GBE: Political

Environment

Poppy S. Winanti
poppysw@ugm.ac.id
http://poppysw.staff.ugm.ac.id
 GENERAL BUSINESS
ENVIRONMENT
Why should we bother?
 Meanwhile …

The qualifying concept of

ceteris paribus means
that you do not need
to consider other variables
 The truth is …

As business decision-making is affected by many

different kinds of “things” or events, decision-
makers have to consider many dimensions of
human life, physical as well as social
Key Business Environment
Political Environment

Domestic Global
Politics Politics

Political
Environment

7
Domestic politics
THE IDEAL:
strong nation-state
with
well-functioning government
 1. State formation
Ruling elite consolidated a region The State
by force & economic resources –
and created institutions (army,
police, courts) in order to esablish
order & security.

2. Nation building
The state set a standard (language,
education, currency, scale, Stabilization Redistribution
measurement) within its region.

Regulation
3. Democratisation
The mass got access to
government apparatus & process. Security service -
internal & external Taxation &
4. Formation of welfare Budget
states
Rules for economic
The state supported equalization,
solidarity for the whole nation and activities
equality ethics.

Sources of legitimacy
 Functions of the State Improving
Addressing “market failure” equity
Providing pure “public goods” Protecting the poor
Minimal Defense; Law & order; Property rights; Macro-economic Anti-poverty program;
management; Public health Disaster relief
function

Addressing Regulating Overcoming Providing social

externalities: monopoly: imperfect information: insurance:
Basic education; Utility regulation; Insurance (health, life, Redistributive pensions;
Intermediate
Environmental Antitrust policy pensions); Financial Family allowances;
function protection regulation; Consumer Unemployment
protection insurance

Coordinating private activity: Redistribution:

Activist
function Fostering markets; Cluster initiatives Asset redistribution

Source: World Bank, World Development Report 1997 (Oxford University Press, 1997), p.27.
Transforming events
 Transition to Democracy

POST SUHARTO
ERA Decentralization

Election and Political

Fragmentation
“Transition to Democracy”
• It started when President Suharto in May 21, 1998
suddenly resigned amidst a great political turmoil in the
wake of great economic crisis.
• The successor, President B.J. Habibie initiated
liberalization measures: freeing the press, releasing
political prisoners, relaxation of restriction on dissent,
and the most important step toward democratization,
i.e. conducting parliamentary elections in 1999.
• The transition culminated in the election of
Abdurrahman Wahid , a non-sectarian Muslim-scholar
and a leader of democratic movement, to become the
first President elected democratically.
Decentralization: Local
Autonomy
• Vedi R. Hadiz’s study (2005) in the North Sumatera Utara
and Yogyakarta.
• Decentralization process in Indonesia did not correlate with
strengthening of political democracy. Shifting power after
1998 just happened on the context and did not change
material basis. Elite domination process of the New Order
in the political and economic sectors still took place.
Elections & Political Fragmentation

• Elections in Indonesia have been unable to facilitate the establishment of strong

and solid foundation for effective government.
• The biggest winner in the Elections of 1955, got only 22% of the votes; up to 34%
in 1999, but down to 21% in 2004 and stay at 20.8% in 2009.
• For party politics in Indonesia, fragmentation and inability to create a winning
coalition seem to be the “norm”.
 Stubbornly Fragmented?:
The Results of Elections of 1955 & 1999

1955 % 1999 %
PNI (Nationalist) 22 PDI-P (Nationalist) 34
Masyumi (Modernist Muslim) 21 Golkar (Nationalist) 22
NU (Traditional Muslim) 19 PKB (Traditional Muslim) 12
PKI (Communist) 17 PPP (Mixed Muslim) 10
PAN (Modernist Muslim) 7
PBB (Modernist Muslim) 2
PK (Modernist Muslim) 1
Other parties 21 Other parties 12
Total 100 Total 100
Source: Liddle, “Indonesia’s Democratic Elections”, Mimeograph (2004)
Stubbornly Political Party
PDI-P (Nationalist)
1999
34
2004
18
2009
14.03
2014
18.95
2019
19.33
Fragmented? Golkar (Nationalist) 22 21 14.45 14.75 12.31

(2): PKB (Traditional

Muslim)
12 10 4.94 9.04 9.69

Elections of 1999, PPP (Mixed Muslim) 10 8 5.32 6.53 4.52

2004, 2009 and PAN (Modernist 7 6 6.01 7.59 6.84
2014, 2019 Muslim)
(percentage) Demokrat (Nationalist) ---- 7 20.85 10.19 7.77
PK/PKS (Modernist 1 7 7.88 6.79 8.21
Muslim)
GERINDRA - - 4.46 11.81 12.57
(Nationalist)
NASDEM (Nationalist) - - - 6.72 9.05
Other parties 14 23 22.06 7.63 9.71
Conclusion: Domestic Political
Environment
International
Political
Environment
Decline of Multilateralism

Trade War: US – China

The emergence of the BRICS

WTO: Why Stagnant? “Adaptability Crisis”

• The WTO’s decision-making rules,

principles, and practices as the legacy
from the GATT are no longer well-
suited to the complex challenges of
the current global situation
(Meléndez-Ortiz, Bellman, Mendoza
(eds), 2012; Elsig, 2016):
• The changing nature of power
relations in the WTO.
• The emergence of new global
trade issues such as energy,
climate change, and food crisis
 RTAs

As of 4 January 2019, the WTO has received around 467

notifications of Regional Trade Agreements (goods and
services separately) of these 291 were in force.

This data indicates that a deeper integration is much easier at

the regional level than it is at the multilateral level.
Furthermore, RTAs are deemed as the better place to achieve
consensus for sets of rules that cannot be accomplished within
the WTO framework
The Election of Donald Trump
• Uncertainty following the election
of Trump
• The rising of US protectionism
(trade protectionist rhetoric;
opposition to the TPP which is the
signature economic pillar of the
rebalance; America First slogan)
• The US position in Asia has often
been seen unstable due to internal
US policy debates (the value of
Southeast Asia in the eyes of the
new US Administration; the end of
Obama’s ‘pivot’ to Asia)
Source: Southeast Asia Outlook, 2017
 The Rise of China
• "We must remain committed to promoting
free trade and investment through opening up
and say no to protectionism," Chinese President
Xi Jinping said in a speech at the World
Economic Forum in Davos (CNN, 2017)
One Belt One Road

• China’s Belt and Road

Initiative (also known as
One Belt, One
Road(OBOR)) is one of
President Xi’s most
ambitious foreign and
economic policies.
• It aims to strengthen
Beijing’s economic
leadership through a vast
program of infrastructure
building throughout
China’s neighbouring
regions.

Source: Cai, 2017

The Emergence of BRICS
The Emergence of EM-MNCs
27
 Top 6 most attractive global business locations Outflows from developing and emerging
five are emerging economies (World economy MNEs have significantly risen from a
Investment Report 2005 - UNCTAD) negligible amount in the early 1980s to $83

The emergence
billion in 2004 (UNCTAD, 2005)

of EM-MNCs

11% in world stock, with active engagement in

a large number of cross-border mergers and
acquisitions (UNCTAD, 2005
The Global Risks Interconnections Map 2020

Source:
the Global
Risks Report
2020
Thank You
Poppy S. Winanti
E-mail: poppysw@ugm.ac.id
Web: http://poppysw.staff.ugm.ac.id

Office:
Faculty of Social and Political Sciences
Universitas Gadjah Mada
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Yogyakarta 55281, Indonesia