Magister Manajemen Universitas Gadjah Mada General Business Environment: GOVERNMENTAL ENVIRONMENT P r a t i k n o Fisipol UGM

Some Questions What are the expectation of business in regard to the functioning of government? What problems are faced by business in dealing with the government? What shall the government do to be more ‘business friendly’? What shall the business do to make the government reforms itself?

1 What are the expectation of business in regard to the functioning of government? Situation which are: Certain or predictable; Efficient for running business. Through the function of government: Regulatory functions; Development and public service provision functions

The relevance of government for business? 1 The relevance of government for business? Regulation, Development & Services provision to secure: Certainty or predictability: Rule of law; Social and political order; Policy consistency; Monetary stability; Etc. 2. Efficiency: Efficient bureaucracy; Good physical infrastructure; Skilful & productive labors; Etc.

1 Business’ Expectations: Example of indicators Sumber : Data hasil pemeringkatan daya tarik investasi 200 kabupaten/kota se-Indonesia, KPPOD 2003

Indikator Daya Saing Daerah (versi KPPOD) 1 Indikator Daya Saing Daerah (versi KPPOD) Kelembagaan (31%) Kepastian hukum penegakan hukum konsistensi peraturan pungli di luar birokrasi hubungan eksekutif-legislatif Keuangan Daerah anggaran pembangunan rasio retribusi pajak Aparatur penggunaan wewenang pelayanan birokrasi Perda/Kebijakan Daerah Sosial Politik (26%) Sosial Politik stabilitas politik konflik masyarakat unjuk rasa partisipasi masyarakat Keamanan gangguan masyarakat gangguan usaha kecepatan aparat Budaya keterbukaan non diskriminatif adat istiadat etos kerja Sumber : Data hasil pemeringkatan daya tarik investasi 200 kabupaten/kota se-Indonesia, KPPOD 2003

Indikator Daya Saing Daerah (versi KPPOD) 1 Indikator Daya Saing Daerah (versi KPPOD) Ekonomi Daerah (17%) Potensi Ekonomi PDRB Per kapita Pertumbuhan Indeks pembangunan manusia Struktur Ekonomi nilai tambah tersier nilai tambah sekunder nilai tambah primer Tenaker & Produktivitas (13%) Biaya Tenaga Kerja upah aktual UMP Ketersediaan Tenaga Kerja SLTP berpengalaman usia produktif pencari kerja Produktifitas Tenaga Kerja Sumber : Data hasil pemeringkatan daya tarik investasi 200 kabupaten/kota se-Indonesia, KPPOD 2003

Indikator Daya Saing Daerah (versi KPPOD) 1 Indikator Daya Saing Daerah (versi KPPOD) Infrastruktur Fisik Ketersediaan Infrastruktur pelabuhan udara pelabuhan laut jalan telepon listrik Kualitas Infrastruktur kualitas pelabuhan udara kualitas pelabuhan laut kualitas jalan kualitas telepon kualitas listrik Sumber : Data hasil pemeringkatan daya tarik investasi 200 kabupaten/kota se-Indonesia, KPPOD 2003

What problems faced by business in dealing with the government? 2 What problems faced by business in dealing with the government? Potensial problems: Business Government Orientation Profit Public interests Mechanism Competition Regulation Position of Individual Customer Client Bargaining Power of Indiv. Choice & Exit Voice

What problems faced by business in dealing with the government? 2 What problems faced by business in dealing with the government? Problems are varied among countries and regions. General picture can be seen from, for examples: Level of competitiveness (Global Competitiveness by World Bank) Rank of investment attractiveness (KPPOD) Rank of political risks (PRA), Etc

Examples: Rank of Investment Attractiveness 2 Examples: Rank of Investment Attractiveness Sumber : Data hasil pemeringkatan daya tarik investasi 200 kabupaten/kota se-Indonesia, KPPOD 2003

Examples: Rank of Investment Attractiveness 2 Examples: Rank of Investment Attractiveness Sumber : Data hasil pemeringkatan daya tarik investasi 200 kabupaten/kota se-Indonesia, KPPOD 2003

Common problems faced by business in dealing with the government 2 Common problems faced by business in dealing with the government 1. At the policy level; 2. At the daily administrative services level.

(1) Problems at the policy level 2 (1) Problems at the policy level Policy inconsistency: Between level of government; Between level of regulation; Among ministries; Among regions; Etc. Instability: politics, economy, security, etc Inefficiency: high cost economy, etc

(2) Problems at the bureaucracy level Red tape; High cost Low transparancy Complicated procedures; Long queue; etc

(3) What shall the government do to be more ‘business friendly’? The government should reform itself; Many formulas have been proposed by academicians: Good governance; New Public Management; Market-based Public Administration; Entreprenurial government; New Public Services, etc

3 Good Governance

Osborne & Gaebler Reinventing/ Entrepreneurial Government (1) 3 Osborne & Gaebler Reinventing/ Entrepreneurial Government (1) Promote competition between service providers Empower citizens in controlling bureaucracy Outcomes oriented in measuring performance Driven by missions & regulation Redefine clients as customers & offer them choices

Osborne & Gaebler Reinventing/ Entrepreneurial Government (2) 3 Osborne & Gaebler Reinventing/ Entrepreneurial Government (2) Prevent problems Earning money, not simply spending Decentralise authority/participatory management Prefer market mechanism Catalysing all sectors, not simply providing services

New Public Management Owen Hughes (1994) 3 New Public Management Owen Hughes (1994) The focus on outputs, instead of inputs. Changes to input in staff resources, budgeting, or technology Reducing the scope of government. Responsibility is taken by managers Relationship between managers and politicians and managers and the public must alter

New Public Management Principles (Hood 1991) : 1 3 New Public Management Principles (Hood 1991) : 1 Hands-on professional management Letting the managers manage Accountability  responsibility for action. Explicit standards and measures Requires goals and performance targets

3 NPM- Hood : 2 Accountability  clear statement of goals; efficiency  ‘hard look’ at objectives. Greater emphasis on output controls Resourcesmeasured performance  the need to stress results rather than procedures. disaggregation of units in the public sector

3 NPM-Hood : 3 breaking up of large entities  corporatised units around products create manageable units and gain the efficiency advantages Greater competition in the public sector The move to term contracts and public tendering procedures

3 NPM: 4 Rivalry  key to lower costs and better standard Stress on private sector styles of management practice move away  military-style to public service ethics and flexibility Use proven private sector management tools Greater discipline and parsimony in resource use

3 NPM : 5 Cutting direct costs, raising labour discipline, resisting union demands, limiting compliance costs to business Need to check resource demands of public sector and do more with less.

What shall the business do? 4 What shall the business do? Alternatives: Exit Avoding the government by moving away !! Voice Demanding the government to reform itself !!

4 More space for exit: Globalization Decentralization Recent structure? More space for exit: Globalization Easier to move to other countries Decentralization More possibility to find more friendly regions for business Foot loose industry Easily moved industries

Not all are easily moved ! 4 Not all are easily moved ! Such as: mining …. Small scale industry … Etc In this case, what can be done?

If so, what shall the business do? 4 If so, what shall the business do? If you are in a very long queue with complicated procedure without knowing when you will be served, what are you going to do?

If so, what shall the business do? 4 If so, what shall the business do? Voice !! Not only as an individual company … But, more importantly, as an association which voice collectively

What shall the business do then? 4 What shall the business do then? The limit, and even the danger, of individual action? The strength of collective action? The case of ‘Perda Bermasalah’ & the role of KADIN & KPPOD !

Minor Paper (June 2009) Write a short paper (approx 5 pages) containing three parts: 1. Formulate problems of government environment: you can show a specific case, or otherwise a general problems that you can drawn from literature or agregrat data, about problems that faced by business in dealing with the government. Formulate a set of recommendation for the government: Write your recommendation what shall the government do. Formulate your recommendation for business (choice or voice) : since the governmet may not be willing to implement your recommendation in number 2, you need to formulate some strategies that business should consider in confincing and insisting your recommendation. Please elaborate the possibility of exit and voice strategies.