Third World Quarterly

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Doing business under the framework of disorder:

illiberal legalism in Indonesia

Abdil Mughis Mudhoffir & Rafiqa Qurrata A’yun

To cite this article: Abdil Mughis Mudhoffir & Rafiqa Qurrata A’yun (2021): Doing business
under the framework of disorder: illiberal legalism in Indonesia, Third World Quarterly, DOI:
10.1080/01436597.2021.1967738

To link to this article: https://doi.org/10.1080/01436597.2021.1967738

Published online: 09 Sep 2021.

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Third World Quarterly
https://doi.org/10.1080/01436597.2021.1967738

Doing business under the framework of disorder: illiberal

legalism in Indonesia
Abdil Mughis Mudhoffira,b and Rafiqa Qurrata A’yunc,d
a
Department of Sociology, State University of Jakarta, Jakarta, Indonesia; bAsia Institute, the University of
Melbourne, Parkville, Melbourne, Australia; cFaculty of Law, Universitas Indonesia, Depok, Indonesia;
d
Melbourne Law School, The University of Melbourne, Carlton, Australia

ABSTRACT ARTICLE HISTORY

The rule of law has been widely perceived as an important prerequisite Received 7 March 2020
for economic development. However, many cases in postcolonial coun- Accepted 27 July 2021
tries have shown that the two may not always be strongly related. KEYWORDS
Drawing from the case of Indonesia, we found that economic develop- Illiberal legalism
ment can also be accompanied by a distinctly illiberal legal framework. rule of law
Instead of being obstacles, legal uncertainty and lawlessness are in legal reform
some ways instrumental in facilitating particular experiences of eco- economic development
nomic development, constituting the failure of legal reform. This means rent-seeking economy
that illiberal legalism is not an exclusive characteristic of transitional Indonesian democracy
states nor necessarily the result of a cultural feature of developing soci-
eties where multiple legal systems coexist. Rather, illiberal legalism is
an outcome of a particular development of capitalism in some countries
in the Global South where legal institutions work as an instrument of
rule. While there is no single model of illiberal legalism, the Indonesian
case represents an example where an illiberal politico-legal system
coexists with a predominantly rent-seeking economy. The Indonesian
case was analysed based on fieldwork conducted in Jakarta from
December 2019 to January 2020 and secondary data collected until the
time of writing.

Introduction
The problem
This article challenges the Weberian notion that a conducive business environment made
possible by the existence of the rule of law – simply defined as a set of rules that protect the
citizen against arbitrary power, also called ‘liberal legalism’ – is a necessary condition for
economic development. By presenting evidence from contemporary Indonesia, this study
shows that its economy has continued to grow at approximately 4–6% for the past 20 years
despite widespread corruption, legal uncertainty and the relative absence of the rule of law.
Many liberal economists might argue that the economic growth rate could have been better
if the rule of law were more effectively enforced. However, the cases of authoritarian

CONTACT Abdil Mughis Mudhoffir mughis.mudhoffir@unimelb.edu.au; abdil.mughis@gmail.com

© 2021 Global South Ltd
2 A. M. MUDHOFFIR AND R. Q. A’YUN

countries, such as China and Viet Nam, or flawed democracies like Indonesia, India and the
Philippines where the rule of law has been relatively absent, show that they can also make
immense economic strides (IMF 2019). As Tamanaha (2011, 245) highlights, ‘explosive eco-
nomic progress can occur in the absence of the rule of law’. Instead of viewing these cases
as exceptions and outliers, as Freedom House (2015) would suggest, it is more productive
to point out that under a setting of legal disorder, characterised in this study as that of ‘illiberal
legalism’, an economy ironically can still be productive. The question is, why has the relative
absence of the rule of law not always constrained economic development? Addressing this
research question can help to explain the persistence of illiberal legalism and the failure of
legal reforms in Indonesia. This is despite vast resources being deployed by many interna-
tional donor agencies to support the establishment of the rule of law over more than two
decades since the fall of the New Order.

The argument
This article argues that illiberal legalism and the relative absence of the rule of law are the
outcome of a particular organisation of capital that requires the use of extra-economic means –
including violence, lawlessness and various forms of disorder – for the accumulation of power
and wealth (see Mudhoffir 2021). Illiberal legalism is a common feature of newer capitalist
countries in the Global South. Different from countries in the Global North, where the
advancement of capitalism has largely accompanied the development of a formal legal
order, in the Global South this is not necessarily the case, owing to ‘the absence of an assertive
and autonomous bourgeoisie and labour movement’ (Jayasuriya 1996, 368; 1999; Robison
2009). Our research found that even when domestic capitalists have emerged, they are less
inclined to support the establishment of law and order because their businesses continue
to rely on patronage relationships with politico-bureaucrats, thus merging political and
economic power.
These arguments are developed mainly, but not exclusively, from the Indonesian case.
We found that in Indonesia, an illiberal politico-legal system goes hand in hand with a pre-
dominant rent-seeking economy. Meanwhile, in Singapore or Hong Kong, illiberal politi-
co-legal systems accompany the development of liberal markets, defined by Jayasuriya (2001;
see also Rajah 2012) as ‘dual-states’. In China and Viet Nam as well as many African states (see
Chabal and Daloz 1999), authoritarian legalism coexists with an illiberal economy. These
cases show that legal institutions work as an instrument of rule (Jayasuriya 1996), constituting
rule by law as opposed to the rule of law.
Further, we also found that powerful politico-business elites in Indonesia are able to adapt
to, and optimise on, the returns from instrumentalising disorder (Mudhoffir 2021). As dis-
cussed more fully in the following sections, this is evidenced by the pervasiveness of the
rent-seeking economy, through which corruption is endemic. Our interviews with high-pro-
file businesspersons, for example, confirm that they support attempts to reduce the insti-
tutional powers of the Corruption Eradication Commission (Komisi Pemberantasan Korupsi,
KPK) through the revision of KPK Law. The Indonesian government under the current admin-
istration of President Joko Widodo (2014–present), better known as Jokowi, even states that
limiting the KPK’s institutional powers is meant to accelerate investment, which has the
effects of reinforcing illiberal legalism. Similar to KPK Law, the issuance of other highly
 Third World Quarterly 3

contentious laws like the revised Mineral and Coal Mining Law, the revised Constitutional
Court Law and the Omnibus Law on Job Creation (Job Creation Law) in the following year
amid the
COVID-19 pandemic was also undertaken by neglecting public participation and transpar-
ency. While the Mining Law and Job Creation Law pose serious threats to human rights and
environmental protections, the Constitutional Court Law weakens the institutional inde-
pendence that affects the way the court reviews the constitutionality of problematic laws.

Methodological considerations
The analysis of the Indonesian case, particularly about the persistence of illiberal legalism
and the failure of legal reform, is based on empirical data gathered from fieldwork conducted
in the capital city of Jakarta in December 2019 and January 2020. Secondary data, especially
from credible media sources, were also collected until the time of writing to analyse the
development of the cases studied in this research. The field research utilises a qualitative
approach to understand the experiences, perceptions and opinions of relevant informants.
We refer to Gellert and Shefner (2009, 196) in employing ‘structural fieldwork’ to understand
‘structures of power that provide much of the logic by which political economic life is organ-
ised’. This method suggests researchers be guided by theory in gathering empirical data.
Data collection techniques that we employed in this research involved semi-structured
interviews as well as analysis of relevant documents such as scholarly literature, statutes and
credible media sources. The interviews involved 22 key informants ranging from business-
people to government officials as well as staff of international donor agencies, activists,
academics and journalists. These informants were accessed through our professional net-
works using the snowball technique. During fieldwork, we established an understanding
with interviewees by providing general information about the project and its purposes and
a limited scope of questions necessary for obtaining their consent. They agreed that their
statements be quoted in this article for research purposes and have been anonymised. Some
informants requested that their comments be kept off the record. Information from this
latter category is not analysed or quoted in this paper.
Informants from business were identified from among those who have longstanding
experience in establishing business activities and are relatively influential in economic
policymaking in the country. Meanwhile, informants from other categories were selected
based on their expertise and engagement with legal and institutional reform projects in
Indonesia. Interviews with high-profile national businesspersons and leaders of business
associations were conducted to gain information about their experiences in doing business
activities under the framework of legal disorder and how they deal with multilayered
bureaucratic and endemic corruption. The interviews also sought to understand whether
informants perceive various forms of legal uncertainties as an obstruction or as a means to
facilitate their business interests. Interviews with government representatives, KPK officials,
donor agencies and activists were undertaken to gather data about how they evaluate the
Indonesian legal reform that has been occurring for the last two decades and how this
reform addresses problems associated with the persistence of legal disorder. Unsurprisingly,
most of the informants present an institutional view in explaining the failure of legal reform,
which tends to disregard the fact that businesspersons are able to adapt to illiberal legalism.
These insights are complemented by discussions with academics and journalists to
4 A. M. MUDHOFFIR AND R. Q. A’YUN

contextualise the problems and findings that shape our arguments about Indonesian illib-
eral legalism.
The analysis of these empirical materials involves several steps. First, we identify the
political-economic environment and legal condition in Indonesia, which we define as being
ruled by the framework of disorder (Mudhoffir 2021). Second, we analyse how businessper-
sons adapt to such an environment from the way they respond to endemic corruption. Third,
we assess the implementation of legal reform, paying attention to the work of some key
institutions in dealing with vested interests. The cases that we analyse range from the weak-
ening of the KPK to several contentious laws and policies. Analysing more than one case
study is common in qualitative research for the purpose of strengthening arguments (see
McGoey 2014; Howell, Fisher, and Shang 2020). In our research, we put together different
case studies to demonstrate a pattern of limits to legal reform under the framework of
disorder.

Illiberal legalism: theoretical considerations

This section explains our research framework and discusses the existing literature about
illiberal legalism in the global context. We employ a critical political economy approach to
understand why illiberal legalism is entrenched in certain countries, which constitutes the
failure of legal reform. This approach emphasises how political-economic forces contribute
to shaping the work of legal institutions. It contrasts with existing studies that focus on either
institutional weaknesses or the cultural characteristics of certain societies.

Research framework
The critical political economy approach employed in this article views ‘legal systems [as] the
products of distinctive forms of markets and states’ (Jayasuriya 1996, 368). This research
framework suggests that the continued existence of illiberal legalism in certain countries,
despite the vast resources deployed by international development agencies to support the
rule of law, depicts a particular evolution of capitalism. Illiberal legalism appears in a distinct
type of capitalism, mostly found in the Global South, characterised by the prominent use of
extra-economic means in concentrating power and material wealth. In such a context, access
to, and control of, state authority, are key to facilitating private accumulation of wealth by
merging political and economic power (see Robison 2009; Robison and Hadiz 2004). This
characteristic has become dominant, as it is reproduced through the way politico-business
actors use the law as an instrument of rule, constituting rule by law. Accordingly, the estab-
lishment of legal institutions is more likely to serve the interests of the powerful elites than
as a means to restrain state power.
Moreover, law in many countries in the Global South operates in a way that contradicts
the Weberian ideal type of legal institutions, which combines coercion and formal-rational
legitimacy (see Trubek 1972). In this political setting, ‘lawlessness’ maintains legal confusion
and ambiguity, creating a framework of disorder and the illiberal nature of politics, instead
of producing order and ensuring certainty and calculability as required for establishing a
liberal market and state. As pointed out by Jayasuriya (2001), in the cases of Singapore and
Hong Kong, liberal markets can also be accompanied by non-liberal legalism. This model
can also be traced back to Nazi Germany in the 1930s, defined by Fraenkel (2017, xxiv) as an
 Third World Quarterly 5

earlier case of the dual state, which combined ‘arbitrary powers with a capitalistic economic
organisation’. Under an authoritarian regime or illiberal democratic politics,1 the state estab-
lishes constitutional order in the economic field, but not in the political arena, which is meant
to ‘protect market order from political interference’. This is defined by Jayasuriya (2001, 11)
as ‘economic constitutionalism’.
From this point of view, a contemporary dual state like Singapore cannot be considered
to have the rule of law. Institutions like the World Bank and Transparency International might
have ranked Singapore highly in the rule of law and governance, yet such a rating is largely
based on a formalist definition (see Thio 2002), in relation to Peerenboom’s (2004) categori-
sation of thin (formal) and thick (substantive) rule of law. As highlighted by Rajah (2012, 41),
‘facets of thick rule of law generate problematic uncertainties in the realm of thin rule of law
in a manner that undermines even Peerenboom’s core and basic elements for thin rule of
law’. Moreover, the self-claim made by Singapore that it is a state with a highly functioning
legal system is ‘inextricably ideological’ in the sense that ‘the law pertaining to foreign
investment, trade and the economy is in par with Western liberal democracy while law
pertaining to civil and political rights is repressive’ (Rajah 2012, 42).
Yet the dual state is not the only model of illiberal legalism that can generate economic
development. The varieties of illiberal legalism are a result of the historical balance of power
among different social interests. Unlike in Singapore and Hong Kong, economic growth in
other authoritarian countries like China and Viet Nam as well as some African states is under-
pinned by a predominantly illiberal economy.2 In Indonesia, as in other postcolonial countries
under illiberal democracy such as the Philippines, and India, the illiberal politico-legal system
that goes hand in hand with the rent-seeking economy is conducive to growth. Here, illiberal
legalism not only legitimises the illiberal political order but also constitutes the non-market
economy, largely based on rent-seeking. Political corruption is pervasive because access to
state power is essential to capitalist accumulation. Hence, establishing a formal legal order
and the protection of civil and political rights as a foundation of liberal legalism have not
always been required for economic development.
This explains why legal reform projects in many ‘developing countries’ have largely
failed, although the presence of the rule of law has become a condition for gaining
development assistance for many decades (see Tamanaha 2011; Jayasuriya 2012). Legal
institutions that replicate a Western model might have been successfully transplanted,
but the way they work in practice does not follow the logic of Weberian formal rationality.
As Jayasuriya (1999, 2) states, the legal order in such a capitalist context ‘can serve to
entrench and consolidate public or state power’ that is ‘contrary to what is assumed in
the liberal paradigm’.

Literature gap
Using the political economy approach as explained above, this paper attempts to fill the
gaps in the existing literature that utilise institutional and legal pluralism perspectives.
Institutionalist scholars (see Tamanaha 2011; Peerenboom 2004; Dick 2007) emphasise the
role of rules and institutions, suggesting that legal reform can be considered partially accom-
plished as long as the relevant legal frameworks have been successfully established. The
remaining problems are related to the way the laws are implemented and the capacity of
the legal stakeholders to implement the laws, meaning that the establishment of rule of law
6 A. M. MUDHOFFIR AND R. Q. A’YUN

is also a matter of time. Tamanaha (2011, 245), for example, stated that ‘establishing the rule
of law is a long-term project which no one knows how to accomplish’.
Yet defining the absence of rule of law as a problem of time assumes the existence of a
cultural gap produced by the new legal system introduced inorganically from an external
source. Hence, from the institutionalist perspective, the rational legal order can work effec-
tively once society is able to adapt to the new legal system and when the capacity of legal
stakeholders has been developed in a way that is in line with the logic of the rule of law. We
can see this logic from the many legal development assistance programmes that focus not
only on transplanting the rule of law but also on strengthening the capacity of the agents
in judicial, legislative and government institutions as well as in civil society (Interview with
the director of a foreign donor agency in Indonesia, January 2, 2020).
However, this technocratic logic fails to consider the aspect of power by assuming that
the work of institutions exists separately from political dynamics. As such, the failure of legal
reform in many postcolonial countries is not simply a problem of lacking coordination and
the ineffective implementation of the transplanted laws, as argued from an institutional
perspective (see Dick 2007; Peerenboom 2004; Tamanaha 2011). Rather, continuing legal
reform, which employs the Weberian logic of institutional transplantation and ignores
entrenched illiberal politics, may simply reinforce the instrumentalisation of laws for political
ends. Although efforts to strengthen the capacities of institutions and agents have been
undertaken for a prolonged period, with the aim of duplicating Western countries’ experi-
ences, the results have remained unsatisfactory in many cases. Put simply, implementing
law reforms to produce a legal framework similar to the Western model is not a matter of
providing countries with sufficient time.
The institutionalist approach also assumes the law is an impersonal, autonomous insti-
tution that can, by and large, impose and regulate social behaviour, instead of an arena
where various social forces compete for control over institutions to serve certain interests.
Dick (2007) identifies the problems of politics in relation to systemic corruption in explaining
the reasons that law reform fails; however, the way he explains these political problems is
tautological. According to Dick (2007, 42–43), the success of legal reform ‘cannot be expected
in situations where corruption is endemic to the state itself’ because it is a political process,
‘which is itself corrupted by money politics and therefore may not deliver virtuous outcomes’.
For him, corruption is part of a transitional problem, ‘the price to be paid’ during the period
of regime change (Dick 2007, 48). Moreover, as the ‘collapse of an autocratic regime does
not itself destroy its vested interests’, he further suggests that the key to reform is politics
and not the law (Dick 2007, 53–54). Yet, as the way to overcome such political problems,
Dick (2007, 62) proposes another version of ‘anti-politics’ – to reform legal systems by focus-
sing on constitutional change and strengthening the capacity of ‘in-country legal expertise’.
Dick (2007) also explicitly presents a cultural explanation when he refers to the distinct
‘legal culture’ of Indonesian society in explaining the limitations of legal reform. According
to Lindsey (2001, 1), ‘culture is often simply the excuse given by proponents of law reform’
to explain the failure of attempts to transplant the Western legal order in target countries.
However, the cultural view and the institutional perspective often intersect because they
share the same underlying assumptions in defining the factors that constitute legalism and
their relation to politics.
First, the two similarly advocate liberal legalism as the ultimate form for legal systems
that countries in the Global South should establish by following the same trajectory as the
 Third World Quarterly 7

Global North. Although they emphasise different aspects in explaining the failure of legal
reform, both suggest that economic development must be increased to successfully achieve
the Western model of the rule of law. Second, both perspectives isolate politics from other
social institutions in understanding how the legal order works. They define the law as an
autonomous institution instead of as an arena where conflicting social interests help shape
the way legal institutions work. In neglecting political dynamics, these approaches have
instead problematised either the aspect of culture or that of institutional capacity in analys-
ing the reasons that the Western rule of law has failed to operate in certain countries. More
importantly, both perspectives disregard the nature of capitalism in explaining the workings
of legal orders and the way it relates to broader relationships of power.
Interestingly, despite many criticisms that institutionalists embrace an ethnocentric,
almost orientalist cultural view, recent academic debates and donor practices have returned
to cultural arguments in responding to the weakness of the institutional perspective (see
Sage and Woodlock 2012; Tamanaha 2012). For example, justice sector reforms are consid-
ered to have failed because they ignore the ‘cultural characteristics’ of the target countries
where multiple non-state and customary norms exist (Sage and Woodlock 2012). Tamanaha
(2011, 212–13) asserts that this tendency has led recent studies to arrive once again ‘at the
position that culture matters’, by which these studies begin a new discourse, namely of
legal pluralism. From this perspective, legal reform fails because donor agencies often fail
to consider the plurality of legal orders that exist in the target countries (see Sage and
Woodlock 2012; Tamanaha 2012; Kyed 2011). Hence, legal reforms can only possibly be
successfully achieved if they consider the co-existence and possible hybridity of formal and
informal orders of Western and non-Western legal systems.
However, according to Kyed (2011, 6), the legal pluralism approach used by donor
agencies is ‘surrounded by ambiguity and ideological baggage’. Legal pluralism projects
attempt to preserve the positive aspects of informal orders and to erase their negative
aspects to align them with the Western legal system (Jayasuriya 2012; Kyed 2011).
Customary laws are respected to the extent they no longer contradict the Western rule of law.
To address the problems found in the practice of legal pluralism projects, Kyed (2011, 12)
proposes the concept of a ‘hybrid political order’ to advocate the idea that ‘justice and
security institutions are not only plural, but continuously overlap, influence and transform
each other’.
Although Kyed (2011) attempts to be more careful in explaining the plurality of legal
systems, the underlying assumption of her idea remains the same as the institutionalist view.
Her explanation about overlapping legal orders refers mainly to the conditions found in
developing countries, and this feature is explained as a product of the nature of the state.
The question of why certain states are characterised by the existence of plurality and ‘over-
lapping’ legal systems remains unanswered by Kyed (2011). Similar to Weberian scholars,
Kyed (2011) disregards the nature of capitalism as a key factor, which contributes to the
nature of the state and the specific forms of legal order. Understanding such features is
important in identifying the problems that hinder the success of legal reforms and the estab-
lishment of the rule of law in certain countries. Despite their differences, both institutionalists
and legal pluralists suggest that the transitional state and traditional society will be mod-
ernised, under which Western rule of law can be more accepted, following a linear path of
progression. Both isolate aspects of power under which certain features of politico-legal
systems are shaped. As explained in the next section, the case of Indonesia’s illiberal legalism
8 A. M. MUDHOFFIR AND R. Q. A’YUN

provides important insights for understanding the persistence of disorder and the limitations
of legal reform.

Lessons from Indonesia: doing business under the framework of disorder

This section analyses our research findings based on the case of Indonesia’s illiberal legalism,
which substantiate the argument that capitalists in this country have little interest in estab-
lishing a liberal legal order as they have been able to adapt to uncertainties associated with
the prevalence of the rent-seeking economy. The first part of this section discusses the
emergence of illiberal legalism in Indonesia, analysed from how the evolution of capitalism
tends to rely on access to state power, constituting the relative absence of the rule of law. It
is followed by an analysis of how illiberal legalism persists in spite of the fact that legal reform
assistance has been deployed for more than two decades in the democratic era. Evidence
presented in this section affirms the failure of the technocratic approach and the limitations
of institutionalist programmes of legal reform, as demonstrated by the case of the weakening
of KPK and the Constitutional Court as well as the issuance of the problematic Mining Law
and Job Creation Law in the time of pandemic. These cases are illustrative of contemporary
practices of how predominant business interests incline to generate rent-seeking economy
and maintain legal disorder. Put simply, the evidence demonstrates the manner in which
business actors can survive and contribute to the country’s economy despite the pervasive-
ness of unclear or uncertain legal frameworks, the multilayered bureaucracy and the relative
absence of the rule of law.

The emergence of illiberal legalism in Indonesia

In Indonesia, the establishment of an illiberal legal system can be traced back to colonial
times when a distinct type of capitalism was introduced by the Dutch colonial government
(Robison 2009). However, as in many postcolonial countries, Indonesia’s illiberal legal system
has been maintained and reproduced through the practices of capital accumulation, which
relies on the control of, and access to, state authority (Robison and Hadiz 2004). As men-
tioned, this system was made possible by the absence of a strong domestic bourgeoisie,
allowing state institutions to capture key roles in capitalist development. The 1965 massacre
that targeted Communist party members, amongst others, paved the way for the consoli-
dation of state-led capitalism under Soeharto’s authoritarian regime. During this period,
repressive measures were imposed by the state to silence its adversaries, and laws were
made and used as an instrument of state control that facilitated the accumulation process.
In addition, Soeharto rejected the notions of democracy and the rule of law, which he
viewed to be based on Western values that contradicted Indonesian culture (see Lindsey
2004; Bourchier 2015). This rejection was partly achieved by referring to the discourse of ‘Asian
values’ that promoted the idea of communalism, in contrast to Western individualism. This
conception can also be traced to the notion of the ‘integralist state’ introduced by Soepomo,
the chief author of Indonesia’s 1945 Constitution (Lindsey 2004, 285), which was inspired by
the organic theory of the state developed during Roman times (Bourchier 2015, 11).
Yet the relative absence of the rule of law in Indonesia is not merely a consequence of
the reproduction of the organicist idea of the state. As mentioned, its continued absence is
 Third World Quarterly 9

also an outcome of the practices of dominant politico-business actors that rely on disorder
and lawlessness as the means to accumulate wealth and power. The New Order state repro-
duced these practices, evidenced from two historical facts. The first was the consolidation
of state-led capitalism, at first made possible by burgeoning oil revenues, which then formed
the basis for the growth of giant conglomerates through the bestowment of monopolies,
credit and subsidies by the state (Robison 2009). The second was the destruction of the left
since 1965 and the restriction of political opposition that might challenge private accumu-
lation of power and capital (McGregor, Melvin, and Pohlman 2018). Following the weakening
of organised opposition from different political streams, aspirations to enforce law in order
to equitably distribute wealth and bring justice as well as create liberal politics were marginal.
Instead, legal institutions were deployed to silence opposition, including pre-existing ones
like the Anti-Subversion Law No. 11/PNPS/1963, and to legitimise the concentration of private
capital, as observed in investment laws.
Within this context, the state assumed the leading role in concentrating private property.
When the new bourgeoisie – as represented by the aforementioned conglomerates – were
on the rise in the 1980s, their methods of capital accumulation continued to rely on patron-
age relationships involving the centralised state, making the rent-seeking economy more
pervasive (see Khan and Sundaram 2000). Because the emergence of private business con-
glomerates was facilitated by the state, patronage relationships continued to be important
in capital accumulation. As a result, politico-economic interests continue to be fused.
Therefore, the rule of law was not considered an important prerequisite by the dominant
forces for capital accumulation.
The fusion of political–economic power and the relative absence of organised political
opposition helped to shape the predominant rent-seeking economy that works within a
framework of disorder and an illiberal legal system. Attempts by liberal technocrats sup-
ported by international development agencies to create a market economy that relies on a
liberal politico-legal order have not succeeded. For example, at the beginning of the New
Order, a new Foreign Investment Law (No. 1/1967), which attempted to steer the economy
towards market capitalism as a response to the 1965 crisis, was obstructed by Soeharto’s
own attempt to consolidate state capitalism in continuation of Soekarno’s nationalist eco-
nomic policies. Many state-owned enterprises controlled major economic sectors, including
energy, banking, infrastructure, agriculture, transport and trade (see Robison 2009). After
the global oil boom in the 1970s, the state’s control of the energy sector, especially through
the state-owned enterprise Pertamina, provided petrodollars as the main resource to con-
solidate Soeharto’s centralised power and to establish a patronage relationship with the
military and his business cronies. This practice dismantled attempts to establish liberal polit-
ical and economic practices.
When international oil prices fell in the 1980s, state capitalism might have ended as
neoliberal economic policies were introduced by the World Bank and the Inter-Governmental
Group on Indonesia, but the rent-seeking economy survived as did illiberal legalism. Market
reform introduced by international development agencies transformed Indonesia’s indus-
trialisation policy from being based on import substitution to being export-oriented. Yet
this new policy provided more economic opportunities to emerging domestic private busi-
nesses, predominantly owned by ethnic Chinese-Indonesians. Since Chinese-Indonesians
have been continuously discriminated against as second-class citizens from colonial times
and experience hindrances in participating in the political arena, state facilities directed
10 A. M. MUDHOFFIR AND R. Q. A’YUN

primarily at their business community were meant to maintain patronage relationships for
the purposes of capital accumulation (Robison and Hadiz 2004). Hence, when the state could
no longer retain a monopoly over major economic sectors owing to various financial and
trade deregulations, Chinese descent conglomerates, as the predominant private sector
organisations, took the leading role in the economy. However, because their businesses
continued to rely on access to state authority, the privatisation of economic sectors, which
was meant to create a foundation for a free market, could not dismantle the rent-seeking
economy. Privatisation only changed the mode of resource extraction from public monopoly
to private monopoly, constituting a complex fusion of politico-business interests that Hadiz
and Robison (2013) define as an ‘oligarchic relationship’.
As explained in the following section, the continued existence of patronage relationships
despite the democratisation of politics in the market age not only maintains the rent-seeking
economy but also reinforces informality, illiberal legalism and various forms of legal disorder
as a conducive environment for business activities. In turn, attempts to create a market
economy, in part by establishing a liberal politico-legal system, have always been challenged
by entrenched oligarchic interests. This explains why legal reforms have been met with little
success in Indonesia.

Indonesia’s illiberal legalism in the age of markets: evidence from two cases
This section analyses empirical findings of how key business actors endure under the frame-
work of disorder, perpetuating a rent-seeking economy that marginalises liberal market
interests in Indonesia. The market reforms introduced by the International Monetary Fund
after the 1997 monetary crisis, including through the establishment of a liberal politico-legal
system as a condition of its development assistance, have largely failed in dismantling the
predominant politico-business interests that rely on access to state authority in accumu-
lating private capital. This failure can be attributed to the way market reform and broader
politico-legal changes rely on institutionalist assumptions that lack engagement with the
problems of politics (Interview with the director of a foreign donor agency in Indonesia,
January 2, 2020). As a result, predominant vested interests have largely not been challenged
by these institutional reforms as was experienced previously during the authoritarian order.
In the post-authoritarian context, some liberal politico-legal institutions have been suc-
cessfully established, including the once powerful KPK and the Constitutional Court, but
because these institutions are not insulated from the rent-seeking environment, predom-
inant vested interests can easily influence their functioning. The weakening of Indonesia’s
KPK followed by the destruction of the Constitutional Court’s impartiality illustrate this
tendency. The way the current government under Jokowi marginalises human rights and
law reform agendas in favour of his economic development programmes has further led
the country towards deepening illiberalism (see McGregor and Setiawan 2019),3 which also
contributes to reproducing illiberal legalism. As mentioned, the revised Mining Law and
Job Creation Law – which mainly aim to ease the issuance of business permits by removing
liberal aspects of the regulatory framework – provide more evidence of how illiberal legal-
ism is preserved. Putting all these empirical cases together reveals a broader pattern of
illiberal legalism and the framework of disorder that limit attempts to reform legal
institutions.
 Third World Quarterly 11

Case 1: the weakening of the KPK

The weakening of the KPK is evidence of how legal institutions, as a fundamental element
of the rule of law, have been obstructed by the framework of disorder. This agency, once
the most trusted public institution according to many surveys, represents the embodiment
of the anti-corruption agenda to limit the corrupt use of power. However, although the KPK
was equipped with extraordinary authority to investigate corruption cases, this institution
is not insulated from vested interests. Since its establishment, this agency has been subject
to constant attacks from corrupt politicians, police officers and other anti-democratic forces.
This indicates how these actors rely heavily on the corrupt environment to thrive, constitut-
ing Indonesia’s illiberal legalism.
The Jokowi administration might claim that bureaucracy and illegal levies remain the
main obstructions to investment, but such rhetoric is deployed to obscure the fact that major
business actors that dominate the economy have not been irked by bureaucratic problems
and the acute corruption. For politico-business actors, a complicated and labyrinthine
bureaucracy may instead create greater opportunities for resource plundering. This can be
observed from the paradoxical way in which the government attempts to create a conducive
business environment, but conversely reinforces illiberal legal measures.
For example, Jokowi stated that there were 42,000 regulations in 2017 that hindered the
country from being able to adapt to global changes (CNN Indonesia, October 24, 2017). He
again emphasised this concern in his first speech after being re-elected in 2019, asserting
that ‘complicated permit processes, especially illegal levies’ and acute corruption are some
things that must be addressed for investment as ‘the key to creating more jobs’ (The Jakarta
Post, July 19, 2019). In stating that he would overcome these perceived obstructions, he even
used harsh language: ‘Be careful […] I will chase, I will control, I will check and I will beat up
[everything that obstructs investment] if necessary!’ (The Jakarta Post, July 19, 2019). However,
not long after the speech, the government crippled the KPK.
The weakening of the KPK has been undertaken in two notable ways. The first step was
the appointment of selection panel members – who would nominate the new commissioners –
from among figures who have close ties to the corrupt police institution. According to KPK
Law No. 30/2002, the executive has the authority to discard unsuitable candidates. However,
Jokowi did not exercise this right despite extensive public criticism. As a result, most com-
missioners selected by the parliament have a negative reputation regarding corruption erad-
ication. Indeed, the most problematic candidate, Firli Bahuri, an active police general who
has been accused of committing gross ethics violations when previously serving with the
KPK, was chosen to lead the agency. The second way in which the government contributed
to dismantling the KPK was by smoothing the way for the legislature to revise the KPK Law,
to remove the agency’s authority and independence (Butt 2019). This revision was proposed
in the parliament by the major political parties that are part of the government coalition,
which controls more than 50% of seats. Our interviews confirm that Jokowi indeed proactively
contributed to both selecting Firli and revising the KPK law. Retired General Moeldoko, the
Presidential Chief of Staff, even stated that ‘the KPK can hamper investment’ and that the new
KPK Law would increase the legal certainty that investors require (The Jakarta Post, September
24, 2019). Unsurprisingly, student demonstrations’ demands asking Jokowi to issue govern-
ment regulation in lieu of the law (Peraturan Pemerintah Pengganti Undang-Undang, Perppu)
to revoke the KPK Law was ignored, although five protestors have died.
12 A. M. MUDHOFFIR AND R. Q. A’YUN

The move towards restricting the KPK’s independence represents a rejection by politi-
co-business interests of the powerful anti-corruption body. One complaint about the KPK
was their authority to intercept corruption suspects, which led to the arrest of many top
politicians and government officials. Under the new law enacted in September 2019, the
KPK lost its exclusive power to investigate cases; now, the KPK must first obtain permission
from a supervisory board. To illustrate: attempts to search for evidence at the office of the
ruling Indonesian Democratic Party of Struggle (Partai Demokrasi Indonesia Perjuangan, PDIP)
pertaining to an alleged graft case that incriminated the commissioner of the Election
Commission, Wahyu Setiawan, were delayed for a week until the KPK received the supervisory
board’s permit (The Jakarta Post, January 27, 2020). The 2019 KPK Law also gives new author-
ity to issue an investigation-termination warrant (surat perintah penghentian penyidikan, SP3)
within two years. This authority was used to terminate a major corruption scandal pertaining
to the disbursement of the Bank Indonesia Liquidity Support (Bantuan Likuiditas Bank
Indonesia, BLBI) funds, which allegedly implicated a fugitive tycoon, Sjamsul Nursalim, and
his wife. This case – which involved a state financial loss of about Rp 4.58 trillion – happened
during the era of President Megawati Sukarnoputri (2002–2004). The new KPK Law that
instructs the agency to change an employee’s status to that of civil servant has also been
used to dismiss 51 employees, including key investigators of important corruption cases
that implicate many high-profile figures.
Businesspersons expressed their satisfaction with the new KPK Law even before it was
implemented. For example, a key figure in one of the most influential employers’ associations
stated that the ‘KPK had absolute power, […] and was like a demigod’ (Interview, January
13, 2020). He further admitted that in some cases the KPK ‘has become an obstruction for
businesses’ (Interview, January 13, 2020). Another important national businessman who was
also a top official in Jokowi’s cabinet said that the KPK had made bureaucrats afraid of making
fast decisions, which businesses need to be able to do. For him, KPK had too much power
and ‘made the government officials afraid of making [discretionary] decisions’ (Interview,
January 15, 2020). Rosan Roeslani, chairman of the Indonesian Chamber of Commerce and
Industry (KADIN), also stated that the new KPK law creates a better environment for invest-
ment and economic growth (CNN Indonesia, September 19, 2019). This is because corruption
is part of the way businesses work in Indonesia. A tycoon of Chinese descent who was a
close associate of the authoritarian President Soeharto said that business actors have to pay
many illegal costs ‘to the government officials, including mass organisations to secure [their]
businesses; [and] the preman [gangster] also extorts [them]’ (Interview, January 8, 2020). He
also admitted that this is a common practice in the business world.
This means that Jokowi’s concern about the multilayered bureaucratic system and illegal
levies, in practice, are rarely problems for business actors both domestically and internation-
ally. Foreign investors from Western countries might be more committed to the rule of law
when they do business in Indonesia, although this is likely because they are legally bound
by anti-bribery laws in their countries of origin (Interview with a representative of a foreign
chamber of commerce in Indonesia, January 16, 2020; see also Cuervo-Cazurra 2006).
However, in many cases, foreign investors even from Western countries also participate in
the rent-seeking economy, mostly by using their local partners or third parties (Interview,
January 16, 2020; Interview, January 8, 2020). According to an influential national business
player, ‘we can always adapt to this situation [dominated by disorder], […] although it will
make business cost higher’ (Interview, January 13, 2020). This higher business cost caused
 Third World Quarterly 13

by the rent-seeking economy, in turn, increases commodity prices, which is passed on to

consumers. At the same time, it makes Indonesia’s commodity products less competitive in
the global market. Considering this situation, Indonesian business actors tend to focus on
the domestic market instead of expanding their businesses to other countries (see Robison
and Hadiz 2017). To maintain their position in the domestic market, they require the state
to protect their interests, especially from the threat of foreign investors, which leads to
reproducing rent-seeking behaviour and limiting the space available for the free-market
economy.

Case 2: the issuance of the Job Creation Law and other contentious regulations
The issuance of contentious legislation, like the Job Creation Law and the Mining Law of
2020, that facilitates resource plundering also illustrates the dominance of rent-seeking
interests within Indonesia’s illiberal legalism. The Jokowi administration claims that the Job
Creation Law is intended to create a market economy by increasing the ease of doing busi-
ness in Indonesia, especially by simplifying bureaucratic procedures to obtain business per-
mits and by regulating labour, in order to attract increased investment. In fact, since Jokowi
assumed power in 2014, the number of regulations related to business permits continues
to multiply. About 8945 business-related regulations were introduced from 2014 to 2018
(Argama 2019). Not long after the Job Creation Law was promulgated in November 2020,
the government also introduced 49 implementing regulations to make this new law appli-
cable. This shows, paradoxically, that efforts to simplify bureaucracy and processes for obtain-
ing business permits continue to be confined to rhetoric. Moreover, under the Job Creation
Law, some important components of conducting business – such as obtaining building
permits (izin mendirikan bangunan, IMB) and undertaking environmental impact assessments
(analisis mengenai dampak lingkungan, Amdal) – will be removed or made flexible to accom-
modate investors’ interests. The government might claim that IMB and Amdal have become
a source of corruption due to their complicated bureaucratic procedures. However, twisting
these two instruments – that basically aim to ensure public control and accountability so
that business activities do not negatively affect the environment and so prevent greater
risks – will indeed contradict market economy principles of transparency and accountability.
The government argues that they will substitute Amdal with another instrument called
a detailed spatial plan (Rencana Dasar Tata Ruang, RDTR) to speed up the issuance of business
licences. This proposed instrument has become the responsibility of the local government
to produce, and so far, only 50 out of 514 regencies/municipalities in Indonesia have issued
RDTRs (Bisnis.com, May 9, 2019). To address the lack of RDTRs, the Job Creation Law also
proposes to centralise the authority for issuing business permits, including producing RDTRs.
This plan contains two things that contradict market economy interests. First, transferring
the responsibility to produce environmental impact assessments from private corporations
to local government will remove most of the responsibilities of business actors with regards
to environmental issues. This new mechanism also does not guarantee the removal of cor-
ruption in producing business permits. Second, the recentralisation of authority could inten-
sify rent-seeking activities at the national bureaucratic level. Such recentralisation would
also weaken public control in issuing business licences.
Furthermore, the Job Creation Law also stipulates that gratification is part of taxable
income, which indicates an attempt to legalise rent-seeking practices. Other problematic
14 A. M. MUDHOFFIR AND R. Q. A’YUN

provisions delegate the establishment of a Sovereign Wealth Funds (SWF)-like institution

called the Investment Management Institute (Lembaga Pengelola Investasi, LPI) that has the
authority to coordinate and control the flow of investment derived from the state budget
but with little accountability. State finance used by the LPI becomes the institution’s assets,
which is not subject to audit by the Supreme Audit Agency (Badan Pemeriksa Keuangan,
BPK). As such, any financial loss made by the LPI are not considered state financial loss, as
one element of corruption offences.
The process through which this law was produced was also not transparent to the public,
as in the case of KPK law. The Job Creation Bill task force members were even asked to sign
a statement not to disclose any information or documents to the public (Interview with an
economist, January 14, 2020; Tempo, January 26, 2020). Such a law-making process disre-
gards aspects of transparency and participation, and therefore also contradicts the interests
of the market economy. The draft could only be accessed by the public after it was delib-
erated in the the House of Representatives (Dewan Perwakilan Rakyat, DPR) in February
2020. However, after the bill was passed in a rush by DPR on 5 October 2020 by exploiting
the COVID-19 pandemic, which limits mass protests, there was no certainty as to which
version of the draft was final. There were at least five versions of the so-called ‘final draft’
that kept changing substantially, until Jokowi signed the 1187-page bill on 2 November 2020.
In addition, as discussed, the multilayered bureaucracy and acute corruption are not
the main problems for business activities because businesses have shown an ability to
adapt to circumstances. The main problems for them are laws and regulations regarding
taxes and labour. A survey by the Japan External Trade Organisation (Yamashiro 2020) also
found that increased labour cost is the main issue that poses risks to the investment envi-
ronment in Indonesia. Unsurprisingly, members of the Job Creation Bill task force are
overwhelmingly businesspeople, headed by the chairman of the KADIN, and none of the
labour unions are involved in the drafting of this law. Thus, the proposed omnibus law
might indicate interests to advocate for market reform as claimed by the government, but
this interest is obstructed by a dominant rent-seeking economy that relies on an illiberal
legal system.
A few months before the issuance of the Job Creation Law, the revised Mining Law that
was rejected by the 2019 student protests was also passed during the pandemic that
restricted mass gatherings, showing how transparency and public participation were ignored
in the enactment of another highly contentious law. The revision stipulates an automatic
renewal of mining permits for 20 years without it being necessary to restore any abandoned
sites. This certainly benefits at least seven major mining companies linked to top government
officials, and large national conglomerates whose contracts are due to end between 2020
and 2025 (Mongabay, May 13, 2020). Among these companies is PT Arutmin Indonesia – a
subsidiary of PT Bumi Resources Tbk (BUMI), majority-owned by the Bakrie Group led by
Aburizal Bakrie, an Indonesian tycoon turned politician – whose permit expired on 1
November 2020. PT Adaro Indonesia – a subsidiary of PT Adaro Energy Tbk, whose chief
executive officer and top shareholder is Garibaldi Thohir, the brother of Erick Thohir, State-
Owned Enterprises Minister and Jokowi’s campaign chief in the 2019 presidential election
– is another company that benefitted from this Mining Law, as its mining permit will end in
2022. Another crucial issue is that this law ‘gives bigger concessions […] with fewer environ-
mental obligations’, which facilitates rent-seeking interests similar to the Job Creation Law
(Mongabay, May 13, 2020).
 Third World Quarterly 15

More importantly, while the Job Creation Law and the revised Mining Law facilitate wide-
scale resource plundering, and the revised KPK Law makes rent-seeking practices almost
invulnerable to attempts to eradicate corruption, the new Constitutional Court Law blocks
attempts to revise or revoke problematic laws, maintaining illiberal legal order. The revised
Constitutional Court Law, which was only deliberated for seven days amid the COVID-19
pandemic, removes an article that obliges the government and DPR to follow up on court
decisions. This new law also gives privileges to the sitting judges as they will continue to
hold their positions for 15 years or until they reach 70 years of age, 10 years longer than
previously. With this new regulation, all problematic laws mentioned above are likely to
remain unchallenged at least until the last year of Jokowi’s second term in 2024. Previously,
in January 2020, Jokowi asked the Constitutional Court to support the Job Creation Law.
Later, on 13 November 2020, Jokowi also awarded the civilian honours Bintang Mahaputera
to six of nine Constitutional Court judges, a move designed to ensure the court will serve
the ruling elites’ interests and maintain forms of disorder.

Conclusion
The article has emphasised that the relative absence of the rule of law does not necessarily
obstruct economic development in all countries, as Weberian scholars would suggest. Why
is this the case? Addressing this question is important for understanding the persistence of
illiberal legalism and the failure of legal reforms in Indonesia.
By applying a critical political economy perspective as our research framework, we suggest
that certain features of legalism are a product of distinctive forms of relationships between
economic forces and the state. The absence of the rule of law that goes hand in hand with
economic development signifies a form of illiberal legalism. This legalism appears in a par-
ticular type of capitalism, characterised by the prominent use of extra-economic means,
including disorder and lawlessness, in accumulating power and resources. When access to,
and control of, state authority remain essential for capitalist accumulation, not only will
various forms of disorder be reproduced but the instrumentalisation of legal institutions for
power will also continue.
Simply put, the ability of dominant politico-business actors to adapt to the framework
of disorder and various forms of legal ambiguity helps to explain the continued absence of
the rule of law and the persistence of illiberal legalism. This adaptability also confirms that
the presence of a rational legal order, as defined in Weberian terms, has not always been
required to create an environment conducive to capitalist accumulation. Under such cir-
cumstances, attempts to establish the rule of law in Indonesia, as in many other postcolonial
countries, have met with little success.
Based on our research, we found that various forms of disorder have been used as an
instrument to facilitate the accumulation of power and wealth by predominant actors instead
of being an obstacle, thus ensuring the pervasiveness of a rent-seeking economy. This is
observable in the case of the government’s dismantling of an Indonesian anti-graft body
and Constitutional Court, which was tied to political concern about creating a conducive
business environment. Further, the government’s attempts to remove or simplify instruments
of public control and accountability for business activities in the new Job Creation Law and
the revised Mining Law confirm that illiberal legalism has indeed reinforced or created busi-
ness opportunities, at least for predominantly inward-looking domestic businesses. These
16 A. M. MUDHOFFIR AND R. Q. A’YUN

empirical cases, taken together, substantiate our argument about the persistence of
Indonesia’s illiberal legalism, where the relative absence of rule of law goes hand in hand
with economic development. They also affirm how the framework of disorder limits the rule
of law in Indonesia.
Such evidence challenges arguments presented from the institutional perspective and
the legal pluralism approach in understanding the relative absence of the rule of law in
Indonesia. This means that the limited success of legal reforms is not simply caused by weak
legal enforcement capacity or because rational legal systems have not yet been fully estab-
lished, as argued by many donor agencies. Even when assistance to bring about the rule of
law continues to be deployed over long periods of time, without addressing issues of power
that reproduce illiberal legalism, the result will remain the same. Similarly, arguments pre-
sented from the legal pluralism paradigm tend to isolate problems of power and thus suffer
from the same shortcomings. This perspective points to the plurality of legal systems as the
key aspect that makes a rational legal order unenforceable. In other words, such an expla-
nation focuses on the society responsible for maintaining legal informality, paying less atten-
tion to complex politico-business relationships that make possible the formulation and
implementation of the legal system in a way that disregards the public interest in favour of
private capitalist accumulation.

Acknowledgements
We thank Professor Vedi Hadiz for his valuable feedback on an earlier version of this article.

Funding
Research for this article was made possible through the 2017 Australia Awards Hadi Soesastro
Prize received by the first author.

Notes on contributors
Abdil Mughis Mudhoffir is Assistant Professor in the Department of Sociology, State University of
Jakarta, and an Honorary Fellow at the Asia Institute, the University of Melbourne. He is the author of
State of Disorder: Privatised Violence and the State in Indonesia (Palgrave Macmillan, 2021). His latest
book chapter, entitled ‘Islamic Populism and Indonesia’s Illiberal Democracy’, was published by ISEAS
in 2020. His research interests include the political economy of Indonesia, illiberal democracy, priva-
tised violence, Islamist politics and capitalist development.
Rafiqa Qurrata A’yun is Assistant Professor in the Faculty of Law, Universitas Indonesia, and a PhD
candidate in the Asian Law Centre (ALC) and Centre for Indonesian Law, Islam and Society (CILIS) at
Melbourne Law School, the University of Melbourne. She is the recipient of the 2021 Australia Awards
Hadi Soesastro Prize for her PhD research on the operation of blasphemy laws in democratic Indonesia.
Her research interests include Indonesian law and law in relation to politics, religion and society.

Notes
1. For example, in contemporary Hungary and Poland (see Rupnik 2016; Drinóczi and Bień-
Kacała 2019).
 Third World Quarterly 17

2. In Viet Nam, according to Nguyen (2020, 200), the prevalence of ‘illegal practices’ indicates ‘the
failure and limits of state law as a means of governing a transforming society’.
3. The Jokowi administration has used and extensively politicised many legal instruments such as
the Information and Electronic Transaction (ITE) Law, Mass Organisation Law and Blasphemy
Law to silence and restrict their adversaries and mobilise political support during electoral
competitions.

ORCID
Abdil Mughis Mudhoffir https://orcid.org/0000-0002-3045-5327
Rafiqa Qurrata A’yun https://orcid.org/0000-0003-2844-9697

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