In July 2005, I spent six days in Jakarta, Indonesia, where I met with business leaders, government officials, and university faculty and business students. The U.S. embassy arranged several speaking engagements and I met with the U.S. ambassador and econ counselor to discuss issues of business, ethics, and how our work might be useful in the context of Indonesia. These are very public and high-priority issues in Indonesia, being tackled at the highest levels.
One morning over breakfast, I talked with a small group of business and government leaders. These men were passionate about addressing the corruption problems in Indonesia. Their coping skills were amazing and, in spite of the serious nature of the discussion, the conversation was filled with laughter. These candid quotes from this conversation give insight into the magnitude of the problem and the challenges ahead.
Al Erisman
Executive Editor
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A senior government official explained that it is much more difficult to act ethically in business in Indonesia than in the United States. When I asked him to explain he said, “Indonesia has a very corrupt government. In fact, based on a recent survey, Indonesia was rated the third most corrupt country in the world.” After he gave me time to digest this fact he added, “We would have been first, but we bribed those doing the survey!” Everyone laughed.
This humorous exaggeration was not far from the truth. The Transparency International Corruption Perceptions Index 2005 placed Indonesia in the bottom 20 countries of the world, and they were included in the group of 70 countries in the world where corruption is considered “rampant” (report issued October 2005).
Corruption Built Into System
One of the leaders said, “In a company as well as in the government, the most important thing is the system. If the system is bad then everything is bad, and in Indonesia the system goes from bad to worse because of democratization. If you want to become mayor, you have to have enough money to campaign. Sometimes you sell your land and sometimes you borrow money. Once you are elected, you have to pay back your loan to your friends. How are you going to do this? Right. Corruption. Also, the pay for positions in the government is very small. How can you be free of corruption if your salary is only enough to take care of your family for two weeks each month? Right. Corruption.”
The education system is also affected. “I was teaching on the faculty of economics at the University of Indonesia and the salary was so low that corruption is there as well. Not money corruption but time corruption. The professors are doing consulting, moonlighting by teaching at other universities, they don’t have time to spend with students or on research. So education suffers,” another reported. “Even the chancellor of a major university has a salary of about $2,000 U.S. dollars.”
And what does all this mean for competing in the world? “I think Indonesia cannot compete in the world. Everything is being imported.” When I asked if it would help to get outside pressure to conform to financial standards through an organization such as the WTO, they said no. “The cost of corruption would make the cost of our goods so high that we could not compete. Further, the WTO requires a company to open its markets. So we would be flooded even more than we are now with goods from China and elsewhere.”
Dealing With Bribery
How do you deal with bribery and taxation when you are running a business? “If you are completely honest and keep the books exactly right, you go out of business. Even the tax man told me, ‘The system is such that you cannot be honest. If you want to be honest, leave Indonesia,’” one leader said.
Another added, “To a certain degree he is completely correct. But my experience is from a very big company. Then we can be honest and fight. Recently we won a case with the tax office that lasted more than two years. We had an international tax consultant help us and we won. But a small- or medium-sized company cannot do that. The tax officer will squeeze as much as possible. That is their mentality.”
What about software? “You can go to the market with the equivalent of $.50 and buy all kinds of software.” When I asked if this was a problem for Indonesia the response was, “No, for Indonesian people it is good because we can afford to be up-to-date with our Microsoft software! One thing that is damaging Indonesia right now is the spread of pornography, inexpensively available in these same places. Perhaps controlling pornography through copyright would help!”
Is there any attempt to crack down on the software piracy? “In response to complaint and protest from the international community that piracy should be stopped, the police were called in. They entered the schools and offices to capture those with pirated software. This just required a payoff to the police, so there was corruption in cleaning up the corruption!”
Business Must Fight Corruption
A government leader said, “I think we must fight corruption because it makes economic sense. If the company allows some kind of corruption anywhere, then everybody will follow suit and very soon all your employees will not comply with any system that you put in place. So it does not work. Further, today it is a global market. You cannot just sell in your area. So you have to take a stand on corporate governance. In 1990, Indonesia started a push for good governance. There were even awards for governance. But over the years, fewer and fewer companies signed up to participate, because when you do there is an independent team sent to your company and they check everything. So, fewer and fewer companies are participating — only about 20 this past year. And there is no pressure to join.”
So the big question: What can you do about this? “Singapore is an excellent example, because in 1965 they were as corrupt as Indonesia. They took a very simple solution. They paid their government leaders a good income and then had harsh penalties for violators. I suggest first that if a leader is paid adequately and then is found in corruption the person should be shot dead, and then the wife and children should be punished as well. Because in many cases, the government officer commits corruption because of pressure from the wife and children. This is drastic, but we have a serious problem. We must deter the family push for more as well as the corruption of the leader. Corruption in Indonesia is a deep problem and it will take many years to solve.”