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The 2008–2009 financial crisis demands we look anew at the role of corporations, and the working of financial markets around the world. In this challenging and insightful book, one of our most eminent economists provides a compelling new analysis of the corporate firm; the role of shareholders, managers and workers; and institutional governance structures.

In recent decades the firm has predominantly been seen as an organization run and governed in the interests of shareholders, where management acts as the agent of shareholders, and the workers simply as instruments for share-value maximization. This book reverses this viewpoint. It sees corporations as associational cognitive systems where "cognitive actions" are distributed amongst managers and workers, with shareholders supplying "cognitive tools" and monitoring their use in the systems. Aoki analyses the different relationships that can exist between shareholders, managers, and workers from this perspective, and identifies a range of different models of organizational architecture and associated governance structures. He also discusses ways in which corporations act as players in social, political, and organizational games, as well as global economic games; how these inter-related social dynamics may change particular, distinctive national structures into the diversity incorporated in the global corporate landscape; and how they now call for new roles for financial markets.


"Masahiko Aoki uses the social mathematics of game theory to reveal the deep structure of corporate governance systems, in the process explaining the persistence of diversity under conditions of globalization. His profound and highly original analysis speaks directly to the issue of corporate governance reform in the aftermath of the financial crisis of 2008–9."
-Simon Deakin, Professor of Law, University of Cambridge

"The recent wave of fraud, corruption, and fiscal irresponsibility at the highest corporate levels dramatizes the need for a model of the modern corporation that is at the same time deeply economic in the recognition of the centrality of incentives, and deeply sociological in the recognition of the centrality of social norms and a culture of corporate morality. Professor Aoki has combined his magisterial knowledge of business organization with a foundational study of the role of culture in epistemic game theory to produce, for the first time, a truly transdisciplinary model of the corporation."
-Herbert Gintis, Santa Fe Institute

"This is a path breaking book that provides a rigorous analysis of the cognitive underpinnings of corporations. It gives fundamental insights into the diversity of organizational forms that exist and the association of these with the historical, political, social, and technological contexts within which they operate. As with so much of Professor Aoki's work, it will radically alter the way in which we view the corporation."
-Colin Mayer, Peter Moores, Dean, Saïd Business School, University of Oxford

"A pioneering contribution which formalizes in game theoretic language complex institutional structure and environment of the corporation both at a moment of time and over time."
-Douglass C. North, Nobel Laureate in Economics 1993, Spencer; T. Olin Professor in Arts and Sciences, Washington University in St. Louis

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The Southeast Asia Forum experienced an embarrassment of riches in 2009-2010.  In no previous academic year had the Forum enjoyed the intellectual company of so many first-rate scholars working on Southeast Asia at Stanford.  They were six in all—Marshall Clark (Australia), James Hoesterey (US), Juliet Pietsch (Australia), Thitinan Pongsudhirak (Thailand), Sudarno Sumarto (Indonesia), and Christian von Luebke (Germany)—three for the full academic year and three for two months apiece.  All six visitors shared their findings and thoughts on Southeast Asia in talks hosted by SEAF.  Not least among the pleasures of having them at Stanford was a Spring 2010 seminar in which they read each other’s work in progress and shared ideas as to how it might be improved.  These conversations gave specific, heuristic, and collegial meaning to the abstract notion of “a community of scholars.”

Here are brief updates on all six as of the end of June 2010:  

Marshall Clark

A lecturer in Indonesian studies at Deakin University in Australia, Dr. Clark came to Stanford on sabbatical to spend two months at Stanford in Spring 2010 writing up and sharing his research findings with US-based colleagues.  Publications associated with his stay at APARC include two books, Maskulinitas:  Culture, Gender and Politics in Indonesia (Monash University Press, 2010) and Indonesia-Malaysia Relations:  Media Politics and Regionalism (co-authored with Juliet Pietsch and forthcoming in 2011), and two articles, “The Ramayana in Southeast Asia: Fostering Regionalism or the State?” in Ramayana in Focus, and (with Dr. Pietsch) “Generational Change:  Regional Security and Australian Engagement with Asia,” The Pacific Review  During his time with SEAF he presented papers at venues including the Association for Asian Studies convention in Philadelphia in March 2010.  In April at the University of California-Berkeley at the Islam Today Film Festival he moderated a discussion of the ins and outs of making movies in Indonesia and Malaysia. (2010).

He returns to his position on the faculty of Deakin University.

James Hoesterey

Dr. Hoesterey was awarded the Walter H. Shorenstein Fellowship to spend the academic year at APARC working on several projects, including revising his University of Wisconsin-Madison doctoral dissertation into a book.  Based on anthropological research in Indonesia on media-savvy Muslim preachers, Sufi Gurus and Celebrity Scandal:  Islamic Piety on the Public Stage should be under review in 2010 for possible publication in 2011.  Also in the pipeline are an essay, “Shaming the State: Pop Preachers and the Politics of Pornography in Indonesia,” to appear in a volume he is co-editing with political scientist Michael Buehler, and chapters in Muslim Cosmopolitanisms and Digital Subjectivities:  Anthropology in the Age of Mass Media.  During his fellowship he spoke to audiences at several US universities.  In March 2010 he was elected incoming chair of the Indonesian and East-Timor Studies Committee of the Association for Asian Studies.

In Fall 2010 the BBC-Discovery Channel series “Human Planet” will feature Dr. Hoesterey’s work as a cultural consultant with documentary-film makers in West Papua.  He will spend AY 2010-11 in Illinois as the Andrew W. Mellon Postdoctoral Fellow in Islamic Studies at Lake Forest College.  

Juliet Pietsch

Dr. Pietsch is a senior lecturer in the School of Politics and International Relations at the Australian National University.  During her two-month sabbatical at Stanford in Spring 2010 she worked on two books:  Indonesia-Malaysia Relations: Media, Politics and Regionalism (with Dr. Clark) and (with two other co-authors) Dimensions of Australian Society (3rd ed., Palgrave Macmillan, 2010).  In April, jointly with Dr. Clark, she spoke at the Berkeley APEC Study Center on “Indonesia-Malaysia Relations and Southeast Asian Regional Identity.”

Dr. Pietsch returns to her faculty position at the Australian National University.

Thitinan Pongsudhirak

Dr. Pongsudhirak is an associate professor in the Department of International Relations in the Faculty of Political Science at Chulalongkorn University, whose Institute of Security and International Studies he also heads.  He was selected to spend a month at Stanford in Spring 2010 as an FSI-Humanities Center international scholar, and was supported for a second month by FSI’s Center on Democracy, Development, and the Rule of Law.  During his time on campus he focused on the turbulent politics of Thailand—in an article drafted for the Journal of Democracy, in a number of shorter pieces, in lectures at various venues, and in interviews with media around the world.  (For a filmed interview on 4 June 2010, see http://absolutelybangkok.com/thitinan-on-continuity-change/.)

Dr. Pongsudhirak will briefly rejoin some of his Stanford colleagues at a conference on Asian regionalism to be hosted by APARC in Kyoto in September 2010.  Meanwhile he continues his scholarship and teaching at Chulalongkorn.

Sudarno Sumarto

An Indonesian economist specializing on poverty reduction, Dr. Sumarto spent AY 2009-2010 at APARC as an Asia Foundation fellow writing up research, lecturing on and off campus, and advising Indonesian officials on anti-poverty policy.  Notable among the publications resulting from his residence at Stanford is a book, Poverty and Social Protection in Indonesia (Singapore / Jakarta:  ISEAS / Smeru Institute, May 2010), which he co-edited and most of whose chapters he co-wrote.  Noteworthy, too, is a co-authored essay, “Targeting Social Protection Programs:  The Experience of Indonesia,” in Deficits and Trajectories: Rethinking Social Protection as Development Policy in the Asia Region (forthcoming, 2010).  Indonesia-related subjects of writing in progress include lessons from the cash transfer program, how such transfers have affected political participation, and the impacts of violent conflict on economic growth.  During his stay at Stanford, Dr. Sumarto was chosen to co-convene the September 2010 Indonesia Update conference in Canberra on “Employment, Living Standards, and Poverty in Contemporary Indonesia” and to co-edit the resulting book. 

Dr. Sumarto returns to Jakarta to become a senior research fellow at the Smeru Institute, which he co-founded and directed, and to continue his work on poverty alleviation in Indonesia.

Christian von Luebke

Former Shorenstein fellow Dr. von Luebke completed the first year of a two-year German Research Foundation fellowship at Stanford writing a book on democracy and governance in Southeast Asia.  Before the end of 2010, Gauging Governance:  The Mesopolitics of Democratic Change in Indonesia should be in the pipeline toward publication.  Other relevant work includes “Politics of Reform:  Political Scandals, Elite Resistance, and Presidential Leadership in Indonesia,” Journal of Current Southeast Asian Affairs (2010), and a co-authored piece on current economics and politics in the Bulletin of Indonesian Economic Studies (2010).  Pending revision and resubmission is an article on the political economy of investment climates in Indonesia.  In the course of the year he spoke on his research before audiences in North America, Europe, and Southeast Asia, and co-organized a panel on Southeast Asian politics to be held at the annual conference of Oxford Analytica in the UK in September 2010.

Dr. von Luebke’s plans for AY 2010-11 at Stanford include research and writing on Indonesia and the Philippines and teaching a course on Southeast Asian politics

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How does a corrupt government stop corruption? What if that government is democratic, and must cultivate the support of political parties that are themselves corrupt? Is fostering reform in such a political economy the equivalent of trying to make snow in hell?

These questions may be overstated, but the dilemmas they convey are all too real. Witness the storm of concern triggered by the recent resignation of the highest-profile reformist in Indonesia, Sri Mulyani Indrawati, from her linchpin job as minister of finance in a country that was ranked the most corrupt and the most democratic in Southeast Asia in 2009.

Sri Mulyani waged unremitting war on graft. Under her stewardship of the finance ministry, more than 150 of its personnel were dishonorably discharged. Nearly 2,000 more were otherwise punished for infractions. She led a vigorous campaign against tax cheats. Among them were rich and influential people who had grown accustomed to absconding with funds they owed the government.

Euromoney named her ‘finance minister of the year’ in 2006—a post she had only taken up the year before. In 2008 and again in 2009 Forbes magazine admiringly listed her among ‘the 100 most powerful women in the world.’ Correspondingly, on the heels of her resignation on 5 May 2010, Indonesian stocks and rupiahs fell.

Indonesian president Susilo Bambang Yudhoyono (SBY) was directly elected to that office in 2004 and, for a second five-year term, in 2009. As president he has opposed corruption and championed reform. Fatefully, however, in 2004 he chose a wealthy businessman, Aburizal Bakrie, to join his government as coordinating minister for the economy.

In 2006 in East Java, a Bakrie-controlled company using an unprotected drill while probing for gas may have triggered a mud volcano that would swallow more than a dozen villages and render more than 15,000 people homeless. In 2010 the volcano continued to spew an estimated 100,000 tons of mud daily onto the surface. Bakrie’s reputation for probity was not enhanced when, reportedly against Mulyani’s advice, he insisted on denying responsibility for the disaster. Instead he blamed an undersea earthquake that had struck off the south coast of Java, some 250 kilometers away, two days before the mud erupted. Opinions remain divided as to what caused what.

An unambiguously man-made crisis in 2008, the global financial meltdown, shrank the Jakarta stock market, Bakrie’s holdings included. Trading on the exchange was temporarily suspended. Bakrie urged his fellow cabinet member Mulyani to extend the suspension. She refused. He was furious. Her relations with him worsened further when she slapped travel bans on certain Bakrie company executives accused of tax evasion.

In 2009 Bakrie became chair of the Golkar Party. Toward the end of that year he led a fierce campaign in the Indonesian legislature against both Mulyani and another nonpartisan technocrat, Indonesian vice-president Boediono, for malfeasance related to the government’s decision in 2008 to rescue an ailing financial institution, Bank Century. The bailout may have prevented a spiral of withdrawals, and thus helped Indonesia weather the global crisis, but the effort cost far more than expected, and some of the infusions apparently benefited key depositors more than the bank itself.

Legitimate financial questions were soon superseded, however, by a thoroughly political effort on the part of politicians and their supporters opposed to Mulyani and her reforms to oust not only her but the vice-president as well. Mulyani’s and Boediono’s opponents included, in addition to Bakrie, others whose circumstancial links to corruption she had uncovered.

An anti-Mulyani case in point is the Justice and Welfare Party (PKS). Despite priding itself on upholding Islamic ethics and opposing corruption, the PKS rejected allegations that one of its legislators, Muhammad Misbakhun, could have been implicated in a fictitious Bank Century letter of credit for US $22.5 million. When, at the end of April 2010, Misbakhun was arrested and detained on a warrant signed by the national police official in charge of economic and tax crimes, PKS leaders accused the police of having an ulterior motive. The party had by then, in effect, joined the anti-Mulyani chorus.

Subjected to intense and prolonged criticism by these politicians in the glare of the media, Mulyani had ample reason to quit the spotlight, resign, and leave Indonesia. (On 1 June 2010 she will become a managing director of the World Bank in Washington DC.) But her long record of nonpartisan tenacity in the struggle against corruption makes it hard to believe that she simply lost her will to fight. For the time being it is impossible to rule out that she was sacrificed for the sake of a restoration of political comity between SBY and his opponents.

The irony is that Golkar and the PKS had joined with SBY’s Democrat Party to form a ruling coalition, to which they continue to belong. SBY had built that coalition with the expectation that its members, having joined the government, would support it, including its campaign against corruption.

That inclusive or ‘rainbow’ strategy was a triple failure. First, cabinet posts that might have been held by competent and ethical nonpartisans motivated by a desire for public service were allocated instead to partisans whose skills and motives, shall we say, varied. Governance suffered. Second, coalition-party leaders who were given ministerial posts in return for ensuring broad legislative backing for the government in the legislature either would not or could not deliver that support. Cooptation failed. Third, some ruling-team politicians, who might have at least stood back from the fray, instead jumped in, seemingly hoping to blunt the government’s efforts to diminish corruption and improve governance while protecting themselves and furthering their own careers. Discipline frayed.

Mulyani has resigned. Has Bakrie won?

In a recent conversation, an off-the-record analyst anticipated ‘more stability, which, in Indonesia, correlates inversely with reform.’ He could be wrong. But it may not be coincidental that on 6 May 2010, one day after Mulyani announced her resignation, SBY met with ruling-coalition leaders. Or that the meeting launched a Coalition Parties Forum whose daily activities will be led by none other than the chair of the Golkar Party, Aburizal Bakrie. Or that Bakrie reported that SBY had agreed that the Forum would not try to bind the coalition to a common position. Or that, again according to Bakrie, whereas previously the coalition parties were only asked to help safeguard the government’s policies, henceforth they would be asked to help determine them as well. Much will depend on Mulyani’s replacement as minister of finance, and on whether he or she is told to stop rocking the boat.

If Mulyani’s remarkable legacy is indeed erased, illiberal circles in Singapore may think, ‘We thought so. Democracy does thwart reform.’ But my own judgment in hindsight will be less sweeping.

Indonesia’s Democrat Party is still basically an extension of the appealing personality of SBY. Over the six years since he was first elected president, more time, energy, and resources could have been invested in deepening the roots and popularity of the party itself. Had those assets been so spent, the Democrats might have been able, in the legislative elections of 2009, to enlarge their contingent of lawmakers enough to be able to rule, not by the dubious grace of Sri Mulyani’s antagonists, but in SBY’s and his party’s own right—subject to democracy’s checks and balances, yes, but freed of the need to cobble together a coalitional rainbow of colors that clash.

Donald K. Emmerson heads the Southeast Asia Forum at Stanford University and is also the editor of Hard Choices: Security, Democracy, and Regionalism in Southeast Asia. (Stanford/ISEAS, 2008/9)

A heartening number of analysts helpfully commented on an earlier draft of this essay.  While protecting their privacy by not naming them, I am grateful to them.  Complementing my focus here on the politics of Sri Mulyani’s exit is the economic context ably reviewed by Arianto A. Patunru and Christian von Luebke in their ‘Survey of Recent Developments’ in the Bulletin of Indonesian Economic Studies, 46: 1 (2010, 7-31.)

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Viewed from the realist perspective of mainstream international political economy, economic and elite-based political integration are the keys to building a region; “soft” or “normative” questions of identity can be ignored.  Contesting that view, Dr. Pietsch will argue that research on regionalism, especially in Southeast Asia, could benefit from a focus on the nature and role of national and regional identity in that process. Compared with the growing body of scholarship on European identity as a means of understanding “Europeanization,” regional identity in Southeast Asia is still underexplored. Addressing this gap is important especially in relation to issues of democratization such as human rights, migrant labor, access to citizenship, environmental sustainability, gender equality, and corruption. These questions necessarily invoke national cultural and political values and their implications for regional identity.

Drawing on relevant theories, Dr Pietsch will use AsiaBarometer data to examine public opinion on democratization, national identity, and regional cooperation in Southeast Asia. Her preliminary findings underscore the need to broaden scholarship on regionalism in Southeast Asia to encompass both cultural and political manifestations of identity. In addition, she will show how identity helps explain why ASEAN-style regionalism is often thought by analysts to have succeeded in economic and security terms but to have failed in the consciousness of Southeast Asians themselves.

Dr. Juliet Pietsch is a senior lecturer in political science in the Australian National University’s School of Politics and International Relations. She studies broad patterns of social and political behaviour in Australia and East Asia. Recent publications include Dimensions of Australian Society (co-authored, 2010), and "Generational Change: Regional Security and Australian Engagement with Asia," The Pacific Review (co-authored, 2010).

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Donald K. Emmerson is a professor at Stanford University, where he heads the Southeast Asia Forum in the Shorenstein Asia-Pacific Research Center in the Freeman Spogli Institute for International Studies and is affiliated with the Abbasi Program in Islamic Studies and the Center on Democracy, Development, and the Rule of Law. 

Prior to joining Stanford’s faculty, Emmerson taught political science at the University of Wisconsin-Madison and spent time as a visiting scholar at the Australian National University (Canberra), the Institute of Advanced Studies (Princeton), and the Woodrow Wilson International Center for Scholars (Washington, DC), among other institutions.  He received his Yale University PhD in political science following a Princeton University BA in international affairs.

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At Stanford, in addition to his work for the Southeast Asia Program and his affiliations with CDDRL and the Abbasi Program in Islamic Studies, Donald Emmerson has taught courses on Southeast Asia in East Asian Studies, International Policy Studies, and Political Science. He is active as an analyst of current policy issues involving Asia. In 2010 the National Bureau of Asian Research and the Woodrow Wilson International Center for Scholars awarded him a two-year Research Associateship given to “top scholars from across the United States” who “have successfully bridged the gap between the academy and policy.”

Emmerson’s research interests include Southeast Asia-China-US relations, the South China Sea, and the future of ASEAN. His publications, authored or edited, span more than a dozen books and monographs and some 200 articles, chapters, and shorter pieces.  Recent writings include The Deer and the Dragon: Southeast Asia and China in the 21st Century (ed., 2020); “‘No Sole Control’ in the South China Sea,” in Asia Policy  (2019); ASEAN @ 50, Southeast Asia @ Risk: What Should Be Done? (ed., 2018); “Singapore and Goliath?,” in Journal of Democracy (2018); “Mapping ASEAN’s Futures,” in Contemporary Southeast Asia (2017); and “ASEAN Between China and America: Is It Time to Try Horsing the Cow?,” in Trans-Regional and –National Studies of Southeast Asia (2017).

Earlier work includes “Sunnylands or Rancho Mirage? ASEAN and the South China Sea,” in YaleGlobal (2016); “The Spectrum of Comparisons: A Discussion,” in Pacific Affairs (2014); “Facts, Minds, and Formats: Scholarship and Political Change in Indonesia” in Indonesian Studies: The State of the Field (2013); “Is Indonesia Rising? It Depends” in Indonesia Rising (2012); “Southeast Asia: Minding the Gap between Democracy and Governance,” in Journal of Democracy (April 2012); “The Problem and Promise of Focality in World Affairs,” in Strategic Review (August 2011); An American Place at an Asian Table? Regionalism and Its Reasons (2011); Asian Regionalism and US Policy: The Case for Creative Adaptation (2010); “The Useful Diversity of ‘Islamism’” and “Islamism: Pros, Cons, and Contexts” in Islamism: Conflicting Perspectives on Political Islam (2009); “Crisis and Consensus: America and ASEAN in a New Global Context” in Refreshing U.S.-Thai Relations (2009); and Hard Choices: Security, Democracy, and Regionalism in Southeast Asia (edited, 2008).

Prior to moving to Stanford in 1999, Emmerson was a professor of political science at the University of Wisconsin-Madison, where he won a campus-wide teaching award. That same year he helped monitor voting in Indonesia and East Timor for the National Democratic Institute and the Carter Center. In the course of his career, he has taken part in numerous policy-related working groups focused on topics related to Southeast Asia; has testified before House and Senate committees on Asian affairs; and been a regular at gatherings such as the Asia Pacific Roundtable (Kuala Lumpur), the Bali Democracy Forum (Nusa Dua), and the Shangri-La Dialogue (Singapore). Places where he has held various visiting fellowships, including the Institute for Advanced Study and the Woodrow Wilson International Center for Scholars. 



Emmerson has a Ph.D. in political science from Yale and a BA in international affairs from Princeton. He is fluent in Indonesian, was fluent in French, and has lectured and written in both languages. He has lesser competence in Dutch, Javanese, and Russian. A former slam poet in English, he enjoys the spoken word and reads occasionally under a nom de plume with the Not Yet Dead Poets Society in Redwood City, CA. He and his wife Carolyn met in high school in Lebanon. They have two children. He was born in Tokyo, the son of U.S. Foreign Service Officer John K. Emmerson, who wrote the Japanese Thread among other books.

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Prominent Indonesian Muslim intellectual Nurcholish Madjid once declared “Islam Yes; Islamic political party No!” Voters in contemporary Indonesia seem to agree with this basic sentiment. Despite the recent Islamic revival that has dramatically increased public expressions of piety, Islamic political parties have failed to gain any significant electoral traction in Indonesia. In fact, between the 2004 and 2009 national elections, support for Islamic parties actually decreased from 38 percent to approximately 28 percent. Yet during those same five years, the Islamic political parties that failed to win at the ballot box mobilized enough political and popular support to pass one of Indonesia’s most divisive pieces of legislation—the Anti-Pornography Law. These seemingly contradictory elements of Indonesian politics provide starkly different impressions of Islam’s political role. Does a weak showing in the country’s electoral politics indicate the imminent demise of Islam in Indonesian politics? Or does the politically adept maneuvering of Islamists—who seek political power through legislation about bodily discipline—foretell gloomy days ahead?

Explanations for this paradox depend largely on where we look for “the political.” Political scientist Greg Fealy has described Islam in Indonesia as a mosaic. If we spend too much time focusing our gaze on one single area, he observes, we lose sight of other patterns elsewhere in the mosaic. To understand political Islam by ballot box alone is to miss the cultural undercurrents that have direct bearing on Islam and politics in Indonesia.

The anti-pornography bill was not only a political battle waged inside the parliament building; it was also a media drama that played out in the newspapers, televisions, and on the Internet. Human rights and women’s advocacy groups vehemently protested an early version of the bill, which stipulated that women would be prevented from leaving their homes during certain evening hours. From a different vantage point, the mostly Hindu island province of Bali threatened to secede, arguing that the article prohibiting “revealing” clothing in public would wreak havoc on the island’s tourism industry, still sluggish after devastating bomb attacks in 2002 and 2005. Whereas many non-Muslims worried about the “Islamization” of Indonesia, proponents of the bill lamented the “degradation of national morality.”

Popular Muslim television preachers were among the bill’s most vocal supporters. Eager to parlay their celebrity appeal into political clout, TV preachers Ustad Jefri Al-Buchori and Arifin Ilham helped to lead the so-called Million Muslim March to rally public support for the anti-pornography bill. Celebrity preacher and self-help guru Abdullah Gymnastiar led a sophisticated multimedia campaign to promote the bill through television, radio, the Internet, text messages, and public rallies. All of these popular preachers, in step with the political strategy of the Indonesian Council of Ulamas, invoked the religio-political language of moral crisis in an attempt to control the terms of political debate. Unable to win an election, Islamic groups flexed their moral muscle in the public sphere. From the pulpit of his Sunday afternoon television program, Gymnastiar characterized those against the bill as “having no shame” before God or country. Nearly every single political party, anxious not to appear “un-Islamic,” voted to support the anti-pornography legislation.

The political participation of a new generation of media-savvy religious leaders reveals a sentiment quite different from Nurcholish Madjid’s liberal aspirations. As one proponent of the Anti-Pornography Law put it, “Islamic political party No; Political Islam Yes!” Whereas utopian visions of the international caliphate may not resonate with Indonesian voters, it appears that political Islam—as played out on the public stage—is alive and well. What remains to be seen, however, is whether those who engage in the politics of piety also have the moral courage to champion Indonesia’s more pressing issues of poverty and corruption.

 

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Shorenstein APARC Dispatches are regular bulletins designed exclusively for our friends and supporters. Written by center faculty and scholars, Shorenstein APARC Dispatches deliver timely, succinct analysis on current events and trends in Asia, often discussing their potential implications for business.

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Thitinan Pongsudhirak was selected in a campus-wide competition to spend two months--March and April 2010--at Stanford as an FSI-Humanities Center International Visitor. He is a Professor of International Political Economy in the Faculty of Political Science at Chulalongkorn University. Stanford units facilitating or co-sponsoring his stay at Stanford include the Southeast Asia Forum (SEAF), the Center for East Asian Studies (CEAS), and the Center on Democracy, Development, and the Rule of Law (CDDRL).
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The relationship between economic concentration and governance remains controversial. While some studies find that high economic concentration strengthens collective action and reform cooperation, others stress dangers of rent-seeking and state capture. In this paper I argue that effects are neither strictly positive nor negative: they are best described as an inverted-u-shaped relationship, where better governance performance emerges with moderate economic concentration. Decentralization reforms in Indonesia and the Philippines – unprecedented in scope and scale – provide a unique opportunity to test this hypothesis. Subnational case studies and cross-sections, from both countries, indicate that moderately concentrated polities are accompanied by better service and lower corruption. The presence of ‘contested oligarchies’ – small circles of multi-sectoral interest groups – creates a situation where economic elites are strong enough to influence policymakers and, at the same time, diverse enough to keep each other in check. The results of this paper suggest that contested oligarchies compensate for weakly-developed societal and juridical forces and can become a stepping stone to good governance.

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In 2005 the Indonesian government announced a program of unconditional cash transfers to its poor and near-poor citizens to help them overcome the adverse effects of fuel price hikes caused by a massive reduction in subsidies.  The program—the largest of its kind in the world, covering some 19 million households—was reintroduced in 2008 following another round of fuel subsidy cuts.

How successful was this effort to help poor Indonesians weather these economic shocks?  Did the transfers alleviate suffering to the desired extent?  Did their unconditional character ensure quick action and wide coverage?  Or did it foster dependence on public welfare and depress incentives to work?  Were deserving recipients chosen?  Or did corruption and conflict distort the process?  Are there lessons in Indonesia’s experience applicable to other developing countries?  Dr. Sudarno will mobilize quantitative and qualitative evidence to address these questions.

Sudarno Sumarto co-founded The SMERU Research Institute and served as its director for nearly ten years.  Under his leadership, SMERU played a vanguard role in helping to reduce poverty in Indonesia through careful empirical research on behalf of improved public policy.  His more than fifty publications include studies of economic growth, poverty and unemployment reduction, and the performance of primary-school pupils, among other topics, in the Journal of Development Economics (2009), Beyond Food Production (2007), and SMERU’s own working paper series, among other venues.  He has also been active as an advisor to the Indonesian government on poverty issues and as a lecturer at the Bogor Institute of Agriculture.

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Sudarno Sumarto is the Shorenstein APARC / Asia Foundation fellow for 2009-10.  He has a PhD and an MA from Vanderbilt University and a BS from Satya Wacana Christian University (Salatiga), all in economics.  Prior to joining Shorenstein APARC he was the director of SMERU for nearly 10 years. SMERU is an independent institution for research and public policy studies which professionally and proactively provides accurate and timely information, as well as objective analysis on various socioeconomic and poverty issues considered most urgent and relevant for the people of Indonesia. The institute has been at the forefront of the research effort to highlight the impact of government programs and policies, and has actively published and reported its research findings. The work expanded to include other areas of applied and economic research that are of fundamental importance to contemporary development issues. He was also a lecturer at Bogor Institute of Agriculture (IPB), Bogor, Indonesia.

Sumarto has contributed to more than sixty co-authored articles, chapters, reports, and working papers, including "Agricultural Growth and Poverty Reduction in Indonesia," in Beyond Food Production (2007); "Reducing Unemployment in Indonesia," SMERU Working Paper, 2007; "Improving Student Performance in Public Primary Schools in Developing Countries:  Evidence from Indonesia," Education Economics, December 2006; and “The Effects of Location and Sectoral Components of Economic Growth on Poverty: Evidence from Indonesia.” Journal of Development Economics, 89(1), pp. 109-117, May 2009.  As well as conducting research and writing papers, Sumarto has worked closely with the Indonesian government, giving advice on poverty issues and government poverty alleviation programs.

Sumarto has spoken on poverty and development issues in Australia, Chile, Peru, China, Egypt, Ethiopia, France, Japan, Morocco, Thailand, and the United Kingdom, among other countries.

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