibie, pursued a comprehensive reform program to address the various weaknesses of the economy, but the process of Indonesian economic recovery was slow. Political conditions were unstable, and the new government lacked confidence from both domestic and international quarters. President Habibie’s appointment worried foreigners and ethnic Chinese because he was inclined to favor the interests of indigenous businesspeople. Ethnic Chinese businesspeople, who controlled about 70% of the economy, feared that their businesses would be taken over, while foreign investors who left Indonesia after the mid-May 1998 riots did not return because of likely economic nationalization and demands for more active government intervention in the economy (Crouch, 2010; Purdey, 2006).

Meanwhile, business sector perceptions of market liberalization were evident. Among them, the Chamber of Commerce and Industry strongly favored privatization. In July 1998, the head of the Chamber of Commerce and Industry, Aburizal Ical Bakrie, advocated that the government sell state-owned enterprises (SOEs) to either Indonesian private or foreign companies as an alternative to activate the economy. He believed that private companies would manage companies professionally and effectively to earn more profits (Kase, 2015). Yet, the government did not respond to the demands of the Chamber of Commerce and Industry because it feared that privatization would eliminate state intervention in the economy (Kase, 2015).

Another business group was the Association of Importers in Indonesia. It strongly advocated for a reduction in the government’s import monopoly. In August 1998, the Association urged the government to loosen the approved importer system for 191 commodities managed by the government. Members of this association found that monopoly imports by SOEs during the current financial crisis were costly. The Ministry of Trade and Industry, however, responded said that the government would loosen only a few import commodities in order to protect domestic industry (Kusumah et al., 1998; McCulloch & Peter Timmer, 2008; R. Robison & Rosser, 1998). At this point, the government’s resistance to the demand in this sector was clear. However, in early September 1998, the government, through the Ministry of Trade and Industry, announced the loosening of the import monopoly on commodities, including sugar, wheat flour, and soybeans, allowing the import of these commodities with no tariffs. Moreover, in mid-September 1998, the Ministry of Cooperatives announced an asset redistribution policy aimed at providing opportunities for small businesses and cooperatives by selling conglomerate shares and making them an important part of economic activities. Yet the initiative was criticized by many businesspeople and economists who believed small businesses and cooperatives were unable to take over the economy (Kase, 2015).

Government Vis-à-Vis Business Dominance in Policymaking

The theory of state autonomy and capacity assumes that the state can dominate the influence of social groups in policymaking, because it formulates or pursues goals that are not simple reflections of the demands or interests of social groups (Jessop, 2016; Skocpol, 1987). State autonomy refers to the notion that state actors have their own interests and the ability to transfer these interests into policies. According to state autonomy theory, the state or state actors act according to their own preferences, independent of the demands of the most powerful social groups; Pierson, 2012). Historically, when the government resisted and initiated policies independent of the pressure of social groups, the state’s autonomy and capacity were robust, while the power of social groups weakened. From this perspective, the theory of state autonomy and capacity undermines pluralism theory, which stresses the power of social groups in constructing state action. The Indonesian government’s resistance to the demands of business groups for a more liberalized economy in mid-1998 is consistent with state autonomy theory (Kase, 2015).

In contrast, pluralist state theory assumes that social groups can dominate the state if they constrain or shape state actions. It considers that the interests of powerful groups may influence the state’s policy orientation, while the autonomy of the state is limited. At that point, the notion of state autonomy was underestimated (Brass, 2023; Hirst, 2005; Schumaker, 2021; Smith, 1990, 1993). Such underestimation occurs when the pressure on the groups significantly changes a particular policy. Economic policy changes of the Indonesian government, which favored the interests of business sectors in the redistribition of wealth in the late 1980s and the early 1990s, are consistent with pluralist state theory (Kase, 2015).

Countries where dominant social groups have notable influence and drive the state to make policy changes favoring their interests also must wait for state decisions. Neo-Weberian theory, or the state-centered perspective, suggests that, regardless of the influence of dominant groups, the timing of policy changes is contingent on state action. This theory implies that dominant groups have relative autonomy from the state, and the state makes particular policy changes not because of the influence of groups but because it intends to make the policies (Lynn, 2008; Mann, 1986; Nordlinger et al., 1988). The dependence of dominant groups upon state action is apparent in the historical evidence from Indonesia. In Indonesia, indigenous businesspeople had to wait until President Soeharto made presidential decrees in the early 1980s and the 1990s (Kase, 2015).

The impact of changing episodes of economic booms and busts on the relationship between the government and businesses during New Order Indonesia also is apparent. During New Order Indonesia, not only did the government have significant power (or dominant autonomy) in the formulation of economic policy prescriptions during both stable economic growth and economic crises but it also responded to the demands of business groups in making policy changes in both stable economic growth and economic crises (Kase, 2015). In the late 1960s, the New Order government made a significant shift from the socialist approach of the previous Old Order government in the late 1950s and the early 1960s to economic liberalism, when the country experienced economic stagnation beginning in the early 1960s. From 1974 to 1984, the government shifted from liberal to economic policy regulation because of rising oil prices, growing demand to protect national firms and companies, and the interests of indigenous businesspeople (Hill, 2000; Schwarz, 2018). In the mid-1980s, the government shifted from a regulated to a liberal economic policy when Indonesia confronted an economic crisis and a continuous fall in oil prices. Yet, in mid-1997, when Indonesia experienced a serious financial crisis, a few business actors began to advocate foe more liberal economic policy, urging the government to privatize state-owned enterprises (SOEs) and loosen import monopolies (Rosser, 2013; Schwarz, 2018). The government seemed to resist these demands.

Another characteristic of the relationship between the government and businesses under New Order Indonesia was the influence of business groups on government policies. Indonesian business groups influenced the government’s wealth redistribution policies. Meanwhile, the influence of neoliberal ideology had fully penetrated business groups. Importantly, inequality in wealth redistribution among business groups evidently was more critical than neoliberal ideology (Kase, 2015).

The significance of Indonesian business groups’ influence on government policy during the New Order regime also reflected changing economic conditions. During the New Order Regime, the influence of indigenous businesspeople on wealth redistribution policy intensified when the economy became prosperous, and the government conferred greater economic advantages on ethnic Chinese businesspeople than indigenous businesspeople. During the late 1980s and the early 1990s, the anti-conglomerate sentiment heightened deregulation packages benefited only large conglomerates, including ethnic Chinese businesspeople and the Soeharto family (Chua, 2007; R. Robison & Hadiz, 2005).

A model of economic development also can help explain the nature of the relationship between the government and business groups in New Order Indonesia. During the New Order, the government applied two economic development models. The first was economic liberalism from the late 1960s to the early 1970s and from 1985 to the mid-1990s, emphasizing foreign investment, state enterprises, and trade policy. The second was a regulated economy from 1974 to 1984 in response to demands for protection of national firms and industries. Importantly, economic liberalism was combined with a patrimonial government. The patrimonial principle is incompatible with economic rationality because it applies favoritism and arbitrariness; however, it did not seem to have been an obstacle here, largely because economic liberalism and patrimonial politics mutually supported the adoption of market-oriented policies (Hill, 2000; Liddle, 1991, 1999; Mackie, 2010; Schwarz, 2018; Van Zanden & Marks, 2013). However, it did contribute to anti-conglomerate views, because President Soeharto conferred greater economic advantages to ethnic Chinese businesspeople and their families than to indigenous businesspeople.

Another important account explaining the relationships between the government and business groups in economic policymaking in New Order Indonesia is the government’s role in the country’s economic development. Indonesia is a developing country, and the most popular explanatory perspective on its economic policy development is dependency theory. Dependency theory argues that a “strong Third World state, in alliance with foreign and domestic private capital, could enable economies to grow, but would distort distribution, leaving small businesses out of the system and impoverishing lower-class workers and farmers” (Liddle, 1996, p. 6). This implies that the government’s role in Third World economic policy development is strong, leading the government to pursue its own interests, with development policies often benefiting only government elites at the expense of society. Indonesia, as a developing country, had a strong government under the Soeharto political regime (Kase, 2015).

Political culture was fundamental to the relationship between the government and business groups during New Order of Indonesia. Political culture, which taps the values and attitudes of political actors, generally is recognized as an important factor influencing political behavior. Indonesian political culture, reflecting under the New Order Regime the values of Abangan Java (the upper-class priayi of traditional courts), was grounded in benevolence-obedience ideals. Such ideals cast benevolent rulers as powerful priayi aristocratic classes with strong social and political structures, while the obedient populace is the rakyat (common people) who must defer to the wishes of their social and political superiors. This idea encourages a static attitude of bureaucrats toward society, implies a tendency toward arbitrary or discretionary government policymaking and implementation, and encourages a subordinate perspective, which encourages a monopoly of resources such as wealth, power, and status held by small minority of officials. This also implies that rakyats tend to do what they are told out of respect for established leaders without rebelling or protesting arbitrary and oppressive rulers (Liddle, 1991, 1996, 1999; R. Robison, 2009; Sutherland, 1975; Wasino et al., 2021). Such political culture permeated the political regime under President Soeharto (Kase, 2015).

Government and Business Cooperation in Policymaking

State autonomy and pluralist theories emphasize different angles of state theory. However, such differences are not the absolute limit of the relationships between the state and social groups because, in particular circumstances, the state and social groups can work together to pursue goals. Both states and social groups may have similar policy perceptions and develop mutual assistance to formulate and implement policy changes or goals (Jessop, 2016). Thus, when the government’s perception of a particular policy formation runs parallel to social group perceptions, policy formation is mutually reinforced.

Nevertheless, countries in which states have a strong position over social groups do not necessarily dominate those groups or have complete autonomy. Instead, states can be considered to have relative autonomy, because they remain dependent on social groups for policy formulation and implementation. Even in the most autonomous state, the policy interests of dominant groups may become critical, leading to enhanced state autonomy. With the assistance and cooperation of social groups, the state enhanced its intervention and resource redistribution. However, without assistance from or cooperation with social groups, the state may lack autonomy. State cooperation with social groups is a critical prerequisite for facilitating greater autonomy in policy formulation and implementation (G. Craig et al., 2004; Hamilton, 2014; Jessop, 2016).

Changing economic conditions, such as booms and busts, may also affect the significance of the relationship between the state and social groups. In response to such economic cycles, the state may initiate and formulate policy changes. Yet, business actors also may initiate and push governments to formulate policy changes. Indeed, stable economic growth leads to wealth and secure economic events over few essential challenges arise to policy changes. However, economic busts can create difficulties for businesses and the economy (Hill, 2000; Rosser, 2013; Schwarz, 2018). Business sectors and/or governments may be politically strong, influencing, assisting, or cooperating in economic policy changes to recover from crisis. These characteristics of the relationship between the government and business groups appeared under New Order of Indonesia. In this era, Indonesian business groups influenced the government’s economic policies, especially when their interests were threatened. However, the Indonesian government not only resisted but also responded to the influence of business groups (Kase, 2015).

The other characteristic of the relationship between the government and business sectors during New Order Indonesia is that the government’s perceptions of economic policymaking frequently parallelled those of the business sector. From the 1970s to the mid-1990s, Indonesian indigenous businesses and government actors, notably economic nationalists, had similar perceptions of wealth redistribution policy. Such similar thinking reinforced and paved the way for, for example, President Soeharto’s decrees on the redistribution of resources in the late 1980s and the early 1990s (Rosser, 2013; Schwarz, 2018; Wie, 2006).

The patterns and consequences of both the influence of business sectors on the government and state autonomy to act independently of business groups in economic policymaking in the New Order government are not extraordinary. Lobbying and bargaining with the government, publishing business group ideas, and government resistance and acceptance of the influence of business groups were common under the New Order Regime. Protests by indigenous Indonesian businesspeople against the government’s wealth redistribution policies also were common. At the same time, ethnic-Chinese businesspeople and the Soeharto family influenced the government through personal links, while indigenous businesspeople had no direct link to political power (Kase, 2015).